Recovery and the Transparency Imperative.pdf

8/14/2019 Recovery and the Transparency Imperative.pdf

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Recoveryand theTransparency Imperative

Association of Government AccountantsAnnual CFO Survey july 2009


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Abot the Association of Government Accontants (AGA)AGA, founded in 1950, is the educational organization dedicated to the enhancement of public

nancial management. The AGA serves the professional interests of state, local and federal

nancial managers who are responsible for effectively using billions of dollars and other

monetary resources every day. The association has more than 14,000 members, including

professionals in accounting, administration, auditing, budgeting, consulting, grants, fraud

investigation and information technology. The AGA has been instrumental in developing

accounting and auditing standards and in generating new concepts for the effective orga-

nization and administration of nancial management functions. The association conducts

independent research and analysis of all aspects of government nancial management. These

studies, including the 2008 AGA CFO Survey and 20 independent studies supported by the

Corporate Partner Advisory Group, make AGA a leading advocate for improving the quality

and effectiveness of government scal administration and program performance and account-

ability. For more information, please visit our Web site at www.agacgfm.org.

Abot the Nationa Association of State Aditors, Comptroers and

Treasrers (NASACT)

NASACT is an organization for state ofcials who deal with the nancial management of state

government. NASACTs membership comprises ofcials who have been elected or appointed

to the ofce of state auditor, state comptroller or state treasurer in the 50 states, the District of

Columbia and U.S. territories. Visit www.NASACT.org.

Abot the Financia Management Institte of Canada (fmi*igf)

A national, not-for-prot, professional association, fmi*igf was established in 1962 with a main

objective of sharing best practices in managing public sector resources. Membership is open

to anyone with an interest in sound public sector management. The institute has 2,400 mem-

bers and 13 chapters across Canada. Visit www.fmi.ca.

Abot Grant Thornton llP Goba Pbic Sector

Grant Thorntons Global Public Sector, based in Alexandria, Va., is a global management con-

sulting business with the mission of providing responsive and innovative nancial, performance

management, and systems solutions to governments and international organizations. The

people in the independent rms of Grant Thornton International Ltd provide personalized atten-

tion and the highest-quality service to public and private clients in more than 100 countries.

Grant Thornton LLP is the U.S. member rm of Grant Thornton International Ltd, one of the six

global audit, tax and advisory organizations. Visit www.grantthornton.com/publicsector.


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Governments in Canada and the United States

are in a perect storm o economic recession,

budget shortalls and growing demands or

public service. Both national governments have

increased spending to help their economies

recover, but along with recovery unding there

are new mandates or transparency. At the same

time, President Barack Obama has called or gov-

ernment that is more transparent, collaborative

and participatory. Transparency is the oundation

or this approach to government, especially or

nancial and perormance inormation, and is

inextricably linked to scal recovery.

Transparency is in the eyes o the beholder, say

many survey respondents, but they need more

specic and practical guidance on the meaning o

the term. Based on survey responses, this report

presents eight principles o transparency or

nancial and perormance inormation, the rst

o which is to have a process or ensuring that data

disclosed are timely, accurate and reliable. Thisprinciple means the rst responsibility o CFOs

is to take care o basic nancial management

activities like accounting, budgeting, reporting,

auditing and internal control, because these are

the building blocks o scal transparency.

Survey respondents are concerned about the cost

o meeting transparency mandates in a time o

tight budgets. For example, executives in some

U.S. state governments say that their inormation

In spring 2009, nearly 500 government nancial

executives and managers from the United States and

Canada participated in the 15th annual chief nancial

ofcer (CFO) survey sponsored by the Association of

Government Accountants (AGA). Key topics for 2009

include economic recovery, transparency, what new

CFOs need to know and annual nancial statements.

systems are ill equipped to meet requirements

to track unds rom the American Recovery and

Reinvestment Act o 2009 (ARRA) down to the

program and local levels. All levels o govern-

ment are debating how to invest in increased

transparency. CFOs can calculate the return on

investment (ROI) on alternative approaches to

disclosing inormation to the public, which will

help guide cost-eective transparency.

Survey participants say that excellent money

management is critical or tight budgets, but old

ways o making government decisions do not

give nance the importance it deserves. They

think that new analytical capabilities or nan-

cial managers will be useul to their customers

and stakeholders. First, though, CFOs must

understand what nancial and perormance

data users need and educate them in how to

use the inormation.

In their current orm, the audited annual

nancial statements used in government, though

important indicators o scal soundness, have

little intrinsic value to the public or to govern-

ment decision makers. Ways to improve the

reports include aligning their content with the

inormation needs o citizens, legislators and

nonnancial managers and making better links

between nancial inormation in the statements

and budgets and perormance measures.

A perect storm in the economy and governmentcreates extraordinary challenges, but it presents

an opportunity to CFOs and other nancial

leaders. According to a U.S. nancial executive

we interviewed, With transparency, we have

this great experiment called Wheres the money

going? and money is the CFOs story. This gives

us an opportunity to evaluate our reporting

model against citizen demand or inormation. It

is also an opportunity or us to show our value.

Executive summary


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Table of contentsExecutive summary 1

About the survey 3

Introduction: recovery and transparency 5

Stimulus and recovery 6

State government and recovery 6

Dening transparency 7

Transparent, collaborative and participatory government 8

Transparency: Recovery University undergraduate courses 8

Recovery 101: the basics 8

Recovery 201: what to disclose 10

Recovery 301: understanding information needs 11

Recovery 401: return on investment for transparency 14

Collaboration: graduate school 15

Recovery 501: CFOs in tough nancial times 16

Participation: postdoctoral 17

Recovery 601: a place at the table 17

In the long term 18What new CFOs need to know 19

CFOs united 22

Annual nancial statements and transparency 23

U.S. nancial statements 23

Materiality: United States and Canada 24

Improving the U.S. nancial reporting model 25

Changing the U.S. nancial statement 25

Communicating the value of the U.S. nancial statement 26

Conclusion 27Mind the basics 27

Invest carefully 27

Improve nancial reports 27

Increase transparency 27

Communicate and educate 28


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About the surveyMost survey respondents are rom U.S. ederal

civilian agencies and departments and rom state

and local governments. This year, we added a

small sample o U.S. ederal government execu-

tives who are customers to the nancial unction

Also, we welcome or the rst time U.S. state

government and Government o Canada nan-

cial executives.

Earlier AGA surveys ocused on issues such asnancial reporting, audits, internal control and

perormance measurement. For the 2009 survey,

we look at the role o government nancial

management in the current economic crisis, the

global push or more transparency in govern-

ment and at public sector nancial statements.

The purpose o the surveys is to identiy

emerging issues in nancial management and

provide a vehicle or practitioners to share their

views and experiences with colleagues and policy

makers. This is one o the ways in which AGA

maintains its leadership in governmental nan-

cial management issues.

Anonmit

To preserve anonymity and encourage respon-

dents to speak reely, the annual surveys o the

CFO community do not attribute thoughts and

quotations to individual nancial executives

who were interviewed, and they do not identiy

online respondents.

Srve methodoog

With AGA, NASACT and mi*ig guidance,

Grant Thornton developed online and in-person

survey instruments that included closed- and

open-ended questions used to survey 492 people

We interviewed 122 U.S. ederal nancial leaders

(CFOs, deputy CFOs, and other executives) and

senior leaders o oversight groups such as the

U.S. Oce o Management and Budget (OMB)

The Association of Government Accountants (AGA),

in partnership with Grant Thornton, has sponsored

an annual federal chief nancial ofcer (CFO) survey

since 1996. In 2009, the AGA has joined with the

National Association of State Auditors, Comptrollers

and Treasurers (NASACT) and the Financial

Management Institute of Canada (fmi*igf), with the

support of the Ofce of the Comptroller General of

Canada, to expand the reach of the survey.


