GT - 2012 Survey of State Financial Executives

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GT - 2012 Survey of State Financial Executives

  1. 1. NASACT - AGA 2012 Survey of State Financial Executives August 2012Chartinga CourseThrough Stormy Seas:State Financial Executives in 2012
  2. 2. Table of contentsExecutive summary 1 About the National Association of State Auditors, Comptrollers and Treasurers (NASACT)About the survey 3 NASACT is an organization for state officials who deal with the financial management of state government. NASACT’sInefficiency and waste 5 membership is comprised of officials who have been electedMeasuring performance 6 or appointed to the offices of state auditor, state comptroller, or state treasurer in the 50 states, the District of Columbia, andTimely financial reporting 9 U.S. territories. NASACT has a headquarters office in Lexington, Ky., and a second office in Washington, D.C. The Association plans and man-State systems and the Cloud 14 ages training and technical assistance programs and handles numerous requests for information each year from state auditors, comptrollers, treasurers,Strategy 16 and other government officials, as well as the private sector. NASACT monitorsStructure 18 federal legislation and agency developments that have an impact on state gov- ernment and acts as a liaison to federal regulatory bodies and CongressionalCulture 20 committees on issues of interest to members. NASACT uses its expertise to provide responses to technical standards-setting bodies, helping to ensure thePeople 23 highest standards of government transparency, accountability, and integrity. ForTop challenges 26 more information, visit www.nasact.org.Conclusion 28 About the Association of Government Accountants (AGA) AGA, founded in 1950, supports the careers and professional development of public finance professionals working in federal, state, and local governments, as well as the private sector and academia. The association has more than 15,000 members, including professionals in accounting, administra- tion, auditing, budgeting, consulting, grants management, fraud investigation, and information technology. AGA has been instrumental in developing accounting and auditing standards, and in generating new concepts for the effective organization and administration of financial manage- ment functions. The association conducts independent research and analysis of all aspects of government financial management. These studies, including the 2012 AGA Chief Financial Officers Survey and more than 30 independent studies supported by the Corporate Partner Advisory Group, make AGA a leading advocate for improving the quality and effectiveness of public fiscal administration and program accountability. For more information, please visit www.agacgfm.org. About Grant Thornton LLP Grant Thornton LLP is the U.S. member firm of Grant Thornton International Ltd. Grant Thornton International Ltd and its member firms are not a worldwide partnership, as each member firm is a separate and distinct legal entity. In the U.S., visit Grant Thornton LLP at www.GrantThornton.com. 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 gov- ernments and international organizations. We have provided comprehensive, cutting-edge solutions to the most challenging business issues facing govern- ment organizations. Our in-depth understanding of government operations and guiding legislation represents a distinct benefit to our clients. Many of our professionals have previous civilian and military public sector experience and understand the operating environment of government. Visit Grant Thornton’s Global Public Sector at www.grantthornton.com/publicsector.
  3. 3. 1Executive summaryState government, and indeed every governmental at all. Even with the disparity of roles, a majorityunit in the U.S, has been surrounded by a storm of of respondents say they are involved at least sometimes in the setting of goals. Unfortunately,financial turmoil for some years now. The storms they are not as comfortable with their organiza-continue, and the years ahead may prove to be just tions’ ability to capture relevant performanceas difficult as those they have just endured. It was data for use in performance reporting.in this environment that we surveyed state financial Timely Financial Reportingmanagement executives and others engaged in State and local governments produce a Comprehensive Annual Financial Report (CAFR).governmental finance throughout the country. Our To be useful to decision-makers, it must besurvey finds these financial professionals engaged, produced timely, but some governments have hadhard at work, and helping to guide their agencies difficulty producing the report. We asked respon- dents how quickly they could produce a CAFR,through these perilous times. and the majority of respondents believe they can produce a CAFR more quickly. The greatest Tackling inefficiency and waste impediment to a timelier CAFR is the compo- is just part of the job nents’ ability to produce financial statements in Government efforts to tackle and eliminate ineffi- sufficient time. Not surprisingly, accounting errors ciency and waste are not new. Since the dawn of the are what respondents perceive as the greatest risk Republic, governments have taken steps to iden- to producing CAFRs more timely. tify and reduce misuse of taxpayer dollars. But with the economic crisis, some suggest that such initia- State systems and the Cloud tives take on new momentum. Not the respondents Despite the clamor for the Cloud, the vast in our survey, however. A majority of respondents majority of our respondents do not currently say they have no “campaigns” to reduce waste. manage their finances or financial reporting there. Most replied that such initiatives were a regular part Their governments do not generally use the Cloud of doing business. They say improving efficiency for other systems, either. The main barrier seems to is “an ongoing process” or “part of our mission.” be that they do not know much about the Cloud. Even though few novel “campaigns” have been Some do not know what it is. A vast majority do launched to root out inefficiency, things are being not know what savings to expect from moving to done and results are being achieved. the Cloud. Implementation costs and security risks rank highest on respondents’ list of impediments Measuring performance to moving financial systems to the Cloud. Respondents to the survey have widely varying roles in their organizations’ performance man- Driving performance agement activities. While they agree perfor- There are important elements of an organization mance management is an important activity, that drive its performance. The strength of these their roles are very different. Some are integral elements can be major factors in whether an to the development, reporting, and use of per- organization achieves its goals. We asked respon- formance information. Others are performing dents about each of four important drivers: an audit or analysis role. Still others have no role strategy, structure, culture, and people.
