The AGA Weblog

Four Levels of Transparency

By: William Aaron

William Aaron is the chief of consulting services and innovation for Weidner, Inc.

It’s hard to recall a time when there has been more focus on the need for transparency in government. From the president on down to local elected officials, the attention to ensuring government is transparent is extraordinary—and continuing to grow.

But while transparency in government is one of those ideas that you just can’t argue against—right up there with baseball, Mom and apple pie—it’s important to note that all transparency is not created equal.

So let’s get transparent about transparency.

From our work over the past 11 years with government organizations and jurisdictions at the federal, state and local levels, we have come to understand that government transparency can be defined on four separate levels. The next time you hear someone talking about transparency in government, check and see how transparent they really are.

The four levels of government transparency, moving from least transparent to most transparent, are:

Level One:  How We Plan to Spend Money. This is the level where government has traditionally defined transparency:  What does the budget say about how we intend to spend money? It’s the first step—it speaks to what we plan to spend money on, after all. We might, for example, declare that we’re adding $500,000 to the city budget to fight truancy. Many governments are working hard but are still struggling with this first level of transparency.

Level Two:  How We Actually Spend Money. At this level, we may be able to be clear about how dollars were spent. Did we actually spend that $500,000 we budgeted to fight truancy, and did we spend it on the anti-truancy effort? At this level of transparency we are beginning to have a story of fiscal responsibility, but are not yet able to tell a story about performance, about what spending that money accomplished.

Level Three:  What we Delivered With the Money. At this level of transparency we are able to be clear that our customers got something for the money we spent. With the additional $500,000 to fight truancy, we provided X number of counseling sessions or Y number of tutoring sessions—so we know services were delivered, what sort and how many. We are building a more complete story of transparency of whether we spent the money appropriately and delivered what we intended to deliver. To be fully transparent, though, we need to report on the results customers experienced as a consequence of receiving our services.

Level Four:  What Results Were Accomplished with the Money. This is the highest level of transparency, where government gets very clear about what every taxpayer knows: that spending money is only a means to an end. That end is defined as the experience or result the customer has as a consequence of receiving the services. What difference was made? With the additional $500,000 we spent to fight truancy, did we actually change the truancy rate? Did we improve academic achievement, or increase the graduation rate? What result did we accomplish?

At this highest level of transparency, you are telling your customers the extent to which you are able to influence the results you clearly laid out in Level One—the budget. As the good folks in Oklahoma City say, “We Deliver What We Promise”—and they mean it in terms of results.

Government organizations, which are widely recognized as among the best managed in the nation, can answer these questions with objective performance information—and they use that same information to guide their management decisions, including how they allocate their budgets.

So how transparent is your organization? And—more important—how transparent do your customers expect you to be?

You can download a free self-assessment tool to help you determine how transparent and accountable your organization.

The Role of Performance Indicators During Fiscal Stress

By: Anthony Rainey

Anthony Rainey is treasurer and CFO of Hyattsville, MD.

In 1975 Peter Drucker (Management: Tasks, Responsibilities and Practices) identified five prioritization and performance approaches of successful organizations:

• They clearly define the nature and scope of their function, mission and activities.
• They set clear objectives.
• They set priorities, concentrate on the objectives and set standards of performance for themselves.
• They measure performance, analyze the results and work to correct deviations from established standards.
• They regularly conduct audits of performance to ensure that the management system continues to function properly.

Federal, state and municipal governments attempt to utilize these approaches until there is a significant reduction in revenues that will adversely affect the ability to fund the current public service and public product levels. Rarely are significant revenue reductions transformed into a fiscal planning process where the executive and legislative branches base expenditure reductions upon “priorities” and “levels of performance.” This often results in the third “P” of budgeting—politics—to fill the vacuum of leadership in priorities and performance in fiscal decisions. Interest groups who receive public goods or public services, or who are the providers of public goods and public services through government contracts or grants, enter the picture with their respective “priorities” but rarely with new “performance levels.” How can we change this?