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and the U.S. Government Accountability Oce

(GAO). We interviewed 10 U.S. ederal non-

nancial executives, 20 U.S. state government

nancial executives (treasurers, comptrollers,

accounting directors and budget directors) and

16 Canadian CFOs and deputy CFOs.1 We also

held three meetings, each attended by between

15 and 20 U.S. ederal nancial executives and

oversight leaders, to discuss the survey topics.

Our online survey garnered 324 responses,

o whom:

87 percent are current members o AGA and

16 percent are current or ormer members o

NASACT; these organizations promoted the

survey through contacts with members and

with links at their Web site home pages.

36 percent work in local, 54 percent in state

and 32 percent in ederal government.

25 percent report that they hold positions o,

or equivalent to, comptroller or CFO in theirgovernment entity.

Copies o the in-person and online question-

naires may be ound at www.grantthornton.com/

publicsector.

1 Beore April 1, 2009, Government o Canada departmental CFO

were called senior nancial ocers (SFOs).

In this report, we refer to the foowing:

Chief nancial ofcers (CFOs) are the top nancial

executives in their governments or government enti-

ties and may include comptrollers and treasurers.

U.S. nancial or nonnancial executives are U.S.

federal government executives interviewed in person.

State nancial executives are state treasurers,

comptrollers, accounting directors or budget directors

interviewed in person.

Canadian nancial executives are Government of

Canada nancial executives interviewed in person.

U.S. nancial managers are federal participants in

the online survey.

State and local nancial managers are state and

local participants in the online survey.


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In mid-2009, governments in Canada and the United

States are in a perfect storm of economic recession,

budget shortfalls and increasing demands on public

service. The storm is putting stress on their ships

of state, but government leaders have been working

hard to navigate the tempest. They have funneled

record amounts of stimulus and recovery money to

the private and public sectors, aiming at saving whole

industries and jump-starting the economy.

Federal and state governments have been going

through a sort o stress test, too. In the United

States, unds rom the American Recovery and

Reinvestment Act (ARRA) o 2009, though

welcome, are straining many state govern-

ments and ederal entities capacities to monitor

and report on unds received and disbursed.

Although the U.S. ederal government has not

yet elt the pinch o major budget cuts, it likely

will soon enough. Canadian government depart-

ments are gearing up or budget reductions, too.

For government chie nancial ocers (CFOs),

the shortalls mean that nancial management

problems will not be solved through large invest-

ments in systems and new personnelbecause

the money is simply not going to be available.

Where is the silver lining o this scal cloud?

Government unding to help the national

economy recover means opportunities or

long-term improvements to nancial manage-ment, say many o the respondents to this 2009

CFO survey. They think that the demands or

transparency or recovery unds will become the

mandates o the uture and may shape the role o

the new government chie nancial ocer.

In this introductory section, we will give an

overview o recent government activities or eco-

nomic recovery. In the next section, we will show

why survey respondents think that these recent

activities dovetail with an emerging political

philosophy o transparency, collaboration and

participation in government. Following that,

we will look at how both recent and ongoing

demands will be shaping the government CFOs

role. Then, we will report respondents concerns

and ideas about audited annual nancial reports,

a major duty o the chie nancial ocer.

Earlier in 2009, large U.S. banks went through

ederally mandated stress tests to determine their

stability. The purpose was to determine whether

the banks could withstand extreme, but plau-

sible, economic events. The results alert bankers,

regulators and potential investors to a banks

weaknesses and risks that must be mitigated or

the institution to be viable.

Introduction: recovery and transparency


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Therein lies a problem or state governments

(and or some ederal entities, as well). Says a

state nancial executive, ARRA is a potential

disaster or us. The reporting requirements [to

the ederal government] are not clear at all, and

we are getting so much money with such a short

period to spend it that we are at risk o signi-

cant nes and penalties down the road.

This ear is one reason that several states haveestablished special oces to oversee ARRA

unds. For example, the Commonwealth o

Pennsylvania appointed a chie accountability

ocer (CAO) or recovery unds, and North

Carolina has set up a dedicated ARRA oce

whose director reports to the states governor.

However, some state nancial executives report

there is, or all practical purposes, no real cen-

tral authority over ARRA activities, especially

where unds go directly to programs rather than

through the state treasury. Also, they say thatreporting rules seem to change weekly.

Like their U.S. ederal counterparts, many

state nancial executives realize that the ARRA

has the potential to drive changes to nancial

reporting. Although ARRA is a concern to

them, it is also a catalyst. Many are using it

as an opportunity to introduce better internal

controls within their organizations and among

state und recipients.

Besides ARRA, some state governments aceserious problems o insolvency, say some state

nancial executives. Growing budget short-

alls are taking up most o our attention, says

one. For this reason, transparency also means

making program costs visible inside an entity

in order to make budget decisions in a short-

all environment.

Stims and recover

Throughout the world, governments have

elected to be their nations spark plugs or

economic recovery, usually by increasing public

spending. In the United States, the ARRA,

signed into law on February 18, 2009, calls

or injecting $787 billion o ederal unds into

the economy over the next two years, or about

3 percent o gross domestic product (GDP).

On January 27, 2009, the Canadian govern-

ment launched an Economic Action Plan (EAP)

valued at about $40 billion in spending and tax

relie over the next two years, or 1.9 percent o

GDP in 2009 and 1.4 percent in 2010. U.S.

and Canadian goals to improve the economy

are to create or maintain jobs or citizens and to

increase consumption, investment, government

purchases and net exports.

State government and recover

A major goal o the ARRA and EAP is to unnel

unds to national, state/provincial and local

government entities or projects through sub-sidies, grants and other means. In some cases,

the amount o ARRA unds slated or a ederal

program will nearly double its normal annual

budget. Many state and local governments will

also benet rom large central government grants.

Their national governments expect all recipients

o recovery unds to spend this money quickly to

halt the downward slide o their economies.

ARRA is a potential disaster for us. The reporting requirements

[to the federal government] are not clear at all, and we are

getting so much money with such a short period to spend it that

we are at risk of signicant nes and penalties down the road.


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Dening transparency

Citizen and watchdog groups across the United

States, Canada and the world are calling or

increased visibility into government decision

making, especially in the ways that public money

is spent. They also want to know where the

money actually goes and is used, and with what

results. Government responses to this imperative

range rom publishing more nancial reports

and more spending and budgetary data on Web

sites, sometimes including agency checkbook

stubs that give the raw acts on nearly every

expenditure. For example, since 2003, Canadian

government departments must disclose on their

Web sites the travel and hospitality expenses o

selected government ocials.

What, exactly, is transparency? We asked survey

respondents to give us their denitions, and the

most requent one was it depends, because

transparency is in the eye o the beholder. Whiletrue, that answer gives little practical guidance

to government leaders. Ater reviewing all the

responses again, we developed eight principles

o nancial and perormance transparency

and show them in the box with that title. The

Recovery University curriculum in the next

section gives more details on each principle.

Transparency is certainly not the only issue

conronting government nancial executives and

managers, nor is it the most important. It is,

however, a dening issue, one that may well set

the course o public sector nancial management

in the uture. According to a U.S. nancial execu-

tive we interviewed, With transparency, we have

this great experiment called Wheres the money

going? and money is the CFOs story. This gives

us an opportunity to evaluate our reporting model

against citizen demand or inormation. It is also

an opportunity or us to show our value.

