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The Past is Prologue/The Future is Fearsome
A look backward and forward at PFM a...
My lifehasbeen long, interesting and challenging and Icoincidewith Confucius whosaid:
“At fifteen, I aspired ...
bookkeeping machines and then computers came along. The first computers were “unit
record” monstrosities with...
money at his pleasure. I gave him a deadline to get it out or we would consider it city
Only the large...
Association (MFOA, now GFOA) who also became interested. During the next year the
three of us had two meeting...
With support of GAO and IFAC’s co-sponsorship we held two conferences in
Washington in the latter part of eac...
Mort was Executive Vice President and they became close friends. She assisted Mort
with the ICGFM administrat...
Twenty years ago Mort Dittenhofer insisted that I keynote the 10th annual Miami
Conference. The title of my a...
Smartphone 1
Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF)
“We stand o...
The digital revolution that has been occurring since the middle of the last century is
characterized by a fu...
continuously adapt to a new, fast-changing environment, reinventing themselves so
they can truly understand ...
Now that we have seen the great opportunities available to us in the future let’s discuss
the possible probl...
 Becauseofvastdemographic shifts and varying population compositions the
capability ofgovernments to provid...
primarily limited to thearea offinancialinformationand the controls overthe process of
gathering,recording a...
That will beone of the mainchallengesto public financialmanagers and auditors during the
remainder of the 21...
The Internet of Things (IoT) is the application of sensors, IT and networking
technologies to connect billio...
Blockchain will have the greatest impact of all because, among other things, it will
eliminate paper and met...
Bloomberg News reports that from artificial intelligence to the Blockchain, the world of
finance is being tr...
he represented anorganizationoflocal government publicofficials and would prefer tomeet
after business hours...
during theircareer.Worse yet,weareseeing more and morecollusion among largerand
largergroups ofpublic offici...
We all become thevictims ofhyperchanging technology asthe future unfoldswith lightning
speed. Itpresents gre...
Mortimer A. Dittenhofer
January 13, 1914 – March 4, 2016
Mortimer A. Dittenhofer died on Friday M...
member of innumerable professional organizations, a sought after consultant and
speaker both nationally and ...
Further honors from other associations include the Gary Einhorn Achievement Award
in 2000 and Lifetime Resea...
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Public Financial Management: The Past is Prologue / The Future is Fearsome


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Keynote Address at the 30th Annual International Training Conference of the International Consortium on Governmental Financial Management. A bit about the past and some thoghts on the future of Public Financial Management.

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Public Financial Management: The Past is Prologue / The Future is Fearsome

  1. 1. 1 PUBLIC FINANCIAL MANAGEMENT: The Past is Prologue/The Future is Fearsome A look backward and forward at PFM and ICGFM experience and technology Jim Wesberry Past President of the International Consortium on Gov ernm ental Financial Managem ent Key note Address at the 30th Annual International Training Conference May 16, 2016 Miam i, Florida, USA jim Introduction When I was between 14 and 16 years of age I had the unique privilege of serving in Washington as a Page in the US House of Representatives. I was then, and still am, intrigued by the inscription on the base of the Statue “Future” at the side of the front steps to the United States Archives Building “What is Past is Prologue.” It comes from Shakespeare’s The Tempest, Act II, scene i, in which the character of Antonio utters the phrase “what’s past is prologue”. A prologue was then, and still is, a preface to a play or novel that “set the scene” and provided some background information. The phrase that Shakespeare invented came to mean today that the past is a preface to the future – we can’t forget the lessons of history. The past defines the present and therefore sets the stage for the future. A similar more popular quote is "those who fail to learn the lessons of history are doomed to repeat them" originated by George Santayana, the Spanish philosopher, essayist, poet and novelist.” We must remember and learn from the past to live successfully in the present and prepare for the future. So today on this 30th anniversary of ICGFM’s flagship annual event I will talk to you a bit about the past and try to set the stage for the future of Public Financial Management.
  2. 2. 2 My lifehasbeen long, interesting and challenging and Icoincidewith Confucius whosaid: “At fifteen, I aspired to learning. At thirty, I established my stand At forty, I had no delusions. At fifty, I knew my destiny. At sixty, I knew truth in all I heard. At seventy, I could follow the wishes of my heart… …without doing wrong.“ To the above, since I have now lived longer than Confucius, I canadd: At eighty, I can be outspoken from my heart and mind openly and sincerely giving no mind to whether someone becomes offended. So get ready, something I say may offend you today,in fact I hope something will, because that will make you think. In recognition of this 30th anniversary conference I intend to talk a bit about the past, but more importantly about the future of ICGFM, PFM and related technology. Past Technology in Public Financial Management At the very beginning counting was obviously done on fingers, and then tallies were made by carving notches in wood, bone, and stone. More sophisticated means were clay tokens then tablets and the knotted string quipu of the Incas and other similar elementary tools to record numbers culminating with the abacus and finally figures written carefully with quill pen and ink – feather pens and liquid ink. The “fountain pen” with a self contained ink compartment became the very latest technology for accountants. When I started out with a very old CPA firm as a junior accountant in 1953 the firm’s technology consisted of one electric adding machine and one calculating machine, both electric but very large too heavy to carry and slow to operate. We were expected to add in our heads when in clients’ offices unless they offered us a machine. The term government financial management was unheard of in those days and public sector accounting was referred to verbally and in one single accounting class each semester as “municipal accounting.” There were no accounting standards and auditors were just getting used to the ten “generally accepted auditing standards.” The Municipal Finance Officers of the US and Canada (MFOA, now GFOA) had published one book called the “blue book” on municipal “fund accounting” and that was all there was. My three years in Washington left me, unlike all my colleagues, with a great interest in politics and government and I ended up working on all the firm’s municipal and county audits while they hid under their desks whenever the firm got a new government audit. I worked for two firms, then started my ownand became best known for doing public sector work. During those years there was no new technology until first large
  3. 3. 3 bookkeeping machines and then computers came along. The first computers were “unit record” monstrosities with separate card punchers, verifiers, CPUs and continuous form printers. Then came even larger “main frames” computers. Input was still by means of perforated cards, memory was tiny and they were mostly used to process payrolls and print paychecks. The first welcome change came with the use of magnetic tape in great reels with the ability to selectively retrieve data. Finally, in the most important step forward in my opinion, large random access disks (called RAMAC by IBM) made it possible to actually compare budget and actual data rapidly and print it out but still on continuous forms on large printers. You know the rest: personal computers that got smaller and smaller, faster and faster and had more and more memory, laptops, laser and ink jet printers, the personal digital assistant and finally the smart phone. Meanwhile the MFOA pushed for improvements at the local level initiating the coveted award of its “Certificate of Conformance” for annual financial reports produced according the rules and format it recommended in its updated “Blue Book.” Government auditing was rare, except for larger entities and even for them very rudimentary. Because the biggest auditing firms adamantly refused to