Look at What Government Provides

Government provides public goods and public services. The actual production of goods and or the provision of public services are typically classified by their “non-excludability” and/or “non-rivalry.” Non-excludability designates that the difficulty to exclude any person, group, or organization from benefiting from the public good or public service—even if they do not or will not pay for it. Non-rivalry designates that the consumption of the good or receipt of the service by a person, group or organization does not prevent the consumption of that good or receipt of that service by others. In the private sector, a private good or service has excludability for it can be excluded from a person, group, organization benefiting from the good, or service if the consumer or receiver does not pay. Private goods have a rivalry in that consumption of the good or receipt of the service by a person, group, or organization prevents its consumption or receipt by others.

Look at the Cost of Public Services and Goods

In our current economic environment, particularly the decline in federal, state and municipal revenues, the cost of the provision of public goods and services affect short and long-term expenditures, debt service and fund balances. Budget balancing discussions about revenue shortfalls typically focus on immediate or phased in expenditure reductions not tied to prior priorities or stated levels of performance. The federal government’s debt service capacity will soon put them in the same situation as state and municipal governments. Faced with significant revenue shortfalls, budget processes become expenditure reduction exercises greatly influenced by the consumers of public goods, recipients of public services, and the payers of the public revenues for these goods and services. Without utilizing having a “prioritized” list of products and services as well as the expected “performance levels,” the resolution of required expenditure reductions must often be revisited.

Q1. WHY NOT SOLICIT ASSISTANCE FROM PROFESSIONAL ORGANIZATIONS, FOUNDATIONS, AND UNIVERSITIES TO DEVELOP AN INVENTORY OF FOR EACH RESPECTIVE SERVICE OR PRODUCT PROVIDED BY A GOVERNMENT? A table, as depicted below, would be created:

1 Public Service

2 Public Products

3 Budget By Fund

4 Structural Funding Require- ment

5 Levels of Perfor-mance

6 Pri-ority

The “Public Service” column would identify all the public services and the “Public Products” would identify all of the public products in the budget. The “Budget By Fund” column would identify the amount of each “Public Service” by fund. The professional organization, foundation, or university could be utilized to assist the governmental entity in matching services and products with budgets by fund.

The “Structural Funding Requirement” would serve to identify whether laws, statutes, contracts, or agreements require these services and products to be funded. The “Levels of Performance” would depict those measures of performance that was approved based on the budget by fund.

Q2. AFTER THESE FIVE COLUMNS WERE CONSTRUCTED, WHY NOT ENGAGE THE INSPECTOR GENERALS AND STATE AND MUNICIPAL AUDITORS TO ASSESS AN ANNUAL PRIORITIZATION BY THE ELECTED OFFICIALS AND FIND OUT WHAT THEIR ANTICIPATED LEVELS OF PERFORMANCE ARE? When it comes to performance, many in the Legislative Branch may delegate the assessment of performance to the auditor. The auditors would serve as the objective interpreter of the information identified. I would expect that there could be different priorities by agencies, departments, divisions, bureaus, directors, agency or department heads, budget offices, executive offices, legislative offices. Such disclosure at the beginning of a process could aid in resolving differences.

Q3. RATHER THAN AWAITING THE PRIORITIZATION OF A GOVERNMENT’S PUBLIC SERVICES AND PUBLIC PRODUCTS DURING A FISCAL CRISIS, WHY NOT HAVE THE ABOVE CONDUCTED ON AN ANNUAL BASIS? Note, may governments or agencies will assert that this already happens within their budget process. Citizens and others often question the proper role of government, and often have concerns about government intrusion. This approach could clarify the specific product and/or service. Citizens and policy makers often question the effectiveness and efficiency of government programs. I see a program providing a bundle of services and products. This approach could identify redundancy and duplication as well as what constitutes an acceptable level of service or even quality of a product.

Q4. WOULD THIS TYPE OF PERFORMANCE REPORTING SPECIFICALLY TIED TO PUBLIC SERVICES AND PRODUCTS, ASSIST MANAGEMENT, STAFF, DECISION-MAKERS AND CITIZENS DURING TIMES OF FISCAL STRESS? When a reduction in force is undertaken or a budget gap filled by a “one-time” versus “ongoing” revenue, would this depict the effect on the particular public service or public good?

Budgeteers and Accountants—Partners in Financial Management?

By: Thad Juszczak

Thad Juszczak is an AGA Past National Treasurer and a director with Grant Thornton LLP.

As a longtime federal budgeteer, I have always enjoyed repartee with my accountant friends. I would take Polish jokes and lawyer jokes and turn them into accountant jokes. They would kid me about rounding to millions; I would accuse them of rounding to pennies. I would talk about planning ahead; they would only discuss what had already happened.