Eight principles of nancial transparency

We asked survey respondents to dene transparency for

government nancial and performance information. Here

are their chief principles for such transparency, which

apply to both the public and government users:

Have a process for ensuring that data you disclose1.are accurate and reliable, and show that process

to users.

Understand the information that people want, and2.

deliver it. They may not be sure what they need, so

help them dene it. Along with the information you

provide, show them how to get more.

Be as open as possible without creating risk. The3.

default setting for disclosure is anything that does

not violate security or the law.

Provide information that helps make decisions.4.

Do not just react to requestsactive outreach5.

is important.

Give context to data: show goals, benchmarks and6.

other information with which to compare them.

Take action yourself based on the information, and7.

tell people what you did. This includes using it to

make policy and budget decisions and to manage

and improve operations.

Be conscious of the dollar cost of transparency, and8.

invest wisely in it. Set priorities for disclosure, and

strive for the best return on investment.

Note: We recognize that transparency also means ull disclosure on relationships and decision

processes. However, in this report, we limit the term to nancial and perormance data on govern-ment operations, results and outcomes.


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President Obama calls for government that is

transparent, collaborative and participatory. One

way for CFOs to look at this is a three-stage building

process, as shown in Figure 1. Transparencyis the

foundation: governments send out accurate, timely

and clear information on their research, planning,

operations and outcomes. This is a CFOs home

turfgood work here helps bring success to the

next two stages. Information gives people agreed-

upon facts for building collaboration. Collaboration

buildsparticipation: more people take part in public

decisions. The result: a vibrant democracy and a

strong nation.

Transparenc: Recover

universit ndergradate corses

Adding perormance data to the nancial num-

bers, which some CFOs already do, makes it

easier or taxpayers to see the return on invest-

ment (ROI) on their money. How are nancial

executives going to answer this call or more

and better inormation? We ramed the survey

responses as Recovery University courses.

Recover 101: the basics

Government inormation is the nuts and bolts

o transparency, so the most basic requirements

or it are to be timely, accurate and reliable.

Thereore, the rst item in the principles box

on page 7 is to have a process that delivers nan-

cial and perormance data with those qualities.

Says a U.S. nonnancial executive, Despite the

new emphasis on transparency, CFOs must ask

themselves i they are taking care o the basics

and doing it well, eciently and eectively. Thebasic blocking and tackling activities o nan-

cial management include accounting, budgeting,

internal control, audits, reporting, systems and

stewardship. An agency needs to have the basics

down, or it is a bit grandiose to think that it can

solve all o governments problems, says a U.S.

nancial executive.

Government entities oten determine the

accuracy and reliability o nancial inorma-

tion through independent audits. The goal isto have auditors render an unqualied opinion

on nancial statements. Table 1 shows what

U.S. nancial executives and U.S. state and

local government nancial managers consider

the most important activities or maintaining

an unqualied opinion on their annual nan-

cial reports. No matter whether a person agrees

that annual nancial reports are useul, the

Transparent, collaborative and

participatory government

Figure 1:

Transparency as the foundation for collaboration

and participation

Participation

Coaboration

Transparenc


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responses in the table show what CFOs must do

to maintain the credibility o the inormation

they provide. (We will discuss annual nancial

statements later in this report, including issues

about the current reporting model used by the

U.S. government.)

Recover universit crricm

Transparency: undergraduateRecover 101: the basics. Deliver timely, accurate and reliable information.

Recover 201: what to discose. Provide raw or enriched data?

Recover 301: nderstanding information needs. Find out what

customers and stakeholders need.

Recovery 401: ROI for transparency. Manage the cost of disclosure.

Collaboration: graduateRecovery 501: CFOs in tough nancial times. Support missions,

improve performance and manage risk.

Participation: postdoctoralRecover 601: a pace at the tabe. Create a culture that values

nancial management.

Table 1:

Ranking of activities that help ensure that government entities will receive unqualiedopinions from auditors on nancial statements

Activity Category Description of Activity

Rank of importance

U.S.executives

U.S.managers

State& local

managers

Having the right

people

Recruiting, hiring, training, developing and retaining nancial personnel

with the right skills; replacing the knowledge of retiring Baby Boomers; and

managing a blended workforce (employees and contractors).

1 5 1

Internal control Ensuring that appropriate controls are in place for nancial information,including feeder systems, and educating nonnancial internal and external

stakeholders on the value of controls.

2 3 3

Systems and

information

technology

Lack of a good nancial management system (FMS) is a signicant barrier

to reporting accurate data. Activities included managing and improving

mixed FMSs (i.e., legacy and new systems); upgrading to new FMSs;

developing better interface with feeder systems and among multiple FMSs;

installing controls on systems; dealing with nonstandard architecture while

striving for standard architecture; and training nancial and nonnancial

personnel to use FMSs correctly.

3 2 5

Process change Here, process means the same thing as nancial operations. Activitiesinclude developing standard processes and procedures; educating nancial

and nonnancial personnel to follow them; improving nancial and associ-

ated nonnancial processes to make them more effective, efcient and vis-ible; introducing new processes (e.g., for monitoring grants from the federal

down to the local level); and restructuring entities to remove barriers to

information exchange and to promote coordination and collaboration.

4 1 2

Auditors and

inspectors general

Educating auditors and managing relations, communications and transpar-

ency with them; establishing materiality thresholds and governmentwide

standard operating procedures for audits; and changing auditors.

5Not

mentioned10

Standards and

guidelines

Aligning budgetary and nancial practices and data with accounting stan-

dards; ensuring that nancial and nonnancial staff understands and follows

standards; and getting good guidance on reporting from central authorities.

6 4 4


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As shown in Table 1, the U.S. groups surveyed

agree on the top six activities or maintaining

an unqualied opinion, although with diering

orders o importance. All the activities eect

the timeliness, accuracy and reliability o nan-

cial inormationand thus its credibilityso

they are also related to transparency. Says a

U.S. nancial executive, Transparency and

accountability equate to improving the quality o

general-purpose nancial reporting, which leads

to better-inormed assessments o the resource

allocation decisions made. Further, now may

be the time to make the eort, says another U.S.

nancial executive, because . . . there is a lot o

interest and thus momentum about where the

money is going.

Some state nancial executives report problems

in ensuring accurate inormation because the

publisher o the data (e.g., the state comptroller

or treasurer) has no authority or responsibility or

determining the accuracy o the inormation or

appropriateness o expenditures. In some states,

the communication between entities and issues

with inormation systems can cause interesting

behavior. Says a state nancial executive, Our

agencies report [ARRA-unded spending] directly

to the ederal government. What we get rom the

agencies is dierent rom what they report to the

eds, so we use the data rom the ederal Web site

Otherwise, there will be a discrepancy, and we

will have a whole new set o problems.

Recover 201: what to discose

Having taken care o the basics, CFOs can

move to determining what types o inorma-

tion to make available to internal and external

stakeholders. Internal stakeholders consist oexecutives, program managers, other support

unctions (procurement, human resources, secu-

rity, etc.), eld oces, component entities and

internal auditors. External stakeholders include

the public, media, interest groups, oversight enti-

ties and legislators.

Respondents were o two minds about what

to disclose:

Raw data. A ew say to put it all out there,

which means to disclose anything so long asdoing so does not violate security or the law.

This is in keeping with the third item shown

in the box titled Eight principles o nancial

transparency, which is to make disclosure

the deault action instead o the exception.

