The AGA Weblog

The Future of Excellence in Government

By: Patricia McGinnis

Patricia McGinnis is the President and CEO of The Council for Excellence in Government.

If “change” is the theme for 2008, even the most pioneering observers must be surprised by the twists and turns of the Presidential race and many dimensions of our economic ups and downs. In times of uncertainty, government of, by and for the people takes on new meaning as public leaders and the people they serve sort out priorities and take critical actions they believe to be in the short- and long-term interest of the public.

Leadership, innovation, public participation and results really matter. We remind ourselves and each other that public service is a public trust—whether you are running for President, leading the Fed, managing a public program or voting in a primary election. At the Council, our 2008 agenda is designed to promote constructive change in government, with a sharp focus on transitions—not only the historic Presidential Transition, but also the transition in public service on the horizon.

With respect to the Presidential Transition, the Council will address the most immediate and urgent challenge of the new administration: selecting top appointees for critical leadership and management posts in the federal government. These top jobs include agency and program heads in areas such as Social Security, Medicare and FEMA, as well as COOs, CFOs, CIOs, CHCOs and CAOs. Presidential appointments are often called “plum” jobs, but the Council refers to these tough management jobs as “Prunes”—which in our lexicon, are “plums seasoned by wisdom and experience, with a much thicker skin.” Prune jobs are the most critical to government achieving results for the public, often in partnership with other levels of government and the private sector.

For nearly two decades, the Council has produced The Prune Book, with profiles of these top management posts, from the perspective of past incumbents, coworkers, stakeholders and others. We have also been developed leadership/orientation programs for top Presidential appointees at the request of both the Bush and Clinton administrations.

As we approach a new administration in 2009, the Council plans to take the Prune concept from book form to a major web presence (Prunes 2.0) and to expand its value and reach as an ongoing resource for top government managers. Not only will we profile the jobs, but we are also going to explicitly point to the management qualifications and attributes that the President and Senate should consider for these appointments. We will select and highlight the top 25 Prune Jobs and also provide information about other appointed positions, using the Plum Book and other sources. We will organize dynamic online Communities of Practice for top managers (appointed and career) to share insights and information about how to succeed, best practices and lessons learned. The Council will manage the sharing of information, blogs, case studies and other resources both online and in selected face-to-face meetings for new appointees and career managers as well as overseers, stakeholders and the media—all designed to help improve the performance of critical government functions and programs.

The Presidential Transition will take place in the context of a larger and equally important transition in public service at the federal, state and local levels. In the next few years, 60 percent of the federal government’s work force and 90 percent of senior executives will be eligible to retire. As the Baby Boomers leave the work force, big questions arise about who will be the next generation of public servants, what will appeal to them and how to attract and retain the talent required for excellence in government.

Recently, the Council released a new report, “The Appeal of Public Service: Who…What…and How?”, based on survey research conducted by Gallup, made possible by a grant from Accenture. This report explores the views of 19-29-year-olds—Millennials—on politics, government and public service, in comparison to their over 30 elders.

Despite generational differences in priorities, information sources and modes of communication, a majority of Americans now say that a job in public service would be appealing. Yet, 60 percent of those under age thirty say they have never been asked to consider a job in government. However, if asked by their parents (33 percent) or the newly elected President in 2008 (29 percent), a significant share of Millennials say they would give such a request a great deal of consideration. In fact, the newly elected President in 2008 tops the list of motivators for those over thirty, with 30 percent saying they would give a great deal of consideration to this “ask.”

Note to presidential candidates: This is a great opportunity to attract the best and brightest to government at the very time large numbers of Baby Boomers are beginning to retire from government. During this election year, with change as a major theme, strong majorities of Millennials and their elders are paying attention to the campaigns and engaging in one or more political activities.

Note to all of us who are parents or friends of Millennials: Ask a young person to consider government service. Encourage them to step up to lead and change government, their way. Our future depends on them.

As Yogi Berra once said, “the future is inevitable,” so I would like to challenge the readers of the AGA blog to join us at the Council in imagining what the future of excellence in government could look like. What will it take to attract and orient well-qualified appointees, who can make a difference in top political posts? What will it take to attracted talented young people to government service? Most important, what can you do and what can we do together to make excellence in government a reality and shape the future we want for ourselves and future generations?

MONDAY: Thad Juszczak, senior manager with Grant Thornton LLP, a retired federal budget officer and AGA National Treasurer-Elect, on "Baby Boomers and 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.

Short-Term Challenges Require Long-Term Vision

By: Peter Franchot, J.D.

Peter Franchot, J.D., is the Maryland state comptroller.