  4. 4. 2 Financial executives have aligned organization. The ultimate resource of any entity their offices with state missions is its people. Respondents believe they have Strategy is what focuses an organization. It is people with the right mix of technical skills and what entities choose to pursue to perform well. attitudes, who understand the link between their Respondents express the strong belief that they work and their organizations’ objectives. are aligned with their organizations’ strategy. But Storms will continue few are satisfied with the degree to which risk Much like their federal counterparts, state management and performance improvement are financial executives have challenges ranging from integrated into the strategy of their organizations. personnel to budget to providing services to Different views of leadership technology. They recognize that challenges and and trust difficulties from external forces will continue, Structure refers to how the entity is organized. and they have plans and contingencies to deal High performing entities are designed to sup- with them. They want to continue their focus on port their people to work with each other and their people so they can achieve results for their for their stakeholders. While respondents have customers and stakeholders. high opinions of the make-up and organization Conclusion of their offices, trust within their organizations is There is a storm out there. It is not a storm on not where it should be. The fiscal storms hitting the horizon; it is already here. It is driven by the states have reduced revenues, frozen pay, and continued poor performance of U.S. and global cut staffing, leaving the financial executives to economies. It causes dropping revenues but con- pick up the pieces and find ways to continue to tinued high demand for government services. accomplish essential functions. While every government executive bears some The finance culture is strong responsibility for the government’s response to and supportive this storm, financial executives have a leading Culture is what people believe about how work role because all state and local government gets done. It is the thoughts and beliefs that operations require funding. They must motivate drive behavior in the entity. Respondents think and lead their staffs who are overwhelmed by very highly of the culture in their organizations. increasing workloads caused by staffing short- They believe the people in their organizations are ages, discouraged by years without pay raises, focused on the same values and priorities. They and battered by public denigration of their also believe their leaders are good at communi- public service. cating and building culture. Their responses are more lukewarm when asked whether they have Throughout this survey, however, we see finan- confidence that the state culture is well posi- cial executives successful in spite of all that is tioned to meet the challenges they face. thrown their way. They have been seasoned by the storms of the last few years. They have their People are the key to success priorities straight, and they can and will guide People refer to how an entity recruits, develops, their offices and governments to a safe harbor. and retains the people who do the work of the
  5. 5. 3About the surveySince 1996, the Association of Government (CAFR) and state systems in the Cloud. Like theAccountants (AGA) and Grant Thornton LLP have federal report, it also included an assessment of state financial organizations using the recognizedjointly sponsored an annual survey of government elements of high-performing organizations.chief financial officers (CFOs). In 2009, the National Our purpose for doing the surveys is to iden-Association of State Auditors, Comptrollers, and tify emerging issues in financial managementTreasurers (NASACT) joined with AGA and Grant and provide a vehicle for practitioners to shareThornton to expand the reach of the survey to their views and experiences with colleagues and policy makers. This is one of the ways in whichstate financial managers, and in 2011, we began to NASACT and AGA maintain their leadership inissue two reports: the first focused on the federal governmental financial management issues.government, and a second report based primarily Anonymityon state government. To preserve anonymity and encourage respon- dents to speak freely, these surveys of the finan- Our first 2012 report, AGA’s Annual Federal cial community do not attribute thoughts or CFO Survey, issued in July 2012, focused on quotations to individual financial executives, nor the federal Campaign to Cut Waste, mea- do we identify specific input from any individual suring performance, and an assessment of CFO online respondent. organizations using the recognized elements of high-performing organizations: strategy, Survey methodology structure, culture, and people. This 2012 state With NASACT and AGA guidance, Grant report touches on eliminating waste and inef- Thornton developed survey instruments that ficiency and measuring performance, but has included closed- and open-ended questions. unique sections on timely financial reporting NASACT also provided specific input on the in the Comprehensive Annual Financial Report questions related to timely financial reporting
  6. 6. 4 and state systems in the Cloud. When we released The 40 NASACT members who responded to the survey, 40 senior NASACT members from 30 the survey included a wide range of position states and territories provided their assessments. titles, including State Auditor, State Comptroller, We also obtained online participation from 180 and State Treasurer. Twenty-one of the position state financial managers and 137 other financial titles were related to accounting/treasury, and 17 managers working primarily in local government. were related to auditing. The states and territo- Figure 1 shows the profile of non-federal online ries they represented included: participants. We included local financial man- 1. Alaska agers’ input in this survey since it is more closely 2. Arizona associated with state financial management than 3. California federal financial management. Throughout the 4. Colorado survey, we refer to these 40 senior NASACT 5. Georgia members as “executives” and all of the others as 6. Guam “online participants.” 7. Idaho Figure 1: 8. Illinois Respondents’ level of government 9. Iowa Number responding: 317 10. Kentucky 11. Louisiana 2% 12. Maryland Non-U.S. 13. Massachusetts 7% 14. Michigan Other U.S. 15. Missouri 16. Montana 17. North Carolina 57% 18. Nevada State 19. New Hampshire 20. New Mexico 34% 21. New York Local 22. Ohio 23. Oklahoma 24. South Dakota 25. Utah 26. Vermont 27. Virginia 28. West Virginia 29. Wisconsin 30. Wyoming Copies of the online questionnaires can be found at www.grantthornton.com/publicsector.