We know o some jurisdictions that disclose

all or most o their spending data in relatively

unprocessed orm on their Web sites, which is


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like publishing checkbook stubs. Some media

and advocacy groups say that is all they want

and that they will gure out what to do with

the data.

However, says one U.S. nancial execu-

tive, I you think that transparency is just

dumping data, then you are creating all kinds

o problems. Data dumps are dangerous.

Some respondents say that this approach can

put an entity or the public at risk by causing

panic with data that have no context. Others

point out that wholesale release o raw data

can overwhelm users and make it harder to

nd answers. In addition, disclosing raw data

without context can create hard eelings within

one or more government organizations or with

grantees and others, say survey participants.

For example, [Releasing raw data without

context] may cause program managers to per-

ceive biases toward or against their program,

whether such biases are real or not, says a

U.S. nancial executive.

Enriched data. Transparency is right when

the public understands how and why taxpayer

dollars are spent, says a U.S. nancial execu-

tive. Making it right oten means including

context along with data, such as by comparing

cost and perormance data with program

goals, external benchmarks and other stan-

dards. Says a Canadian nancial executive,

The law says that, in response to a Access to

Inormation Act request, we are to provide all

available documents. But sometimes we will

do some limited processing o the inormation

or the benet o, and in consultation with,

the requestor.

Another way to enrich data is to provide

metadata, or inormation about the context

or characteristics o disclosed data, such as by

using XML (eXtensible Markup Language)

or XBRL (eXtensible Business Reporting

Language). This enables users to slice and

dice, mix and match, and drill down into data

to dierent levels o granularity. The AGA

has sponsored several studies on the use o

XBRL in preparing state and ederal nancial

reports and or grants management.2 One o

the studies, Perormance-based Management,

reports on a pilot project that integrated nan-

cial, perormance and internal control data to

create a new type o nancial statement.

Recover 301: nderstandinginformation needs

In the end, says a U.S. nancial executive, trans-

parency is . . .the ability to respond to whatever

questions come upits not a report, but

instead is a state o mind. Several respondents

believe that the heart o this ability is the trans-

parency principle that nancial personnel must

strive to nd out and understand what people

want (and sometimes help them gure that

out). This is much more than complying with

reporting mandates or ollowing accountingprocedures. While important, such requirements

seldom produce inormation that is useul to

2 For more inormation on XBRL and metadata, see the AGA

Corporate Partner Advisory Group (CPAG) reportsXBRL

and Public Sector Financial Reporting: Standardized Business

Reportingthe Oregon CAFR Project(CPAG #16), GrantsManagement: How XBRL Can Help (CPAG #18) and Perormance-

based Management(CPAG #20). To order or download, visit

www.agacgm.org/research/publications.

[Releasing raw data without context] may cause program

managers to perceive biases toward or against their program,

whether such biases are real or not.


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most internal and external stakeholders. Says

one executive, No one reads most o the stu

we turn out. I look at my own perormance and

nancial reports and am conused and bored,

so how can citizens possibly be interested in

them? So, who needs what kind o nancial

and perormance inormation? We call them

external and internal stakeholders.

External stakeholders. In the 2008 CFO survey

report, we reported that, according to a 2008

Harris Interactive poll commissioned by the

AGA, 90 percent o American adults say that,as taxpayers, they are entitled to transparent

nancial management inormation rom all levels

o government. Although 72 percent said that

it is important to receive ederal government

nancial inormation, only 5 percent report

satisaction with what they receive. State and

local gures were not much better. This data

disappointment may not simply be because o

a paucity o inormation; it is also how gov-

ernment displays the data. Citizens are more

interested at a unctional level, in what we spendas a whole government, says a U.S. nancial

executive. Other respondents suggest these

interests are geospatial as well, ocusing on states,

districts and sometimes specic buildings. For

example, they may want to know the amount

o ederal, state and local unds going into

building a new public school. Citizens also need

to see the whole picture, says a U.S. nancial

executive, which is where blending nancial and

program aspects comes into play.

The biggest risk is people not caring about

nancial issues, says a U.S. nancial executive,

which means that nancial managers must be

more engaged in educating the public on public

nance. Survey participants rom the U.S. ed-

eral, state and local levels emphasized the need

to sell the importance o nance to the public, tolegislators and to nonnancial managers.

Says a U.S. nancial executive, Another great

risk is that, as transparency grows, more and more

people (and other external stakeholders) will

misinterpret the data we present. Most people are

not skilled at reviewing data, conducting analysis,

ormulating deensible conclusions and crating

reasonable recommendations. There may be a

tendency to misuse the data, causing more work

or the government. This is the best argument

or data enrichment and proactive education

on how to interpret it. Establishing good rela-

tionships with the public, or at least an entitys

intermediaries between nancial managers and

the public, makes it is possible, in the words

o a survey respondent, . . .to understand and

respond to what people really need, rather than

simply answering their questions.

People also want current data, as close to

real-time as possible. Says one U.S. nancial

executive, Users should be prompted when newinormation is available so that relevant con-

stituents know that its out there or that it has

been updated. There should be outreachactive

transparency, rather than passive.

Some governments and associations are actively

engaged in nding out what citizens want. The

AGA citizen survey mentioned above is one

example. In addition, the AGA and the U.S.

Most people are not skilled at reviewing data, conducting

analysis, formulating defensible conclusions and crafting

reasonable recommendations. There may be a tendency to

misuse the data, causing more work for the government.


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13

Chie Financial Ocers Councilconsisting o

the CFOs o major ederal entitiesare working

together to better dene the types and orms o

inormation to provide to the public.

Internal stakeholders. Active transparency is

even more critical inside an entity. With all the

discussion about public transparency, it is easy to

orget that government managers also want better

access to more useul data. For nancial man-agers, this means nding out what nonnancial

managers want and sometimes educating them on

what they need. This requires nancial personnel

to gain a deep understanding o the mission and

operations o ones entity and o the type, ormat

and timing o inormation that internal stake-

holders need or their work. For example, says a

U.S. nancial executive, For the [entity chie],

the requirement is to have sucient inormation

in order or the leader to be accountable or a

decision, so the process o the decision has to be

traced and ull cost applied to it.

Perhaps the highest ROI on transparency comes

rom providing useul inormation to internalstakeholders, says a Canadian nancial execu-

tive, The things you do or transparency are the

things you should be doing or yoursel. When

you do that, then it is a much smaller marginal

cost to provide the same things to the public.


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14

A greater challenge, say many executives, is to get

some nonnancial managers to use any nancial

inormation other than what is in their budgets

to make their management decisions. Such atti-

tudes marginalize both nancial inormation and

nancial managers and make it harder to live

up to the eighth principle o nancial transpar-

ency, which is to take action based on disclosed

nancial and perormance inormation. In

construction parlance, the attitudes may require

the CFO to start at the subbasement level when

building internal transparency. Until program

managers gain more scal sense, a Canadian

nancial executive oers this advice, We need

to walk them through the process when things

are dicult so they can ocus on their technical

areas o expertise and we can ocus on providing

our nancial management expertise.

What can a CFO do to change these attitudes?

Figure 2 oers a suggestion; its spider diagram

shows the areas that U.S. nancial executives

think are most important or becoming more

useul to external and internal stakeholders. The

blue line denes the areas or internal stakeholders

and the red line or external stakeholders. The

gure indicates that, at least in 2009, a CFOs

resources need to skew toward understanding,

communicating and educating internal and

external stakeholders. In other words, nancial

executives who want to collaborate with their

nonnancial colleagues must rst convince them

why this is important and that the CFO has

something o value to bring to the table.

