oversight

Management Control in the 90s

Published by the Government Accountability Office on 1990-03-05.

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

 ( JFMIP )        The Proceedings of the 19th Annual
                  Financial Management Conference




                       Management
                         Control
                           ••••

                           in the 90s

            ...               19th Annual
                          Financial Management
                               Conference
REFERENCE
                           Monday, March 5, 1990
GAO                         Grand Hyatt Hotel
HJ
257.2                        Washington, D.C.
.F55
1990
.
t---
       .....,
        ~




    ( C)    '70
Contents




Foreword

Acknowledgements

CHAPTERl
Opening Remarks by Virginia B. Robinson          1
Keynote Address by Robert Gf4uber                4
Remarks by Frank Hodsoll                         9
Keynote Address by Senator John H. Glenn, Jr.   11
Address (videotape) by Jack Kemp                17

CHAPTER 2
Remarks by Constance B. Newman                  20
Remarks by Charles A. Bowsher                   23
Awards Presentation by Gerald Murphy            24

CHAPTER 3
Panel Session Summaries
A. Financial Statements: Panacea or a Tool?     27
B. Accountability for Government Resources      31
C. Prescriptions for System Successes           35

CHAPTER 4
Award Winners                                   39
                                         Foreword




The Joint Financial Management Improvement Program (JFMIP) sponsors an annual conference to address current
issues in financial management policies and practices within the government. On March 5, 1990, the 19th annual
Financial Management Conference was held on UManagement Conrrol in the 90s--A New Agenda."             A!;   part of
JFMIP's mission to disseminate this infimnation and to enhance the spirit of cooperation among financial managers,
we are publishing the Conference proceedings.


The keynote addresses were presented by Robert Glauber, Under Secretary of the Treasury for Finance, and Senator
John Glenn. Under Secretary Glauber highlighted financial management and related economic issues from the
Treasury's perspective, while Senator Glenn discussed management control initiatives and the starns of the proposed
legislation for Chief Financial Officers in the federal government. Their speeches can be found in Chapter 1. This
chapter also includes an address by Jack Kemp, Secretary, Department of Housing and Urban Development, which
was presented by videotape at the Conference.


Two of the JFMIP Principals--Constance Newman, Director, Office of Personnel Management and Charles Bowsher,
Comprroller General of the U.S.--gave brief remarks during the luncheon session . This session was highlighted by
the presentation of the Donald L. Scantlebury Memorial Awards to    twO   outstanding executives for distinguished
leadership in financial management. The awards speech given by Fiscal Assistant Secretary Gerald Murphy, who is
Chairman of the JFMIP Steering Committee, and the luncheon session remarks are presented in the second chapter.


The three panel sessions covered financial statements, accounrabiliry for government resources, and prescriptions for
systems success. Summaries of these sessions are found in Chapter 3.




                                        ii
                                            Acknowledgements




We would like to aclmowlcdgc and thank all those: who participated in this year's conference. We especially like to thank those
individuals who worked behind the scene to ensure that the conference was run smoothly and successfully:


Program Coordinator.                        Registration and Other                       Pand Session ~orders:
Dons CbnI, jFMIP                            Conference Activities:                       DUtuB,."
                                            Financial Management Service                 Department ofDefcnsc
Conference Arrangements:                    M,,'7 r- MAson                               ]o,<e ]obtu...,
                                            ],,_W..                                      Department of Transportation
USDA Gnduate School                                                                      Bri.,.. SlJlJlHua,
Philip H""'",.                              ]oElIer. Mcc.or-.dt,
                                            Gcneral Accounting Office                    Financial Management Service
bllhelle H"",a
Brill" Gm,
                                            D"m Gribble,                                 Photographers:
                                            Office of Management and Budget              General Accounting Office
Awards Nomination Review
                                                                                         ~Pcrltins
Committee                                   SteP.Fo,."",,,,                              Ridmrtl Roc:/rhvm
Chair: Ridmrtl Wilktt,                      Federal Energy R<:gulatory Commission
Grant Thornton                                                                           The staff at USDA Graduate school and
N. Anthon, (Alhoun,                         jFMIP Staff                                  the Office of Publishing and Communi·
District of Columbia                        Kn....th Win""                               cations at the GAO, especially Julio
D..n8htF_ r ,                               &I",,,rtI W"ddi"8                            Luna and Theresa Mechem in the
National Transportation Sakty Board         G..... lIli"" BeIIrtI                        production of brochures and these c:anfcr·
IJJi=bah StMdky,                            ]...ti F_here                                onee proceedings.
Department of Energy                        Donn. TebeRu
                                            Fr."./t. Kr,,,,,,er




                                            iii
                           Chapter 1
                           Opening Remarks




                           Good morning. I am Virginia Robinson, Executive DirectOr of the Joint
                           Financial Management Improvement Program . It is indeed a pleasure to
                           welcome you to our 19th Annual Financial Management Conference. I am
                           delighted to see such a good turnout today. My idea ofa good turnout is
                           approximately 700 handsome and alert faces at 9:00 a.m. on a Monday
                           morning at a JFMIP conference.
                           We have exceUent representation here today. I understand that in addition
                           to the representation from a lot of federal agencies, we have good represen-
                           tation from the private sectOr and a number of representatives from state and
                           local government as well. I have not seen all of them yet, but I understand
                           that we have the Auditor General of Michigan, a budget official from
                           Maryland, and finance and budget officials from the State of Massachusetts.
                           I would like to wdcome all of you.
                                One other thing that I noticed this morning is that we do have a few
V;'r6iniA. Robinson        new faces in the audience. Many of the people who are here are accustomed
ExecutWe Dire&toYJ JFMIP   to coming to our JFMIP conferences as a part of the educational tradition in
                           WashingtOn . Bur to those of you who are at a JFMIP conference for the first
                           time, I would like to extend a special welcome. I know that some of you
                           have made a special effort to start gerting involved in training eventS and
                           participating in conferences such as these. I do welcome that and encourage
                           you to continue that kind of participation.
                                There is one special meeting that took place since our conference last
                           year that I would like to mention to you. Last September we had a special
                           meeting of our four JFMIP Principals (three of whom are new). I consider
                           that a momentoUS event, since it is not an easy accomplish.ment to get the
                           Secretary of the Treasury, the Direaor of the Office of Management and
                           Budget, the DirectOr of the Office of Personnel Management, and the
                           Comptroller General of the United States in one room at the.rune time.
                           They met to share info rmation on past activities and to provide future
                           direction from the perspective of the central agencies.
                                I was very pleased that their agenda did coincide with a number of the
                           things that we do have under way. The emphasis in that meeting was on fi-
                           nancial systems, the improvementS that we need to make in that area, the
                           chief financial officer, and improved reporting and much of the work that
                           we need to do in that area . You will notice that much of our program today,
                           as well as our JFMIP projeas and our publications, center around those
                           topical areas.
                                You probably noticed at th, registtation desk that we have a number of
                           publications that are available for you. Those of you who remember, we
                           have gone 2 years now saying that this is our 40th anniversary, and I should
                           explain how we can have more than one such anniversary. The Joint Pro-
                           gram really started in 1948, but the legislation officially establishing the




                           1
Chapter 1
Opening Remarks




Joint Program was passed in 1950. So we Starred the celebration in 1988;
worked on the publication in 1989; and it is now a.vailable for you in 1990.
     Within the next 3 months, we plan to issue three major reports from
our projectS in the Joint Program. While we will not have those reporrs
available until about 3 months from now, we do have forms available at the
regismtion desk so that you can get them, and any other publications that
we issue, if you leave your name and address at the desk. I do want you to
be aware of what is on the agenda and what is coming down the pike within
the next 3 months.
     We will have a draft report on our standardization of financial informa-
tion project. I know you have heard about that one before. I hope you have
read about it in our quarterly news bulletins. We expect that project to
highlight the standardized reporting requirementS for the Department of
the Treasury and the Office of Management and Budget. A key part of that
report will also be terms used in financial management and it is our hope,
after the issuance of that report, that this will become standardized terminol-
ogy used in financial management across government.
     The second report that we expect to issue within the next 3 months is
the standardized payroll/personnel system requirementS for the federal
government.
     The third one is a mining report for accountantS. We have a lor of
interest in mining these days, and I do hope you will hear a little about it
when the Director of the Office of Personnel Management will discuss
briefly human resources issues later this afternoon. I want to call your
arrention to this report, because I want you to be aware that it is just the tip
of the iceberg. We expect eventually to have training reportS for other areas
of the financial management disciplines in the future.
     We call the accountantS' mining report to your attention especially
because of some of the things that you will be hearing today. We have a
special need to have emphasis put on training at this time. We are hearing a
lot and reading a lot about the activities in the Department of Housing and
Urban Development, the Internal Revenue Service, and other areas; and one
of the things that we seldom hear asked is what is the level of mining that is
available to the people who are charged with carrying out those very com-
plex assignmentS. We want to commend to your attention that we are
working very much in this mining area in the hope that others will develop
a similar interest so we can see that we have mining av.lilable for our people.
     Now, you are going to hear five major topics today. From Under
Secretary Glauber you are going to hear some new and interesting things
from the Treasury perspective. We typically hear quite a bit about financial
systems from Treasury. He has responsibiliry for economic policy, tax policy,
and other areas.
     We are also going to hear acout Chief Financial Officers' Legislation,
financial statements, accountabiky for government resources, and financial
systems .




2
Chapter 1
Opening Remarks




     I should mention that there is a common thread; there is a bottom line
running through those areas. And that common thread is the need and the
emphasis on the kinds of talents it takes to implement the activities and re-
sponsibilities that are associated with those issues.
     Although we talk frequently about the complexities and the challenges
that we have in government, I mentioned earlier that we seldom talk about
qualifications and the training of the people who are charged with carrying
out those very complex responsibilities. Frequently we hear that it is impor-
tant and desirable to run the government like a business. My hope, when
you leave this conference today, is that one of the things that you will take
with you is that it would certainly be desirable for us to emulate a certain
aspect of that comment about running the government like a business. What
I hope that aspect will be is a recognition of how beneficial it would be ifwe
could run the government like a business from the standpoint of training
the people who have to do the work. We simply would nOt permit our
businesses, our corporations and other firms to operate with the level of
interest in training that we do tolerate in our government today.
     It is my distinct pleasure now to introduce one of our keynote speakers,
Under Secretary of the Treasury Roben Glauber.




