oversight

Executive Guide: Creating Value Through World-Class Financial Management (Exposure Draft) (Superseded by AIMD-00-134)

Published by the Government Accountability Office on 1999-08-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Exposure Draft

August 1999      EXECUTIVE GUIDE

                 Creating Value Through
                 World-class Financial Management




                  £FF GAO  Accountability * Integrity * Reliability

GAO/AIMD-99-45
Preface
    To help promote effective implementation of federal financial management reform, we
    studied the financial management practices and improvement efforts of nine leading
    public and private sector finance organizations to identify the success factors, practices,
    and outcomes associated with world-class financial management. This executive guide is
    intended to assist federal agencies in achieving the objectives of the Chief Financial
    Officers (CFO) Act of 1990 and subsequent related legislation by providing case studies of
    11 practices critical for establishing and maintaining sound financial operations.

    The reforms laid out by the CFO Act and subsequent related legislation, when effectively
    implemented, will place the federal government on par with private sector corporations
    and state and local governments that have already made the necessary investment in
    financial management. While many federal agencies have made strides toward
    generating more reliable annual financial statements, the process of preparing financial
    statements and subjecting them to independent audit is only the first step toward
    satisfying the requirements of the legislation. To reap the full benefits of financial
    reform, federal finance organizations must go beyond the audit opinion toward
    (1) establishing seamless systems and processes, (2) routinely generating reliable cost
    and performance information and analysis, (3) undertaking other value-added activities
    that support strategic decision-making and mission performance, and (4) building a
    finance team that supports the agency's mission and goals.

    This exposure draft was prepared under the direction of Lisa G. Jacobson, Director,
    Defense Audits. Other GAO contacts and key contributors to this report are listed in
    appendix VI. Questions or comments can be directed to me before October 15, 1999, at
    (202) 512-2600 or steinhoffi.aimd@gao.gov or Linda Garrison, Assistant Director, by
    phone, e-mail, or regular mail at the following:

    Phone:               (404) 679-1902
    Email:               garrisonl.atlro@gao. gov
    Mail:                Linda Garrison, Assistant Director
                         U.S. General Accounting Office
                         2635 Century Parkway, Suite 700
                         Atlanta, GA 30345




                     cin ssiant Comptroller General
                 unting and Information Management Division




    GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
Contents
     Background                                                                                  3


     Learning from Leading                                                                       5
     Organizations


     Characteristics of a World-class                                                            6
     Finance Organization


     Goals, Practices, and
     Strategies To Consider                                                                      7
      Make Financial Management an Entitywide Priority                                           8
      Redefine the Role of Finance To Better Support Mission Objectives                         18
      Provide Meaningful Information for Decisionmakers                                         28
      Build a Finance Team That Delivers Results                                                38



    Appendixes
      Appendix I: Research Objectives, Scope, and Methodology                                   45
      Appendix II: Supplemental Case Study Information                                          46
      Appendix III: World-class Finance Performance Metrics                                     47
      Appendix IV: Comparison of Selected Federal Agencies & Case Study Entities                48
      Appendix V: Leading Organization Contacts and Project Advisors
       Acknowledgements                                                                         51
      Appendix VI: GAO Contacts and Staff Acknowledgments                                       52




    GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management        3
    Background
       Creating a government that runs more efficiently and effectively has been a public
       concern for decades. In recent years, however, the push towards creating a smaller, more
       results oriented government; has intensified the urgency to find ways to do more with less.
       To effectively evaluate and improve the value derived from government programs and
       spending, the Congress and other decisionmakers must have accurate and reliable
       financial information on program cost and performance. Further, they must be able to
       rely on federal finance organizations to provide analysis and insight about the financial
       implications of program decisions and the impact of those decisions on agency
       performance goals and objectives. Currently, financial data are not always useful,
       relevant, timely, and reliable enough to be used for federal decision-making, and many
       federal finance organizations are not yet well equipped enough to routinely provide
       analysis or advice related to this information.

       In the private sector, the role of the finance organization historically has centered on
       oversight and control, focusing on its fiduciary responsibilities and paying less attention
       to increasing the effectiveness of operating divisions. However, over the past decade,
       dramatic changes in the business environment have driven finance organizations to
       reevaluate this role. Increased competition resulting from an emerging global market has
       put pressure on finance organizations to find new ways to reduce administrative costs,
       add value, and provide a competitive advantage. At the same time, advances in
       information technology have made it possible for the finance function to shift from a
       paper-driven, labor intensive, clerical role to a more consultative role as advisor,
       strategist, analyst, and business partner.

       According to a 1997 study performed by a major public accounting firm,' most CFOs in
       1989 were spending 75 to 80 percent of their time on fiduciary issues, essentially external
       reporting. Today, the goal of many leading finance organizations is to spend about 20
       percent of their time on fiduciary issues and the remaining time performing strategic
       support activities, such as cost analysis or business performance analysis. Also, a 1996
       report by the Institute of Management Accountants, found that over the previous 5 to 10
       years, management accountants were increasingly being asked to supplement their
       traditional accounting role with more financial analysis and management consulting.2




       'Reinventing the CFO: Moving from Financial Management to Strategic Management Coopers and Lybrand,
       New York, New York: 1997.
       2
        The Practice Analysis of Management Accounting. Institute of Management Accountants (Montvale, New
       Jersey: 1996).

4      GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
 Dramatic changes also have occurred in federal financial management in response to the
 most comprehensive management reform legislation of the past 40 years. The
 combination of reforms ushered in by (1) the CFO Act of 1990, (2) the Government
 Management Reform Act (GMRA) of 1994, (3) the Federal Financial Management
 Improvement Act (FFMIA) of 1996, (4) the Government Performance and Results Act
 (GPRA) of 1993, and (5) the Clinger-Cohen Act of 1996 will, if successfully implemented,
 provide the necessary foundation to run an effective, results-oriented government.

The CFO Act and GMRA spelled out a long overdue and ambitious agenda to help the
government remedy its lack of useful, relevant, timely, and reliable financial information.
For the government's major departments and agencies, this legislation (1) established
chief financial officer positions, (2) required audited financial statements annually, and
(3) set expectations for agencies to develop and deploy more modern financial
management systems, produce sound cost and operating performance information, and
design results oriented reports on the government's financial condition by integrating
budget, accounting, and program information. FFMIA built on the CFO Act and GMRA
by requiring financial statement auditors to report whether agencies' financial systems
comply with federal financial management systems requirements, federal accounting
standards, and the U.S. Government Standard General Ledger.

The Government Performance and Results Act of 1993-- commonly know as "GPRA" or
the "Results Act" was enacted to hold federal agencies accountable for achieving program
results. It requires that agencies (1) set multiyear strategic goals and corresponding
annual goals, (2) measure performance toward the achievement of those goals, and
(3) report on their progress. Effective implementation of the Results Act, however, hinges
on agencies' ability to routinely produce meaningful budget, accounting, and program
information needed to manage performance and measure results. The CFO Act and other
related financial reform legislation, if successfully implemented, will provide the basis for
producing this information.

To help insure that agencies effectively use information technology to achieve program
results, the Congress passed the Clinger-Cohen Act of 1996. The Clinger-Cohen Act
builds on the best practices of leading public and private sector organizations by requiring
agencies to better link their information technology planning and investment decisions to
program missions and goals. The Clinger-Cohen Act contains critical provisions requiring
federal agencies to use investment and capital planning processes to manage their
information management technology portfolios. Further, it requires that agencies
modernize inefficient administrative and mission-related work processes before making
significant technology investments to support them.

Implemented together, these measures provide a basis for improving accountability over
government operations and routinely producing sound cost and operating performance
information, thereby making it possible to better assess and improve the government's
financial condition and operating performance.



GAOIAIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management   5
Background
Learning From Leading
Organizations
    To help promote effective implementation of federal financial management reform, we
    studied the financial management practices and improvement efforts of nine leading
    private and public sector finance organizations to identify the success factors, practices,
    and outcomes associated with world-class financial management. The six private sector
    and three state organizations we studied have been recognized by their peers and other
    independent researchers for their outstanding financial management practices and
    successful finance reengineering efforts. For more information on the criteria we used to
    select these organizations, see appendix I. As federal agencies continue to improve their
    management and financial accountability, they will be able to draw upon the expertise
    and experience of these private sector and state government organizations.


                                      Leading Finance Organizations

        Private sector                                                               State governments
        The Boeing Company                                                           Massachusetts
        Chase Manhattan Bank                                                         Texas
        General Electric Company                                                     Virginia
        Hewlett-Packard
        Owens Corning
        Pfizer Inc


    At one time, all of these organizations found themselves in an environment similar to the
    one confronting federal agencies today--one in which they were called upon to improve
    financial management while simultaneously reducing costs. The key practices drawn
    from the organizations we examined can provide a useful framework for federal agencies
    working to improve their financial management. This guide discusses the goals, success
    factors, and practices associated with building a world-class finance organization.
    Specifically, we have identified 4 overall goals common to these leading organizations
    along with 11 practices that were critical to their ability to meet these goals. In addition,
    this guide includes examples from our case study work that best illustrate how each
    practice enabled the selected organization to achieve the desired outcomes.

    We preceded our case study work with an extensive review of financial management
    literature, guides, and reports. We also consulted with leading public and private sector
    experts in financial management. Case study data were collected through interviews and
    analysis of documentation. Further, the case study organizations reviewed all case study
    information included in this guide for accuracy and completeness. Appendix I provides a
    more detailed description of our research objectives, scope, and methodology.




6   GAO/AIMD-99-45 * Executive Guide: Creating Value Tl:rough World-class Financial Management
Characteristics of a World-class
Finance Organization
    A world-class finance organization can best be defined in terms of the business outcomes
    it produces--outcomes such as improved business analysis, innovative solutions to
    business problems, reduced operating costs, increased capability to perform ad-hoc
    analysis, and improved overall business performance. To build a world-class finance
    organization and help achieve better business outcomes, each of the organizations we
    examined set an agenda for transforming the finance organization according to its own
    environment, needs, and capabilities. Although the techniques used varied depending on
    the organization's size and culture and some efforts were more mature than others, the
    goals, practices, and success factors outlined in the following illustration were
    instrumental in the organization becoming a value-creating, customer-focused partner in
    business results.

         Essential Elements of a Value-Creating, Customer-Focused Partner in Business Results

         Success
         factors


         Goals         -             .
                 ~Goals          p        Make financial                Redefine the                         Provide                Build a
                                           management                      role of                         meaningful                team
                                          an entitywide                   finance.                       information to               that
                                             priority.                                                      decision-               delivers
                                                                                                         I   makers.                 results.

         Practices                       1. Build a                     4. Assess the           I        7. Develop               10. Build a
                                         foundation of                  finance                   systems that
                                                                                                     [                            finance
                                         control and                    organization's          2 support the                     organization
                                         accountability.                current role in i                partnership      .       that attracts
                                                                        meeting                 I        between                  and retains
                                         2. Provide clear               mission                          finance and              talent.
                                         strong executive               objectives.                      operations.
                                         leadership.                                            II                                11. Develop a
                                                                        5. Maximize                      8. Reengineer        :   finance team
                                         3. Use training          J     the efficiency          |        processes in             with the right
                                         to change the            l     of day-to-day                    conjunction      I       mix of skills
                                         culture and                    accounting                       with new                 and
                                         engage line                    activities.                      technology.      ..      competencies.
                                         managers.
                                                                        6.Organize               1 9. Translate
                                                                        finance to                  financial data
                                                                        add value.              Ilinto meaning-
                                                                                                    ful information.




    GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                      7
    Goals, Practices, and Strategies
    To Consider
        This section summarizes the results of our research and case study work. Specifically, it
        contains the 4 overall goals and 11 practices we identified as critical for building a world-
        class finance organization. To facilitate the practical use of this guide, information is
        organized into four sections--each summarizing one of the four goals as well as those
        practices that have enabled Ileading organizations to achieve these goals. Further, for
        each of the 11 practices, we provided (1) a summary of key characteristics, (2) illustrative
        case study examples, and (3) strategies for federal agencies to consider when
        implementing the practice.




8       GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
Make Financial Management an Entitywide Priority
       The quality and image of federal financial management has suffered from decades of
       neglect and an organizational culture that has not fully recognized the value of good
       financial management--not even at its most basic level--as a means of ensuring
       accountability. Making financial management a priority throughout the federal
       government has involved changing the organizational culture of federal agencies.
       Although the views about how an organization can change its culture vary considerably,
       the organizations we studied identified leadership as the most important factor in
       successfully making cultural changes. Top management must be totally committed, in
       both words and actions to changing the culture, and this commitment must be sustained
       and demonstrated to staff.

       The leading organizations we studied made financial management improvement an
       entitywide priority by building a foundation of control and accountability that supports
       external reporting and performance management, providing clear strong executive
       leadership, and using training to change the organizational culture and engage line
       management.

            Essential Elements of a Value-Creating, Customer-Focused Partner inBusiness Results

            Success                                                         O
            factors

                                                                      ~I      E
            Goals                   0`71
                    Goals,                 Make financial                     n                          ui
                                             management
                                           an entitywide
                                                  priority.


            Practices        -      11* 1. Build a
                                           foundation of
                                           control and
                                           accountabilityn
                                           2. Provide clear
                                           strong executive
                                           leadership.
                                           3.Use training to
                                           change the
                                           culture and
                                           engage line
                                           managers.




       GAO/AI  MD-99-45 . Executive Guide: Creating Value Through World-class Finaucial Managcmcnt            9
       Goals, Practices, and Strategies to Consider . Make Financial Management an Entitywide Priority
 Practice 1
Build a Foundation of Control and
Accountability That Supports External
Reporting and Performance Management




          A solid foundation of control and accountability requires a system of checks and balances
          that provides reasonable assurance that the entity's transactions are appropriately
          recorded and reported, its assets protected, its established policies folicies
                                                                                followed, and its
          resources used economically and efficiently for the purposes intended. The private sector
          and state organizations we visited built and maintained this foundation largely through
          the discipline of preparing routine periodic financial statements and annually subjecting
          them to an independent audit. However, senior executives at leading organizations
          recognize that the financial information demanded by decisionmakers to measure and
          manage performance requires greater precision and more timely access than that
          required to receive an unqualified opinion on the entity's financial statements. To ensure
          that decisionmakers have useful, relevant, timely, and reliable information, leading
          finance organizations establish accountability goals that extend well beyond receiving an
          unqualified audit opinion. In addition, the internal controls at these organizations are
          designed to efficiently meet the control objectives necessary for performance
          measurement and management as well as external financial reporting.

          Similarly, according to a 1998 survey of federal CFOs,3 federal finance organizations
          continue to expand their focus from audited financial statements to include performance
          measurement and strategic planning. For example, the CFO Council and the Office of
          Management and Budget (OMB) are aggressively working on eight priority initiatives
          outlined in the1998 Federal :Financial Management Status Report and Five-Year Plan.
          Although one of the eight priorities focused on obtaining an unqualified opinion on agency
          financial statements, the eight priorities taken as a whole aim at improving the financial
          and performance information needed to make and implement effective policy,
          management, stewardship, and program decisions.




          3 CFO Survey: Preoaring for Tomorrow's Way of Doing Business, Grant Thornton LLP and the Association of
          Government Accountants (Alexandria, Virginia: March 1998).

10        GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
          Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice I
Case Studies
Accountability goals and an effective control structure
provide the basis for a more results-oriented government
           Commonwealth of Virginia                                                                     Texas
           To build a foundation of control and account-                                                Similarly, in Texas the performance
           ability, senior government leaders in the                                                    management system is an integral part of agency
           Commonwealth of Virginia had clear goals and                                                 and statewide planning structures, evaluation
           objectives that went beyond receiving an                                                     and decision-making processes, and
           unqualified audit opinion. With the passage of                                               accountability systems. Creating and
           the Single Audit Act in 1984, the                                                            maintaining a performance management system
           Commonwealth of Virginia had to produce and                                                  required close, consistent, and coordinated
           have audited Comprehensive Annual Financial                                                  attention above and beyond that required for
           Reports (CAFR) for the first time. Although not                                              external financial reporting purposes. In Texas,
           required by the act, the state Comptroller had                                               the ability to produce fairly stated external
           each state agency also produce audited financial                                             financial reports was only the first step in
           statements, thereby ensuring accountability at                                               building a more effective, results-oriented
           every level of government rather than solely at                                              government. An unqualified opinion on the
           those levels considered material to CAFR. The                                                state's CAFR provided, assurance that financial
           goal was to ensure that managers and                                                         information was accurate and reliable for
           lawmakers would have useful, relevant, and                                                   evaluating its overall financial position.
           timely information for assessing and managing
           program performance.                                                                         However, an unqualified audit opinion by itself
                                                                                                        does not ensure that the information needed to
           Now that Virginia routinely receives an                                                      measure and manage performance is useful,
           unqualified opinion on its CAFR, only those                                                  relevant, timely, or reliable. The internal
           state agencies with a specific need (e.g.,                                                   controls that were considered adequate for
           agencies' operating trust, enterprise and                                                    external financial reporting were not always
           internal service funds) are required to produce                                              sufficient for performance management. For
           auditable financial statements. The remaining                                                example, internal controls over expenditure
           agencies now are required to certify the                                                     data met the control objectives for aggregating
           accuracy of financial information that feeds                                                 and reporting this information on the financial
           CAFR. By subjecting all state agencies to the                                                statements; however, they did not meet the
           rigorous discipline of preparing financial reports                                           objectives for calculating per-unit-cost
           and having them audited, the Comptroller                                                     efficiency measures required for performance
           increased accountability for data accuracy                                                   management.
           beyond that required to receive an unqualified
           audit opinion. State officials continue to raise                                             Therefore, state agencies, with the help of the
           the bar and seek new ways to increase                                                        State Auditor's Office, reevaluated and
           accountability and improve the state's                                                       redesigned agency internal controls to meet
           performance. For example, the Department of                                                  both external financial reporting and
           Planning and Budget currently performs trend                                                 performance management control objectives.
           analysis and prepares fiscal impact statements                                               Because the state routinely receives an
           for the state's legislature, using useful, relevant,                                         unqualified opinion on its CAFR, the State
           and timely financial information from the                                                    Auditor's Office and agency internal auditors
           state's integrated budget and accounting                                                     no longer spend the bulk of their time on
           systems. Also, to ensure that performance data                                               control issues related to external financial
           and long-range plans drive budget decisions, the                                             reporting. Instead, their focus is on improving
           state has set goals, including implementing an                                               the reliability of performance management
           activity-based accounting and budgeting                                                      information.
           system, for enhancing its performance
           budgeting process.


           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                  11
           Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 1
 Strategies to Consider
         To build a foundation of control and accountability, senior executives could:

         * Leverage audit resources ,and the financial statement audit process to improve data
           reliability and increase accountability.

         * Increase accountability by' establishing goals for (1) producing financial and
           performance reports for major programs and/or business segments and (2) moving the
           organization toward more frequent financial reporting (e.g., quarterly, monthly).

         * As part of the agency's GPRA performance planning process, (1) establish efficiency
           criteria that measure the cost associated with program outcomes and (2) develop an
           approach for assessing and improving agency internal controls over finance related
           efficiency measures.

         * Use accounting and operational performance data to support budget formulation and
           strategic planning.




12       GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management
         Goals, Practices, and Strategies to Consider * Make Financil Management an Entitywide Priority * Practice I
Practice 2
Provide Clear, Strong




           understand the important role the CFO and the finance organization play in improving
           the entity's overall business performance. Consequently, the CFO is a central figure on
           the top management team and heavily involved in strategic planning and decision-
           making. In addition, the senior executives at these organizations demonstrated their
           sustained commitment to finance-related improvement initiatives by using key
           business/line managers to drive improvement efforts, attending key meetings, ensuring
           that the necessary resources are made available, and creating a system of rewards and
           incentives to recognize those who support improvement initiatives. In fact, the
           committed support of the CEO and line management are critical to the success of
           finance-related improvement initiatives.

           In the same way, federal financial management reform has recently gained momentum
           through the committed support of top federal leaders. For example, the President has
                           management improvement a top priority and established a goal to obtain
           made financial manancial
           an unqualified opinion on the government's financial statements. To achieve this goal,
           he directed the head of each agency without an unqualified audit opinion to submit to
           the OMB (1) an initial plantfor resolving financial reporting deficiencies and (2)
           quarterly progress re
                               reportsports
                                        for achieving             ther, OMB is required to
           periodically report to the Vice President on the agency submissions and governmentwide
           progress. In addition, many federal CFOs have primary leadership responsibility for
           implementing the Results Act at the department or agency level. The CFO Council has
           played a key leadership role in establishing financial and performance improvement
                                    changing the way federal agencies plan, budget, manage,
           goals and priorities forprorities
           evaluate, and account for federal programs.

           To ensure that federal financial management improvement efforts succeed and that the
           President's and the CFO Council's priorities are achieved, the support and involvement
           of key nonfinancial executives and managers is critical. This commitment starts with
           the heads of agencies establishing priorities and setting expectations and continues with
           the active involvement of program/line managers and executives in driving financial
           improvement initiatives.

           GAO/AIMD-99-45
            n                     Executive Guide: Creating Value Through World-class Financial Management                13
           Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 2
Case Study
Senior leadership involvement is the
key to successfully implementing financial
systems initiatives
           The CEO of Owens Corning recognizes that                                                        Reengineering can be one of the most
           good financial and operating information                                                        difficult tasks an organization can take on,
           and strong financial leadership are key                                                         and Advantage 2000 was no exception. In
           elements in improving the company's overall                                                     fact, the degree of difficulty was compounded
           business performance.                                                                           by the level of sophistication and complexity
                                                                                                           Owens Corning was trying to achieve with
           In 1992, under the leadership of its new                                                        its technology upgrades. The key to Owens
           chairman and CEO, Owens Corning set its                                                         Corning's successful implementation of
           sights on becoming the global leader in home                                                    Advantage 2000 was senior leadership's
           building materials. However, the chairman                                                       involvement throughout the project.
           realized that the vision of global growth,                                                      Initially, the new system disrupted the
           designed to drive the company to $5 billion                                                     company's operations--to the point that it
           in sales by the year 1999, would not be                                                         was beginning to affect production schedules
           possible without first addressing some long-                                                    and customer satisfaction. Through it all,
           standing problems affecting the company's                                                       however, senior managers never walked
           ability to analyze and use financial                                                            away. Instead, they helped middle managers
           information for decision-making. At the                                                         work through the snags by providing
           time, financial analysis was difficult because                                                  resources and remaining visible at key
           accounting policies and business processes                                                      meetings.
           varied among business units. For example,
           various manufacturing plants used different                                                     Replacing more than 200 outdated financial
           costing methods, making cost comparisons                                                        systems with state-of-the-art business
           difficult. In addition, closing schedules and                                                   software and client/server technology is not
           inventory methods often varied between                                                          only complex but also quite costly. From
           plants, further complicating meaningful                                                         1995 through 1998, Owens Corning's
           analysis. To resolve these and other issues, a                                                  cumulative investment in Advantage 2000
           new CFO was brought in to implement a                                                           was $145 million, but according to company
           wide-reaching overhaul of the company's                                                         executives the program will generate savings
           business and financial systems and                                                              in ongoing expense and working capital. The
           processes. The companywide initiative                                                           bottom line--the CEO and top executives of
           would come to be known as Advantage 2000.                                                       Owens Corning recognized that investing in
                                                                                                           Advantage 2000 cost less than maintaining
                                                                                                           the status quo.




