Second Annual Report on Emerging Issues in Government Financial

Second Annual Report on Emerging Issues in Government Financial Management White Paper on Proceedings of the Forum Held in Conjunction With the AGA National Leadership Conference February 18, 2009 EMERGING ISSUES FORUM Table of Contents Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Session I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Interim Session . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Session II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Biographies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 Acknowledgements AGA graciously thanks its sponsor, Kearney & Company, for helping to make this event possible. In addition to a financial contribution, Kearney & Company volunteers helped develop the White Paper. AGA Emerging Issues Committee • • • • • • • • • • • • • David M. Zavada, CPA, Partner, Kearney & Company, Chair Doug M. Bennett, CGFM, Director, Financial Operations, Broadcasting Board of Governors Anna F. Dixon, Senior Managing Consultant, IBM Global Business Services Jeanette M. Franzel, CGFM, CPA, Managing Director, Financial Management and Assurance, U.S. Government Accountability Office Philip J. Giza, MBA, CGFM, Senior Financial Manager, U.S. Department of Health and Human Services Adam Goldberg, Chief, Financial Analysis and Systems Branch, U.S. Office of Management and Budget David R. Hancox, CGFM, CIA, Audit Director, Office of the State Comptroller, State of New York Thomas F. McCarty, CGFM-Retired Anthony H. Rainey, Fiscal Officer, Commodities Futures Exchange Commission Michael T. Smokovich, MS, CGFM, Independent Consultant Robert Tuccillo, Associate Administrator for Budget and Policy, Chief Financial Officer, Federal Transit Administration, U.S. Department of Transportation Anna D. Gowans Miller, MBA, CPA, Director of Research, AGA Relmond P. Van Daniker, DBA, CPA, Executive Director, AGA AGA 2208 Mount Vernon Avenue Alexandria, VA 22301-1314 TF: 800.AGA.7211 PH: 703.684.6931 FX: 703.548.9367 www.agacgfm.org 2 A Report on Emerging Issues in Government Financial Management EMERGING ISSUES FORUM AGA Forum: Information and Accountability that Make a Difference February 18, 2009 | 1 – 5 p.m. | Ronald Reagan Building, Washington, D.C. | Rotunda, 8th Floor PROGRAM Opening Remarks David M. Zavada, CPA, Chair, AGA Emerging Issues Committee, Partner, Kearney & Company 1 – 2:30 p.m. Session A (General Session) Ensuring Accountability and Driving Change The accountability profession is positioned to drive better program management and accountability by proactively identifying vulnerabilities to avoid fraud, waste and abuse in government programs. This session will discuss emerging practices that focus on identifying risk areas before problems occur. Moderator: Jeanette M. Franzel, CGFM, CPA, Managing Director, Financial Management and Assurance U.S. Government Accountability Office AGA Emerging Issues Committee David M. Zavada, CPA Partner, Kearney & Company Doug Bennett, CGFM Director, Financial Operations, Broadcasting Board of Governors Anna Dixon Senior Managing Consultant, IBM Global Business Services Jeanette Franzel, CGFM, CPA Managing Director, U.S. Government Accountability Office Philip Giza, CGFM, MBA Senior Financial Manager, U.S. Department of Health & Human Services Adam Goldberg Chief, Financial Analysis and Systems, U.S. Office of Management and Budget David Hancox, CGFM, CIA Audit Director, Office of the State Comptroller, State of New York Thomas McCarty, CGFM-Retired Anthony Rainey Former CFO, District of Columbia Courts Michael T. Smokovich, CGFM, MS Independent Consultant Robert Tuccillo CFO, Federal Transit Administration Anna Miller, MBA, CPA Director of Research, AGA Relmond Van Daniker, DBA, CPA Executive Director, AGA Speakers: David R. Hancox, CGFM, CIA, Director, Division of State Government Accountability, New York State Comptroller’s Office Matthew A. Jadacki, CGFM, CPA, Deputy Inspector General, Disaster Assistance Oversight, Office of Inspector General, Department of Homeland Security 3 – 3:30 p.m. Interim Session: AGA Research Report Overview—Procuring Audit Services in Government: A Practical Guide to Making the Right Decision Speaker: Speaker: Jeffrey C. Steinhoff, CGFM, CPA, CFE, Director, KPMG LLP; AGA Past National President 3:30 – 5 p.m. Expanding Management Information and Reporting Much financial management effort and focus has been on ensuring that systems, controls and other disciplines generate timely and accurate financial statements, but how can financial and other performance information be better used to manage programs and demonstrate transparency and accountability? This session will focus on emerging practices for developing and reporting financial and program performance information. Moderator: David M. Zavada, CPA, Partner, Kearney & Company Speakers: Al Runnels, Deputy Chief Financial Officer, U.S. Department of the Treasury Eugene H. Schied, Assistant Commissioner, Office of Finance and Chief Financial Officer, Customs and Border Protection, U.S. Department of Homeland Security Robert J. Tuccillo, Associate Administrator for Budget and Policy, Chief Financial Officer, Federal Transit Administration U.S. Department of Transportation Thomas J. Sadowski, CGFM, CPA, Auditor III, Department of Revenue, State of Missouri; AGA Past National President, AGA Past National Treasurer Closing Remarks David M. Zavada, CPA, Chair, AGA Emerging Issues Committee; Partner, Kearney & Company 5 – 6:30 p.m. Reception — Sponsored by Kearney & Company June 2009 3 EMERGING ISSUES FORUM Session Overview and Program On February 18, 2008, The Association of Government Accountants (AGA) held a forum on Emerging Issues in Government Financial Management, in the Ronald Reagan Building, Washington, D.C. The program consisted of two general sessions and an interim session, followed by a networking reception. David M. Zavada, CPA, AGA Emerging Issues Committee Chair, gave the opening remarks and Relmond P. Van Daniker, DBA, CPA, Executive Director, AGA, gave the closing remarks. The program is reproduced on the previous page. situation where the federal government is implementing large financial stimulus programs. Matthew A. Jadacki, CGFM, CPA, Deputy Inspector General, Disaster Assistance Oversight, Office of Inspector General, Department of Homeland Security Jadacki drew upon experience his office has had in the area of disaster oversight. In this area there has been an ongoing need for real-time oversight and early auditor involvement along with adequate training and capacity of grantees to adequately comply with and account for the federal disaster funds they receive. This need is exacerbated by the unpredictability of disasters and the expediency with which relief funds are needed. These circumstances often place expediency in opposition to good internal control. The risk