The AGA Weblog

Think Big! Act Courageously! Make a Difference!—The Era of ARRA!

By: William A. (Billy) Morehead, Ph.D., CPA, CGFM, Chair, Division of Accountancy, CIS, and Finance, Delta State University; AGA National President-Elect

It seems to me that most of our respective conversations over the past two months, at all levels of government, have in part included some aspect of the monies in the American Recovery and Reinvestment Act of 2009 (ARRA).

There have been, and will continue to be, a number of very healthy conversations among many governmental entities regarding the accountability aspects of distributing, using, and accounting for the hundreds of billions of dollars involved in ARRA. An excellent dialogue between federal and state governments occurred this past week at the National Association of State Comptrollers meeting in Annapolis, MD—what a GREAT meeting! I am quite proud of our governments who are focusing on the accountability aspect of ARRA funding. I hope and pray the “theory” in our discussions becomes the “reality” we see when the monies “hit the street” in coming weeks and months.

Rightfully so, there has been some reluctance on behalf of many state and local governments to begin drawing down monies contained in ARRA due to the absence of specific accountability criteria and guidelines – even editorial cartoonists have called attention to this in Mississippi—see Marshall Ramsey’s editorial cartoon in The Clarion Ledger on Tuesday, March 24, 2009. 

I applaud those at the federal government level who are working fast and furiously to establish appropriate criteria and guidelines. I don’t recall, in my 25-year career in government, any time when I have seen the federal government agencies and the state and local government offices working so closely together as they are now to achieve the performance outcomes and accountability goals desired with ARRA. I applaud you all!

As AGA continues to “trumpet” Intergovernmental Partnerships, accountability professionals throughout all levels of government must remember to use our positions wisely and exercise great leadership at this time in our nation’s history. We are responsible for ensuring that these monies are distributed, used, reported and accounted for wisely and appropriately.

Let’s look into this “Era of ARRA” with accountability and stewardship as our key focus! AGA can, and as well we should, lead the way!

Let’s “Think Big! Act Courageously! Make a Difference!”

March 31 AGA Radio Show Focuses on Federal Financial Management Agenda

By: Relmond Van Daniker, DBA, CPA

Relmond Van Daniker, DBA, CPA, is AGA's Executive Director.

On Tuesday, March 31 at noon EDT, we will be discussing how gains in financial management can be maintained and not "lost" in the magnitude of the additional spending coming from the stimulus bill. Joining us to discuss this is Former Comptroller General of the United States, David M. Walker, current CEO and President, Peter G. Peterson Foundation, and Richard Keevey, Director of the Policy Research Institute for the Region at the Woodrow Wilson School at Princeton University and fellow of the National Academy of Public Administration.

Now that the federal government will be dealing with the spending and monitoring of a $787 billion pot of money, all eyes will be focused on federal chief financial officers and how they move forward. This will be a first for everyone involved, so we had a very timely discussion with Walker and Keevey about the best ways to proceed.

“Many agencies were already challenged to deal with their current programs and now they will have to quickly figure out how to monitor and control the stimulus monies on top of those other hefty responsibilities,” stated Walker. “CFOs need to figure out what type of systems and controls that they have in place. If these aren’t built in up front, they will get into trouble quickly.”

Right now, many people are confused about the definition of ‘shovel-ready’ projects and about how quickly these funds will make an impact on stimulating the economy. According to the Congressional Budget Office, only 23 percent of the $787 billion will be spent in the 2009 calendar year. 

“The Office of Management and Budget (OMB) has not offered any instructions yet to the states,” stated Keevey. “Frankly, more money will be spent at the state and local level, so guidance will be imperative.”

Keevey and Walker agreed that government auditors will have an important role with the recovery monies up front to determine the criteria and conditions for spending. This will be a change in thinking because typically the transparency and oversight happens after the money has been spent.

“The amount of information that OMB is requesting from agencies already is unrealistic. They need to pare down the amount needed at this point,” Walker said. “In the federal government, the budget is more important than financial reporting…it’s not right, but it’s the reality.”

Keevey suggested that CFOs should get and provide the facts and the non-partisan analysis to lawmakers. Budgeting is political, so CFOs should demand to get the most detailed information available to help make quality decisions. Politics always manages to tilt a decision.