3
                                     Keynote Address




                                     By training I am a school teacher and I am flattered that you invited me to
                                     talk to you this morning. Just as you are today beginning this last decade of
                                     the cenrury by thinking what needs to be done now to get yourselves in
                                     position to deal with the challenges of the 21st cenrury, we are doing the
                                     same thing at Treasury. We see that what we set as an agenda at the begin -
                                     ning of these last 10 years is going to be the issues that carry uS forward,
                                     hopefully, to position ourselves and help position U.S. industry for the
                                     competitive challenges that they are going to face in the furure.
                                          Let me JUSt read to you a couple of paragraphs that my boss, Treasury
                                     Secretary Nicholas Brady said in a speech about a week and a half ago:
                                     "World events have brought about sranling changes in the past year. Who
                                     would have guessed a year ago that fundamental political changes and
                                     economic reform would sweep through Eastern Europe so quickly? Who
                                     would have predicted the striking changes occurring in the Soviet Union?"
RDberl Gf4..ber                           If you look for the source of these phenomenal geopolitical changes,
UnJier &ere,,,., of the TrtllSU.,    there is one common theme- -a theme expressed by President Bush in his
                                     inaugural address when he said that freedom works. Free people and free
                                     markets breed the energy and vitality which produce the highest standard of
                                     living for people everywhere . The system of democratic capitalism which we
                                     pioneered in Ametica is the beacon which has guided men and women, as
                                     they unite against regressive regimes, inspired by the hope of a better life.

                       ~ree people and free markets breed the energy and vitality which
                      produce the highest standard of living for people everywhere. »
                                           I think that is important because, as we face the competitive challenges,
                                     as our businesses face the competitive challenges which, indeed, are very fOr-
                                     midable around the world, and as it becomes clear that we can no longer ef-
                                     fonless1y dominate world competitive battles, we really do have a very
                                     important advantage. More and more nations have come and are coming to
                                     adopt our political and economic philosophies. I think that is very good
                                     news because it means that as we enter this competition, we enter it with a
                                     home field advantage.
                                           The question I think we have to answer is what does it take to enhance
                                     the competitiveness of our corporations as they face this global competitive
                                     challenge of the 21st century . As we have looked at it at Treasury, I think it
                                     is simple to say this: What we need to do is invest in capital--in human
                                     capital, public capital and in corporate capital.
                                          In human capital, clearly, one of the most important things we need to
                                     do, and the Bush administration is committed to doing, is to strengthen our
                                     educational system. Our dropout rate is roughly 25 percent. It is impos.~ible
                                     for us to win this kind of competition if a quarter of our players are just
                                     simply lefr on the bench . We need to push even harder than we have tOward
                                     a drug-free society. Drug dependence puts many of the best of our potential
                                     workers on the sidelines and it simply saps our human capital.


                                     4
                Keynote Address




"What we need to do is invest in capital-in human capital, public
capital and in corporate capital. »
                     Second, we need to build public capital. We need to invest in clean air,
                a clean environment and a modem and efficient infrastructure.
                     Third, and the issue which is really closest to the Treasury and itS
                agenda, we need to build corporate capital that is necessary for the 21st
                century . If we are going to do that, it is critical that both managers and
                investors have a long-term perspective as they make their decisions. We
                simply cannot get where we need to go focusing one quarter ahead at a
                time.
                     So let me talk a little bit about what we are thinking about and trying
                to do to encourage this long-term way of thinking which those of you who
                have read the business magazines know that it is really a fundamental
                concern of Secretary Brady.
                     I think the firSt thing we can do to encourage this long-term thinking is
                to lower our cost of capital. To lower our COSt of capital, I think the first
                thing we have to do is reduce the federal budget deficit. Doing that is going
                to lower interest rates and probably be the single most important thing we
                can do to lower the COSt of capital.
                     As you know, the Bush administration is committed to lowering that
                federal budget deficit, and to do it by cutting spending rather than raising
                taxes. In our view, the only lasting way of getting there is by cutting spend-
                ing. It is just a historical fact that most dollars ITom increased taxes will
                surely go not to reducing the deficit, but to building bird sanCtuaries in
                West Virginia.

«J think the first thing we can do to encourage this long-term
thinking is to lower our cost of capital. To lower our cost of capital, I
think the first thing we have to do is reduce the federal budget
deficit. »
                     With tbe leadership of President Bush, so far I think our record is very
               good. We managed to get within the Gramm-Rudman-Hollings targetS last
               year. Even tbough it took a commitment of accepting sequester, we did it
               last year. We have put in this year a budget which meetS tbe 564 billion
               target. If necessary, the Administration will accept sequester again . As I say,
               this is the single most important thing I think we can do to cut the COSt of
               capital.
                     There are other things we can do and there are other initiatives we have
               taken. We have introduced a capital gains taX plan which reduces the capital
               gains taX rate and reduces it more the longer the person holds a capital asset.
               It is a reduction of 30 percent fOr assetS held 3 years or more, 20 percent fOr
               2 years or more, and 10 percent for assetS held 1 year or more . By doing
               that, we are again underlining the importance oflong-term thinking.



               5
Keynote Address




      The third thing we can do, and we are committed to doing, is to
increase the personal savings rate in the U.S. As you know, the personal
savings rate in the U.S. has dropped dramatically and it has dropped to a
point where we now lag behind most of our fureign trading partners by as
much as 50 percent. The personal savings rate in the U.S. is less than half
the person.al savings rate in Japan and lower than virtually all of our foreign
trading partners. It is also lower than it has been hisrorically in this country.
Back in the 50s, 60s and 70s the personal savings rate, that is, personal
savings as a fraction of after-tax income, was a little bit over 7 percent.
During the 80s it has been just a little bit over 5 percent. We simply have to
save more and we have to encourage people to save more.
      To do that, the Administration has ptoposed two important initiatives.
One is the family savings account plan, which is a plan which will allow
people to take money from after-rax earnings, put it intO an account fur no
longer than 7 years, if they choose, and take the money Out at the end
completely rax free. This is a simple, straight-forward way of saving; a rax
incentive could do it. It does not have the illliquiclity characteristics of an
IRA plan where money has to be held until age 59.5 to get the tax-deferred
treatment. We think it is an important initiative. The polling that we have
taken so far suggests that it is and we hope that we can get this passed
through Congress in very much the funn we have proposed.
      The other initiative is an enhanced version of the IRA plan currently in
existence. As you may know, right now to withdraw money from an IRA, a
participant has to pay an excise tax of 10 percent. That tax will be waived on
withdrawals of up to S10,000 if those funds are used to purchase a first-time
home. With the COSt of homes going up to the point where they have, they
are in many cases almost out of reach of many individuals, many rnmilies.
This is a plan which at least will help put them back in reach.
      These are proposals which ate in the President's budget. They are the
first installment on our commitr.lent to lower the cost of capital. We have
other installments down the road.. One of them that is sorr of near down the
road is to try and develop a plan to eliminate the double taxation of divi-
dends. As you know, corporations can deduct interest but they cannot
deduct dividend payments, with the result that we favor the use of debt over
the use of equity in the way corporations finance themselves. This incentive
to use debt rather than equity has not been lost on corporations . Good
financial managers, like yourselves, make the obvious condusion, that is, to
substitute debt fur equity. The result has been, on the average, about 5100
billion of debt being substituted for equity in corporations over the last 3 or
4 years each year. This has led to increased leverage in corporations and
increased financial instability in those corporations.
      We believe that it makes no sense to tax interest once but the dividends
twice and we are working on proposals which will right this imbalance,
which will lead to even -handed treatment of debt versus equity in corporate
capital structures. We will have a report out later in the spring which will at
least begin discussion on this issue.



6
Keynote Address




      If we can accomplish these ,,"rious initiatives, I think the payoff will be
reduced COSt of capital. The payoff will be more investment, greater growth
and a higher standard of living for all Americans.
      Beyond that, there is another area where I think we can make a contri-
bution to building capital. That is, to get investors also to look at the longer
term rather than to fOcus on quarterly financial results. Here, again, there are
a number of steps that can be taken. First of all, the capital gains tax pro-
posal clearly will do this. If investors receive a greater exclusion on their raxes
the longer they hold investments, they are going to clearly have an incentive
to hold for the longer term rather than the shorter term .
      We can also look toward our pension funds. In this country we have the
most fully developed pension fund system in the world . These pension
funds are an obvious source of the kind of patient capital, the kind of long-
term investment that we so badly need in this country. After all, pension
funds have as their liabiliries long-term liabilities. It is perfectly sensible fOr
them to be long-term investors. Moreover, it is increasingly clear to most of
them that they are simply tOO big to spend a lot of rime trying to pick
individual winning stocks; that what they really badly need is corporate
relations which will allow them t:> invest large amounts of money over long
periods of time.
      But that kind of patience in investment also requires participation .
Simply put, many investors, including the large institutional investors, have
felt that their voices are nOt sought by management, much less heeded. The
consequence has been that a whole series of corporate raiders have increas-
ingly designated themselves as the policemen of capitalism.
      Now, it probably is true that having such policemen on the beat is
better than having none. But this, surely, is not the best kind of corporate
governing system to which we can aspire. This is a confrontational corporate
governing system, nOt a cooperative one. It leads to revolutionary changes,
not evolutionary changes.
      We think we can do better and we are looking at this issue. We have
taken some steps in this direction already at Treasury. We have a joint
responsibility for ERlSA, the law that governs private penSion fund invest-
ment. The Secretaty has already made clear that ERlSA does not require
pension fund trustees simply to take a tender offer merely because it is above
the curren t StOck price.
      We will also, in the near fut-.ue make clear some other issues under
ERISA. For example , that active jJarticipation by pension funds in the
management of corporations through communicating with boards, through
communicating with management, is completely consistent with their
obligations as fiduciaries .
      I think there is more that can be done and we are going to continue to
examine this and speak out on it over the next months. I think that perhaps
some changes in the way nominating committees and boards are constituted
would make sense; some changes perhaps in the way directors are compen -




7
Keynote Address




sated. For example, to compensate them more with common stock rather
than cash would be a way of aligning their interests more directly and firmly
with the shareholders.
     FinaUy, in order to encourage investors to rake a longer-term view, it is
our view that we still need to make fundamental reforms in the way the
stock market operates in order to bring investors back into the stock market
and related markets. This is an issue that Secretary Bl"3dy has been greatly
interested in since he was Chairman of the Reagan Task Force on Market
Mechanisms, which was empaneled to study the 1987 stock market break.
     Here I think there are fundamental market mechanisms which need to
be strengthened and made more consistent in order to reduce the excess
volatility which has come to dominate the markets. We need to harmonize
stock index futures, stock options, and margins. We need to coordinate
drcuit breakers which have been developed to deal with these marketplaces.
     I think these are very important steps because we concluded in the
1987 study, something which is pretty obvious but seems not to have really
confronted people before. That is, market ror stock options and stock index
futures are really one market. They function together. They opetate as if
they were one market. The problem is that in this country we do nOt
regulate them as one market. We have the Securities and Exchange Commis-
sion (SEC), which has responsibility for stocks and stock options, and we
have the Commodity Futures Trading Commission (CFTC), which has
responsibility ror futures, including stock index futures.
     What is interesting is that every other country around the world has one
regulator where we have twO and I think we pay a real price ror this frag-
mentation. We pay a price in terms of conflicting market mechanisms. We
pay a price in less effective enfurcement against manipulation, and we pay a
price in creating roadblocks to innovation.
     There are a number of alternatives to dealing with this, going all the
way from full-scale merger of the CFTC and the SEC, down to some
individual piecemeal kinds of fixf.s to deal with margins, to deal with en -
forcement, to deal with circuit b: eakers, to deal with jurisdiction and
innovation.
     The problem that stands in the way of any of these fixes is that Con-
gress is very jealous of its jurisdiction. As you probably know, stocks and
options--the SEC is the jurisdictional responsibility of the agriculture
committee. That has to be worked out. But, frankly, I think if we do not do
anything to deal with this regulatory fragmentation , when we have the next
big down-market, and I think that will come at some point, everybody is
going to be very embarrassed that they have not done more to deal with this
problem. So I think we have to do something, and we have to do it soon if
we are going to reassure investors and bring them back into the market
which, again, is a way of furthering long-term thinking. That is, briefly, a
piece of the agenda of Treasury that deals with investors, cotporations and
the need to stimulate competitiveness.