consider doing government work, smaller firms like mine had a phenomenal opportunity but most did not take advantage of it. Here are a couple anecdotes from my past experiences. I was hired to audit a very small county in rural Georgia and upon my arrival the very nice little old lady who was treasurer of the county received me warmly with traditional Southern hospitality and charm. She showed me into a room that contained one gigantic “well bound” (in accordance with Georgia law) accounting book lying upon a big table that had apparently been especially constructed to hold it. It was the biggest manually maintained book of original entry that I ever saw with huge pages about three feet wide containing about a hundred columns across on each page with each line containing entries in impeccably penned script. At the far left were the three important columns for cash receipts, disbursement and bank balance that were entered daily with the details posted across the expanse of the pages in the appropriate columns and finally three columns on the far right for “miscellaneous” items not recorded to the preheaded columns. The format was not that unusual for the time but the size was enormous. The sweet lady stepped out to bring me a cup of coffee while I examined the big book. When she returned I somewhat shyly said to her, Miss “Sweetlady” these columns have not been added up, there are no totals in the book. With her delightful Southern accent she calmly said with a big smile, “Why Mr. Wesberry, that’s what our auditor does.” I spent the next couple days adding it all up…in my head. Would you believe there were no errors, erasures, or other defects and the book cross added perfectly? I learned that the previous auditor for years had simply added up the book and prepared a statement of revenues and expenditures performing no verification work at all. In one small city the Treasurer kept his “personal” very valuable old gold and silver coin collection in the city’s vault considering it at face value as part of the city’s funds but making sure everyone knew it was his own to remove by replacing it with normal
  4. 4. 4 money at his pleasure. I gave him a deadline to get it out or we would consider it city funds. Only the larger governments maintained general ledgers. In one large county the senior partner of the county’s auditing firm carried the bookkeeping machine prepared general ledger pages with him in his briefcase and the county only had access to it through him. Most governments had multitudes of bank accounts with funds designated for different purposes and large amounts of idle cash on deposit. Thus they used the bank’s statements as their accounting system. We have come a long way since those days. The International Consortium on Governmental Financial Management Now a quick history of ICGFM. Dr. Mortimer A. Dittenhofer, who was the main founder and prime impetus in forming ICGFM, was one of the great auditors and educators of the 20th Century living on into the 21st to the age of 102 when he passed away just a few weeks ago. Working with, and learning from, him was one of the greatest privileges of my life. Though we actually met late in our professional careers, Mort became a friend, mentor and father in the auditing profession to me. His obituary is attached at the end of the written copy of this presentation. I had first asked for Mort’s advice by snail mail from Lima, Peru where I was working on developing government auditing standards for the Comptroller General. I had read that Mort was in charge of the team then developing the US General Accounting Office standards, later called the “yellow book.” We became friends by mail and eventually after the yellow book was published he moved to become the Executive Director of the Association of Government Accountants. Mort’s “Yellow Book” of Government Auditing Standards, the first such compilation of its type became the model for similar standards in very many countries and internationally as evidenced today by INTOSAI’s International Standards of Supreme Audit Institutions (ISSAI) IIA’s Standards for the Professional Practice of Internal Auditing and IFAC’s International Standards of Auditing (ISA). Mort and I first met personally at the annual meeting of the Institute of Internal Auditors held in Miami in 1977. I was 43 and he was 65 years of age. He had already helped me greatly by then and at our first meeting he said he wanted to ask a favor of me. Could I help start up an AGA Chapter in Ecuador where I was now working? We had just formed an IIA Chapter after two long years’ effort. I told Mort that a AGA chapter would be an impossibility as there were not that many government accountants in Ecuador and it had been an arduous labor getting the IIA chapter up and running in a developing country where auditors were not paid enough the cover professional dues of any kind. Somehow, during that discussion we agreed that an alternative might be an umbrella organization composed of AGA, IIA and similar organizations so they could work together regardless of which had a chapter in a country. Later we wrote back and forth about the idea and Mort contacted Don Beatty of the Municipal Finance Officers
  5. 5. 5 Association (MFOA, now GFOA) who also became interested. During the next year the three of us had two meetings during other professional association events to discuss how this might work, one in Miami and one in Phoenix. Finally, with me taking notes on a paper napkin in a revolving bar high above Phoenix, we came up with a plan. I was to turn our notes into by-laws and policy of the new organization and Mort was to obtain a charter in the District of Columbia. One major planned feature, among many that had to be readjusted or changed, was that the Consortium would hold no meetings or seminars of any kind to avoid conflict and duplication with its major organizationmembers. Any person who was a member of any Consortium sponsoring organization would automatically be a member of the Consortium and eligible to participate in their events at member prices. That turned out to be very unrealistic as we soon found that there were very few national organizations like AGA, MFOAand IIA; however, there were individuals across the world that were interested in ICGFMbut had no way of joining it. So we had to redo all our plans for membership, dues, etc., ending up with the a structured type of memberships we now have including much lower dues for less developed country members. Mort really did all the original work in Washington alone as soon Don Beatty left MFOA and I left Ecuador for the private sector in my home town of Atlanta. But Mort kept the idea alive. He got a pilot group organized under first President Art Litke, a very distinguished GAO accountant, appointed for a three year term as contemplated in the bylaws since we assumed it would be hard to get directors together to meet more often than every three years. The small initial Board of Directors were almost all from the US. Planning to add international board members we had provided in the bylaws for voting by the board members via snailmail on any pressing issues. By the time I moved back to Washington with the OAS Mort had the Consortium formed and running though still trying to figure out what to do and how to do it. We had provided in the bylaws that the Executive Director of AGA (first Mort, then whoever followed him) would automatically be the Secretary General of the Consortium. What we did not count upon was that Mort would soon leave AGAto teach at Georgetown University and his replacement at AGAhad practically no interest in international matters, probably due to the need to get adjusted to his new post. Don Beatty, the other founder had also left MFOA in similar circumstances. Meanwhile, I had moved to GAO. Shortly thereafter Art Litke’s three year term ended. Our plan was to change the bylaws so that I would become Secretary General and Mort president. My boss, US Comptroller General Charles Bowsher, was most supportive of this plan but wanted the GAO Legal Council to assure that my role was appropriate. To our surprise he ruled that I could not be Secretary General because that post involved financial and administrative management including signing checks and all legal documents, but he suggested that I could be President. So Mort became Secretary General again and I ended up as the Consortium’s second President. We also elected a broader based Board of Directors from a number of countries to try to offset the dominance of the United States. Now we finally had a more practical operative structure and we began work. Mort had made contact with Noel Hepworth Executive Director of the UK’s CIPFA and it replaced MFOA as a major organization member.