The macro problems facing the U.S. right now will only bring in the CFO as a small actor. The mess needs to be straightened out by Congress and the president. Frankly, it’s beyond the scope of an agency CFO.

Walker concluded by saying, “We need to make some tough choices. Let’s wake up, put a fiscal future commission in place and focus on the future. We must marry accountability (ethics, responsibility) with transparency (a tool to display the information).

What do you think? What advice do you have for our current and incoming CFOs about transparency, accountability and the Recovery Act?

Be sure to tune into this conversation at WFED AM 1500 at noon, Tuesday, March 31 at www.federalnewsradio.com/index.php?nid=79&sid=1628223. Join us again at noon April 7 to hear from Steve Isakowitz, CFO, U.S. Department of Energy and Max Stier, President and CEO, Partnership for Public Service, as we discuss stocking federal financial management positions.

Why Did the ARROW Risk Model Fail?

By: Sunil Datt, MBA, CGFM, PMP

Sunil Datt, MBA, CGFM, PMP, is senior managing consultant, IBM Global Business Services.

In my January 30, 2009 weblog—Systemic Risk and the Art of Listening—I had mentioned that the Government Accountability Office (GAO), in its October 2004 report, “Financial Regulation: Industry Changes Prompt Need to Reconsider U.S. Regulatory Structure,” had already pointed out that “While the financial services industry and the international regulatory framework have changed, the regulatory structure for overseeing the U.S. financial services industry has not. In addition, no one agency or mechanism looks at risks that cross markets or industry segments or at the system and its risks as a whole.” So nobody was mindful of systemic risk in the U.S. But what about the United Kingdom?

The ARROW (Advanced, Risk-Responsive Operating Framework) of the U.K. Financial Services Authority (FSA) had three components:

•     ARROW firms: used when assessing risks in individual firms (‘vertical’ supervision)
•     ARROW themes: used when assessing cross-cutting risks, that is, those involving several firms or relating to the market as a whole (‘horizontal’ work)
•      Internal Risk Management: operational risks impacting the FSA itself

This was the FSA statement in August 2006. So, if there was provision for assessing systemic risk, I began to list the possible extenuating circumstances, and the counter-arguments. It was pointed out by the FSA that it supervised double the number of firms with half the number of personnel as compared to the SEC in the U.S. But even when short staffed, isn’t there the time-tested strategy of making a poster child of one bad boy, and the rest will fall in line? Maybe it was the large number of subsidiaries and branches of foreign (American?) firms in London that were supposed to be supervised by their parent jurisdictions, rather than FSA.

But the FSA’s own statement said as follows:

Moreover, when Northern Rock happened, that was not a foreign institution.

Maybe the devil was in the details, and there were accounting loopholes that let Collateralized Debt Obligations (CDOs) and Credit Default Swaps (CDSs) sit outside the balance sheet as ‘contingent’ items, and financial institutions did not have to make provision for capital adequacy with respect to these products.

Not really. There were capital adequacy and recognition criteria, though they did tend to be pro-cyclical rather than cycle-smoothing. Nevertheless, what prevented FSA examiners from quantifying and assessing the risk of these products themselves?

So let’s see what happened after Northern Rock. The FSA conducted an internal audit of its supervision of Northern Rock, and came out with steps that really aggregated to beefing up the supervision of ‘high-impact’ firms. And the real culprit, I think, came out in the following two statements of regulatory philosophy in the internal audit summary:

•   “….our regulatory approach remains grounded in the principle that the primary responsibility for the management of a financial institution rests with its board and executive management. The supervisory framework will be designed to be proactive in seeking to ensure that the board and the executive of firms discharge their responsibilities.”
•  “Our supervisory framework is not designed to ensure that any given institution cannot fail. Rather, it remains a balance between seeking to mitigate risk, particularly to consumers and market stability, while fostering innovation and competition (which by definition involve risk).

So it really came down to a matter of judgment when a regulator would ‘push’ a financial institution to mitigate risk, or just ‘point out’ to the management that they were taking huge, contagious risks. And that is just about right, because judgment and consequent action is governed by the prevailing regulatory philosophy.