8
                                      Remarks




                                      It is a great pleasure for me to be here with you. It is a particular privilege
                                      to be able to introduce our mOSt distinguished keynote speaker. Before
                                      doing that, let me JUSt join in extending my own congratulations to the
                                      winners of the Scantlebuty awards this year. I had the chance, over the last
                                      year, to work extensively with Bill Kendig, and I can say from OMB's
                                      perspective that his pioneeting work on internal controls has helped us all
                                      move forward significantly.
                                           One of the first speaking engagements I had last year was at the JFMIP
                                      conference. At that rime, I asked my staff what it was that I should say to
                                      this distinguished gathering, and they said that what I should point out was
                                      that there was significant progress in making financial management improve-
                                      ments, but there was more to be done. I have been at OMB for a year and
                                      what I would like to say this rime is that there has been progress, but there is
                                      much more to be done.
Fm". Hodsoll
                                           What is significant about this past year is that we have identified and
Exuume ArsociRte Director             zeroed in on at least a few of the needs in financial management. In this
Office of MIJ.n&gement fl.nd Budget   respect, we have been assisted, not only by the General Accounting Office
                                      and others in the Executive Branch, but also by Senator Glenn's Committee
                                      on Governmenral AfFairs. It seems to us that financial systems are the key to
                                      good management controls and that improved financial systems are needed
                                      to provide managers at aU levels of government qualiry information ro
                                      manage and oversee programs that provide services to the public. Every
                                      major agency has a program underway to improve its financial systems.
                                           After looking at some of the statistics today, I noted that in the past we
                                      had over 400 systems, many of which were incompatible. I noticed that in
                                      the budget we reported that we are down to 235 . Yet, only yesterday, we
                                      discovered at HUD that there were 69 additional systems that we had not
                                      counted, SO we are back up to 314. It makes me very nervous because I
                                      wonder what is going on at all the other agencies if this is true at HVD.
                                           However, we are making some progress. For the first time in a number
                                      of years, the JFMIP Principals met last fall to discuss what needed to be
                                      done. One of the things that we made an agreement on, which we now have
                                      to implement, is to adopt and implement the core systems requirements that
                                      were brought forth by the JFMIP.
                                           In the area of financial management, we need the help of everyone here.
                                      We need the belp of the Congress, the GAO, the President and all of the
                                      Executive branch. We need to be able, as Connie Newman eloquently
                                      stated , to attract and retain qualified financial managers. We need systems
                                      that produce accurate and eventually auditable data. We need internal
                                      controls that anticipate and prevent misuse of government funds. We need
                                      uniformly applied accounting standards and principles and we need au-
                                      ditable financial statements in critical programs and agency areas. We need to
                                      do this now.




                                      9
Remarks




     I was reminded in talking with Jerry Murphy and our steering group on
CFO legislation of some of the previous refOrm effuns such as the "RefOrm
'75" and "RefOrm '88" programs. We should dedicate ourselves to making
changes, for if there is something that could be called "Reform '90", it must
be something that is accomplished at least by 1995, as opposed to continu-
ing the same old problems.
     Now, I would like to introduce our distinguished keynote speaker,
Senator John Glenn, who will address CFO legislation.




10
                    Keynote Address




                    I  would like to introduce twO people with me today, the staff director of
                    the Governmental Affairs Committee, Dr. Len Weiss, and Bob Coakley,
                    who have done a lot of work on CFO legislation, particularly with Chuck
                    Bowsher over at GAO, and will be continuing to work on this CFO legisla-
                    tion . If you have some suggestions on this CFO legislation or financial
                    management area, give one of them a call. We are soliciting your ideas on
                    this legislation . We do not feci we have all the wisdom in the world up on
                    Capitol Hill all the time, juSt most of the time. But if you have suggestions,
                    we would appreciate your gerting in touch with me. I say that with all
                    sinceticy.
                          The theme you have chosen, "A New Agenda ror Management Control
                    in the 90s," is vecy approptiate and timely. In my view, the federal govern -
                    ment is on the precipice of an important management refonn movement,
                    but when I went through the speech a short while ago, I think if we put
Sen,._ 101m Glenn   more true words to it, that would not be the tight word--precipice. That
                    indicates that we are about to dive off intO something that may have some
                    very bad portend to it. I would say a better choice of words might be that
                    we are on the verge of, we have the opportunicy to, we may move ro new
                    heights if we do this; or probably the way I would express it is that we will
                    Stop being stupid and move into the 21st century.
                          So I am supporting the movement that you talk about with effortS to
                    develop legislation to establish a CFO, a chief financial ollicer, ror our gov-
                    ernment . The thruSt of this legislation will be to establish the organizational
                    structure, the powers, and the master plan needed to bting about reronns in
                    the financial management of government programs.
                          The need for better financial managemen t is nOt a new subject fur this
                    audience, of all audiences that we could get together. Most of you have
                    toiled in this field . You have been workers in the vineyard for a long time--
                    much longer than I have.
                          Let me strike a few historical notes, and I will speak to the unusual op-
                    portunicy I believe we have immediately before us. The Joint Financial Man-
                    agement Improvement Program, JFMIP, is celebrating its fortieth anniver-
                    sary. Secretary ofTreasucy John Snyder, Comptroller General Lindsey
                    Warten , and DireCtor of the Bureau of the Budget Jim Webb, whom I was
                    long associated with in NASA, started this o rganization in 1949, after World
                    War II , to promote governmentwide improvements in financial manage-
                    ment . In the mid -60s, what is now the DireCtor of the Office of Personnel
                    Management joined the JFMIP and since that time a lot of water has flowed
                    over the dam . I personally want to take this occasion to commend JFMIP
                    for its contributions to financial management over the years. As Chairman of
                    the Governmental AfFairs Committee in the Senate, I am particularly sensi-
                    tive to the mission of trying to change and improve operations government-
                    wide, across the board.
                          In the Executive Branch, each agency has its own view of how the nuts-
                    and -bolts operations should be done . Each agency becomes best in its own




                    11
              Keynote Address




              PIllCtiCes, and there is a natural resistance to viewing the Executive B=ch as
              a whole.
                    Similarly, in Congress, each time the Chairman of Governmental Affiirs
              steps furth with a govemmentwide approach to the economy and the
              effidency of government progr;tffis, which are our twO main roles--organiza-
              tion and efficiency of government, every other committee chairman caSts a
              wary eye--the old rurffight. So I have a cernin affiniry for JFMIP's mission .
                    Another historical observarion I want to make is that the Committee on
              Governmental Affairs always has a strong interest in the work and achieve-
              ments ofJFMIP. This is due to the common beginnings of the Committee
              with the prindpal members of the Program. The Committee was =ted in
              1921 to help coordinate the expanding budget needs of other committees
              and to address the need fur an executive budget.
                    The first bill considered and passed by the Governmental Affiirs Com-
              mittee was the Budget and Accounting Act of 192L That Act created the
              Bureau of the Budget and the General Accounting Office from finandal
              management components of the Department of Treasury.
                    Among other important tasks, JFMIP has served as a continuing forum
              for common interests of the separ;tted parties. For example, this organization
              was essential to the Budget and Accounting Act of 1950. It contributed
              significantly to the Financiallntegriry Act of 1982. Over time there have
              been ebbs and flows to the intensity of this forum , and I want to commend
              JFMIP for its persistence. Persistence and sustained commitment are perhaps
              the mOSt important faCtors to bring about change . Without them, things
              just do not happen in our nation's capital. The work of JFMlP is to be ap-
              plauded . Remember, life really dxs begin all over again when you tum
              forty, as this organization bas.

"Congress will respond to the significant early warning signals
being sent by the high risk lim. »

                  Let me turn to the bere and now. Over the past several Congresses,
             Senator Roth, the ranking minority member on my Committee, and r have
             proposed bipartisan legislation to establish a ChiefFinandal Officer for all of
             government, and fur each department and each agency. Last week the
             Committee marked up a Department of Environment Elevation Bill which
             contains a Statutory CFO_While Congress has agreed to a Statutory CFO fur
             the new Department of Veterans AffiIirs and fur HUD, we have not suc-
             ceeded yet in attracting congressional support, beyond our Committee, for a
             comprehensive bill, a more inclusive bill.
                  Last year's events, coupled with the Committee's recent hearings on
             serious management problems in government, lead me to believe that this
             session of Congress presents an unusual opportunity to pass chief financial
             officer legislation. As is common to refurm movements, crisis and turmoil
             have brought US to this point. Recall that even with the momentous events


             12
              Keynote Address




             in Eastern Europe, the year 1989 left us with a pervasive domestic message
             as well. There is a growing feeling that we need to act and to put our house
             in order.
                  How many more HUDs are Out there? That is the nagging question
             that the year 1989 has left hanging over us. I understand Secretary Kemp
             addressed you this morning by videotape. He probably noted to you that
             the HUD scandal came as a surprise to the new Administration and the
             Congress. The President and his cabinet knew they had a savings and loan
             disaster to manage, and they had continuing problems with the procurement
             scandals at the Defense Department. They were also aware of the big issues
             surrounding the budget deficit, but they did not know about the hemor-
             rhaging at HUD.