  6. 6. 6 With support of GAO and IFAC’s co-sponsorship we held two conferences in Washington in the latter part of each year. The first was small but successful; the second much larger as our topic was extremely timely, the debt crisis of the early 1980’s featuring the world’s top experts. Noel Hepworth had become very active and offered CIPFA as host the third conference to be held in London on dates coinciding with the celebration of 100th anniversary of its founding. By that time my term was ending and Noel was elected President. Meanwhile during my tenure we had initiated the monthly WashingtonInternational Financial Management Forum so colleagues in the US government and internationally based agencies there could get together informally for roundtable discussions. A partner in Arthur Andersen offered to edit a monthly newsletter that was snailmailed to member organizations and individual members. This eventually became the first ICGFMjournal with Jim Hamilton as editor. About halfway through my term Mort hit the mandatory retirement age at Georgetown and moved to Florida International University in Miami and I received an offer I could not refuse to work for Price Waterhouse realizing a lifetime ambition to be with a big CPA firm. One day Mort called me on the telephone and said he had an idea. Why not hold a Consortium conference in Miami for participants from Latin America since that was my area of specialty? At first we ended up actually hosting two conferences, one in Spanish in March for Latin American countries and a second in English October for Caribbean countries. These were successful but Mort and his loyal secretary, Ana Estivil, were overwhelmed with the double work so in the third year, now with greatly increased participation, we began the multilingual conference that has continued until now quickly growing from a Western Hemisphere event to an international one. The first few conferences were held at the Airport Sofitel Hotel but we quickly outgrew their facilities and had to move to the Airport Radisson where we continued over quite a few years until moving to this hotel. Many people and organizations helped us as we struggled with the first conferences with practically no working capital. Ifany conference has been a failure we would have been broke. The first sponsors of the Miami conferences were USAID, PricewaterhouseCoopers and Casals & Associates. Others gradually followed. I must tell you an anecdote that shows the great personality and sense of humor of Mort Dittenhofer. At all these Miami Conferences we always had a great deal of trouble getting the participants back in the session after the coffee breaks. This threw our programs far behind schedule. Mort, without telling me, went out in the country and obtained a very large cow bell. This is the bell that farmers place around a cow’s neck so they can be located easily in the fields. At the next conference Mort came out after the first coffee break ringing his cow bell loudly and enjoying every minute of it. The participants (and I) were astounded to see the octogenarian greatest professor in the history of government auditing ringing his cow bell as he did for years after that, always with a big smile on his face. I wonder what ever happened to that cow bell. The most important person to the success of ICGFM itself and all its conferences was a very energetic and lovely lady named Audrey Dysland. She had been a US government finance officer herself and was the first woman president of the Washington Chapter of AGA. Upon retirement from the Federal government she became CFO of AGA where
  7. 7. 7 Mort was Executive Vice President and they became close friends. She assisted Mort with the ICGFM administration and finance duties from its very beginning, finally becoming its Assistant Secretary General to Mort until he left Washington and then since she was really doing all the work she was appointed Secretary General. Audrey and her husband Bob, also a retired government lawyer actually ran ICGFM performing all duties from legal counsel to official photographer. Inthe early days when ICGFM had almost no funding they ran it from their home incurring personally all its expenses. They would never let us repay them for all they spent or for their services. They had their own office equipment and stored all ICGFMfiles and materials in their basement. Without them ICGFM and its conferences would never have survived and we would not be here today. The Present I am sure that you all know much more about the present of PFM than I so I will move on to discuss its possible future and the surrounding technological magic that will affect it. The development of IFMS as a key component of PFM began in the early 1990s with the USAID LAC Regional Financial Management Program (LAC/RFMIP). It was quickly accepted by the other international donors. If you wish to pursue the development and present status of PFM in Latin America and the Caribbean (LAC) I recommend these excellent new publications:  Interamerican Development Bank: Public Financial Management in Latin America, The Key to Efficiency and Transparency, 2015 (403 pp.)  Banco Interamericano de Desarrollo: Gestión financiera pública en América Latina, La clave de la eficiencia y la transparencia, 2015 (433 pp.)  US Agency for International Development: Public Financial Management Practices in Latin America and the Caribbean: A Review of Trends, Challenges, and Opportunities for Improvement, 2014 (PDF, 123 pp.) Technology Trends In 1994 John L. Petersen wrote a book called The Road to 2015. In it he said: "You are living in the period of time that will produce more change for humanity than any previous era in history. It is a time of extraordinary importance that will fundamentally reshape almost every aspect of your life during the next two decades. Wholesale change is taking place in almost every segment of your reality - and the pace will only increase in the coming years." What he predicted occurred…and continues on…but at what seems like the speed of light.
