Association of Government Accountants’ Annual CFO Survey   JuLy 2008


Executive summary
In 2008, 239 federal financial management executives                              effectiveness—mi...

                                                       Table of contents
About the Association of                   ...

About the survey
The Association of Government Accountants (AGA),            Most survey respondents are from federa...

Road to transformation
Reviewing the results of the 2008 CFO Survey, one                     For this to happen, the...

financial accounting and reporting for federal
entities like departments, agencies and certain           Seventy-two...

                        government decision making. From their per-          Internal controls need broader

Financial reporting with a government-wide focus: the U.S. vs. the Canadian model

The Government of Canada’s top-do...

    Positive opinions on A-123
                                                           improper payments. As a re...

Table 1:
Executives’ rating of internal control effort integration within their entities
(1 = strongly disagree, 4 =...

     more likely to add value to operations. Says an        central to an entity’s mission. Controls focus on

have worked under CRs in the past three years.         30 days or so.” In addition, CRs can cause
About one in five...

                   •	 Better guidance and clearer rules from               Tactical actions. Here are ideas for man...

The other branch is to reduce work by con-
solidating requirements and the activities they                     “If ...

     Cost/benefit analysis and targeted compliance.         Consolidating compliance activities can
     Some execu...

  Top risks
  Respondents to the in-person interview of executives                                        2008 surv...

                        •	 Many executives say their people are over-          Accounting Agency’s Leaders in Motio...

rethinking how people work and investing in            Reducing non-value-added work. Another
new technology, but s...

                        Some CFOs report success in reducing workload        Finally, many CFOs say that they do no...

one, “CFOs entering from the private sector will        CFO should be able to “. . . have difficult con-
be shocked...

     Systems                                               •	 Have fewer systems than there are now.
     Survey re...

Looking forward
How can the government enhance financial                                    Cost, budget and perfor...

                     the top of those that they want continued over   to use SSPs, one option for central, standard...

What to avoid                                        all niche issues like premium class travel. The
“Enough alread...
Financial Management
Financial Management
Financial Management
Financial Management
Financial Management
Financial Management
Financial Management
Financial Management
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Financial Management

