The AGA Weblog

AGA CEAR Program Sets Standard for Federal Performance and Accountability Reporting

By: Eveanna Barry, MS

Eveanna Barry, MS, is director of Performance and Accountability, AGA

On May 21, AGA will hold its fourth black-tie celebration to honor the recipients of the Certificate of Excellence in Accountability Reporting (CEAR) Program. This award is given to those agencies that produce high quality Performance and Accountability Reports. Our program was established in 1997 in conjunction with the Chief Financial Officers Council and the U.S. Office of Management and Budget (OMB) to improve financial and program accountability by streamlining reporting and improving the effectiveness of such reports. Any CFO Act agency or After Tax Dollar Act agency is eligible to submit their report for review and comment.

Through our program, AGA advises agencies on how to prepare integrated and user-friendly reports that clearly show what an agency accomplished with taxpayer dollars and the challenges that remain. New this year, OMB offered an alternative method in preparing the Performance and Accountability Report. The Pilot Program alternative required agencies to submit an Annual Financial Report in November and a Highlights document and Annual Performance Report by February 1, 2008. Eleven agencies participated in this new program.

The first year of CEAR Program we reviewed six reports and there were no awards. Ten years later, AGA reviewed 21 reports and awarded 11. This year, the eleventh, AGA received 24 reports, five of which were Pilot Program reports. Though the reviews are not yet completed, we expect to have a record number receiving the CEAR award. What this says is that the quality of reports has improved significantly and AGA’s recommendations are being implemented, resulting in improved reports that are more useful and complete.

Over the years, the agencies have exhibited some creative means to get their message across to report readers. For example, the Social Security Administration highlights the report on its home page and provides an excellent description of what the report contains. The Small Business Administration provides instructions for accessing the Internet page that offers information about its programs in Spanish. The SBA report also uses color codes to signify the status of the agency actions needed to address the inspector general’s summary of the most serious management and performance challenges. Finally the U.S. Department of Labor provides a description of the process and limitations in collecting performance data.

While the reports are an excellent source of information, who is the target audience? Should it be Congress, congressional staff, OMB, or agency internal staff? What about the citizen who wants to learn more about what type of services an agency provides? A 300-page document, which includes pages and pages of compliance data, clearly does not tell the agency’s story. Then should a Highlights document be produced for each agency? What about the four-page Citizen-Centric Report?

As the next administration is introduced to the Performance and Accountability reports (or Pilot Projects), what would you like to communicate? How can the reports be streamlined and less labor intensive but still provide the necessary information that can be used by “the target audience?”

TOMORROW: Rhonda Reinke, CGFM, CPM, Transportation Improvement Board, State of Washington, on "Why Traditional Budgeting Just Doesn't Work and What Government Can Do About It"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Advice for the 21st Century Financial Management Professional

By: Samuel T. Mok, CGFM, CIA

Samuel T. Mok, CGFM, CIA, a member as past president of AGA’s Washington, D.C. Chapter, heads his own consulting firm, Condor International Advisors, LLC, and is AGA National President-Elect. He is the former chief financial officer, U.S. Department of Labor.

Society has come a long way, through various revolutions and evolutions: hunters/gathers took several thousand years to give way to farmers who took a few hundred years to give way to industrialization that took less than a hundred years to give way to the information age, and it took less than a few decades to go into the Internet era. Now in fewer than 20 years of the Internet age, our current society is heading into the “Dream Society,” according to the book of the same title by Rolf Jensen. The velocity of change is accelerating rapidly in this Dream Society we live in, and articulating good stories and creative “dreams” is key to success to satisfy the current society’s craving for spiritual comfort. Just look at organic foods, Starbucks, Apple computers and other successful products on the market today. Are they really radically and substantially different than their pedestrian counterparts? Yet the American consumers are willing to pay a premium for these “Dream Society products.” How did these companies do it? They told a good story with a somewhat creative product. Financial managers must do the same, especially in government financial management. From green eyeshades, sleeve protectors, bean counting, we are now looking at and sometimes sitting in the driver’s seat in an organization. We have to provide a good and useful product accompanied by good stories.

