The AGA Weblog

The Executive Order on Improper Payments: A Call for Action!

By: Jeffrey C. Steinhoff, CGFM, CPA, CFE

Jeff Steinhoff, a Past AGA National President, is the Executive Director of the KPMG Government Institute

November 23, 2009, will go down as a red letter day in the fight against improper payments with the release of the Presidential Executive Order – Reducing Improper Payments and Eliminating Waste in Federal Programs.

In the words of Office of Management and Budget (OMB) Director, Peter Orszag, in announcing the pending issuance of the Executive Order on November 18:

“Each year, taxpayers lose billions of dollars in wasteful improper payments by the federal government to individuals, organizations, and contractors. ….. In 2008, improper payments totaled $72 billion; in 2009, they totaled $98 billion — an increase driven by improved detection and the significant increase in federal outlays associated with the economic downturn. These errors and mistakes are unacceptable. Taxpayers deserve to know that their dollars are being spent wisely and effectively.” 

To quote from the November 23rd Executive Order:

“When the Federal Government makes payments …., it must make every effort to confirm that the right recipient is receiving the right payment for the right reason at the right time. The purpose of this order is to reduce improper payments by intensifying efforts to eliminate payment error, waste, fraud, and abuse in the major programs administered by the Federal Government, while continuing to ensure that Federal programs serve and provide access to their intended beneficiaries. No single step will fully achieve these goals. Therefore, this order adopts a comprehensive set of policies, including transparency and public scrutiny of significant payment errors throughout the Federal Government; a focus on identifying and eliminating the highest improper payments; accountability for reducing improper payments among executive branch agencies and officials; and coordinated Federal, State, and local government action in identifying and eliminating improper payments.”

Among the new requirements in the Executive Order are to: 

• Create an online dashboard of key indicators and statistics on improper payments.  This is in line with the accountability and transparency concepts in the American Recovery and Reinvestment Act (Recovery Act). 
• Create and publicize a single mechanism for the public to report suspected incidences of waste, fraud, or abuse.  Much like the Recovery Act, increased citizen involvement in combating fraud, waste, and abuse is being encouraged and facilitated.
• Require agencies to establish more frequent error reduction targets, and more frequent error measurement for certain high-priority programs. This increases the focus on programs of the highest risk of improper payments.
• Issue recommendations on new internal techniques agencies can use to better detect and mitigate improper payments.  As discussed in several of my previous AGA essays[i] and an AGA Journal of Government Financial Management article, entitled Forensic Auditing – A Window to Identifying and Combating Fraud, Waste and Abuse[ii], the use of continuous monitoring/continuous auditing techniques and technology tools are important for this purpose.  They can be applied and leveraged by agency management to help address fraud, waste, and abuse.
• Require each agency to designate a current, Senate-confirmed appointee to be accountable to the President for meeting improper payment reduction targets. This makes a clear statement about the expectation for results and helps set the proper “tone at the top” and Presidential commitment. 

• For programs where targets for reducing payment error rates are not met for two years in a row, require the agency head, Chief Financial Officer, and the agency Inspector General to provide the OMB Director a report describing the likely causes of the agency’s failure and actions it will take to meet reduction targets.  This would raise the stakes appreciably and foster greater accountability for results.
• Increase data-sharing among federal agencies and programs and, where applicable, state and local governments and other stakeholders to improve eligibility verification and pre-payment scrutiny.  Data-sharing has been a long-standing problem for some programs and is in need of a solution. 
• Require quarterly agency reports [correct??] on any high-dollar errors identified by the agency and actions the agency will take to recover the improper payment and to prevent future improper payments.  Again, this provides added accountability and focus on those areas of greatest risk.