"We must take steps to assure ourselves that we can prevent future
HUDs while we move to correct the problems already identified. JJ
                   Early warning signals sent by way of the Inspector General and Finan-
             cial Integrity Act reportS were not seen or, if they were seen, they were not
              heard; if they were heard, they were not acted upon . We have to share some
             of the blame in Congress, because we had some of those same reports
             earlier. But we now know that billions of dollars have been wasted and the
             American taxpayers will have to pay for the losses.
                   The Governmental Affairs Committee was instrumental in creating the
              Inspectors General struCture. It was established in 1973 as SOrt of a teSt
              program. We applied it to some departments of government to see how it
             would work. It worked so well, we have now expanded it. Legislation the
             year before last expanded it, added eight more government entities to that
             group, and we think that they have done a rather superb job. It has been
             one of the best experiments in governmen t that we have had in a long time.
             The IGs have done vety well, and I am a strong supporter of them.
                  We originated the Financial Integrity Act, a law that requires agency
             heads to report annually on the adequacy of their internal management
             controls. I and other members l:egan to wonder about what other early
             warning signals might be flashing. I began to question whether the Execu-
             tive Branch even has in place the system needed to give early warning
             Signals.
                   Last September my Committee rook testimony from seven Inspectors
             General on problems in their agencies. The testimony was alarming. The
             Department of Energy IG described DOE contractors operating nuclear
             weapons production facilities under contracts so one-sided that once money
             is spent by the contractor, no matter how outrageous the expenditure, the
             government simply pays up. In 1989 DOE obligated some SIS billion in
             overall contracts, an area that may be vulnerable.
                  The NASA IG testified that NASA is unable to oversee its spending to
             the degree it should, 88 percent of which goes to procurement. Inadequate
             contract administration allows subcontractors to reap excessive benefits.


             13
             Keynote Address




             NASA subcontractors are not being subjected to competitive bidding in
             many cases . In 1990 alone, NASA will spend, in rum , some SII billion on
             contracts .
                  The Labor Department 1G srated that Labor has failed to esrablish a
             viable criminal deterrence program to protect American workers' pensions,
             safe work places, and decent wages. He asserted that there is widespread
             fraud and abuse in programs administered by the Department.
                  The EPA 1G pointed to millions of dollars of assessed fines which were
             reduced by as much as 90 percent without any rationale . He described EPA
             programs as forceless enfurcement and EPA as a paper tiger with no deter-
             rent effect on those who violate environmental laws. He testified that it was
             cheaper many times to pay the fines and go right on polluting rather than to
             stop .
                  The HHS 1G pointed to fraud in the Food and Drug Administration's
             generic drug approval process, the Medicare secondary payer program, and
             Indian Health Service. He rargeted a complicated procurement in the
             Health Care Financing Administration (HCFA) to manage prescription drug
             reimbursements which would COSt over half a billion dollars to put in
             operation, and he predicted that it would nOt work.

"'We believe that consensus among the three central financial-
agencies-Treasury, GAO and OMB-is critical for any reform
measures to succeed. »
                   These are JUSt some examples. That is a negative 3pproach to it. In
             October 1989, the Office of Management and Budget Director Darman
             testified on the Administration's assessment of management problems within
             the agencies. He was quite direct, and he stated that there are several HUDs
             looming in the Executive Branch that have not been uncovered. He released
             what we caU high risk lists, which had been developed jointly by the agencies
             and by OMB . The lists, largely based on the most current InspectOrs
             General and Financial Integrity Act reports, highlight key vulnerabilities in
             each agency's operations. The entire set of agency lists they put out encom-
             pass 106 high risk areas.
                   In November, Comptroller General Bowsher gave my Committee his
             assessment of the Financial Integrity Act process and described GAO's evalu-
             ation of high risk areas. The Comptroller General was equally direct. He also
             believes that there are several HUDs looming out there yet to be uncovered,
             and he announced GAO's own high risk list of 14 targeted areas and
             concluded, by quoting him, that "Unless something more is done to correct
             the material deficiencies in management infOrmation and accounting systems
             and material weaknesses in internal controls, major losses of federal funds
             and the collateral fraud and abuse incidence will continue ."
                   So twO different agencies of government--the investigative arm of
             Congress represented by the Comptroller General and GAO, and the OMB


             14
Keynote Address




Jed by Dick Dannan and Frank Hodsoll--now have their reports coalesce.
They are concentrating on the same areas that we are looking into now.
      The Comptroller General asserts that there are at least $150 billion at
risk. Underpinning the assessments of both the Comptroller General and
the OMB Director is the dear-cut conclusion that as a government we do
not have the basic financial management systems in place to really know
what is going on. In addition, internal management controls which are in
place are JUSt nOt working many times. The high risk lists amount to best
guesses at where the next HUD-rype problem might occur.
      The single most prevalent theme running through the lists is the
material weaknesses of financial conrrols. Last week Comprroller General
Bowsher testified on GAO's three-year audit of the Air Force. The Air Force
was chosen as the first of these in -depth service audits, which I believe may
be the first audit we have ever had to this degree of detail . The Comptroller
General picked the Air Force to be the first service to be audited, because it
was believed to be the beSt managed service. He concluded the Air Force
uses inaccurate, unreliable accounting systems to manage assets worth $225
billion ; that the COSt of major weapons systems, including the BIB, have
been significantly underestimated in the Air Force's own financial records.
The record-keeping deficiencies have led the service to stockpile $10 billion
wo rth of excess inventory. There are 131 separate accounting and manage-
ment systems within the Air Force . Tomorrow the Department of Defense
and the Air Force will be testifying before my Comminee on these audit
findings and these very serious issues.
      My view is that Congress will respond to the significant early warning
signals being sent by the higb risk lists. The Comminee on Governmental
Affairs will be dedicating most of its anen tion to programs on the lists and
to what role chief financial officer legislation can play to help remedy the
problems which are being uncovered. My message to you is that the man-
agement agenda for the 1990s is to respond effectively to that nagging
question of 1989. We must take steps to assure ourselves that we can
prevent future HUDs while we move to correct the problems already
identified .
      Senator Roth and I both believe that the establishment of a Chief
Financial Officer fur the Executive Branch of government is necessary to
acco mplish the needed reforms. We believe that consensus among the three
central financial agencies-Treasury, GAO, and OMB-is critical fur any
reform measures to succeed .
      We have not as yet reintroduced either of the legislative proposals we
sponsored in the 99th and 100th Congress. Instead, this past January we
wro te to Comptroller Bowsher, Secrerary Brady, and Director Darman and
asked them to meet and try to come to a consensus on three key issue areas.
The three issues are rather fundamental.
      First is the qualifications, resources, organizational location, and re-
spo nsibilities of the chief financial officers for all of government and fur each
agency. In addition, we are addressing architecture audit prOvisions; financial



15
,
    Keynote Address




    infunnation that is provided to the boss so that he gets the best possible
    infunnation; annual audits and financial statements and what fonn those
    things sbould take. There arc some different thoughts in that particular area.
    But we want something substantive for this legislation.
          Second is the mOSt appropriate means of ensuring the adoption of ac-
    counting principles and standards which recognize the unique circumstances
    of the federal government.
          Third is the app roach for improving financial information through the
    preparation and audit of financial statements.
          I would add the following thoughts for this audience to consider. Even
    with strong legislation, the changes will not occur overnight. Sustained
    leadership over a long period of time will be needed. An organizational
    srructure with clout will be necessary. An effective govern mentwide chief
    financial officer will require, first of aU, access to the President . Moreover, as
    Comptroller Bowsher frequently notes, we still do not have the basic
    architecture and the central plan that, once in place, both the agencies and
    Congress can follow.
          There will be a need for more congressional oversight than this subject
    has received before. Presently, we do not even know how much money is
    being spent on financial systems and how much more new money will be
    needed to put some of these new controls into place. What is more critical,
    though, is that we get started and come with a high level commitment from
    both the Executive and Congress. It will take legislation passed by the
    Congress and signed by the President to cement the needed partnership.
          I certainly look forward to the day when the federal govern ment can say
    that we have standard accounting systems. The latest OMB figure is that
    there are 304 different accounting systems in government . A couple of years
    ago, GAO estimated we had over 400 across government and the figure was
    srill going up . We had not identified all of them. I think there are some 200
    major systems now. OMB has identified 304 different accounting systems.
    Take your pick of any of those figures; it still has horrendous problems, as I
    am sure you will all agree.
          Contributions that the JFMIP made to a srandard general ledger and
    standard data elements arc outstanding. But I remain tremendously frus-
    trated and still do not underStand why after all this time we still have
    hundreds of accounting systems that do not talk to one another in tOO many
    instances.
          We have scheduled hearings in late March to specifically address CFO
    legislation . I understand that discussions are underway as a result of what
    SenatOr Roth and I distributed. We have asked that three of the JFMIP
    Principals be prepared to testify at that hearing in late March , and we intend
    to introduce a legislative proposal before the hearings. Let me stress this
    positive note for the conference: I believe Congress will address and pass
    chief financial officer legislation. That is what we are working toward this
    year. Thank you very much .




    16
Address




Secretary Jack Kemp (Address by videotape)

       Hello. Thank you for inviting me to your Colloquium on Improving
Federal Financial Management. I'm sorry I can't be with you in person, but
I welcome this opportunity ro speak to you by videotape.
       The American Institute of Certified Public Accountants has a respected
position in the world of business and government. You have been recog-
nized ror long-standing leadership in the realm of responsible financial
operations and management ever since the rounding of your organization in
1887, an event which I understand marked the birth ofrhe accounting
profession in the United States.
       Your organization has created and shaped accounting principles and
auditing standards. You fulfill a vital role in the business life of our Nation
and have extended the range of your contributions and influence to the
international business community, as well.
       I have taken special note of your call ror the improvement of federal
financial management and wish you success in this effort, ror I believe we
share many of the same goals in that regard.
      Alier assuming the stewardship ofHUD, I discovered that the Depart-
ment's management system was severely lacking in the rigorous financial ac-
countability necessaty for efficient and responsible operations. Indeed, it was
extremely difficult .. .in some cases, virtually impossible ... ro evaluate the
financial health and effectiveness of many of our programs. This limited our
ability to judge whether programs wete properly targeted and often left the
Department unable to recognize when program funds were benefitting
consultants rather than needy Americans.
      From "day one," President Bush and I have made it abundantly clear ro
evetyone at my Department, and to evetyone we deal with ...individuals and
organizations alike ... that we do nOt and will not allow HUD's programs ro
be abused for political purposes or personal gain at the expense of those in
need.
       I wanted to clean up past abuse and prevent future abuse, so we could
fulfill our commitment ro use the full resources of HUD to wage war on
poverry, homeless ness, and despair. With the full support and cooperation of
President Bush, I initiated a Department-wide rerorm ... comprehensive
changes in program management and financial accountability to "Clear the
Decks" at HUD ...so we could move forward on an agenda to create oppor-
tunities for home ownership, jobs, and hope in our Nation's inner cities and
distressed rural communities.
       Our reform concentrates on three areas: ethics, management and
finance, and the Federal Housing Administration.

