30 years after CFO Act, GAO still sees opportunities in financial management

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Thirty years have passed since enactment of the Chief Financial Officers Act, which established the CFO position at the major agencies. Many smaller agencies have them too. The Government Accountability Office recently reviewed federal financial management. It found things have improved but a new refinements would help. With highlights, the GAO’s Director of Financial Management and Assurance Issues Dawn Simpson joined Federal Drive with Tom Temin.

Interview transcript:

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Tom Temin: Let’s talk about the CFO position itself. Now I remember at least a couple of administrations ago CFOs didn’t all have all of the duties in their grasp that were assigned to them by the CFO Act, has that improved, that particular topic?

Dawn Simpson: So what we found is that there can be improvements in this area, that this is one of the challenges remaining is for CFOs to have more standardized responsibilities so that they can effectively carry out federal financial management, and these duties would relate to formulation and financial execution of the budget, internal control, planning and performance and risk management, to name a few. And having more standardized responsibilities would help for the CFOs to effectively carry out federal financial management.

Tom Temin: In general, you found in this review that since the enactment of the act, financial management in general has really come a long way, hasn’t it?

Dawn Simpson: Yes, we found that there has been significant improvements in federal financial management over the last 30 years in all areas. We looked at really five different areas of financial management, leadership, financial reporting, internal control, financial systems, and the federal financial management workforce. And there has been significant improvement over the last 30 years in each of these areas. One example would be the audited federal financial statements back in 1996, only six of the 24 CFO Act agencies, which are large executive departments and agencies, had a unmodified or clean opinion on their financial statements. And that for fiscal year 2019, is now up to 22 of the 24 CFO act agencies. And that’s just one example, the significant progress that has occurred in all of these areas of federal financial management.

Tom Temin: In the recommendations for congressional actions that are related to some of the observations that you had one of them related to the deputy CFO position, which is something that often doesn’t get a lot of attention, but it sounds like that could really strengthen the whole financial management structure.

Dawn Simpson: Right. That is another area where there’s an opportunity to improve federal financial management and that is for the deputy CFOs to have defined responsibilities consistent with those of the CFO. There are times when the CFO position is vacant, and that can be for a significant period of time. And so if the deputy CFO has consistent responsibilities, then effective federal financial management can be carried out during those times when the CFO position could be vacant.

Tom Temin: You also note the oversight or visibility into grants spending and grants management is something that could be beefed up a little bit.

Dawn Simpson: The key is to have for your key financial management information that management has reasonable assurance that the controls over key financial management information, that that data is reliable, and that type of information that you mentioned with grants management is key financial management information — but that goes beyond, it’s all types of financial information that is key for management to use in making decisions. The goal is to have controls over that information so that management has reasonable assurance that the data is reliable. Obviously, you want reliable data to use that for your decision making.

Tom Temin: Alright, and then also in your recommendations there is some work for the Office of Management and Budget potentially to do in terms of four year plans. Tell us about those.

Dawn Simpson: One of the other opportunities for improving federal financial management is long term planning. And this relates to having a government wide four year financial management plan, which would be prepared by OMB as well as supporting agency plans at the CFO Act agencies to implement the governmentwide financial management plan.

Tom Temin: That’s something that you recommend Congress require of OMB then, correct?

Dawn Simpson: That is one of the matters that we have for congressional consideration is to require the director of OMB to prepare a governmentwide four year financial management plan.

Tom Temin: And what about the financial management systems? That has been a bugaboo for some agencies to try to install new ones and Congress has been involved there, too. It’s also something that agencies are encouraged by statute and by, I guess, White House policy, to go to shared services whenever possible, so they don’t have the expense and managerial overhead of their own systems. What did you find there in your assessment with respect to the state of the systems that support all of this?

Dawn Simpson: There has been significant progress in improving federal financial systems that more work is needed in the area. There are legacy systems that are costly to run, more could be done with shared services, as you were just mentioning, and what we recommended for Congress to consider as part of the government wide four year plan is to include federal financial systems as part of that strategic planning within that government wide four year plan.

Tom Temin: With respect to improper payments, that is something that seems to be kind of stubbornly resistant to elimination, but it seems from my reading of the improper payments reports over the last few years, that at least the problem is much more clearly delineated into where it’s happening and why. So what’s your hope and what’s the recommendation for the improper payments area?

Dawn Simpson: That is another area that we discussed as a challenge that remains in federal financial management, and that just have more work can be done in the improper payments area.

Tom Temin: Sounds like something that could be included in that every four year plan, you think?

Dawn Simpson: The four year plan would discuss all aspects of federal financial management. One of those would be internal controls and aspects around that which improving internal controls, and would then be able to help address improper payments.

You can read Dawn’s report here.