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Tuesday, June 17, 2008

Are the Financial Management Winds Changing?

The AGA Blog's latest entry by OMB Deputy Comptroller, Danny Werfel addresses the question "Where is federal financial management heading in the next few years?" Below are some highlights of the posting.

...I believe the “data points” are telling us a surprisingly clear and compelling story about where financial management is inevitably headed. Federal financial management is transitioning from an emphasis on “what we own and owe” to an emphasis on “where the money is going.” I come to this conclusion by observing the increasing demand among key stakeholders (in particular, Congress) for information and accountability on where federal dollars are being spent.

The Chief Financial Officers (CFO) Act of 1990 started the federal financial management journey by establishing as a primary activity the production of traditional, accrual basis financial statements, such as the balance sheet. These statements are largely anchored around asset and liability reporting, answering the question of “what we own and owe.” Federal CFOs have spent the better part of 18 years initiating the necessary controls and systems to publish reliable financial statements. Results from FY 2007 demonstrate that these efforts are paying off, with 80 percent of CFO Act agencies achieving clean audit opinions.

While the disciplines necessary to produce traditional financial statements have led to meaningful internal management improvements, the public consumption and demand for the information contained in traditional financial statements never materialized. Instead, demand has centered around how federal funds are distributed and the extent to which federal payments are made correctly and for authorized purposes. And now this demand appears to have reached a fevered pitch, with immediate and long-term impacts on federal financial management.

The recent enactment of the Federal Funding Accountability and Transparency Act (“Transparency Act”) best exemplifies this. The Transparency Act requires the Executive Branch to provide, in a web-enabled and searchable environment, detailed and timely data on all federal grant, contract and loan payments that exceed $25,000. With the launch of USASPENDING.GOV in January of this year, the public has a powerful tool to search where federal dollars are going—to which parties, in what amount, in what geographic location, and for what purpose. By 2009, the Transparency Act requires federal agencies to report “sub-award” information (which means following federal funds beyond the initial recipient).

Significant work remains before all Transparency Act requirements are met. The challenge to produce this data and ensure it is timely and reliable rivals the challenge agencies faced in the 1990s when they began producing traditional financial statements. Yet, an important difference between CFO Act and Transparency Act reporting is the potential the latter has to change the way citizens use government information to drive accountability and inform the public dialogue on the federal budget.

Beyond the Transparency Act, other indicators point to growing congressional interest in “where the money is going.” Hearings and letters of inquiry in the financial management domain are increasingly focused on areas such as improper payments, charge card abuses and instances of excessive spending. Currently, there are a slew of introduced bills that would establish additional requirements for financial reporting and accountability on federal payments. The declining emphasis by congressional overseers on traditional financial statements is, in part, a testament to agency successes in this area. But it is also reflects that the connection between the citizen and government financial information goes well beyond traditional financial statements.

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