The corroborative evidence comes in GAO’s March 18, 2009 report titled: “Review of Regulators’ Oversight of Risk Management Systems at Limited Number of Large, Complex Financial Institutions.” The report points out that, “In the examination materials we reviewed, we found that regulators had identified numerous weaknesses in the institutions’ risk management systems prior to the beginning of the financial crisis; however, regulators did not effectively address the weaknesses….”

So will there be a change in regulatory philosophy? That is, will regulators begin to act by taking punitive actions against institutions that take excessive risk and put the whole financial system at risk? Here is a statement of Lord Turner, who became FSA chair in September 2008, that, to me, still seems a little ambiguous on the promise of action, though on the money in recognition of where the prevailing philosophy had gone wrong: “With hindsight, the FSA—like other authorities throughout the world—was focused too much on individual institutions and the processes and procedures within them and not adequately focused on the totality of the systemic risks across the whole system and whether there were entire business models, entire ways of operating, that were risky.”

What are your thoughts?

Help for Performance Reporters

Reminder: Audio Conference Wednesday
SEA: Taking Accountability and Transparency to a New Level

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

Kenneth A. Smith, Ph.D., CPA, a founding member of AGA’s Mid-Willamette Valley Chapter, is an assistant professor of accounting, Willamette University. He serves as the academic adviser to AGA’s SEA Certificate Program.

Preparing a performance report is an important but difficult task…that just got a lot easier for two reasons: improved awards for beginning, intermediate and advanced skill levels and a new supportive website.

As a little background, AGA has delivered on its promise to be a “thought leader” by creating and promoting Certificates of Achievement in three areas of performance reporting: federal Performance and Accountability Reports (PARs) for 11 years; state and local Service Efforts and Accomplishments (SEA) reports for five years; and Citizen-Centric Reports, a brand-new initiative. AGA has also published research on topics like process-based reporting and generously funded research for me and other scholars via the Academy for Government Accountability.

Improvement No. 1—Awards for All Stages

In spite of AGA’s support, our research finds the number of state and city agencies engaging in “advanced quality” performance reporting is very small.  Thus, the AGA should be applauded for revising its Certificate of Achievement program to better recognize the stages of maturity by performance reporters.

The new award structure provides three levels of awards: GOLD, which signifies an excellent overall report; SILVER, which represents effort and/or quality on every dimension; and BRONZE, which represents effort or quality on several, but not all, dimensions. The prior certificate was only awarded at the equivalent of the GOLD level.

Our research suggests that 1 percent of city and state agencies could earn the GOLD award, the SILVER is attainable by 6-10 percent, and the best news is that 30-40 percent of local governments could earn the BRONZE award.  Application is FREE AND EASY—simply contact AGA (read program details or talk to Evie Barry at ebarry@agacgfm.org).

My colleagues and I estimate that a government starting from scratch (and using the website described in the next section) would be able to achieve the BRONZE level in the first or second year. The SILVER level is attainable in two to three years and the GOLD level in three to five years. Some will progress faster and some more slowly, so the time to start is now.

Improvement No. 2—"Preparer-Friendly" Website

Creating a website that actually works well is an enormous task. I’ll let everyone know if I ever get there.  But consistent with AGA blogger Rebekah Stephens’ notion of “just getting started,” I am pleased to announce the availability of the “EXternal PErformance Reporting Toolkit”, aka ExPeRT. 

Our website was created with the generous support and guidance of many people and organizations. It is certainly a work in progress, but we hope it meets the current and future needs of individuals that want to prepare a high-quality performance report.

The site currently has four main features:

• a “White Paper” that describes the certificate criteria.
• a “Self-Checklist” that allows preparers to assess their current reports.
• a “Calculator” to see what level of award preparers could expect.
• “Examples” of reporting that meets the various quality levels for each dimension.

We are always ready to help any preparers who want assistance. People can contact me directly at smithk@willamette.edu or access my research papers. 

Final Words—Organization Accountability Versus Personal Responsibility

One of the most common “alleged motivations” for doing performance reporting is to “be accountable.” I support the idea, but think accountability is too often seen as an organizational choice, that is, my organization chooses to be accountable by doing performance reporting. What if we quit thinking about performance reporting as an organization choice, and instead consider it an individual professional responsibility? As I explain in an interview with AGA, how can a professional manager not understand how their organization performs? Also, how can that professional manager fail to report about that performance?