  1. 1. Association of Government Accountants’ Annual CFO Survey JuLy 2008 Financial Management Providing a Foundation for Transition
  2. 2. 1 Executive summary In 2008, 239 federal financial management executives effectiveness—mission success is more important than getting the financial numbers right. and managers took part in the 12th annual chief financial officer (CFO) survey sponsored by the Association of Consolidation and integration Consolidating and integrating the many finance- Government Accountants (AGA) and conducted by Grant and controls-related mandates placed on federal Thornton LLP. Survey respondents are proud of the entities by Congress and OMB could reduce the work of complying with them. On their financial management and internal control successes of own, entities can combine compliance activities the past 7 years. However, they say that the government to save time and money. This will also help to must head in a new direction to achieve even greater integrate controls on processes that cut across organizational boundaries. One way to achieve gains. Future improvements need to focus on how the such integration is for CFOs to become their CFO can add value to missions and programs, not just entities’ chief accountability officers, responsible comply with regulations. for risk management, tracking return on invest- ment and providing support to programs. Financial reporting Future CFOs Most survey respondents agree that the way the Federal Government In the future, the quintessential federal CFO prepares, presents and audits annual financial statements is broken. Only will have a relationship of mutual trust with 5 percent of citizens are satisfied with the federal financial information they departmental and agency leaders and be skilled receive, according to another 2008 AGA survey. Designed for industry, the in developing and retaining an effective financial current financial reporting model costs too much and delivers little useful team. Such CFOs will understand the federal information to government decision makers. Needed are new models budget process, have accounting acumen, know that are more transparent to citizens, relevant to decision makers and the business information needs of program appropriate for government. The Executive Branch can make some of the managers and be skilled in selling a budget to changes required for such models. Also, federal entities can reduce the cost OMB and Congress, internal control to program and improve the quality of the current model or other models by using a managers and the benefits of integrated financial risk management approach. and performance information to everyone. Accounting and auditing standards Most executive respondents think the approach used by federal auditors for All signs point toward a bleak fiscal future for financial reports adds value to government management. Nonetheless, half the Federal Government. Massive deficits and the called for changing federal accounting standards and 60 percent for new costs of overseas conflicts mean fewer resources for audit standards. They want the standards to be more relevant to the busi- programs and some tough budget decisions. If CFOs ness, goals and purpose of government. In essence, the standards should stay on the present path of financial management, guide reporting on performance in areas that matter to program managers they will be of little use in making those decisions. and citizens, not just to auditors. With the course corrections suggested by current CFOs in this report, future CFOs can provide Internal control the integrated financial and performance analysis Three out of four executives in the survey are positive about the White decision makers need. They will also be better able House Office of Management and Budget’s (OMB) December 2004 to help program managers to develop more cost- revision of Circular A-123, Management’s Responsibility for Internal effective operations. In short, future CFOs will add Control. They think that the circular has helped improve controls over more value than ever before, if they follow the right financial reporting. However, the respondents say that more must path to success. be done to improve and monitor controls on program efficiency and
  3. 3. 2 Table of contents About the Association of Executive summary 1 Government Accountants The Association of Government Accountants About the survey 3 (AGA), founded in 1950, is the educational Road to transformation 4 organization dedicated to the enhancement of public financial management. The AGA serves Financial reporting: more than a seal of approval 4 the professional interests of state, local and Internal controls need broader focus and integration 6 federal financial managers who are responsible for effectively using billions of dollars and other Continuing resolutions: a challenge to CFOs 10 monetary resources every day. The association Compliance overload 12 has more than 14,000 members, including profes- sionals in accounting, administration, auditing, Top risks 15 budgeting, consulting, grants, fraud investiga- Human capital 15 tion and information technology. The AGA has been instrumental in developing accounting Leadership 18 and auditing standards and in generating new Systems 20 concepts for the effective organization and admin- istration of financial management functions. The Looking forward 21 association conducts independent research and What to continue 21 analysis of all aspects of government financial management. These studies, including the 2008 What to avoid 23 AGA CFO Survey, make AGA a leading advocate Financial statements and audits: a closer look 24 for improving the quality and effectiveness of government fiscal administration and program Working with auditors 25 performance and accountability. For more informa- Changing accounting and auditing standards 26 tion, please visit our Web site at Conclusion 28 About Grant Thornton Grant Thornton LLP, founded in Chicago in 1924, is the U.S. member firm of Grant Thornton International (, one of the six global accounting, tax and business advisory organizations. In over 500 offices in over 100 countries, including 50 offices in the United States, the partners of Grant Thornton member firms provide personalized attention and the highest-quality service to public and private clients around the globe. Grant Thornton’s Global Public Sector, based in Alexandria, Va., is a global management consulting business with the mission of providing responsive and innovative financial, performance management and systems solutions to governments and international orga- nizations. Visit Grant Thornton’s Global Public Sector at
  4. 4. 3 About the survey The Association of Government Accountants (AGA), Most survey respondents are from federal civilian in partnership with Grant Thornton, has sponsored agencies and departments. The purpose of the surveys is to identify emerging issues in financial an annual federal chief financial officer (CFO) survey management and provide a vehicle for practitio- since 1996. Earlier AGA surveys focused on issues ners to share their views and experiences with such as governance structure, human capital, financial colleagues and policy makers. This is one of the ways in which AGA maintains its leadership in systems, performance measurement, internal control governmental financial management issues. and compliance. For the 2008 survey, we focus on Anonymity policy issues important to the continued success of In order to preserve anonymity and encourage financial transformation in government. These issues respondents to speak freely, AGA’s annual sur- include financial reporting, internal control, continuing veys of the CFO community do not attribute thoughts and quotations to individual financial resolutions, compliance requirements, human capital, executives who were interviewed. systems, and accounting and audit standards. Survey methodology With AGA guidance, Grant Thornton developed online and in-person interview survey instru- ments that included closed- and open-ended questions. Grant Thornton used these question- naires to interview 239 federal executives and managers involved in federal financial manage- ment in 70 departments, departmental agencies and independent entities and commissions. There were 121 in-person interviewees and 118 online respondents.1 They included CFOs, deputy CFOs and other entity financial executives, along with some senior managers. In addition, leaders from the U.S. Office of Management and Budget (OMB), the Government Accountability Office (GAO), congressional committees and the Inspectors General (IG) community participated in the survey. 1 An additional 85 state and local government and 17 non- government professionals responded to the online survey, but were not included in this report.
