He got green

Why is Education CFO Jack Martin smiling? He and his team earned OMB's top grade for financial reporting. Here’s how.

The sheriff has a new edict: Agencies must get their annual financial reports to the Office of Management and Budget by 45 days after the federal fiscal year ends on Sept. 30, instead of 120 days. The Nov. 15 deadline is forcing managers to scramble.

But only a handful of agencies appear ready to meet this mandate.

So how did eight agencies meet the deadline last year, a full 12 months before the rule takes effect? In part, by integrating their financial systems to improve management and reporting.

Of these eight, the Education Department was the only cabinet department to achieve OMB’s top green rating for financial management on the most recent President’s Management Agenda scorecard.

“First and foremost, it takes better technology,” said Linda Springer, OMB’s controller in the Office of Federal Financial Management.

“We couldn’t have done it without the ability to produce statements monthly,” Education’s chief financial officer Jack Martin said. “That’s what makes getting to green doable. Given the size and complexity of most agencies, it would be extremely difficult, in my view,” without an integrated system.

The department in January 2002 implemented the Oracle Federal Financials 11.0.3 management system, one of several commercial products certified by the Joint Financial Management Improvement Program. Education was able to produce an accurate financial statement when OMB first required quarterly submissions in 2002.

The department conducted its first clean audit in 2002, although auditors found one major weakness. They were not satisfied with the extent to which Education had reconciled cash, receivables and student aid records.

“You can’t get to green with a material weakness, not even to yellow,” Martin said. To eliminate the weakness for the 2003 report, Education set up several teams that met twice a week with Martin and other senior managers to measure progress.

The auditors gave Education a clean bill in 2003, with only one qualification, which is a lesser sin than a weakness: Fine-tune the process for estimating the subsidy needed for student loan programs. That qualification should be eliminated in the 2004 report, Martin said.

To get to green on the PMA scorecard, agencies must go beyond OMB’s requirements for a clean audit and on-time financial statements. Agencies must also demonstrate that they can produce accurate financial information on demand, and that managers are using it to make daily decisions and evaluate performance, Springer said.

“Better financial systems are a significant part because information has to be available on a timely basis,” she said.

That requires not only good processes and financial management technology but also other systems, such as data warehouses and executive dashboards, to put the information into managers’ hands, she said.

The Education Department produces a monthly report on financial and operational activities, called Fast Facts, which goes to program managers and executives all the way up to secretary Rod Paige.

The report compiles performance indicators for costs, budgetary information, and tracking of grants and loans. Executives compare the indicators with their targets—for example, how many schools meet safety or reading standards—and hold the program managers accountable.

Since the department began publishing Fast Facts, Martin said, he has noticed better performance in the areas for which the report generates statistics. Managers “are being held accountable, but they also have the information to see how they compare with their peers,” he said.

An integrated financial management system is not technically necessary to fulfill OMB requirements, but it makes the task a lot easier, Springer said. “I expect in most cases that we will see this requirement fulfilled at the same time or on the heels of implementing a new system, but it could be done without one,” she said.

Easier tallying

An integrated system does make it easier to compile information quickly and accurately, however. “Most of the agencies that don’t have systems in place yet are able to do this only on a quarterly basis, and it’s not automated,” she said. “The information is generally more limited.”

Under OMB’s tighter deadline, some agencies have implemented new financial systems for streamlined business processes.

Education went directly from a red score to green on the PMA scorecard. But it takes only one major weakness to land an agency at red, and for Education it was a systems security weakness.

The department plans to move fully to Oracle Federal Financials 11i, the latest version, by October 2006, Martin said.

Education is not as large or complex as some other departments, but size doesn’t matter in getting to green, Springer said.

“What we find is that an agency with strong financial management has it across the board, whether they’re large or small. It’s just ingrained in the culture,” she said.

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