  7. 7. 5Inefficiency and wasteGovernment efforts to tackle and eliminate waste, The next open-ended question asked respondentsfraud, and abuse are not new. Since the dawn of the what results their campaigns had achieved. Whether they considered their efforts campaigns or not,Republic, governments have taken steps to identify respondents had many examples of results. Executivesand reduce misuse of taxpayer dollars. But with the mentioned a number of audit-related results, as befitseconomic crisis, some have suggested that such the roughly 40% of executives who were from the audit community. These included various performanceinitiatives take on new momentum. audits and the occasional discovery of fraud. Other executive results included changing, streamlining, and The poor economy and resulting reduction in rev- eliminating work processes; more electronic payments; enues hit state and local governments earlier than outsourcing some functions; and reducing staff. While it hit the federal sector. Part of the federal response one executive respondent noted, “Over $2 million in was the Campaign to Cut Waste, which was a savings due to restructuring,” many respondents said major workload for federal CFOs. So, we began that their efforts were still “a work in progress.” the state survey by asking whether states had been conducting their own campaigns to identify ineffi- The single most common result mentioned by ciencies and waste. Figure 2 shows the results. online respondents was staff reductions. Some ofFigure 2: these were labeled layoffs, but others were simply notHas your office conducted campaigns designed to identify filling vacant positions, which could indicate a lessinefficiencies and waste? permanent reduction. One respondent said, “Jobs have been streamlined and positions eliminated.” Percent responding This was interesting because only one executiveRespondents Yes No Other noted staff reductions. The next most commonExecutives 26% 46% 28% result identified by online respondents was processOnline 40% 54% 6% re-engineering, consolidation, streamlining, or improvement. Respondents said it many different ways, but it was typically about re-engineering their Only about a quarter of executives indicated that business processes to be more efficient in the face they had conducted “campaigns,” and most of of less staffing or funding. Sometimes it was about those responding “other” indicated that the efforts eliminating duplication or reducing redundancy. The they made at identifying inefficiencies and waste third most common theme was the increased use of did not constitute a “campaign.” The fact that 40% technology. Many online respondents mentioned of the online respondents indicated that they had efforts to go paperless. One respondent said, “We did conducted a campaign could indicate a less rigorous a complete conversion of a large paper-based pro- definition of “campaign.” It could also indicate that cess to a paperless document management system.” many were from local governments. Like the execu- Overall, the respondents seemed proud of the results tives, the online participants who answered “other” they had achieved to make their piece of government explained that their efforts were continuous or more effective and less costly. One respondent said, ongoing. It would appear that states did not gener- “We reduced operating expenses, increased dedicated ally have campaigns focused on identifying inef- receipts, and reduced general fund appropriations, ficiencies and waste, though all of them included resulting in improved accountability and cash flow.” efforts like this in their regular workload.
  8. 8. 6Measuring performanceMany federal CFOs are responsible for performance management in their agencies,especially implementation of the GPRA Modernization Act (GPRAMA) of 2010, one of whosekey requirements is the identification of priority goals. However, this is not true of statefinancial executives. Executives and online respondents to this survey had widely varyingroles in their organizations’ performance management activities. Roles In this section of the survey, we first asked respon-“ epending on the management style of the elected officials, D dents an open-ended question about their role in we are either included in setting priorities or are flat-out told performance management for their state or entity. what priorities are the most important.” From the executives’ responses it seems clear that most of them did not have responsibility for the statewide performance management function. A number of them stated that they had limited or no responsibility. Some mentioned that they were only responsible for the performance of their offices’ functions. A few seemed to indicate that the office responsible for budgeting was responsible for state- wide performance management. This is not particu- larly surprising because auditors, comptrollers, and treasurers are not usually the executives responsible for entity-wide performance management. Among the online participants there was more diver- sity in their responses, possibly because many of them worked in offices other than auditing, accounting, and treasury, or they worked in local government. Many did indicate that they had limited or no responsibility and many others discussed their respon- sibility for the performance of their offices’ functions. However, a number of them indicated that they were responsible for strategic planning, performance metrics, and/or entity-level performance reporting. Overall, it appears that, unlike their federal counter- parts, the state and local online participants are not as involved in entity-level performance management. Our next question asked how much respondents’ offices participated in helping set agency priority goals for their entity. Figure 3 shows the results.