14         GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
           Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 2
Strategies to Consider
        To demonstrate and reinforce commitment to improving financial management, heads of
        agencies and senior executives could:

        * Form an executive management team (heads of component organizations and those
          reporting directly to the agency head) to establish a vision and fundamental goals and
          provide sponsorship for each major financial management improvement project.

        * Involve key program /business managers in driving financial improvement initiatives.

        * Develop a plan to ensure that all key constituents visibly support financial
          management improvement initiatives.

        * Actively market the program benefits of financial management improvement efforts to
          secure the necessary resources and Congressional support.

        * Establish an expectation that top financial executives, as part of the top management
          team, provide forward looking analysis that creates a link between accounting
          information and budget formulation and contributes to strategic planning and
          decision-making.




        GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                     15
        Goals, Practices, and Strategies to Consider *Make Financial Management an Entitywide Priority * Practice 2
Practice 3
Use Training to Change the
Organizational Culture and
Engage Line Management




          Improving federal financial management hinges upon leadership's ability to manage
          change and create an organizational culture that values good financial management.
          Legislation starting with the CFO Act of 1990 has been directed at enhancing the finance
          organization's responsibilities in supporting the management of federal activities.
          Although acceptance by the program offices has sometimes been slow, according to a
          recent survey of federal CFOs,4 program directors are starting to look to the finance
          organization for help. They attribute the change to a joint effort by program and finance
          offices to implement the Results Act and develop strategic plans. In addition, the CFO
          Council's numerous outreach efforts and GPRA-related education events have helped to
          win the acceptance of program managers.

          The key to successfully managing change and changing organizational culture is gaining
          the support of line management. To change the organizational culture and enlist the
          support of line managers, many organizations utilize training programs. Some are
          generic in nature and are intended to help people anticipate and cope with change and
          ensure that every person in the organization understands the need for change. Others
          are specifically geared towards providing line managers with a greater appreciation of
          the financial implications of their business decisions. Through these interactions,
          financial managers gain a better understanding of business problems and nonfinancial
          managers gain an appreciation of the value of financial information. This not only
          produces better managers, it also helps break down functional barriers that can affect
          productivity and impede improvement efforts.

          In addition, these organizations provide tools to facilitate and accelerate the pace of the
          change initiative. According to one executive we met with, change initiatives that are
          implemented slowly generally fail because staff have too much time to contemplate the
          potential negative effects that change might bring and rally opposition that ultimately
          undermines the effort.




          4CFO  Survey: Preparing for Tomorrow's Way of Doing Business, Grant Thornton LLP and the
          Association of Government Accountants (Alexandria, Virginia: March 1998).


16        GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
          Goals, Practices, andStrategies to Consider * Make Financild Management anEntitywide Priority * Practice 3
Case Study
Training programs teach nonfinancial managers the value
of financial information and facilitate the pace of change

          The Boeing Company                                                                             strategies for removing cultural barriers to
          To ensure that nonfinancial managers at all levels                                             change. GE's finance organization has used
          understand the value of financial information,                                                 these tools and strategies to facilitate
          Boeing has developed an education program that                                                 improvement initiatives, ranging from
          teaches managers basic business competence.                                                    organizational restructuring to changing the
          Using a three-step development planning process,                                               role of the internal audit function.
          managers assess their current capabilities,
          determine their specific development needs, and                                                To be successful, the project teams
          build and execute a development plan. (See                                                     spearheading these initiatives had to achieve
          appendix II.) Depending on individual need,                                                    each of the following objectives: (1) lead change,
          Boeing offers a variety of learning experiences                                                (2) create a shared need, (3) shape a vision, (4)
          including self-paced, team, classroom, case study,                                             mobilize commitment, (5) make change last, (6)
          and simulation. For example, through Boeing's                                                  monitor progress, and (7) change systems and
          Creating Value learning project, managers learn                                                structures. To ensure that each objective would
          how to recognize the importance of cash flow and                                               be accomplished, the team used a survey to
          its influence on business decisions, understand                                                profile the change process and measures its
          shareholder expectations and the consequences of                                               progress. Staff and managers were surveyed
          not meeting them, and identify the relationship                                                periodically and asked to score each of the five
          between individual decisions and actions and                                                   dimensions from 100 percent to 0 percent based
          shareholder value.                                                                             on how well they think each is being
                                                                                                         accomplished. For change to be successful,
          The information is presented in a "multiple                                                    most dimensions must be rated high.
          media" format in order to accommodate different
          learning styles and to allow learning to occur in                                               The profile directed the team's efforts so that
          different environments and in periods best suited                                               they could develop a strategy to address the
          to the learner. Other learning experiences include                                              areas that needed the most attention. For
          course work, such as Elements of Product Cost, in                                               example, mobilizing commitment, especially
          which participants analyze and use cost element                                                 from those outside the finance organization,
          information to support decision-making related to                                               was often one of the more difficult objectives to
          improvement efforts, ensuring that resources are                                                accomplish. However, the team used a method,
          applied to those activities that return the greatest                                            learned in the CAP workshop, for analyzing
          benefits and provide the highest value to                                                       and increasing stakeholder commitment levels.
          customers. During the class, participants learn to                                              First, the team listed the names of those
          apply unit cost principles to the products they                                                 individuals whose support was critical for the
          produce as well as how process, activity, and                                                   success of the project. Then, they assessed each
          individual cost elements, such as labor, materials,                                             stakeholder's level of commitment based on
          and overhead, are accumulated to become unit or                                                 their perceived level of agreement--to what
          product cost.                                                                                   degree does the individual agree that change is
                                                                                                          needed? If the team perceived a person did not
           General Electric                                                                               agree, it developed an individual plan to get
           General Electric's (GE) education and training                                                 this person's support. Plans were developed by
           grams have played a crucial role in changing the                                               addressing questions such as: Why are they
           organizational culture and facilitating both                                                   resisting this change? Do they have a vested
           finproancial and nonfinancial improvement                                                      interest in the status quo? What new
           initiatives. One of the most successful programs is                                            opportunities will they have when the change
           the Change Acceleration Process (CAP) workshop.                                                is implemented? and Who influences this
           During the CAP workshop, GE managers and                                                       person and what is their level of acceptance?
           professional staff are given tools and taught


           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                    17
           Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 3
Strategies to Consider
        To demonstrate and reinforce commitment to improving financial management, heads of
        agencies and senior executives could:

        * Identify key financial and nonfinancial managers and staff whose support is critical to
          the success of financial management improvement initiatives.

        * Develop curriculum and provide training that teaches key nonfinancial managers and
          staff
          * how to use financial information to improve operational planning and decision-
             making and
          * how reform legislation (e.g. CFO Act, GMRA, FFMIA, GPRA) will affect operating
             unit roles, responsibilities, and processes within the context of specific agency
             operations.

        * For all key managers and staff, develop curriculum and provide training that provides
          a framework and tools that can be used to facilitate and accelerate the pace of change
          initiatives.




18      GAO/AIMD-99-45 * Executive Guide: Creating Value Th ough World-class Financial Management
        Goals, Practices, and Strategies to Consider * Make Financial Management an Entitywide Priority * Practice 3
Redefine the Role of Finance To Better
Support Mission Objectives
       In the private sector, the role of the finance organization historically has centered on
       oversight and control, focusing on its fiduciary responsibilities and external financial
       reporting requirements. However, over the past decade dramatic changes in the
       business environment have forced finance organizations to reevaluate this role. The
       pressure to reduce administrative costs resulting from competition in an emerging global
       market drove many finance organizations to find more efficient ways to deliver their
       services. Nonetheless, becoming more efficient is not enough to remain competitive.
       Today, leading finance organizations are focusing more on internal customer
       requirements by providing products and services that directly support strategic decision-
       making and ultimately improve overall business performance.

       Similarly, competition has changed the environment in which federal agencies operate.
       Shrinking budgets have increased competition for scarce resources, requiring managers
       to make tough resource allocation decisions that may affect program delivery. Without
       the support of federal finance organizations, program managers may not be able to
       determine or defend the cost associated with or benefits derived from government
       activities. We found the leading finance organizations we visited had redefined the role
       of finance to better support mission objectives by assessing the finance organization's
       current role in meeting mission objectives, maximizing the efficiency of day-to-day
       accounting activities, and organizing finance to add value.
           Essential Elements of a Value-Creating, Customer-Focused Partner in Business

           Success
           factors


           Goals        -                                                    r
                                        * Make fa: *1C u l Redefine the men                                vl!
                                                             role of        n                              a   o.   tt
                                                                            finance.

           Practices -                    1. Build           4. Assess the
                                                             finance
                                                             organization's
                                                             current role in
                                                             meeting
                                                             mission                                   a
                                                   e ' : i:objectives.
                                                 s:rol:
                                                                 5. Maximize
                                                             : the efficiency
                                                  ::an
                                                     :h:     :of    day-to-day
                                                  ifuand!~
                                                         i       accounting
                                                  i a:: liie ~ activities.
                                                                         6. Organize
                                                                         finance to
                                                                         add value.



       GAO/AIMD-99-45       Executive Guide: Creating Value Through World-class Financial Management                     19
Practice 4
Assess the Finance Organization's
Current Role in Meeting
Mission Objectives




           Many leading finance organizations assess their current role in supporting mission
           objectives by comparing the percentage of staff time spent on strategic support activities,
           such as business performance analysis or cost analysis, with the percentage of resources
           spent on transaction processing and other routine accounting activities. According to a
           1995 Financial Executives Research Foundation report,5 transaction processing and
           other routine accounting activities, such as accounts payable, payroll, and external
           reporting, consume about 69 percent of costs within finance. Other studies indicate that
           these activities consume as much as 80 percent of finance's resources. While transaction
           processing will always exist, it does not have to drain the finance organization's
           resources. Therefore, many leading finance organizations have calculated and compared
           these percentages as a general indication of how well they supported the organization's
           business objectives. A goal for many leading organizations is to reduce the time spent
           on transaction processing activities to 20 percent.

           To further assess the efficiency and effectiveness of specific products and services, many
           of the leading finance organizations we studied relied on benchmarking 6 and customer
           feedback. For example, comparisons against world-class benchmarks, such as closing
           the books in less than 4 days or processing payroll at $1.39 per transaction, were used to
           identify activities or processes in need of improvement. (See appendix III: World-class
           Performance Metrics.) In addition, these organizations used feedback from their internal
           customers to gather specific information related to quality and customer expectations.
           For example, Hewlett-Packard's finance organization conducted a detailed survey of
           about 200 internal customers worldwide in which customers were asked to rank certain
           components, or services, as either high or low in terms of both importance and
           satisfaction. The survey results were then used to guide improvement initiatives.




           6 Reengineering the Finance Function, Financial Executives Research Foundation, Executive Report, Vol. 2,

           No. 3 (June 1995).

           6Benchmarking   is the continuous process of measuring products, services, and practices against the
           toughest competitors or those organizations recognized as industry leaders.