Earlier this week, The Conference Board reported that consumer confidence has reached a 16-year low as a result of spiraling oil prices, concerns over job security and the specter of inflation. This latest news comes amid continued fallout from the collapse of the sub-prime lending industry, which has lifted U.S. home foreclosures to an all-time high while undermining the stability of the stock market and virtually every sector of our nation’s economy. This latest confirmation of consumer anxiety comes as no surprise to families that are struggling to pay the bills and keep a roof over their heads, while the price of everything from a gallon of gas to a gallon of milk is on the rise.

In March, the Maryland Board of Revenue Estimates, which I chair, reduced our state’s revenue projections by $330 million over the next 16 months. This confirmed that while Maryland’s economy remains strong—due to our proximity to the federal government and the presence of a thriving high-tech economy—we are not immune to national economic trends. It also served as a sobering reminder that the state of Maryland continues to face a structural budget deficit, even after the enactment of a record tax increase last November.

It is in this climate of fiscal and economic uncertainty that Marylanders will go to the ballot box this November and vote whether or not to amend our state’s constitution by legalizing 15,000 slot machines at five locations throughout Maryland. As comptroller and Maryland’s chief fiscal officer, I am working in active opposition to this constitutional amendment. I can think of nothing more irresponsible than tying our state’s economic future to the national gambling industry’s empty promises of easy money. Though the economic forecast is likely to get worse before it gets better, these challenges are temporary. Slots and their negative fiscal impact, however, are forever.

I believe we can and should do better—both now and over the long term. Even supporters concede that slots would not generate any significant revenue until 2012 at the earliest. In an effort to address our fiscal challenges immediately, I have introduced a Tax Fairness Initiative that will bring in an estimated $200 million as it is phased in over the next four years. Once the new technology and personnel are fully in place, it will generate up to $100 million per year. This is not adding or raising taxes—we are simply working aggressively to enforce the tax laws that are already on the books.

In addition, I have instituted numerous partnerships with the U.S. Internal Revenue Service to help my state collect what it is owed. Last July, we were proud to be the first state in the nation to partner with the IRS in a “federal vendor offset” program. Originally estimated to bring in a little over $10 million for Maryland in the first year, it will in fact help us collect in excess of $25 million in the first year alone. In fact, it was for innovative programs like this that the AGA honored Maryland and my office with the 2007 William Snodgrass Award.

In the long term, the solution for fiscal health and stability is an economic development strategy that harnesses our existing strengths—particularly in the life sciences—and helps grow and expand our tax base. Instead of resorting to the empty gimmick of slots, we must get back to the basics of growing our economy the old fashioned way by investing in innovation, building our educated work force and promoting industries that are environmentally sustainable and conducive to small business entrepreneurship.

As other states like North Carolina, Michigan and California significantly increase their investments in the life sciences, this is not the time to be distracted by the issue of expanding gambling. In addition to their enormous and well-documented social costs, gambling is a notoriously undependable source of revenue. While 15,000 slot machines may look good today, what happens when neighboring states add machines, gaming tables or casinos into the mix? I’m afraid that it would be the beginning of a corrosive cycle of budgetary uncertainty and further tax increases.

The collapse of the sub-prime lending industry has taught us all that there is no such thing as an easy fix, that there are no shortcuts to prosperity and that if something sounds too good to be true, it usually is. The immediate fiscal challenges we face today are an opportunity to reinforce our immediate commitment to tax fairness and our long-term investment in the knowledge-based economy. It is an opportunity that shouldn’t be squandered by a shortsighted and destructive obsession with slot machines. I welcome your thoughts and comments, as this is a national issue.'

TOMORROW: Patricia McGinnis, the President and CEO of the Council for Excellence in Government on "The Upcoming Presidential Transition and the Government Retirement Wave"

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.

Accounting for Human Capital

By: Steven Berkowitz

Steven Berkowitz, a member of AGA’s Montgomery/Prince George’s Chapter, is an independent consultant in federal accounting, budget and risk management.

It’s 6 p.m. Do you know where your assets are? That is how I began my Fall 2001 article “Measuring and Reporting Human Capital” in the Journal of Government Financial Management. Although it is now a cliché, our most valuable assets walk out the door at the end of the workday. Government agencies could not achieve their mission without human brainpower, and yet, we still do not have a generally accepted standard for measuring and reporting our most important asset on our financial statements.

