OMB calls for financial clarity
As agencies prepare to clean up their general ledgers and modernize the government’s financial affairs, Bush administration officials said they have made progress in developing standard business and accounting processes to replace variations that agencies have developed.
“Accounting and financial management shouldn’t be different among our various agencies,” said Danny Werfel, acting controller at the Office of Management and Budget.
The various approaches that agencies have used to account for intra-agency transactions have produced major weaknesses in the government’s annual consolidated financial statement, Werfel said.
Auditors, including those from the Government Accountability Office, cannot have confidence that agencies’ financial data is reliable, he said.
With standardization, agencies can provide financial data more quickly for leaders to use in making management decisions. Standardization will also ensure more accurate financial data at less cost to the government, Werfel said.
Agencies can implement the standards by moving to government or commercial shared-services providers under OMB’s Financial Management Line of Business (FM LOB). Those providers are equipped to offer financial management systems and services to many agencies.
Such moves will not occur overnight, said Adam Goldberg, chief of the Financial Analysis and Systems Branch at OMB’s Office of Federal Financial Management. They must be thoughtful, risk-based changes, he said.
Agencies must prepare to outsource their financial management systems operations to shared-services providers, although OMB policy does not require them to make the change until they must upgrade their financial management systems.
Officials at OMB and the General Services Administration’s Financial Systems Integration Office (FSIO), which manages the FM LOB, said they are orchestrating the movement of several parts to help standardize financial management.
By the end of the year, they expect to complete development of standard core accounting processes. The next step will be testing financial systems that have incorporated those processes. The final step will be developing standard system interfaces for connecting to feeder systems, such as those used to manage procurement and travel, Goldberg said.
“Whatever other reforms need to be made in this environment will be easier to introduce because of the configuration management that’s going on,” Goldberg said.
In December, FSIO will update core financial system requirements to include the five core accounting processes, said Dianne Copeland, the office’s director. In 2009, FSIO will create test scenarios to demonstrate that shared-services providers have integrated the business standards in their financial software and the software complies with certification provisions. In 2010, providers must get their systems certified, Copeland said.
Until then, agencies that have already moved to shared-services providers must make sure those providers can perform all the financial management functions they need, Copeland said.
Some industry officials say the government standards are beneficial to agencies and commercial service providers. For example, a standard configuration for processing invoices will reduce risk and lower costs for agencies, said Tim Hurlebaus, vice president at CGI Federal. The company is a financial management shared-services provider for the Environmental Protection Agency under the FM LOB.
Standardization typically brings changes in business processes, and those changes necessitate retraining users and communicating with vendors, Hurlebaus said. “It’s not really a system or configuration problem,” he added. “It’s more of a change management challenge.”
Meanwhile, FSIO is finalizing the process standards for f und controls and payment management. Last month, the office published a draft version of a receivables management standard, Copeland said. By December, FSIO expects to complete work on standards for reimbursables and financial reporting.
“Standard processes get rid of the variability of agency financial practices that don’t have a business reason,” Copeland said.
The receivables standard should help agencies better recognize revenue and reduce loss from bad debts, and the reimbursable process is expected to give agencies a common approach to account for transactions in which agencies buy products and services from one another, Copeland said.
“Processes that are used now are very convoluted,” she said.
Inconsistencies in accounting for financial transactions produced more than $50 billion in 2007 in unresolved imbalances, Werfel said. To reduce those imbalances, OMB and the Chief Financial Officers Council set up an intragovernmental transactions watch list in 2007. That list contains the eight largest imbalances between agencies. At meetings, the council displays those imbalances on a screen for the CFOs at those agencies and others to resolve. Participants often add other unresolved imbalances to the watch list.
“It seems relatively easy, but it works,” Werfel said. “We’ve knocked out $10 billion [in imbalances] just by doing that.”
Werfel said he expects the next administration to maintain the progress and schedule of improvements in financial management. Requirements for auditing and financial management standards have traditionally remained consistent through administrations and have not been affected by partisan politics, he added.
“Subsequent administrations have built on them, not taken things away,” Werfel said. “This is good government.