  8. 8. 8 Twenty years ago Mort Dittenhofer insisted that I keynote the 10th annual Miami Conference. The title of my address was “Cyberaccountability vs. Hyperchange.” I began by talking about the most exciting technological development of the 199os…the Internet: “Originated as a defense effort to secure computer communications against an attack, Arpanet, as it was then called, linked four sites in the decade of the "60s. By 1975 it had grown to about 100 sites, primarily universities and others doing defense work and research. Another 100 sites had joined by 1983. In 1995 there were an estimated 12 million computers linked to the Internet, half of them permanently attached, the rest PCs and laptops only intermittently on line.” Today around 40% of the world population has an internet connection…nearly 3 ½ billion Internet users and there are almost one billion websites. That is what I meant by “hyperchange.” Number of Internet Users in the World Here’s another popular way to illustrate hyperchange: Time in Years Taken to Reach 50 Million Users Telephone 75 Radio 38 TV 13 WWW 4 MP3 3 Facebook 2
  9. 9. 9 Smartphone 1 Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF) says: “We stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope, and complexity, the transformation will be unlike anything humankind has experienced before.” The WEF recognizes our current position to be at the beginning of the Fourth Industrial Revolution (see its video at Kevin Kelly, co-founder of Wired says that 20 years ago one who predicted where we are now would have been declared insane and “the next 20 years are going to make this last 20 years just pale." Facebook is getting ready to introduce artificial intelligence and virtual reality. Both of these fit its strategy of monetizing as many of our social interactions as possible. Will governments use these to further monetize their revenues? Facebook’s chief product officer, Chris Cox predicts the soon demise of the keyboard. Facebook already uses artificial intelligence to personalize your newsfeed, identify you in photos and translate your posts. The company has built technology that can recognize objects – even different dog breeds – in photos and videos. The ultimate aim is to develop algorithms that can understand the nuances of people’s physical interactions. President Mark Zuckerberg said in his recent keynote speech: “Our goal with artificial intelligence is to build systems that are better than people at perception — seeing, hearing, language and so on.” Will governments eventually also build such systems understanding the nuances of their citizens? Why not?
  10. 10. 10 The digital revolution that has been occurring since the middle of the last century is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. The response to it must be integrated and comprehensive, involving all global stakeholders from the public and private sectors The WEF says that the transformations of the Fourth Industrial Revolution involve velocity, scope, and systems impact. “The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance. The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing. Already, artificial intelligence (AI) is all around us, from self-driving cars and drones to virtual assistants and software that can translate or invest. Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs to algorithms used to predict our cultural interests. Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, and synthetic biology to pioneer a symbiosis between microorganisms, our bodies, the products we consume, and even the buildings we inhabit.” WEF continues, “As the physical, digital, and biological worlds continue to converge, new technologies and platforms will increasingly enable citizens to engage with governments, voice their opinions, coordinate their efforts, and even circumvent the supervision of public authorities. Simultaneously, governments will gain new technological powers to increase their control over populations, based on pervasive surveillance systems and the ability to control digital infrastructure. On the whole, however, governments will increasingly face pressure to change their current approach to public engagement and policymaking, as their central role of conducting policy diminishes owing to new sources of competition and the redistribution and decentralization of power that new technologies make possible.” “Ultimately, the ability of government systems and public authorities to adapt will determine their survival. If they prove capable of embracing a world of disruptive change, subjecting their structures to the levels of transparency and efficiency that will enable them to maintain their competitive edge, they will endure. If they cannot evolve, they will face increasing trouble.” Given the Fourth Industrial Revolution’s rapid pace of change and broad impacts, legislators and regulators are being challenged to an unprecedented degree. They will have to preserve the interest of the consumers and the public at large while continuing to support innovation and technological development. Regulators will have to
  11. 11. 11 continuously adapt to a new, fast-changing environment, reinventing themselves so they can truly understand what it is they are regulating. This means that governments and regulatory agencies will have to collaborate closely with business and civil society. Everything indicates that the already rapid technology changes in private and public sector accounting will accelerate over the next decade. The Internet and high bandwidth wireless networks will continue to expand and grow. Cloud computing platforms and applications will combine with advanced analytical tools, ever-larger data sets and social and mobile computing to reshape the PFM profession. Smartphones, tablets, notebooks and other mobile computing devices will become the main tools for managing the government accountant’s complex choreography of work and life. These technologies will reinvent work and the workplace, allowing greater flexibility around when, where and how work is done. Increasingly advanced, yet cheaper, computing power, networks and the Internet will lead to the highly developed automation of data collection and information sharing. They will also improve data quality and greatly reduce, but not eliminate, the time required for data validation. As the time and effort required for data collection and validation is substantially reduced data analysis tools and software will greatly increase the opportunities to provide governments with analysis, performance management and decision-support services. This combined with the increasing use of robotic assistance means that number of required accountants and other financial professionals will be reduced dramatically in government and business. Ambient intelligence could transform cities through dynamic routing and signage for both drivers and pedestrians. It could manage mass transit for optimal efficiency based on real-time conditions. It could monitor environmental conditions and mitigate potential hotspots proactively, predict the need for government services and make sure those services are delivered efficiently, spot opportunities to streamline the supply chain and put them into effect automatically. To summarize here are some of the most important emerging trends:  Sensors and actuators, including implantables and wearables, that let us capture more data and impressions from more objects in more places, and that affect the environment around them.  Ubiquitous computing and hyperconnectivity, which exponentially increase the flow of data between people and devices and among devices themselves.  Nanotechnology and nanomaterials, which will let us build ever more complex devices at microscopic scale.  Artificial intelligence, in which algorithms become increasingly capable of making decisions based on past performance and desired results.  Vision as an interface to participate in and control augmented and virtual reality.  Blockchain technology, making all kinds of digital transactions secure, verifiable, and potentially automatic. Fearsomeness