Accounting systems and standards mirror the existing economic and business structure of an organization and help provide stakeholders with valuable information to help them gauge the value of an organization. In my view, we have continued to stay rooted in an industrial age accounting structure that ignores the modern age where people are idea generators who convert knowledge into intangible and tangible value. We continue to spend millions of dollars to measure and audit hard assets, such as property, plant, equipment, supplies and inventory. The real value of a successful organization, however, lies in its capacity for acquiring, generating, distributing and applying knowledge strategically and operationally. Thus, the assets that really count are the ones that we do not count. One of the major limitations of the current financial accounting and reporting model is that we do not measure and report human capital on financial statements or footnotes.

Rather than treating personnel as an expense, I believe we need to capitalize as an asset the net present value of the future year cost for the cohort of employees that exist on the balance sheet date with an offset to an unfunded human capital liability. I provided a simplified example of a balance sheet using this approach in the Fall 2001 article. I suggested that we use the annual salary increase included in the most current President’s Budget as the discount rate. For the period to use for the net present value calculation, we could use the average length of service of employees. We could even stratify this by various classes of employees to derive a most precise calculation.

In addition, I believe there is value is reporting human capital metrics as part of supplemental stewardship information. Some examples of these metrics include training dollars spent per employee, hours of training per employee, stakeholder and employee satisfaction indicators, years of employee experience, turnover ratios, percent of employees with less than two years experience (the rookie ratio), quality performance ratios, and so forth.

Human capital is the most valuable asset held by government agencies. I believe it is important that we try to measure and report this value or proxies for this asset’s value. I encourage us to begin a dialogue of and experiment with reporting models that measure and report our investment in human capital.

As such I posse several questions:

Should we measure and report the value of human capital on our financial statements? What approach would you consider appropriate for measuring the value of human capital? How would you report it? What supplemental stewardship information would you include as part of the financial statements?

TOMORROW: Peter Franchot, Comptroller, State of Maryland

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.

Compliance with IIA and GAO Peer Review Standards

By: Sam M. McCall, CGFM, CPA, CIA, CGAP

AGA Past National President Sam M. McCall, CGFM, CPA, CIA, CGAP, a member of AGA’s Tallahassee Chapter, is the city auditor, City of Tallahassee, FL.

In reviewing the Institute of Internal Auditors (IIA) and U.S. Government Accountability Office (GAO) standards for audit organizations, I find it interesting, and inconsistent, that the GAO standards allow an audit organization to state compliance with GAO standards when the organization starts fieldwork on its first audit; whereas, the IIA does not allow the compliance statement until an external peer review has been completed.

In Standard 1330 of the International Standards for the Professional Practice of Internal Auditing, Red Book, internal auditors are encouraged to report that their activities are “conducted in accordance with The International Standards for the Professional Practice of Internal Auditing”; whereas, the Yellow Book in paragraphs 1.11 and 8.30, states that auditors should refer to compliance with GAGAS in the auditor’s report. The Yellow Book is more prescriptive in referencing audit standards followed.

In Standard 1330 of the Red Book, internal auditors can use the statement that the International Standards for the Professional Practice of Internal Auditing were followed only if assessments of the quality improvement program demonstrate compliance with the Standards. Further, Practice Advisory 1330-1 states that initial use of the compliance phrase is not appropriate until an external review performed within the past five years, has demonstrated the activity is in compliance with the Standards and Code of Conduct.

By comparison, the Yellow Book, in paragraph 3.53f allows the compliance statement to be made when starting the first audit under GAGAS with the understanding that an internal quality control process is in place, is being monitored, and supports the statement. Also, paragraph 3.55 (and the related footnote number 40) supports this understanding by stating that an external review requirement is effective within three years from the date an organization begins field work on its first assignment in accordance with GAGAS.

It would seem to me that the IIA should review and reconsider Standard 1330 and Practice Advisory 1330-1 to allow internal audit organizations to make the compliance statement when supported by an effective system of internal quality control and when beginning field work on the first audit under the IIA Standards. This would be allowed if any organization intends to comply with the external quality assessment review requirements.

I am wondering if other internal auditors are even aware of this more restrictive requirement of the IIA. Also, do they believe the IIA compliance statement should be allowed for internal auditors (1) when the organizations feels its internal quality control system is in place and starting fieldwork on their first audit or (2) only after an external quality control review has been performed and verifies that the organization is complying with IIA Standards?

TOMORROW: Wednesday: Steven Berkowitz, Independent Consultant in Federal Accounting, Budget, and Risk Management, on "Accounting for Human Capital"

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.

Performance Based Government: The Talent Age Challenge for the Private Sector

By: Jon Desenberg

Jon Desenberg is the policy director for
The Performance Institute.