Finally, CFOs need to have a solid working

relationship with their entitys chie inormation

ocer (CIO), especially because o the growing

importance o business systems to nancial and

perormance reporting. Heretoore, the CFOhas been considered the owner o the nancial

management system and oten played a key role in

business system investment decisions. Many state

nancial executives say the CFO/CIO relation-

ship is particularly important to their government

Recover 401: retrn on investment

for transparenc

Everything costs something. Concerning the

calculation o ROI on transparency, most

respondents rom all executive groups agree that

CFOs must be aware o and attempt to control

the cost o making nancial and perormance

inormation more transparent. This is the eighth

item in the box on the principles o transpar-

ency. There appear to be two schools o thought

about ROI, though.

Cost not a great consideration. All intervie-

wees in this camp acknowledge the hety price o

Figure 2:What U.S. nancial executives think that CFOs should do to

maximize the value of nancial management to internal and

external stakeholders

*Includes develop good fnancial sta, advocate internal control, integrate fnancial and perormance data,

and be a realist.

35%

30%

25%

20%

15%

10%

5%

0%

Understand what users need

Communicate with

and educate users

Take part in entity

leadership

Provide analytical

support for decisions

Other*

Internal Stakeholders

External Stakeholders


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15

transparency, but many see it as the new cost o

doing business. Some o the comments by U.S.

nancial executives:

There is no ROI with transparency; the value

is what transparency is worth to the public.

I a committed member o Congress requires

transparency, then no matter the cost, that is

what you have to deal with.

Everything should be transparent. From a

cost standpoint, it is sometimes more costly

not to be transparent.

ROI has never been part o the

questionWe consider timing, accuracy,

useulness o inormation and provision

o inormation required or stakeholders

to make reasoned decisions.

Cost is a very important consideration. Many

U.S. and Canadian executives were wary o the

costs involved in increased transparency.

According to a Canadian nancial executive,

The government o Canada says you have to

do it, but the policy regarding transparency has

gone too ar. We need to look at materiality

levels, but Im not sure what they should be.

A U.S. nancial executive says, We should

ask, i you get this inormation, what are you

going to do with it? Were not in the nice-to-

know business. We shouldnt want to make

stu transparent just to make it transparent.

Another U.S. nancial executive says, Theconcept o ROI is important. You need the

right mix o inormation, but you could go on

orever in collecting and reporting it. At what

point do you say, this is enough? You have to

make tradeos.

Whatever the case, the increasing demand or

transparency aces a technical obstacle. The

inrastructure to provide spending and per-

ormance inormation more readily to both

program managers and the public is lagging

behind the desire or that inormation, says

a U.S. nancial executive, Signicant invest-

ment in technology and processes will be

needed or this to improve. Some state nan-

cial executives would agree with this, saying

they have no central way to collect data rom

their agencies.

Finally, the cost o inormation should be a

unction o its value to users and the dicultyo obtaining it. During the survey, we heard

several times that some government Web sites

that were set up recently to promote transpar-

ency are very rarely used. It seems as though

people are more interested in knowing that the

Web-accessed databases are there, rather than

in actually using them, says a U.S. nancial

executive. A state colleague says, There is

no point in spending a huge amount on trans-

parency i all you need is a junior staer with

a calculator.

Coaboration: gradate schoo

Once at the table, a CFO is in the unique

position o being at the center o things and in

touch with all the data, so he or she can provide

inormation on the actual perormance o oper-

ations, on trends and on other issues, rather

than have management depend on guesswork.

The infrastructure to provide spending and performance

information more readily to both program managers and the

public is lagging behind the desire for that information.


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16

Especially in tough nancial times like the end

o the 21st centurys rst decade, this realism is

sorely needed. During this period, CFOs and

nancial executives can expect to collaborate

more with external stakeholders such as other

government entities, oversight groups and

legislative bodies.

Recovery 501: CFOs in tough

nancial times

Tough nancial times test the mettle o CFOs,

so we consider Recovery 501 a graduate course

you need to master the rst our to succeed in the

th. Table 2 shows the activities that U.S. nan-

cial executives in the survey mentioned the most

when asked what they could bring to the table:

Table 2:

U.S. executives opinions on CFOs role when government is threatened by economic crisis

CFO Role% of U.S. executivesmentioning the role

Comments by other executives

1. Spport entit mission. Provide more

performance information; do more anal-

ysis; be an advisor to program managers

and executives; nd ways to make or get

more money.46

Help us [program executives] make sure

that decisions are data driven. CFOs should

provide the underlying detail to understand

how stimulus and recovery money is best

spent for the maximum impact. This includes

more performance information, particularly

integrated operations and cost data. U.S.

nonnancial executive.

2. Improve performance. Work on

improving processes and the efciency of

operations and support functions; control

and contain costs. 20

[Financial executives and managers] need

to help conduct program reviews that will cut

those programs that cannot achieve their

mission with the funding they are to receive,

rather than cutting across the board to keep

all programs operating at reduced budgets.

Canadian nancial executive

3. Manage risk. Emphasize internal control

and risk management. 10

Over time, bond rating agencies will view

states with strong internal control structures

more favorably. State nancial executive

4. Set priorities. Help set priorities for

spending; focus leaders and managers on

high-value-added, important things.

9

Provide an honest reality check and offer

solutions and fearless advice. Canadian

nancial executive

5. Exercise stewardship. Protect and

account for public funds. 9

Maintain an entitys fiscal health, including

by obtaining unqualified opinions on finan-

cial audits. U.S. financial executive

6. Commnicate. Help entity leaders

communicate with internal and external

stakeholders.9

Good CFOs are like marriage counselors,

bringing together people with shared inter-

ests, but who have problems communicating

about them. Canadian nancial executive


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17

Note that managing the nancial unction is

not in Table 2 (it was mentioned slightly ewer

times than the last three topics on the list). This

does not mean that the basics are unimportant;

a ootball team without good blocking and

tackling cannot win the game. It does mean that

the basics are likely to be beneath the notice o

an entitys top leadersunless the nance squad

misses a key block or tackle.

A U.S. nancial executive summarized the

thoughts o most survey respondents about col-

laboration during economic recovery this way:

People are going to want to know How much

will it cost? and Who will pay? Feasibility

studies are going to be needed. I we can supply

this inormation, we will be more valuable. We

have to get out o the gotcha routine and into

another, more helpul one.

Participation: postdoctora

The approach to participatory government o

President Obamas administration includes more

interaction with the public. One way o doing

this will be to increase the practice o soliciting

comments and suggestions rom citizens on

programs and policies, using Web technology

to create a dialogue. At this time, it seems likely

that CFOs and nancial managers will not join

in these discussions directly, but they still have

critical roles to play in participatory government

and should sit at the table o top executives.

The rst role is always to ensure that nancial

inormation disclosed by the government and

posted on its Web sites is timely, accurate and

reliable. That inormation will be part o par-

ticipatory program/public dialogue, so it has to

be right, else the government loses credibility.

The ultimate role, though, is to ingrain nancial

management into strategic and daily decision

making throughout an entity.

