20 years later, CFO Act needs some freshening up

Monday - 9/19/2011, 2:59pm EDT

Congress must standardize the role of the federal chief financial officer and give deputy CFOs more clout to make up for time between political appointments of CFOs.

These are two of the recommendations from a multi-agency review of the impact and shortcomings of the CFO Act of 1990. Congress required the analysis as part of the Improper Payments Elimination and Recovery Act of 2010.

"Over the past 20 years, the CFO Act has played a pivotal role in improving financial accountability and transparency across the federal government," wrote Danny Werfel, the Office of Management and Budget controller in a blog post. "The report highlights several benefits of the CFO Act, including the increased transparency, greater accountability and significant improvements in financial management and internal controls achieved in recent years. Last year, these strides contributed to 21 out of the 24 CFO Act agencies obtaining unqualified 'Clean' opinions on their financial statement audits--only the second time in the last decade that the government reached that milestone."

The CFO Act helped agencies strengthen financial controls and processes over the last 20 years. Previously, the report stated financial operations were ineffective and inefficient, weak internal controls left resources at risk, personnel were not adequately trained and financial systems could not communicate with each other and were often redundant. The report said fund balances with the Department of the Treasury were reconciled inconsistently, and the government had difficulty managing its assets and costs. The lack of a full-time centralized senior official overseeing agency funding also caused agencies problems prior to the act.

"A byproduct of the act's success is the enhanced collaboration between the financial management community and the government oversight communities," the report stated. "The act has strengthened the relationships between these communities significantly over the last 20 years, as CFOs, IGs, and the GAO have shared responsibility for monitoring and safeguarding resources."

But one of the big holes the review group found was the lack of continuity among agency financial leaders since most CFOs are political appointees.

The review group recommended to Congress to give deputy CFOs the same breadth of responsibilities as the CFOs.

"With frequent CFO turnover and often lengthy intervals between official appointments, financial management organizations may lack long-term planning and leadership continuity because career deputy CFOs often do not have the same breadth of responsibilities and broad oversight as their principals," the report stated. "To help ensure effective succession planning, deputy CFOs should be sufficiently empowered, with a more standardized and consistent range of responsibilities, to continue financial management initiatives and improvements in the absence of political leadership, which could include broadening their statutory responsibilities to match those of the CFO."

At the same time, the report recommended CFOs have a standard job description as it relates to leadership responsibilities for budget formulation and execution, planning, performance, risk management internal controls financial systems and accounting.

"This would enable the person in the CFO role to be responsible for the funding lifecycle, allowing for better strategic decision-making and operational oversight," the reported stated. "Consolidation of these functions into every CFO's portfolio would provide the CFO information and insights akin to that of a chief risk officer, thereby positioning the CFO to better identify business risks across agency programs by having the full set of data and analysis this portfolio provides."

The other major recommendation from the review group is to update the federal financial reporting model. This also was one of the recommendations by CFOs in a recent survey by Grant Thornton and the Association of Government Accountants.

The review group found more people-program managers, lawmakers, media and the general public-are interested in financial data than ever before. Therefore, the data model needs to be updated to meet the varied needs.

"In addition to meeting its current requirements, the CFO community should leverage the information that it produces and focus more proactively on managing risks, accomplishing goals, and devising strategies for managing data," the report stated. "Such an approach would allow the CFOs to add greater value across their department or agency by supporting the leadership and program management with relevant and useful information. Further, CFOs could promote more meaningful communication to stakeholders and a more complete understanding of financial management information as it relates to the agency's mission."

Werfel said while the federal community has not fully agreed with these three recommendations, each deserves consideration as the CFO Community and others improve how they meet their mission.

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