Too often, in days past and continuing into the present, financial executives concentrate on compliance—compliance with policy, with mandates, with deadlines. But the end product ultimately has no decision-making usefulness to key executives and other stakeholders. Timely and technically correct information is useless if it is not useful to the end user in a meaningful way. Financial managers usually follow tradition and continue cranking out several-hundred-page reports months after the reporting period has ended, filled with so much technical accounting data that it is practically incomprehensible to those the information affects the most, and those we rely on to make decisions. To adapt to the rapidly evolving environment, it’s time to think outside the box, use fully the authority given and create informational products in a useful manner. If not, accountants may eventually be replaced with yet another automated system, just as adding machines and inventory clerks have been replaced with bar codes and scanners. Tools and jobs such as these have become obsolete because the information they provided failed to meet the needs as requirements changed. They were replaced by other tools that provide more useful information in a more timely fashion. Are financial managers doomed to the same fate?

What kinds of “dreams” must accountants weave to make themselves useful? To be effective, you must first know your constituent demographics. If you don’t already have this information, get it as soon as possible. Consider what information is most important and useful to your key stakeholders. Use plain language and deliver usable and concise information in a timely manner. Be transparent and accountable; be open to questions and give honest, straightforward answers in simple, plain, everyday English. The information your constituents care about is always easily available. Packaging it into a useful format is the big challenge. This challenge can be easily overcome if we take a step back and think proactively from the users’ perspective. After all, it is about the constituents, not about you. Serving them effectively and efficiently is the reason why you are employed. Wang computers, Pan American Airways, FW Woolworth, and others found out the hard way.

Reaching and serving constituents effectively for financial managers is actually very easy, and at least one important tool has already been developed to provide useful information to stakeholders. Citizen-Centric Reporting, developed by AGA, is one way to reach constituents and provide them with useful information. The premise is simple: give them the information they care about in a useful, easy-to-read format. AGA can even help you prepare a Citizen-Centric Report by meshing all the information at your disposal into a timely, concise publication. Templates are available; AGA even tells you what should go on each page. The time it takes to compile is minimal because the information is already there, you just have to transform the packaging into a creative product—follow the Starbucks model, and what the “dream” is.

How can we as financial managers make sure our answers are useful? Are we doomed to the same fate as 10-key adding machines and typewriters? What other tools can we create or use to ensure the future success and continued relevance of our expertise in today’s dream society?

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Blogging for Government Dollars: Can Internal Blogs (or Wikis) Add Value to Traditional Financial Indicators and Improve Competition?

By: John Sacco

John Sacco, associate professor of Public and International Affairs at George Mason University, integrates substance, philosophy and information technology in his teaching and research.

He is assisted in this AGA blog by Professor Gerald Bushee, also of George Mason, and Professor Odd Stalebrink of Penn State, Harrisburg, PA.

This short essay discusses the role that blogs (or Wikis) internal to the organization may play in adding value to government information. Particular emphasis is placed on the traditional financial indicators, given that ratio and trend analyses such as the current ratio for a four- to six-year period have become more widely used with GASB 34 and the online placement of CAFRs. Nonetheless, without a context for the jurisdiction, for example, any set of ratios and trends can lead to problems of interpretation.

Consider these current ratios for a city over a four-year period produced from CAFR analysis. Assuming it is best to have more current assets than liabilities, this city had a current ratio of .96 in 2003, down to around .65 in both 2004 and 2005, a nice jump to 1.16 in 2006.

Does this indicator tell whether the city is doing well or poorly financially? On a rule of thumb basis, the current ratio is above 1 in 2006, that is, they presumably can pay bills that come due. Not the case in prior years. But is the current ratio or its trends all that informative without context? Adding other financial indicators can provide greater insight, but which ones? And when might information overload enter the equation?

While blogs are often associated with virtual social networks, often populated by friends with light-hearted and not-so-light-hearted comments, blogs offer a potentially productive tool when combined with organizational data such as CAFRs, spreadsheet templates for ratio and trend analysis and information that those who were responsible for the financial report might not have considered. This philosophy suggests that the untapped power for information is the tacit knowledge of employees. For example, an employee, using Lexus-Nexus, might have come upon articles about other cities and how they dealt with liquidity problems. Another employee may have never heard of Lexus-Nexus and thus this further expands the information horizon beyond the organization. When employees are placed into the equation with some tools, such as a blog, information collection becomes more robust and extensive. Wikis are of potential value since they are often more structured than blogs. An employee might define millage for calculating property taxes and provide historical data on it. Since a wiki can be edited, the accuracy can be improved. Studies of Wikipedia show it is not really less accurate than encyclopedias and Wikipedia is more up to date.

Broad or visionary ideas about the direction of governments might result from blogs and wikis.