• Pursue administrative actions to provide state, local, and other organizations with incentives for reducing improper payments.  A greater partnership with state and local governments and non-profit organizations should help given their role in disbursing hundreds of billions of dollars of federal funds annually, including programs at high risk for improper payments, such as Medicaid which is state administered.
• Seek to enhance contractor accountability by pursuing methods such as subjecting contractors to debarment, suspension, and financial penalties for failing to timely disclose credible evidence of significant overpayments received on government contracts.  It is being made clear to contractors their responsibility to be stewards of public funds where there are improper payments. In the past, some contractors may have simply kept any federal overpayments unless the government identified the problem and sought the return of its money.  This now places some of the onus on the contractor.

The Executive Order provides a framework to build on efforts that have taken place since enactment of the Improper Payments Information Act (IPIA) of 2002.  By focusing attention on requiring estimates of improper payments, IPIA helped frame the issue, the magnitude of the problem, and the need for broader action, which led to the Executive Order.  This is an example where requiring agencies to estimate and report annually can drive broader management reform. 

Now is the time to develop solutions to previously thorny payment problems by changing business processes and leveraging technology.  It is time to look outside of the box, or in some cases just better leverage what is already available, by implementing new techniques and using technology to first and foremost help prevent improper payments and then to enhance the ability to detect and recover any such payments.

My questions to you:

• What are your views on the Executive Order?
• What actions do you believe would best help achieve the President’s goals in the Executive Order to reduce improper payments?
• What about the use of technology, such as forensic tools to help analyze and correlate information in order to prevent and detect improper payments?
• Do you have any leading practices you would like to share?
• What do you view as the impediments or challenges to meeting the goals and requirements of the Executive Order in your agency?

As this is the last essay to be posted on AGA blog, my thanks go to AGA for giving me the honor of being the first and last essayist.  Thanks go to each of you who have read the essays and those who have shared their views and comments. Special thanks go to Marie Force and Chris Camara for their initiative and sterling leadership of this program.

The views in this essay are those of the author only, and do not necessarily represent the views or professional advice of KPMG LLP.

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[i] Forensic Auditing—A Window to Identifying and Combating Fraud, Waste and Abuse, June 3, 2008; Are You Prepared to Protect the Integrity of Recovery Act Spending, May 27, 2009; Is Your Finance Organization A Leader in Supporting Acquisition and Contract Management, August 31, 2009; Check It—What Gets Checked Gets Done, September 25, 2009; and Odds Are Fraud Is an Issue in Your Organization, November 23, 2009

[ii] Forensic Auditing—A Window to Identifying and Combating Fraud, Waste and Abuse, Journal of Government Financial Management, Summer 2008, Vol. 57, No. 2

Non-Cancellable Operating Leases—What Challenges Do You Face in Accumulating the Necessary Information for Financial Statement Reporting?

By: Andrew Lewis, CGFM, CPA

Andrew Lewis is a senior manager with KPMG LLP’s government audit practice and a Fellow of the KPMG Government Institute. In addition, Andrew is president-elect of the Montgomery/Prince George’s Counties AGA Chapter, and is an adjunct professor in the Masters of Accountancy program at The George Washington University.

Federal agencies are required to disclose the amounts of future non-cancellable operating lease payments in the footnotes to their annual financial statements. Through this reporting, the reader of the financial statements has a window into the government’s financial exposure for non-cancellable operating leases. Depending on the agency, operating leases could run into the hundreds of millions of dollars.

Operating leases are defined in OMB Circular No. A-11,Preparation, Submission, and Execution of the Budget (dated August 2009), Appendix B (3) as follows:

Operating lease means a lease that meets all the criteria listed below. If the criteria are not met, the     lease will be considered to be a capital lease or a lease-purchase, as appropriate.

·      Ownership of the asset remains with the lessor during the term of the lease and is not transferred to the government at or shortly after the end of the lease term.

·      The lease does not contain a bargain-price purchase option.

·      The lease term does not exceed 75 percent of the estimated economic life of the asset.

·      The present value of the minimum lease payments over the life of the lease does not exceed 90 percent of the fair market value of the asset at the beginning of the lease term.