  5. 5. 4 Road to transformation Reviewing the results of the 2008 CFO Survey, one For this to happen, the Federal Government senses a higher readiness for change than in previous must choose the right route to transforming financial management into a valuable tool for years. On the positive side, the financial executives decision making and program improvement. In and managers in the 2008 survey feel they have this section, we use the metaphor of a fork in the accomplished much in the last 7 years. Certainly, road to financial management’s future to discuss choices for financial reporting, internal control, the Federal Government keeps better books, and continuing resolutions and compliance. its financial information is more accurate than ever Financial reporting: more than a before. Now, the federal financial community is ready seal of approval to go to the next level of accomplishment. CFOs and Financial reporting is the first fork in the road other executives in our survey want evolutionary toward transformation, because many survey respondents think that it consumes time and rather than revolutionary change—but they want resources disproportionate to its value for deci- changes to start now. sion making. One branch of the road leads to more precise, accurate and timely financial On the negative side, many of our survey statements modeled on those used by the private respondents question the value of much of the sector, with an unqualified auditor opinion as a work that they must do, especially in meeting seal of approval. The other branch heads toward compliance mandates. This sentiment is par- maximizing the usefulness of financial reports, ticularly acute among those who believe that the which is where the majority of the finan- government faces a bleak fiscal future because of cial executives we interviewed in 2008 its huge deficits. There are hard decisions about want to go. budgets ahead, say these respondents, and they want the financial community Background to help make the right choices The Chief Financial Officers Act of 1990, about programs, defense as amended by the Government and services to citizens. Management Reform Act of 1994, mandated better
  6. 6. 5 financial accounting and reporting for federal entities like departments, agencies and certain Seventy-two percent of citizens say it is important to receive funds. OMB Circular No. A-136, Financial federal financial information, but only 5 percent are satisfied Reporting Requirements, sets forth the form and with what they get. content of the financial statements in the reports. —Association of Government Accountants/ Harris Interactive® The annual report also includes an independent poll, January 2008. auditor’s opinion of the reliability of the pro- cesses used to develop the information the state- ments present. Federal entities that are required Usefulness of financial statements by the CFO Act to have audited annual financial Unfortunately, few people actually read federal statements combine them with reports on pro- financial statements, much less use them for gram and mission performance; the combined making decisions. Referring to the good record report is called the Performance and Evaluation of clean audit opinions on these statements, an Report (PAR). For a more detailed discus- executive says, “We are getting A’s on our tests sion of technical issues on financial reports, see but not learning anything.” Most of the CFOs “Financial statements and audits: a closer look” and financial executives in our survey agree. on page 24. They think that the story of the CFO Act does not have to end with financial reporting. Instead, For 17 years, the CFO Act helped build say many, it is time to evolve federal financial federal financial management’s ability and information into a form that will be more trans- capacity. Audits have become tougher parent to citizens, relevant to decision makers year after year, but today auditors give and appropriate for government. most CFO Act entities unqualified or clean opinions on their annual Transparent means that information is clear and financial reports (19 of 24 CFO that it matters. Ninety percent of American adults Act entities received clean opinions say that, as taxpayers, they are entitled to trans- for their FY 2007 reports). parent financial management information from all levels of government, according to a January 2008 Harris Interactive® poll commissioned by the Association of Government Accountants. Seventy-two percent of the citizen surveyed say that it is important to receive federal government financial information, but only 5 percent report satisfaction with what they receive. Relevant means delivering information that is important to taxpayers, legislators, an adminis- tration’s top leaders, policy makers, executives and managers. Almost all 120 executives in our survey say that very little of the informa- tion in federal financial reports is relevant to
  7. 7. 6 government decision making. From their per- Internal controls need broader spective, financial statements add little value to focus and integration a government entity, yet preparing and auditing In the wake of major private sector scandals, in them take resources away from value-added work 2002 the Sarbanes-Oxley Act (SOX) called for the office of the CFO (OCFO) could do to help more stringent attention to controls over financial achieve an entity’s mission. reporting by corporations. OMB Circular A-123, Management’s Responsibility for Internal Control, “We are getting A’s on our tests but not learning anything.” revised December 2004 (A-123), is the Federal —An executive Government’s version of SOX. Nearly four years after the revision of A-123, the government is at another fork in the road. As with financial reports, Appropriate means that the content and form one branch leads to better control over financial of an organization’s financial reports reflect its reporting and reducing fraud, waste and abuse. purpose, structure and operations. Governments Most of the activity involved in this option takes have unique characteristics that are much dif- place within the OCFO and IG ’s office. The other ferent from those of private companies, say branch expands the scope of A-123 internal controls executives in our survey. Corporate financial from a narrow focus on financial reporting to a statements show investors the value and viability broader application to programs and processes that of a company, and the purpose of a company produce the outputs needed to meet an entity’s mis- is to make profits. The purpose of govern- sion. Most of the expanded scope’s work happens ment is not to make profits, nor is the Federal outside the OCFO and the IG’s office and is done Government going to be sold or go out of busi- by program managers. This is where A-123 can ness. Instead of value, the information taxpayers, deliver the most value for programs and operations. Congress and top leaders want is about govern- ment spending, cost-effectiveness and perfor- Figure 1: mance. Government financial statements do not Executives’ opinion of the effects of provide this information in their current private OMB Circular A-123 sector-based form. Referring to the past 17 years of the CFO 5% Act, one executive says, “Declare victory for Negative the first phase of the CFO Act and move on to the next phase.” The next chapter of the CFO Act story will be built on that victory, yet should not be about marginal improvements in 76% 19% Positive Neutral or N/A financial reporting. Instead, it must be about how CFOs identified the right audiences for financial reports and gave them relevant, useful and transparent information. In the face of mounting deficits, such information will be sorely needed.
