Fighting fiscal dragons
- By Christopher Dorobek (Moderator)
- Sep 17, 2001
For more than a decade, agencies have been working to find financial management perfection. But they have had little success balancing their books.
Now times have changed for financial management systems. No longer mere accounting systems, typically complex and often enormous systems now lie at the center of any well- managed organization.
And yet the task of rolling out those systems resembles a mythical dragon whose head grows back each time it is cut off—it can test any organization's abilities.
More than a decade after the passage of the Chief Financial Officers Act—the seminal law that laid the groundwork for federal management reforms—some agencies still grapple with even the elementary concept of the importance of good financial records.
With the spate of laws such as the Government Performance and Results Act and increased demands from the Office of Management and Budget and Congress for agencies to justify spending, financial management systems have moved from simple backroom spreadsheets to mission-critical systems that provide essential data for running an organization.
Many agencies are still working to slay the financial management dragon, however. This year, in his financial management report card, Rep. Stephen Horn (R-Calif.) gave agencies a C-minus grade overall. Horn is chairman of the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee.
Only five of the 24 major government agencies have systems that comply substantially with federal accounting standards, despite laws created to encourage improved financial management systems, said U.S. Comptroller General David Walker.
And some of the organizations that do have auditable records have done so only by taking Herculean measures rather than instituting practices and systems that provide regular data about the status of the organization.
"The scale of accounting practices for trillion-dollar organizations—that's hard," said Jimmy Henry, a vice president at Booz-Allen & Hamilton Inc. "It's a tough nut to crac
'Fundamentally Not Simple'
The CFO Act and the laws that followed represented a dramatic shift in what federal financial systems are expected to do, said William Phillips, a partner with Pricewaterhouse.Coopers' management consulting division.
Even with those legal guidelines in place, Stanley Gutkowski, managing partner of Accenture's federal government client group, conceded that "financial management is fundamentally not simple."
For the first time, agencies were expected to have auditable records, and the government was expected to close its books within five months after the Sept. 30 close of the fiscal year.
Agencies have been making progress. This year, for the first time in four years, all 24 of the government's major agencies filed statements by the March 1 deadline, and a number of agencies received clean audit opinions. Yet the General Accounting Office was still unable to offer a clean opinion, largely because of the government's poor financial systems.
The government's financial management dragon has been created over time. Typically, financial management has not been a top agency priority. Most organizations were focused on performing their mission. Managing the books, aside from ensuring that the agency did not overspend its budget, was a secondary task, at best.
And, prior to the CFO Act, agency financial systems reflected that view.
"The real focus was on getting money out to recipients and spending all you got so you didn't get it taken away," said Morgan Kinghorn, the former CFO at the Internal Revenue Service and a partner with PricewaterhouseCoopers.
When the CFO Act was passed, many agency financial systems were already 30 years old and could not perform the tasks the law required, Kinghorn said.
"The whole focus was on making sure you don't spend more than a penny more than you have," Kinghorn said. "It used to be done with spreadsheets."
The purpose was managing transactions rather than performing financial management. The systems in the 1970s and 1980s were transaction-based systems with little if any emphasis on issues such as return on investment or analytical reports on trends or habits, said Wayne Bobby, who served as the chief of financial systems at the State Department until 1996 and is now director of government financial solutions at Oracle Corp.
"We didn't really focus on it until we got the Chief Financial Officers Act in 1990," he said.
Further complicating the situation, Kinghorn said there were no established accounting standards before the CFO Act. It was even difficult for auditors during those early days to conduct an audit.
And experts say that a tradition of poor communication and cooperation between financial, technology and program organizations made a difficult situation worse.
Bobby said financial shops often were not responsive when program officials requested data. That led program officials to maintain their own financial data, which resulted in numerous stovepiped systems and conflicting fiscal reports.
The government's financial management landscape is also complicated by the overall size of the organizations. Compared to the private sector, experts noted, most agencies are equal in size to some of the largest corporations in the world. Furthermore, within those organizations, there are a number of diverse missions, Gutkowski said.
The Treasury Department, for example, includes disparate organizations such as the U.S. Mint and the Bureau of Alcohol, Tobacco and Firearms.
"There is a very diverse population of agencies," Booz-Allen's Henry said.
Former Transportation Department CFO David Kleinberg said that system rollouts get more complex in those diverse organizations where there can be conflict about the system the agency will use and what legacy systems it must adapt.
Layered over those large, complex organizations are scores of rules and regulations that go far beyond what's required in the private sector. Only recently has the software matured so that most of those government-specific rules are adequately addressed.
In many ways, the financial management world has matured, experts agree, providing agencies with some important advantages. Today's enterprise systems can synthesize myriad information quickly and are more attuned to the government's requirements.
And, experts say, they can provide data necessary for effective management.
The multiagency Joint Financial Management Improvement Program has laid out requirements for core financial systems. Financial systems must be approved by JFMIP before they can be sold to federal agencies.
Those requirements have enabled agencies to use mostly commercial products without having to change the software. JFMIP executive director Karen Alderman said using a commercial package is critical because it dramatically reduces a system's overall operation and maintenance costs. But if agencies customize the software, they will lose the advantages of a commercial product such as system upgrades.
Using more commercial products means making significant changes to the way agencies do business. "What is required is changes in business processes, and people don't want to change their business processes," Kleinberg said.
Bobby said agencies are increasingly looking at how things are being done at other agencies and in the private sector.
And there are attempts to improve communications within agencies. The CIO Council and the CFO Council are currently working to develop common terminol.ogy for financial systems that will enable information technology and financial experts to work together more closely, said Interior Department CFO Schuyler "Sky" Lesher, chairman of the CFO Council's Financial Systems Committee.
Yet despite the improvements to software, experts say that agencies have to make managing change a top priority if they want to succeed. "I don't think you can ever spend too much time and effort on the people aspect of this," Gutkowski said.
The mantra for any new financial system implementation should be "communication, communication, communication," he said.
But when budgets get tight, the first thing to go is often the change management plan, Kinghorn said.
"There's a normal resistance to change in any organization," he said, but communication can help mitigate that resistance.
It takes ongoing leadership from senior management to overcome these issues, experts say.
The way systems work today makes it even more critical that users understand the system and its importance to the organization. In many cases, users are inputting data directly into the financial management system, said Bill Early, CFO at the General Services Administration.
Previously, when program staff members submitted data in the wrong format, the finance people would just fix it. Now that program staff members are submitting data directly into the system, finance employees are getting angry because their formats can result in an error.
"You've got to get people to understand that now you have to put it in right the first time," Lesher said.