·      The asset is a general purpose asset rather than being for a special purpose of the government and is not built to the unique specification of the government as lessee.

·      There is a private sector market for the asset.

OMB Circular No. A-136, Financial Reporting Requirements(dated June 10, 2009), Section II.4.9.18, Note 18 Leases, requires that agencies include the following table (or comparable format) in the notes to their annual financial statements:

Operating Leases:

Future Payments Due:

Asset Category

Fiscal Year (1)  (2) (3) Totals

Year 1 xxx xxx xxx xxx

Year 2 xxx xxx xxx xxx

Year 3 xxx xxx xxx xxx

Year 4  xxx xxx xxx xxx

Year 5 xxx xxx xxx xxx

After 5 Years xxx xxx xxx xxx

Total Future xxx xxx xxx xxx
Lease Paymts

Meeting the reporting requirements of OMB Circular No. A-136 typically means that accounting personnel at Federal agencies must accumulate information from the agencies’ real estate or procurement offices. Determining whether the agency’s leases contain cancellation clauses, and aggregating the future lease payments for all of the leases can be resource intensive for some agencies—especially those with limited information on their operating leases or those with a significant number of operating leases. Although most agencies lease space through the U.S. General Services Administration (GSA), those agencies that have authority to lease space directly from parties outside of the federal government could face even greater resource challenges.

The information that agencies gather should not just satisfy financial reporting requirements, but should also be useful for the agency’s day-to-day management of lease costs and the agency’s use of resources.

Questions for Discussion: 

What challenges has your agency faced in gathering the future lease payment amounts for non-cancellable operating leases? 

What processes do you find effective for accumulating this information? Is the information routinely available to management, or is it the product of an annual effort to prepare audited financial statements?

Do you find that having this basic information has been useful in managing operating leases apart from meeting financial reporting requirements? If not, what can be done to encourage the use of this information by agency management?

What other benefits does having this information in the annual financial statements provide to your agency?

Holiday Wishes for the Government Performance Management Community

By: Jon Desenberg

Jon Desenberg is policy director at The Performance Institute.

To the dedicated performance and budgeting professionals in state and local government around the country: Remember, what doesn’t kill you makes you stronger. The budget headwinds and the demands of reporting for the Recovery Act have made this the toughest in the 20 years I’ve been working in government. However, wherever I went, from Alaska to Florida and many stops in between I saw that the transformational work in business intelligence, performance indicators, strategy maps and improved strategic plans have paid off. Better decisions were made, even when we all wished that we didn’t have to make those tough decisions. From the new reporting scorecard in Fulton County, GA, to the county and city stat systems in Dade County, Baltimore, Philadelphia, D.C. and elsewhere, we saw that a focus on performance truly becomes valuable as times get tough. You’re true leaders in performance and accountability.

To our esteemed senators and congressman, the time is now—please embrace performance and results-based management practices, before its too late. Kudos to Sen. Mark Warner for creating the new Senate Task Force on Government Performance, but where are your colleagues? At a recent hearing, your colleagues were missing for all but a few minutes. Not making time ask a few questions about improved results indicates a lack of inclination to begin thinking about improved performance and perhaps actually doing something about it. Hundreds of thousands of federal employees look to Congress for leadership on spending wisely, setting the right goals, and matching funding accordingly. You’ve continued to disappoint them and the American taxpayer this year.

To our president and his appointees, your careful and serious thinking about performance management has been much appreciated. Now, however, is the time to do the very difficult job of moving plans into action. For all the problems and mistakes in our previous President’s Management Agenda, speed of execution was never one of them. While some agencies are going to move in the right direction on their own, some very important ones will not, at least not fast enough. We appreciate your careful thinking and we now need some strong direction.

To AGA, thank you. AGA’s focus on performance at their annual conference and the efforts they’ve taken to move hundreds of local governments in the right direction on performance has been pitch perfect and spot on. We in the performance community greatly appreciate it.  

From “Good to Great” and from “Great to Demise”—The Blog That Is!