Recover 601: a pace at the tabe

Having joined the team, nancial executives

and managers should be able to analyze alterna-

tive proposals rom a nancial viewpoint, to

show people how their decisions play out rom

a nancial perspective, using ully loaded costs,

says a U.S. nancial executive, We should all

be able to perorm or oversee a good business

case analysis, complete with multiple, realistic

alternatives, and pros and cons o each alterna-tive. In another example, a Canadian nancial

executive says, When I arrived at this post a

ew years ago, the nancial horizon o non-

nancial managers was quite short: the current

budget cycle. They assumed that budgets would

continue to go up, which blinded them to the

uture. I insisted that we do modeling and ore-

casting based on alternative unding scenarios,


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18

which they reluctantly went along with. Today,

we have steady-state and decreasing unding, and

the managers are grateul that we went through

those exercises, because they can see what they

need to do to adjust. Once program managers

begin to see the value o nancial analysis, an

organization can expect to see a culture change

toward cost management, instead o a strictly

budgetary ocus.

In the ong term

In Figure 1 at the start o this section on

recovery and transparency, we showed

President Obamas vision o transparency, col-

laboration and participatory government as

dierent levels, one built on the other. Over

the long term, another way nancial leaders

can look at the vision is Figure 3. Financial

and perormance inormation are at the center

o the gure because this data shows stake-

holders the return on taxpayers investment intheir government. The circular arrows show a

continuous cycle because, says a U.S. nancial

executive, We are seeing a new paradigm: the

more inormation you give people, the more

they want. Transparency leads to collaboration

with internal and external stakeholders, which

results in more collaboration, which acilitates

participatory government, which demands

even more transparency. A righteous cycle, to

say the least.

Financia &Performance Data

Transparenc

Coaboration

Participation

Figure 3:

Cycle of transparency, collaboration and participation


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19

What are the important things for a new CFO to know during the rst days and weeks

on the job? We posed that question to every group of nancial executives and received

considerable guidance. We start with Table 3, which quanties the opinions of the U.S.

nancial executives, and then move to other suggestions from their state and Canadian

government peers.

What new CFOs need to know

Table 3:

What U.S. nancial executives think new CFOs should know about their roles and responsibilities

Top five things new CFOs should know(U.S. financial executives)

Key observations

1. Emphasize customer and stakeholder relationships and commu-

nication. Establish good relations with customers and stakeholders

(internal and external) and be effective communicators.

The CFO needs to do a lot of reaching out to build relationships and

communicate [the following]:

What are your thoughts? I think we should meet.

Here are ways I can help you.

Your success is my success. I dont have an independent job.

If you dene success the same as the head of your entity, you will get

along just ne.

2. Understand entity business and program needs and culture. To

be valuable to the entity and develop relevant useful solutions, nd out

what program managers need, and learn about entity history and cul-ture, especially as these affect nancial and other business decisions.

Most program managers fear that their nancial data will be used

against them and do not believe that it will be useful to them. They do

not know enough about CFO operations to clearly understand the nan-cial data and processes. They see nancial information as someone

elses problem.

3. Initiate succession planning and staff retention and develop-

ment activities. To ensure there is sufcient staff with requisite skills,

quickly start succession planning to replace attrition of experienced

personnel, continuously train staff and reward staff successes.

Federal hiring procedures are complex and time-consuming.

Retirements are resulting in a signicant loss in experienced personnel.

We are currently working on succession planning for all levels, not just

executives and managers. Other comments include, Other agen-

cies are going to poach your best staff. You will be faced with a staff

shortage, and because of this, you will be promoting young people

faster than they should be.

4. Trust your staff. Listen to senior managersthey know the ropes,

the auditors and where the skeletons are. Recognize that things do

go wrong, and do not overreact. Set up a process that allows periodic

close interaction with all nancial management staff.

The CFO should realize that the career professionals around him or

her are experienced and generally do an excellent job. Learn to listen to

them and trust them. But at the same time, do not be afraid to challenge

them with new ideas.

5. Establish effective internal controls. Understand the importance

of risk management and internal controls, establish effective controls

and introduce/follow standard processes and procedures.

Employ a risk management approach, for both the long and the short

term. Make a risk analysis a rst order of business. Be sure to look at

the GAOs high-risk areas. Look for leading indicators of bad news.

Next five things

Understand:

6. The budget process and the role of the White House OMB

7. Financial laws and rules and how to comply with them, statutory requirements and their impact on operations and nance,

and how government works

8. Accounting and audit standards, and nancial reporting

9. Financial systems and the importance of information technology to nancial services

10. The differences between the federal and private sectors in general, and in nancial management in particular


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20

Note that the top our things in Table 3 are not

technical, such as budgeting and accounting, but

rather the organizational skills and behavior o a

corporate-level leader. Technical skills are impor-

tant, but in order to apply them to the greatest

benet, CFOs need to be leaders.

We posed the same question to U.S. state and

local government participants in the online

survey and garnered these suggestions, which weshow in rank order.

Accountability.1. CFOs must put account-

ability rst, both their own and that o

other leaders in an organization. CFOs need

to know that they will be held to a higher

standard in this role o protecting others

assets. They must understand the eect their

decisions (and ailure to decide) have on their

sta, organization, government and citizenry.

Role.2. During the rst ew weeks in oce,

new CFOs must become thoroughly amiliar

with their roles and responsibilities and what

is expected o them by people throughout the

organization and government.

Understand the organization.3. This includes

the goals, objectives and mission o the

organization; the pecking order o the

organizational chart; the backgrounds o the

players; and how to communicate up and

down the chain o command. It is important

or CFOs to know where their organization

ts into the big picture o their government.

Leadership.4. New CFOs should learn to lead,

not just manage. They need to have a vision

and goals to help lead the nancial manage-

ment sta, and must quickly develop plans

or reaching those targets.

Internal controls.5. Eective internal con-

trols are critical to the nancial and program

health o the organization and must receive

attention rom the CFO.


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21

Other guidance rom U.S., state and Canadian

government nancial executives include:

Management

Stakeholders oten have conficting demands,

so learn multistakeholder management.

Involve others as much as possible in

the decision-making process, and try to

reach consensus.

Strive to make things easier and simpler.

Be willing to say no, nicely and politely

but rmly.

What may seem counterproductive to you is,

or government managers, a practical way to

accomplish their mission.

You might not have the authority to run a

program or another support unction, but you

do have permission (and oten an obligation)

to talk to those who do.

Be careul not to over dene things. In a

mature organization, nobody cares who doeswhat, so long as it is done.

Systems

Play an active role in large IT projects

and initiatives.

Use major inormation system projects to drive

process change, eliminate redundancy and

introduce eective internal control.

Politics

Quickly establish a money-based trust with the

entity chie, or else a budget person is going toget in there ahead o you.

I you are a careerist, then become aware o

your potential to infuence political appointees

(and vice versa).

Know the rules, both written and unwritten,

and respect the process, including the legisla-

tive side o things.

Many internal budget and resource deals are

made behind closed doors. This is a short-

term gametake the long view, and strive or

internal transparency.

Point of view

Look outside the nancial unction, and take

an organizationwide view o things. As a CFO,

you are uniquely able to do this.

Look outside organization entity, and take a

governmentwide perspective. In addition, we

are in a global economy, so get a good grasp

o macroeconomics, both o your country and

the world.

Network with colleagues inside your entity

and among other CFOs and central agencies.

The ollowing may be the most important

piece o advice to new CFOs: according to

several state and local government managers,

a new CFO should not settle or its always

been done that way. Financial executives and

managers, they say, have the power to improve

how the government operates nancially, and

there are many new ways to do things better,

aster and more eectively. Do not make drastic

changes in the organization or the sake o

change, but expect, embrace and initiate it

when necessary.

The following may be the most important piece of advice to

new CFOs: according to several state and local government

managers, a new CFO should not settle for its always been

done that way.