  9. 9. 7Figure 3:How much does your office participate in helping to set priority goalsfor your agency?Executives 13% 34% 11% 21% 11% 11% Online 6% 18% 12% 28% 26% 10% Never Seldom About half the time Usually Always Does not applyPerhaps because the executives were not gener- respondent said, “The finance department worksally responsible for the statewide performance closely with the mayor’s office to set citywidemanagement function, few of them indicated goals.” A number of online respondents also men-any role in setting state goals, as indicated in tioned that working with the budget put them inFigure 3. Many mentioned that the goals were a position to influence goals. Overall, it appearedset by the governor and his cabinet. Some that the respondents’ role in goal-setting wasindicated that they were involved only when the influenced by the specific individuals involved.goals related to financing decisions or debt. One One respondent noted, “Depending on the man-executive noted, “Mostly the priorities of the agement style of the elected officials, we are eitherstate are set at the top and flow down.” included in setting priorities or are flat-out told what priorities are the most important.”The online respondents had a somewhat dif-ferent view, as can be seen in Figure 3. Some of Datathe online respondents had comments similar to Performance management is data-intensive, sothe executives, including the notion of top down the survey asked how satisfied respondents wereguidance, but many others were involved in with their current capabilities for capturing datagoal-setting. In some cases, this may have been relevant to performance management. Figure 4because they worked in local government. One shows the results.Figure 4:How satisfied are you with your office’s current capabilities for capturingrelevant data for performance measurement? 0% 0%Executives 5% 22% 24% 38% 11% Online 5% 14% 31% 29% 9% 12% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not apply
  10. 10. 8 Slightly more online respondents commented that they were dissatisfied with their capabili- ties. Some indicated that it was difficult to get the various reporting offices to “get on board”; others mentioned the lack of systems support, difficulties in measuring, and a lack of metrics. One respondent said, “We have antiquated systems coupled with questionable measures that are generally selected only because they make us look good.” More respondents than in either of these two categories commented on continuing improve- ments in data collection. Their comments were typically along the lines of “things are OK, Figure 4 appears to show that executives are but we can do better” or “we are continuing to slightly more satisfied than dissatisfied with their improve.” These respondents had some good data collection capabilities, and about half of the capabilities, but they were still not satisfied. executives provided additional comments. A few of those indicated that there were limited or no The final category included respondents who collection capabilities, but more of the com- noted the difficulty of setting quantifiable goals ments were positive about current or evolving or agreeing on what should be measured, and capabilities, even when there were constraints. the difficulty of identifying funding to procure One respondent noted, “We easily capture new systems. Some noted that their offices or financial information, which is relevant but often agencies were not really committed to “the idea incomplete for performance management.” of accountability through performance.” One respondent noted, “Our office does not feel that According to Figure 4, the online respondents performance measures would help us function seemed to be even more satisfied than executives, more efficiently.” and their comments tended to support this. Their comments roughly fell into four catego- About a quarter to a third of the respondents ries: satisfied, dissatisfied, continuing to improve, selected “neither satisfied nor dissatisfied.” If and other issues. A number of respondents com- this middle choice is viewed as a surrogate for “I mented that they had the data they needed to do don’t know/I don’t care,” it is disturbing that so the job, including mature systems, data ware- many have this attitude about performance data houses, and access. One respondent said, “Data collection, especially when additional work in is available, automated, valid, and reliable.” this area appears to be indicated.
  11. 11. 9Timely financial reportingState and local governments produce CAFRs. Accurately capturing financial informationis always a critical function for state financial executives and managers, but it is alsocritically important that the resulting information be timely if it is ultimately to be useful todecision-makers. Figure 5: How timely should a CAFR be issued to be useful for decision-makers? 0% Executives 5% 22% 16% 43% 14% Online 11% 34% 11% 5% 25% 14% 2 months 3 months 4 months 5 months 6 months Other CAFR timing At first glance, it appears that executives leaned The survey asked respondents how timely a more toward the 6 month standard. Actually, CAFR should be to be useful for decision- 43% of them chose 6 months and 43% chose 2, makers, and Figure 5 shows the results. 3, or 4 months. Thirty percent of online respon- dents chose 5 or 6 months and 56% chose 2, 3, or 4 months. There are a number of issues related to the CAFRs, which are typically issued 6 months after the close of the fiscal year. This means that most non-federal governments issue their CAFRs around January 1st. Federal entities (departments, agencies) issue their year-end financial reports on November 15th, 45 days after the close of the federal fiscal year. Some question why states and others cannot com- plete their CAFRs within 45 days. However, federal agency financial reports are not CAFRs in that they typically do not include revenue or debt. Those are handled solely by the U.S. Department of the Treasury. For a state to issue its CAFR, it requires its various depart- ments and component units to complete their financial reports before it can issue the state- wide CAFR.