  8. 8. 7 Financial reporting with a government-wide focus: the U.S. vs. the Canadian model The Government of Canada’s top-down approach to an annual Crown Corporations. These entities government-wide financial report has features that could submit trial balance data during and at solve problems in the bottom-up approach used by the U.S. the end of the fiscal year for the national Federal Government. financial statement process. The gov- ernment’s central auditor identifies and The Federal Government’s consolidated financial report audits material components, taking follows a closing package process that starts with funds, the audit work to the entity that sub- agencies and departments (entities) preparing individual mitted the data. An independent public financial statements and having them audited. Entity accounting firm audits the national reports fall due 45 days after fiscal year close. The Treasury report. After that, entities prepare their Department’s Financial Management Service rolls up the own financial statements. Audit materi- individual report results into the consolidated financial report, ality is determined on a government-wide which is due 30 days later. GAO audits the consolidated finan- basis, not by individual entities. cial reports and has given them disclaimer opinions for the past 11 years. Some months after delivering its opinion, GAO Canada regularly receives an unquali- issues findings and recommendations about material weak- fied audit opinion on their consolidated nesses and other issues of the consolidated report. For FY financial report. This increases trust 2007, this was about 8 months after close. in government figures. As important, Canada’s top-down national report and There are problems with this bottom-up process. First, audit enables a risk-based approach to materiality is determined on an entity basis versus on a gov- subsequent financial audits and reviews ernment-wide basis. Second, repeated disclaimer opinions do of individual entities. Entity level audi- not inspire trust in federal financial management. Third, there tors use materiality levels established is a half-year or more lag in detailed reporting of government- on a government-wide basis. wide material weaknesses, which delays addressing them. Fourth, the current process for preparing, correcting and Rather than force the Canadian model auditing financial reports is expensive, costing the govern- across the U.S. Government, an approach ment hundreds of millions of dollars a year. for 2009 could include some federal departments applying such a top-down Canada’s top-down approach gives the national annual finan- approach on their own to help main- cial report primacy over those of individual agencies and tain or obtain an unqualified opinion. Departments can have their component entities submit trial balances, so that CFOs can see what is material to the whole department, not just to some of its parts. CFO Act components will still need to have their own audited financial reports. However, focusing component-level reporting and auditing on department- wide issues is a risk-based, cost effec- tive way to obtain a clean opinion on the departmental financial report.
  9. 9. 8 Positive opinions on A-123 improper payments. As a result, we recouped When the December 2004 revision of A-123 hundreds of millions of dollars.” Although first went into affect, some federal executives they did not always have such big results, three were doubtful of it, fearing another private sector out of four executives said that the resources solution that would not fit into government they invested in complying with the internal operations. As shown in Figure 1, today three control circular were worth the return. Some out of four executives surveyed believe that their have reduced compliance costs by coordinating efforts to comply with A-123 have had a positive the assessments done for A-123’s Appendix A affect on their financial statement audit, financial (Internal Control Over Financial Reporting) operations, IT security or non-financial opera- and Appendix C (Requirements for Effective tions. They say that going through the circular’s Measurement and Remediation of Improper process has strengthened controls and made Payments), such as taking one large sample of program managers more aware of their responsi- accounts payable for work on the requirements bilities in this area. Complying with the circular of both Appendix A and Appendix C, instead of has provided many with the resources and top doing this separately. executive support to do better process docu- mentation, to correct control weaknesses and to These are excellent results so it might seem eliminate poor practices. logical to keep going down the current path of internal control. However, the results mask a Ninety percent of executives who commented on serious concern. Unless the government broadens A-123 said that their work on it has reduced the the scope and fosters integration of internal con- risk of financial waste, fraud and abuse. Reports trol activities, they may become a rote “check the one executive, “Working box” compliance items. That is what happened on A-123 helped us to A-123 before its December 2004 revision and find problems with subsequent high profile. It could happen again. Broader scope Most CFOs focus on A-123’s Appendix A. However, financial reporting is only one of three control objectives under Section 2 of the Federal Managers Financial Integrity Act of 1982 (FMFIA). The other two are effectiveness and efficiency of operations and compliance with applicable laws and regulations. Complying with FMFIA aside, sound controls on operations reduce the risk of poor performance of an entity’s mission. That is more important than getting the financial numbers right, and should receive as much or more attention as controls over financial reporting. It is also where CFOs can broaden their roles and increase the value they add to an entity.
  10. 10. 9 Table 1: Executives’ rating of internal control effort integration within their entities (1 = strongly disagree, 4 = strongly agree) Average Statement agreement rating 1. Internal control efforts are well integrated across functions such as 1.9 financial management, IT, security, human capital and operations. 2. The CFO and other CxOs (or their equivalent) work together to 2.0 integrate their internal control efforts. 3. The entity supports the integration of internal controls with an entity- 2.4 wide risk management approach. This is why some of our executives want to see gets in the way of controls for processes that Appendix A requirements reduced or at least cut across organizational boundaries. Everyone kept the same. They think that channeling has a role in internal control, and all must work resources to controls over program and entity together on it. performance and related reporting will deliver a better return on investment. “Don’t stovepipe internal controls. Integrate across Integration needed functions—A-123, FISMA, acquisition requirements, HR Ideally, an entity will integrate the work of controls. Use A-123 as the framework and add other control managing and reporting on financial, operational and compliance controls. Unfortunately, survey review requirements into a single framework with one responses to Statements 1 and 2 in Table 1 show timeline, one milestone list and one plan.” that financial executives have lukewarm opin- —An executive ions about internal control integration in their entities. In the table, a score of 1 means strong disagreement and 4 means strong agreement. Risk management “CxOs” refers to chief information officers, chief Statement 3 in Table 1 is important to the future human capital officers, chief acquisition officers of controls, because an entity-wide risk manage- and other chiefs of specific functions. ment approach leads to setting cross-cutting priorities for risk mitigation. Many entities, and According to some executives, a barrier to sometimes the whole national government, lack improving the agreement scores in Table 1 is that a sense of priority when it comes to controls. CxOs in an entity say they “own” their part of Better risk assessment and a focus on managing the control structure. This stovepipe mentality risk would make control activities less costly and
  11. 11. 10 more likely to add value to operations. Says an central to an entity’s mission. Controls focus on executive, “Understand what risk is acceptable. important risks to mission and are continually Some risk needs to be accepted in order to get monitored for their effectiveness. Such controls things done. Controls need to focus on manage- tend not to become paper exercises, but instead ment analysis and review that help understand are valued elements of sound operations. where weaknesses lie and how they can be Continuing resolutions: improved.” Also, many say that auditing controls a challenge to CFOs for the sake of a clean opinion is of little value. CFOs and their entities are hit frequently by Survey respondents would like A-123 and other continuing resolutions (CRs), which at best internal control guidelines to be more clear and distract from government operations and at precise. However, one-size-fits-all compliance worst lower effectiveness. All public servants requirements ignore that entities need to tailor would consider it a joy not to have CRs, but controls to their processes and missions. In addi- these bumps in the road are a part of their lives: tion, no new government-wide rules are needed for in the past 3 decades Congress and the Executive control compliance, but oversight entities should Branch have managed to pass all appropriations maintain the pressure to develop effective controls. bills on time only in 4 years. In summary, the future path of internal control Our survey asked financial executives their leads to integrated controls of both financial and opinions about the affects of CRs; Table 2 performance processes, particularly those that are below shows the results. Almost all interviewees Table 2: Executives’ opinions on continuing resolutions In any of the past 3 fiscal years, has your entity had to operate under a continuing resolution? No 5% Yes 95% Problems caused by continuing resolutions % Yes Delay or cutbacks in CFO initiatives 66 Cutbacks in other significant entity programs 60 Delays or cutbacks in contracting/acquisition plans 79 Other problems 40