Talent is the Only Sustainable Edge
The talent age really is the product of the information revolution and the flattening of the world. What that means simply is that when the world is just flat—when you can access human talent anywhere—whether it’s for services or manufacturing, what kind of human talent your country or community or institution can aggregate and offer is really what John Seeley Brown and John Hagel, who are two management consultants, called, “the only sustainable edge.”
Thomas Friedman
The New York Times Columnist and Author
(Footnote: Interview in Business Strategies Magazine, May 2006)

Evolution to the Talent Age

Talent Drives Performance

Agency leaders have instinctively known that top talent drives superior performance—whether that realization is evident in an outstanding sales representative who consistently exceeds quotas or a brilliant engineer who develops the next product innovation.

Over the past half a decade, the way the government’s career leadership thinks about talent has evolved. Now, talent is a top of mind issue in the board room and the C-suite. Accordingly, these leaders are looking to HR to provide processes, policies, and technology to acquire, retain, and optimize talent in the organization. In fact, one study of executives found:
• 82 percent believe that human capital has an impact on profitability.
• 92 percent think that human capital has a significant effect on customer satisfaction.
• 72 percent believe that human capital has an impact on innovation and new product development.

Government leaders acknowledge that talent drives performance in the form of better customer service, higher sales performance, product and service innovation, organizational process improvement, as well as strong management and leadership. CEOs are cognizant of the significance and impact of aggregated work force talent. For example, in the IBM 2006 CEO Study, 41 percent of CEOs indicated that employees are the best source of innovation within an organization.

Increasingly, executive teams are looking at the assembled work force and even their external talent pools as corporate assets that can be effectively leveraged to create more taxpayer value.

Yet, the current work force climate is the most turbulent and challenging environment in the history of commerce.

The Government’s Talent Age Challenge
Top talent has never been more valuable, nor the competition for it more fierce.
– Fortune Magazine, January 30, 2006

In a survey polling more than 700 public and private sector executives, the number one challenge related to controlling costs and the other four related to meeting their mission requirements.

These top five organizational challenges are:
1. Financial Pressures to Cut Costs
2. Rapid Mission Expansion
3. Increased accountability and Transparency
4. Adapting New Delivery Mechanisms
5. Aging Work force

The current global work force environment may be the most challenging in history. A Senior HR Executive at the 2006 IBM Human Resources Summit said it this way, “Right now, globalization has created an absolutely screwed up, crazy world for any HR person—nothing has been more challenging.”

Consider this:

• 73 percent of managers claim that competition for talent has increased since 2005. (DDI-Selection Forecast 2006–2007 Report)

• New Zealand, Australia and South Africa lead the list of countries where work force skill shortages is seen to be the biggest constraint on expansion—60 percent, 59 percent and 58 percent respectively. (Grant Thornton International Business Report 2007)

• Increasing industrialization in Southeast Asia has led to rising levels of migration of skilled talent. Additional pressure is being generated by rising economies such as China and India.

• The U.S. will have a 10 million worker shortfall by 2010. (Bureau of Labor Statistics)

• The majority of workers in many countries is open to offers, actively job hunting, or plans to retire including in the U.S. (63 percent), France (69 percent), UK (70 percent). (Towers Perrin)

• Only 14 percent of workers are actively engaged in their jobs. 24 percent of workers are actively disengaged. (Towers Perrin Global Workforce Study)

• 500 largest companies in the U.S. expect to lose 50 percent of their senior management in the next five years. (Business Week, October 2005)

• 51 percent of executives cite lack of potential leaders as their first or second top talent challenge. (Bersin & Associates, 2007)

This dynamic global business environment is at the root of an unprecedented set of talent challenges. I’d like to use or time together today on the AGA Blog to discuss Talent Management. What is your organization doing to address these challenges?

TUESDAY: AGA Past National President Sam McCall, CGFM, City Auditor, City of Tallahassee, FL, "Compliance with IIA and GAO Peer Review Standards"

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.

You’re Not in Public Service—You Get Paid!

By: Tom Sadowski, CGFM, CPA

Tom Sadowski, CGFM, CPA, a member of AGA’s Mid-Missouri Chapter, is the Missouri state controller. He’s an AGA Past National President and a two-time Past National Treasurer.

That was the response I got from a co-worker when I said something about my being in public service. I thought that comment was a good starting point for talking about not just why I work for government but what it means to me.