As a budget officer, I never thought to join the Association of Government Accountants, though now I realize that it is an organization for all government accountability professionals.

I have always appreciated the mathematical clarity of accounting, but the art of budgeting has so many opportunities for stretching your imagination. While there are excellent textbooks on budgeting, budgeting is more about the convergence of public policy, analysis and numbers—situations that you have to experience. Budget “rules” are always changing. Heck, in the federal sector, you don’t even have to balance revenues and expenses!

Budgeteers clearly need a good knowledge of basic accounting concepts. It wouldn’t hurt accountants to know something about budgeting either. I still remember how some of my junior budget analysts one day announced the “shocking” news that the labor costs in our financial reports on the first day of the month were always less than on the last day of the preceding month. It was a good opportunity to teach them about month-end accruals and reversals.

Budgeteers and accountants see the world differently, but any organization clearly needs both to provide effective financial management.

So, you can imagine my indignation at the recent New Orleans PDC when I found a session titled, “Are Budget Professionals Financial Managers?” How dare they impugn us, I thought! 

Unfortunately, there is no law against discrimination based on federal job series, and this is part of the problem. When I worked for the Army, our comptroller wanted to have his budgeteers and accountants trade jobs for six months to gain a better appreciation for each other’s responsibilities. However, Human Resources (HR) killed the program because they could not “allow” people without accounting degrees to hold accounting positions for even six months. The message was clear:  Accountants were professionals; budgeteers were uneducated. The professional status of accountants is part of their justification for continuing education.

The federal Budget Formulation and Execution Line of Business (BFELOB) has looked at some HR issues, but not yet at establishing a new job series for budgeteers. Most of these folks are in the 560 or 345 series, neither of which requires even a high school diploma. While many budgeteers are liberal arts majors and many hold graduate degrees, there will be no professionalization or CPE requirements without a positive degree requirement in the budget series. (Incidentally, I know excellent budget analysts who do not have degrees. That is not the issue.)

What do you think? Maybe at the Orlando PDC we could have a session titled, “Are Accountants Financial Managers?” 

BTW, how many accountants does it take to change a light bulb? Answer: 1.00

Cheering on Obama as He Cuts Spending, Stimulates Economy

By: Anna Lafferre

Anna Lafferre is the director of the Center for Government Performance at the Performance Institute.

Much like Jefferson Smith in Frank Capra’s Mr. Smith Goes to Washington, President-elect Barack Obama quit his life in his hometown to move to Washington this week. One can only imagine what was running through his mind when he landed at Andrews Air Force Base, prepared to begin his life as the world’s most powerful man.

Even though he is not president yet, we’ve heard a lot of his opinions: everything from the government needing to use technology more effectively to college football needing to change to a playoff system.

Arguably one of his most important decisions is the budget cuts and program reviews he has promised to make to improve the federal government by rooting out wasteful programs. Obama named Nancy Killefer as Chief Performance Officer (CPO) Wednesday, a new position he outlined in his performance plan, which he released last fall. The CPO will report directly to the president and will also be responsible for leading a White House “SWAT Team” composed of top-performing and highly trained government professionals to set tough performance targets and hold managers responsible for progress. However, complicating the matter is the fact that many things in the federal budget just cannot be cut—either because it is a necessity (Homeland Security) or because cutting it would mean political suicide (health care).

Simply put, cutting spending from the federal budget is not as easy as clipping coupons for Saturday’s trip to Super Wal-Mart.

The Associated Press reported that a member of the transition team, speaking on condition of anonymity, said that nothing will be considered off the table, at least for discussion, when considering budget cuts.

The annual federal budget is $3 trillion, and it will take a lot of work to discover which programs funded by this budget can go. But it’s a necessary step in curbing federal spending and making government more efficient.

As Obama said, “We will go though our federal budget—page by page, line by line—eliminating those programs we don’t need and insisting that those we do operate in a sensible, cost-effective way.”