By: William A. Morehead, Ph.D., CGFM, CPA

William A. Morehead, Ph.D., CGFM, CPA, is Chair of Accountancy, CIS & Finance, Delta State University; AGA National President, AGA Past National Treasurer and Member, AGA National Executive Committee

AGA began a formal weblog, commonly called a “blog,” almost two years ago as part of our service to our members. The blog has been a wonderful forum and communication tool. It has provided a great opportunity for many of our members to discuss the latest information in our profession and “express themselves” regarding numerous issues in government financial management.

The creation of the blog took “good” communication strategies of AGA to “great.” Along the way over the past two years, we have witnessed the evolution and explosion of social media including LinkedIn, MySpace, Facebook, and Twitter—each of which has changed the way we communicate with each other. Each of these social networks have also begun to consume some folks as many consistently check their personal e-mail and Facebook accounts during the day on office computers.

I have seen studies where some organizations have encouraged their employees to become involved in and use these media to enhance relationships with customers, suppliers, employees and others interested in conducting business with the entity. However, many businesses believe such communication tools actually steal time away from the work employees are supposed to be conducting.

Because of this, a number of organizations, including the federal government and many state and local governments, have blocked access to blogs, personal e-mail accounts and social media websites. Add to this factor that many of us who work in the government do not wish to exposit online for fear our comments will be considered or construed as an “official” opinion of our governmental entity.

As a result, the traffic on and interest in the AGA blog has dwindled over the past few months. Recently, the National Executive Committee (NEC) decided to suspend the blog. What went from “good” to “great” has now met its “demise.” On limited occasions such as the Professional Development Conference, National Leadership Conference and Internal Control & Fraud Conference, AGA will bring the blog back to keep interested parties informed of the latest events and speakers at the conferences.

We will end the blog this Friday, Dec. 18, the same way we began with an essay from AGA Past National President Jeffrey Steinhoff, CGFM, CPA, CFE. Thank you to all the bloggers who shared their thoughts with AGA readers over the last two years and to those who made reading the AGA blog part of their daily routine. Communications is ever evolving! The “demise” of one communication tool will see the “rise” of another. Stay tuned to see what’s next! 

“Think Big! Act Courageously! Make a Difference!”

The TARP Refund: What To Do With It?

By: Robert Maitner Jr., CGFM, PMP

Robert Maitner Jr. is senior managing consultant with IBM Public Sector Financial Management.

Imagine this situation. You have encountered an unexpected expense that you had not planned or budgeted for, say perhaps a medical bill. So you take a loan in the amount of $500 to cover the expense. When the bill comes, you are pleasantly surprised that is for only $300. What do you do with the remaining $200? Should this be considered a windfall? Or should it be applied to the $500 loan amount? If the $200 would go toward basic necessities, such as food or shelter, the temptation is there to hold on to the cash. If it would mean a few more dinners out, then perhaps applying the money to the loan balance makes more sense.

This is the same scenario we see with the Troubled Asset Relief Program (TARP).

President Obama recently announced that the bank bailout cost about $200 billion less than expected, telling reporters, “It means that some of that money can be devoted to deficit reduction.”

Democratic leaders want to see those leftover TARP funds used for a new jobs bill. That may not be possible, however. The TARP legislation states that any unused money must go toward reducing the national debt, which sits now at a whopping $12 trillion. The Wall Street Journal explains that the Treasury secretary has some latitude in deciding how to use the funds, but that he first must consider taxpayers’ interests by maximizing overall returns and minimizing impacts on the national debt.

The debate here is a matter of priorities—what is more critical at this time, jobs creation or reducing the national debt? If you’re one of millions of Americans still out of work, you’d most likely opt for the jobs bill. If you’re not out of work, and hawkish about our growing national debt, you may say that the money should be applied back to the loan amount (the debt). It’s all a matter of perspective.  

Perhaps some sort of split would make sense here as well. What about using half of the funds for a jobs creation bill, and apply the second half to reduce the national debt? What do you think?