associated with disaster relief was played out in the government’s response to Hurricane Katrina. To provide oversight of disaster relief, the DHS OIG created the Office of Disaster Assistance Oversight to not only audit past activity, but also to focus on prevention and preparedness in its oversight programs. With respect to earlier involvement by auditors, Jadacki emphasized that the DHS IG Office personnel get involved quickly at the onset of a disaster. They don’t wait around for a year to go in and do an audit; they get in immediately. They advise on audit issues and give management advice to people in the field, and provide immediate feedback to DHS. One example is the OIG’s involvement in DHS’s Emergency Management Operation Team (EMOT). This was created because of Hurricane Katrina, but later evolved to take in FEMA disaster response and mitigation planning. EMOT has a concept of operations. It provides IG staff with an understanding of the objectives and recognizes the principles of NIMS/ICS required by all federal agencies. He described the approach that EMOT uses: • Identify highest priority and highest risk situations. • Analyze actions being considered. • Document actions taken. • Evaluate and summarize results of action. At any time during steps two through four they can advise, as they deem necessary. After Hurricane Katrina, the decision was made to drop a lot of the controls, and the IGs began to get involved early in order to stop money going out the door, rather than trying to get it back later. Now they issue Advisory Reports providing advice and counsel, and document things while they exist. In April 2008 the DHS also set up a Forensic Audit Team (FAT). The FAT is composed of investigators, auditors and analysts. Forensic auditors identify and investigate high-risk areas such as: • High-dollar expenditures • Weak internal controls • Programs/projects historically prone to fraud. Introduction The AGA Emerging Issues Committee is charged with identifying and publicizing issues and topics that are on the horizon for the financial management community. The committee has held annual forums to more widely discuss these issues and at the same time get feedback from the community about how to address issues. The chair of the Emerging Issues Committee, David M. Zavada from Kearney & Company, opened the proceedings. He provided a short background on the Emerging Issues Committee and the objectives of the forum. Zavada explained that the Emerging Issues Forum was kicked off last year as a way to share and coalesce thinking around a common set of emerging issues in federal financial management. He noted that much has changed over the last year affecting government, the economy and federal financial management. He also noted that many of the issues our committee thought were emerging just a few months ago have been overtaken by new issues related to implementing the financial stabilization legislation, the financial stimulus and new transparency initiatives. These issues will dominate the financial management agenda over the next year. Session I—Ensuring Accountability and Driving Change Executive Summary: Session I focused on accountability and oversight—specifically, how proactive oversight programs can be used to drive management change. It dealt with moving away from a traditional auditing model of reviewing historical information to a more dynamic model where intervention occurs sooner through reviews of data, assessments of capacity and risks, and greater collaboration and information sharing. Both speakers emphasized the need for the accountability community to change its traditional approach. Central themes from both speakers emerged, including: earlier involvement by auditors in management actions, importance of the control environment and management capacity as indicators of risk, use of greater data mining and analysis techniques, program knowledge of auditors, and the need for collaboration within the accountability community. The moderator, Jeanette Franzel, CGFM, CPA, introduced the speakers in the order in which they spoke, Matt Jadacki, CGFM, CPA, and David Hancox, CGFM, CIA. Franzel introduced the session by discussing the need for, and importance of, strong oversight, and related this to the current 4 A Report on Emerging Issues in Government Financial Management EMERGING ISSUES FORUM Jadacki listed some fraud indicators: Overuse of urgent justifications. Use of designated unique sources/sole sources. Vague statement of work. Identical typos, math errors, handwriting, and/or typeface. • Inconsistent variations in data. The FAT focuses on data mining techniques to address these indicators. The current areas they are focusing on are immigration applications and fees, disaster benefit disbursements, grants and procurement. In the citizenship and immigration area they look at biometric and biographical data, and in Customs and Border Protection (CBP) they look at the accuracy of the import fee refunds and drawbacks. Jadacki then discussed the Disaster Recovery Working Group (DRWG), and the need for collaboration within the accountability community. The DRWG has an Information Sharing Subgroup, which works collaboratively to promote timely computer matching by federal IGs to improve efficiency and efficacy. He then discussed the next steps he thought were important: collaboration on criminal and administrative restrictions, and the ability to provide FEMA staff and management with a resource to which they could forward suspect incidents of fraud. He mentioned the Department of Justice’s National Center for Disaster Fraud (DoJ NCDF), and noted that DHS collaborates with more than 20 federal agencies, including the FBI, on criminal investigations regarding fraud, waste and abuse or allegations of mismanagement involving disaster relief operations. Jadacki then described a burgeoning issue, that of computer matching. The Computer Matching and Privacy Protection Act (CMPPA) of 1988 (P.L. 100-503) as amended added procedural requirements that agencies must follow when matching electronic databases, such as formal matching agreements between agencies. The absence of such agreements forced the Katrina Fraud Task Force to rely on manual record searches to detect improper payments and fraud. The next step, in his opinion, was to ensure that the FEMA fraud prevention would be able to use data available not just from FEMA, but from other agencies. DHS also wants to enhance OIG authority for computer matching (GAO already has it), that is, the computerized comparison of automated systems of records or databases can be used to detect and mitigate improper payments. Computer matching is less intrusive on privacy than manual review because criteria can be established to review only relevant records and ignore others. The DRWG Information Sharing Subgroup developed and presented a white paper to propose a