As an example of a city financial blog and the logic behind it, see
http://allentownblog.wordpress.com/
Students in an MPA finance class were provided with the CAFR information and a template for calculating ratios and trends. While doing the paper on financial conditions, they also injected their own information often material of extreme interest but not provided in the course. My reaction to 60 to 80 comments made by the students was: I found the “facebook” generation. These solid and voluminous contributions appeared in all the blogs, including a Peace Corps blog on village financing.

These are some questions to consider in assessing the value of the blog-wiki idea in the context of government organizations.

1) Are blogs and wikis part of the flatting of government hierarchies as is the case of contracting out, public private partnerships and privatization?
2) Will members of a hierarchical organization feel that openness begets more punishment than reward?
3) Will time spend on blogs and wikis actually take time away from assigned work?
4) What security problems are posed if an employee posts classified information?
5) Is democracy enhanced by increased competition of ideas?
6) Is government primarily about the dilemma of equity and efficiency with organizational reforms and IT innovations playing a secondary role?
7) Might blogs and wikis produce too much poorly organized information?

TOMORROW: Sam Mok, CGFM, CIA, CEO, Condor International Advisors, LLC, and AGA National President-Elect, on "The 21st Century CFO"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Accountability: The Budget’s New Clothes

By: Thad Juszczak

Thad Juszczak, a member of AGA’s Washington, D.C. Chapter, is a senior manager with Grant Thornton LLP, a retired federal budget officer and AGA National Treasurer-Elect.

Because I’ve spent most of my career as a budget officer, I’d like to deal today with an issue that is faced by budgeteers as well as other accountability professionals. Performance budgets have recently become popular, but their focus is often on building and justifying the budget. These aspects of budgeting, especially testifying before the legislative body, seem pretty high profile. (I was going to say “sexy,” but you have to be a real budget wonk to see the budget as sexy.) From my perspective, though, it’s when executing the budget, after it is approved, that the greatest opportunities for accountability arise.

A good performance budget is a political document that lays out what your agency plans to accomplish during the coming budget period (the “outcomes” that everyone talks about), how you will measure your planned success and how much your activities will cost. Once your budget is approved and you begin executing it, you monitor your agency’s progress:
• are your planned outcomes/results being achieved?
• are you meeting the benchmark measures of success that you projected?
• are things costing what you calculated they would? (note that this is listed last)

Some budgeteers are good at pointing out that through five months they have spent 35 percent of their travel budget. They might even produce statistics showing what percentages were spent through five months in past years or what the agency planned to spend through five months this year. This is all very useful, quantitative stuff, and execution budgeteers are nothing if not quantitative.

But, spending money is not the goal of any agency (I hope). Achieving results is what we should all be about. Therefore, the critical question is: what results did the agency achieve with the travel funds that it spent. Did the travel contribute to the desired results? We are now in qualitative territory, perhaps uncharted for many, but it is where some of the best contributions can be made toward accountability. Here the usual tools of the budgeteer and accountant, Excel spreadsheets, are not as useful as logic maps, some of the budget’s new wardrobe. Logic maps help to explain how the various agency activities are the cause of the outcomes/results achieved.

Don’t think that this results stuff is just for those people who track performance measures. Budgeteers and accountants also contribute to accountability by tying financial and performance data together to give actionable information to agency decision-makers. Do we need more travel funding? Less? Is travel contributing to our results? Do we need to refocus the trips we are taking?

No matter what role you play—budgeteer, accountant, performance analyst—you need to bring together the approved performance budget and plan, the actual costs through a point in time and the actual performance levels met to help your agency be accountable to the citizens for the results it is supposed to achieve. What kind of performance questions have you been able to raise during budget execution? Does number-crunching still have a legitimate role to play?

MONDAY: John Saco, Associate Professor of Public and International Affairs at George Mason University on "Blogging for Dollars."

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Is “Community Service” Really an Important Part of What AGA is About?

By: Jeffrey S. Hart, CGFM, CFE

Jeffrey S. Hart, CGFM, CFE, is a member of AGA’s Denver Chapter and the Association’s Immediate Past National President. He is the manager responsible for evaluations of climate change programs and activities for the U.S. Environmental Protection Agency’s Office of Inspector General, and works out of their Denver Office.

One of my primary goals as National President last year was to help us better understand how all the things AGA does, at the National Office and in the chapters, fit together to create value for members and contribute to AGA’s ultimate goals.