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22

Finally, warns a U.S. nancial executive, With

the Recovery Act, there is going to be a lot o

scrutiny over the next ve years as to how you

spend the money, so i you want to nish o

your career right, then you better get things

right, right now.

CFOs united

New CFOs should understand that they are

not alone out there in the nancial wilderness.They have colleagues in other entities in their

government and in other governments: CFOs,

comptrollers, treasurers and other top nan-

cial leaders. Meeting with them ormally and

inormally is an important part o a new CFOs

education. Good ways to do this include joining

associations such as the AGA, ASMC, NASACT

and mi*ig and participating in their coner-

ences and committees. With the current push

or transparency, more collaboration among top

nancial executives at all levels o governmentwill be especially important.

In addition, many governments have organi-

zations such as the U.S. governments CFO

Council (a statutory group), where nancial

leaders convene to discuss and develop solutions

or pressing problems. Government o Canada

CFOs have the opportunity to congregate

quarterly to receive direction and inormation,

align priorities, exchange best practices and share

how they are meeting challenges. Through the

AGA, mi*ig and other organizations, U.S. and

Canadian CFOs have started a dialogue that will

be o value to both nancial communities. Says

one U.S. nancial executive, All CFOs should

work as a collective. There are some very smart

individuals among us with good and dierent

ideas, and the mission o government nancial

management is not agency dependent. When

a crisis arises, the CFO Council, or a subset o

that body, should be locked in a room to become

a think tank.


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23

For anyone other than an accountant or bond rater,

audited annual nancial statements are perhaps the

least transparent public documents produced by

governments, according to many participants in the

2008 and 2009 AGA CFO surveys. Few of the people

who can read these reports actually use them for

business decisions. Given the cost of preparing and

auditing the statements, it may be time to rethink

them. Are there alternative ways of nancial reporting

that maintain the discipline of the current approaches,

but that produce information that is more transparent

and useful?

major corporate and accounting scandals, such

as those o Enron and WorldCom. SOX also

infuenced the December 2004 revisions o

the U.S. governments OMB Circular A-123,

Managements Responsibility or Internal Control.

U.S. nancial statements

Most U.S. government entities that are required

to produce audited annual nancial statements

have received unqualied opinions on them.This is not the case or the consolidated nancial

report (CFR) o the United States govern-

ment. Although the GAO issued an unqualied

opinion on the U.S. governments FY 2008 and

FY 2007 Statements o Social Insurance, certain

material nancial reporting control weaknesses

and other limitations on the scope o its work

prevented GAO rom giving an opinion on the

remaining nancial statements. Table 1 o this

report ranks the general activities all entities

must do to maintain unqualied status. Table 4on the next page shows U.S. government nan-

cial executives opinions about how to correct

the more specic problems in the consolidated

nancial report.

In Table 4, the most-mentioned activity area

was or the Departments o Homeland Security

(DHS) and Deense (DoD) to obtain unquali-

ed opinions on their annual reports, because

they represent a material part o the ederal

budget. In an April 2009 survey sponsored by

the American Society o Military Comptrollers

(ASMC), two-thirds o the DoD nancial execu-

tives interviewed think it will be six or more

years beore that department receives an unquali-

ed opinion.3

Nearly all the government nancial executives

and managers in the survey are in entities with

audited annual nancial statements done in

accordance with their respective accounting stan-dards boards. Most say these annual reports are

valuable testaments to the credibility o nancial

inormation. U.S. state and local government

managers are more likely to consider the reports

to be valuable because their bond ratings depend

on receiving an unqualied opinion rom audi-

tors. Some Canadian government nancial

executives see the value in the process to achieve

an unqualied opinion on an annual nancial

statement, but not in the report itsel. One thing

that all government nancial executives wouldagree on is that, while they get no special award

or gaining an unqualied opinion, losing one

can be a career-buster.

Some state government nancial executives

report increased interest and eorts at intro-

ducing controls over nancial reporting such as

those o the U.S. Sarbanes-Oxley Act o 2002

(SOX). That law was passed in reaction to several

Annual financial statements and transparency

3 American Society o Military Comptrollers, Taking Care o

Business: Managing Military Dollars, April 2009. Electronic copy

available at www.grantthornton.com/publicsector.


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24

The second area in the table, intergovernmental

transers, will likely require central agencyinvolvement and better communication among

entity systems, say many respondents. The

objective here is to speed the process o recon-

ciling the transers. Two o the other activity

areas in Table 4 (processes and internal control)

are much the same as those shown in Table 1.

Systems and IT problems are hard to solve right

now because o the large number o nancial

systems in the U.S. government and their poor

ability to share inormation with each other. A

standard architecture across government would

help solve the systems problem.

Materiait: united States and Canada

In the 2008 CFO survey, we discussed dier-

ences in materiality in the U.S. and Canadian

national governments approaches to their

annual nancial reports. The chie lesson learned

rom this was that some o the weaknesses that

might seem material at the agency or department

level become much less o a concern in the bigpicture o a countrys combined nancial report.

Here is the reason why: the U.S. approach uses

a bottom-up closing package process that starts

with unds, agencies and departments preparing

individual nancial statements and having

them audited. The U.S. Treasury Departments

Financial Management Service rolls up the

individual report results into the consolidated

nancial report.

In contrast, Canada takes a top-down approach

in which its entities submit trial balance data

during and at the end o the scal year or the

national summary nancial statement process.

The Canadian governments central auditor

identies and audits material components,

taking the audit work to the entity that sub-

mitted the data. Thus, a material weakness is said

Table 4:

What the U.S. government must do to continue its progress toward an unqualied opinion on the

consolidated nancial report

Activities

1. Obtain unqualied audit opinions for large component entities. The Departments of Homeland Security and of

Defense do not have unqualied opinions on their nancial statements, and until they do, neither will the CFR.

2. Fix intergovernmental transfers. Areas to address include the clarity of central agency guidelines, reconciliation

and timeliness.

3. Processes. Entities need to x the problems pointed out by auditors, continue to improve nancial reporting procedures

and set priorities for improvement.

4. Systems and information technology. Continue to reduce the number of and consolidate nancial systems throughout

government, strive for an automated standard close in all entities and for intergovernmental reconciliations, and implement

a standard architecture across government.

5. Internal controls. Continue to improve controls in nancial reporting and systems.


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25

to occur when it aects the entire government,

not just one agency. This approach has helped

the Candadian government obtain unqualied

opinions on its summary nancial statements or

the past 10 years, and could perhaps do the same

or the CFR o the U.S. government.

Canadas departments undergo audits, but only

ater the audit o the governmentwide summary

nancial statements, and then only with a ocuson issues that aect the entire government. Some

Canadian entities have received unqualied

opinions, and all have been ordered to be ully

auditable by 2012.

Like many o their U.S. colleagues, Canadian

government nancial executives applaud the

process improvements that come rom preparing

their nancial reports or audit, but are not con-

vinced o the value o the documents themselves.

Says one, We need the credibility o a nancial

statement, but the traditional private sector ver-

sion is not applicable to government. We need to

move to a ormat thats tailored or government

and links operations to perormance.

Improving the U.S. nancial

reporting mode

Most U.S. government respondents agree that

an unqualied opinion on a ederal entitys

annual nancial report represents three things o

value: credibility, progress and understanding.

As noted at the start o this report underTransparency, credibility comes rom accurate,

reliable and timely inormation, and an unquali-

ed opinion can be a certication o these

achievements. Regarding progress, some say that

an unqualied opinion shows that an entity has

improved its nancial accounting and reporting.