legislative change to the CMPPA to the President’s Council on Integrity and Efficiency (PCIE), who subsequently endorsed it, and the issue was presented to Congress in 2008. Collaboration and agency cooperation is vital to proactively identify, impede and prevent fraud, waste and abuse. Establishing capacity and expertise to detect fraud error and abuse in federal benefit programs is essential. • • • • Jadacki worried that the computer matching issue will be a problem with the stimulus package. Many small towns, with no audit departments, will be getting millions of dollars. The stovepipes mean that there is no access to HUD data at DHS, because of privacy act issues. GAO, in its reviews afterward, did the computer matching easily, because it is exempt from the privacy act. Local law enforcement wanted information, and DHS could not give it to them. It is critical that the different federal agencies talk to each other and share information with the stimulus funding once the money from the stimulus package starts flowing out to the states and other recipients, he said. David R. Hancox, CGFM, CIA, Director, Division of State Government Accountability, State Comptroller’s Office, State of New York Hancox has written extensively on the importance of the control environment and how many frauds can be traced back to control environment deficiencies. The control environment is essentially the tone at the top of the organization, and includes the organization’s commitment to ethics, clear communication of policies and procedures, and acquiring the right skills and training. Since the control environment is less tangible in its composition, auditors may be reluctant to identify and justify problems. In many cases, instances of fraud have never been exposed because of policies and procedures. This highlights the importance of the control environment and management capacity as indicators of risk. Often auditors focus on the wrong things—the easy things—such as procedures and processes. But fraud is also committed at the upper levels. Procedures and processes occur at the staff level, which is where most of the auditors’ efforts are focused. They spend time looking at the transactions, for example, purchase requests, and ignore the bigger picture. We are not properly assessing internal controls. If we look at the five components of the Committee of Sponsoring Organizations (COSO) framework, we are spending too much time on two of them—control activities and monitoring—and not enough time on the control environment, competence and ethics. It always comes back to the control environment, he said. The problem is that the control environment is subjective; it is difficult to question ethics when one questions people. The major influences on the control environment are management’s attitude, philosophy, operating style, the ethics and integrity of the people in the organization, and the competence of the people. The control environment is the foundation of all other control components. Auditors shy away from this component because it is more subjective, but most large organization frauds can be traced to the control environment. The complexity of today’s organization creates challenges in understanding what to do, and necessitates greater use of data mining and analysis techniques. Technology drives most organizations, and is constantly changing; it is difficult for auditors to keep up-to-date. Understanding data will enable us to move beyond examining individual transactions. June 2009 5 EMERGING ISSUES FORUM Research Advisory Group The following individuals served on an expert advisory group to the project researcher, Jeffrey C. Steinhoff, CGFM, CPA, CFE, who in January 2009 became a Director in the Federal Advisory Services practice of KPMG LLP. Before his retirement from government in January 2008, after 40 years of federal service, Mr. Steinhoff served as Managing Director for Financial Management and Assurance at GAO, which included leadership of GAO’s largest audit unit and the responsibility for the development of GAGAS. WA “Bill” Broadus Jr., CGFM, CPA, President, W.A. Broadus Jr., CPA, P.C.; AGA Past National President Robert F. Dacey, JD, CGFM, CPA, Chief Accountant, U.S Government Accountability Office Adam H. Goldberg, MPA, Chief, Financial Analysis and Systems Branch, Office of Federal Financial Management, U.S. Office of Management and Budget Elliot P. Lewis, CPA, Assistant Inspector General for Audit, U.S. Department of Labor Sam M. McCall, Ph.D., CGFM, CPA, CIA, City Auditor, City of Tallahassee, Florida; AGA Past National President David P. Smith, CPA Harold I. Steinberg, CGFM, CPA, Member, Federal Accounting Standards Advisory Board and Retired Deputy Controller, Office of Federal Financial Management, U.S. Office of Management and Budget, and Partner, KPMG James L. Taylor, MPA, Principal Deputy Inspector General, U.S. Department of Homeland Security David M. Zavada, MPA, CPA, Partner, Kearney & Company Julia Duquette, CPA, Principal, Kearney & Company Jeffrey W. Green, CGFM, CPA, Senior Partner, Kearney & Company Hancox then gave examples of audits in which 50 transactions are pulled for testing. This indicates that we are not keeping up to date with technology. We need to move beyond identifying individual transactions. We need to look at the total population, and to look at trends and outliers. We need statisticians doing data mining, and we need to integrate this data processing into our day-to-day activities. Documentary evidence has limited value today because of advances in technology. Color copiers, color printers, Internet access to corporate logos, scanners and software enable anyone to duplicate or alter original documents. In most frauds documents support the transactions. They are phony documents, but they are there. We need to become better experts in data analysis, better able to use the data systems that exist, and to actually use them, he said. Hancox gave an example of a fraud discovered in New York State that had all the necessary documentation. The fraudulent activity was uncovered by looking at patterns—too many transaction amounts were rounded to the dollar. Most valid transactions do not exhibit such rounding. Interim Session—Research Report Overview This session highlighted a recently completed AGA research report, Procuring Audit Services in Government: A Practical Guide to Making the Right Decision. The research was sponsored by Corporate Partner Kearney & Co., and conducted by Jeffrey C. Steinhoff, CGFM, CPA, CFE. Steinhoff thanked the Research Advisory Group for helping direct the progress of the research and discussed its objectives, methodology and findings. Government program and procurement officials routinely procure services to support agency missions and operations. In the case of audits, it is important that acquisition decisions be informed by a clear understanding of the distinction