Questions

What are the reasons that keep you and your agency from preparing a performance report?

Are you compelled by the “Individual Professional Responsibility” argument more than the “Organization Accountability” argument?

If you have a performance report, why have you not yet submitted it to the AGA program?

What other tools at the website would help you prepare a quality report?

What other modifications to the AGA Certificate would increase your participation?

Links to other AGA blogs on performance reporting/management:

Efforts and Accomplishments in Communicating with the Citizenry By: Judith Harris, DBA, CMA, Karen McKenzie, Ph.D., CGFM, CPA, and Randall Rentfro, Ph.D., CPA, CMA

AGA CEAR Program Sets Standard for Federal Performance and Accountability Reporting By: Eveanna Barry, MS

Getting Started: It’s Not Easy but It’s Worth It! By: Rebekah Stephens

Think Big! Act Courageously! Make a Difference! Performance Management By: William Morehead, Ph.D., CGFM

Have We Gone Too Far or Not Far Enough with Performance Measurement Reporting? By: Sam M. McCall, CGFM, CPA, CIA, CGAP

Good Performance Reporting… Now for Good Arguing By: Kenneth A. Smith, Ph.D., CPA

Public Performance Reporting: An Insider’s Guide By: Michael Jacobson

Taking the Next Steps to High Performance in Federal Financial Management

By: Laura Price, CGFM, CPA, and Jeff Steinhoff, CGFM, CPA, CFE

Laura Price, CGFM, CPA, is a partner with KPMG LLP. Jeff Steinhoff, CGFM, CPA, CFE, is an AGA Past National President and a director with KPMG LLP.

The federal financial management community has come a long way since passage of the CFO Act of 1990. It is now ready to take the next steps in the journey to high performance. By considering its performance across three dimensions, a finance organization should be able to create greater value and move from “the back room to the board room.” As discussed in our AGA Journal article, Taking the Next Steps to High Performance in Federal Financial Management, high-performing federal finance organizations are those that have moved far beyond the basic accounting, control, compliance and financial reporting tasks that represent the “back room” of finance to a role in regularly providing value and insight to program managers and those in the executive “board room” of the agency, where decision support and strategic leadership occur. Within these dimensions, the finance organization will carry out roles that either create value or preserve value. An example of creating value is assisting program managers in integrating performance metrics when formulating budgets and operational strategies, which helps improve operations and drive performance. An example of preserving value is implementing a comprehensive fraud risk program that assesses and mitigates fraud risk. A high-performing finance organization naturally strives to balance the resources used to accomplish both objectives. 

Now let’s look at the three dimensions.

Dimension 1—Finance Operations: The Finance Operations dimension represents the “basics” that any finance organization would be expected to effectively and efficiently carry out, such as budget execution, appropriation accounting, bill payment, payroll, internal control and statutory financial reporting. These activities are essentially the purview of the finance organization, which would have the lead in establishing business rules, processes and procedures with respect to financial management. This dimension dominates the work of most finance organizations today. A key to high performance is to be able to execute the activities within the finance operations exceedingly well and in an efficient and effective manner through integrated financial management systems, simplified processes, cost-effective internal control, and use of shared service providers, among others.

Dimension 2—Program Operations: Activities in the Program Operations dimension should align with the programs’ financial management needs and represent shared responsibilities. Program managers are essentially responsible for implementing internal control and for carrying out the range of activities needed to effectively and efficiently manage programs. To be high performing, the finance organization becomes part of the fiber of the programs. The finance organization should be a trusted partner with the program manager, help set the tone for what is expected, provide technical assistance related to financial management, and carry out certain activities in support of the programs. The finance organization will lead some activities, and it will have at least some involvement across all of the activities. A high-performing finance organization will serve as a catalyst, a resource, a coach and a teacher in better business management, and will provide a range of quality financial information needed to support effective day-to-day management, cost control and program results.