  12. 12. 10 Executives indicated that issuing CAFRs sooner bond ratings and issuances.” While many respon- than is currently done would be good, but dents thought a timelier CAFR would be more they also recognized that it would not be easy. useful, they also wondered about the cost-benefit One respondent noted, “Three months would of more timely production. However, one respon- provide decision-makers with the opportunity dent said, “There is no excuse for the delay with to consider the CAFR prior to formulating today’s technology.” their budgets.” However, several respondents We also asked whether it was actually possible had comments similar to one who said, “I am to issue a CAFR as quickly as they thought was not aware of any legislators or state managers necessary. Most thought that whatever timeframe who use the CAFR for decision-making.” At they had selected (2 to 6 months) was possible, the federal level, there were similar comments but some who wanted it more quickly than from financial executives about the usefulness of they were currently producing it foresaw major federal agency financial statement data. problems. Most executives thought the current The online respondents offered many perspec- requirements and available staffing resources tives similar to the executives. Some treated the would preclude a quicker CAFR. One respon- CAFR as a historical document whose accuracy dent said, “If GASB [Governmental Accounting was more important than its timeliness. A number Standards Board] guidance was streamlined, we of respondents discussed the need for the CAFR could do it quicker.” to influence the budget, although some focused The online respondents had similar responses. on budget preparation, which occurs about 3 Some pointed out that the size of the govern- months after the close of the fiscal year, and others mental entity had a lot to do with the possibility focused on budget approval, which occurs more of a quicker CAFR. Other online respondents than 6 months after the close of the fiscal year. emphasized the difference between assembling Other respondents noted that CAFRs provided the CAFR and getting the audit completed. One information relevant for investors in state and respondent said, “We could prepare the CAFR local government debt. Like the executives, some in 3 months, but we can’t get it audited in 3 commented on the possible uses of CAFR data, months.” Finally, one respondent focused on the including one respondent who said, “The CAFR requirements and said, “We could do a ‘reduced’ is not used by local government managers. It is or ‘simplified’ CAFR much more quickly.” typically used by those analyzing information for
  13. 13. 11Impediments and risk Figure 7:Next, the survey asked respondents to comment What are the risks associated withon some possible impediments to the timelier issuing the CAFR more quickly?issuance of a CAFR. Figure 6 shows the results. (please select no more than two)The results shown here seem to indicate that just Percentabout everything is an impediment to someone. respondingAlmost three-quarters of executives focus on the Respondents Executives Onlineability of component units to complete theiraudited financial statements. Online participantsprobably did not rate this as highly because Greater potential for 67% 63%they are the component units. Instead, the accounting errorsonline participants focused on the inability to Greater use of estimates 50% 48%get the accounting records closed or the audit provides less accuratecompleted. About 40% of each group noted data More use of staff 25% 24% overtimeFigure 6:What are the impediments to timelier Decision-makers might 11% 23% use this erroneous data toissuance of a CAFR? (please select no make wrong decisionsmore than three) Other 17% 4% Percent responding the role played by staffing shortages. The lack Respondents Executives Online of pressure for more timely CAFRs produced the fewest choices from the online participants and the second fewest from executives. In other It is impossible to close 22% 39% comments, some noted the increasingly com- the accounting records plex guidance. One executive noted, “GASB accurately in less time standards are getting to the point of almost Shortages due to budget 44% 42% ridiculous.” But some wondered if it was all just cuts do not provide adequate staffing making excuses. One online respondent said, “It There is little real 31% 22% just seems like we can’t do it in less time because pressure from any group we are all resistant to change.” to produce it more timely Component units cannot 72% 32% Next, the survey asked about the risks associated provide audited financial with issuing a quicker CAFR. Figure 7 shows the statements timely results, including substantial unity between the Cannot get financial audit 44% 49% opinions of the executives and online respon- completed within the shorter timeframe dents in most categories. Other 11% 16%
  14. 14. 12 said, “Simplify the standards and require less information, but more pertinent information.” Popular reports Some have suggested that states should produce One executive noted a risk of wasted effort because a timely, less technical report for those who “a faster process will not increase the use of, or reli- do not require all the details included in the ance on the CAFR.” Other executives noted that CAFR. The survey asked respondents about “accuracy usually trumps timeliness” when it comes impediments to such a report, and Figure 8 to CAFRs. One executive said, “Auditors interpret shows the results. the standards to mean that CAFRs must be perfect.” Figure 8: A number of online respondents discussed the What are the impediments to your increased use of estimates, with most believing state issuing a timely popular financial that the risk of using them was not great. One and performance report followed later online respondent said, “We may need to use by the CAFR and Service Efforts more estimates, but untimely data is completely and Accomplishments (SEA) reporting? useless to decision-makers.” (please select no more than two) The next open-ended survey question asked what Percent GASB could do to remove obstacles that impede responding the production of a more timely CAFR. Executives generally suggested that ceasing pronouncements Respondents Executives Online would be the most beneficial thing GASB could do. They also had some specific complaints about current pronouncements. One particularly pre- Takes away effort that 69% 25% needs to be spent on cise obstacle identified was complexity driven by CAFR/SEA reporting investor users. One respondent said, “Reduce the Do not have the data 41% 25% reliance on the investing community as the primary necessary to issue the users of financial statements.” reports sooner than the CAFR/SEA reporting Some of the online respondents professed their There is no interest in 25% 15% satisfaction with GASB, but most simply wanted these reports GASB to stop making pronouncements. Some Lack of staff availability 9% 37% suggested that GASB declare a hiatus and allow Conflicting priorities 25% 21% the government to catch up. Some of the specific Would require additional 6% 17% suggestions to reduce impediments were more effort in the CAFR/ guidance on the use of estimates including setting SEA to explain why minimum materiality levels, reducing the min- their amounts might be different from the imum requirements for a CAFR, and, similar to popular reports the executives’ responses, stop catering to special Other 3% 14% interest groups like investors. One respondent