Last year, I visited many AGA chapters and was amazed at the variety of community service activities in which our members are engaged. I was also humbled by just how seriously some chapters took their community service activities and how prominent a role these activities played in a chapter newsletter or in an individual chapter meeting. It made me better appreciate just how important these activities are to some of our members and to AGA as a whole.

Gathering toiletries for domestic abuse shelters, food drives, toy drives, public TV auctions, VITA, cooking and serving meals at homeless shelters, building houses for Habitat for Humanity, pet shelters, adopting a single charity for the month or the year, giving scholarships, charm school for job hunters, cash donations to chapters impacted by Hurricane Katrina, not to mention the tremendous outpouring of sympathy and support that manifested in cash donations to the families of AGA members who were working at the Pentagon and were victims of the September 11 tragedy. These activities represent just a smattering of the many and varied community service activities in which AGA chapters and members are involved.

When I traveled to Louisiana to visit the New Orleans and Baton Rouge Chapters as National President, I was so moved by the devastation I saw, both in the physical infrastructure, and more important, in the eyes of our own chapter members, I felt called to do something. When I returned home I organized our first National AGA Community Service Project with the help of Karl Boettcher, CGFM, and Peggy Javery, CGFM, the Past Vice Presidents of AGA’s Capital and South Central Regions, and the support of New Orleans Chapter President Jill Byrd, CGFM, and many of the chapter members. A small group of us went to New Orleans last June to help build houses for Habitat for Humanity. And a much larger group of us are going down there again next week. (If you’d like to join us, find details at http://www.agacgfm.org/publications/topics/030308/habitat.aspx). In fact, I hope to continue this blog through next week and share some of our experiences in New Orleans. So, stay tuned for that.

Some people wonder if all these varied activities are the types of community service activities in which AGA ought to be involved. After all, when I joined AGA more than three decades ago, the Association’s community service activities were pretty much limited to providing some volunteers to help folks complete their income tax returns under the VITA (Volunteer Income Tax Assistance) program.

Do you agree that community service is essential to who we are as an organization? Why? Are these the types of things in which AGA should be involved? Does it create “value” for members and potential members? How does it do that? What novel community service activities have you or your chapter been involved in? Do you have some ideas about the future direction of AGA’s community service efforts? Let’s hear them!

TOMORROW: Thad Juszczak. a senior manager with Grant Thornton LLP, a retired federal budget officer and AGA National Treasurer-Elect, on "Accountability: The Budget’s New Clothes"

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

AGA’s Service Efforts and Accomplishments Reporting Program

By: Eveanna Barry, MS

Eveanna Barry, MS, is AGA's Director of Performance & Accountability.

Thanks to the Alfred P. Sloan Foundation, AGA has received several years of funding for our Service Efforts and Accomplishments Report Review Program. Using the Governmental Accounting Standards Board’s 16 suggested criteria as its foundation, AGA has developed a set of guidelines that are used to evaluate how well the government or other organization informs the public about its performance. The review is not intended to evaluate the quality of the government or its performance. Rather the focus is entirely on the report’s usefulness to the public and other decision-makers.

There are three components to the program—a review team, the guidelines and communication of recommendations from AGA to the entity on how it can make the report more consistent with the suggested criteria. Based on a score of each suggested criteria, entities can receive the Certificate of Achievement in Service Efforts and Accomplishments Reporting.

GASB research has shown that these criteria, identifying a purpose and scope, using relevant measures of results and reporting reliable information, to name a few, are a valuable tool in preparing an SEA or performance report. These criteria provide an excellent framework for preparing not only a performance report but also a business plan or strategic plan. GASB is continuing to modify these criteria and within the next year or so, will have finalized them. For more information on GASB’s deliberations, visit www.gasb.org.

Over the past four years AGA has had approximately 50 entities submit their performance report for review. Seventeen entities have received the Certificate. I thought I might take this opportunity to highlight how some of these entities have used their report in managing government and communicating to citizens.

