Government Financial Management in a Time of Transition

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Government Financial Management in a Time of
Transition

• McCoy Williams
• Managing Director
• Financial Management and Assurance
• AGA Washington, DC Chapter and GWSCPA
• 7th Annual Conference
• May 7, 2008

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Presentation Outline

• Overview of changing environment
• Fiscal sustainability issues
• Opportunities for the accountability community

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• Overview of Changing Environment

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Transitions at GAO

• Jeff Steinhoff retired earlier this year after
  more than 40 years of government service. His
  contributions to the federal audit community were
  exceptional.
• These are large shoes to fill and I look forward
  to working with the audit community, continuing
  GAOs long-standing efforts in coordinating with
  professional organizations such as the AGA.
• Following David Walkers resignation as the
  Comptroller General, GAO will continue to work
  with the audit community under the leadership of
  Gene Dodaro, who previously led our Financial
  Management and Assurance team. He is
  well-positioned to provide continuity and
  leadership in this area.

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Overview of 21st Century Changes

• Fiscal environment has changed significantly
• Homeland security takes center stage
• Defense budget increases dramatically
• Domestic needs remain to be resolved
• Effective management is essential
• Financial managers need to change with the times

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Accountability Is Key

• In this changing environment, achieving financial
  accountability becomes even more critical
• A clean opinion is not the finish line but rather
  a byproduct of accountability based on sound
  controls and accurate, timely, and meaningful
  financial data
• Important to maintain efforts to achieve the
  larger CFO Act goals
• 19 of 24 agencies received clean opinions for FY
  2007up from 6 in 1996
• Work needed on key large departments

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Impediments Related to the U.S. Government
Consolidated Financial Statements

• Serious, long-standing financial management
  problems at DOD
• Inability to account for and reconcile
  intra-governmental activity
• Ineffective process for preparing the
  consolidated financial statements

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Positive Developments Related to the U.S.
Government Consolidated Financial Statements

• GAO issued first unqualified opinion on the
  fiscal year 2007 Consolidated Statement of Social
  Insurance. Covers some of the largest numbers in
  the federal governmenttens of trillions of
  present-value dollars associated with future
  social insurance expenditures.
• First-ever Citizens Guide was issued on
  February 14, 2008. Provides a user-friendly
  summary report of the 2007 Financial Report of
  the United States Government. Represents an
  important step forward in improving public
  understanding of the federal governments true
  financial condition and fiscal challengesboth
  today and over the longer term.
• http//www.gao.gov/financial/fy2007financialre
  port.html

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• Fiscal Sustainability Issues

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Aging of the Population
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Federal Spending for Mandatory and Discretionary
Programs
1966
1986
2006
Net Interest
Discretionary
Mandatory
Source Office of Management and Budget.
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The Unsustainable Fiscal Path
2041 Full Social Security benefits cannot be paid
from taxes financed by borrowing
2019 Full Medicare Part A benefits cannot be paid
from taxes financed by borrowing
2029 Debt/GDP exceeds historical peak in World
War II period
2017 Social Security benefits exceed taxes
2007 Medicare Part A benefits exceed taxes
Deficit
Outlays
Revenue
Source GAO analysis.
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Current Fiscal Policy Is Unsustainable

• The Status Quo is not an option
• We face large and growing structural deficits
  largely due to known demographic trends and
  rising health care costs
• GAOs simulations show that balancing the budget
  in 2040 could require actions as large as
• Cutting total federal spending by 60 percent or
• Raising federal taxes to 2 times todays level
• We cannot grow our way out of this problem
• Tough choices will be required

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• Opportunities for the Accountability Community

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Challenges as Opportunities

• This challenging environment provides
  opportunities for financial managers
• Value-added skills in areas such as financial
  analysis, performance metrics, and forensic
  auditing are key
• The ultimate goal is having real-time, accurate
  information needed for day-to-day management

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The Need for Good Governance, Transparency, and
Accountability

• Good governance, transparency, and accountability
  are critical to supporting a healthy economy and
  the efficient and effective administration and
  assessment of public policies
• The accountability community has an opportunity
  and an obligation to help steer the course for
  the new administration in 2009 and beyond.

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Be Forward Looking and Thinking

• Look at how government does business day to day
• Ensure managers routinely have timely, accurate,
  and useful information for managing operations
• Value added and forward thinking activities
  include developing useful business metrics and
  demonstrating the impact of effective internal
  controls on mission effectiveness
• One way to think of this role we should be the
  headlights to guide our organization not the
  taillights looking back

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Financial Managers as Leaders

• Recent CG Forum on Financial Management Systems
  brought together leaders from the CFO, CIO, and
  IG communities as well as private sector experts
  
• Emerging theme was the view that in order to
  remain relevant, accounting professionals must be
  willing to embrace change and identify ways to
  prove their value to the entire organization
• Roles of the CFO and federal financial
  organizations need to be redefined
• (GAO-08-447SP)

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Financial Managers as Leaders

• Financial managers must be prepared to provide
  the tools needed to assist program managers in
  achieving the organizations mission
• Those with the better tools will find themselves
  with a seat at the tableside-by-side with agency
  leadership for the 21st century

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Questions and Answers