I do like my job, and I have liked every job I have had in government. Sure there were times when it wasn’t fun, and there were some difficult times, but overall I have had a very satisfying and rewarding career in government financial management. Why is that? What makes it special? For me it boils down to three things:

• The people I get to work with, including in my agency, the other state agencies and the various people we work with. A lot of good people work for government, and they do a lot of good work. Government is much larger and more complex than it used to be and the knowledge and skill level necessary has risen considerably. Yes, I am a boss, and there is a hierarchy, but that doesn’t mean we can’t enjoy what we do and support each other. • The interesting, challenging opportunities I get to work on every day. Yes, sometimes it is the same but not really. It is like this story about Einstein. On a final exam a student said, “Professor, the questions are the same as last year.” Einstein smiled and said, “Yes, but the answers are different.” • Making a difference in government which is something we often don’t appreciate from the financial management side.

I can boil it down to three words—it is fun! For me fun means it is intellectually stimulating, and I get to interact with a lot of people to solve problems and make things better.

When I was AGA National President I talked about what it meant to me to be a government financial management professional (Yes, we are a profession). It was a few simple things:

• Act ethically (know what is the right thing to do and do it, while encouraging others to do the same). • Serve the public and the public good. • Treat others with respect. • Take care of and help develop other professionals. • Leave things better than you found them and enable the future to exceed the present.

So, how did I get into government and how did I know I’d like it?

I have always had an interest in government, but to be honest it was not something I sought out. I sort of fell into it, but that’s a story for another day. What I can tell you is it can be a great career but it will only be as good as you make it. Like I advise college students trying to figure out what they want to do, start with what interests you. Try different things and talk to different people to learn what is out there. Be inquisitive. Don’t be afraid to ask. Most people are happy to help, and if they’re not, they don’t have anything you need anyway. A career is like clothing. Something may fit for a while or be a style you really like but later you grow out of it or develop different tastes. Thankfully, my career sense has been a lot better than my fashion sense.

As many of you may know I don’t buy into this generational stuff, at least for me. I don’t try to figure out how to manage or motivate someone by how old they are. I talk to them and encourage them to talk to me. If you don’t work in the kind of environment where you feel valued, try to change it or go elsewhere. If you have talent, there are a lot of doors open to you.

Some people call this mentoring but that term doesn’t work for me. To me it is having relationships with people who can help you shape your career whether or not they work in government financial management and regardless of their age or position. It is your career—own it, develop it and love it!

I am interested in how you view yourself. Do you see what you do as a job or a career? What questions or suggestions do you have about managing a career?

Do you think and act like a professional?

I know you get paid, but are you in public service?

TOMORROW: Jon Desenberg, Consulting Director, The Performance Institute on “Moving Performance Forward in Government: Planning from the Top Down / Measuring from the Bottom Up”

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.

FTC Celebrates First CEAR Award

By: Steve Fisher

Steve Fisher is the chief financial officer of the Federal Trade Commission.

The FTC is very excited to be a first-time award recipient of AGA’s Certificate of Excellence in Accountability Reporting (CEAR) for its FY 2007 Performance and Accountability Report (PAR). As the CFO, I am most pleased for the opportunity to publicly thank my small financial staff—the key to our success. But beyond having committed and talented staff, the FTC can point to AGA’s prior year recommendations as highly valuable feedback that helped us produce a PAR worthy of the CEAR Award. Moving forward, we believe the program will help us maintain momentum in meeting changing requirements and increasing demands of public accountability.

The agency submitted its PAR for a CEAR evaluation for the first time in FY 2006. Although we did not receive a CEAR award for our FY 2006 PAR, we used the CEAR review team comments to maximize the benefit of the evaluation. The PAR team used the comments received from the reviewers to improve the presentation of information and make the report more useful to the reader. We created an internal checklist of the FY 2006 comments to the FTC for use in conjunction with the FY 2007 CEAR reviewer’s checklist. This document set out each comment, a recommendation for addressing the comment, and the actions we took to implement.

AGA’s detailed recommendations covered a wide range of elements but all were right on target. The feedback we received pertaining to performance reporting were of particular benefit in helping me influence other senior executives in the agency to make changes in the manner in which we presented our performance results. Some examples of the changes we made in addressing AGA feedback included: better integration of our strategic goals, outcomes and accomplishments; replacing performance narrative with tables capturing key information; adding prior year results to show trend data; and summarizing our performance framework. Since I agree with AGA that even little things go a long way to helping readers understand and assess FTC’s performance, we added a glossary, ensured letters were dated, incorporated a staff composition chart, and implemented a myriad of other changes intended to deliver meaningful information about our financial and programmatic performance. The result was a much more reader-friendly and informative PAR.

