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Monday, November 05, 2007

Commentary: CFOs must identify financial risks, goals

It has been 17 years since President George H.W. Bush signed the Chief Financial Officers (CFO) Act into law.

The act’s first objective was to instill financial management disciplines in all federal agencies — sound accounting of assets and liabilities, accurate tracking of receipts and payments, and strong controls to reduce government error and waste.

To meet this objective, the act required agencies to annually publish audited financial statements and established the position of agency CFO to lead these efforts.

Reliable and timely financial statements are not easy to produce in the federal environment.

Agency assets and expenditures are enormous in scale. Financial activity can take place in thousands of localities in the U.S. and internationally. Unique program requirements often result in diverse and complex financial transactions.

Thus, as the act envisioned, an agency must have rigorous financial management disciplines in place in order to timely and reliably report on financial activities.

The federal CFO has come a long way in meeting this objective. Before the act, financial statement reporting in the government was nonexistent. By the mid-1990s, only a few agencies were able to produce financial statements that achieved a passing score or “clean opinion” from independent auditors. And up until a few years ago, most agencies took as long as five months after the end of the fiscal year to publish their financial statements.

Today, all major agencies issue their financial statements within 45 days of fiscal year end and a majority of agencies, representing more than 75 percent of all federal expenditures, achieve a “clean opinion.”

But the CFO Act has loftier objectives than the production of clean financial statements. They are:
  • Transparency — effective reporting of agency finances to the public, including information on the sustainability of government operations and a user-friendly presentation of the cost effectiveness of government programs.
  • Targeted internal controls — policies and procedures that mitigate the most significant areas of financial risk in the organization.
  • Decision support — personnel at all levels in the organization with financial information to manage risk and drive better program results.

The role of the federal CFO must evolve and expand beyond being the “preparer” of financial statements to meet these objectives.

The CFO must be positioned to identify critical financial risks and business goals for the organizations. The CFO must be empowered to implement data strategies that inform on those risks and goals. And the CFO must lead efforts within the agency to improve the relevance and readability of public accountability reports.

What steps are necessary to ensure that the CFO’s role evolves as the act envisioned? How do we maintain focus on financial statement reporting while dedicating CFO energies in new areas?

How can CFOs improve the return on investment of current financial management activities?
Representatives from the federal CFO and audit communities have come together under a project called “Smarter Accountability” to sort through these issues and define a clear path forward for the federal CFO.

In doing so, the Smarter Accountability group will not take our eyes off the ball of timely and reliable financial statement reporting. It is the foundation for every possible achievement that lies ahead and significant work in this area remains.

However, 17 years after the CFO Act was signed into law, the time is right to determine how the federal CFO can meet the broader objectives of the act.

We look forward to working with the entire federal financial community to achieve this important goal.

-Danny Werfel, OMB, Published on FederalTimes.com
Danny Werfel is acting controller at the Office of Management and Budget.

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