  12. 12. 11 have worked under CRs in the past three years. 30 days or so.” In addition, CRs can cause About one in five has experienced CR-related incremental funding of contracts, which means problems that have affected some aspect of their more work for entity staff. entity’s program and mission. The reported Loss of quality. According to an executive, problems include issues of program integrity, “Once a budget is approved, everything shifts poor resource management, inability to plan, to the hurry-up and obligate mode—we lose distraction from the core business of financial the window of opportunity to provide quality management and wasteful incremental funding reviews of financial decisions because the rush to of projects and contracts. obligate doesn’t always allow it.” Program integrity. Says an executive, “CRs hurt Everyone agrees CRs are inevitable, so plan- us the most in the area of program integrity, ning for and dealing with these bills is critical. which is funded last in priority. Program integ- Most executives want OMB, the White House rity includes risk management, facility main- and Congress to accept responsibility for their tenance, etc. In CRs, people abandon looking actions related to CRs and then agree to help at return on investment and do the immediate improve the process of managing under a thing, rather than what will be important in the continuing resolution. Here are some of their long term. If we are in the process of measuring strategic and tactical suggestions for dealing something, we have to stop measuring for awhile with continuing resolutions. and then return to it, with a lot of observations and data lost in between.” Strategic actions. At a macro level, strategic improvements all require coordination between Planning. “CRs lead to poor management of the White House, OMB and Congress. These resources, as managers are forced to be reactive, strategic improvements include: rather than proactive,” says an executive. “They can’t plan ahead and start new projects. When • Thirty-day (minimum) continuing resolu- funding is received it is often too late in the year tions. There is a pretense that somehow a to fully execute.” 2-day or 2-week CR will allow enough time to work out the details to resolve an approved Distraction. “The CFO gets distracted and loses budget. In fact, the shorter-term CRs cause 3 or more months in most CRs. This causes too much anxiety on all fronts. A 30-day CR delays and cutbacks and hinders the ability of the is a reasonable timeframe. Should a budget be organization to move forward,” says an executive. approved before 30 days, the budget becomes Waste of time. “The problem with CRs is immediately effective and supersedes the con- that, after the process is started, you have to tinuing resolution. develop a spend plan that needs to be approved • Biennial budget. This means giving every by the department, then by Congress, which federal entity a 2-year appropriation. The topic can take up to 60 days,” says an executive, “All has been discussed at various levels for more this time delay for a CR that can be as short than 20 years. This can be done in ways that as 10 days. Better not to have CRs, but if we ensure that legislators have a hand in shaping do, then have CRs for an extended period of the federal budget.
  13. 13. 12 • Better guidance and clearer rules from Tactical actions. Here are ideas for managing OMB, which should provide better defini- CRs in an entity: tions and information on such things as what • Planning. CFOs need to anticipate and plan constitutes a new start for a project, rate- for CRs, make them part of the 12-month setting formulas, flexibility, best practices and planning process, assume 9 months of autho- spend guidance. rized spending, set priorities for spending and • Working capital funds/revolving funds manage employee expectations. should be created for entities that do not receive • Curbing discretionary spending. Defer significant amounts from appropriations. purchases such as training, long-term contracts and long-term obligations until later in the fiscal year and scale back on CFO initiatives. • Adjusting contracts. Change the length of Outside mandates for financial information contracts and restructure them so that they do Some laws and regulations concerning financial manage- not start during a continuing resolution. ment compliance activities: • Exceptions. Carve out or set aside funds for large systems acquisitions. Before 2000 Some survey respondents predict that FY • Chief Financial Officers Act (CFO Act) 2009 CRs will run through May 2009—a full • Government Performance and Results Act (GPRA) 8 months. Continuing resolutions may be a • Federal Financial Management Improvement Act great tool for the the Executive and Legislative (FFMIA) Branches, but are costly to taxpayers and • Federal Managers Financial Integrity Act (FMFIA) harmful to government’s missions. Finding a • Clinger-Cohen Act better way for the two branches to disagree After 2000 would benefit everyone. • Federal Information Security Management Act (FISMA) Compliance overload • Improper Payments Information Act (IPIA) An overload of compliance work saps CFO • Accountability of Tax Dollars Act (ATDA) resources from value-added activities needed to • Recovery Auditing Act (RAA) enhance entity missions, say executives. This • DHS Financial Accountability Act (DHS FAA) poses a risk both to entities and to the relevance • Federal Funding Accountability and Transparency Act of CFOs themselves. Here, government leaders (FFATA) face another fork in the road. The first branch • OMB Circular A-123, Management’s Responsibility for is similar to the choice of direction for financial Internal Control, December 2004 revision (A-123) reporting: put entities under more and stricter compliance requirements, with the aim of get- There are also Federal Accounting Standards Advisory ting rid of all risks. It is impossible to achieve Board (FASAB) and other OMB circular requirements. zero risk and often costly to try, yet governments are prone to extreme risk aversion in matters both great and small.
  14. 14. 13 The other branch is to reduce work by con- solidating requirements and the activities they “If compliance requirements are about things that are not generate and by using a more focused approach important to running an entity and they consume a lot of time, to compliance reporting and auditing. then the system is broken.” In the 2007 CFO Survey, we called attention 2 —An executive to the major drain on CFO resources caused by complying with requirements of oversight they are consumed with issues that have nothing groups and Congress. These requirements to do with managing the mission of an entity. spring from the laws and rules shown in the If compliance requirements are about things box “Outside mandates for financial informa- that are not important to running an entity and tion.” Many mandates springing from those they consume a lot of time, then the system is laws and rules are unfunded, so the cost of broken.” Another reports the effect of too much compliance falls on already strained accounting compliance work on morale: “As the amount of and finance budgets. In the 2007 CFO Survey, compliance work increases, the government loses executives estimated that they spent one-fourth one of its most attractive benefits to talented of their resources in compliance activities professionals: knowing that you are helping the needed to meet outside mandates. About half country survive and thrive. Many finance and their remaining resources went to stewardship accounting professionals think that working on and transaction processing. This left less than compliance issues to satisfy outside regulators one-fourth of a CFO’s time and resources for and oversight entities is not as meaningful as high-value activities like supporting strategic helping to achieve entity missions and the goals and program decision making. of government, so they leave their entity and In 2008, respondents gave us little reason to sometimes the Federal Government.” think that the situation had changed. Some Congress is rarely interested in the substantive reported becoming more proficient in writing issues of accounting or in financial reports, say the many reports needed to comply with outside several respondents, because those topics do not requirements, ranging from the Performance win many votes from constituents. On the other and Accountability Report, which includes hand, according to one executive, government annual financial statements and performance financial management is a handy political issue, measures, to improper payments reports required and politics something is either good or bad, by Congress. This saved some resources, but the nothing in between. As a result, many federal savings were consumed as oversight entities and financial management bills are not well thought auditors “raised the bar” on requirements. out in terms of process, effect or cost/benefit. Says an executive, “There is a sense in the federal Executives in our survey had three basic cat- community that CFOs are not relevant because egories of suggestions for reducing the risk that overwhelming compliance activities pose to 2 Scoring Financial Management & Oversight Efforts: the 2007 Association of Government Accountants Annual CFO Survey, entities and their CFO components: cost/benefit June 2007. analysis, consolidation and risk management.