Performance Reporting in Oregon: Lessons from 20 Years

By: Kenneth A. Smith, Ph.D., CPA

Kenneth A. Smith is a founding member of AGA’s Mid-Willamette Valley Chapter and an assistant professor of accounting at Willamette University. Ken served on the Assessment Committee of the Oregon Progress Board and is the academic adviser to AGA’s SEA Certificate Program.

Oregon has a long and proud tradition of performance reporting. Two colleagues and I recently completed a downloadable case study of state, county and nonprofit organizations engaged in human services over the past 20 years and want to share some insights.

The history of Oregon’s performance activities is closely tied to the history of the Oregon Progress Board, which started in 1989. The Progress Board has been involved in numerous performance-related activities including the trickle-down of performance measures into local government and nonprofit service providers. We find the introduction of performance measures seemed to help the nonprofits increase their capacity to perform as well as their actual performance. This is good news.

The case study focuses on two groups of programs: one has highly standardized protocols and uses common performance measures—the other has unique programs with each unique program using different performance measures. The standardized program is called Healthy Start, which provides intensive services for first-time mothers with infants from 0-2 years of age. It screens for those with high risk factors and provides comprehensive services to the child and family. This program was rigorously evaluated and reported upon. Funding from the state increased dramatically.

We call the other programs “discretionary.” They met multiple needs in divergent communities. One county in our study has the state capital with a population of over 150,000 while the other has one smallish city of 20,000 and large dispersion of residents in valleys, mountain and coastal areas. Both counties have first-birth mothers….and lots of other needs as well. Funding decreased for these unique programs over the past decade even though their reported performance increased in similar proportion to the standardized Healthy Start program. 

This is mixed news—good that both programs improved and that funding went to a solid and effective program. But it’s concerning that money was shifted away from the discretion of the local and unique communities, especially since that discretion was resulting in quality outcomes.

There is also some really sad news—the Oregon Progress Board lost its funding in the recently passed budget. The website is still live as of yesterday, but the content is no longer being updated, nor is the Progress Board engaging in any of the myriad of support activities it had done over the past 20 years. More funding cuts are possible with ballot measures 66 and 67, so it seems unlikely the Progress Board will be operating in the near future.  Several groups are working to revive the board and I’ll be quick to report any major change in status.

The Progress Board had many accomplishments and had just started some new initiatives with online reporting and analyzing data similar to the story “Local governments offer data to software tinkerers” reported in the New York Times on Monday. It is sad to see this 20-year old innovative institution fade away.

LESSONS LEARNED
We have learned that investments in performance capacity over time will reap benefits across many organizations and individuals. We know that understanding and communicating about performance is extremely difficult—funders appear to focus on simple and easy to understand results such as the standardized program above. We also know that it is hard to measure the benefits of investments in performance capacity; some organizations never invest—and some (like the state of Oregon) have chosen to cut back its investment.

QUESTIONS
What do you think? Are you surprised to hear that a standardized successful program got sizably more funding than a pool of unique but also successful programs? Are budget cuts being directed at performance activities and positions in your agency or jurisdiction?  Are the current fiscal challenges a catalyst for new measurement efforts, such as happened in Oregon 20 years ago? Have you had success in getting support for investments in performance capacity? How did you do it?

The Myths of Financial Innovation

By: Sunil Datt, MS, MBA, MA, CGFM, PMP

Sunil Datt, MS, MBA, MA, CGFM, PMP, is Senior Managing Consultant, IBM Global Business Services.

One of the enduring myths of the recent financial system crisis has been the oft-repeated belief that financial innovation left regulation far behind; that so many financial products and institutions were created that nobody really understood what was going on. And the other myth now is that we have the danger of over-regulation stifling innovation; innovation that is essential for the efficient functioning of markets, for efficient intermediation between investors/savers and producers/borrowers, and so on. All overstated.