Dimension 3—Enterprise Operations: Activities in the Enterprise Operations dimension are strategic in nature and involve assisting management at the highest levels of the agency. The CFO should be a leader in the inner circle of the agency’s top leadership and bring to the table high quality analytical information. The finance organization should be a trusted adviser, supporter and facilitator, which demonstrates value. At the enterprise level, financial analyses take on an even more important role, as does the ability to perform sophisticated forecasts and alternatives analyses. A high-performing finance organization is at the center of strategic decision-making, short- and long-term investment decisions, the identification of emerging issues, stakeholder engagement and enterprise risk management. To be high performing, the finance organization should be viewed across the agency as highly competent, customer-oriented, creative and problem-solving.

Success in all three dimensions, working in tandem, contributes to high performance. Success in the first dimension, the basics of any finance organization, is more easily achievable; but nevertheless very challenging given the breadth of responsibilities. The next two dimensions are interrelated and, for the most part, high performance is more than likely fully achievable once the finance organization can readily perform the basics in the first dimension.

Our questions to you: Do you believe that to be considered high-performing a Finance organization must successfully work across the three dimensions? Will evolvement to high performance in the second and third dimensions mean the Finance organization has moved beyond the “back room” of compliance to the “board room” of strategic leadership?

This essay represents the views of the authors only and does not necessarily represent the views or professional advice of KPMG LLP.

The Role of the Federal Finance Organization in Operational Planning and Performance Measurement

By: Laura Price, CGFM, CPA

Laura Price, CGFM, CPA, is a partner with KPMG LLP.

One of the most important roles of the government finance organization is to provide support to program managers in operational planning, risk management and performance measurement. Stakeholders, such as Congress and the public, are interested in knowing whether program outcomes and results are commensurate with resources that were used, and if the investment made in the program is yielding expected results. The finance organization can play an important part by helping managers better utilize financial information to effectively execute programs, reduce financial and compliance risk and communicate program results.

Programs are where the money is spent and the services are provided. Accordingly, effective program execution is the responsibility of program managers. Managers need the right support to perform their jobs, including targeted, timely financial data to make daily operational decisions and informed choices regarding longer range alternatives and options. Finance professionals who assist program managers should determine whether they are adequately supporting program managers in the following ways:

• Providing financial management expertise to program managers in preparing their strategic plans, goals and objectives, to ensure they are realistic and achievable.
  
• Providing reliable, useful and timely financial information that ties to program results, thereby facilitating the systematic measurement of performance.
  
• Taking a leadership role in integrating financial and performance information systems to enable day-to-day, performance-based decision-making.
  

Internal controls are the foundation for efficient and effective program delivery. They represent the policies and procedures used to carry out the program, whether related to a lending program that has a range of eligibility and debt servicing requirements, or a weapons systems acquisition, which must adhere to a range of legal and regulatory requirements. Given the finance organization’s expertise in the concepts of internal control and risk management and its responsibility for providing services across the enterprise, the finance organization should facilitate the understanding of sound internal controls across programs to help ensure money is spent as intended and the risk of fraud, waste and abuse is minimized. A chief financial officer or finance director should determine whether his or her organization is:

• Providing expertise in establishing adequate internal controls, including weighing the costs and benefits, so that program internal controls are not only effective but are also efficient.
  
• Providing targeted training and tools to promote the responsibility of program staff for ensuring adequate internal controls over program operations and assist in the application of internal control.
  
• Serving as a catalyst for the establishment of a comprehensive fraud, waste and abuse risk mitigation program.
  

Program managers have the ultimate responsibility for establishing performance metrics and achieving program results. The finance organization should serve as a business partner to programs by providing guidance on performance measurement. Because the finance organization manages budget execution across the agency, it should help program managers ensure their individual metrics are based on sound analyses using consistent, relevant, and reliable financial information. The finance organization should also ensure that all programs are managing as effectively as possible. They can assist by providing uniform financial tools and data for analyzing progress toward program goals and objectives. A finance organization can determine whether it is effectively performing this role by understanding it ability to do the following:

• Assisting program managers in developing supportable estimates, forecasts and projections for use in strategic and operational planning.
  
• Routinely providing financial analyses (that is, year-to-year, cost-benefit, account analyses) to support programmatic strategic and operational planning.
  
• Ensuring integrity in the data provided to and used by program managers, as demonstrated by an unqualified opinion on the financial statements and/or other reports from an independent body such as financial performance reports by the inspector general or GAO that points to the integrity of the information provided.
  