  15. 15. 13Executives’ choices focused on taking away fromCAFR/SEA production and the lack of data.The online respondents focused first on the lack “Auditors interpret the standards to mean that CAFRs mustof staff to do the work, but they spread their be perfect.”choices around pretty evenly. The executiveswere clearly uninterested in a popular report,citing a lack of interest, no support, possibleconfusion, and no interest in publishing unau-dited data. One executive said, “We’re not surethere would be any interest in this report.”Online respondents had similar comments,including a lack of interest and concern abouttoo many reports.One form of a popular financial and perfor-mance report is the Citizen-Centric report. Weasked respondents whether their state publishedsuch a report, and Figure 9 shows the results.About two-thirds of both categories of respon-dents did not have these reports. For those whoanswered “no,” we asked them why not. Theexecutives split their responses into three simplecategories: it is not a priority, there is no supportfor the report, and we tried it before and it didnot work. Online respondents touched on thesecategories, but their overwhelming response was“I don’t know why we don’t do one.”Figure 9:Does your state publish a Citizen-Centric report?Executives 25% 6% 69% Online 35% 65% 0% Yes Planning to No
  16. 16. 14State systems and the CloudThe next section of the survey dealt with the use of Executives indicated very low use of the Cloudthe Cloud for state systems. Despite the clamor for for state systems, whether they were talking about financial systems or other systems. Thosethe Cloud, the vast majority of respondents did not executives who answered “other” had partial use.currently manage their finances or financial reporting Few online respondents were aware of Cloud usethere. Their governments did not use the Cloud for for financial systems, but slightly more of them knew about other state systems in the Cloud.other systems either. The main barrier seemed to be Still most of them knew that their states did notthat they did not know much about the Cloud. Some have financial or other systems in the Cloud.did not know what it was. A vast majority did not know Most of the online respondents who answeredwhat savings to expect from moving to the Cloud. “other” explained that they did not know. We asked a series of questions about having a We started by asking how many respondents strategy to move agencies to a shared services used the Cloud for financial or other systems in environment, with or without the Cloud; their states. Figure 10 shows the results. having the necessary capabilities to manage a Figure 10: Does your state currently use the Cloud for systems? F inancial S y stems Executives 11% 81% 8% Online 5% 72% 24% O ther S y stems Executives 12% 79% 9% Online 12% 60% 29% Yes No Other
  17. 17. 15shared services or Cloud environment; havingcentralized or decentralized information tech-nology functions; and whether respondentsthought financial systems in the Cloud wouldbe less expensive than maintaining their ownsystems. The responses from both executivesand online respondents indicated that most didnot have much experience with or knowledgeof these issues. While many knew of the issues,they viewed these questions as ones to ask ofthe information technology office. One respon- Figure 11:dent said, “There’s been lots of talk, but not a What are the impediments to movinglot of action.” your state’s financial system to the Cloud? (please select all that apply)We gave respondents a list of possible impedi-ments to moving state financial systems to theCloud, and asked them to identify those that Percentwere applicable. Figure 11 shows the results. responding Respondents Executives OnlineBoth categories of respondents made choices Legislative/ statutory 14% 20%across the board, and many percentages weresimilar by impediment. Both categories of Political 25% 25%respondents gave their highest scores to “security Security issues 57% 50%issues,” and relatively lower scores to “portability State IT maturity 36% 26%issues,” “lack of proven success in other states,” Portability issues 4% 13%and “legislative/statutory.” We had a follow-up Unacceptable level of risk 29% 28%question for executives about whether their states Implementation costs 32% 37%understood the risks of moving to the Cloud, Lack of proven successes 18% 16%and whether they were willing to assume those in other statesrisks. Most indicated that they had not yet fully Other 39% 30%assessed the risks, but they believed that datasecurity was the paramount risk. One respondentsaid, “We have not yet fully assessed the Cloudrisks, but we know very well the risks of stayingwith our current, antiquated approach.”
  18. 18. 16StrategyThere are important elements of an organization that in their topic areas; almost everyone had uniquedrive its performance. The strengths of these elements results they were not getting. The only results with a few multiple mentions were better audits,can be major factors in whether an organization timelier reporting, and better strategies andachieves its goals. We asked respondents about each procedures. Online respondents covered anof four important drivers: strategy, structure, culture, even broader range of topics, but because there were so many of them, we did have a few moreand people. multiple mentions. Timeliness, especially in standard reporting, received the most mentions. Strategy is what focuses an organization. It is Also like the executives, online respondents had what entities choose to pursue to perform well. multiple mentions of better audits, strategies, The survey’s strategy questions related to mis- and procedures. A number of online respondents sion, budget, monitoring, and risk. mentioned lack of results that represented staff Getting results shortages. The final common result not achieved We began consideration of strategy by asking related to management support and recognition what results the respondents wanted that they for staff. were not getting. This was an open-ended ques- Alignment tion rather than a scale or multiple choices, so We asked respondents how aligned they were the responses covered a lot of material. One in assisting their agencies in achieving mission executive and about 15% of online respondents objectives, and Figure 12 shows the results. indicated that they were achieving the results they wanted. However, the other respondents Both categories of respondents have very similar identified many results that were not being responses, with executives having a slightly achieved. Executives had almost no duplication higher rate in “very aligned,” and online respon- dents having a slightly higher rate in “aligned.” In their supporting narrative statements, both executives and online respondents noted that staying in alignment during political transitions was very difficult. Both groups also noted that finance and audit functions were support activi- ties with little direct connection to the mission objectives of their entities. Risk and performance Because the question of risk management is receiving increasing attention as agencies struggle to achieve results, we asked how satisfied respon- dents were with the integration of risk manage- ment and performance improvement in their agencies. Figure 13 shows their responses.
