2:17 am, April 20, 2014

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  • Is Dan Blair right?
    Christopher Hanks
    In his interview, Dan Blair, the Deputy DODIG for Audit, says: "The goal of the CFO Act wasn't just to get clean opinions on your financial statements. The goal was to provide reliable data to managers and decision makers on a daily basis. If you're doing things just to get a clean opinion, you're really falling short of some of the benefits you can obtain through improved financial management processes." But will the "improved financial management processes" it will take for DOD to get clean audit opinions on its financial statements really produce any other "benefits" for DOD besides the opinions themselves? Well, yes and no. Yes, if the statements are Statements of Budgetary Resources (SBRs - which relate to BUDGETARY accounting and are not required by the CFO Act of 1990; they only became required by OMB in 1998); but no, if the statements are the private-sector-style Balance Sheets and Income Statements required by the CFO Act. After taking office as DOD Comptroller in 2009, Robert Hale redirected the DOD's attention AWAY from the production of audit-ready balance sheets & income statements and TOWARDS the production of audit-ready SBRs. He did that because he knew the pursuit of the latter was more likely to produce management benefits for the Department than the former. Mr. Hale's confidence has been borne out by the experience of the Marines and the Navy, which have found that the pursuit of clean SBRs has had the side benefit of improving the control and management of Obligation Authority in execution. But regarding the pursuit of clean balance sheets and income statements, the FM community has known for some time that there are really no other "benefits" to be gained besides the "opinions" themselves. For example, in 2008 the Association for Government Accountants (AGA) surveyed 239 financial managers across the government (including at DOD) to obtain their views on the pros and cons of continuing the pursuit of CFO-style balance sheets and income statements. The second sentence in the AGA report's Executive Summary sums up the FM community sentiment in 2008: "Designed for industry, the current financial reporting model costs too much and delivers little useful information to government decision makers" - and the respondents called for change in federal accounting and auditing standards to make them "more relevant to the business, goals, and purpose of government." Indeed, one particularly memorable statement quoted in the AGA report, made by a respondent whose agency had achieved clean opinions on its financial statements, was: "We're getting A's on our tests but not learning anything." So Mr. Blair is right, but it would have been helpful if he had distinguished between SBRs on the one hand (and the good BUDGETARY ACCOUNTING practices needed to produce them) and, on the other, balance sheets & income statements (and the private-sectors-style FINANCIAL ACCOUNTING practices needed to produce them). [The AGA report is available at: http://www.grantthornton.com/staticfiles/GTCom/files/GT_AGASurvey2008.pdf ]
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