Ethics Reform
    Under ethics reform, we have established a strict requirement that all
consultants and lobbyists representing grant applicants to HUD must




17
Address




register with the Depanrnent. Those applying ror funds will be required to
disclose any ICes paid to lobbyists, consultants, and lawyers in connection
with their application .
     I suspect you will be most interested in the changes being made under
finance and management, and under FHA.

Management and Finance
     I am creating a new position--Chief Financial Officer--to repon directly
to me, with responsibility ror overseeing HUD's financial operations. I am
also appointing a Comptroller ror FHA.
     Our CFO will have broad powers to develop, maintain, and oversee the
Depanrnent's accounting, financial control, and cash management systems.
T he FHA Comptroller will oversee the financial operations of FHA and be
accountable for producing annual auclited financial statements for Our
insurance operations on the basis of generally accepted accounting prin-
ciples.
     In addition, I created a task force to identify systemic management
problems in 26 major program and financial management activities of HUD.
The taSk force is currently documenting their finclings, recommending
solutions, and developing an action plan to implement prescribed solutions.
     We also have contracted for an independent management firm to
identify Structural and systemic problems and to recommend comprehensive
reforms to strengthen the financial and managerial integrity ofHUD's
programs .
     And, separately, Price Water!1ouse is examining and recommending
improvements in the financial policies, practices, and controls in HUD's
Office of Finance and Accounting.

FHA Reform
     Ladies and gentlemen, I don't need to tell you that annual audited
financial statements are the mOSt basic of all management requirements ...or
that insurance operations call for both cash-based and accrual-based records.
Well, FHA clid produce internal financial statements; but these were done
for the mOSt part on a Q.ill basis, not the llinW basis necessaty to accurately
gauge an insurance operation's condition. Unronunately, this gave FHA's
managers an unrealistically rosy picture, because claims were counted only
when they were paid, not at the time of default.
     We' re requiring ... and will publish ... annual auclitcd financial statements
prepared by an independent accounting firm. These statements will be on an
accrual basis, and will be consistent with generally accepted accounting prin-
ciples. The auclitors also will provide a management letter pointing out defi -
ciencies in FHA's financial control and management systems.
     Frankly, we never knew on a regional or program basis how we were
doing financially. We intend to design management inrormation systems
which will produce timely financial results SO that managers can regularly



18
Address




measure our perfurmance against defined financial targetS. This information
will help us insure the proper relationship between COSt and benefit in our
programs.
     There are major improvements in our accounrability which I'm sure will
help us manage FHA responsibly and efficiently; but financial ·statementS
only tell us histoty - how we've done lately. We need to understand how
we're likely to do in the future under a wide variety of circumstances ...we
need the kind ofundersranding good actuarial studies deliver. And we're
going to do something about this need, too.
     We've commissioned an independent actuarial study which will develop
for us a permanent econometric modeling capacity. This modeling capacity
will help us test the impact of rapidly changing economic conditions, the
effects of proposed legislative initiatives, and the effect of various terms and
conditions on the viability of our insurance policies.
     Although FHA operates 47 different insurance programs and has over
$300 billion of insurance-in -force, it has but ~ certified actuary. I under-
stand that the Prudential Insurance Company, for instance, has 150 actuar-
ies. Well, we're hiring additional actuaries for FHA, and developing an
ongoing review process for all insurance programs.
     There are other reforms under way, and we will respond promptly to
the need for further steps as events and experience dictate; but, I assure you,
there will be no turning back. We're going to see to it that HUD operates
responsibly on a financially and ["anagerially sound basis.
     We have begun a fundamental redirection of our programs ... a redirec-
tion which is enabling us to reaffirm our Nation's moral charter to provide
affordable housing opportunities and job opportunities for all Americans. I
believe the fulfillment of that charter will be achieved through
empowerment ... helping people to help themselves by strengthening the
linkage between eROrt and reward, and by removing barriers to their
economic independence.
     Not all of those barriers are imposed at the local and state level; mis-
management of federal programs is an awful waste of public funds and of
the public trust. It is a barrier that deserves the same fine as the Berlin Wall.
At HUD , we're tearing that barrier down with the powerful force of good
financial management.
     I know we have your beSt wishes and support in that effi>rt. And I urge
you to keep up your good work in the continuing drive to improve federal
financial management.
     Thank you and God bless.




19
                                            Chapter 2
                                            Remarks and Awards Presentation




                                            "Management Control In The 90s - A New Agenda"-What a fitting
                                            conference theme. All aspeCtS of management must recognize the imperative
                                            of establishing a new agenda for the 90s or the federal government will not
                                            be in a position to serve the public well. Among issues to be on the federal
                                            government's agenda are

                                                  • How can the federal government increase itS productivity? This issue
                                                    is important fur government to address because of the growing
                                                    demands of this service industry. Also, this issue is important to
                                                    address because of the environment of tight resources which will not
                                                    change.

                                                  • How can the federal government assure the public that it is manag-
                                                    ing itS business effectively and properly? Unfurtunately, much of the
CtJ1'JSt4na B. NeJPmll.1J                           general public does not have the confidence it should in the federal
Director, Offiu of Personnel MiJ.1UJgemem          government. A few bad news Stories of improper controls and
                                                   improper behavior have colored the way the public thinks about all of
                                                    us.

                                                 • How can government manage a work force of changed demograph-
                                                   ics? We must plan for the future with the recognition that the work
                                                  force is aging and that a high percentage of the new entrantS intO the
                                                   work force will be women, minorities, and immigrantS.

                                                 Financial managers are key to the proper consideration of each of the
                                            issues I identified . Financial managers, then, are key to insuring that the
                                            federal government accomplishes itS goals and objectives in an efficient and
                                            effective manner. Now more than ever before in the history of the federal
                                            government there must be serious and quality attention paid to accounting
                                            and financial controls. Now more than ever before there must be serious and
                                            quality attention paid to forecasting and long-range planning.
                                                 You, the financial managers, have the expertise and experience which
                                            will be important to the management teams properly managing today and
                                            preparing for tomorrow. It has always been expected of you that you be
                                            responsible for the maintenance of the financial records. But in this time of
                                            budget constraintS your expertise is needed to assist all management in
                                            forecasting the costs of operation, in forecasting the impact of technological
                                            changes, and in determining the manner in which historical data can be used
                                            to plan future operations.
                                                 I would like now to spend a few minutes on human resource manage-
                                            ment, the parr of the management equation we must understand at the
                                            Office of Personnel Management - the part of management equation upon
                                            which we should be prepared to provide leadership in the development of
                                            plans and policies.




                                            20
Chapter 2
Remarks and Awards Presentation




      We must make certain that the government ~ in nct, have the "Best
and the Brightest" in its ranks. We stan by changing those systems t hat
impact on our ability to attract and retain top-notch workers. We muSt look
at how we compensate, both in terms of pay and benefits, how we classify,
how and when we train, how and when we recruit, how we evaluate per-
formance, and how we ensure that political appointees and career employees
work together effectively.
      I think it is clear that this adminisrration tecognizes that there are
systems problems that need to be addressed, and has talten steps to do JUSt
that.

PayRefonn
      One system we have currently addressed is pay. "Phase One" of pay
reform is already on the table as part of the President's Budget Request ro
Congress for fiscal year 1991 . The provisions indicare change - a new way of
doing business, for they
      • provide salary differentials of up to eight percent for federal employ-
ees in New York, Los Angeles, and San Francisco;
      • provide a five percent increase in starting salaries nationwide at the
GS-S and GS-7 1evels for college entry-level jobs;
      • allow hiring at pay levels above step one in each grade; and
      • provide recruitment, retention , and relocation bonuses for ctitically-
skilled workers.
      The aim of pay reform will be ro make the federal pay system more
responsive to diverse and dynami~ labor markets, while using scarce payroll
funds in the best way possible. The end result we are hoping for is a more
marketable, more flexible and more "predictable" pay system for the federal
government.

Health Benefits Reform
     Another system we arc working to improve is the Federal Employees
Health Benefits System. On March 1, we sent a proposal ro Congress that
would accomplish three major goals. The proposal
      • ensures informed choices for enrollees in the Health Benefits Pro-
grams,
      • creates a system that treats employees and retirees equitably, and
      • achieves economic efficiency in the overall program.
     Specifically, our proposal offers five indemnity packages or the available
HMO alternatives for all enrollees. Premiums for these packages would be
set on a nationwide basis, and the rates and benefits would be separately
tailored for employees and retirees.
     The proposal plans to deal with the economics and coSts of the system
in a number of ways. First, the new system would follow private sector
practices in cost con tainment through contractors who would process claims
and administer each separate indemnity package. To deal with the costs of



21
Chapter 2
Remarks and Awards Presentation




the program, our proposal would stabilize the costs through a number of
legislative and administrative actions.
      It is important to know that the President in his State of the Union
Address committed this administration to a broad-based, top-level review of
critical health issues facing the Nation. This proposal to reform the Federal
Health BenefitS System is consistent with the administration's broader health
policy.
      As you consider various issues and options in this year's conference,
keep in mind that the changes we make in the Civil Service System over the
next few years will have far-reaching implications possibly fOr decades to
come. Financial management and human resource management are very
important partS of these changes-and it is up to US to assure these changes
are in the interest of serving the public in the best manner possible.




22
                                           Chapter 2




                                                Let me begin by saying that I will keep my remarks brief. First, I agree
                                           100 percent with Connie (Newman) on the issue of having to make some
                                           changes and to try to attraCt the very best people to the government,
                                           especially in the financial management field. Many of you may be aware that
                                           we have changed our compensation system at the General Accounting
                                           Office. I have served this past year, at the request of Congress, on a commis-
                                           sion looking at the salary struCture for the law enforcement community. I
                                           am more convinced that we have to look at our compensation and our
                                           personnel systems in the government sectOr ifwe are going to compete
                                           successfully with the private sector to get the very beSt people. At the same
                                           time, after we get them, we want to train them to be willing to promote the
                                           people who are really good workers, and we are anxious to produce great
                                           results. We are probably beginning a new era in the personnel area, and I
                                           think that Connie and her people who are looking at this area are doing aU
                                           of us a great favor.
ClmrJes A.   Bo""~r
                                                1 would also like to congratulate Bill Kendig and all the people from
Comptrol/.er Gmerlll o/the United St4tes
                                           Interior for their very fine effortS and the progress that they are making at
                                           that Department. We certainly need that. I think that some of the things
                                           that you will hear from Sen. tor John Glenn today are the needs for im-
                                           proved systems, improved audits, and improved financial reports at all the
                                           major departments of the federal government. As you may know, I have
                                           been strongly recommending that fur some time.
                                                I would like to congratulate Ellen O'Connor and the people in the
                                           State of Massachusetts who have made great progress in their accounting
                                           systems and in their audits. The people from the federal government should
                                           recognize that the States have made a lot of progress. We were in Charleston
                                           in August when tbe State of South Carolina got their unqualified opinion
                                           on their financial statements for the first time. So there has been a lot of
                                           progress made in the state and local governments, and I think we have to
                                           match that progress here at the fi:derallevel.
                                                It is a great pleasure to see so many people show up for this annual
                                           event. I think the program each year has been put tOgether with great care.
                                           Looking at the three major tOpics on the program today-- financial state-
                                           ments, systems, and accountability-these are the a_reas that we have to work
                                           on and get them to be first class in all our major departments within the
                                           federal government. I would like to congratulate the JFMIP committee that
                                           put together the program and put this program on . I look forward to
                                           hearing from Senator Glenn on Chief Financial Officer legislarion . Thank
                                           you very much.