Finally, some U.S. respondents say that working

toward an unqualied opinion helps nancial

and nonnancial managers to better understand

their processes.

However, many U.S. government nancial

executives say that nancial statement inor-

mation has little intrinsic value because the

government does not use nancial statement

inormation to make business decisions.

According to both nancial and nonnancialexecutives, ew people other than accountants

read them. We asked U.S. government nan-

cial executives what could be done to make

nancial statements more useul or business

decisions (which would add to the reports

value). Table 5 shows their opinions.

Changing the U.S. nancial statement

Spurred by the Chie Financial Ocers Act o

1990 (CFO Act), the U.S. government developed

a set o nancial statements that imitate those

used in the private sector. Nineteen years later,

Table 5:

How U.S. CFOs can increase the value of the annual audited

nancial statement

Response Percentage

Change the nancial statements in some

way: eliminate all or parts; refocus; more/

less detail

37

Communicate more: educate public, program

managers, others about the value of the state-

ments and how to use them

36

Other: unrelated items mentioned once 20

No value: the statements have no value

whatsoever; nothing can be done to change this 11


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26

OMB can, by orienting the relevant requirements

to align with the inormation the government

owes to the taxpayer. The reports currently

address how much the government owns versus

how this money benets the taxpayer.

Commnicating the vae of the u.S.

nancial statement

No matter whether there are changes made to

U.S. nancial statements, CFOs will have tomarket their value to stakeholders. Some o the

activities that will help include the ollowing, say

U.S. government nancial executives:

Do not assume that nonnancial leaders know

what the statements mean. Instead, take every

opportunity to educate all stakeholders about

the statements and about what an unqualied

opinion means.

Show nonnancial managers the connection

between the statements and their work. This

means translating ndings into program as

well as nancial terms. Also, show them the

link to internal controls.

Show leaders and managers how to use state-

ments or making business decisions.

Make the reports more interesting and

understandable by using plain English, more

denitions, more explanations and more

graphics in the MD&A section.

Figure out the real value points o the annual

nancial report, and ocus on them, says a U.S.nancial executive.

say about one-third o U.S. nancial executives,

it is time to think about changing this model.

Improvements they suggest include the ollowing:

Do not write the report just or accountants,

auditors and OMB. Instead, align the contents

with needs o other users, such as citizens,

nonnancial executives and managers, and

legislators. Many o these needs are analytical:

Make better links between the nancial

inormation in the statements, budgets

and entity perormance measures.

Use real-world nancial measures that

nonnancial personnel can understand.

Use more-specic terms/line items that

would be useul to stakeholders (e.g.,

travel obligations).

Have more vertical links to enable stake-

holders to drill down into the details o

the data presented.

Introduce cost accounting to thereporting mix.

Issue citizen-centric short reports along

with the main report.

Eliminate statements that are o no use (the

Statement o Net Cost and the Fund Balance

with Treasury are valuable, say some U.S. gov-

ernment nancial executives).

Eliminate calculations that have no value,

such as depreciation o xed assets.

Focus on big-ticket items and

material weaknesses.Use the Management Discussion and Analysis

(MD&A) section more, especially or peror-

mance measures and or ocusing on the uture.

Making these changes will require action rom

the White House. Says a U.S. nancial executive,

At the national level, CFOs cannot increase the

value o the annual audited nancial statements.


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27

A new CFO taking the nancial helm in todays perfect

storm of economic recession and new calls for

transparency would do well to reect on this quotation

from Shakespeares Twelfth Night: some are

born great, some achieve greatness, and some have

greatness thrust upon em. Whatever the case for

the new CFO, greatness is going to be necessary

for the next several years. We believe that the nearly

500 nancial leaders and managers who took part

in the 2009 CFO survey have shown how to render

distinguished service during these troubled times.

Mind the basics

Over the next ew years, governments may

not emphasize the important basic tasks o

nancial management (accounting, budgeting,

internal control, audits, reporting, systems

and stewardship) as much as they have in the

past. The CFO must not let the basics back-

slide, or else the data that orm the oundation

o transparency will no longer be accurate and

reliable. When that happens, CFOs and whole

governments lose credibility and are less able

to pursue their missions.

Invest caref

With budget shortalls, every dollar saved

counts double: less tax burden or citizens,

more resources or government. Two resource-

draining activities could use more careul

analysis to determine how best to maximize the

benets they deliver: annual nancial reports

and transparency.

Improve nancial reports

Many survey participants said that ew people

actually read their governments annual

nancial reports and that ewer still use the

documents or making business decisions.

While such reports are necessary, governments

need to nd ways to improve their useulness

to groups other than bond rating organizations.

As a group, government CFOs need to work

together to prepare proposals or more cost-eective annual reports.

Increase transparenc

More transparency is denitely needed in

government, but the reality is that it costs

money to disclose inormation, and right now

money is tight. Governments need a way to

determine ROI on transparency investments,

just as they should or any other activity area.

Conclusion


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Table 6 is an example o a thought process

to use when designing cost-eective ways to

increase transparency.

Commnicate and edcate

For nancial inormation to have high value, it

must be useul and used or making decisions.

Our survey indicates that the CFO is the key

to increasing the useulness o nancial inor-

mation to internal and external stakeholders.

The top two things that raise the value o this

inormation are to understand user needs and

to communicate with and educate them (see

Figure 2). This starts at the top, where CFOs

work with other senior executives, and it is

more important than any inormation system

or increase in sta in the nancial unction.

Distilling all the advice o the survey partici-

pants, we would say to the new CFO:

Strive to be a leader among the leaders

of your organization, because leaders

make a difference.

Table 6:

Questions for calculating return on investment (ROI) of transparency information

Question High ROI information . . . Low ROI information . . .

1. Who wants to know? is focused on dened

user groups with known

characteristics

is unfocused and its users

are not well dened or known

2. What do they want

to know?

responds to user needs;

detailed, gives context

is hard to use, sketchy and

lacks context

3. What is the

information worth?

enables action on major risks

and opportunities

risks and opportunities

addressed have

low importance

4. What does it cost to collect

and report the information?

is affordable and its value

exceeds cost

has a cost that exceeds

its value


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Additional InformationIf o wod ike more copies of this srve

or an opportnit to hear more abot its

content and the chaenges facing the

federal CFO community, please contact the

Association of Government Accontants at

the address beow:

Association of Government Accontants

2208 Mont Vernon AveneAlexandria, VA 22301

Teephone: (703) 684-6931; (800) AGA-7211

Web Site: www.agacgfm.org

E-Mai: [email protected]

Survey ContributorsAssociation of Government Accontants

Relmond Van Daniker, CPA, Executive Director

Anna Miller, CPA, Director of Research

Nationa Association of State Aditors,Comptroers and Treasrers

R. Kinney Poynter, CPA, Executive Director

Ofce of the Comptroller General, Treasury

Board of Canada Secretariat/Financia

Management Institte of Canada

Marcel Boulianne, Senior Analyst,

Ofce of the Comptroller General/

fmi*igf Director of Partnerships

Grant Thornton llP

Clifton A. Williams, CPA, CGFM

C. Morgan Kinghorn Jr.

Larry J. Goode, CPA, CGFM, CCP, CITP

Kenneth Bresnahan

Christian Fuellgraf

Wendy Morton-Huddleston, CGFM, PMP

Steven Clyburn


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Association of Government Accontants2208 Mont Vernon Avene

Alexandria, VA 22301

Grant Thornton llP

333 john Care Street

Alexandria, VA 22314

Documents

Recovery and the Transparency Imperative.pdf