between audits and other evaluative services. This research paper, which is written as a guide, seeks to clarify for the non-auditor exactly what an audit entails, the professional standards followed, who can perform an audit, the value derived from an audit, and the standards and oversight to which government auditors and independent public accountants (hereinafter referred to as CPA firms) are subject to when performing government audits. Many decisions must be made in procuring professional services, such as audits and attestation engagements, internal control reviews, computer security assessments, cost benefit studies, alternatives analysis, actuarial studies, forensic reviews, cost estimating and investigations. In some cases, the distinctions among these services are evident. But that is not always the case, and the term “audit” is sometimes used to describe evaluative services that may not in fact be an audit. The term “audit” is so widely used in our society that assessing whether your home or business is energy efficient is commonly called an energy audit. This can make it difficult for non-auditors to understand the differences. While the term “audit” has broad meaning, in this research paper it is used in the manner intended in 6 A Report on Emerging Issues in Government Financial Management EMERGING ISSUES FORUM Government Auditing Standards (commonly referred to as GAGAS), which is issued by the U.S. Government Accountability Office (GAO). In short, in government an audit is an engagement performed by an independent auditor that adheres to all the requirements of GAGAS. These standards include (1) ethical principles, (2) general standards, such as auditor independence, competence, and quality control and assurance, and (3) field work and reporting standards, such as the standards of the American Institute of Certified Public Accountants (AICPA) for financial audits and attestation engagements and the requirement to obtain sufficient, appropriate evidence. GAGAS covers a broad range of engagements, from the audit of the financial statements to an audit of the performance of a program or operation to the performance of specific agreed-to procedures. GAGAS requires professional rigor and the application of specialized skills when performing an engagement. For all intents and purposes, GAGAS can only be met by (1) an independent government auditor, such as GAO, a Federal Inspector General (IG), an appointed or elected state or local auditor or a government internal audit organization or (2) a CPA firm. Government auditors and CPA firms are subject to oversight of their work through external peer review. Government auditors are also subject to oversight by legislative and/or government regulatory bodies. The work of CPA firms is also subject to regulatory oversight from state licensing boards. Whether government auditors or CPA firms, the auditing profession is characterized by independence and a dedication to providing high-quality professional work that is subject to strong ethical requirements and grounded in rigorous professional standards. The requirement to adhere to rigorous professional standards in performing an engagement, along with a legal and regulatory oversight structure governing the performance of the work, are what distinguish audits and attestation engagements from other types of evaluative engagements. The goal of this guide is to help government managers make the right decision when procuring audit services. The guide provides a resource to help non-auditors understand the distinction between audit and other professional services that have an evaluative nature. Readers will have a better understanding of what they are buying when they procure an audit. They will know the differences between types of engagements provided by auditors and between audits and non-audit evaluative services. They will learn that audit organizations also provide non-audit services and how they differ from audit engagements performed in accordance with GAGAS. Readers will also know what they may not be getting when they procure a non-audit evaluative service or consulting engagement. Deciding whether an audit is needed can be a difficult decision. In some cases, a management objective can be satisfied by either a performance audit under GAGAS or a consulting engagement. The guide begins by discussing why you would want an audit and providing a decision model for procuring audit services. The guide then provides greater context around the decision model by discussing the: • Standards that govern government audits. • Differences among financial audits, attest engagements and performance audits as defined by GAGAS. • Differences between audits and other professional services of an evaluative nature. • Provision of non-audit services by auditors under GAGAS. The guide then provides final thoughts by highlighting ten basic principles to use in determining whether and what type of audit or non-audit evaluative service would best meet an entity’s needs. This independent AGA research study was made possible through the sponsorship of AGA’s corporate partner, Kearney & Company. The resulting research product, Procuring Audit Services in Government: A Practical Guide to Making the Right Decision, represents the work of the researcher, Jeffrey C. Steinhoff. The views are those of the author, and are not necessarily the views of AGA or his current employer, KPMG. The report is available online at: www.agacgfm.org/research/ downloads/CPAG19.pdf. Session II—Expanding Management Information and Reporting Executive Summary: Session II focused on emerging financial information needs and uses in federal and state government. The speakers discussed varying types of information they were currently developing and reporting within their agencies and externally to the public. The discussion ranged from financial and performance information currently included in Performance and Accountability Reports (PARs) to detailed transaction-level financial information being reported by some state governments. The speakers addressed what they felt were important informational needs for decision-making and accountability, and assessed the impact of the Federal Financial Accountability and Transparency Act of 2003 (FFATA) and the anticipated transparency requirements related to the very recently passed American Recovery and Reinvestment Act of 2009. The moderator, David M. Zavada, CPA, provided the introduction, emphasizing that there is a pressing need for financial information in addition to financial statements to support management decisions and more fully demonstrate accountability. Significant investments have been made in developing internal controls and audit processes to support reliable and timely financial statements. While there are underlying benefits, demand is growing for other types and formats of financial information. Three