                                           23
                             Chapter 2
                             Remarks and Awards Presentation




                                   Today, it is my great pleasure to present the 1990 Donald L. Scande-
                             bury Memorial Awards for disringuished leadership in financial management
                             improvement to twO outstanding leaders in the public sector . The Joint
                             Financial Management Improvement Program named irs annual awards to
                             honor and commemorate Donald L. Scantlebury, who made a profound
                             impact on financial management in both the private and public seCtOrs. At
                             the time of his death in June 1981, he was the Chief Accountant and the
                             DirectOr of the Accounting and Financial Management Division of the U .S.
                             General Accounting Office and served on the JFMIP Steering Committee.
                             This award is a continuing tribute to Don, who was a dynamic leader in
                             promoting financial management improvements and a true innovator, always
                             at the forefront of our profession serting high standards for all of us to
                             follow.
                                   This year, we have twO award recipients who have demonstrated clearly
Ge..../II Murphy             the broad reaches of the public sector financial management profession. The
Fise,,/ AmSr"",,. SuretRry   first awardee is Ellen O ' Connor, who is the Budget Director, Fiscal Affairs
Dep"rtmet" of'he TreJ<SUry   Division, Executive Office for Administration and Finance, Commonwealth
                             of MassachusettS. During the past 15 years in various leadership positions
                             within the Commonwealth, Ms. O'Connor has been an exceptional role
                             model to her colleagues. In 1985, when she was the Comptroller, she
                             decided to replace the centralized state accounting system, which had been
                             in operation for 17 years. The following year, a completely new centralized
                             accounting system was successfully implemented under her dynamic leader-
                             ship. The effects of the new system are impressive. Some examples include a
                             decrease of the average rurnaround time for vendor payments from 72 day
                             to 28 days and receipt time of financial reportS reduced from 2-3 weeks to
                             immediate fiscal information accessibility.
                                   Under Ms. O'Connor's leadership, the Commonwealth of Massachu-
                             seres developed and implemented generally accepted accounting principles
                             (GAAP). MassachusettS has produced audited financial Statements under
                             both budgetary and GAAP basis of accounting since 1986. This GAAP
                             information is very useful to legislative and executive decision makers.
                                   Another significant accomplishment is the innovative implementation of
                             the State Single Audit. The Federal Single Audit Act of 1984 requires srates
                             to complete an audit of all major programs that receive federal funding . The
                             method implemented by Ellen O'Connor in MassachusettS has been to
                             audit the entire Commonwealth as a single entity. This has saved thousands
                             of audit hours and thus hundreds of thousands of dollars in audit fees . In
                             addition, the comprehensive approach yields an effective outcome, since the
                             entire government, and not JUSt portions of it, is evaluated. The efficiency of
                             this approach has been demonstrated in the follow-up and resolution of
                             audit issues, since audit findings that are common and spread across pro-
                             grammatic areas are easily identified for a unified and statewide resolution .
                                   Ms. O'Connor has implemented sound business practices and qualiry




                             24
Chapter 2
Remarks and Awards Presentation




internal control systems to state financial management. For example, she
developed new statewide policies and procedures in the area of managing
non · tax revenues. With the implementation of these concepts, MassachusettS
is now collecting over 560 million in revenues owed that otherwise would
have gone uncollected . As Budget Director, she is instituting dramatic
changes to the budget development process and the budget execution
process. These are only a few of her significant accomplishments, and it is
indeed our pleasure to present the 1990 Donald L. Scantlebury Memorial
Award to Ellen O'Connor.
     The second awardee is Dr. Wtlliam L. Kendig, Director of Financial
Management at the U.S . Department of the loterior. He is being recog-
nized fur his dedicated and ourstanding leadership in Federal financial
management programs, which have resulted in measurable savings involving
millions of dollars through cost reductions and systems consolidation
activities. One of his first eJfurts as Director of Financial Management related
to the consolidation of five separate payroll systems to one system , which has
saved the Department over $1 million per year.
     Intetior has annual collections ranging from $4 bill ion to 510 billion,
which makes it one of the largest cash collection programs outside the
Department of the Treasury. In 1983, he launched a comprehensive depart-
mentwide cash management program to accelerate cash receipts. This
program included using a network oflockbox systems, wire transfers, letters
of credit, eStablishing a Diners Club charge card program to minimize travel
advances, and promoting the use of payroll direct deposit, thus resulting in
savings exceedi ng $35 million .
     One of the greatest and most lasting contributions to federal financial
management may be in the area of management controls . Dr. Kendig led an
interagency study to review the implementation of the Federal Managers'
Financial Integtiry Act . The recommendations from this study led to a
revision of an OMB circular, a change in audit philosophy, and significantly
impaCted the way the federal agencies carried o ut their internal control
responsibilities . Thus, his bold leadership led to a revamping in the federal
government'S approach to this process.
     Bill has promoted intergovernmental cooperatio n and information
exchange amo ng financial managers through the fuund ing of the Federal
Financial Managers' Council. He also established and chaired the Inter-
agency Internal Control Coordination Council for infurmation exchange on
management controls. These are only a few examples of Dr. Kendig's
achievements, and we are honored to present the 1990 Do nald L. Scande-
bury Memo tial Award to William L. Kendig.




25
                                          Chapter 2
                                          Remarks and Awards Presentation




At the luncheon session (left to right): J. Glenn, R. Willett, L. Gallegos, E. Guss, J .Brown, M. Lujan, G. Murphy, W.
Kendig, A. Calhoun, E. O'Connor, D. Fischer, C. Bowsher, C. Newman, F. HodsoU, D. Chapin, and V. Robinson




                                          26
                            Chapter 3
                            Workshop Summaries




                            Financial Statements: Panacea or A Tool?
                                 Donald Chapin, Assistant Comptroller General, General Accounting
                            Office, who moderated this panel, provided an overview on the progress
                            made and problems encountered by federal agencies in preparing audited
                            financial statements. In his opening remarks, he indicated that financial
                            Statements were "a bit of both-less than a panacea, bur far more than a
                            tool. n
                                 Government corporations have been preparing financial statements
                            since 1945. These entities have had years of discipline in the completing of
                            the exercise, developing the supporting systems, and maintaining the
                            accounting skills. This has resulted in organizations that are comfortable in
                            the routine of preparing financial statements. More importantly, organiza-
                            tions have established internal controls structures in systems that can pro-
                            duce reliable financial information.
Do_Ul Ch"pi"                     Federal agencies are relatively new to the financial statement arena. They
GtfUr,II Accounting Offiu   have fuund that financial statements are difficult to assemble, and the
                            financial management systems that provide the infurmation to prepare
                            financial statements and ro manage the federal resources are often unreliable
                            and incomplere. Agencies must implement fundamental internal controls
                            and have transaction driven double-entry standard general ledger accounting
                            systems, an essential component of any effective financial management
                            system.
                                 Federal agencies need the discipli ne for preparing rcIiable financial srate-
                            ments, which satisfy sound and universal standards, in order to focus on
                            fixing the underlying systems. Audited financial statements are report cards
                            which identify seriously deficient systems. Mr. Chapin indicated that fixing
                            these systems would not occur overnight, but could take 2 ro 3 years.
                            Subsequent audits by GAO of the same agencies would monitor the im-
                            provement effOrt, provide guidance, and keep the necessary pressure fur full
                            correction . GAO will assist in expanding the number offederal agencies
                            preparing financial statements and submitting them fOr audits. GAO plans to
                            work with federal agencies that receive poor report cards to help them
                            overcome the systems and control problems that cause them to receive low
                            grades.
                                 Mr. Chapin stated that audited financial statements were an integral part
                            of the success of the CFO legislation . The legislation should mandate a
                            certain date by which all major federal agencies must prepare financial
                            Statements and have them audited. This action would require agencies to
                            focus high level attention on improving SYStems and controls SO that they
                            can produce reliable financial statements.




                            27
                             Chapter 3
                             Workshop Summaries




                                  Gaylen Larson, Group Vice President for Household International
                             provided a private sector perspective on financial statements. He stated that
                             business could nOt succeed in a global economy unless the federal govern-
                             ment was a panner. Both the private and pu blic sectors have to be efficient
                             in order to compete. He indicated that financial statements were an instru-
                             ment of good management control process. If the process was not in place,
                             then a manager could not manage properly assets and liabilities.
                                  Who uses financial statements? In the private sector, it is the investment
                             community, the creditor commuruty, and the management within the cor-
                             poration. There is applicarion of this same scenario in government. The
                             shareholders in the federal government are the citizens of the countty.
                             However, within either strucrure, it is important nor only to summarize the
                             statements at the highest level , but to get them down to middle managers so
                             that the people who are responsible fOr managing at the product level can
GllyletJ lAm'"
                             manage the full process.
H _<hold I ",erIIIIti"",,/        Turning to the preparer community, Mr. Larson stated that there were
                             two imponan t aspects to the tOtal financial management control process:

                                  • Strategic planning requires that all senior and middle managers talk
                                    about what they are doing, what they are trying to achieve, who is
                                    making the product, can the product be made more efficiently.
                                    Thinking of how to do a better job of delivering the goods or
                                    services more efficiently and more effectively is ctitical to a good
                                    financial management control system. It establishes the road map fOr
                                    the company for the next 5 years .

                                  • Operating planning is the shon cycle planning, normally done over a
                                    12-month period . These plans indicate where "the rubber meets the
                                    road." This is where senior managers push down to a departmental
                                    level the Strategies in the strategic plan; identify how best those
                                    Strategies can be met; and decide what can be done to eliminate
                                    irrelevant COSts, become more efficient, and deliver a better product
                                    consistent with strategy. If the current product does not suppon this
                                    strategy, then management has to make hard decisions to get rid of
                                    unneeded projects or services.