  15. 15. 14 Cost/benefit analysis and targeted compliance. Consolidating compliance activities can Some executives say that Congress and OMB happen outside and inside an entity, say execu- should do more cost/benefit analyses on the tives. Outside, Congress and OMB can consoli- requirements they make of entities. As mentioned date and rationalize all or most finance-related earlier under “Financial Report,” not all enti- compliance requirements, including the content, ties have the problem that a government-wide format and due dates of their reports. This compliance requirement seeks to solve. Executives would reduce overlaps and redundancy and help frequently mentioned two examples of this: the leaders take a holistic view of finance, accounting Improper Payments Information Act (IPIA) and and performance measurement. The consoli- the Recovery Auditing Act (RAA). The Acts may dated result would be broad reform instead of be great ideas in cases where entities have signifi- piecemeal solutions. cant real or potential problems with improper Some of our respondents say they have reduced payments. Some do not, yet still have to squeeze the resources needed for compliance by consoli- out scarce resources to comply with IPIA and dating and coordinating the work of the various RAA mandates. For entities that historically have teams involved. For example, portions of the com- not had a material weakness in this area, some pliance or reporting work for FISMA, FFMIA, executives suggest biennial or triennial instead of the President’s Management Agenda, the CFO annual audits. Act, A-123 and the PAR can be consolidated in order to save resources. This requires planning, scheduling and collaboration among different parts of an entity, but the result can be more com- prehensive solutions to problems. Consolidation also reduces data calls to program managers and promotes partnership among CxOs and other executives.
  16. 16. 15 Top risks Respondents to the in-person interview of executives 2008 survey, more than twice as many execu- and the online survey of managers indicated that the tive respondents listed human capital as a risk than systems or leadership. This finding will top three risks to accomplishing their mission are not surprise anyone in a government support problems with, in order, human capital, leadership function such as financial management. For and systems. Compliance is a strong fourth issue for the past 10 years, the number of federal finance and accounting employees either has declined the executives (see Figure 2). Other issues include or held steady. At the same time, the amount of Congressional and Executive Branch politics, the need work required for many support functions has for more accountability, lack of standard operating risen, in part because of increased mandates for procedures and poor or unintegrated financial and compliance with outside rules (see box, Outside mandates for financial information, on page 12). performance measures. As a result, say respondents, they face the human capital problems described below. Figure 2: Relative importance of major risks categories by percentage • Federal hiring procedures are complex and of times mentioned in executive survey responses lengthy, say many respondents. People today are not willing to jump through as many 40 hoops or wait as long as they once were. • For several years now, top leaders have known 35 that Babyboomer retirements are causing 30 brain drains throughout the government. Says % of all mentions 25 one financial executive, “I expect to lose 65 percent of the staff in my division in the next 20 5 years, which includes Acquisition Officers, 15 Contracting Officers and Senior Accountants. 10 A lot of institutional knowledge will be lost, especially in the areas of systems.” 5 • A shortage of mid- and senior-level finance 0 and accounting professionals in the govern- Human Capital Systems Leadership Compliance ment has caused some entities to lure them Risk category away from others with promises of promo- tions, training and meaningful work. “We Human capital don’t have people in the pipeline who are To government leaders, human capital means capable of taking some of our middle- and people with the right skills and experience. Our upper-level management positions,” says an annual surveys indicate that, for the past several executive, “So it is easier to hire people from years, human capital has been the number one other bureaus.” concern of CFOs and other financial executives • Private companies and enforcement agencies in both defense and civilian entities, far more offer higher salaries to talented financial pro- so than any other issue. For example, in the fessionals than can most governments.
  17. 17. 16 • Many executives say their people are over- Accounting Agency’s Leaders in Motion program worked and eventually burn out, moving to is an example). another entity or to the private sector. An exec- Train employees in new skills. Respondents said utive says, “You can have a busy season when the AGA’s Certified Government Financial Manager everyone works more than 50 hours a week, (CGFM) program was a good investment. but it can’t last all year.” The next set of suggestions for mitigating human Some of the suggestions our respondents offered capital risk is more particular to government. for mitigating human capital risks come straight out of human resources and management Flexibility. One major category of ideas has to textbooks. They are all sound practices for any do with becoming more flexible. This includes to organization, and include the following: streamline government hiring processes, be more flexible about salaries and bonuses (including using pay banding) and make it easier to move “The easiest way to get people to work for you is to show them people around into different positions. In addi- that the work they do is relevant.” tion, some executives would like more hiring and —An executive firing authority, as is the case with their private sector counterparts. Set up succession plans and invest in them. Retirement policies. A wave of Babyboomer Succession planning is not just for executives retirements should make the government rethink and managers, though. One executive says his its retirement policies for public servants, say entity over hires for some positions where they several respondents. They think that the govern- know they will lose staff because of attrition, ment can do a better job of retaining federal so they can train new people before incumbent employees beyond their eligible retirement age employees leave. (55 years with 30 years’ federal service), such as through part-time, flexible and flexiplace work Cross-train staff so that they can work in dif- schedules. Another option is to re-hire federal ferent areas during surges. One CFO has her retirees, but in most cases current law reduces accounting staff do contract closeouts when their salaries by the amount of their pensions. necessary. “This short-term task will be part of This is no incentive for a talented retiree to the staff ’s performance rating and will build their return to an entity to work on temporary proj- skill sets,” she says, “The key is thinking outside ects, fill critical skill gaps or train new employees. of narrowly defined divisions of labor like: that’s Some entities already have the flexibility to do accounting, that’s acquisition.” this, and the Office of Personnel Management is Use intern programs to attract younger working on ways to increase the practice. employees. Offering to pay off college loans Quality of worklife. Many executives encourage might attract more graduates. telecommuting, flextime and related programs Offer rotational assignments to new pro- to make it easier for employees to balance work fessional workers (the Defense Finance and and family life. Programs like telework require