If you boil it down to the essentials, the crisis was a simple case of over-leveraging on a massive scale; binging if you like. There were new institutions and products involved, but those were not innovations.  There were many types of non-banks involved, but those have been around for sometime; nothing new there. There were complex new securitized products, but then again securitization has been around for decades. If you create a more complex financial product, or one that serves a particular segment of the investor community, or even just one major investor, that to my mind is just re-jiggering, or renovation, or adaptation…whatever; not innovation.

By the way, my view is not cynical. Just trying to be a tad more objective here. For an almost cynical view, sample John Kenneth Galbraith. He wrote in his book A Short History of Financial Euphoria that financial innovation through the ages is merely the quest for new ways to create more debt that is leveraged against limited assets. “The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version,” he wrote. The same trick gets played over and over again under a new guise. Kind of true if you take the over-leveraging aspect of this crisis! Yet Galbraith was too sweeping. The financial system does many things. Among others, it provides a means of payment and exchange; it transfers the spare cash of savers to those with investment opportunities; it allows assets to be traded; and it provides insurance, whether in conventional contracts or in such instruments as swaps, options and other derivatives.

In all these areas, innovation has provided tangible benefits. Computerization has improved the payments system, while technology such as automated teller machines has been a huge convenience to retail bank customers. The Internet is transforming the availability of financial information and is lowering transaction costs in broking. Like many other innovations in retail finance, these advances do not involve the creation of debt. One would have to admit though, that these latter innovations were really financial sector adoptions of technology, rather than true financial innovations in of themselves.

The other view of financial innovation is that it happens because of the desire to escape the heavy hand of regulation. Merton Miller, the late Nobel laureate, declared in a 1986 paper that “the major impulses to successful financial innovations have come from regulations and taxes.” In an extreme version it has even been argued that in the credit bubble, much of the impetus for driving loans off bank balance sheets into securitized form came from the risk-weighted capital regime introduced by the Basel committee of international bank regulators. By encouraging off-balance-sheet activity, the regime turned banking into a shorter-term, more transactional business. Once again an extreme view, but with an element of truth.

True innovation usually brings a paradigm shift. The best example in the physical world, of course, being the cell phone. For the first time, almost anyone could afford to talk to another wirelessly. Not only talk, but also leverage. My favorite story is of the poor Indian fisherman, who would come late in the evening with his catch, only to find that all the traders were gone. The fish would rot. Now, as soon as he has a catch, the fisherman calls five traders, compares prices, and strikes the best deal—all on his cell phone. When he comes ashore late in the evening, the specific trader is waiting to take delivery with cash in hand!

So let’s come to some needed innovations that may really help. The FDIC reports that 60 million Americans are un-banked or under-banked. Un-banked are those who do not have a checking or savings account, and the under-banked are those who do have a checking or savings account but still use check-cashing services, pay-day loans etc. Now financial innovation would occur if products and services were found that encouraged the un-banked and under-banked to walk into bank branches, or bank from their cell-phone! A paradigm shift. Financial innovation would occur if a product or service was found for millions of ordinary investors to manage their 401K accounts with minimal risk. We need some real financial innovation!

Audits by GAO Will Compromise Fed Independence

By: Christopher Hanks

Christopher Hanks is a mathematician and defense analyst. In his work at defense think tanks over the last 30 years, he has focused on logistics processes and models, revolving-fund operations and business reform efforts.

Triggered by the current economic difficulties, a debate is now raging about whether the Government Accountability Office (GAO) should audit Federal Reserve operations. The issue is whether GAO audits would compromise the Fed’s independence in setting and implementing monetary policy.

The Fed’s monetary-policy decisions influence the supply and flow of money in the economy. Usually the Fed is able to implement its decisions by taking actions—for example, adjusting interest rates and dictating capital-reserve levels—generally regarded as routine, even if they are not always popular. Sometimes however, as the economic developments over the two years have shown, the Fed finds itself taking highly non-routine actions—making large emergency loans to major financial institutions, for one—in order to prevent a total collapse of the economic system. As a result of actions the Fed has taken of the latter type, legislation is now making its way through Congress calling for the Fed to be audited by the GAO.