  12. 12. 12 Now that we have seen the great opportunities available to us in the future let’s discuss the possible problems and dangers. We have seen that more than 30 percent of the global population now uses social media platforms to connect, learn, and share information. In an ideal world, these interactions would provide an opportunity for cross-cultural understanding and cohesion. However, they can also create and propagate unrealistic expectations as to what constitutes success for an individual or a group, as well as offer opportunities for extreme ideas and ideologies to spread. Technology is obviously one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries. The demand for highly skilled workers will continue to increase while the demand for workers with less education and lower skills will further decrease. This will be equally true in government as in business. The result will further drive a job market with a strong demand at the high and low ends, but a hollowing out of the middle. The Fourth Industrial Revolution will also profoundly impact the nature of national and international security, affecting both the probability and the nature of conflict. The history of warfare and international security is the history of technological innovation, As new technologies such as autonomous or biological weapons become easier to use, individuals and small groups will increasingly become capable of causing mass harm. This new vulnerability will lead to new fears. But at the same time, advances in technology will create the potential to reduce the scale or impact of violence, through the development of such things as new modes of protection and greater precision in targeting. While many people thinkthatthe currentworld economic situationwill gradually improveas it has inmany priorsimilar circumstances, others believe thatthere willbe continual up-and- down yoyo-like swings inthe economiesofthe countries oftheworld with a gradualtendency to edge permanently eitherupward ordownward. Many believe that we will not any time soon, perhapsever, see thelevel of prosperity that somenations achieved during the 20th Century. We cannotforecast what is going tobe happening in the future butone thing for sure,the next 20 years will bequite differentfrom thepast 20years both as far asthe world economy is concerned and as far as governmentand business financial managersare concerned. Some things we may reasonably expect inthe near future could be:  Becauseofthe simultaneous jarring shocks,dramaticcrises and astonishing technological changes we areexperiencing and will continue toexperience, it is no longer possible to fully rely upon past tendencies as a means of forecasting the future, or to be able to plan usefully more than a shorttime ahead.  Becausethey believe they havebeendeceived, therewill bea massive lackof credibility among citizens, investorsand almost everyonein so far as the activities of business and government are concerned.  Becausethey are inherently insolvent, mostoftheworld’s governments willbe experimenting with many varieties ofcreative economics and undergoing severe periods of readjustmentand austerity accompanied by greatsocialunrest.
  13. 13. 13  Becauseofvastdemographic shifts and varying population compositions the capability ofgovernments to provide social safety nets forthepoor and comfortable retirement for theaging will becomevirtually impossible.  Becausethey have heretofore unrealistically inflated asset and security values, those of the world’s great businessesthat survivewill beobliged tochangemany things about the waythey dobusiness.  Becausethey have failed miserably, the entiremechanisms and structures ofall worldwide financial institutions and systems will beoverhauled.  Becauseofthe accelerating worldwide cultural and ethical decline exacerbated by hard economictimes,unemploymentand severe need, the present upsurge offraud, crime and corruptioninthepublicand privatesectors willcontinueunabated.  Becauseofthe vastly increasing volume of flows ofinformationofallkinds exacerbated by the grievous deceptionofcitizensand investorsby peoplein whom they formerly had faith, therewill be a very high degree of skepticism regarding the reliability ofany and all informationpublished whetherit befinancialorofany ofthe nature,especially including that furnished by themedia.  Becauseofthe worldwidelossofconfidence inpoliticalparties,parliaments and judiciary systems,the current trend towardmore authoritariangovernance,thus weakening, ifnotdevastating,democraticprinciples,yetretaining their cosmetic appearance,could morph intoa form ofgovernment that somehave called “dictocracy” whether or not it emergesunder thebanner ofsocialism or capitalism.  Becausethere is norealparagonfor guidancein this technological revolution, thereis no way to planand budget formorethanthe shortterm. Whatwill be the roleofthe publicfinancialmanagerinthis drastically changed world? There will certainly bea drasticneed for someone to try to provide, assure or restore credibility to institutions and theinformationthey produce.This clearly should be therole of a financial managers and auditors. One ofthefew thingsthat willnot change during the remainder ofCentury 21 is the continued growth and sophisticationof fraudand corruption. There willbe anevengreaterneed for forensic accountants and auditors to continue therole ofinvestigating,obtaining evidenceand disclosing cases offraud and corruptionsolong as a free press and prosecutorial will exist. Many have lostfaith indemocracy and it is underfervent attack inmany countries. Oneofthe mainreasons forthis is that democraticpracticeshave beenseverely tainted and confidence in them undermined by financial scandals,conflicts of interest,criminally tainted money, excesses offinancial transactions (collections and expenditures) beyond statutory limits, delinquentand/orfraudulent reporting and internal fraud among political parties and campaigntreasuries. In the industrialized countries politicalschemers haveunrelentlessly developed “legal”means of circumventing any and all legislationintended tocleanup political finances. Here is a thicketthat publicfinancialmanagers and auditors have rarely entered, butone that needs their attentionunless weplantobury democracy once and forall. Dollarcracy has replaced democracy across Planet Earth and unless some means of controlling,disclosing and auditing political funding canbe putinplace,democracy will surely die. Here is a very controversial and dangerous,but badly needed,role forPFMprofessionals. The strengthening of credibility ofpublic and private institutions and informationwill bethe greatest challenge beforebusinesses and governments. Auditors willhave touse theirtalents and abilities togatherall kinds of information,assess it and ascertainwhether itis valid. Thisis basically what they have beendoing all thetime but
