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Three steps to make it out of the impenetrable (financial) fog
Tuesday - 4/9/2013, 5:57am EDT
By Sam Mok
Managing Member, Condor International Advisors;
Former CFO, Labor Department
Special to Federal News Radio
In April 1802, Thomas Jefferson wrote of an "impenetrable fog," much like the one that frequently blankets the nation's capital during the spring months, though the fog he referred to was perhaps not the first one that comes to mind. Instead, the fog of which the third president of the country penned was the one enveloping the financial management system at our highest level of government.
Sam Mok (Courtesy of Condor Intl. Advisors)
Mr. Jefferson wrote about the "great importance to simplify our system of finance and bring it within the comprehension of every member of Congress," and his goal was that "the finances of the Union be as clear and intelligible as a merchant's books, so that every member of Congress, and every man of any mind in the Union, should be able to comprehend them to investigate abuses, and consequently to control them."
Unfortunately, 211 years later, to the month, "impenetrable fog" can still be used to describe the state of financial management in the federal government.
Over more than two centuries, through war and peace, there have been numerous attempts by various administrations to carry out Mr. Jefferson's vision of financial management in the federal government.
As a former comptroller of the U.S. Department of the Treasury (over 25 years ago) and chief financial officer of the U.S. Department of Labor (six years ago), it is my opinion that the progress made by the federal government in financial management improvements during the last 25 years has been limited. The frequently quoted GAO audit report language, "While progress has been made, much work remains to be done," is most fitting to describe what has been accomplished so far in this area.
If history is a guide, will it be necessary for us to wait another 200+ years to see more progress? Shall we continue to hope things will work out eventually? Lamentably, with the European financial crisis and the deepening national debt America is carrying, we may not have the luxury of time like in the past.
Opportunity for changing the game in financial management
As President Barack Obama begins his second term, a new OMB director will be taking office to shape his legacy in financial management. I believe this is a great opportunity for this administration to accomplish some game-changing results in the financial management arena without risking hundreds of million of dollars in new systems or hiring armies of consulting contractors to reinvent the wheels. If the new OMB director seizes the opportunity to update the management structure that stymied most former directors, she will put into place an historic exemplar that may be one of President Obama's most long-lasting impacts. It will also be a giant step towards fulfilling Mr. Jefferson's vision from over 200 years ago.
The key to this revamping lies in a single letter of the office's acronym: putting the "M" back in OMB by fully implementing the CFO Act of 1990 in all Cabinet agencies and strengthening the CFO structure within the agency leadership team accordingly.
A quick examination of the current OMB organizational chart will reveal that there is no CFO for the entire federal government, but there is a federal CTO, CIO, etc. Furthermore, the staffing and resources given to the "controller" pale in comparison to those of the budget examiners organization. The Controller of the United States at OMB is like the Treasurer of the United States. Both have grandiose titles, but no real authority over key management operations or programs. The OMB Controller's Office is so thinly staffed and sparsely resourced that it is severely limited in its ability to function as an effective first among equals within the cabinet CFO community.
While I am impressed by what current OMB Controller Danny Werfel has accomplished despite all the resource and staffing challenges he faces, it is my opinion that the controller should not have to function like a titular controller of a holding company. The controller position should be given the staff, resources and authority to lead, direct and manage federal financial affairs like a real CFO. Establishing these essential keys for leadership will be the first important step toward empowering the federal CFO team to carry out and implement the financial management vision of Thomas Jefferson. In short, empowering the OMB controller to conduct business like the actual CFO of the United States is crucial for putting the "M" back in OMB.
For too long, critical financial management decisions (and the resulting service delivery to the taxpayers) in the government have been made mostly in budgetary context by dedicated professional staff steeped in budget formulation, but not necessarily schooled in overall financial management precepts. The budget process and the professional budget staff throughout the federal government rightfully have very important roles in financial management, and I applaud their contributions over time towards fiscal stewardship. Nonetheless, relying on budgetary process and staff to run the federal government's financial management system is like running a global enterprise on a cash basis and treating the cash manager as the ultimate decision maker on financial matters. I maintain that the budget process and staff should be an important subset of overall CFO operations, not a small engine propelling a substantial operation forward.
I am quite sure many of you will yawn and say, "No news here," or, "What else is new?" I think most former OMB directors have made herculean efforts to try to procure a more balanced OMB by fortifying the "M" of OMB through various initiatives, but without much lasting success. OMB remains a very B-focused organization and the most important levers are under the control of the "B" side.
In addition to the usual difficulties associated with changing government agency culture and rebalancing an entrenched bureaucracy, most past reform attempts and management initiatives to strengthen the "M" of OMB were either too sweeping or overly abstract. While the financial management process as a whole has indeed improved slowly overall, it is still difficult to show any clear tie between these improvements and an enhancement of the quality of government service delivery to average citizens.
Lack of government-wide CFO hampers progress
The absence of a strong government-wide CFO vested with the portfolio mandated by the CFO Act of 1990 may be the most important cause for the failure to directly link any financial management improvements to enhancement of taxpayer service delivery. I frequently use the following "Balloon Story" to illustrate how federal government financial management professionals, especially the CFO, miss the boat on "accurate measurements of success" in carrying out their leadership roles.
There was a man who wanted to see the countryside, so he got into a hot air balloon and floated around enjoying the scenery. Suddenly, he was hit by an unexpected rain storm. After the storm passed and the weather cleared, the man realized that he was hopelessly lost. Anxious to return to his starting point, he lowered his balloon, and much to his delight, he saw a man walking on the ground. He shouted to the man on the ground, "Mister, where am I?"