Yes the FTC earned the CEAR Award, but there is always room for continued improvement. As we prepare to work on the FY 2008 report, AGA’s recommendations on the FY 2007 PAR will again come into play. I aim to address each of the comments, which will help FTC build on our prior efforts to make continuous improvements. The PAR is more than a compliance document. For those who are unfamiliar with a given agency (e.g., newly hired staff of oversight bodies) a quality PAR is a useful mechanism for providing a clear and complete picture of your agency and an opportunity to make a good first impression. The PAR can also be used to help educate the public about agency programs. In this regard, our PAR includes an “FTC-At-A-Glance” section, a regional map, and points of contact to reach our Consumer Response Center or to learn more about the popular and successful Do Not Call List. I also see the PAR as potentially helpful in getting new employees up to speed on FTC’s programs and financial position.

Blog readers experienced in preparing a PAR know that collecting, analyzing, integrating, synthesizing, designing and reviewing the report takes tremendous effort. Still, I think the benefits of increased accountability, transparency to taxpayers, process refinements and the discipline instilled make the effort worthwhile. The PAR is more than just a record of accomplishments, statements of compliance, priorities and trends. The requisite performance and trend analysis and strategic planning are critical to addressing future issues and to being better positioned to take on challenges. The production process itself builds discipline and helps strengthen the performance collection processes. And likewise, the AGA CEAR review is extremely valuable. The independent observations of the experienced and independent members of the review team have proven to be very beneficial. I expect to participate in the program again.

I’d like to know what your experience has been and what you think: Have you looked at your report since it was delivered to the Hill and White House? Do you agree that the PAR’s production effort is worth the result?

In closing, it’s an honor for the FTC to be recognized along with our peers.

TOMORROW: Tom Sadowski, CGFM, State Controller, State of Missouri, on "You're Not in Public Service—You Get Paid!"

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.

GASB’s Technical Agenda

By: Eric S. Berman, CPA

Eric S. Berman, CPA, a member of AGA’s Greater Boston Chapter, is a deputy comptroller of the Commonwealth of Massachusetts. He is AGA’s representative to the Governmental Accounting Standards Advisory Council to GASB (GASAC) and a member of the Financial Management Standards Board.

I am proud to be your representative to GASAC, and I encourage you to give me your feedback.
Being your representative has important responsibilities, not the least of which is communicating to you what is going on at GASB and soliciting your feedback. Your feedback is extraordinarily important to the standards-setting process.
During the April board meeting, GASB voted to add the following to its technical agenda, based in part upon recommendations from GASAC:

• Current Projects—Major
• Postemployment Benefit Accounting and Financial Reporting
• Public/Private Partnerships
• Reporting Unit Presentations/Statement 14 Reexamination

The postemployment benefit accounting and financial reporting project will explore the possibility of improving existing standards with the objective of improving accountability and transparency, making an assessment of the degree to which interperiod equity is achieved and if the information enhances decision usefulness. Statements 25 and 27 would be primarily reviewed, but OPEB standards may also come into play. It is anticipated that the deliberations and due process on the project may take about three years.

To me, the Public / Private Partnerships (P3s) proposal is important. Research shows that there are at least nine primary structures of P3s ranging from simple contracts and concessions to full privatization. (Anyone stay overnight at a national park lately? That’s a concession.) Privatization is prevalent in many governmental functions from garbage collection to technology. The accounting for P3s ranges from contracts to joint ventures. Recent P3 transactions in Indiana, California, Illinois, and Colorado are only the tip of the iceberg. Undoubtedly, as the economy jitters, P3s will become even more popular as a way to finance long-term or short-term operations.

The reexamination of GASB 14 / 39 cannot come too soon. Routinely, technical inquiries are always high for GASB 14 / 39. Many of these inquiries are the result of departmental audits. As mature as GAAP reporting is, departmental reporting truly is the final frontier. I also look toward clarifying what portion of component unit reporting (especially in the notes to the basic financial statements,) truly is relevant to the primary government?

GASB also is going to tackle some practice issues in the short run. Finally, governmental GAAP that is set within AICPA standards will be codified. A technical bulletin will be worked on allowing the use of actual amounts for the ARC adjustment, for pension and OPEB plans, when the amount is directly attributable to past over or under-contributions. As stated in my last blog entry, the derivative instruments implementation guide cannot come too soon. The ARC adjustment TB will be exposed in the fall. The AICPA omnibus is slated to be exposed during the winter and the derivatives implementation guide is slated to hit the streets in the first quarter of 2009, in advance of the proposed standard’s implementation timeline.

