Changing Gears

Thanks to a comprehensive new accounting rule, state and local IT shops finishing up Year 2000 compliance work soon will find themselves faced with a fresh challenge as they help to implement a whole new approach to the process of governmental financial reporting.

The sweeping changes envisioned in Statement 34, the accounting rule issued in June by the Governmental Accounting Standards Board (GASB), promise a dramatic shift in the way state and local governments present financial information to the public.

Under the new standard, governments will be required to provide more financial information in a more easily understood format than the annual financial statements they issue now.

"This is the biggest change ever in governmental reporting, and it's exciting for both citizens and governmental leaders," said Laurie Burr, a senior principal at American Management Systems Inc., Fairfax, Va. "It provides a whole new way for CIOs to use technology in support of democracy."

In contrast to the way that Year 2000 compliance required relatively simple line-by-line alterations to existing code, the Statement 34 effort likely will result in mainframe programmers writing entirely new applications for capturing a wider array of data and reporting it in new formats, vendors say. For PC-based systems using off-the-shelf commercial software, the data capture and reporting changes mostly will involve simply revising database queries and spreadsheets.

"A lot of software will have to be changed," said Adrian Moore, director of economic policy at the Reason Public Policy Institute, Los Angeles. "New code will have to be written because the rule is changing the type of information that will be reported, as well as how it will be reported."

Key changes envisioned by the rule will require governments to report on the overall state of their financial health rather than just providing information about government funds. Government agencies also will have to provide more complete data about the cost of delivering services; report information about the government's public infrastructure assets, such as bridges, roads and storm sewers; and provide a concise narrative that analyzes the government's financial performance over the past year.

"Statement 34 changes the entire governmental accounting and reporting model," Moore said. "The new financial statements will look more like corporate statements, so from an IT perspective, the information requirements are going to change as a result."

The changes are not strictly mandatory: The Norwalk, Conn.-based GASB is a private-sector organization formed in 1984 to establish and improve state and local accounting and financial reporting standards. It has no legal authority to compel governments to comply with its rulings. But state and local officials consistently comply with the board's recommendations, and its rules must be observed by any government that claims to follow generally accepted accounting principles.

Given the scope of the modifications required by Statement 34, however, many governments may find themselves struggling with issues of how and when they will implement the new standard.

"The way the rule is written, it's the largest governments that will have to get moving most quickly," Burr said. "Those with annual revenues of $100 million or more must reflect the changes in their financial statements for fiscal years beginning after June 15, 2001."

GASB mandates a start date of June 15, 2002, for governments with revenue between $10 million and $100 million. Governments with less than $10 million in revenue have until June 15, 2003, to put the initial components of the new reporting model into effect. The rule's infrastructure reporting requirements, which focus on accounting for and depreciating all of a government's fixed assets, are targeted for implementation after the initial modifications have been made to management reporting systems.

Fresh off their Year 2000 work, state and local IT shops are expected to play an important role in the race to meet those deadlines and enable the sweeping changes envisioned by the new standard.

"The governments that are still working on their Y2K compliance will have to finish that before they start on Statement 34," Burr said. "Some of the early adopter governments are a bit ahead of the curve, but it's not yet clear that every government is going to make the necessary changes before the deadlines."

Early adopters agree that any government looking to meet the deadline better start now.

As sort of a test case for GASB during the process of exploring the extent of the rule's impact on systems, Wisconsin got an early jump on implementing the new standard. Using the data from its 1998 Comprehensive Annual Financial Report (CAFR), the state did a trial run in March to determine what changes it will need to make to comply with Statement 34.

The painstaking review of accounting needs and IT solutions produced a comprehensive implementation plan for the state, as well as a wealth of experience-and some good advice.

"Anyone who has to meet the 2002 deadline, as we do, had better be working on it now," said W.J. Raftery, the Wisconsin state controller. "I'm urging everyone to start early. We benefited greatly from going into our system and creating a new report using last year's data. It's a good idea to go through that trial run, to know whether or not you're capturing all the data you'll need to create the new reports."

Wisconsin also is benefiting from a flexible computing environment. Although other states will need to modify mainframe code to produce the new financial statements, Wisconsin uses PCs to prepare its CAFR each year. As a result, many of the changes can be handled by end users right in their spreadsheet programs.

For Michigan, the burden of rewriting its mainframe's financial reporting software is offset by the way in which the state tracks its infrastructure, which is similar to the procedures that Statement 34 requires. As a result, the state plans to comply with the management and infrastructure reporting requirements of the new rule at the same time.

"We are already assessing the condition of our infrastructure-primarily our roads and bridges-and disclosing that information," said Leon Hank, director of Michigan's Office of Financial Management. "We're hoping to complete the changes necessary to comply with both phases of Statement 34 for our September 30, 2001, financial statement."

Ohio is taking an innovative approach to its statewide planning by including local governments in its information gathering process. "They are seeding the state with knowledge about Statement 34 and the changes it will require," Burr said.

Given the complexity of the new rule, the innovations it proposes for accounting and reporting, and the impact those changes will likely have on IT departments across the nation, the sharing of information about Statement 34 is a high priority.

"There seems to be a rather depressing lack of knowledge about this rule," Moore said. "Government financial people seem to be waiting for GASB or someone else to tell them how to explain this to their elected officials."

GASB is expected to issue implementation guidelines for Statement 34 by March.

Patrick Walsh is a free-lance writer based in Peekskill, N.Y.