Post on 30-May-2018
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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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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: agamembers@agacgfm.org
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