                                  Financial Statements must be timely and accurate. He stated that having
                             timely and accurate statements could be done even in the most complex or-
                             ganizations through the development of good financial control systems. A
                             manager can use financial statements as a performance indicator against the
                             organization's operating plan.
                                  Financial statements rnust have integrity as well as currency. Manage-
                             ment cannor let business units camouflage the numbers either by not
                             reporting consistently, switching back and fonh from accrual to cash, or
                             otherwise manipulating the data. Ratios are another impomnt area which




                             28
                              Chapter 3
                              Workshop Summaries




                              measure the financial health of an organization. There are strong parallels
                              between the private and public seCtors. Both sectors have to be partners to
                              be efficient in order to compete in a global economy.

                                    Anthony McCann, Assistant Secretary ror Finance and Planning for the
                              Department of Veteran Affairs, provided a dual agency perspective on
                              financial statements. He shared his experiences at the Departments of Health
                              and Human Services and Veteran Affairs. His view was that audited financial
                              statementS are exuemely important in managing the federal government, but
                              only if the agencies are serious about preparing them. He stated that finan-
                              cial statementS allowed the government to put into a common business
                              language the results of their operations. Mr. McCann defined financial
                              statements as one spoke in the "triad of activities in the financial manage-
                              ment area" with the other two being the traditional audit function and
                              financial management infurmation.
                                    He raised the following key points:

                                    • How should various accounts be reflected on financial statements? It
                                      must be recognized that the federal government does not get money
A"them, McQo""                        in the same way as the private sector. There need to be different rules
DepAm'leM of Veter"" Aff"in           to govern this application . For example, a revolving fund account is
                                      different from trUSt fund account or appropriated fund accounts, and
                                     different standards must apply.

                                    • When docs grant money StOP being federal money, and where docs
                                      federal responsibiliry stOp? What happens when the money is passed
                                      down from state to county, ciry, and then to a nonprofit organiza-
                                      tion? The recipient may ce best able to serve the cause, but it may
                                     h.ve not incorporated .11 the practices offederal financial manage-
                                     ment.

                                    • What are the economic assumptions that will be used? Who decides
                                      which economic assumptions should be used? GAO or OMB?

                                    • Why is the government allowed to use retroactive goal setting? For
                                      example, in the 1960s and 1970s, money was given to the public in
                                      the form ofloan programs that were never expected to be repaid.
                                      Congress has changed the rules and the federal government is
                                      collecting these debts. There is the need to review the COstS and the
                                      administration of these programs.

                                   Mr. McCann conduded his remarks by stating that an agency's CFO
                              mUSt be the senior person in that organization and be above the pay line,
                              including the political appointee . If the federal government is nOt prepared
                              to deal with the issue of how to build financial expertise in the political
                              strucrure, then the end result will be just paper flow.



                              29
                                   Chapter 3
                                   Workshop Summaries




                                        Morgan Kinghorn, Direcror of the Financial Management Division of
                                   the Office of Management and Budget, provided a central agency perspec-
                                   tive on financial statementS and their impact on credit. He Stated that
                                   "What we got ain't broke. The problem is what we gOt ain't right either."
                                   He indicated that the key ro solving this problem was data integrity. The
                                   audit of financial statementS and other information will authen ticate the data
                                   integrity. The financial statementS can provide a basic anchor to that data
                                   which gives it more importance than it has now.
                                        Fmancial statementS are not a panacea and are not the only tool avail-
                                   able to managers. The federal government has an enormous amount of tools
                                   available, including Financial Integrity Act reportS, the Inspector General
                                   semi-annual repom, and federal managers reportS ro audit resolutions.
                                   Financial statementS are used by a small and special audience, and this
                                   audience needs to be expanded.
Mora"'" Kinohom                         What is the entity that should prepare financial statementS? It may nOt
Office of M"""B"",ent "nd B"dget   make sense ro do a financial statement for a whole department, such as
                                   Health and Human Services, but rather ro prepare statementS for their
                                   bureaus, such as Social Security Administration. Government corporations
                                   are essentially business-type organizations that have had audited financial
                                   statementS. Mr. Kinghorn questioned the rationale of moving on to other
                                   agencies unless discipline is imposed on both the financial managers and the
                                   program managers.
                                        Financial statements are a fundamental source of fiscal information, and
                                   they impose good financial management discipline. The discipline and pro-
                                   fessionalism that go intO financial statementS are beneficial in rebuilding
                                   financial operations. They define the future agenda.
                                        The basic problem with the financial Statements is that in their current
                                   form they are fundamentally flawed . There is a need to better define the
                                   playing field. The key is that financial statementS must be tied closdy to
                                   budgeting conceptS. Managers must focus on budget execution. There must
                                   be some way to have these statements focus on the same numbers and the
                                   same conceptS.
                                        We need to focus attention on where we need ro go next. Our atten -
                                   tion is focused on those entities that are fundamentally similar to private
                                   sector operations. The CFO Council is developing a proposal as part of itS
                                   financial systems Strategy document.
                                        A new series of conceptS for federal financial statementS muSt be
                                   developed to integrate financial management and budget information.
                                   Federal managers need to generate program unit COSt information .
                                        Federal managers cannot lose sight of basic conceptS and processes that
                                   are underway to improve financial management. Financial statements are end
                                   produCtS of this entire process. They are an informOLtion product. The
                                   problem of having a certain Starutoty date for financial StatementS with
                                   respecr ro the management decisions is that it is a hazardous process to
                                   begin. The Statutoty timing of financial statements for evety department in
                                   government would ultimately result in many decisions made that otherwise



                                   30
                                   Chapter 3
                                   Workshop Summaries




                                   would nOt have to be made . Financial statements must be put in govern-
                                   ment language and until that is done there may be no relevance over the
                                   long run.
                                       Managers need to build better technical relationships berween budget
                                   and finance. We need to develop a broader range of financial statements.
                                   Mr. Kinghorn concluded by Staring that financial statements are not a
                                   panacea, but one tool to be used in government. They need to be put in a
                                   common language that makes sense for government.

                                   Accountability for Government Resources
                                       Alvin Tucker, Deputy Comptroller at the Department of Defense,
                                   opened the session by stressing the importance of properly managing and
                                   accounting for assets in the federal government. He then inttoduced the
                                   panel members to discuss their experiences concerning accountability issues
                                   and the resolution of these issues within their respective organizations.




                                        C. Austin Fitts, Assistant Secretary for Housing - Federal Housing
                                   Commissioner at the Depamnent of Housing and Urban Development,
                                   discussed the initiatives that have been undertaken at her Depanment to
                                   ensure that assets are being accounted for properly at HUD and to get
                                   HUD back on a financially sound basis.
                                        First she emphasized that one of the key requisites for accountability is
                                   to ensure that managers have the necessary resources and authoriry required
                                   to do their jobs effectively and efficiently. Without resources and authority,
                                   managers cannot be held accountable; consequently, top management must
                                   be committed in this area. Before managers can be held accountable, they
                                   mUSt be provided good financial information with which to manage and
                                   control their assets responsibly. When she first came to HUD, she described
                                   how program managers were ineffective because they were not being
                                   provided good financial information. The managers did not know the Status
C Austi" Fittr                     of the resources for which they were responsible.
DepllrtMent of Hmui"B 11M Urblln
De.elop".ent                          To rectify the problem, the HUD Secretary announced that the Depart-
                                   ment would issue independently audited financial statements, both on



                                   31
Chapter 3
Workshop Summaries




accrual and cash bases, ro managers on a regular and timely basis . Another
major action was ro have all accounting and financial systems moved from
the concrol of several organizations ro the concrol of a single Federal
Housing Administration controller. This consolidation was essential because
the program offices reported to one director, while the accounting offices
reported ro another director, with no communication berween the rwo
areas. As a result, the program managers could not be held accountable for
the financial impact of their programs since thete was no structural integra-
tion of the program and financial areas. Ms. FittS stated that the rwo changes
have been enormously successfuJ at HUD. Financial information will be
generated for every HUD program area nationally and regionally SO manag-
ers will have the proper data to make intelligent decisions.
      The newly available financial information has made a revolutionary
impact on the making of major policy decision at HUD. She cited examples
where program managers intuitively knew that programs were wasteful, hut
until recently could not be provided with financial information that factually
identified these programs for closing.
      Ms. Fitts also stressed the importance of providing future as well as
hisrorical financial data to managers to enable them to manage a large
financial institution such as HUD within the fast moving environment of the
1990s. The Federal Housing Administration is developing econometric
modeling capaciry to help decision makers develop sensible housing policies
for the future and give them the opportuniry ro look at the operations and
address various issues, such as the impact ofinflation on future operations.
      It is imperative the managers are given historical and future financial
information on a frequent basis so they can determine how their ope",,;ons
are doing and make adjustments as necessary. Employees are empowered
with information and it is essential that employees have the expertise and
auromation skills ro run programs effectively. She recommended that we
must rethink program structure. In many organizations, there are Structural
impediments to attaining the resources and authoriry necessary for accounta-
biliry. We, as managers, must .look at structure ro see that it helps to provide
f1exibiliry and empowerment needed by us and our employees.




32
                                   Chapter 3
                                   Workshop Summaries




                                          Jonathan Kislak, Deputy Under Secretary of the Small Community
                                   and Rural Development at the Department of Agriculture, began by com-
                                   paring fi:deraJ managers and private sector managers _He stated that the
                                   quality of career and senior Staff at his Department is as good or better as
                                   any managers he has worked with in the private sector_He believes that
                                   givcn the proper reins, authority and proper toOls, fi:deraJ managers can
                                   accomplish anything.
                                          He then discussed his views on some of the differences between the
                                   public and private sectors and what can be done together to better manage
                                   the financial assets and resources of the federal government. From the
                                   perspective of a political appointee, he explained why financial management
                                   is difficult to accomplish . First, financial management is viewed as nOt being
                                   glamorous, not understandable, nOt achievable, nOt measurable in terms of
                                   achievement, and not much fun . It is difficult to set and enforce long-term
                                   goals when the average tenure for political appointees is only twenty months
JonlUh4" Kisl""
[)epa .......... of A,gri&1Im.re   and when there is no consensus on the mission of the organizations. For
                                   example, there is not always agreement as to whether the Fanners Home
                                   Administration is a grant agency or a loan agency. Financial management is
                                   made even more difficult because political decisions are frequently given
                                   priority over sound management decisions . He cited several examples where
                                   political concerns have bearing on the decisions, such as the consolidation of
                                   county offices within his Department or the closing of military bases nation -
                                   wide.
                                          Mr. Kislak then discussed some ways to improve financial management.
                                   F'lI'st, managers must be provided financial information on a timely and
                                   regular basis. There is a lack of infOrmation, because managers do nOt ask
                                   for it. The key is to provide managers financial information routinely which
                                   will force them to use it. A board of directors should be established and
                                   reports routinely provided to the board . Team perfOrmance measured
                                   against goals should be included in the board's agenda . Charts and tables
                                   should be provided each month showing trends and activities . In addition,
                                   managers should look at current operations and use this information as a
                                   toOl. For example, an analysis of routine legislative inquiries at his Depart-
                                   ment identified problems that program managers could then focus on fOr
                                   correction .
                                          Managers should create long-term goals by visualizing o perations five
                                   years in the future . The financial and program managers must work together
                                   on these plans, so that the progr:un managers will understand the financial
                                   consequences of their decisions.
                                          Mr. Kislak summarized by stating that financial management can
                                   improve by instituting a board of directors, institutionalizing frequent
                                   reports, including "sexy· reports that will get managers' attention , establish -
                                   ing milestones, and creating a shared vision fOr program and financial
                                   managers. The toughest part is to get started, but the key is just to get
                                   started.