20         GAO/AIMD-99-45 * Executive Guide: Creating Value TIusough World-class Financial Management
           Goals, Practices, and Strategies to Consider * Rederune the Role of Finance to Better Support blission Objectives * Practice 4
Case Study
Assessing and revising the organization's charter,
processes, products, and services enables finance to
better support business objectives

           The role of Pfizer's finance organization has                                                  magnitude of the opportunity. For example,
           changed significantly over the past several                                                    Pfizer took 7 days to close its books versus the
           years, from an organization focused primarily                                                  3 to 4 day world-class standard. Further, it
           on control and compliance, to one that is                                                      cost Pfizer twice as much as the benchmark
           integral to making strategic business                                                          average to pay an invoice. This sobering news
           decisions. About 6 years ago, under the                                                        served a vital purpose--it created a sense of
           leadership of Pfizer's CEO and CFO, Pfizer's                                                   urgency surrounding the need to change and
           corporate finance organization embarked on a                                                   helped the CFO rally the organizational
           reengineering initiative to transform its                                                      support needed to institute a comprehensive
           charter, processes, products, and services.                                                    reengineering initiative
           The CEO and CFO's vision was to make Pfizer
           "the preeminent corporate finance                                                              To facilitate change within the finance
           organization in the industry." At the heart of                                                 organization, several cross-functional process
           this vision was the concept that the finance                                                   improvement teams were established.
           organization should actively support the                                                       Through comprehensive revisions to its
           strategic imperatives of Pfizer Inc.                                                           charter, processes, organization and systems,
                                                                                                          Pfizer has reduced the cost associated with
           Unlike many finance organizations going                                                        transaction processing activities by up to 50
           through this type of transformation, Pfizer's                                                  percent in certain functions and shifted its
           change effort was not in reaction to a crisis.                                                 focus to activities that directly support Pfizer's
           In fact, given the company's long history of                                                   business objectives.
           profitable growth, there seemed to be little
           reason to change. Pfizer's CFO, on the other                                                   The shift in focus and resources has allowed
           hand, saw an opportunity to do things more                                                     Pfizer's finance organization to become a
           effectively and efficiently and thereby re-                                                    "growth enabler" on behalf of the company by:
           deploy resources from transactional activities
           (e.g., closing the books, preparing tax returns,                                                *      supplying the necessary resources (from
           paying invoices) to value added activities (e.g.,                                                      information to capital);
           operations, treasury and tax planning). The                                                     *      providing increased opportunities to
           finance organization, for example, was                                                                 invest (redeploy financial gains or savings
           producing too much data and not enough                                                                 on behalf of the business);
           information. To build a case for change,                                                        *      offering business solutions ("how," not
           Pfizer's CFO initiated a benchmarking survey                                                           "why not"); and
           to determine exactly how his organization                                                       *      assisting in making the right business
           stacked up against the other leading finance                                                           decisions.
           organizations. The results dramatized the




           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Managcment                                                       21
           Goals Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 4
Strategies to Consider
        To assess the finance organization's current role in meeting mission objectives, agency
        CFOs and senior finance executives could:

        * Identify all major functions performed by the finance organization (e.g., accounts
          payable, payroll, performance reporting, performance analysis) and group each
          function into meaningful categories (e.g., transaction processing, control and
          compliance, strategic decision support).

        * Establish and monitor agency specific performance goals and measures that reflect
          the finance organization's role in meeting mission objectives (i.e., the percentage of
          time or resources devoted to mission support vs. transaction processing or control and
          compliance activities).

        * Benchmark financial management practices and processes with recognized industry
          leaders (e.g. the cost of finance as a percentage of total outlays, unit cost per
          accounting transaction) in order to measure performance and identify best practices.

        * To the extent that operating in a federal environment affects specific benchmarks,
          compare financial management practices and processes with other federal agencies to
          provide a context with which to interpret benchmarking results.

        * Periodically survey internal customers to identify specific areas for improvement.




22      GAO/AIMD-99-45 * Executive Guide: Creating Value Thrcsugh World-class Financial Management
        Goals, Practices, and Strategies to Consider *Redefine the Role of Finance to Better Support Mission Objectives * Practice 4
Practice 5
Maximize the Efficiency of
Day-to-day Accounting Activities




           As part of an overall strategy to reduce the cost of finance and better support business
           objectives, many leading organizations have reduced the number of staff required to
           perform routine transaction processing activities by eliminating or streamlining
           inefficient processes and/or consolidating these activities at shared services centers.
           Similarly, some federal agencies are aggressively expanding their use of Electronic
           Funds Transfer to include contract payments and travel payments as a means of
           increasing the efficiency of their routine accounting activities.

           Each of the six private sector finance organizations we visited consolidated,
                          and reengineered routine processes, such as accounts payable, fixed asset
           standardized, andardized,
           accounting, and payroll at shared service centers. The primary objective for moving to
           shared services is to reduce operating costs. However, other benefits included better
           control and standardization of processes, more cost-effective technology deployment, and
           an enhanced position for continual improvement and customer service.

           Although their approach varied depending on the size, culture, and industry, leading
           organizations have realized the benefits of shared services by completing each of the
           following stages. The first stage is consolidation and includes changing the
           organizational structure and gaining control over processes. The second stage is
           standardization and entails changing processes, adopting a common technology platform,
           and continuous improvement. The final stage is reengineering and involves changing
           workflow and leveraging technology through the use of electronic commerce, data
           warehousing, and document imaging.

           Similar to the findings in our previous report on outsourcing the finance function, we
           found that although outsourcing is considered an option for reducing costs and improving
           efficiency, none of the leading organizations we visited were currently outsourcing any
           significant aspect of their finance organizations. The primary reason for not outsourcing
           is due to the limited capacity of outsourcing vendors to perform larger more complex
           finance and accounting operations. However, these organizations indicated thata they are
           continually evaluating opportunities to reduce costs and improve quality; therefore, as
           the outsourcing market evolves and the capacity and quality of outsourcing vendors
           improves, outsourcing may become a more attractive alternative.
           7
           Financial Management: Outsourcing of Finance and Accounting Functions (GAO/AIMD/NSLAD-
           98-43).


           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                       23
           Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 5
 Case Study
 Effectively implementing shared service
 centers can result in reduced operating costs
 and better customer support

            Over the past decade, high-tech companies                                                        However, creating a shared service center
            have seen their gross margins shrink                                                             was much more than simply centralizing
            smaller and smaller as a result of increased                                                     activities and cashing in on economies of
            competition and the steady introduction of                                                       scale. To achieve these cost savings and
            newer, faster, and more advanced                                                                 provide innovative, cost-effective shared
            technology. To remain competitive and                                                            business services, Hewlett Packard not only
            ensure continued growth, Hewlett Packard                                                         had to consolidate its activities, but it also
            formed a task force to find ways to reduce                                                       had to reengineer its processes and change
            the cost of the finance organization. At the                                                     its organizational structure.
            time, the cost of finance was 2.8 percent of
            company revenues and accounting                                                                  At one Financial Service Center, process-
            transaction costs were more than two to                                                          reengineering initiatives alone have resulted
            three times that of comparable companies.                                                        in cost savings of $36 million since 1990.
            The task force recommended that Hewlett                                                          Through the use of electronic data
            Packard consolidate its transaction                                                              interchange, document imaging, and
            processing activities such as accounts                                                           common software platforms, the center has
            payable, accounts receivable, payroll, and                                                       maximized its use of human resources. Each
            fixed assets accounting from over 100                                                            month the center's 295 employees process
            decentralized centers into just 8 Financial                                                      165,000 invoices, 15,000 travel expense
            Service Centers worldwide. As a result, the                                                      reports, 44,000 checks, 77,000 payments,
            number of employees needed to process                                                            and 122,000 electronic transactions,
            accounting transactions was reduced by                                                           reimbursements, and deposits. In addition,
            more than half--from about 2,500 to only                                                         the center performs general ledger and fixed
            1,200 employees worldwide.                                                                       asset accounting and responds to customer
                                                                                                             inquiries. As part of its overall effort to
            By implementing the Financial Service                                                            reduce infrastructure costs, the center also
            Centers, Hewlett Packard reduced the costs                                                       redesigned its organizational structure using
            of its finance organization from 2.8 percent                                                     a self-directed, team-based approach. Each
            of revenues in 1989 to 1.4 percent in 1994                                                       of the four- to eight-person teams is
            and to less than 1.0 percent by 1998. The                                                        responsible for a number of tasks, such as
            company's finance costs are now in the top                                                       timecards, overtime, and discretionary
            quartile of comparable organizations.                                                            budget management. The benefits of a team
                                                                                                             concept include ownership of customer
                                                                                                             problems, higher morale, and increased
                                                                                                             creativity/problem solving.




24          GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
            Goals, Practices, andStrategies to Consider * Redefine theRole of Finance to Better Support Mission Objectives + Practice 5
Strategies to Consider
        To maximize the efficiency of day-to-day accounting activities, senior executives could:

        Identify high-volume processes or transactions that do not directly support the agency's
        mission (low-value, low-risk) and evaluate opportunities for

             *      consolidating, standardizing, and reengineering transaction processing and other
                    routine accounting activities at a shared service center, initially by department
                    and then across departments;

             *      eliminating, streamlining, or reengineering costly, inefficient transaction
                    processing and routine accounting activities, or

             *      outsourcing transaction processing and routine accounting activities.




        GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management                                        25
        Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 5
 Practice 6
 Organize Finance to Add Value




           According to a recent survey of federal CFOs,8 the federal finance organization of the
           future will have fewer people, with a greater percentage of analysts than clerks.
           Currently, however, most functions within finance organizations are focused primarily
           on (1) establishing and administering policy, (2) tracking, monitoring, and reconciling
           account balances, or (3) ensuring compliance with laws and regulations. While they
           recognize the need for change, according to the CFOs surveyed, many questions remain
           unanswered regarding how best to scope, define, and organize finance office
           responsibilities.

           When it comes to organizational design, we found that leading finance organizations
           often had the same or similar core functions (i.e., budgeting, treasury management,
           general accounting, payroll). However, the way these functions were organized varied
           depending on individual entity needs. In practice 5 of this guide, we discussed how
           leading organizations reduced the number of resources required to perform financial
           management activities by (1) consolidating activities at a shared service center and (2)
           eliminating or streamlining duplicative or inefficient processes. Their goal was not only
           to reduce the cost of finance but also to organize finance to add value by reallocating
           finance resources to more productive strategic support activities.

           To accomplish this, leading finance organizations have realigned their mission and
           organizational structure to better support the entity's business objectives. Specifically,
           many leading organizations have (1) organized around core business processes to
           simplify work and flatten hierarchies, (2) consolidated certain transaction processing
           activities to gain economies of scale, and (3) moved functions, such as cost accounting
           and financial analysis, to the business units to support business units' strategic planning
           and decision-making needs.




           sCFO Survey: Preparing for Tomorrow's Way of Doing Business, Grant Thornton LLP and the
           Association of Government Accolmtants (Alexandria, Virginia: March 1998).