In order to decide whether GAO audits would compromise the Fed’s independence, it is first necessary to be clear about exactly what happens when the GAO “audits” a government agency. The GAO’s own website provides a commendably clear description:

“Our Work is done at the request of congressional committees or subcommittees or is mandated by public laws or committee reports. We also undertake research under the authority of the Comptroller General. We support congressional oversight by

·      auditing agency operations to determine whether federal funds are being spent efficiently and effectively;

·      investigating allegations of illegal and improper activities;

·      reporting on how well government programs and policies are meeting their objectives;

·      performing policy analyses and outlining options for congressional consideration; and

·      issuing legal decisions and opinions, such as bid protest rulings and reports on agency rules.

We advise Congress and the heads of executive agencies about ways to make government more efficient, effective, ethical, equitable and responsive.

Our work leads to laws and acts that improve government operations, saving the government and taxpayers billions of dollars.”

Bullets one and three in above description make it clear that when GAO  “audits” an agency’s operations, what it actually does are program evaluations —that is, investigations aimed at determining whether agency policies and programs are “meeting their objectives” and spending federal funds “efficiently and effectively” toward that end.

Actual financial audits, as opposed to program evaluations, did once represent the core of GAO’s work, but those days are long gone. Over the last 50 years a succession of Comptroller Generals (Elmer Staats, Charles Bowsher and David Walker )—all acting with the support of the Congress—have converted the GAO into something much more akin to a management-consulting agency rather than an accounting organization.

Indeed, as 40-year GAO veteran and director of GAO’s Office of Quality and Continuous Improvement Michael Motley noted in 2008: “At one time, GAO was mostly concerned with finances, but today only 7 percent of our work is solely financial.”

The fourth bullet in GAO’s work description above, however, is the one most critical for the current debate. As that bullet states, when GAO “audits” government agencies, it will do its own policy analysis and it will then make recommendations (“outline options”) to Congress about what needs to be done.

In other words, once it begins auditing the Fed, the GAO can be expected to begin making its own recommendations to the Congress—based on its own analysis, not the Fed’s—about what the Fed should have done (or should not have done, or should be doing) with regard to monetary-policy decisions and actions. If the Congress then enacts the GAO’s recommendations into law—as it has shown a ready willingness to do (some relevant examples are:  the FMFIA of 1982, the CFO Act of 1990, the GMRA of 1994, and the FFMIA of 1996)—control of monetary policy will have passed from the Federal Reserve to the Congress.

Given the Congress’ oft-demonstrated inability to take a disciplined approach to financial matters, that would be a disaster.

Performance-Based Budget Cutting: Smarter Government, Better Results

By: William Aaron

William Aaron is the chief of Consulting Services and Innovation at Weidner, Inc. 

To say these are uncertain times seems an epic understatement. The economy is in grim shape, and no one can say when, or if, it will improve. State and local governments are facing huge budget cuts now and bracing for worse.

It feels like we’ve entered unchartered territory, like those dark, unknown areas on the old, old maps where the mapmakers would just write, “Here Be Monsters.” 

But the challenges we face, no matter how daunting, can be effectively met using a smart, performance-focused approach. Indeed, many local governments have been doing so for years.

One example: the Department of Job and Family Services of Franklin County, OH, which had a big problem several years ago. In 2000 the state of Ohio moved millions of dollars in welfare reform funds out to county governments. Franklin County put $25 million into 43 contracts with 30 different community and public sector organizations to deliver services.

The next year, those funds were cut. And not just cut—eviscerated. Nearly $18 million, or about 70 percent, vanished. More than half the grantees saw their funding cut substantially or eliminated.

But when the cuts were made, what was notable was what did not happen. Instead of political fighting over dollars, there was just one call of complaint. Instead of wailing and gnashing of teeth, grantees called to commiserate. And instead of universal suffering, in many cases the organizations actually became more successful.