CFOs each provided their own perspective on this issue. June 2009 7 EMERGING ISSUES FORUM Al Runnels, Deputy Chief Financial Officer, U.S. Department of the Treasury Runnels discussed various aspects of Management Information and Reporting in the Department of the Treasury: Performance and Accountability Reporting (PAR) Content, the Financial Stabilization Program and Transparency. He emphasized the extensive range of informational content contained in the Treasury PAR. However, while this information is interesting to certain users, the report is not broadly read. The contents of the PAR include: • Summary of Performance by Strategic Goal Areas • Treasury Financial and Program Performance Indicators/Trends • Treasury Key Initiatives • Management Challenges • Summary of Management Challenges and High Risk Areas • Auditor’s Report • Secretary’s Annual Assurance Statement, Material Weaknesses, and Audit Follow-up Information • Annual Performance Report (Strategic Objectives, Performance Measures, Outcomes, and Analysis) • Inspector General Memos to the Treasury Secretary on Management and Performance Challenges • Detailed Performance Metrics Summary. He then discussed the Treasury’s Financial Stabilization Program and the level of transparency and accountability associated with the program. This is a case study in crisis management, in which program directors are designing, developing and executing a program; responding to various stakeholders; and also standing up their office and putting resources in place to accomplish the program. He discussed the important and far-reaching objectives: stabilization of financial markets, supporting the housing market and protecting taxpayers. From a transparency viewpoint, he also mentioned the wealth of information which has been provided to the public for review on the Treasury Financial Stabilization website, including descriptions of each program announced thus far and a detailed listing of all of the transactions included in the Capital Purchase Program. He also alluded to the robust reporting requirements, including tranche reports for each $50 billion of TARP expenditures and auditable financial statements, included in the Emergency Economic Stabilization Act legislation. In addition to the reporting of this information, considerable oversight from GAO, Congress and the Financial Stability Oversight Board is in place. Runnels stated that in his view, the public is mostly interested in information that answers questions such as: • How much money are you spending? • What are you spending it on? • What results are you getting? • How much is going to loans and grants? • How much is going out under contracts? Runnels concluded by stating that he believes Treasury will leverage the activities and insights involved in the department’s execution of the Emergency Economic Stabilization Act and the Recovery Act toward other departmental operations, from the viewpoints of transparency, accountability, financial reporting and risk management. Eugene Schied, Assistant Commissioner, Office of Finance and Chief Financial Officer, Customs and Border Protection, U.S. Department of Homeland Security Schied delivered a presentation on Financial Information—Making It Matter from the point of view of Customs and Border Protection (CBP). His presentation addressed the information needs of internal clients rather than external clients. Managers providing information to leadership need to make it actionable and useful. Schied provided background on CBP: • Mission—border security and trade facilitation • About 53,000 employees, mostly in three branches – Border Patrol – Field Operations – Air and Marine Operations • 327 Ports of Entry, 174 Border Patrol stations and checkpoints, 43 Air Units, 31 Marine Units • Over 100,000 miles of border/shoreline • Pedestrians and passengers processed: 400 million • Revenue collected: $34.5 billion • Narcotics seized: 3.1 million pounds • Alien apprehensions/interdictions: 948,000 • Consolidated budgetary resource obligations for 2008: $14.6 billion CBP’s financial capabilities: • CBP implemented an Integrated Accounting/ Budget/Property/Procurement system in 2004 • One Version of the “Truth.” Integrated system, no batch updates, minimal reconciliation • All Purchase Requests, Orders, Receipt & Acceptance and Payment are generated in the system • Clean CBP Stand Alone Audit Opinions since 2006 (Balance Sheet only in 2005) CBP collects customs-related revenue. The government also imposes extra duties on certain imports and gives dollars to the domestic producers who are being harmed by dumping. Both of these processes receive a lot of scrutiny from stakeholders. CBP posts the distribution of dollars in this program on the Internet, and because it is a zero-sum game, domestic producers police the list looking for and reporting potential fraud. Schied then discussed the systems control and analysis capabilities. With all the requirements and demand for timely and accurate financial information, CBP relies heavily on this capability. 8 AGA Leadership Handbook for National, Regional & Chapter Leaders EMERGING ISSUES FORUM Considerable financial data is available to support informational needs, but budget execution information is most in demand. CBP has a real-time picture of budget execution status, which includes the capability to drill down into the status of procurements. This has eliminated the need to depend on program office cuff systems to determine the status of appropriations. It has also eliminated the “that was then, this is now” discussion and allows them more time for other analysis and comprehensive reporting activities. During the final two weeks of each Fiscal Year, their Business Warehouse is updated every two hours to obtain complete, integrated financial and budget status. At the end of FY 2008, CBP lapsed $7.4 million. While much timely and accurate data is available, what does it mean and how do you use it to better manage and increase accountability? Schied discussed CBP’s efforts to achieve greater transparency and significance of financial information by developing additional reporting in the form of scoreboards and dashboards. Just putting out a lot of data in tables and spreadsheets that people can see is a very limited definition of transparency. Schied then went on to provide examples of CBP financial reports. Scorecards provide static reporting data with defined performance parameters. Static reports on the Internet/ Intranet may not provide information the reader is looking for. He said he prefers dynamic reporting tied to underlying data (like the CBP dashboards), and also likes assigning levels of tolerance to performance, stoplights for example. Dashboards are a near real-time graphical report of performance. They have the capability to drill down by clicking on to the slides. People can find what they want and write their own