26         GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
           Goals, Practices, and Strategies to Consider * Redefine the Role of Finance to Better Support Mission Objectives * Practice 6
Case Study
Reallocating resources allows finance to better
support business unit's strategic needs

           In 1997, Chase Manhattan Bank decided to                                                     organizational improvement is cost savings.
           examine its staff functions following the                                                    But, tell them that you are going to make
           completion of two mega-mergers; Chemical                                                     their jobs less frustrating, and watch how
           and Manufacturers Hanover in 1991 and                                                        motivated they become."
           Chase and Chemical in 1996. The objective
           was to determine whether the inherited                                                       BEP was organized into three groups. The
           structures from the predecessor organizations                                                first group, with representatives from both
           had been combined and adapted in a way that                                                  finance and the bank businesses, was charged
           best supported the needs of what was in effect                                               with diagnosing the problem. This group was
           a new organization. Chase wanted to quickly                                                  to determine what Chase does well and what
           identify and act on any opportunities to                                                     could be improved--and given only 5 weeks to
           simplify structures, enhance efficiencies and                                                complete the task. The second group was
           reduce expenses. By doing this, Chase hoped                                                  charged with determining how much Chase
           to realize its ultimate goal of making the                                                   spent on its finance and other staff functions.
           support function as responsive as possible to                                                The third group was responsible for
           the line units it served.                                                                    identifying best practices used by other
                                                                                                        leading organizations. As part of this effort,
           To achieve this objective, the chairman                                                      they met a number of leading nonfinancial
           created the Business Effectiveness Program                                                   services companies to determine how they
           (BEP). It was clear from the beginning what                                                  organized their various support functions.
           the program would not be--it would not be
           months and months of study and analysis.                                                     After completing its work, the BEP staff
           Senior management was involved and                                                           proposed a solution, which involved creating
           committed to short deadlines--deadlines that                                                 Chase Business Services--a shared services
           were announced publicly on a regular basis.                                                  center to consolidate transaction processing
           The goal was to eliminate the things that                                                    activities, reduce staff costs, and improve
           frustrated people most about their work.                                                     efficiency. In addition, many support
           Typically, these are the same things that                                                    functions were streamlined and brought closer
           make it inefficient and costly. According to                                                 to the business areas to enhance efficiency and
           one vice chairman, "It's difficult to get people                                             responsiveness.
           excited when the goal of process or




           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                  27
           Goals, Practices, andStrategies to Consider * Redefine the Role of Finance to Beuer Support Mission Objectives * Practice 6
 Strategies to Consider
          To organize finance to add value, senior executives could:

          * Ensure that the finance organization has a well defined mission that supports the
            agency's mission objectives.

          * Ensure that financial managers and staff with skills for analyzing and interpreting
            financial data are aligned to support the agency's strategic planning and decision-
            making needs at both the field and headquarters level.




28       GAO/AIMD-99-45 * Executive Guide: Creating Value Thrnugh World-class Financial Management
         Goals, Practices, andStrategies to Consider * Redefine theRole of Finance to Better Support Mission Objectives * Practice 6
Provide Meaningful Information to Decisionmakers
       Financial information is meaningful when it is useful, relevant, timely, and reliable.
       However, many federal agencies lack the systems and processes required to produce
       meaningful financial information needed for management decision-making. For
       example, many agency financial and management information systems do not routinely
       provide adequate, timely cost or performance information needed to manage cost,
       measure performance, make program funding decisions, and analyze outsourcing or
       privatization options. Similarly, many private sector and state organizations have
       struggled to overcome some of the same management information issues that now face
       federal agencies.

       Over the past decade, global competition and advances in information technology have
       changed information requirements and users' expectations regarding the availability and
       usefulness of financial information. Financial information that, in the past, was
       considered adequate for decision-making is now considered overaggregated and too late
       to be useful. The leading finance organizations we visited enhanced their capabilities for
       providing meaningful information to decisionmakers by developing management
       information systems that support the partnership between finance and operations,
       reengineering processes in conjunction with implementing new technology, and
       translating financial data into meaningful information.

           Essential Elements of a Value-Creating, Customer-Focused Partner in Business Results

           Success                       L               h
           factors


           Goals
                                                                                                       Provide
                                                                                                       meaningful
                                                                                                      information
                                                                                                     to decision-
                                                                       !.                                makers.       j   r4FFmakers.

           Practices                                                         Fin:acil                7. Develop
                                                                                                     systems that
                                                                                                     support the
                                                                                                     partnership
                                                                                                     between
                                                                                                     finance and
                                                                                                     operations.
                                                                                                     8. Reengineer
                                                                                                     processes in
                                                                                                     conjunction
                                                                                                     with new
                                                                                                     technology.

                                                                                                     9. Translate
                                                                                                     financial data
                                                                                                     into meaning-
                                                                                                     ful information   F



       GAO/AIMD-99-45   . Executive Guide: Creating Value Through World-class Financial Management                                       29
 Practice 7
 Develop Systems That Support                                                                                         integrt':d   "
 the Partnership Between
 Finance and Operations




           As federal agencies develop plans for acquiring and installing financial systems, the
           Clinger-Cohen Act of 1996 and related executive branch guidance will provide a
           framework for designing and deploying information technology. The Clinger-Cohen Act
           requires agencies to better link their information technology planning and investment
           decisions to program missions and goals. If implemented effectively, this legislation will
           provide a foundation that will help federal agencies improve the interoperability of
           financial, operating, and management systems.

           The leading finance organizations we visited have long had general ledger systems
           capable of generating auditable financial statements efficiently and routinely, thereby
           providing information on stewardship and accountability at a high level. Further, ther,
                                                                                                they
           historically have had adequate systems for measuring and managing cost and
           performance. However, over the last decade new technology has made it possible for
           these organizations to integrate these systems and provide more relevant, accessible
           information that meets the changing needs of decisionmakers. Many leading
           organizations have already implemented, or are in the process of implementing an
           enterprisewide system to integrate financial and operating data to support both
           management decision-making and external reporting requirements. Some abandoned
           their legacy systems all together and turned to state-of-the-art integrated architectures,
           while others used well-functioning legacy systems and tied them together with a data
           warehouse. Regardless of the approach, these systems provided financial analysts,
           accountants, and business unit managers accessoo the same cost, performance, and
           profitability information.

           Similarly, the CFO Council, JFMIP, OMB, Treasury, and individual agencies are
           working to improve the integration of budget, accounting, and program information and
           systems. To support this process, a Program Management OfficeOffice was recently
                                                                                   recent
           established to develop financial systems requirements, address system integration
           issues, and generally facilitate the system selection
                                                          the andand procurement process. This and
           other measures are important; to ensure that federal systems provide meaningful
           information for managing and measuring cost and performance as well as preparing
           external financial reports.


30         sGAO/AIMD-99-45 Executive Guide: Creating Value Through World-class Financial Management
                         and Strategies Consider * Provide to
            Goals, Practices,                               Meaningful Information Decisionmakers * Practice 7   ao
Case Study
Information data warehouse provides decisionmakers
with a single set of financial and performance information

           In 1994, the Massachusetts' Office of the                                                     the warehouse: (1) make it useful by putting
           State Comptroller embarked on a                                                               the right data into it, (2) make it usable so
           groundbreaking project--to build an                                                           that decision-makers could and would use it,
           information warehouse that would integrate                                                    (3) make it expandable so that it could be
           fiscal, budgetary, human resource, and                                                        adapted to future needs, and (4) make it
           program data, and to make the data                                                            sensible--don't buy a Cadillac when a
           available to decisionmakers throughout the                                                    Chevette is what you need. During the
           state. However, what made this project                                                        design, development, and implementation of
           possible actually began 7 years earlier when                                                  the warehouse, many organizational and
           the state implemented its first statewide                                                     technical issues were hotly debated, but the
           management accounting and reporting                                                           most critical design decision related to the
           system. Although data entry is                                                                level of detail to be stored in the warehouse.
           decentralized at agencies across the state, all                                               The greater the detail, the more flexible and
           processing for accounting and financial                                                       accurate the report will be. However,
           reporting is done centrally using one chart of                                                storage, processing, and maintenance costs
           accounts on a mainframe computer.                                                             become significantly greater. The team
                                                                                                         ultimately opted for transaction-level detail,
           The state's accounting system houses a                                                        thereby providing enormous flexibility in
           wealth of data, but as with all mainframe                                                     meeting changing users' needs.
           technology, data access is a problem. As fast
           as reports are designed and built, data needs                                                  The information warehouse project has
           change and users are left with only half the                                                   resulted in numerous benefits to a wide
           data they require. Trend analysis was                                                          range of executives, legislators, managers,
           difficult at best and state financial managers                                                 financial analysts, budget analysts,
           were forced to make decisions using out-of-                                                    accountants, and operations personnel. For
           date, estimated, or anecdotal information. To                                                  example, managers can now project
           complicate matters, the state also had a long                                                  spending rates, based on previous
           history of dueling systems--budget numbers                                                     experience, and determine if a department
           were maintained in one system and                                                              will overrun its allocations in time to take
           accounting numbers in another. The                                                             corrective measures. For the first time, the
           business case for better information access                                                    state has one set of books with one set of
           was clear and, in 1994, funding was received                                                   universal data. With the warehouse, users
           to build information access improvements.                                                      spend much less time explaining why
                                                                                                          numbers from one department are different
           The technical and business managers had                                                        from another department and more time
           four primary goals in mind when designing                                                      developing solutions to business problems.




           GAO/AIMD-99-45 + Executive Guide: Creating Value Through World-class Financial Management                                                  31
           Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 7
 Strategies to Consider
         To develop systems that support the partnership between finance and operations senior
         executives could:

         * Acquire and install a general ledger system adequate for external financial reporting
           purposes.

         * Develop managerially relevant cost information systems and strategic performance
           management systems that; access data from financial transaction systems and
           relevant operating systems.

         * Integrate the agency's financial (including budgetary), operating, and management
           systems and equip decisionmakers with the tools to easily access relevant information
           and perform ad-hoc analyses.

         * Ensure that financial systems comply with federal financial management systems
           requirements, federal accounting standards, and the U.S. Government Standard
           General Ledger by

              *      establishing the goal of using a single general ledger chart of accounts (the U.S.
                     Government Standard General Ledger) and

              *      developing an interim approach to convert general ledger accounts not consistent
                     with the U.S. Government Standard General Ledger. This approach should use
                     automated cross-walks performed by those business segments responsible for the
                     data.




32       GAO/AIMD-99-45 * Executive Guide: Creating Value Thrcugh World-class Financial Management
         Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakerl * Practice 7
Practice 8
Reengineer Processes
in Conjunction With
Implementing New Technology




          At many of the leading finance organizations we visited, the vast majority of financial
          applications were commercial off-the-shelf (COTS) packages that were implemented with
          limited modification to the basic application package itself. The advantages of using
          COTS software include (1) COTS software is less costly than developing in-house
          applications, (2) software upgrades are affordable and are regularly available, and (3)
          COTS software is designed to include best practices.

          The key to successfully implementing COTS systems and best practice processes,
          according to leading finance organizations, is reengineering business processes to fit the
          new software applications. In fact, productivity gains typically result from more
          efficient processes, not from simply automating old ones. Effectively reengineering
          business processes, however, requires moving from a functional-based organization to a
          process-based organization. For example, the procurement process in a process-based
          federal organization would start when a solicitation is issued, continue through contract
          award and signature, as well as the issuance of purchase/work orders and receipt of
          goods, and end when the vendor properly received payment. The business processes
          would be designed to maximize the efficiency and accuracy of the entire process.

          The Clinger-Cohen Act contains provisions requiring federal agencies to modernize
          inefficient administrative and mission-related work processes before making significant
          technology investments to support them. As a result, federal agencies are beginning to
          consider the merits of information technology approaches that involve reengineering
          business processes in conjunction with implementing COTS software without significant
          modification. According to a report by the Financial Systems Committee of the CFO
          Council, most agencies favor an approach that uses COTS software for core financial
          systems and other financial management applications. However, agency efforts to use
          COTS products have been hampered by the government's failure to communicate
          requirements and functionality effectively to the vendors and a proclivity on the part of
          agencies to modify software to meet existing business processes and to replicate previous
          system functionality. To encourage the use of COTS, OMB and JFMIP are working to
          improve (1) the testing and certification of COTS systems, (2) existing procurement
          schedules, and (3) processes to obtain COTS systems.




          GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management                       33
          Goals. Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 8
 Case Study
 Reengineering core business processes across functional
 lines is the key to successful COTS implementation
            When implementing its new financial                                                              By reengineering business processes in
            management system rather than fitting new                                                        conjunction with implementing new
            technology to out-of-date processes, Owens                                                       technology, Owens Corning increased its
             Corning redesigned its business processes to                                                    ability to meet customer needs. In the past,
            fit the new technology. The objective was to                                                     for example, many of the company's
            improve customer service and, at the same                                                        computers were not linked, making it
            time, cut logistical costs related to various                                                    impossible for sales people to check on the
            business processes. To achieve these                                                             availability of products or address problems
            objectives Owens Corning formed cross-                                                           on a customer invoice. Now, all activities
            functional process improvement; teams for                                                        that occur from the time a customer places
            each major business process to improve or                                                        an order to the time Owens Corning receives
            replace long-standing and often ineffective                                                      payment are part of the Customer
            business processes.                                                                              Fulfillment Process. In addition, new
                                                                                                             technology has integrated functions related
           During this effort, the improvement teams                                                         to the Customer Fulfillment Process, such as
           used many common reengineering tools,                                                             sales, ordering, production, shipping, billing,
           such as process mapping and process                                                               and accounts receivable, providing users
           modeling. However, successfully                                                                   with greater access to data. As a result,
           reengineering its business processes had                                                          Owens Corning's salesforce not only has
           more to do with the parameters Owens                                                              access to up-to-date information, but more
           Corning placed on its process improvement                                                         efficient processes allow sales staff to
           teams. For example, the teams were given                                                          respond immediately to customer inquiries,
           compressed schedules for completing "as is"                                                       instead of handing the problem off to
           modeling to prevent over-analysis and to                                                          another department.
           force decisions. Documenting current
           processes should be accomplished in a                                                             Other outcomes related to process
           matter of a week or two. The bulk of time                                                         improvement included (1) reducing the time
           should be spent on defining user                                                                  it takes to close the books from 13 days to 5
           requirements and designing new processes.                                                         days--with a target of 1 day, (2) reducing the
           Another important aspect of Owens Corning                                                         chart of accounts from 2,400 to 900, and
           process improvement effort was its use of a                                                       (3) standardizing reporting, which allows
           process reengineering management council.                                                         comparisons to be made between operating
           The council was made up of key process and                                                        divisions.
           business unit executives that acted as
           arbitrators when conflicts developed.




34          GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-class Financial Management
            Goals, Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 8
Strategies to Consider
        To reengineer processes that support new technology, senior executives could:

        * Form cross-functional teams to (1) examine existing core business processes and
          (2) define user requirements.

        * Compare COTS products against the agency's requirements and identify the COTS
          packages that most closely match the agency's needs.

        * Reevaluate user requirements not supported by COTS software and determine, before
          customizing software, whether each requirement is still valid or whether alternatives
          exist that may be more cost-effective.

        * Where software modifications are required, implement an effective configuration
          management system that includes (1) clearly defining and assessing the effects of
          modifications on future product upgrades before the modification is approved,
          (2) clearly documenting software products that are placed under configuration
          management, and (3) maintaining the integrity and traceability of the configuration
          throughout the system life cycle.

        * Implement a quality assurance process that ensures that project activities and
          software products adhere to management's established plans, standards, and
          procedures. This includes ensuring that the configuration management process is
          effectively implemented and that product changes are clearly documented and tested
          before being placed into production.

        * Implement an effective risk management strategy to ensure that project risks, such as
          customization and vendor's ability to deliver a given system, are adequately identified
          and effective mitigation strategies are implemented.




        GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                    35
        Goals, Practices, andStrategies to Consider *Provide Meaningful Information to Decisionmakers * Practice 8
 Practice 9                                                                                                      Ky.....

 Translate Financial Data
 into Meaningful Information




            While new technology has made financial data more available, without the ability to
            translate that data into relevant, understandable information, decisionmakers are left
            powerless. Traditionally, finance organizations have used voluminous paper reports,
            based primarily on the prior month's activity, to communicate financial information.
            Further, management reports were often designed around current organizational
            structures. Consequently, as organizational structures changed over time, many
            management reports became irrelevant.

           Today, leading finance organizations have eliminated, reduced, and/or redesigned much
           of their old management reporting formats to better meet the needs of the user. These
           organizations have designed new reporting formats around key business drivers rather
           than organizational structures to provide executives and managers with relevant,
           forward-looking information on business unit performance. During this process, one
           company we visited actually stopped distributing selected management reports to
           determine whether anyone would miss them. They used the subsequent lack of reaction
           as an indicator that the information in the report was no longer relevant.

           Further, standardized reports are designed to present information that is analyzed to
           bring out pertinent and fundamental points with suitable amounts of detail and
           explanation. For example, Owens Corning's executives and managers access a
           standardized monthly financial report via the company's internal area network. The
           report's executive summary is 10 pages long and contains executive-level reporting,
           forecasting, and budgeting information. However, multiple levels of detail are available,
           and decisionmakers can drill down to the desired level of detail.

           Similarly, efforts are currently underway across government to develop a meaningful,
           user-friendly accountability report on individual departments and agencies. These
           reports consolidate and integrate audited financial statements and reporting under the
           Results Act and other related laws to (1) show the degree to which an agency met its
           goals and at what cost and (2) aid the reader in determining whether the agency was
           well run.




36         GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
           Goals, Practices, and Strategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9
Case Study
Redesigning management reports around key
business drivers provides decisionmakers with
relevant, forward-looking information
          As part of an overall initiative to better                                                     addition, information is presented in the
          address the strategic imperatives of Pfizer                                                    form of charts and graphs. This approach
          Inc, the CFO spearheaded an effort that                                                        enhances the document's readability,
          radically changed the company's traditional                                                    increases the impact of the message, and is
          management reporting process. At that                                                          sensitive to the demands on the audience's
          time, the finance organization prepared a                                                      time. Actual financial performance is
          monthly report called the "Greenbook." The                                                     supplemented with forecasts so as to provide
          report was very detailed, comprised of static                                                  a perspective of what has happened with a
          reports and schedules entirely based on what                                                   view of what is expected to happen. The
          "had happened" and contained no external or                                                    report also contains "peer comparisons," or a
          competitive perspectives. Although intended                                                    benchmarking section that compares Pfizer's
          as a senior management briefing document,                                                      key measurements to other companies in the
          the report was voluminous and very                                                             industry. For example, the report shows a
          accounting oriented.                                                                           graphic analysis of research and
                                                                                                         development cost; operating cost; sales,
          In the interest of providing a more customer-                                                  general and administrative cost; and product
          focused document, a prototype was                                                              cost as a percentage of revenue compared
          developed based on the Pfizer CEO's                                                            with other major pharmaceutical firms. An
          management style and preferences. The new                                                      external perspective is vital to putting
          report, known as the "Executive Financial                                                      performance in a relevant context. The same
          Summary", is a 30-page report that contains                                                    operating results can be substandard or
          a wide array of financial and operational                                                      outstanding depending on the relevant
          information. Instead of containing an                                                          industry benchmarks. In general, the
          inventory of every data set and answer to                                                      chairman's overall visions, as well as the key
          every question previously asked, the                                                           objectives of the business units now drive the
          document features "exceptions" or those                                                        measurement and reporting of performance.
          items specifically worthy of focus. In




          GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                  37
          Goals. Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9
 Strategies to Consider
         To improve management reporting of financial information, senior finance executives, as
         part of the top management team, could:

         * Meet with key policymakers and managers on an ongoing basis to define key business
           drivers and determine what key business information is needed for management and
           oversight of the agency's mission and objectives.

         * Determine what information is needed by program executives and managers to meet
           and support key business information requirements.

         * Present various reporting format and content options to executives, managers, and
           Congressional Committees.




38       GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
         Goals, Practices, andStrategies to Consider * Provide Meaningful Information to Decisionmakers * Practice 9
Build a Finance Team That Delivers Results
       As the finance function has evolved over the past decade, from a paper-driven, labor
       intensive, clerical role to a more consultative role as advisor, analyst, and business
       partner, many leading finance organizations have seen a corresponding shift in the mix
       of skills and competencies required to perform this new role. To adequately respond to
       these changing business needs, the leading organizations we visited developed finance
       teams with the right mix of skills and competencies and built finance organizations that
       attract and retain talent as part of an overall strategic approach to human capital
       planning.

       Similarly, the implementation of the CFO Act, GMRA, and Results Act has placed new
       demands on federal finance organizations. As a result, federal agencies need to
       reevaluate their human capital practices to ensure that federal financial professionals
       are equipped to meet these new challenges and support the agency's mission and goals.
       This executive guide along with our 1998 report on the training and qualifications of key
       financial management personnel at Fortune 100 companies and state governments can
       help provide a frame of reference for federal departments and agencies to consider as
       part of their efforts to strengthen the qualifications, skills, and competencies of federal
       financial management personnel.!

          Essential Elements of a Value-Creating, Customer-Focused Partner In Business Results

          Success                                                                                            .       %11i
          factors


          Goals                                                                                                         B-i|k     a
                                      State -GAD-98----3   0
                                              Govaernmens Jauay                            99)team
                                                                                                                           that
                                                                                                     !akera            delivers
                                                                                                                       results.
           Practices                                                                         71                      10 Build a
                                                         fawidftio~i
                                                             l~nanQ0                          stenwtha               finance
                                                                                                                     organization
                                                                                                                     that attracts
                                                                                :.aat~:'       'etweet           ~   and retains
                                                                                                                     talent.

                                                                                                                     11. Develop a
                                                                                                                     finance team
                                                              Iha to~
                                                         3U'e~flj~                           prooee~ses~rn           with the right
                                                                                                                     mix of skills
                                                                                                                     and




       9 Financial Management: Profile of Financial Personnel in Lare Private Sector Corporations and
       State Governments (GAO/AIMD-98-34, January 1998).


       GAOnAIMD-99-45   Executive Guide: Creating Value Through World-class Financial Management                                      39
 Practice 10
 Develop a Finance Team with the Right                                                                               .
 Mix of Skills and Competencies




           At leading finance organizations, developing a finance team with the right mix of skills
           and competencies starts by defining a set of skills and competencies that will enable the
           finance team to meet the current and future technical, management, and leadership
           needs of the business. The resulting competency profile is used to assess gaps in
           individual or group competency levels and develop human capital strategies to address
           current or expected future deficiencies. In this practice we discuss the training, career
           development, and succession-planning strategies leading finance organizations use to
           develop a team with the right mix of skills and competencies.

           The training and career development programs of the leading finance organizations we
           visited provided intensive 2- to 3-year entry level programs as well as midcareer and
           executive-level programs that used both classroom instruction and rotational
           assignments to develop technical, management, and leadership skills and competencies.
           The programs' course work focuses initially on the tools and techniques of advanced
           accounting and finance as well as general business skills. Then, the focus shifts to the
           strategic application of these tools within business-specific environments. However, the
           key to implementing a successful career development program is to complement course
           work with real-life business experience through the use of planned rotational
           assignments. The leading finance organizations we visited provided opportunities for
           staff to rotate through various positions throughout the finance organization as well as
           the operating divisions. Such opportunities are critical not only in developing employees
           that understand the whole business and, in turn, provide greater value to their
           customers in the operating divisions but also as a way of ensuring that an adequate
           supply of well-prepared financial professionals is available to fill key positions.

           Similarly, federal finance organizations are recognizing the need to provide a broad
           range of experience to its financial professionals. For example, as a way to develop a
           cadre of experienced and diverse leaders, the CFO Council Fellows Program was
           initiated in April of 1998 with the selection of nine fellows to serve 1-year appointments
           at host organizations.