What “secret” had Franklin County’s Job and Family Services uncovered? 

Mary Lou Langenhop was the director of Job and Family Services for Franklin County from 1998 to 2003. To her, their success was due to their relentless focus on three factors: results for customers, setting priorities and using performance data.

Results for Customers. In 2000 a focus on results for customers in government was not common—this came shortly before Franklin County implemented a county-wide managing for results system—but Langenhop knew the value of using outcome-based contracts.

“We were clear from the start about our approach,” Langenhop said. “We structured the contracts so grantees were not only paid based on things like enrollment in training classes and the number of trainees completing class, but also on the number of trainees who got jobs and the number of trainees who kept their jobs six months.”

In many cases, this shift in thinking had huge benefits that made the grantees more successful—even after their funds were cut. One agency raised significant new private funds using their demonstrated impact on their customers; others began benchmarking and reallocating internal resources to improve their performance.

“One organization’s board was so excited they could clearly see the success of their program that they reorganized to ensure the continued delivery of those services using their own funds,” Langenhop said. “They could measure it in terms of impact on the customer for the very first time.”

Setting Priorities. Faced with cutting 70 percent, Langenhop knew they could not use the lazy tactic that too often passes for government budgeting: cut everyone equally and hope for the best. They knew they needed to set priorities—to decide what was most important and fund as much of that as possible.

“We had to ask ourselves, what were the most critical activities and outcomes we were paying for?” she said. Job and Family Services chose to focus on two priorities: people getting jobs and outcomes for youth.

“Some grantees were performing very well, but they were not part of these two critical areas,” Langenhop said. “So they got cut.”

Using Performance Data. The grantees delivering results in support of the selected priorities were then assessed using a powerful tool: the performance information they themselves had provided.

“We based the continuation of all contracts on performance. For example, had the agency been meeting its job placement targets? If not, their funding was cut back or eliminated,” Langenhop said.

“We gave the county commissioners spreadsheets with the performance information, presented by agency,” she said. “I met with each commissioner individually, shared all of the performance information, and presented how the funding decisions were made. As one of them told me, ‘I don’t see how anybody can question this.’ ”

“We went through that reduction with only one call complaining to the commissioners,” Langenhop said.

So as the public sector heads into what may seem to be unchartered territory, it’s worth remembering that, in fact, we know very well how to vanquish the monsters. A focus on results for customers, on setting priorities, and on using performance data to inform decisions will serve our citizens well, regardless of the challenge.

Think Big! Act Courageously! Make a Difference!—There's No Place Like Home

By: William A. Morehead, Ph.D., CGFM, CPA

William A. Morehead, Ph.D., CGFM, CPA, is Chair of Accountancy, CIS & Finance, Delta State University; AGA National President, AGA Past National Treasurer and Member, AGA National Executive Committee

Over the past eight weeks, I have been fortunate to have been on three continents visiting family and friends, and presenting training for AGA chapters and events. This has been an exhausting time, but oh so very rewarding. AGA should be very proud of what the chapters are doing and contributing to the greater government accountability profession.

Traveling outside of the United States always reminds me of several things:

1.     How very thankful I am for the men and women who have and continue to dedicate their lives in military service to protect our country so we can live here and travel abroad with certain freedoms.

2.     How thankful I am for the many Americans who live abroad providing various forms of civil service to further the patriotic ideals of our country.

3.     How much responsibility I have as a government financial management professional to the individuals mentioned in #1 and #2 above as well as to the citizens of my government.

4.     How blessed I am to live in the United States.

5.     How thankful I am to come “home” after each trip.

We, in the U.S., have just celebrated the Thanksgiving season with family and friends and we are now heading into the Christmas season. As we face this time with uncertainty in our economy, I can honestly say it is wonderful to be back in the U.S. after eight weeks of travel. “There’s No Place Like Home.”