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Monday, March 26, 2007

How financial reforms add up to better decisions

Housing and Urban Development Department officials distributing post-Sept. 11 recovery funds were the department’s first employees to receive e-mails containing real-time financial information on their program.

Other HUD officials are developing measures to evaluate the per-unit cost of different approaches for delivering housing.

Those initiatives may not seem extraordinary, but they are: They were made possible only by years of effort to automate and streamline accounting practices at department offices around the country. And HUD’s deputy chief financial officer, Jim Martin, said the department is still finding ways to translate its improved financial management into improved program management.

“We see opportunities to make these kinds of decisions throughout the department,” Martin said.

Across government, agencies have spent years overhauling their financial management practices. They are standardizing accounting practices, automating data collection, consolidating financial systems and struggling to obtain clean audits.

A key goal of the effort is giving managers accurate and current financial data with which to make decisions.

Senior financial officials at some agencies say that is starting to occur. And officials say they are closing in on the ability to give managers access to real-time and program-specific financial data on their desktops.

But good news is hardly the rule when it comes to federal finances. Viewed broadly, federal financial management is poor. For 10 straight years, the Government Accountability Office has declined to offer an opinion on the government’s overall finances due to inadequate accounting for cross-agency balances, problems preparing financial statements and other issues.

The finances of two of the largest agencies, the Defense and Homeland Security departments, are routinely described as tangled, opaque and years from being auditable. Last year, the financial management systems of 17 of the 24 agencies failed to comply with the 1996 Federal Financial Management Improvement Act. That number has barely budged since the act passed. And auditors cite ongoing problems including lack of accurate and timely data, poor procedures for reconciling funds and noncompliance with accounting standards.

The most frequently cited problem, however, is nonintegrated financial systems. For most of their histories, agencies and individual bureaus have used unique systems and standards to keep their books, developing cultures around their own procedures. With accounts effectively in different languages, financial managers must translate to share data. That process is slow, expensive and mistake-prone.

Progress on addressing that problem varies. Agencies such as the Social Security Administration, the National Science Foundation, the Environmental Protection Agency and the Labor, State and Commerce departments get good marks from OMB.

But bigger, decentralized agencies struggle.

But the books are improving. Agencies have been chipping away at accounting problems since the 1990 passage of the Chief Financial Officers Act, which created the CFO position and mandated annual financial reports. Under the president’s management agenda, launched in 2001, the Office of Management and Budget has pushed agencies to achieve clean audits, fix material weaknesses in financial controls and meet reporting deadlines, among other initiatives.

The pace of change accelerated recently. Under OMB’s Circular A-123, the government’s version of the Sarbanes-Oxley Act, agencies in fiscal 2006 began implementing new internal accounting controls. For the last two years, OMB has required CFOs to issue audited financial statements within 45 days of the fiscal year’s close, rather than the nearly five months it sometimes previously took.

In 2006, OMB also required all agencies upgrading their financial systems to consolidate their accounting, payments and recording systems with those of other agencies, either by using shared service providers under the so-called lines of business initiative or by becoming shared service providers themselves. To opt out, an agency must show it can operate its own system for less money and with less risk than it could through sharing services.

In connection with the financial management line of business, OMB is developing a common governmentwide accounting code, set to be issued next month. The agency is also issuing guidance for agencies to standardize processes for funds control, accounts payable, accounts receivable and financial reporting to the Treasury Department.

But OMB officials warn against making compliance an end in itself, noting that to achieve top ratings on the initiatives that make up the financial management portion of the president’s management agenda, agencies must show that they are using financial information to guide decisions.

Good accounting is no longer just the financial managers’ job. Success requires help from all managers with budget oversight, CFOs stress.

“If they are running their own program, we want them implementing [financial management guidelines],” said Justice Department Assistant Attorney General for Administration Lee Lofthus.

Most agencies in recent years have made financial management, along with other PMA-related goals, a part of the performance plans of senior executives. But financial managers at many agencies say the shift is broader.

The Education Department is “driving down from the secretary’s office” the message that internal controls are not just the Office of the Chief Financial Officer’s responsibility, said Danny Harris, deputy CFO at Education. “It is program managers and contract officers. That is a big change.”

Managers are increasingly required to document financial procedures, ensure that internal controls are in place, and integrate budget and performance goals.

- Daniel Friedman, FederalTimes.com


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