40         GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
           Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results * Practice 10
Case Study
Defining finance skills and competencies as part
of an entitywide approach to human-capital planning
enables finance to better support business objectives

           As part of Pfizer's strategy to become the                                                  emphasized at all levels, not just within the
           preeminent finance organization in the industry,                                            ranks of managers and executives. Financial
           Corporate Finance formed a leadership and                                                   professionals at all levels are expected to be
           career development team to redesign and                                                     innovative and proactive in providing
           enhance the finance organization's employee                                                 solutions to business problems. However, the
           development practices. The team was charged                                                 scope and importance of this competency
           with identifying and developing competencies                                                increases as you rise in the organization. To
           that would be the foundation for all human                                                  illustrate: Innovation refers to the ability to
           resource management activities and decisions,                                               improve performance by doing new things and
           including recruitment, succession planning,                                                 coming up with creative ideas. The corporate
           training, rewards and recognition, and staff                                                controller demonstrates this ability by
           reductions. The team defined the knowledge,                                                 creating a climate that proactively approaches
           skills, abilities, and behaviors for success and                                            change and emphasizes the need for continual
           grouped the competencies into three main areas:                                             skill enhancement and learning. A staff
           leadership, management, and functional/                                                     accountant, on the other hand, might
           technical. Within each group they identified                                                demonstrate this ability by challenging the
           specific competency categories, as shown below.                                             status quo as it relates to consolidation
                                                                                                       processing, procedures, and other routine
           LEADERSHIP                                                                                  responsibilities.
           * Strategy
           * Negotiation/influence                                                                      At Pfizer, management and staff are jointly
           eTeam building                                                                               responsible for an individual's career
           *Innovation                                                                                  development. This means providing and
                                                                                                        seeking appropriate training and experience
           MANAGEMENT                                                                                   to ensure that competency requirements are
           * Planning/priority setting                                                                  achieved. While classroom training can often
           * Analytical                                                                                 address technical and functional
           · Manage/develop people                                                                      requirements, experience is generally required
           · Communication                                                                              to attain many of the leadership and
                                                                                                        management competencies needed.
           FUNCTIONAL/TECHNICAL                                                                         Therefore, to accommodate employee
           *Business policies and procedures                                                            development and business needs, an integral
           *·Financial reporting                                                                        part of Pfizer's staff planning and
           *Accounting principles                                                                       development processes involves planned
           * Business alliances                                                                         movement of people. Rotations, including
            Operational/financial analysis                                                              short-term assignments within and outside of
           *·Financial instruments                                                                      Corporate Finance are a part of Pfizer's
           * Macro-economics                                                                            culture. To aid this process, the leadership
           * Information technology                                                                     and career development team produced the
           *Tax environment                                                                             Career Track Chart that illustrates possible
                                                                                                        career moves within Corporate Finance. The
           Specific competency requirements and the level                                               chart includes positions and developmental
           of expertise required varies depending on the                                                assignments that move individuals both
           position held within finance. For example,                                                   vertically and horizontally to develop both
           leadership and management skills were                                                        breadth and depth in their careers.




           GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                   41
           Goals, Practices, andStrategies to Consider * Build a Finance Team That Delivers Results * Practice 10
 Strategies to Consider
         To develop a team with the right mix of skills and competencies, senior executives could:

         * As a part of an agencywide strategic approach to human capital planning
           (1) determine the leadership, management, and functional/technical competencies
           required for the finance organization to support agency missions, goals, and objectives,
           (2) evaluate the finance organization's current and future human capital capabilities,
           (3) identify skill gaps, and (4) develop human capital policies and practices that will
           allow agencies to fill the identified skill gaps.

         * Using both classroom training, planned staff rotations, and interagency assignments,
           design a career development program geared toward

                      *     improving leadership, management, and traditional financial management
                            competencies, including the analytical skills needed to support program
                            decisionmaking;

                     *      understanding how reform legislation (e.g., CFO Act, GMRA, FFMIA, GPRA)
                            will affect the finance organization's roles, responsibilities, and processes
                            within the context of specific agency operations; and

                     *      understanding overall agency operations, including program implications of
                            financial decisions.

         * Establish continuing professional education requirements for financial managers
           similar to those required for auditors.




        GAO/AIMD-99-45 * Executive Guide: Creating Value Thuough World-Class Financial Management
42      Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results Practice 10
Practice 11
Build a Finance Organization




          As discussed in practice 10, sound training and career development strategies are needed
          for the finance organization to meet the current and future human capital needs of the
          business. Equally important, however, are recruitment, retention, and reward strategies
          that enable the finance organization to attract and retain talented financial professionals
          at all levels. Although their styles and strategies varied, the leading organizations we
          visited agreed that several key factors were important in attracting and retaining talent.

          First, recruiting a talented workforce requires the commitment of top leadership. The
          CFOs at these organizations are often heavily involved talent assessment and senior
          executive leaders are actively involved in on-campus recruiting. This sends a powerful
          message to potential new recruits that the position is important enough to the
          organization that it warrants senior executive attention.

          Second, attracting and ultimately keeping a highly qualified and motivated workforce
          involves providing meaningful career opportunities, such as the opportunity to
          (1) participate in exciting ground-breaking projects, (2) build a portfolio of new skills, and
          (3) choose a variety of career paths. These organizations often used their staff
          development programs to provide these opportunities. For example, as discussed in
          practice 10, career development programs often include rotational assignments and not
          only provide excellent growth opportunities but also expose staff to a variety of career
          path opportunities.

          Third, compensation is a key factor in any career decision. While, according to employee
          compensation surveys, compensation is fairly comparable between the private and public
          sectors for entry level and middle management positions, executive compensation in the
          private sector far exceeds that of federal executives, thereby limiting federal agencies'
          ability to attract and retain federal executives. (See appendix IV for compensation survey
          results.) However, other factors such as the desire to effect change and make a
          difference may attract senior executives to public service. In addition, opportunities may
          exist that will enhance agencies' ability to attract and retain talent at all levels. For
          example, the revolutionary changes that are taking place as a result of the CFO and
          Results Acts provide an ideal occasion to revamp the opportunities available to federal
          financial professionals and to market the possibilities offered by a career in federal
          financial management.


          GAOpAIMD-99-45 * Executive Guide: Creating Value Through World-Class Financial Management                43
          Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results *Practice 11
     Case Study
 Providing a variety of challenging career
 opportunities and experiences helps to attract
 and retain talented professionals
              The primary entry point into the General                                                       staff. GE has broadened the scope of its
              Electric (GE) financial community is its                                                       internal audit function and used it as a
              Financial Management Program (FMP).                                                            training ground for new staff. The auditor's
              FMP is an intensive 2 to 2-1/2 year program                                                   role extends beyond financial reviews to risk
              for professional staff that consists of on-the-                                               management, due diligence, and business
             job experience combined with formal                                                            integration. Auditors also play a key role in
              classroom training. It is designed to teach a                                                 best practice sharing across business lines.
              combination of technical, financial, and                                                      The Experience Financial Leadership
             business skills that prepare staff for                                                         Program (EFLP) is another path available to
             financial leadership positions. While FMP                                                      select FMP graduates and midcareer hires
             was designed to be a training and                                                              with 5 or more years of business experience.
             development program for financial                                                              EFLP is a structured program comprising
             managers, it has also served as a valuable                                                     advanced financial classes and business
             tool for attracting and retaining talented                                                     projects designed to supplement on-the-job
             financial professionals. By providing staff                                                    development and provide cross business
             with valuable and exciting opportunities and                                                   exposure and interaction with senior
             experiences, the program sells itself--a                                                       management. EFLP also plays an important
             financial career, kicked off with an entry via                                                 role in accelerating the development and
             FMP, can take staff anywhere--not just in                                                      exposure of more experienced staff who are
             terms of geography, but in terms of                                                            hired from the outside.
             achievement.
                                                                                                            GE recognizes the value of providing staff
             Typically, during the 2-1/2 year program,                                                      with diverse opportunities and experiences
             staff rotate approximately every 6 months                                                      throughout their careers across business,
             into a new assignment, gaining experience in                                                   finance organizations, and outside the
            diverse aspects of GE's business. Staff will                                                    finance function. Therefore, GE's CFO
            rotate through general accounting,                                                              insists that the brightest people within
            manufacturing accounting, financial                                                             finance spend time outside the finance
            planning and analysis, auditing, and one                                                        function--in manufacturing or marketing.
            business process project. Staff are placed in                                                   When they come back they are
            challenging positions where they gain                                                           immeasurably more valuable to finance
            exposure to a number of different elements                                                      because they know something about the
            of finance. Experienced managers and FMP                                                        businesses. About one-half of the employees
            administrators will act as mentors,                                                             coming out of the FMP and EFLP programs
            supporting staff, connecting them with                                                          take management assignments in the
            resources, and helping them grow.                                                               operating areas-with the CFO's blessing.
                                                                                                            This is a huge change from the days when
            Six months prior to completion of the                                                           managers had one objective for their best
            program staff begin to plan their off-program                                                  people, which was to hoard them. Now,
            placement with the assistance of local                                                         finance trains a resource that is available for
            financial managers and the program                                                             the leadership of the entire company, not
            administrator. One of the most sought after                                                    just finance.
            assignments is with GE's corporate audit



            GAOIAIMD-99-45 * Executive Guide: Creating Value Thuough World-Class Financial Management
44          Goals, Practices, andStrategies to Consider * Build aFinance Team That Delivers Results * Practice
                                                                                                             I11
Strategies to Consider
        To build an organization that attracts and retains talent, the CFO and senior executives
        could:

        * Actively work with colleges and universities to (1) market the opportunities available
          for financial professionals and (2) include a federal accounting and financial
          management curriculum that will not only prepare students for careers in federal
          accounting but will also help promote federal career possibilities.

        * Continue to work with the Office of Personnel Management to provide more flexible
          career paths that provide opportunities for movement throughout the finance
          organization and agency program offices.

        * Utilize staff development programs and planned staff rotations to expose financial
          managers and staff to a variety of career paths.




        GAO/AIMD-99-45 *Executive Guide: Creating Value Through World-Class Financial Management                 45
        Goals, Practices, and Strategies to Consider * Build a Finance Team That Delivers Results * Practice I
     Appendix I
     Research Objectives, Scope, and Methodology
             The objectives of our research were to (1) define and describe the characteristics of a
             world-class finance organization, (2) identify the factors that are essential for finance
             organizations to improve their financial management and move towards world-class
             standards, and (3) provide case studies which illustrate the efforts of leading finance
             organizations from private sector companies and state governments to improve their
             financial management and the overall performance of their organizations.

             We formed an advisory group to assist with job design, our overall scope and
             methodology, and case study selection as well as to critique our research findings and
             comment on our draft report. The group consisted of private sector executives, state
             and local comptrollers, academicians, and other experts and consultants outside the
             federal government. (Key contacts and project advisors are listed in appendix V.) We
             also consulted with members of various CFO Council committees and representatives
             from OMB and Treasury.

            To meet our research objectives, we performed an extensive literature search on the
            subject of financial management best practices using commercial best practice
            databases, the Internet, prior GAO reports, trade journals and magazines, federal
            guidelines, private sector studies, and other resources. We synthesized and analyzed
            the numerous documents acquired from our literature search and case study
            organizations-to determine the objectives essential for organizations to improve their
            financial management. Based on consultations with our advisory group and our case
            study entities, we consolidated and refined the factors to those presented in this guide.