Like Jefferson Smith’s plan to introduce a bill in his first month in Congress, Obama has been preparing his economic stimulus plan that will soon become a bill before Congress. The plan, which is expected to cost at least $775 billion, is intended to boost America’s troubled economy, the Associated Press reports. Not only will this plan help turn the economy around, but Obama also promises it will set a "new higher standard of accountability, transparency and oversight.” It is likely that Congress will approve a version of this bill within the next few weeks, as Democrats control both the House and Senate. With this promise of an economic stimulus, Obama also warns, however, that the nation is facing a deficit (currently at around $1 trillion) for years to come.

Whether you voted for Obama or not, it is clear that the United States is facing some large issues: defense, the economy and homeland security to name a few. While it may be easier to cheer on fictional Jefferson Smith as he navigates his way through the Capitol, it is just as necessary to cheer Obama on as well, in hopes that he and his appointees can cross party lines and get things done.

Do you think this economic stimulus package will succeed in fulfilling its mission to set a "new higher standard of accountability, transparency and oversight” in the federal government?

A Study of the 50 States’ Budget Processes

By: Sheila A. Weinberg

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

Later this summer the Institute for Truth in Accounting will be issuing our survey of state governments’ deficits and balanced budget requirements. As a part of this research, funded by the Searle Freedom Trust, the Institute is studying each of the 50 state’s budget process and the results reported on their financial statements.

We believe that transparency is in each state’s budget process is critical because this process is the principal vehicle through which the state legislature and governor annually allocate resources generated through identified and regulated revenue streams. The budget document and process should be the cornerstone of government accountability. The research that we have done so far indicates two key problems with the current budgeting and accounting systems. First, the same accounting rules are not being used for budget calculations and financial reporting. Second, the audited Comprehensive Annual Financial Reports (CAFRs) are not being issued in time for legislatures or governors to meaningfully review the results before planning the next year’s budget. Our survey of the 50 states will determine what state budget processes, if any, are showing leadership in transparency and accountability to their citizens.

To the first problem, when states calculate their budgeted revenues and expenses, elected officials and their staff are using “modified” “cash basis” accounting. Only current cash inflows and outflows are included in “cash basis” accounting. Therefore budget calculations do not include liabilities incurred in the fiscal year that will be paid in future years. Our experience in Illinois shows that ‘modified’ seems to means that the elected officials can modify the budgeted amounts in almost any manner that they want, so they can claim a “balanced” budget. Another troubling trend the Institute researchers have noticed in Illinois is the lack of accounting for hundreds of millions of dollars of pension and other retirement benefit funding that were incurred but not funded in previous fiscal years.

The CAFRs are prepared in accordance with Generally Accepted Accounting Principles (GAAP). GAAP accounting gives a more complete picture of each state’s financial condition, including a clearer view of the state’s liabilities. The lack of consistency between the budget calculations and financial reporting results in an “apples and oranges” scenario, where the budget numbers have no bearing or relevance to the CAFR numbers. Public accountability is nearly impossible because there is no way for the public to compare the amounts included in the “balanced” budget to what was actually spent. For legislators, “cash basis” budgeting seems to work out very well: they only need to focus on expected cash flow in the coming fiscal year, without having to include amounts promised in future years. Unfortunately for the taxpayers, it creates a growing problem of having to pay for guaranteed liabilities that only loom larger every day they are not adequately addressed.

Initial Findings
Three states show the scale of the problem: California, Illinois and Vermont.

In California, the legislature and governor do not even include an estimate for anticipated revenues in the budget—it’s a “$0” entry. Only expected expenditures are included. The FY07 CAFR showed a net deficit of $1.083 billion and recent words of reform from the Sunshine State makes us worry. True transparency and accountability begins with a budget process that gives the taxpayers a clear and concise report of where their money is proposed to be spent. California hasn’t even begun.

In Illinois, where the budget does include both anticipated revenues and expenditures, the growing difference between the budgeted amounts and the CAFR amounts is staggering. In FY07, Illinois’ CAFR reported an accumulated net deficit of more than $20 billion. Yet in spite of this evidence, the legislature and governor are not close to bringing about meaningful change to the current procedures. This year’s budget process is showing signs of being as cantankerous as last years, where frustrated legislators were sequestered in Springfield until mid-August. When the governor claimed that the legislature was not working for a truly balanced budget, the state comptroller weighed in by advising that the last four budgets the governor had signed were not balanced. Illinois consistently ranks among the worst and most dire when it comes to budgeting and funding.