Other research projects will include a codification of pre-November 30, 1989 FASB standards and fair value measurements. As FASB has amended pre-November 30, 1989 standards, the provisions that governments may adopt have become very muddy, especially for enterprise activities. The scope of the project would be to identify these provisions, review them for conflicts with GASB standards and determine whether those provisions should be adopted and incorporated into GASB pronouncements as is, modified to be incorporated or omitted. Practitioners are looking for guidance on when to use fair value and when to adhere to historical cost. This uncertainty heavily affects external investment pool, pension and soon—OPEB reporting. FASB 157-type measurement and reporting may be answer, but not for all governments. Another research project will address these fair value issues. Finally, a long-awaited omnibus looking at Statements 31 and 40 for investments will be investigated.

So of the nine additions to the technical plan listed below, how would you prioritize their importance to your government (1 being most important, 9 being least) and why?

Current Projects—Major • Postemployment Benefit Accounting and Financial Reporting • Public / Private Partnerships • Reporting Unit Presentations/Statement 14 Reexamination Current Projects—Practice Issues • AICPA Omnibus • ARC Adjustment—Technical Bulletin • Derivative Instruments—Implementation Guide Research Projects • Codification of Pre-November 30, 1989, FASB Pronouncements • Fair Value Measurements • Investment Omnibus

Given that it is golfing season, low score wins. Remember, I am asking why you are giving one score versus another as I’d like to get your feedback on these projects other than the score.

Finally, I’d like your thoughts for the future beyond what is in the technical plan. Other than what GASB has on their technical agenda, other research in the future will include prospective research projects on the agenda include electronic financial reporting, governmental combinations, conduit debt, transactions that have loan and grant aspects and the preservation method for infrastructure (among others.) Is there anything else that GASB should think about studying?

TOMORROW: Steve Fisher, CFO, Federal Trade Commission, on receiving AGA's Prestigious Certificate of Excellence in Accountability Reporting (CEAR)

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.

Running Deficits While Your Budgets Are Balanced

By: Sheila A. Weinberg

Sheila A. Weinberg is the founder & CEO, Institute for Truth in Accounting

All governmental entities derive their just powers from the consent of the governed. Governments therefore have a special responsibility to report on their actions and the results of those actions. These reports must provide useful information that enables the citizens and their elected representatives to make informed decisions. To be useful, financial information must be understandable, reliable and relevant. To be relevant this information must be available on a timely basis. Because an informed electorate is the basis for a sound democracy, providing such information is an essential part of accountability in government.

As a result of corporate accountability failures, citizens are demanding greater transparency and integrity in financial disclosure. These accountability failures serve to re-enforce the importance of proper accounting and reporting practices. It is critically important that such failures not be allowed to occur in the public sector. To avert the financial difficulties experienced by failed corporations, like Enron and WorldCom, states’ constitutions require balanced budgets. The Governmental Accounting Standard Board (GASB) believes one of the intentions of balanced budget laws is that the current generation of citizens should not be able to shift the burden of paying for current-year services to future-year taxpayers. GASB further believes that this concept, known as “inter-period equity,” is a significant part of accountability and is fundamental to public administration. Inter-period equity is a significant part of accountability because it reduces incumbents’ ability to promise voters future benefits without having an impact on the current budget calculations.

Because the provisions of the most states’ budget laws are not clear, the budgetary intent of balance is often avoided. Strong evidence of this can be found in states’ annual financial report.

While each state’s budget is major policy setting document, the state’s Comprehensive Annual Financial Reports (CAFR) is the report card on that policy. This report gives more accurate pictures of states’ finances.

For example in my home state of Illinois, in July 2005 the legislature passed and the governor signed a “balanced” budget for Fiscal Year (FY) 2006. Two years later, the FY 2006 audited CAFR reported that Illinois’ primary government functions ran a deficit of more than $800 million. Illinois CAFRs for the prior four fiscal years (FY2002-FY2005) also showed annual deficits of $4.2 billion, $4.1 billion, $2.5 billion and $2.1 billion respectively. For more than twenty years Illinois’ budgets have been “balanced,” yet according to the Illinois CAFR, the state government is in a financial hole of more than $44.5 billion.

This is not unique to the state of Illinois. Most states are required to “balance” their budgets, but run “structural” deficits. How can states run “balanced” budgets, but run “structural” deficits at the same time? Well, it all depends on how you count. The budgets are calculated using a very complicated and intricate method, I call “political math.” These rules are defined by elected officials, who calculate budgets essentially on a cash basis, which allows liabilities and the real condition of states’ finances to be hidden. On the other hand, the audited financial reports are calculated according to generally accepted accounting principles (GAAP). GAAP is established by the independent GASB, which has no political stake in the outcome of the financial reports. GASB dictates that the states’ government-wide financial statements be calculated on the accrual basis. Accrual accounting provides a more comprehensive indication of the total financial activity of government and the long-term effects of current policy. Accrual accounting records revenues when earned and records liabilities when expenses are incurred, regardless of the timing of related cash flow. Accrual accounting helps governments meet two important objectives of financial reporting: determining whether current-year citizens paid for the services they received in the current year, or if the costs of services were shifted to future-year citizens; and calculating whether a government’s financial position has improved or deteriorated as a result of the year’s operations.