            We selected six private sector companies and three state governments to serve as our
            case studies. We selected the private sector companies based on (1) recognition for
            outstanding financial management practices and/or successful financial reengineering
            efforts, (2) size and complexity comparable to federal government agencies, and
            (3) discussions with members of our advisory group. We selected the state
            governments based on (1) the 1995 "The State of the States" report issued by Financial
            World magazine and (2) discussions with members of our advisory group and the CFO
            Council. We interviewed various officials, including chief financial officers, chief
            information officers, business unit executives, state executive and legislative branch
            officials, treasurers, controllers, internal auditors, agency administrators, and human
            resource specialists. We also reviewed various company documents, including vision
            statements, strategic plans, core competencies for finance personnel, training and
            development guides, key financial reports, performance metrics, and other documents
            related to reengineering efforts of the finance organization.

            We asked officials at the private sector companies and state governments profiled in
            the case studies to verify the accuracy of the information presented on their respective
            organizations and incorporated their comments as appropriate; however, we did not
            independently verify the accuracy of that information. In addition, we provided a draft
            of this entire guide to OMB, members of the CFO Council, and our advisory group for
            their review and comment.

46          GAO/AIMD-99-45 *Executive Guide:' Creating Value Tlu ough World-Class Financial Management
Appendix II
Supplemental Case Study Information
The Boeing Company's Personal Planning Guide
for Developing Business Competence (excerpt)

     Performance Expectation: Include business process and financial information
     in decision-making

     Key elements                               Supporting actions                                                                              Rating
                                                                                                                                      -Im o oaelPersonal*

     Use appropriate facts and data from           >    Locate sources of company information                                           3      []
     company information systems to                >    Operate selected information systems                                           0             O
     support accomplishment of business            >    Select appropriate data and information                                                      O0
     plans                                         >    Make decisions based on analysis of data                                       0             0
                                                   >    Manage information resources to ensure ready access to information                          a0

     Make informed decisions                       >    Apply company integrity, values, and ethics                                    0            0
                                                   >    Identify key components of decisions                                           0            0
                                                   >    Collect pertinent data                                                         0            [0
                                                   >    Analyze alternatives                                                           0            0
                                                   >    Use selection criteria                                                         0            0
                                                   >    Apply wisdom, judgement, and experience                                            3        [
                                                   >    Take action                                                                    a            a


     Create business forecasts                     > Lead the estimating and budgeting process                                         0C           0
                                                   > Develop schedules                                                                 0            0
                                                   > Apply target costing (should cost)                                                0            0

     Apply total cost management                   >    Monitor budgets, costs, and schedules                                          0            0
     principles                                    >    Apply variance analysis                                                        0            01
                                                   >    Reallocate resources to meet objectives                                        0            0
                                                   >    Predict management estimate at completion                                      13           0
                                                   >    Use earned value                                                               0            0

     Recognize cost structure (elements of         >    Apply unit cost practices                                                      O            0
     product cost)                                 >    Apply process cost practices                                                   0             13
                                                   >    Identify cost elements                                                         [0           0
                                                   >    Use life cycle costing to identify present and future costs                    0            [
                                                   >    Identify components of rates                                                   [            [°

     Apply economic and financial                  >    Analyze cash flow needs                                                        0            0l
     principles                                    >    Explain cost of capital                                                        0            0
                                                   >    Use discounted cashflow, present value analysis, and internal rate of retum    0            0
                                                   >    Explain investment management                                                  01           0
                                                   >    Explain importance of economic decisions on shareholder value                  0            0
                                                   >    Use financial analysis tools                                                   0            0
                                                   >    Use Boeing financial reports and statements                                    0            0
                                                   >    Perform make/buy analysis                                                      0            03
                                                   >    Explain impact of taxes                                                        [            D
                                                   >    Explain billings and collections                                               [            a



     Note 1: Importance Rating of the supporting action to your specific assignment (H= high, M= medium, L= low.)
     Note 2: Personal Rating of your level of competence for the supporting action. Use a scale of 1to 5(1=weak, 5 = strong.)




     GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                              47
 Appendix III
 World-class Finance Performance Metrics
       Table 1: Comparison of Performance Metrics--Average vs. World-class Companies
       Performance metric                                         Average                                  World-class
       Cost as % of revenue                                        1.4%                                    0.97%
       A/P productivity per FTE                                    12,500                                  15,900
       Processing locations                                       >3                                       1
       Systems per process                                        2-3                                      1
       Budget cycle                                                95 days                                 60 days
       Closing cycle                                              5-8 days                                 <4 days

       Source: The Hackett Group.




       Table 2: Comparison of Labor Costs per Transaction--Average vs. World-class
       Companies
       Process                                     Measure                                       Average             World-class
       Payables                                    Invoice                                       $3.55               $1.98
       Receivables                                 Remittance                                    $0.36               $0.14
       Travel & expense                            Expense report                                $6.05               $3.96
       Payroll                                     Paycheck                                      $1.91               $1.39

       Source: The Hackett Group.




48   GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management
Appendix IV
Comparison of Selected Federal Agencies & Case Study Entities

     Table 1: Total Revenues/Outlays at Case Study Entities and Federal Agencies for 1998
     Agency/company                                                                            Total revenues/outlays (in millions)
     Social Security Administration                                                                                 $393,311
     Department of the Treasury                                                                                      379,345
     Department of Health and Human Services                                                                         339,535
     Department of Defense                                                                                           288,604
     General Electric Company                                                                                        100,469
     Boeing Company                                                                                     C             56,154
     Department of Agriculture                                                                                        52,547
     Hewlett Packard Company                                                                                          47,061
     Office of Personnel Management                                                                                   45,404
     State of Texas                                                                                                   43,816
     Department of Transportation                                                                                     39,832
     Department of Veteran Affairs                                                                                    39,280
     Commonwealth of Massachusetts                                                                                    31,249
     Department of Labor                                                                                              30,458
     Department of Education                                                                                          30,009
     Department of Housing and Urban Development                                                                      27,527
     Commonwealth of Virginia                                                                                         19,245
     Chase Manhattan Corporation                                                                                      18,656
     Department of Energy                                                                                             14,467
     Pfizer Inc                                                                                                       13,544
     Owens Corning                                                                                                     5,009
     Department of Commerce                                                                                            3,783
     Federal Emergency Management Agency                                                                               3,326
     National Science Foundation                                                                                       3,130

     Source: 1998 company annual reports, 1998 state comprehensive annual financial reports, Budget of the United States Government. Fiscal Year 1999.




   GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                             49
       Table 2: Total Employees at Case Study Entities and Federal Agencies
       Agency/company                                                                                         Total employees
       Department of Defense                                                                                          742,437
       General Electric Company                                                                                      276,000
       Department of Veteran Affairs                                                                                  242,685
       Boeing Company                                                                                                238,000
       State of Texas                                                                                                231,335
       Department of the Treasury                                                                                     139,794
       Hewlett Packard Company                                                                                        121,900
       Department of Justice                                                                                          117,699
       Department of Agriculture                                                                                      104,095
       Commonwealth of Massachusetts                                                                                  100,000
       Commonwealth of Virginia                                                                                       94,253
       Chase Manhattan Corporation                                                                                    69,033
       Department of the Interior                                                                                      68,815
       Social Security Administration                                                                                  66,489
       Department of Transportation                                                                                   64,163
       Department of Health and Human Services                                                                        59,111
       Pfizer Inc                                                                                                     49,000
       Department of Commerce                                                                                         34,738
       Department of State                                                                                            24,283
       Owens Corning                                                                                                  22,000
       National Aeronautics and Space Administration                                                                   19,816
       Environmental Protection Agency                                                                                 17,901
       Department of Energy                                                                                            16,917
       Department of Labor                                                                                             15,820
       General Services Administration                                                                                 14,323
       Department of Housing and Urban Development                                                                     10,311
       Federal Emergency Management Agency                                                                             4,839

      Source: 1997 company annual reports, 1997 state comprehensive annual financial reports, 1997 U.S. Office of Personnel Management.




50   GAO/AIMD-99-45 * Executive Guide: Creating Value Through World class Financial Management
     Appendix IV * Comparison of Federal Agencies and Case Study Entities
  Table 3: Comparison of Revenues/Outlays In Millions with CFO Compensation (Salary
  and Bonus) at Selected Case Study Entities for 1997


                 Company                               Revenues/outlays                        CFO              Bonus             Total
                                                                                              salary
  General Electric Company                                         $100,469,000               $1,100,000       $2,000,000             $3,100,000
  Federal Agency                                                    $72,568,000                 $151,800                                $151,800
                                                                     (average)                    (max.)                                  (max.)
  Boeing Company                                                     $56,154,000                $392,261         $137,700                $529,961
  Hewlett Packard Company                                            $47,061,000                $997,625         $147,804             $1,145,429
  Chase Manhattan                                                    $18,656,000                $628,846       $1,168,750             $1,797,596
  Corporation
  Pfizer Inc                                                         $13,544,000            Not available                    --                      --
  Owens Corning                                                        $5,009,000               $371,875         $795,000             $1,166,875

Source: 1998 company annual reports; Budget of the United States Govemment. Fiscal Year 1999; 1999 company proxy statements; 1998 Senior Executive
Service pay schedule.




GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management                                                                 51
Appendix IV * Comparison of Federal Agencies and Case Study Entities
 Appendix V
 Leading Organization Contacts and Project Advisor
 Acknowledgements
     We would like to acknowledge the following private sector and government executives whose
     advice and assistance throughout this project has been invaluable.

     Key contacts at leading organizations

     Bruce H. Adams                                                                             Larry Lazicki
     Senior Vice President, Global Services                                                     Executive Assistant-Fiscal Mgmnt. Div.
     Administration                                                                             Comptroller of Public Accounts
     The Chase Manhattan Bank                                                                   State of Texas

     David Devonshire                                                                           William Landsidle
     Chief Financial Officer                                                                    Comptroller
     Ingersoll Rand Corporation                                                                 Commonwealth of Virginia
     (formerly with Owens Corning)
                                                                                                William C. Steere, Jr.
     Lynn L. Saylor                                                                             Chairman of the Board & Chief Executive Officer
     General Electric                                                                           Pfizer Inc
     Director-Corporate Finance
     General Electric Company                                                                   William Kilmartin
                                                                                                Vice President
     Boyd E. Givan (Retired)                                                                    American Management Systems, Inc.
     Chief Financial Officer                                                                    (formerly with the Commonwealth of
     The Boeing Company                                                                         Massachusetts)

     Richard L. Hoddeson
     Vice President,
     Operations Planning and Analysis
     Pfizer Inc

     Project advisors

     Julia Carroll                                                                              Gerald R. Riso (deceased)
     Chief Financial Officer                                                                    Chief Executive Officer
     Naperville, Illinois                                                                       Riso & Riso

     Thomas V. Fritz                                                                            Cornelius E. Tierney
     President & Chief Executive Officer                                                        Professor of Accountancy
     Private Sector Council                                                                     George Washington University

     Edward J. Mazur                                                                            Patricia M. Wallington
     Vice President                                                                             Vice President & Chief Information Officer
     Virginia State University                                                                  Xerox Corporation

     John L. Puckett
     Assistant Vice President - Information Technology
     GTE Internetworking


52   GAO/AIMD-99-45 * Executivc Guide: Creating Value Through World-clas Financial Management
Appendix VI
GAO Contacts and Staff Acknowledgements
   GAO Contact

    * Linda P. Garrison (404) 679-1902
    * Diane G. Handley (404) 679-1986


   Acknowledgements

   In addition to those names above, Francine M.Delvecchio, Marshall L. Hamlett, and Elizabeth
   M. Mixon made key contributions to this report.




    GAO/AIMD-99-45 * Executive Guide: Creating Value Through World-class Financial Management    53