Finance can take on many roles within its organization, not the least of which is that of a business partner to program managers. Program managers should embrace the skills, knowledge and experience of the finance organization to assist them with their day-to-day operations and in making strategic decisions. 

My questions to you: Does an effective partnership between the finance organization and program managers exist today in your organization?

If not: What are the impediments to a successful partnership between finance and program managers? What changes can be made to better leverage the finance organization across the agency’s programs?

This essay represents the views of the author only and does not necessarily represent the views or professional advice of KPMG LLP.

 

 

The Chief Financial Officer Academy: Training Strategic Leaders During Difficult Times

By: Ricardo Aguilera, John Holmberg and Sandra Gregory

Ricardo Aguilera is Defense Department Comptroller Chair, CFO Academy. John Holmberg is research associate, Information Resources Management College. Sandra Gregory is special assistant to the Under Secretary of Defense (Comptroller), U.S. Department of Defense.

The economic situation in the United States and around the world seems to worsen every day. From the tumbling stock markets to foreclosed homes and financial bailouts, it has become increasingly difficult to see the light at the end of the tunnel. The recent passage of the economic stimulus bill has created as much doubt as hope for the turnaround of the economy. It has never been clearer that recovery from tough economic times will require unprecedented levels of leadership from the federal financial community.

The challenges facing the financial leaders of our government have rarely been encountered before. In order to deal with these new challenges the government’s financial leaders must be educated and equipped to ensure that the federal government makes wise investments with taxpayer money. Determining how to educate today’s federal financial managers in tomorrow’s issues is imperative to the recovery of the economy. How can federal financial leaders be prepared to grapple with the evolving financial landscape? What are the keys to ensuring that the U.S. government’s financial leaders are prepared for the challenges of the 21^st century? 

The answer to many of these questions might be found at the recently created Chief Financial Officer (CFO) Academy, which we wrote about in the Spring issue of AGA’s Journal of Government Financial Management. On Sept. 22, 2008, the CFO Academy opened its doors as students participated in the first course offering at the National Defense University at Fort McNair in Washington, D.C. The mission statement of the CFO Academy is a direct reflection of the issues facing the federal management community: “To prepare middle- to senior-level members of the government financial management community for senior 21st century management and leadership responsibilities.”

The CFO Academy was born out of recognition by the Federal CFO Council that the future of the financial community required 21^st century education for federal financial leaders. To bring this idea to fruition the CFO Council worked with key members of the federal financial management community. The CFO Academy offers a leadership certificate program focusing exclusively on equipping up-and-coming leaders within the federal financial community with the strategic competencies they will need to take on issues in the rapidly changing world of the CFO.

The constantly changing landscape of the financial community is evident in the title of the only required course in the CFO Leadership Certificate program— “The Changing World of the CFO.” This course serves as an overview to introduce topics that students can explore in greater detail and depth in future courses. The “Changing World of the CFO” course consists of over 15 different sessions taught by NDU faculty. Examples of the sessions include “Transparency and Accountability,” which provides technical and process strategies for meeting the transparency goals captured in recent legislation. In the “Leadership for the Future” session, students examine the challenges government organizations face, requiring leadership that inspires strategic thinking, cross-boundary collaboration, outcome focus and innovation. 

The creation of the CFO Academy is a recognition that federal financial leaders need to be prepared and educated to think differently about both new and old financial issues. What are some of the financial leadership challenges your organization faces? How can education of your organization’s up-and-coming leaders help deal with those challenges?

The PAR Pilot

By: Hal Steinberg, CGFM, CPA

Harold I. Steinberg, CGFM, CPA, is the technical advisor to AGA's Certificate of Excellence in Accountability Reporting (CEAR) Program.

The recent Federal Financial Management Conference included an excellent session titled Improving the Relevance of Financial Reports-PAR Pilot Three representatives of agencies that opted to issue their Performance and Accountability Reports using an alternative format extolled the Pilot Program and expressed hope that OMB would continue permitting the alternative.

AGA supports the Pilot Program approach, as evidenced by its report You’ve Come A Long Way Baby: An Evaluation Of The Federal Agencies’ Annual Financial Reporting (See http://www.agacgfm.org/publications/EvaluationPilotProgram.pdf). The reason is not that preparation of the traditional Performance and Accountability Reports (PAR) is too time consuming or the reports are supposedly not “read.” Rather, now that the agencies have achieved a high level of transparency with the original reporting approach, it makes sense to adjust the formats to be more responsive to the limitations associated with shrinking agency resources, take greater advantage of the Internet, and provide the public with the information it wants/needs in a form and depth appropriate for those wants and needs. In doing so, however, certain premises should be acknowledged.