The Institute has found some promising results in Vermont, which is showing the way to budget transparency and accountability. Vermont is carrying a positive net operating balance and its budget tracks its CAFR comparatively well. Informed with such information, Vermont taxpayers, legislators and even the media have a more true depiction of the state’s financial condition, and therefore can participate more meaningfully in the planning for the next fiscal year, and beyond.

We will issue our 50-state survey of state government deficits and balanced budget requirements in late summer. Until then you can find more information on their websites at: www.truthinaccounting.org and www.truthin2008.org

TOMORROW: Anna Dixon, IBM Global Business Services, "Successful Large Scale Federal Financial Systems Modernization Using the Big Bang Approach and Enterprise Architecture"

Why Traditional Budgeting Just Doesn’t Work and What Government Can Do About It

By: Rhonda Reinke, CGFM, CPM

Rhonda Reinke, CGFM, CPM, a member of AGA’s Olympia Chapter, is chief administrative officer, Transportation Improvement Board, State of Washington

A very wise financial professional told me early on in my career—a budget is nothing more than a wish list, and as an accountant, I was responsible for telling the truth of the numbers. The budget is usually used as the conduit to ensure that there is “accountability” by placing limits on managers and staff to make sure that they do not overspend their allocation of expenditures. It doesn’t matter if the revenue decreases. As long as the expenditure authority is in place, the agency spends. At one agency where I spent a few years, expenditure reports were sent to managers trying to figure out why a department had under-spent the monthly allowance and what they were going to do to increase their spending. Outcomes were not even on the radar, let alone, revenue (and we were a revenue producing/spending agency).

The reason why this happens is that budgets are inflexible, outdated as soon as they are passed, and not tied to goals or outcomes. What can be done about this? Well, it would take an act of congress or legislature, but the tide is turning. One example in my home state of Washington is Snohomish County. They actually looked at what the laws said they were to spend money on. They do not just take the program manager’s word. Rather, the laws and ordinances are documented for the actual minimum level of services to provide. Then, anything over the minimum has to be purchased through a thoughtful and deliberate process. It appears to be working.

They call it Budgeting for Outcomes, but the rest of us call it the “P” word…. Performance-Based Budgeting. When I put those three little words into Google within seconds, more than 4.8 million entries came up ranging from software packages costing millions, to books, seminars and videos (do you really want to sit through three jam-packed, exciting hours of watching someone speak about budgeting?) So what can be done about this?

1. Look at the must have versus the nice to have. An analogy that I really like is water compared to any other drinks. Water is a life sustaining substance that everyone must have in order to survive—you cannot go more than three days without it. Compare your services to this benchmark!
2. The budget should be a spending plan based on policies, not policies based on spending. From the congressional budget: The budget system of the United States government provides the means for the president and Congress to decide how much money to spend, what to spend it on, and how to raise the money they have decided to spend. (Does anyone else see backward logic in this?)
3. Traditional budgets are very inflexible and are based on the information projected at the time of preparation, which is usually six to 12 months before it is enacted. If you don’t have a crystal ball that shows you everything you need to know about what the economy will do, don’t try to predict it because you will be wrong.
4. Citizen priorities are different than what you think. One of the interesting items that resulted from citizen surveys in Washington is that transportation and getting to a destination on time is the greatest concern to the citizens.
5. What are the citizens willing to pay? Any analysis will show you that most taxpayers do not hate paying for services as long as they see something for their money. But they have a price point (debt to equity ratio) on what they perceive as inefficient or wasteful spending. This leads to:
6. Performance matters and citizens must see it. With public protection, citizens want to see police cars on the street and they want ongoing patrols. Most don’t care how many firehouses are in their city, they want to make sure that response is within a couple minutes and that their loved one having the heart attack is taken to the emergency room and survives.

Government has always had data and lots of it, so why haven’t we used it? And why can’t the budget be a more flexible spending plan and show the taxpayers what they get for their money? Finally, from your perspective, what are the barriers to “performance based budgeting,” and more importantly, how can this be overcome?

TOMORROW: Michael Jacobson, Director of Performance Management, King County, WA, on "Can We Do It All? Is It Possible to Have All of the Performance Management Pieces in Place at One Time?"

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

Accountability: The Budget’s New Clothes

By: Thad Juszczak

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

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

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

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

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

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

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

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

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