  14. 14. 14 primarily limited to thearea offinancialinformationand the controls overthe process of gathering,recording and reporting it. Auditors willcontinueto provide assurances regarding the adequacy offinancial information and controls. They havealready begun to provide attestationservices inotherfields and this will necessarily begreatly expanded. Unfortunately, in aninformation-oriented society with a historically nurtured culture of exaggeration, manipulation,and outright “spinning” of all kinds of informationfrom balancesheets totelevisionnews,there is plenty ofroom for an informationsociety tobe transformed intoa misinformationsociety. Today we havea flow ofverbal, printed and visual informationgreater thanatany time in human history and itis increasing exponentially. We are deluged by great volumes of money, statistics, reports, news,documents,books, video recordings and presentations and digital informationcompressing all oftheabove into magneticfiles that few peoplecan understand if their programs don’twork. Weare responsiblefor notonly administering, butalsounderstanding the flows andmeanings of trillions of monetary units.But no humanbeing canreally comprehend a numericalvalue in the trillions. And soonwe’ll beinthe quadrillions. One trillionseconds is moretime thanhas existed inall recorded history…31,688years to be exact. Nohumancould physically count and verify the authenticity of $1,000,000,000,000.00incurrency whetherphysical or electronic.Fortunately wehave machines thatcandoso ifthey arecorrectly utilized. Very soonall humanknowledge will be stored, handled and reported.It is abundantly clear that wearenowdealing with volumes of informationthat the humanbraincan nolonger cope with. Yetsomeone, somehow notonly has tocompile,summarize and report on different combinations and categories ofthis informationbutcommunicatethe results clearly to others so that they canbe understood. Whata greatopportunity to manipulate any kind of information. What a great opportunity tofalsify,spin, distort or simply modify cosmetically any type of information to makemorepleasant. No business CEO or national President likes toreceive bad informational or financial news. If authoritarianism grows inthecoming years, as wellmaybe thecase,leaders inbusiness and government willbe inpositions toseethattheirsubordinates always furnish them good news whether itrelatesto financial operations and position or the number ofprisonerstakenand soldiers killed onthebattlefield. One ofthekey factors inthe collapseoftheformerSoviet Unionwas the fact that factory managers,inordertoreportthatthey had metproduction quotas, massaged and inflated the figures. Thus government leaders were fooled intothinking things werebetteroffthanthey actually were. A very smart executive inbusiness orgovernment may begreatly concerned that the stockholders investors or the public receive only favorablefinancialand non-financial news, but will alsobe greatly concerned toknowwhatthe real situationis,so as to beabletotake correctivemeasureswhennecessary eventhough they mayhave tobestealthy. Now this is thebottom line. Hopefully democracy will prevail across theplanet, butwhethera form of governmentvaries from strongly autocratictopurely democraticnature or from socialisttocapitalist,there will always be a need for someoneto assureand attest to the credibility ofjust about everything.
  15. 15. 15 That will beone of the mainchallengesto public financialmanagers and auditors during the remainder of the 21st-century…providing credibility eithertothe entire public atlarge ortoa single powerfulleader or group of elites… The Next 30Years: ICGFM andPFM With 30 yearsbehind us let lookas far forward as we can. ICGFMwill change drastically by using every possible form of communications and training technology. Everything it publisheswill be digital…academicjournal,e-magazine and whatever new comesalong.Conferences will bevirtual rather thaninpersonwith the possible exceptionofa liveconferenceevery few years topermit personalcontacts. Traveland hotel costs will beeliminated and registrationwill bemuch cheaper, perhaps included inannual dues. Sophisticated digital platforms will enable virtual environments that simulate the benefits of real events, and attendees will also be able to access colleagues and subject matter experts individually online. Eventually augmented reality headsets and holograms will make it possible for participants to see speakers and other participants in three dimensions approximating live participation. Many new technologies will affect and improve PFM. The Digital Strategy released by the White House in May, 2012 ( gov ernment/digital-government.html) calls for a revolution in mobile, social, cloud, analytics and the interoperable use of data. It is the most far ranging attempt by any government to utilize new technologies. I believe that the three main current trends that will impact most will be:  DigitalFabrication(alsocalled Additive Manufacturing or 3D printing)  The Internet ofThings (IoT)  Blockchaintechnology 3D printers use a variety of methods and technology to assemble physical versions of digital objects, usually by constructing a thin layer of an object at a time and then building another layer of the same object immediately on top of the prior one. Digital fabrication will allow governments to design and produce tangible objects on demand, wherever and whenever they need them or to contract a local company to fabricate them. Governments will first use 3D printers to do small-scale production of previously purchased goods. Later they may use 3D-printing for buildings and electronics. The Internet of Things (IoT) goes beyond the interconnectedness of machines to smartsensor integration. The addition of smart sensing will lead to an increased flow of information that will potentially affect almost every facet of people's lives. IoT is the network of physical objects—devices, vehicles, buildings and other items—embedded with electronics, software, sensors, and network connectivity that enables these objects to collect and exchange data.
  16. 16. 16 The Internet of Things (IoT) is the application of sensors, IT and networking technologies to connect billions of devices around the world. These enable new, smart applications, analytics and business and government models that result in a cleaner, more efficient and sustainable way of living. Just as the internet connected billions of computing devices and created new applications and models such as search engines, emails, e-commerce and social media, IoT will advance humanity in ways we can’t yet imagine. Experts predict that, by 2022, one trillion networked sensors will be embedded in the world around us, with up to 45 trillion in 20 years. With this many sources of data for all manner of purposes, systems will be able to arrive at fast, accurate decisions about nearly everything. And they’ll be able to act on those things at the slightest prompting, or with little to no human action at all. IoT will offer advanced connectivity of devices, systems, and covering a variety of protocols, domains, and applications. The interconnection of these embedded devices is expected to usher in automation in nearly all fields, while also enabling advanced applications and expanding to the areas such as “smart cities.” In these sensors and smart phones will be able to track materials and assets, letting people know whenthey are not being used, about to break, or where they are. This will unlock huge amounts of spare capacity in the system, creating new business models that will drastically change the way the city functions. Once all properties of a governmental unit are interconnected the long time problem of controlling assets and knowing where they are will at last be solved.
