The AGA Weblog

How Federal Agencies are Using Cost Accounting to Help Them Make Better Decisions

By: Anna Miller, MA, MBA, CPA

Anna Miller, MA, MBA, CPA, is AGA's Director of Research.

AGA has just completed a research study on “Managerial Cost Accounting in the Federal Government: Providing Useful Information for Decision Making.” It is the 22^nd in the AGA Corporate Partner Advisory Group Research Series and was sponsored by corporate partner MIL Corporation. The study looked at 10 federal entities that have had success with their Managerial Cost Accounting (MCA) systems and are reaping benefits from setting up an MCA.

The usual perception that we get from reading reports, say by the Government Accountability Office to congressional requesters, is that “some progress has been made, but more is required.” That may be correct, but it leaves an impression that agencies are not trying hard enough—an impression that in our opinion can be erroneous. So we did this research project to showcase what agencies have actually accomplished, and their achievements are considerable.

Benefits include: enhanced awareness of the value of activities conducted in pursuit of effective mission delivery; more engaged program management, cost-effectiveness and efficiency; and easier compliance with requirements such as audits, budget justifications and testifying to Congress. 

For a successful MCA implementation, you need:

• To gain the support of top leaders. A champion who supports the concept can keep employee enthusiasm high, for the day-to day work both in development and sustaining the application once it is up and running.
• To enhance the usefulness of the cost data by tying it to performance or budgetary data.
• To listen to program managers and other users and try to address their needs.
• To reach out to the field offices. Provide training. Give explanations about cost accounting and what it can do for them. Have a written, clear organization-wide statement defining the objectives and uses of MCA, and have it known and available to everyone.
• To continually monitor for accuracy and reliability of the data input into the system.
• To try to ensure that leaders want the data input to be accurate. Then the managers will do what the leaders want.
• To work with high-quality cost accountants with excellent analytical skills, outstanding communication skills, and a good understanding of the organization’s activities and the processes used to accomplish those activities. For the best skill mix, you probably should have system accountants and budget analysts as well as cost accountants.
• To provide the information or make the information accessible as frequently as possible. Monthly is better than quarterly. 
• To make the system easy to use. 

I will close by restating the advice from one entity that has had its MCA application for more than 30 years: Everything is measurable, everyone can do it, there are methodologies to use. Make sure that you can answer the following questions before you start: What do you want to measure? What is your business? What service are you delivering? What measure can you use to show that you are delivering the service?

Then just do it and start to reap the benefits. The research report will be available Sept. 1.

I encourage you to read it.

SFFAS 30—Are you Ready for its Implementation This Year?

By: Andrew C. Lewis, CGFM, CPA

Andrew C. Lewis, CGFM, CPA, is a senior manager with KPMG LLP’s government audit practice. In addition, Andrew is an adjunct professor in the Masters of Accountancy program at The George Washington University.

Fiscal year 2009 marks a significant milestone in federal financial accounting—the full implementation of inter-agency imputed cost accounting under Statement of Federal Financial Accounting Standard (SFFAS) No. 30, Inter-Entity Cost Implementation Amending SFFAS 4, Managerial Cost Accounting Standards and Concepts. This standard requires federal agencies to recognize the full cost of goods or services produced, delivered or received by the agency. To comply with the new standard, federal agencies may need to evaluate reimbursable agreements with and certain services delivered to other federal agencies without reimbursement or at less than full cost. Types of services that often are not offered at full cost include:

·      Contract management assistance

·      Employees on detail to other federal agencies

·      Security protection

·      Use of agency equipment by other federal agencies

·      Lease and real property agreements

·      Revolving fund activity

·      Outsourced services, such as payroll and accounting functions.

Some questions for discussion:

·      Is your agency ready? If not, what is your agency doing to get ready? 

·      Has the implementation of this new standard been overlooked by your agency or the auditors due to their focused attention on Recovery Act issues?

·      How will your agency use this new information?

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

 

 

 

Cost Accounting: Are We Doing Enough?

By: Kenneth A. Smith, PhD, CPA

Kenneth A. Smith, PhD, CPA, a founding member of AGA’s Mid-Willamette Valley Chapter, is an assistant professor of accounting, Willamette University. Ken served on the Advisory Group for AGA’s report on “Performance Based Management”.

Cost accounting and cost accountants are really important. They not only provide data and information to support decision-makers, but they also provide a professional mentality that focuses on key organization objectives. We at the AGA should care a whole lot about how well we “do” cost accounting in government.

Interestingly, in the almost 180 AGA blog entries so far—not one was singularly focused directly on cost accounting…and only three were related tangentially (John Radford on April 4, 2008; Ric Sylvester on October 22, 2008; and John Radford again on March 11, 2009).  PLEASE post comments on those you think I missed. We are doing better in the AGA Journal of Government Financial Management with 15 articles using “cost” in the title in the last 10 years (search for your favorites here).

So why aren’t bloggers talking and writing more about cost accounting?

Two recent reports provide opposite views on how well we “do” cost accounting in government. A fairly negative view emerges from GAO’s “Managerial Cost Accounting Practices” issued in 2007 which summarizes five previous GAO reports issued since 2005.

A more positive view emerges from AGA’s “Performance Based Management” issued in March of 2009 which extends AGA’s 2007 report on “Process-Based Reporting”. (Disclosure: I served on the Advisory Board for AGA’s 2009 report, during which I provided both praise and criticisms).

The GAO report is “historical” in that it looks at 10 federal agencies to see what has actually being done. The AGA report is “prospective” in that it looks at the potential to implement new tools and systems in seven pilot entities in the federal government. ((is this just accounting—to be pessimistic about the past and optimistic about the future??))

Both of these reports, however, share the view that cost accounting is NECESSARY for management in general, but especially for PERFORMANCE MANAGEMENT.

Two of the most important innovations in managerial/cost accounting are Activity-Based Costing and the Balanced Scorecard—both created by Harvard Professor Robert Kaplan.

One of the key elements of the Balanced Scorecard (BSC) is the attempt to formalize the causal links between our activities and the end results we desire. Most businesses want profit or return on investment—most governments want to provide services that are effective, efficient and equitable. We can apply the concepts of the BSC at the organization level, a sub-unit level, and the individual level. Let’s briefly look at a particular systems level setting—the system of educating government financial managers (i.e. AGA-folk).

The main problem I see is that we have large gaps throughout our BSC with a huge barrier to entry for new government accounting Ph.D. students, a lack of courses and textbooks in current curriculums, and a lack of government employers on the advisory boards for University’s in either Business or Public Administration/Public Policy.

Thus, we clearly have the need for government cost accounting faculty and students - we just do not have a supply chain to produce the product (i.e. well-trained faculty then well-trained students which leads to well-trained professionals which leads to well-supported decision-makers which leads to more demand for well-trained students which supports the need for well-trained faculty…..etc)

Sadly, I do not have a tangible proposal on what to do next. Perhaps a “blue-ribbon” commission by AGA could convene the leaders in academia in BOTH the business and public administration/public policy areas. Or perhaps some of us from AGA or the various governments could write a White Paper similar to that written by the Big 8 firms back in 1988 (don’t we have fond memories of the days when we had a Big 8?)

What do you think? Are we doing enough related to cost accounting?

QUESTIONS

Is cost accounting an area that is really all that important?

Who “owns” the cost accounting function in your organization....and how’s that working for ya?

Can we ever get to the point where we “manage the costs” rather than “manage the budget” as promoted by the GAO report?

Do you think AGA should take a more active role in describing the training pipeline and outlining various future action steps?

Is cost accounting similarly underutilized in state and local governments?