First, it is fallacious to assume the primary reader of the PAs was to be the public—who we know prefers their information in one minute sound bites. Nor does it make sense to dismiss the use of the PARs by OMB or Congress as no more than “reference” books. Does anyone believe PARs were meant to be read like novels?

Second, regardless of who, if anyone, reads the PARs, one of their primary values is that they are the last link in a process. PARs assured that certain beneficial activities, which might otherwise not have been done, were done. For example, does anyone think that absent the requirement to publish audited financial statement, the agencies would have cleaned up their accounting systems; or absent the requirement to report measurable performance results, they would have established meaningful, quantifiable performance goals and indicators and accumulated the data that indicated progress?

Thus it is important to recognize the appropriate purposes for each of the pieces of the Pilot and to construct the reports accordingly.

• The Agency Financial Report should be the vehicle with which an agency fulfills its requirement to be accountable for the financial and other resources with which it was entrusted and the care with which those resources were used. This would include accountability for performance. I am not suggesting detail performance measures as in the Performance Section s of a PAR, but at least an overview of what has been obtained and achieved. And it should be in relation to targets. Reporting accomplishments without targets is puffery.

• The Annual Performance Report fulfills many purposes: inform the OMB and Congressional Budget process; assure the availability of performance information for management; provide performance accountability to the public—but only if the information is readily accessible; and provide a vehicle for assuring agencies are using performance management as intended by the Government Performance and Results Act. I might add that although the Congressional budget process might be informed, increasing the use of the performance information will require the agencies to educate Congresspersons and their staffs about the value of performance information.

• The purpose of the Citizens’ Report is to educate “someone” about the agency by integrating information from both the Agency Financial Report and the Annual Performance Report. . One group is probably the appropriate Congressional staff, The big question is: Who else is that “someone”? I suspect it is each agencies’ stakeholders, which means each agency has to identify its audience.

• The speakers mentioned a fourth document, the two-page Budget, Performance, and Financial Snapshot. This might be the only report that the public, who as I said wants their information in sound bites, can be expected to read.

One other point. One of the speakers wants to avoid duplication between the Citizens’ Report and the Agency Financial Report or Annual Performance Report. It should be pointed out that duplication and integration are two different things. Repeating information verbatim from the latter two reports in the first report is duplication and should be avoided. On the other hand, the Citizens’ Report is to be the one document in which financial and performance information is integrated. This means the other two reports are the source of information—highly abbreviated—for the Citizens’ Report.

What are your thoughts? Do you think these are the purposes for the various Pilot Program reports? Do you think the information, in total, enables an agency to meet the objectives of demonstrating accountability for financial and program performance; informing the budget process; and supporting improved management?

The New GAO Cost Estimating Manual

By: John J. Radford, CGFM, CIA, CFE

John J. Radford, CGFM, CIA, CFE is the Oregon state controller and has served under five Oregon governors. He is past president of the National Association of State Auditors, Controllers and Treasurers and currently serves on the AGA National Executive Committee.

Congratulations to Gene Dodaro, CGFM, Acting Comptroller General of the United States and the staff at the Government Accountability Office for the new GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs, issued March 2.

Fraud is an exploding industry across government, but it is insignificant compared to extraordinarily wasteful and fiscally abusive programs and initiatives undertaken and largely advanced by self-serving interests cloaked under the veil of public good. We have all been witness to legislatively reviewed programs and initiatives approved with incomplete or non-existent business cases, superficial cost estimates, and if vetted at all, by staff with neither the education nor experience to do so.

Wild guesses at costs and benefits unsubstantiated with factual evidence, expert analysis and objective conclusions are far too often the norm. Many projects are approved largely on political relationships, the need to do something because everyone else is doing it, or the potential for limelight or career advancement.    

Without accountability built into the system, without consequences for leading the government into failed projects and initiatives, and with an injection of new money as we speak, I fear governments of all sizes will not only continue, but expand the breadth and depth of failed investments and wasteful spending. (Unless, of course, the purpose is economic development; that is, creating jobs for the sake of jobs.)

