How do we attempt to reduce the $100 billion interagency out-of-balance problem?
It may appear to be an arcane federal government accounting topic, but it is a problem that we can and must solve.
To that end, Ken Carfine, fiscal assistant secretary of the Treasury Department, and I are working as co-leads on the Central Reporting Team working group under the Chief Financial Officers Council.
All federal agencies trade with one another. We each keep track of what we procure. Virtually all of the 24 Chief Financial Officers Act agencies get an individual clean audit opinion. But we frankly don’t do a good job of reconciling what we spend with one another. Many of us spend an enormous amount of time and effort trying to get our intergovernmental transactions to balance. It is a struggle for agencies to even locate the right people to respond to requests for help in resolving these issues at other agencies.
There are three primary types of interagency activity. The first, including fiduciary balances, is created when one agency manages funds or borrowings on behalf of another. The second happens when agencies are required to transfer funds between them by agreement or statute. The third major category is created when agencies buy and sell goods and services with each other.
So how do we try to solve this material issue? First, we create awareness and thus accountability for fixing the problem. We have added a watch list for agencies that have either large or chronic out-of-balance issues with their trading partners. The Office of Management and Budget will soon require corrective action plans from those agencies. Regular reporting will occur at the CFO Council meetings. The Treasury Department, working with various agencies, has already reduced fiduciary differences by several billion dollars.
Second, we are addressing the root causes that create the out-of-balance situations. These can arise due to timing differences, different accounting treatment of the same item, lack of notification and communication. We are working to improve the detailed level of reporting to provide a better starting point for reconciliation. Agency use and enforcement of the Intergovernmental Business Rules issued in October 2006 will serve as good business protocols for trading partners.
Third, we will address business process changes that need to occur in order to reduce the problems. This may require improvements to the existing technology to process the workflow. Notice I did not say we have to build a new multihundred million-dollar system to tackle this problem. We realize the current information technology budget realities and the fact that many agencies have legacy systems that will live for a long time to come. We are closely monitoring a pilot project at one of the largest federal agencies to see what application, if any, it can have on the larger universe of agencies. Using Web-based technologies, combined with improved and automated business processes, will greatly reduce the out-of-balance items in the first place and the workload required in the event an out-of-balance occurs.
Our goal is to have an initial set of recommendations to the CFO Council by next spring. These improvements should dovetail with other council efforts to standardize governmentwide accounting practices and modernize systems.
-John Cox, CFO, HUD, Published on FederalTimes.com