• Ankeny, Iowa uses performance measurement as part of the city’s budgeting process. Performance-related forms are submitted along with a department’s budget.
• Des Moines, Iowa mails a copy of their performance report to each household. It is used to initiate community-wide thinking regarding the outcomes achieved by the city government each year.
• King County, Washington uses the performance information to help officials focus on what’s important—the key goals of county government and whether those goals are being met. It has allowed a more strategic perspective.
• Oklahoma Health Care Authority collects and reports on the mission and goals of the agency and posts this information on the website. Data collected is used to make decisions regarding resource allocation both at the state level through the budgeting process and at the agency level with strategic planning.
• Oregon Department of Transportation uses their report as a supplement to the agency budget request. And it’s all about providing citizens with a quick, easy way to see how ODOT is doing, especially in the area of driver and motor vehicle services.
• Palo Alto, California provides its report to the city council, staff and public. The public periodically uses facts from the report when discussing such things as acres of dedicated parkland, public safety, library usage and street maintenance.
• Portland, Oregon surveys Portland’s 90+ neighborhoods and uses the feedback as the integral part of their report.
• Prince William County, Virginia uses its report to provide the community, Board of Supervisors and county management with results achieved by the different agencies with the funding provided to them. Their report identities a six-year trend for the entire county.

As you can see the uses of a performance report are varied but the overall message to me is loud and clear—provide your community, governing body and management with useful information to make decisions on resource allocation and service delivery that communicates government is accountable and credible in its work.

How is your government using its performance report to make decisions? Do your measures drive program budgets? What can AGA do to promote the use of measures in making the tough decisions by management and the governing body? And if you have been preparing performance reports, how have you involved citizens in its development and what has been the reaction?

Do you want to know more about performance reporting? Attend AGA’s Fourth Annual Performance Management Conference in Seattle, Washington, Oct. 27–28. Watch our website at www.agacgfm.org/pmc for information about the conference. Interested in receiving our Perspectives on Performance newsletter? Contact Evie Barry at ebarry@agacagfm.org for more information.

TOMORROW: AGA Past National President Jeffrey Hart, CGFM, on the upcoming AGA community service trip to New Orleans

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Openness Drives Accountability

How One East Tennessee County is Opening the Doors of the Courthouse
By David R. Bennett, CGFM, CPA

David R. Bennett, CGFM, CPA, a member of AGA’s East Tennessee Chapter, is Blount County Assistant County Mayor/Director of Accounts and Budgets, and AGA National Treasurer

Openness Drives Accountability! What does that mean? What does that do to the perception that government functions and government decisions occur in a smoke-filled back room by a bunch of older men? What happens when you open the doors to that so called back room? First, let’s set up where America believes we are at all levels of government in terms of transparency. Then, we will talk about what Blount County, Tennessee is doing to change that perception, and more importantly, to give its citizens what they deserve—access to their money. In a recent national survey about openness and transparency, AGA found that citizens overwhelmingly do not believe government is open, much less transparent. The survey found that all levels of government are lacking when it comes to being transparent. So why is that? Could it be that voter apathy is so rampant in this country because the American citizen can’t see what is happening inside his or her government? Could it be that we, as government accountants, don’t practice what we preach? The answer to both is YES! So what should we do to change that perception and to open government to our citizens? The following is what we have been doing in Blount County to be open and transparent.

First, the Internet. Why don’t we use these technologies to give access to the citizens’ records? That is just what we have done in Blount County. Today anyone with access to the Internet can go to our county website (www.blounttn.org) and access the county’s accounting records. Any citizen has the same access to the real-time accounting records that I do as finance director. Next, we have placed all our financial reports online. From our annual Comprehensive Annual Financial Report (CAFR) down to the monthly financial reports presented to the County Commission, citizens have the same access to this information as our elected officials do. And finally, we have made available online access to our monthly county credit card bills. These statements are not merely the summary statements, but are the detailed spreadsheets we create to pay our bills. Again, as I said in the beginning, openness drives accountability. If we in government know that our families, our friends and our constituents have the ability to watch where we spend their money, we are much less likely to spend it on things that would be considered improper. Don’t you think?

Second, we have just completed our first Citizen-Centric Report. As we all know, all government reports are tough to read. I, as a finance director for a local government, have a hard time reading CAFRs. How can we expect our citizens to read it? AGA’s Citizen-Centric Reporting Program is a process whereby we report to our citizens in a short, executive summary-level report. No more than four pages, the Citizen-Centric Report is our attempt at providing our citizens with a summary of what their government has done for them. In Blount County, we have just completed our first report for the second quarter of 2007. Our plans are to complete the report for each quarter of each fiscal year and to make the fourth quarter report an annual report to be published in our local newspaper.