reports. The dashboards get updated daily, sometimes hourly toward the end of the year. A key to accountability and performance is that people need to know what is expected of them. Expectations must be clear and laid out in advance. People need to know what to do. With the dashboards, they do, he said. Tools like stoplight scorecards make it clear: Did you meet the parameters on the scorecard? In conclusion, to make improved financial reporting and controls matter, budget execution data for monitoring programs should be derived directly from your agencies’ core financial systems. Total accuracy and accountability is critical. Data availability should be immediate, with no reconciliations, cuff systems or interfaces. Data reports should have the highest level of reliability so that: • Auditors will trust them. • Program offices will not question them. • Taxpayers would be comfortable that we use them for critical program decisions. Expectations need to be set, and data analyzed against expectations. The consequences of not meeting expectations needs to be real and understood. Robert J. Tuccillo, Associate Administrator for Budget and Policy, Chief Financial Officer, Federal Transit Administration, U.S. Department of Transportation Tuccillo focused on Expanding Management Information and Reporting. His discussion touched on the requirements and challenges of the recently enacted American Recovery and Reinvestment Act, risk management and information used by the Federal Transit Administration (FTA) to indicate emerging problems and the financial and program challenges. The president sent a clear signal with the Recovery Act, which he signed into law on Feb. 17, 2009. FTA is now trying to figure out how to show the president that CFOs can do their job, ensuring funds are spent properly, and that good investments are made. The economic recovery funds pose new challenges. FTA will receive $8.4 billion, nearly doubling its funding in one year. OMB has required that the funds be spent with an unprecedented level of accountability and transparency so that taxpayers know where their dollars are going. FTA started to think about how to do this and created a TIGER Team: Transportation Investment Generating Economic Recovery Team. They are setting up new accounts and getting apportionments processed by OMB. Funds have to be obligated within strict timeframes or the government agency can get it back and redistribute the funds. In addition, agencies are required to collect data they do not normally collect, like numbers for job retention or job creation. The Recovery Act gives CFOs an opportunity to shine by meeting this challenge. Tuccillo explained that this is only one of the many roles and functions of the CFO. CFOs have to wear many hats. At FTA they have developed a management approach using leading indicators rather than lagging indicators. Lagging indicators are consolidated financial statements, performance measures representing consequences of previous actions, and end-of-period results. The PARs and the audited financial statements themselves are lagging indicators— they only tell you what happened in the past, and have no predictive quality. To improve performance, management needs to identify leading indicators. Leading indicators give insight/warning into future events so action can be taken to achieve a desired outcome or avoid an unwanted one. The advantages of using leading indicators are that you can manage against potential future outcomes and can be proactive rather than reactive to emerging trends. An example of this is the low fuel warning on a car. It is predictive and allows you to control the future outcome. FTA has set up a Performance Management Workshop with a focus on leading indicators. FTA also uses the Logic Model Template, which shows graphically how a leading indicator turns into a lagging indicator over time. An outcome turns into a result. For those of us who have to spend these economic recovery funds, Tuccillo said, we have to do risk assessment. FTA has the Risk Management Wheel. There is the performance cycle, composed of programs, strategic planning, budget, June 2009 9 EMERGING ISSUES FORUM performance management and evaluation. There is the measurement environment, requiring intelligence, resilience and agility, and then there are various inputs to the process: • Knowledge management • Experienced staff • When to seize opportunities • Strategic • Operational risk assessment • Managing risk awareness FTA has improved transparency with Citizen-Centric Reporting (CCR) as part of the AGA Performance-Based Management research project. This is part of transparency. Too often, when there are extremely large amounts of data collected, some are useful, some are not useful. CCR can focus and interpret useful information for citizens. Thomas J. Sadowski, CGFM, CPA, Former Director of Accounting for the State of Missouri and the University of Missouri; AGA Past National President, AGA Past National Treasurer Sadowski spoke on Transparency and Accountability: A State Perspective. His remarks were based on his experience serving as the former director of accounting for the state of Missouri. He focused on the type of reporting Missouri did to improve financial transparency and accountability, and the issues they encountered. His presentation covered: • Transparency and accountability—what do they mean to the government? • Culture and politics • Externally, what should be reported electronically? • Financial statements • Citizen-centric reporting • Management information There are different perspectives on transparency, and these affect the meaning. Sadowski considered transparency to be more of a mindset, and he presented an overview of what Missouri did to achieve transparency. The state has a budget of $22 billion, and a population of about 5.5 million citizens. Additionally, Missouri’s “Sunshine Act” requires citizens to make formal requests for certain information not currently reported. To improve financial transparency, the state undertook the Missouri Accountability Project (MAP). The MAP launched a website that makes details of the budget and expenditures accessible online at any time to citizens. Expenditures are updated nightly, and there are details of contracts, employee data available updated on the pay cycle, tax credits and information concerning non-payment of taxes. The intended customer is the citizen and taxpayer. There is a push by other states to do the same thing, as well as at the federal level. Sadowski’s comments were intended to help those governments where similar financial transparency reporting is being considered. His comments focused on the following four areas: Technology—Technology is what enables this transparency and makes it possible to implement. Missouri was only able to do this because it has an ERP system and the data was easily available. If we had to hunt for all