  17. 17. 17 Blockchain will have the greatest impact of all because, among other things, it will eliminate paper and metal money. It is defined as “A system that’s secure without a higher authority, distributed across many strangers’ computers, yet tamper-proof, and promises a mechanism for trust mediated directly between individuals”. “Blockchain technology will underpin the internet of things, safeguarding privacy, reducing cost, and ensuring the next wave of change in the digital realm puts real control in the hands of those who are accountable.” David Siegel, co-chairman of Two Sigma Investments says the day may come when banks aren’t even needed to hold money if digital currencies like bitcoin flourish. With Blockchain, the distributed software protocol that enables bitcoin to work, authorities like central banks and governments may also see their roles vastly diminished. “It’s a remarkable power structure shift,” he said. “It will ultimately be very hard for governments to stop this advancement because this technology will be so widely available,” making it hard to police, Siegel said. “Probably the same thing will happen with virtual currencies. How do you stop it? It’s software.” Though best known for facilitating cryptocurrencies, Blockchain will really have the potential of third party-free transfer. “That can involve entirely different cultural interactions than just seeing value as meaning money.For example, we could see voting and collective decison-making without the use of third-party control. The future can involve all kinds of creative exchange between human (and even digital) beings that are direct, private when wanted, and totally in the hands of sender and receiver.”
  18. 18. 18 Bloomberg News reports that from artificial intelligence to the Blockchain, the world of finance is being transformed by emerging technologies and that will mean lots of lost jobs. PFM will not be excluded from this expected loss of jobs. Banks have cut tens of thousands of jobs since the 2008 financial crisis as global regulatory changes have shattered the old banking models. That trend will continue as the complexity and interconnections of financial markets increasingly mean computer algorithms and artificial intelligence take over the roles of human decision-makers. Eventually machine learning, in which computers gradually learn to function as humans, combined with Blockchain will drastically affect the number of humans necessary to perform public financial management functions. Experts say machines are now in some sense beginning to think. And what that means is we're seeing machines encroach on the kind of capabilities that set humans apart. Robots will threaten any jobs which involve humans sitting in front of screens dealing with information. Fearsome Justice: The Risk ofDangerto GoodPublic Financial Managers This subjectis rarely, ifever,discussed in thesetypemeetings.Ihave never beforedealtwith it publicly.I’ll start by describing a meeting held ina majorLatinAmerican capital city about 25 years ago. We were just starting out theLAC/RFMIPProjectby doing severalanalysesofPFMincertain selected countries using teams ofexperienced professionals.Inthevery firstcountry Ireceived a telephone call from someone whohad heard about ourwork asking for a meeting.He said
  19. 19. 19 he represented anorganizationoflocal government publicofficials and would prefer tomeet after business hours. Itold him tocome by my hotelroom that evening. The onsite country teamleader and Iwaited forthem inmyroom expecting only one or two persons. Whenthey arrived about 25or30men,all middleaged or olderstreamed intothe room filling itup completely. Therewerefolks onthebeds,leaning againstthe wall, sitting on the window sills and filling upthe entirefloor.They looked very serious and wewere somewhatshocked. The spokesmansaid that they represented a nationwideorganizationofmunicipalemployees who were incharge ofresources, both inmoney andkind with overone thousand members. They weretreasurers, stock clerks,procurement persons, inventory clerks and any kind of public officer who was responsibleoraccountable forproperties, resources or money. Never before orsincehave Iheard ofsuch anorganizationelsewhere. Here’s their story intheir words as Irememberit told tous: “We arethelowest level of employeeswho are responsible for resourcesof our local governments. We work forverysmall municipalitiesthathave fewemployeesandwereport to locallyelected politicians…mayors,councilmen,etc. We have familiesin our small townswherethereislittleopportunityfor employmentso we needour jobs. All too often our bossesorder usto do thingswe knoware wrong usually involving their profiting bythelossto themunicipalityof resources. Theymakeusperformillegal actsontheir behalf which we resent and have no interest in. Theyget the loot, we getnothing.Our choice isto cooperate or be firedand replacedbysomeone who will do their will.Because we are modest people andneed the work wehave no choice butto do whatthey demand or risk thelivelihood of our families. The worst part isthatwhen illegal actsarediscovered asthey often are, we go to jail andthey go free because they are electedofficialswith prestige,power and, if necessary,highpriceddefense attorneys.” That meeting was soseriousthat we actually sawgrown middleaged and elderly menwith tears in theireyes. Wewanted tohelp them and tried ourbesttodo sowith our recommendations. I’m not toosurewe succeeded. Frankly,neither Inor my colleaguehad ever thought aboutsuch situations.We haveever since. While therisks arethe greatestin the smallest governmental units with few employees and little possibility ofstrong internal controls, they really exist at every level ofgovernment. Since thenI have observed a numberofsimilarcases and I believe therearemany more that never become known. As governments havebecomelarger and morecomplex,they have also become more and more subject tothepossibility of higher officials extorting loweremployees tofacilitate illegal acts ofall kinds. This is a dangerthat every PublicFinancialManager may haveto confront
  20. 20. 20 during theircareer.Worse yet,weareseeing more and morecollusion among largerand largergroups ofpublic officials tomake private profit fromtheirofficial posts. Collusive groups tend tobring more pressure upon employees seeking tobe honest…and many succumb. I have since beenlooking forsimilar cases and have seencases of middlelevel and eventop level publicofficials whohave fallen into threeclasses: 1. Those who are honest and are able toresignrather participate inthecommissionof a crime. 2. Those who are honest and want toremainso, but cannot gatherthe courage to risk losing their employment,so they goalong eventhough they make no profitfrom the crime. 3. Those who try to remainhonestbut succumb tothe pressure whenthey areoffered and receivepartofthe proceeds of a crimethey otherwise would neverhave imagined committing. Clearly the third type isguilty, butmuch less so than the originators and perpetrators. The first, ofcourse, isinnocent.But whatofthesecond who gains nothing buta lost reputationand perhaps timein jail fortrying toprotecthis family? Rarely is he shownmercy. I have noanswertothis problem so Ileave itwith you all tothinkabout.I believe these type situations will getfar worse inthecoming yearsand willconstitutea greatethical challenge to the assurance of justicefor PublicFinancial Managers. I sincerely hope thatyou will notbecome involved is such a situation. It is easy torantand raveaboutfraud, corruption, bribery and impunity. Ido itall the time. But it is far harder,though equally important, tocarefully consider the need to protect the honest from temptations and pressures tobecomedishonest.Thatis one ofthe mainpurposes of internalcontrols,butsome organizations are too smalland larger organizations oftenapply subtle threats and peer pressure toenter into conspiracies. We mustconsiderthe protectionoftheintegrity oftheinnocent with a vigor equal to that we exerciseinthe prosecutionofthe guilty. Conclusion I have tried to make three pointstoday: 1. Be guidedbythe past as youpursuethe presentand prepare for the future. 2. Maximize theuse of technology.Youcannotavoid it. 3. Stay out of jail.