So has the trip thus far to truly opening government been all peaches and cream? Absolutely not! As long as you’re honest, upfront and transparent, all the arguments made by those folks that would tear down progress become disputable, for they feed on the perceptions that government is closed. Often I say, let the sun shine and the rats will all run and hide. So at all government levels, we should tear down the walls, slam open the doors and give the citizens what they want. And remember, Openness drives Accountability.
What are you doing in your government to tear down the walls, throw open the windows and let the sunshine in?

TOMORROW: Eveanna Barry, MS, Director of Performance & Accountability, AGA, on AGA's Service Efforts and Accomplishments Reporting Program

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Auditing in the 21st Century

By: Lealan Miller, CGFM

Lealan Miller, CGFM, a member of AGA’s Idaho Centennial Chapter, is a partner with Eide Bailly LLP, and a member of AGA’s National Executive Committee.

The challenges and opportunities associated with auditing in the 21st Century have continued to evolve since I initially heard this topic presented by our current AGA National President, Rick Fair, CGFM, at the San Diego Professional Development Conference (PDC) in 2006. Subsequent to attending this conference, I have had several opportunities to speak on this same topic, and have been amazed at how much has changed since 2006!

As a result of the changes in our industry, I believe it is valuable to discuss ways in which we can continue to embrace the challenges and opportunities of auditing in the 21st Century, which auditors and their clients are faced with regularly, including:

• Doing more with less, • Effective usage of both internal and external resources, • Creating the integrated auditor, • Adapting to new organizational environments, • “Tuning In” on an organization’s strategic relationships, • Auditing in a highly automated environment, • Effective usage of automation to audit, • Addressing management concern with the cost and other effects of fraud, • Finding new tools to meet the audit challenge, • Meeting the challenges created by the new economy, and • Generational differences (Baby Boomers, Generation X, and Generation Y).

Since there is not enough time to address all of the above items, I would like to focus primarily on the following three items from the list above:

Doing More With Less

Although the number of qualified accounting students graduating from college has increased over the years, the overall demand for these professionals has also continued to increase. This results in an overall shortage of candidates to fill the current staff accountant positions. This differential will continue to increase as Baby Boomers begin to retire from the work force, leaving the rest of us to do the same amount of work.

Creating the Integrated Auditor

Technology continues to drastically change the environment in which we operate as auditing professionals. As a result, more is expected from less; auditors are expected to become integrated to be more efficient. The use of the Internet for research, computer networking in the field, to use the paperless audit process, and to take advantage of the use of the BlackBerry and Palm Pilots in communicating are but a few items that serve in shaping an “integrated” auditor.

In addition to integrating through technology, auditors need to understand the available resources that will assist them throughout the various aspects of auditing. No longer can the auditor “do it all.” IT audits, fraud and forensic audits, management consulting, and business valuation are just a few areas of expertise that are sometimes required to complete an audit. Successful auditors will understand the importance of accessing this expertise whether through employees of the same organization or outsourced from another.

Addressing Management Concern with the Cost and Other Effects of Fraud

Auditing Standards and those within the audit profession have been “preaching to the public” regarding those auditing procedures that are not necessarily designed to detect fraud in an organization. Even though this concept is often accepted within the profession, and the perception by the public is that the auditors should be not only identify but eliminate fraud. How often do we hear of instances of fraud, and subsequently the public outcry is usually “where were the auditors?” Since the Enrons, World Coms, the Delphias and the passage of Sarbanes Oxley, the auditing standards continue to evolve requiring the auditors to do more than document procedures performed to identify material misstatements as a result of fraud, but are now required to document the consideration of fraud risk, discussions with management regarding fraud, identification of specific fraud risk areas, and document how fraud risk was adequately addressed throughout the audit.

Overall, auditors focus on reducing fraud risk by recommending to management proper internal controls over the financial reporting accounting system. Working to mitigate the risk of fraud actually helps to minimize the costs associated with fraud if the instance were to be publicized.

In making recommendations to management regarding the implementation of internal controls, auditors should be aware of the associated costs. Too many controls may reduce the risk but in turn slow down the process, which becomes costly to management. It is a fine line having the right controls to reduce the risk of fraud but not at the expense of an organization’s overall operations.

Auditing in the 21st Century may have its share of challenges. However, I firmly believe that it also presents many exciting opportunities, and at another time those can be discussed in greater detail.

What new challenges have you encountered in your recent audit engagements? How has technology changed the scope of your work?