  18. 18. 17 rethinking how people work and investing in Reducing non-value-added work. Another new technology, but some executives say their executive says, “The quality of life in our entities are unwilling to do either. However, workforce is a product of our old inefficien- such programs are working in many entities, cies. We spend a lot of time doing manual according to respondents. processes that could be automated, and on compliance activities seemingly for the sake of Says an oversight entity executive, “The easiest compliance. Fixing these inefficiencies, better way to get people to work for you is to show them information technology and less non-value- that the work they do is relevant.” If people see added work would give us the opportunity to that their work is important, they are willing to go free up more staff time.” that extra mile to ensure it is done right. CFO ➔ CAO One of the titles given to the Comptroller General of the United States is “chief accountability officer,” which befits the head of the Government Accountability Office. Within a department or agency, a CAO leads a disciplined, integrated, internally consistent and enterprise-wide approach to risk, return on investment and program support. In the private sector, this is the job of the CFO, but in most federal entities no single person is responsible for all 3 major tasks. Some execu- tives in our survey say that a federal CFO is the ideal candidate for departmental or agency CAO. Financial management includes (or should include) risk management; financial professionals have the skills to calculate and track return on investment; and resources always translate into budgets and money, which are in the realm of the chief financial officer. CFO/CAO Risk Return on Program Management Investment Support
  19. 19. 18 Some CFOs report success in reducing workload Finally, many CFOs say that they do not yet by changing the structure of support services. For have a seat at the table of top executive leaders. example, centralizing accounting activities once Because of this, they lack influence in creating done in field offices to a single site has reduced and planning entity strategy and have less ability one entity’s accounting workload by 10 percent, to persuade others to recognize the importance says its CFO. and utility of sound financial information. Finally, CFOs do not have to go it alone. Says CFO leadership attributes one executive, “I don’t know how many times Respondents said that attributes of a federal I’ve been approached by CFOs who say they CFO depend on what the specific entity posi- have personnel problems, yet they haven’t tion requires and the environment. For example, discussed it with their chief human capital if an entity wants to improve its accounting and officers!” Teamwork among all CxOs should be financial systems, then a new CFO may need regular, not sporadic. strong systems skills. If an entity is highly political or undergoing major change, then its CFO’s rela- tionship to Congress is also very important. Lines of authority are less important than a relationship of trust between an organization’s CFO and chief executive. There is one exception: across the board, CFOs must have excellent relationships with their chief executives (e.g., agency chief, administrator or Leadership departmental secretary). By law, CFOs covered A search for the word “leader” in the notes of under the CFO Act report directly to their chief our interviews with executives often finds it near executives. However, such a line of authority is terms like vision, strategy, planning, communi- less important than a relationship of trust between cate, influence and change. When they com- an entity’s CFO and chief executive. This relation- mented on leadership, our executive respondents ship enables the CFO to influence decisions at the most often were looking upward toward agency top regardless of legal reporting authority. chiefs and departmental secretaries. Some com- Executives in the survey say that other attributes plain of lack of support from the very top, while a CFO should have include the following. others simply say “They just don’t understand.” Looking up to the executives in the in-person Mastery of human resources. Human capital survey, non-executive respondents to our online problems in the financial management commu- survey cited these leaders for lack of direction nity are severe, so a CFO has to be a master and decision making, and for poor planning. at finding, retaining and training the right Executives interviewed think that the tenure personnel. Most of all, the CFO must be a of some CFOs is too short for them to make team builder. much difference to their organizations. Others Understanding and experience with the federal say that some new CFOs did not understand budget process. In government, budget is king, government accounting and financial manage- so it is important for new CFOs to understand the ment when they started, and a few CFOs even government’s budget process, say respondents. Says admitted to this.
  20. 20. 19 one, “CFOs entering from the private sector will CFO should be able to “. . . have difficult con- be shocked at how many government resources versations, because the CFO brings both good are consumed fighting for basic funding, and that and bad news,” says an executive. financial information plays such a limited role in decision making.” Still, CFOs must understand If CFOs make it a priority to add value to entities’ main the connection between budgeting and finan- cial management and become skilled in selling missions, then they are more likely to be heard by top leaders. the budget to Congress and other stakeholders. Fighting for their own CFO budget will be dif- Other leaders ficult, because Congress tends to appropriate funds The deputy. We should not neglect the second for programs but not for overhead functions. most important position in the financial commu- Accounting acumen. While government CFOs nity: the deputy chief financial officer (DCFO). do not have to be certified public accountants, say Says a longtime CFO with experience in defense several executives, they need to understand the and civilian entities, “The DCFO is the CFO’s importance and use of accounting skills and infor- key player because she or he handles the opera- mation. Some respondents say that CFOs who tional issues. It is important to have a career lack this understanding tend to neglect that side of deputy in this position, someone who thoroughly their business, which suffers from their inattention. understands the organization and its issues.” Business intelligence. Program managers can Entity chiefs. If accounting, finance and metrics use good financial and performance informa- are irrelevant to Congress, then so is the CFO. tion, say survey participants. Therefore, a top This does not go unnoticed by the heads of agen- priority for CFOs is the ability to understand the cies and departments, who may be equally guilty business information needs of program managers of inattention to important issues of financial and the best way to provide this intelligence. In management. The way to deal with the problem, addition, CFOs should have an entity-wide per- according to executive respondents, is for CFOs spective because they may be working in a world to buy into and support the executive agenda of stovepipes. and get along with the top leader. If CFOs make it a priority to add value to entities’ Skills in selling. Other CFO attributes that main missions, then they are more likely executives mentioned include being a good to be heard by top leaders. networker and communicator up, down and across the hierarchy, to peer entity chiefs, CxOs, Congress and stakeholders. A large part of the government CFO job is to sell: the budget to Congress, internal control to program managers, the need for change to financial management staff and the benefits of integrated financial and performance information to everyone. Being a communicator also means the