It is essential that such information be available during the each state’s decision-making processes. Each state’s budget process is the principal annual vehicle through which the legislature and the governor allocate the states’ current and future resources. The budget process is each state’s most important decision-making processes. Therefore, the budget should be presented in a way that facilitates policy analysis and promotes public accountability.

To expose the state governments to a greater degree of public scrutiny and accountability, the citizens and their elected representatives must be informed of the current and long-term financial consequences of the spending and revenue decisions included in the budget. Therefore the citizens and their elected officials should be given an estimation of the surplus/deficit that would be reported on the accrual basis financial statements, if a proposed budget was implemented. This estimation should be calculated by the state official responsible for producing the state’s CAFR. The estimate should be done using the accrual accounting concepts outlined by the independent GASB. To be a part of the important budget process citizens and their elected officials must been given this relevant information.

The Institute for Truth in Accounting is currently researching the difference between states’ budget calculations and the results reported on the CAFRs. Do you know the methods that your state’s elected officials use to avoid the intent of the balanced budget requirement? What could be done to get legislators to consider the amounts reported on your state’s CAFR when drawing up the next year’s budget? Your insights would be most helpful in our research.

TOMORROW: Eric Berman, Deputy Controller, Commonwealth of Massachusetts and AGA GASAC Representative, on "The GASB's Technical Agenda"

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.

Too Many Chiefs? Do We Need to Change the Way We Govern Our Federal Government Support Operations?

By Patricia E. Healy, CGFM

Patricia E. Healy, CGFM, is an executive consultant at CGI Federal. She recently retired after serving almost nine years as deputy CFO of the U.S. Department of Agriculture. She is a fellow of the National Academy of Public Administration.

I recently retired from the federal government having most recently served as the deputy chief financial officer of the U.S. Department of Agriculture. Before I left, many of us were already discussing the upcoming transition to a new administration. Since I left, I have been part of or attended forums sponsored by the Council for Excellence in Government, the National Academy of Public Administration and others intended to examine where we have been, where we need to go and how best to represent this to the new administration.

In these forums, or accompanying hallway conversations, participants begin to reflect on the role of the Chief Financial Officers Act of 1990 in reforming financial management in the federal government. Invariably this leads to a discussion of the role of the chief financial officer (CFO) in our agencies and whether the CFO is now only focused on compliance issues (such as financial statements, internal controls) and not enough on supporting overall agency program objectives. These conversations are important, as it is always good to engage in self-examination and to respond to the ever-changing, evolving environment of the federal government. However, rather than focus solely on the role of the CFO, I wonder if we might not need to take a larger view of how we govern our support infrastructure in the federal government.

Since 1990, we have seen the emergence of chief financial officers, chief information officers, chief technology officers, chief human capital officers, chief acquisition officers and chief performance officers. They all represent infrastructure operations intended to efficiently and effectively support program mission. Yet in most cases, these operations are by law, regulation or past practice, stovepipe functions tasked with compliance objectives of their own. They are funded by ever-decreasing discretionary dollars, and compete for these dollars among themselves and with agency mission programs funded from discretionary accounts. This can create an atmosphere where the efficiency and effectiveness of the overall agency operations, infrastructure and programs, are not being addressed. Further, opportunities to leverage funds and staff resources across functional areas to solve common problems are often lost. There is no single executive in charge of the entire enterprise infrastructure, one who can view operations holistically and facilitate solutions and set the priorities across the enterprise.

So given this reality of the federal government management condition, how can we manage effectively and efficiently for strategic outcomes across multiple functions and “chiefs”? Peter Weill of the Massachusetts Institute of Technology, in his book (with Jeanne W. Ross) entitled IT Governance: How Top Performers Manage IT Decision Rights for Superior Results, reported on a study of more than 250 large global organizations and found that top-performing organizations succeed where others fail by implementing effective IT governance. My experience, and that of my colleagues here at CGI, has shown that governance functions such as effective and recurring planning, structured steering and operating committees across multiple chiefs, clear division of roles and responsibilities, and rigorous processes and monitoring lead to increased performance, accountability and control of business and IT functions.

What has your experience been in regard to successfully navigating cross-domain collaboration for strategic results? What practices have you seen work?

MONDAY: Sheila Weinberg, Truth in Accounting, on "Running Deficits When Your Balance is Balanced"

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.