TOMORROW: Dave Bennett, CGFM, CPA, Deputy Mayor and Finance Director, Blount County, TN, and AGA National Treasurer on “Openness Drives Accountability”

Questions on posting comments or wish to subscribe to the feed that sends blogs right to your e-mail? Find instructions here. Want to be our guest on the Blog? Contact Marie Force, AGA communications director, at mforce@cox.net.

Is the Sky Really Falling or is the United States Financially Sound?

By: Lynda M. Dennis, Ph.D., CPA, CGFO

Lynda M. Dennis, Ph.D., CPA, CGFO, is on the faculty of the Kenneth Dixon School of Accounting at the University of Central Florida where she teaches accounting and auditing for governmental and not-for-profit organizations.

For the 11th consecutive year, the U.S. Government Accountability Office (GAO) issued a disclaimer of opinion on the accrual basis consolidated financial statements of the United States. For the fiscal year ended September 30, 2007, 19 federal agencies received unqualified opinions on their agency specific financial statements. Of the remaining five major federal agencies, one received a qualified opinion (U.S. Department of Agriculture) and four received disclaimers of opinion (U.S. Department of Defense (DoD), U.S. Department of Homeland Security, U.S. Department of State and National Aeronautics and Space Administration) on their respective agency-specific financial statements. Additionally, on a government-wide basis, 39 material weaknesses were noted, which was two less than that for the fiscal year ended September 30, 2006.

Generally, these material weaknesses in financial reporting, and other limitations on scope, prevented GAO from rendering an opinion on the 2007 federal consolidated financial statements. Material weaknesses, and other scope limitations, restricted the testing GAO was able to perform over compliance with significant laws and regulations. Specific material weaknesses related to incomplete documentation, financial systems, and basic recordkeeping and financial reporting. Ineffective internal controls over financial reporting also included ineffective controls related to safeguarding our nation’s assets.

According to the GAO, federal fiscal management has improved considerably since 1997 when the first federal consolidated financial statements were prepared.(1) However, three key issues continued to prevent GAO from rendering an opinion on the accrual based consolidated financial statements:

1. serious financial problems at the DoD;
2. an inability to effectively to account for federal intragovernmental activity and to reconcile these balances between federal agencies; and
3. an ineffective process to prepare the federal consolidated financial statements.

Of more concern than the disclaimer of opinion on our nation’s federal consolidated financial statements, is the significant matter of emphasis paragraph related to our nation’s long-term fiscal outlook. This was the fourth straight year that GAO included such an emphasis paragraph in its audit report. GAO indicates that regardless of continued improvement in annual net operating costs and the cash-based budget deficit, total reported liabilities, net social commitments and other financial exposures continued to grow. The total of these obligations increased $2 trillion from prior year levels to reach $53 trillion at September 30, 2007, largely due to increased Social Security and Medicare commitments. Additionally, GAO points out that these amounts will continue to grow as more baby boomers retire and begin to receive Social Security and Medicare benefits. At the conclusion of this emphasis paragraph, GAO clearly states these and other factors place the United States “on an imprudent and unsustainable long-term fiscal path.”(2)

A one-page message from the Secretary of the Treasury (the Secretary) serves as the transmittal letter for the 2007 Financial Report of the U.S. Government to Congress and to citizens and is placed at the beginning of the report. In the opening paragraph, the Secretary (a presidential appointment) cites increased corporate tax yields and solid economic growth as underlying reasons for the record-breaking levels of federal revenues for 2007. In the second paragraph, the Secretary refers to the challenge represented by the projected growth in the Social Security and Medicare entitlement programs. However, the Secretary states the costs of such programs “will grow substantially faster than the economy over the next several decades…”(3) This is a far softer message than the one voiced by the GAO on page 161 of the 2007 report.

The federal government regards financial condition as its current and past performance as well as an assessment of its capacity to meet future obligations including the fiscal sustainability of programs and services. In the Management’s Discussion and Analysis section of the 2007 report, the financial condition and long-term fiscal outlook of the federal government are discussed on pages 15 and 18 through 19, respectively. The overview portion of the long-term fiscal outlook section states the nation’s long-term fiscal outlook depends primarily on our aging population and the growth in future health care costs. This section concludes (on page 18) by simply stating the potential exists for the Social Security and Medicare programs to significantly and adversely affect the future financial condition of the United States. Again, a different message comes from GAO in their summary report where on page 32 the projected gap in these programs and other reported liabilities and implicit commitments is quantified at $175,000 per American or $455,000 per American household.