the data to put online, this would not be possible. For example, Missouri reports financial information in a Comprehensive Annual Financial Report (CAFR), but there is no performance data in the CAFR because there is no system to get it from. Data Integrity—The FFATA calls for an unprecedented kind of transparency and accountability on the federal and state level. Detailed transaction-level information is being reported on government websites, but the integrity of this data is a concern. Developing systems and controls to match data with statewide summary data is a challenge. Data Versus Information—Managing the data can make it more meaningful. That is where citizen-centric reporting plays a role. With citizen-centric reporting, governments are trying to take a very complex subject and bring it down to a very basic level and put that on the state website. Then citizens can look for themselves in areas that are of interest to them. It is a good starting point. We also have analytical tools for users where they can generate their own reports, Sadowski said. Reporting financial data at this level has challenged us to think like end users to make sure they have information they are interested in and can navigate the website easily to generate it. However, the ability to understand this capability involves education to citizens. In addition, benchmarks provided along with raw data where meaningful and feasible help to translate data into information. Cost and Performance Information—Providing detailed transaction-level information on websites does not reduce the need for developing better cost accounting and performance outcome information for management and accountability purposes. 10 AGA Leadership Handbook for National, Regional & Chapter Leaders EMERGING ISSUES FORUM Biographies of Participants in Forum Jeanette Meixner Franzel is managing director for the Financial Management and Assurance team in the U.S. Government Accountability Office (GAO). She heads GAO’s largest audit unit, with responsibility for oversight of financial management and auditing issues across the federal government. Franzel’s previous areas of responsibility included audit work in civil and independent agencies in the areas of governance, internal control, cost analysis and fees, valuation of financial assets and subsidies, grants accountability, single audit issues and the SEC financial audit. She was also project director for Government Auditing Standards, with responsibility for GAO’s work in the accounting and auditing profession. She has a master’s degree in Business Administration (MBA) from George Mason University and a bachelor’s degree in accounting and Spanish from the College of St. Teresa, and completed the Senior Executive Fellows program at Harvard University. Prior to her career in accounting and auditing, she taught elementary school and high school in South America. She is a CGFM, CPA and Certified Management Accountant (CMA). She also chairs the AICPA’s Government Performance and Accountability Committee. David R. Hancox is the director, Division of State Government Accountability, New York State Comptroller’s Office. He currently leads an effort to measure the performance of state agencies’ financial management practices to guide future audit efforts and to increase the effectiveness of agency operations. Hancox and his audit teams have helped change the way the state of New York operates. He also revamped New York’s approach to auditing Medicaid payments, and as a result more than $250 million in savings was identified. He is co-author of two books: Government Performance Audit in Action (The third edition was published in January 2008.) and State and Local Government, Program Control and Audit: Handbook for Managers and Auditors. He is on the faculty of Siena College and the Government Audit Training Institute, Graduate School, USDA. He is past regional vice president of AGA, and a past president of the New York Capital Chapter of that organization. He is past president of the Albany Chapter of the Institute of Internal Auditors and a past member of the International Government Relations Committee, as well as a current member of the Emerging Issues Committee and the Financial Management Standards Board. He is a Certified Internal Auditor (CIA) and a CGFM. Matthew (Matt) A. Jadacki has been deputy inspector general, Office of Emergency Management Oversight, U.S. Department of Homeland Security, since October 2005. Prior to joining the Office of Inspector General, he was the Chief Financial Officer/Chief Administrative Officer (CFO/CAO) of the National Weather Service, a component of the National Oceanic and Atmospheric Administration (NOAA) of the U.S. Department of Commerce (DOC). Before the National Weather Service, Jadacki was the acting CFO of FEMA, worked in the U.S. Department of State from 1987 to 1991 as an audit manager, and in DOC as an operating accountant/auditor from 1981 to 1987. He holds a bachelor’s degree in business management from the University of Maryland, College Park, and is both a CPA and a CGFM. He holds memberships in a number of societies, including AGA, the AICPA and the Virginia Society of Certified Public Accountants. Fred A. (Al) Runnels has been deputy chief financial officer, U.S. Department of the Treasury, since March 2008. His office is responsible for providing policy advice to the Assistant Secretary for Management/CFO on Departmentwide financial management matters and for operations associated with compliance with the CFO Act of 1990 and the Government Management Reform Act of 1994. His office also publishes quarterly and annual Treasury consolidated financial statements, oversees the asset management program, and manages the Working Capital Fund. Effective Jan. 20, 2009, Runnels assumed the duties of acting CFO until a political appointee is designated and confirmed. Runnels served for over 30 years in various financial management, financial services and comptroller positions within the Department of Defense. From March 2005 to March 2008, he served within the Defense Finance and Accounting Service (DFAS) as first the Deputy Director, Military and Civilian Pay Services, and then the Director, Standards and Compliance, where he developed finance and accounting goals and standards, analyzed operational results, and enabled DFAS to provide world-class service to its customers. From June through November 2003, he served in a dual role as the Chief of the Pentagon, Coalition Provisional Authority Management Liaison Cell and as the Chief Financial Officer of the Coalition Provisional Authority (CPA) in Baghdad, Iraq. Runnels is a 1974 graduate of Mississippi State University with a bachelor’s degree in accounting. He also has an MBA from Syracuse University and a master’s degree in Strategic Resources Management from the Industrial College of the Armed Forces. June 2009 11 EMERGING ISSUES