  21. 21. 20 Systems • Have fewer systems than there are now. Survey respondents listed information tech- • Standardize information and data across gov- nology (IT) and systems as the third greatest ernment for most business activities. risk to accomplishing their mission. Important More use of shared services providers (SSP) issues included integrating financial and perfor- would help in reducing the number of systems mance information and standardizing data and and standardizing information. Several respon- systems, if not across the whole government, dents applauded the concept of OMB’s Financial then at least in different categories of service or Management Line of Business (FMLOB) within a large department. initiative, which aims at consolidating financial Several respondents pointed to the lack of management systems through shared service integrated information for financial and pro- providers. They see SSPs as a good choice when gram management as a major risk. This includes deciding what to do about obsolete legacy linking data for planning, programming, bud- systems. These respondents were less laudatory geting and execution. Without such linkage, gov- about how the FMLOB and other initiatives ernment will continue to find it hard to show the played out across the government. Some thought relationship between dollars allocated and results that OMB’s separate Lines of Business initia- achieved. In what some believe will be a near tives had the side effect of further stovepiping term period of belt tightening caused by huge information flow and processes in entities. As deficits, this could be fatal to some programs. well, executives in entities that are implementing ERPs were not favorably disposed toward Most financial systems depend on feeds from FMLOB and similar initiatives. program systems that initially capture financial and performance information. When those One of the least costly ways for CFOs to ensure systems do a poor job, it is reflected in financial the utility of entity business systems is to be part and performance information and reporting. of the implementation team and participate in Many agencies and departments hope to solve prototyping the systems. In this way, the needs this problem by implementing large enterprise of current and future financial systems will be resource planning (ERP) systems, but such proj- considered entity-wide. ects appear to run into snags regularly, mostly in the area of program data integration. Our executive respondents agree that there is no real government-wide strategy for business IT and systems, no priorities and no master plans. In the case of business and financial systems, such a strategy and its related plans should, they say, be based on the following principles: • Link and integrate financial, budget, program performance, human resources and other related business information.
  22. 22. 21 Looking forward How can the government enhance financial Cost, budget and performance; management? Financial policy makers and executives program efficiency and effectiveness Providing actionable information on cost, budget in the survey listed the improvement initiatives they and performance so that it can be used to improve think Congress and Executive Branch leaders should program efficiency and effectiveness is the corner- continue or start—and also what not to do. stone of what the CFO organization is supposed to do, according to many survey respondents. Actionable information may be sorely needed in What to continue the near future, say several executives, because Since 2000, legislators and administration policy there may not be enough money to continue the makers introduced many initiatives aimed at status quo, much less expand programs. Says one, improving how the government manages its “We have huge deficits and they may continue, finances and uses financial and performance so there will be a contraction in defense spending information (see box, Outside mandates for once the wars in Iraq and Afghanistan are over. financial information on page 12). Which are Economy and efficiency will be important. When the most important to continue for the next 2 it comes time to cut back, some people will want to 5 years? Table 3 shows what our executive to simply cut out programs because that is the eas- respondents think, including financial, OMB iest thing to do. The reality is that we won’t be able and oversight leaders. to or can’t just cut all those programs. We have to look at everything and say, do we need this? What Table 3: do we give up if we do this? Can we make this Survey executives’ ranking of current financial management program better and more efficient? If the answer is initiatives that should be emphasized over the next 2 to 5 years no, then the program may need to be cut.” One of the constant themes throughout the 2008 Initiative survey is to eschew accounting for accounting’s 1. Cost, budget and performance reporting sake. Instead, say many respondents, CFOs should focus on adding value to entity programs and mis- 2. Program efficiency and effectiveness (A-123, Section 2) sion. Indeed, said one, “There should not be any effort expended to create financial information that 3. Financial management systems (A-123, Section 4) is not of value to manage programs,” says an execu- 4. Financial statement audits, continue current depth and scope tive. Making this a reality could result in a stronger role for CFOs in an integrated environment of 5. Financial reporting (A-123, Appendix A) accounting, budget and performance management. 6. Performance and Accountability Report Financial management systems 7. Increasing the use of shared service providers (FMLOB) In the previous section on risks, executives and managers listed systems as the third greatest risk 8. Effective measurement and remediation of improper payments to accomplishing their entities’ missions, so it (A-123, Appendix C) is no surprise that systems initiatives are near
  23. 23. 22 the top of those that they want continued over to use SSPs, one option for central, standard the next 2 to 5 years. Many want to see more services. Those that favor IT outsourcing often standardization and centralization of systems, say they want to see SSPs that specialize in especially in business areas in which there is categories of government processes, such as (or should be) a degree of commonality across grants management. government. Yet, many are not sure they want New initiatives needed Executives in the survey made many suggestions for additional or supplementary financial management initiatives. These included: • Simplifying financial reports and making them useful for decision making, including developing citizen centric reports. • Shifting financial training from transactions and financial reporting to analytics and assessing costs and risks. • Establishing a CFO Academy, with OMB or the National Defense University as potential sponsors. • Integrating and standardizing reports of budget, program and financial information. • Pressuring vendors to develop government-oriented commercial off-the-shelf ERP software that meets OMB’s Financial Systems Integration Office requirements at a detailed transaction level (Some ERP vendors believe they already do this). • Using more cost accounting, such as activity-based costing. • Requiring more integration or linkage between financial and acquisition systems. • Increasing the use of executive dashboards and executive scorecards with financial, performance and risk information. Also, reporting more productivity and utilization measures. • Increasing the flexibility of the management of funds, to promote better response to changes and increase transparency (because otherwise such funding shifts are sometimes hidden). • Extending financial management information and duties to non-financial managers and holding them accountable. • Clarifying the role and responsibilities of CFOs, controllers and Inspectors General. • Improving the Intra-Governmental Payment and Collection processes. • Conducting fewer audits and instead doing reviews, which are less costly and may be more effective in identifying critical problems.
  24. 24. 23 What to avoid all niche issues like premium class travel. The “Enough already!” say several executives who entity that has a niche problem should deal think the government should avoid introducing with it; there don’t have to be new rules or any new finance and accounting initiatives until regulations for everyone else.” entities finish addressing the current ones. Other Requiring data no one uses. CFO Act annual things to avoid include those listed below. financial statements are only one example of Stop raising the bar. Several CFOs want the reports that few people read and use, according GAO, OMB and IGs to stop raising the bar to respondents. There are many others. on requirements. Examples of this include Cannot go back to not caring. “We need to accelerating the timing of financial reports and understand the importance of cost,” says a CFO lowering materiality thresholds. They would whose department accounts for a major slice of like Congress and the Executive Branch to set the federal budget. “We can’t say a problem is clear priorities when promulgating rules for too big to solve. If we strive to add value, we can or overseeing entity financial management. As do it. We cannot go back to not caring.” discussed in the earlier section on compliance, they would also like to see more cost/benefit analysis done before introducing new laws and rules. No more unfunded mandates. Too many new compliance requirements arrive with no additional resources to fulfill them. Some executives say that such requirements should be funded in the entity budget, instead of taken out of its hide. Avoiding overreaction. Some executives say that the government-wide initiatives, systems and regulations introduced in the past few years are starting to identify more fraud, waste and abuse, which is good. “However,” says one, “We must target this misuse and hold people accountable for correcting it, instead of creating addi- tional initiatives, systems and regulations.” Another says, “Lawmakers and oversight groups should stay away from