  21. 21. 21 We all become thevictims ofhyperchanging technology asthe future unfoldswith lightning speed. Itpresents great opportunitiesbut also,like anything new,canmakeus uncomfortable as we seekto dominate it. Twenty years agoat the10th ICGFMConferencehereinMiami Iclosed my presentation with this Hyperchange Victim'sSerenity Prayer which Ibelieve is still very appropriate: God give us the grace to accept with serenity the change that technology brings, the foresight to prepare for it in advance, the courage to manage it if we can, and the wisdom to accept it… whether we like it or not.i i Adapted from The SerenityPrayer by Reinhold Niebuhr GodBlessYou, Your Countries and this Hyperchanging Planet Jim Wesberry
  22. 22. 22 INMEMORIAM Mortimer A. Dittenhofer January 13, 1914 – March 4, 2016 Mortimer A. Dittenhofer died on Friday March 4, of heart failure at Holy Cross Hospital in Silver Spring MD. He was 102. At the time he was living independently at Riderwood Retirement Community in Silver Spring. Mort was born in St Paul, MN January 1914, only child of Mortimer, a lawyer, and Gertrude (ne Gunzsburg) a socialite and champion bridge player. Beyond being a father and twice a husband, Mort had been Professor Emeritus, a Ph.D., a Certified Internal Auditor, a Colonel in the Army, an extensively published author, a
  23. 23. 23 member of innumerable professional organizations, a sought after consultant and speaker both nationally and in 24 foreign countries, and an inspiration, mentor and friend to his professional associates, students, friends and neighbors. Mort graduated from Macalester College with a degree in economics (which awarded him Distinguished Citizen of the Year in 2002) from Northwestern University in 1942 with an MBA in accounting, and from American University with a Ph.D. in 1974. As a second lieutenant in the Army in 1942, he was deployed as a Platoon officer of the 23rd Quartermasters Regiments when his unit went to the California coast with the 5th Armored Division to repel the Japanese in case the Allies lost the battle of Midway. Landing on Omaha Beach, he had the task of supplying the replacement personnel needed for the wounded and killed. Later, working with other members of the Allies, Dittenhofer helped design the accounting system used to account for looted property rescued from Nazi government. Back in the States, Dittenhofer was an auditor for the Atomic Energy Commission for 10 years, where under topsecret clearance and armed, he accounted for radioactive material and weapons. Over the next seven years he worked for NASA and HEW (now Health and Human Services.) Then on to to the General Accounting Office in 1969 (now the Government Accountability Office), where he headed a 10-person, 2-1/2 year working group that developed the ‘Yellow Book’ of government audit standards. Translated into 23 languages, the Yellow Book set audit standards as practiced by governments all over the world. Dittenhofer retired from the GAO as an assistant director. He then taught accounting and auditing at Georgetown University for seven years and at Florida International University for 15. At 78, he was perhaps one of the oldest professors ever granted tenure. More remarkably, he was too consumed with his teaching, writing and counseling duties to prepare his tenure application package: he informed his chairman that if they wanted him to have tenure, they would have to prepare his application package themselves--which they did. In a two-year period, FIU awarded him Outstanding Achievement Award, Outstanding Educator Award, Most Supportive Faculty Member, and Distinguished Service Award. He was a valued member of many professional organizations. He joined The IIA (Institute of Internal Auditors) in 1969, and his professional life is one that could fill the pages of a history book. He remains the only internal audit practitioner to receive both the Bradford Cadmus Memorial and Leon R. Radde Educator of the Year awards. Even more impressive, Mort is one of only four recipients of The IIA’s Lifetime Achievement Award. Just last year, he was inducted into The IIA’s American Hall of Distinguished Audit Practitioners. Another Association important to him was the International Consortium on Government Financial Management, which he co-founded in 1977 with Jim Wesberry. It brings together government entities from the Americas, Africa, Europe and Asia, from the most local to national, as well as universities, financial management practitioners and private sector specialists.
  24. 24. 24 Further honors from other associations include the Gary Einhorn Achievement Award in 2000 and Lifetime Research Award in 1994 from the Association of Government Accountants. In addition, he served as a United Nations expert and wrote the conference text for a 1988 meeting in Vienna Austria. He helped lay the foundation for internal audit education by establishing The IIA’s Endorsed Internal Auditing Program at Florida International University. That program has transitioned into what is known today as the Internal Auditing Education Partnership, which has flourished and now exists at 45 colleges and universities around the world. In addition, he is co-editor along with James H. Scheiner of the Sawyer’s Internal Auditing, 4th and 5th editions, the 1,446-page reference guide plus a 400- page instructor’s guide. This book is the preeminent reference guide in the world. His lifetime of authoring has included at least 30 articles, innumerable papers presented at conferences but not published, and numerous books, including Behavioral Dimensions of Internal Auditing, 2010, and Applying Government Accounting Principles which was published when he was 101. His hobbies included amassing a collection of 245 models of historic fire engines, coin collecting, and reading military history and espionage novels. How was he able to achieve so much in his life? total optimism, enthusiasm, equanimity, perfectionism, and thriving on 5 hours of sleep. His secret for living to 102? “Always chase the girls!” Mort is predeceased by two wives and one daughter. He is survived by two children and three step children and numerous grandchildren and great grandchildren. His memorial service will be on March 26th at 11 am in the Riderwood Retirement Community Chapel in Silver Spring with a reception to follow if desired. The family requests donations to be made to The Cancer Research Institute, New York, NY, in lieu of flowers.