FORUM Thomas J. Sadowski is a former director of Accounting for the State of Missouri and for the University of Missouri. He began his professional career at the Missouri State Auditor's Office, where he served as Director of Audits. He then served as Director of Administration and Director of Information Systems at the Missouri Department of Revenue. Sadowski is a CGFM and a CPA, and has a Master of Public Administration (MPA) from the University of Missouri and a bachelor’s degree in accounting from the University of South Florida. He has served in a variety of roles for AGA, including National President and National Treasurer (twice). He has also served on or chaired a variety of AGA boards and committees, including Journal Editorial, Ethics, Research, Financial Standards, and the Academy for Government Accountability Advisory Council. Sadowski served on the Board of Directors of the Missouri Society of Certified Public Accountants, where he also chaired their Governmental Accounting Committee, of which he was a member for 27 years. Eugene H. Schied is the assistant commissioner of Finance, U.S. Customs and Border Protection (CBP). In this capacity he is both the CFO and CAO for CBP. The Office of Finance (OF) is responsible for all aspects of financial management and accountability, including accounting, budget, financial systems, procurement and acquisition, facilities and engineering, asset management, investment management and oversight of all financial operations within CBP. Prior to joining CBP in November 2006, Schied was the first Deputy CFO for the Department of Homeland Security. As Homeland Security’s budget director from May 2003 until March 2004, he helped create the budget office and lead Homeland Security through its first budget development and execution process. He has also held senior-level positions, including: Budget Director of the Federal Judiciary; Deputy Assistant Attorney General/Controller at the U.S. Department of Justice; Budget Director and Deputy Director at the Department of Justice; and Assistant Administrator/Chief Financial Officer of the Drug Enforcement Administration. Schied joined the federal government in 1992 as a presidential management intern. Prior to his federal service, he worked for the city of Peoria, IL. He holds an MPA from the Ohio State University School of Public Policy and Management and a bachelor’s degree in political science from the University of Iowa (Phi Beta Kappa). In October 2006, President George W. Bush recognized Schied with a Presidential Rank Award of Meritorious Executive. Jeffrey C. Steinhoff is the former managing director for Financial Management and Assurance and Assistant Comptroller General of the United States for Accounting and Information Management. He had responsibility for oversight of financial management and auditing issues, including the audit of the government’s consolidated financial statements, the establishment of Government Auditing Standards and internal control standards, reviews of internal control, forensic auditing, financial management systems reviews, cost management, and improper payments. He was a principal architect of the Chief Financial Officers Act of 1990 and was involved with government-wide implementation of the Act and other financial management improvement legislation. Steinhoff graduated from the College of William & Mary, and is a CGFM, a CPA, and a Certified Fraud Examiner (CFE). He is a Past National President of AGA and a member of the Professional Certification Board, which he founded and chaired from 1994 to 1998, and the National Awards and Nominating Committees. In 2003, AGA’s Northern Virginia Chapter inaugurated an Annual Leadership Award in Steinhoff’s name. In 2006, he was named the Outstanding CPA in the federal government by the AICPA, and received the first-ever Excellence in Government Performance and Accountability Award from the National Intergovernmental Audit Forum. A three-time recipient of the Comptroller General's Distinguished Service Award, he received the Comptroller General’s Award, GAO’s highest honor, in 2007. Steinhoff is now a director in the Federal Practice of KPMG LLP. Robert J. Tuccillo is the associate administrator for Budget and Policy and Chief Financial Officer for the Federal Transit Administration (FTA). Mr. Tuccillo is responsible for FTA’s $10 billion annual budget and ensures that the appropriated funds are obligated and expended in accord with executive branch and congressional intent. He oversees an office responsible for budget, accounting, financial systems, performance management, policy development, and strategic and program planning. Tuccillo served as a senior budget analyst at the White House Office of Management and Budget (OMB) from 1989 to 2002. While at the OMB, he worked on formulating the President’s Budget to Congress and developed and coordinated U.S. policies to address global warming, including research and development of energy efficient technologies. Prior to OMB, Tuccillo worked in the policy development office of the U.S. Department of Education, where he developed legislation and regulations for more than $10 billion spent on federal student financial assistance programs. 12 AGA Leadership Handbook for National, Regional & Chapter Leaders EMERGING ISSUES FORUM David M. Zavada, partner, Kearney & Company (Kearney), is responsible for leading accounting, consulting and audit engagements for federal government clients. Prior to joining Kearney, Zavada served in a number of senior executive positions in the federal financial community. He is a former Chief of the Financial Standards and Grants Branch at the Office of Management and Budget. He also was past Director of the Office of Financial Management at the Federal Aviation Administration, and most recently served as Assistant Inspector General, Office of Audits at the Department of Homeland Security. A past member of the Federal Accounting Standards Advisory Board, he currently serves as the chair of AGA’s Emerging Issues Committee and was a past board member of the AGA Certificate of Excellence in Accountability Reporting program. Zavada is a CPA, and holds a master’s degree in public administration from the Maxwell School of Citizenship and Public Affairs at Syracuse University and a bachelor’s degree in accounting from Drexel University. June 2009 13 EMERGING ISSUES FORUM Notes __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ 14 AGA Leadership Handbook for National, Regional & Chapter Leaders EMERGING ISSUES FORUM Notes __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ __________________________________________________________________________________________ June 2009 15 Advancing Government Accountability Association of Government Accountants 2208 Mount Vernon Avenue Alexandria, VA 22301 PH 703.684.6931 TF 800.AGA.7211 FX 703.548.9367 www.agacgfm.org agamembers@agacgfm.org