  19. 19. 17Figure 12:How aligned is your office in assisting your state to achieveits mission objectives? 0%Executives 7% 19% 29% 39% 7% Online 7% 19% 38% 31% 4% 2% Not at all aligned Not very aligned Neutral Aligned Very aligned Does not applyFigure 13:How satisfied are you with the integration of risk management and performanceimprovement in your state? 0% 3% 3%Executives 17% 60% 17% Online 4% 13% 36% 33% 6% 7% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not applyBoth groups of respondents have similar scores (or perhaps care about) the integration of riskfor less than satisfied, but there is a major differ- management with performance improvement.ence in those selecting “satisfied.” On a per- Supporting this assumption, the few narrativecentage basis, twice as many online respondents comments from online respondents revealedselected “satisfied” as did executives. As noted some lack of knowledge about what risk manage-elsewhere, this could reflect the fact that many ment was, and how it was related to performanceonline respondents came from local government management or performance improvement. Oneand smaller organizations within state govern- respondent said, “We do not effectively have anyment where such integration is easier to attain. risk management.”Also, some online respondents equated risk Executives had a final question about ways theirassessment with investment ratings. However, states could use risk management information tothe real surprise in this question is the per- contribute to performance improvement. A fewcentage selecting “neither satisfied nor dissatis- executives offered suggestions relating to internalfied.” If this middle choice is a surrogate for “I controls and investments. One executive said,don’t know/I don’t care,” it would appear that “Risk assessment should be part of the overallmore than one-third of online respondents and internal controls in state agencies.”over one-half of executives do not really know
  20. 20. 18StructureStructure refers to how the entity is organized. High performing entities are designed tosupport their people to work with each other and for their stakeholders. Structure considersleadership, the organization chart, trust, and teamwork. It deals with issues about whetheryour organization is put together and works in a way that fosters success. Roles and people of them choosing “satisfied” or “very satis- The first question under structure asked whether fied,” versus only 49% of online respondents. respondents were satisfied that their offices had However, the narrative comments of the two the right people in the right roles, including in groups could not be more different. Executive management positions. This dealt with issues of comments are almost exclusively positive, like whether the organization had defined the right one who said, “We have a very capable and roles and then staffed those roles with the right dedicated staff.” The only downside executives people. Figure 14 shows the responses. mentioned was staffing levels, losing people to better wages in other organizations, and finding Executives were more satisfied that they had new qualified staff. the right people in the right roles, with 67% Figure 14: How satisfied are you that your office has the right people in the right roles, including in management positions? 0% Executives 7% 10% 17% 47% 20% Online 6% 19% 23% 33% 16% 3% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not apply
  21. 21. 19On the other hand, online respondents’ com- online respondents are from local governmentments were mostly negative, with comments like, or smaller state organizations and offices might“Sometimes our managers are clueless,” and “The account for their positive responses.director is not respected by his staff.” In our com- Interestingly, the narrative comments from bothpanion 2012 federal CFO survey, this question groups did not support the numbers for thiselicited the most irritated negative responses from question. Executives had more than twice asfederal online respondents. Online respondents in many positive statements as negative ones. Somethis state financial executive survey were not quite of them also identified their only trust prob-that negative, but they were definitely not happy. lems as those involving the legislative branch.It would appear that employees at all levels of gov- About 40% of online respondents’ commentsernment who work in field locations or outside of were negative, 30% were positive, and 20%headquarters operations are very dissatisfied with were mixed. The mixed comments were like onepeople in management roles. respondent who said, “There is a high level ofTrust and teamwork trust and teamwork among upper managementWe asked respondents to assess the level of trust and executives, but a lack of trust at the middleand teamwork in their agency, and Figure 15 management and staff levels.”shows the results. Other comments from both groups addressedAlthough executives and online respondents how competition between individuals and officeshad similar rates for “very low” and “low,” eroded trust and teamwork, how individuals andthat is where the similarity ended. Almost half offices with their own agendas created problems,of executives and over one-quarter of online and how the lack of collaboration and teamworkrespondents selected “neutral,” that middle bred low levels of trust.choice that avoided an opinion. It is unpleasantly The differences in opinions between executivessurprising that so many executives could not or and online respondents could indicate potentialwould not assess the level of trust and teamwork problems ahead. Since many of the state onlinein their states. On the other hand, almost half respondents are probably in the chain of commandof online respondents selected “high” or “very under executive respondents, there is some impor-high” levels of trust and teamwork versus 33% tant work ahead for state financial executives.for executives. Once again, the fact that manyFigure 15:Assess the level of trust and teamwork in your state. 0%Executives 7% 13% 47% 33% Online 8% 14% 29% 38% 11% Very Low Low Neutral High Very High
  22. 22. 20CultureCulture is what people believe about how work gets teamwork. They were often balanced in theirdone. It is the thoughts and beliefs that drive behavior descriptions, like one executive who said, “We also have fun in the process.” About half ofin the entity. Culture looks at the level of engagement, the executives addressed the second part of thealignment, and energy in the organization. A good question about whether their office culture wasculture can play a significant role in achieving different from that of their state, and 70% of them thought it was different.strategic results. Online respondents were also very positive, Office culture with only 17% of comments being negative. Our first question in this section was an open- The words they used most frequently were: ended question that asked respondents how they professional, friendly, ethical, and family. Other would describe the culture of their office, and terms used included: high energy, hard-working, whether it was different from that of their state supportive, participatory, communicates well, in general or entity. values staff, and takes pride in their work. One respondent said, “It’s very much a family culture, Executives were overwhelmingly positive in more open, more ‘hair-down.’” Over a third of describing the culture of their offices. Only the online respondents’ comments addressed one executive had a negative comment. The whether their office culture was different from most commonly used word was “professional.” that of their entity, and 72% of them thought Other terms used included hard-working, it was different. So, while both groups thought competent, customer service focused, and highly of their own culture, about three-quarters of each group did not believe their state or entity cultures were as good.“It’s very much a family culture, more open, more ‘hair-down.’” We asked executives about the effect of their culture on their offices’ performance. Most indicated that their positive culture was a key contributor to their offices’ performance suc- cess. A couple suggested that their high levels of professionalism sometimes created conflict when other state offices believed they had set the bar too high, but they seemed proud of even this issue. One executive said, “Our culture strongly contributes to our effective performance.” Staff alignment Our next question was based on the assumption that, in an ideal world, a staff that is aligned has people who are focused, pull in the same direc- tion, and understand core values. Figure 16 shows the results.