Within the Northwest region, we’ve seen governments propping up failed investments with new money, trying to salvage what they can from past mistakes. We’ve seen audits that show very little gained from spending millions and millions of dollars that can be directly traced to poor business case planning and virtually non-existent cost/benefit analysis. In one case, the same management team that created a costly failed project in the first place, is now calling on approval for a new and better approach and will likely be rewarded with new money. In another case, the management team invested 1 million dollars working toward a new solution only to discover that the solution is cost prohibitive. That didn’t stop a new management team a few years later investing several more millions, plowing the same ground, only to eventually reach the same conclusion.      

I’m all for transparency, the bright lights of auditing acting as a disinfectant and all, but the change that is needed is found in demanding factual business cases, real cost estimating, and more rigorous management execution coupled with responsible accountability and consequences for poor performance.

The folks at the GAO should be commended for producing this guide and the elected officials from coast to coast should demand compliance from their management teams. What are your thoughts?

CFO Selection and the Obama Administration on March 10th AGA Radio Show

By: Relmond Van Daniker, DBA, CPA

AGA Executive Director Relmond Van Daniker, DBA, CPA, co-hosts the "Your Government, Your Money," radio show, WFED AM 1500.

As the American Recovery and Re-Investment Act rolls out, the Obama administration will seek, select and nominate individuals to serve as chief financial officers. To make things run smoothly, each agency needs a qualified chief financial officer (CFO) to run the shop. We discussed the important role of the CFO with Edwin L. Harper, Senior Vice President, Federal Government Relations for Assurant, Inc., and Lynn Jennings, Strategic Advisor for the Partnership for Public Service.

Ed served as Chairman of the President's Council on Integrity and Efficiency, the coordinating body of Inspectors General and was involved in President Ronald Reagan's campaign against fraud, waste, and abuse. Lynn served on a team responsible for CFO selection within the Clinton administration.

 

It’s obvious to note that we have a unique set of problems facing federal, state and local governments right now. Billions of dollars need to be monitored and distributed quickly, which means that the CFO must be on their game right from the start. I learned from Ed and Lynn that the key to getting the best individuals will be to fire their imagination so that they will fulfill a patriotic duty intrinsic to all Americans. In fact, I learned during this interview that after President Obama was inaugurated in early January, their administration received over 350,000 resumes for jobs in the federal government. This is an once-in-a-lifetime opportunity to help during this incredibly difficult time.

 

Clearly, CFOs must demonstrate that they bring value to the table. The Presidential personnel office should seek individuals that exercise good leadership and professional skills, are simpatico with the secretary of the agency and ultimately know how to communicate with the U.S. Office of Management and Budget (OMB), with agency staff and with taxpayers.

 

It was interesting that both Ed and Lynn, who worked for two different administrations, had a familiar set of instructions for incoming CFOs: make sure that the integrity and credibility of their agency is sustained and ultimately show us – 'where is the money?'. The CFO is charged to look at the present situation and also the future, while the inspector general must look at the past.

 

We have learned that the first stimulus money financial reports are due on July 10. As a result, all agencies will have to do their best to press forward to meet that deadline. Ed noted that reasonable expectations need to be discussed. Career and presidentially-appointed leaders must have an up-front conversation with Congress so that they are aware of what can be reasonably expected from our agencies.

 

With the help of WFED Federal Drive host, Jane Norris, we were able to have an interactive discussion about what worked in the past and what might work for the Obama administration as they select CFOs. Now, more than ever, we need to have the right people in place to take care of the stimulus monies and to encourage more intergovernmental communication and cooperation.

 

Tune into the show at Noon on Tuesday, March 10 at www.federalnewsradio.com/index.php?nid=79&sid=1611655.

 

I also encourage you to mark March 24 on your calendar to hear an interview that we will conduct with former U.S. Comptroller General, David M. Walker, CPA, and Richard Keevey, Director of the Policy Research Institute for the Region, and a member of the faculty, at the Woodrow Wilson School at Princeton University. We will discuss their suggestions for what the Obama administration’s financial management agenda should be for the first 100 days.

 

Stay tuned!