The man on the ground looked up, thought for a minute, and yelled back, "Sir, you are about 300 feet in the air." Dismayed, the man in the balloon said to the man on the ground, "You must be from OMB or a federal CFO!"
The man on the ground was shocked and asked, "How did you know?" The man in the balloon said, "Because the information you gave me is timely and technically correct, but totally useless!"
Many government financial management initiatives, including past attempts to put the "M" back into OMB, fall into this category. (You should note that this is a fungible story by simply substituting OMB/CFO with another agency or group of people. My years in government service trained me to consider reusability and interoperability all the time.)
My first exposure to federal financial management improvement was "Reform 88" in the '80s, and the battle cry then was to have a standardized general ledger system in the federal government. My most recent involvement in this area was "Getting to Green" on the OMB Scorecard. All of these and many other similar initiatives before, after or in between were serious attempts by various OMB directors to strengthen management and put the "M" back into OMB.
I am very sure that those efforts did not go to waste, but I have yet to see how these programs directly improved the delivery of government services to the taxpayers. It is the practical usefulness question in my balloon story that may merit closer examination by the OMB director and staff before they launch another government-wide management initiative that could consume precious resources.
Some recommendations for new OMB director
To achieve "usefulness" in a practical way, I would like to offer a few near-term solutions to the new OMB director and her staff to consider in order to effect meaningful, enduring results and create long-lasting legacies for the administration:
- Work with Congress to update and fully implement the CFO Act of 1990
- Consider term appointments and term limits for cabinet level CFOs. Eliminate Senate confirmation requirements on all cabinet level CFOs and make these positions into five-year term presidential appointments with no option for renewal in the same position.
- Consider Appointment Portability - require all incoming CFO appointees with no prior federal financial management experience to start with smaller departments first. After establishing their expertise on the job within the first two years, they will be rotated to larger agencies, with DoD, State, and Treasury being the "brass rings." There should be no requirements to go through the entire time- consuming and tedious presidential appointment process/vetting (PPO paperwork) nor redundant security clearances if a CFO is being rotated.
- Create a presidentially-appointed "Former Cabinet Level CFO Council" and invite those former CFOs who received an "honorable discharge" to serve as trusted advisors and sounding boards to incumbent CFO appointees. Certain ethics and conflict of interest provisions would be necessary so as not to repeat DoD mentor issues (where retired generals working for DoD contractors return to the Pentagon at very high compensation to coach current generals).
- Vest each CFO with all the portfolio requirements under the CFO Act of 1990 and standardize accountability across all agencies for incumbent CFOs.
- Training and professional education
- Improve skill-set training and certification for career financial management staff by rewarding those who engage in continuing education and self-improvement programs.
- Require independent skill-set testing and certification for all financial management staff from GS-5 through GS-15 in the various accounting and budget core functions. Not every financial management job in the government requires a college education. Nevertheless, every position in the financial management arena should require a reliable independent assessment of essential skill sets.
- Provide flexible online continuing education training opportunities (distance learning and webinars) to all agency CFO staff to maintain and improve their relevant skill sets. Competent commercial entities providing these services should be invited to partner with the government to facilitate such continuing education endeavors.
- Create standardized agency financial performance metrics to track
improvement, progress and identify high performing CFOs.
- ZBB (Zero Based Budgeting), TQM (Total Quality Management), Reform 88, ReInvention of Government, and Getting to Green were all wonderful ideas, but ended up like sand castles on the beach. Focus should be on smaller but enduring metrics that have no political taint or fads. Tracking and improving erroneous payments is an example of a more focused and aggressive offset program (matching who owes the federal government to what is being paid and withholding government payments to offset collection) that could do wonders for the national debt and provide funds to deliver critical taxpayer services.
- Increase the use of data analytics and big data technology to root out fraud and abuses in various entitlement and benefit programs. Expand the use of forensic accounting to detect waste and abuses in financial resource deployments. Place more emphasis on leading edge data analytics because an ounce of prevention is infinitely more cost-effective than a pound of cure.
- Embrace market place technologies to enable decision makers to have access to instant USEFUL data that's already in their agency financial system. The extensive utilization of electronic tablets (such as iPads) by senior agency financial management decision makers could drastically improve their leadership and decision-making capacity.
None of these are new or radical ideas. Some have been debated and tried with limited success but, by and large, many of them lost their places on the front page as leadership became distracted by other national events such as 9/11 and the ensuing war on terror, two wars in the Middle East and the Great Recession.
The country is now well on its way to putting all these interruptions behind us, and since the Obama administration no longer needs to be concerned with re-election, this is the ideal time to lay the foundation for a lasting legacy in the financial management arena. This foundation can begin with the few small bricks outlined above. Some may require congressional support while others can be mandated by internal edict.
We all have a responsibility toward our next generation to leave them an effective financial management structure as well a good set of books. There is no one else we can pass the buck to, so the time to act is now.
Mok's column is part of Federal News Radio's special report, Rise of the Money People.
Samuel Tinsing Mok is the managing member of Condor International Advisors, LLC, a Washington, D.C.-based management consulting firm providing business relationship management and advisory services in the U.S. and China. He served as the chief financial officer of the Labor Department from 2001-2007. Previously, he served as the comptroller and CFO of the Treasury Department. He was also commissioned as a U.S. Foreign Service Officer and captain in the U.S. Army.