CFOs say federal financial model no longer useful

Wednesday - 7/13/2011, 7:21am EDT

Federal News Radio's Jason Miller

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By Jason Miller
Executive Editor
Federal News Radio

ATLANTA--Federal chief financial officers overwhelmingly say it's time to relook at the model agencies use to report spending data.

As agencies continue to feel the pressure of tighter budgets, CFOs have a host of ideas for making the financial statements more valuable.

In the 16th annual CFO survey sponsored by the Association of Government Accountants and Grant Thornton, 89 percent of the CFOs said the financial reporting model produced information that is not relevant.

Instead, CFOs suggested the model focus on spending and costs, break information down by projects and programs, add more risk management information and integrate performance results with financial data in a single statement.

"I believe the fundamental reason is this big concern about perceived lack of value and not having at the federal level, at least, not havingstakeholders that really care about a balance sheet in the way of assessing inventory or knowing what assets and liabilities are," said Clif Williams, a partner with Grant Thornton and the lead on the CFO Survey. "And clearly the combination of them saying they have so many other reporting needs, I really do want to add value to those that deliver the programs this set of reports in the financial reporting model aren't doing that."

Respondents also suggested conducting a full audit every two years if the agency has a history of clean audit opinions. "There were some exceptions to this longer period, such as when an entity implements a new financial system or processes or restructures its organization," the report stated.

The CFOs' discontent with the federal financial reporting model increased from 34 percent in 2009, when AGA and Grant Thornton published the most recent previous survey.

For the 2011 survey, AGA and Grant Thornton asked 1,385 U.S. federal, state and local as well as Canadian government financial managers a series of questions. Of the 1,385 respondents, AGA and Grant Thornton talked to 152 federal executives in person and another almost 400 electronically.

"Several things stood out this year that I didn't see from previous years and maybe some updates to previous year issues," he said. "The first one and foremost was the concern about dealing with less resources. Clearly there is a concern in the community not just about delivering programs, but within the CFO family how do they do what they need to do? The motto this year became how do they do less with less in the way of resources?"

He said there also is lot of initial interest following in the footsteps of the Recovery and Accountability Transparency Board to use predictive analysis on financial data.

"With the budget cuts, with the restraints on the amount of people you can hire and the skills of the people, business intelligence in some form, using data mining and other kinds of statistical analytics to really help you set the stage for good things to happen and prevent bad things from happening, which is typically where the predictive analytics have been placed to date, have become more and more popular for people to stick their toe in the water and understand," Williams said.

The survey said CFOs want to use these tools to figure out where money is going to prevent improper payments or help predict the future in terms of spending needs.

He said the Recovery Board's success in using these tools have proved their potential, and now agencies want to follow suit.

To use predictive analysis tools agencies must better understand how to define what predictive analysis is, who has the skills to do this work and whether the technology available can meet their needs.

Respondents make several recommendations to better incorporate predictive analysis, including:

  • Strive to integrate financial and nonfinancial analytics, such as associating costs with business process options or combining budget and performance data.

  • Start getting involved in nonfinancial analytics, for example by offering financial skills and testing data for accuracy.

  • Join improvement teams such as for Lean, Six Sigma and business process reengineering (such teams make heavy use of analytic approaches and tools).

  • Establish disciplined processes to capture and integrate more timely and realistic project cost estimating and monitoring.

Williams said the survey shows that CFOs recognize they have an opportunity to upgrade how they present and use financial data.

"They do know more than ever they have to better set priorities. It's not just a matter of doing everything and more with less," Williams said. "It really is a matter of doing less with less and setting priorities so the most important things get done and get done well with the least amount of resources. They understand the transition has to happen, they can't just be data collectors, but an entity within an organization that does data analytics, that really makes the efficiency and effectiveness of program delivery really happen."

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