  23. 23. 21Figure 16:How satisfied are you with the level of staff alignment in your office? 3% 3% 0%Executives 17% 47% 30% Online 4% 14% 25% 38% 16% 3% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not applyExecutives were more satisfied than online Communicating andrespondents, with 77% selecting either “satisfied” building cultureor “very satisfied” versus 54% of online respon- The next question asked how effective seniordents selecting these choices, although both managers and executives were at communicatinggroups seemed to be quite satisfied. It is a little and building culture in the respondents’ offices.troubling that a quarter of online respondents Figure 17 shows the results.did not feel capable of choosing. The executive’s There were some clear differences here, andfew comments were basically positive with one some of it might be accounted for by the factnoting, “Achieving alignment is a continuous that many of the executive respondents were theprocess due to the many variables involved.” “senior managers and executives” about whomOnline respondents’ comments were a little less the question was asked. As befits the high rat-positive, and a few offered comments similar to ings, executives offered few comments. Most ofone who said, “We have a good group, except for the few online respondent comments were nega-one person who is close to retirement.” tive. One respondent said, “You cannot express your opinion in my office without fear of retri- bution.” Another online respondent said, “They talk the talk, but they don’t walk the walk.”Figure 17:How effective are senior managers and executives at communicating andbuilding culture in your office? 0%Executives 7% 7% 59% 28% Online 7% 14% 30% 37% 12% Very ineffective Ineffective Neither effective nor ineffective Effective Very effective
  24. 24. 22 Meeting challenges when a third or more of each group chose the The final question in this section dealt with the middle category. On the other hand, executives ability of the office culture to meet the challenges were more satisfied with the appropriateness of the next 2 years. The question also asked of their offices’ culture than the online respon- about the likely ability of the state culture to dents. Both groups offered few comments to meet the challenges. Figure 18 shows the results. support their choices, but one online respon- dent resignedly said, “We will get it done; it’s Both executives and online respondents were what we do.” similarly more satisfied about the appropriate- ness of their offices’ culture than the state’s cul- In sum, executives and online respondents both ture, and their ratings for states are very similar. generally believed that their own offices had As we have seen in a number of questions, there good cultures which would help them to weather was a large amount of uncertainty expressed the coming storms. Figure 18: How satisfied are you that the culture of your office is appropriate for meeting the challenges of the next 2 years? What about the culture of your agency? M y O ffice 0% Executives 20% 47% 30% 3% Online 6% 12% 20% 44% 18% M y S tate Executives 7% 14% 38% 38% 3% Online 5% 17% 33% 37% 8% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied
  25. 25. 23PeoplePeople refer to how an entity recruits, develops,and retains the people who do the work of theorganization. The ultimate resource of any entity isthe skills and attitudes of its people. Technical skills The first question in the section asked whether the respondents’ offices had the right mix of technical skills to meet the financial challenges of the next 2 years. Figure 19 shows the results. Both groups exhibited high degrees of satisfac- tion, with 70% of executives selecting “satis- fied” or “very satisfied” and 58% of online respondents selecting these categories. However, over twice as many online respondents as executives chose some form of dissatisfaction. Executive comments discussed ongoing prob- lems in maintaining the right mix of technical skills; one executive said, “The new 150 hour requirement for accounting students is going to make it difficult for government to recruit accounting majors.” Online respondents dis- changing technology. One respondent noted, cussed a range of issues including budget and “Our folks had technical expertise when they staffing shortages, the impact of pending retire- were hired, but our culture did not encourage ments, and the difficulty of keeping up with professional development.” Figure 19: How satisfied are you that your office has the right mix of technical skills to meet the financial challenges of the next 2 years? 0% Executives 7% 17% 47% 23% 7% Online 15% 21% 42% 16% 2% 3% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not apply
  26. 26. 24 Attitude Technical skills were very important for success, but the workforce’s attitude also played a critical role in achieving success. Financial executives did not get to decide whether the workforce would get pay raises, but they were still responsible for motivating them. While the previous question addressed the right mix of technical skills, the next question addressed whether the respondents’ offices had the right attitude to meet the challenges of the next 2 years. Figure 20 shows the results. The responses for the right attitude are very similar to the responses for the right mix of technical skills for both groups of respondents, though executives have even more satisfaction that their offices have the right attitude. With the high satisfaction rating, executives had few additional comments, but one executive noted, “Our staff embraces change and enjoys new challenges.” Many online respondent comments addressed the reasons for not having the right attitude. One online respondent said, “When you have too many standards, not enough time, and too little budget, attitude problems begin to surface.” Another said, “Constant change has taken its toll.” Linking to agency objectives The next question asked whether the respon- dents’ staffs understood and linked the agency’s Figure 20: How satisfied are you that your office has the right attitude to meet the financial challenges of the next 2 years? 0% Executives 7% 7% 50% 30% 7% Online 14% 19% 43% 18% 3% 3% Very dissatisfied Dissatisfied Neither satisfied nor dissatisfied Satisfied Very satisfied Does not apply

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