From this discussion it should be clear that our nation’s financial condition and its related long-term fiscal sustainability are of critical importance to every American. The United States plays a vital role in the global economy and as such, our nation’s long-term fiscal outlook should be of concern not only in our own country but throughout the world. As has been discussed herein, the alarm has been sounded by GAO for the last four years but Congress and the executive branch do not appear to have heard it.

What role can accounting educators play in helping to raise awareness of our nation’s unsustainable long-term fiscal outlook among taxpayers, elected and appointed government officials, the media and students?

End Notes
1. Consolidated federal financial statements were not prepared until required by the Chief Financial Officers Act of 1990.
2. 2007 Financial Report of the U.S. Government, p. 161.
3. Ibid, p. 5.

MONDAY: Lealan Miller, CGFM, Partner, Eide Bailly LLP

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Which Issues Should AGA’s Intergovernmental Partnership Tackle?

By: Martin Benison, CGFM

Martin Benison, CGFM, a member of AGA’s Greater Boston Chapter, is the controller for the Commonwealth of Massachusetts. He is the state co-chair of AGA’s Partnership for Intergovernmental Management and Accountability, which was created by AGA’s National Executive Committee in September 2007. Opinions expressed here are those of Mr. Benison and do not represent the views of the Partnership.

AGA has established an intergovernmental partnership to foster collaboration among governments and open lines of communication, eliminate duplication and waste, and improve performance and accountability. The Partnership for Intergovernmental Management and Accountability (Partnership) is comprised of high-ranking officials from the federal, state and local governments and higher education. The most fundamental goal of the Partnership is to enhance governments’ ability to effectively and efficiently serve citizens. View the Partnership’s website.

A 16-member Steering Committee governs the Partnership. I serve as the Partnership’s state co-chair and Tom Cooley, CFO of the National Science Foundation, is the federal co-chair.

The Partnership’s initial project was the issuance of the first of an occasional Intergovernmental Alert, which highlights federal initiatives that will have a significant impact on state and local governments. Issued on January 15, 2008, the Alert was emailed to more than 17,000 people and generated an unusually high level of interested among readers. View the Alert.

The Steering Committee also established work groups to implement two additional projects. The members of each work group will be announced shortly and they will begin work within two weeks. Additional information on the work groups is available on the Partnership’s website. In general, the work groups will focus on:

Federal Cost Allocation/Improving Implementation of OMB Circular A-87: This work group will identify how the process for preparing, submitting and negotiating Statewide Cost Allocation Plans in accordance with OMB Circular A-87 can be made more efficient and effective. The group, which is expected to complete its work in 12 months, will identify and prioritize issues or concerns, and provide recommendations for alternative approaches that could enhance implementation of Circular A-87 and provide benefits to all levels of government.

While the scope of the project will be further refined by the work group, possible areas of exploration include:

• Reviewing possible alternative approaches for the federal government to participate in the funding of working capital reserves for infrastructure and shared services arrangements for services such as information technology; and
• Exploring whether there should be a central adjudication process for issues arising between federal awarding agencies and other units of government.

Leveraging the Single Audit/Strategies for Reducing Erroneous Payments: This work group will determine how all levels of government can work smarter to leverage audit resources, including the Single Audit Act Amendments of 1996 (SAA) and the Improper Payments Act of 2002 (IPIA), while improving the usefulness of both acts to improve program integrity and reduce improper payments. SAA and IPIA both involve sampling at the grantee level (state, local, nonprofit organization) to determine whether federal awards were properly expended (the right payment to the right person for the right amount). Currently, these two efforts function independently with limited reliance on each other. The work group, which is expected to complete its work in one year, will strive to develop ways in which the two acts can be coordinated and leveraged to increase reliance between the two efforts and minimize the duplication of work.

Since the work group members have just been appointed and will begin their work within the next two weeks, this is the perfect time to provide them with input. Are you aware of any issues the Partnership should include in its next Intergovernmental Alert? Is there an issue or issues that you have encountered in negotiating or implementing Circular A-87 that should be addressed by the work group? What are some ways in which the SAA and IPIA can be leveraged and better coordinated? What steps can the various levels of government take together to enhance stewardship over taxpayers’ dollars? What are additional projects the Partnership should undertake?

FRIDAY: Is the Sky Really Falling or is the United States Financially Sound? By: Lynda M. Dennis, Ph.D., CPA, CGFO

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