                                   33
                                    Chapter 3
                                    Workshop Summaries




                                          W. E. Douglas, Commissioner of Fmancial Management Service
                                    (FMS) at the Department of the Treasury, discussed his agency's effortS to
                                    solve management and accountability problems throughout the federal gov·
                                    ernment. Wlth the increased attention from the Congress, the public, and
                                    the press on how the government manages financial resources, we must
                                    solve our management control and accountability problems now. We have
                                    learned from the savings and loan crisis that solving problems is difficult and
                                    complex. We need a new approach to' management contrOl that will include
                                    the program manager as well as the financial manager. In the 1990s, there is
                                    a need to take a more structured, comprehensive and effective approach ro
                                    identify and solve government financial problems. Both the program and
                                    financial manager need a better set of tools to identify weaknesses in man-
                                    agement COntrol. We need to act now before there is more waste and
                                    embarrassment.
                                          The Financial Management Service is currently undertaking an initiative
W.E. DouOIAs
                                    called "Project USA" to strengthen the management techniques, practices
Dept.,..", ..., of til< TrelUJlry
                                    and results of Federal managers in carrying out their financial responsibili-
                                    ties. "USA" stands for a unified systems approach for improving financial
                                    management in government. This term "systems" is defined as a compre-
                                    hensive, consistent and systematic approach to improving both management
                                    and accountability for financial consequences of program decisions.
                                          The objectives of Project USA are to (1) identify models of financial
                                    management excellence, (2) have models serve as templates to help managers
                                    identify strengths and weaknesses of the organization and provide a profile
                                    of the agency's effectiveness or ineffectiveness, (3) focus on filling the voids
                                    in management controls, (4) ensure that program managers have tOOls to
                                    manage with and use them (i.e. financial systemS must provide accurate,
                                    timely, accessible, comprehensive and usable information and both program
                                    and financial decision makers must use that information to shape their
                                    decisions), and (5) hold managers acconnrable for their financial decisions.
                                    Another objective of Project USA is to attract, min, and retain pools of
                                    knowledgeable and effective financial managers in the United States.
                                          In January, FMS released a conceptual model of the ideal federal credit
                                    system conraining key system processes, data elements, and reporting
                                    standards necessary to support effective agency credit program management.
                                    The pilot single family housing program should be available around the end
                                    of March or April. The results will be discussed with the Office 6f Manage-
                                    ment and Budget to provide a plan for rolling out the entire Project USA
                                    initiative.
                                          In the future, the focus will be on developing financial models for other
                                    areas where government has the greatest vulnerability. However, Mr.
                                    Douglas stated that Project USA can be fully successful only if OMB and the
                                    Congress are willing to use budget dollars and oversight hearings to reward
                                    and punish agencies which meet their financial stewardship well or poorly.




                                    34
                                    Chapter 3
                                    Workshop Summaries




                                    He concluded that the bottOm line should be for all of us to make major
                                    improvements in the management, effectiveness and financial responsibiliry
                                    of Federal programs.

                                    Prescription for System Successes
                                         Jimmie Brown, Chief of the Financial Systems and Policy Branch,
                                    Office of Management and Budget, moderated this session by emphasizing
                                    the importance of having solid finandal systems throughout the govern-
                                    ment . He recognized the significance of the Chief Financial Officer legisla-
                                    tion that has been proposed by Senator Glenn and the leadership role
                                    needed to implement systems successfully. Every major federal agency is
                                    conducting an effon toward systems modernization, with a total budget of
                                    $600 million. The federal government must have minimum Standards and
                                    requirements for these systems, and there are ongoing endeavors being
                                    conducted by the central agencies. OMB drafted a paper on "A Financial
                                    Systems Information Strategy for the Federal Government 1990" that can
                                    be used by agencies to upgrade financial systems.


JimMu BrtITVIJ
Office of M1<fI4aemenIC and Buda"


                                         Ray Bell, Technical Consultant, American Oil Corporation (AMOCO)
                                    stated that this corporatio n has had some system successes and he high-
                                    lighted what AMOCO has learned. One important point is that you can nOt
                                    do all things you read about, and you shouldn't try to do them all. To
                                    implement a system successfully, you should pick one driving fOrce and let
                                    that guide your systems decisions . Client satisf.!ction is AMOCO's driving
                                    force for system success . When the client is pleased with the results produced
                                    by the system, then the system is a success. Three ingredients that contribute
                                    to client sat:isf.lctio n and system success are:

                                         1. Functionaliry - what the system does. Thls is the primary ingredient
                                    for system success, and this must be clearly defined with ideas, such as

                                         • pannership - systems developers and clients should jointly pursue
                                           technological business solutions - and
RAy &11                                  • detailed requirements - mutually-agreed business needs are to be
AmemR.n Oil Corpor"rw,..                   clear and well understood (the techniques that AMOCO used to
                                           gather these requirements were joint application design, protoryping,
                                           and pilots).




                                    35
                            Chapter 3
                            Workshop Summaries




                                 2. Environmental fit - how the system fits in. This is an integral piece of
                            the total systems area, which is composed of

                                 o architecture - a set ofmles and srructu.re for defining an environ-
                                   ment.
                                 o standards - they are necessary for systems success and examples would
                                   be architeCture components. The most important standard is meth-
                                  odology, and there needs to be a systems development methodology
                                   used throughout the organization that makes sense.
                                 o technology management - you need to investigate new technology
                                  and pbase out the old.

                                 3 . Efficiency - how the system runs. The emphasis today is to get the
                            system implemented quickly and to reduce maintenance requirements. You
                            will have to weigb the benefits (functionality) and COSt (efficiency) . Four key
                            ingredicots that make up efficiency are:

                                 o reusable code - this is a signiJicant factor in productivity or efficiency;
                                 o purchased projeCts - purchase rather than build;
                                 o project size - this will affect efficiency in the way that large projects
                                   have a high probability of failure and small projects have tOO much
                                  overhead; and
                                 ore-engineering - this deals primarily with updating technology and
                                  structured code.


                                 Tim Bowling, Assistant Director, Information Management and Tech-
                            nology Division, General Accounting Office, Stared that GAO conducted a
                            symposium to explore ways of successfully integrating information technol-
                            ogy into the business of government, and he briefly described the results.
                            Leaders from industry, Congress and the Executive Branch were brought
                            together to focus on successful examples that industry implemented that
                            solved problems similar to the governmcot. The symposium established a
                            high-level dialogue among key participants in the information technology
                            field and provided a framework of principles for organizations to use in
                            integrating information technology into their business. The five principles
                            are

                                 1. Commitmcot and vision at the top - The leader must playa central
                            role in providing a vision of how the organization will operate in the future .
                            This vision must bond together information technology with the business of
Timothy Bow/ins             the organization. This bonding is an essential element in the process. It is
Gener,.1 Accountins OffUe   important that the vision be a c1r.ar guiding statement that can be under-
                            stood by all and can be used to inform business decisions and technology
                            decisions.




                            36
Chapter 3
Workshop Summaries




     2. Alliances and partnerships· There are three levels:

          • external alliances · Other agencies, private industry, or advisory
            groups are encouraged to share perspectives and learn from each
            other's experiences.
          • internal partnerships - Between program offices and technical
            groups, partnerships should be fostered to ensure that technology
            is integrated with the business of the organization.

     3. Congress and the oversight agencies - The organization should do
everything it can to ensure that Congress understands and buys into the
overall direction the organization is raking.

          • Service to the public - The basis for all business and technology
            decisions should be the users . In assessing their needs, you should
            not rely on their demands of the past, but make a thorough
            assessment of the users' needs.

     4. Embody the vision in a clear yet flexible systems architecture - This
will serve as a blueprint, an umbrella fOr all inclividual systems within the
organization . The architecture should specify functions and relationships
between functions. This approach should eliminate incompatible and
duplicative systems and make integration easier. A modular approach to
building the system is safer and returns benefits of the system faster. It can
also respond to changes in direction or advances in technology.

     5. Management continuity is needed - Many organizations change man-
agers frequently which obscures accountability for the system's success and
often leads to changes in clirection. If this is the case, we need to make sure
that the organization's long-term strategy is clearly articulated to help ensure
more consistent direction; and adviSOry groups should be established ro help
provide continuity.

     In closing, Mr. Bowling observed that commirred and visionary leader-
ship is the foundation for all of these principles. The framework is designed
from a top-down perspective that depends on top management's ability to
envision the future and irs commitment to making that vision a reality.




37
                    Chapter 3
                    Workshop Summaries




                         Gerald Riso, Senior Parmer, Riso and Dempsey, described his ideas for
                    system success. He agreed that tOP management involvement is required and
                    that there is a need for continuity in implementing systems successfully.
                    Too much of systems work is frozen in time; systems developers and users
                    should be more flexible in implementing systems. The direct involvement by
                    program people is required . His recommendations for systems successes
                    include

                         • assurance of adequate resources ro follow through on all phases of
                           the system project,

                         • scheduled reassurances,

                         • strong project management leadership,
Gemld Ru.
Riro ,nul DeMpsey        • competent staff in all phases of the project (assures that the system is
                           fully tested and implemented),

                         • economic justification,

                         • efficiency (benefits exceed the COSts of developing and maintaining
                           the system), and

                         • luck.

                         He addressed the need for more incentives for performance. In closing,
                    Mr. Riso stated that it is the best interest of all parties concerned that the
                    government should increase its dfurts ro improve financial systems and ro
                    place more emphasis on cash and credit management.




                    38
Chapter 4
Award Winners




Donald L. Scantlcbury               1986
Memorial Award Winners
                                    William R. DouglllS
                                    Commissioner, Financial
1989                                Management Sennce
William L. Kendig                   Department of the Treasury
Director of Financial Management
Department of the Interior          DouglllS R. Nomn
                                    AuditOr General
Ellen O'Connor                      State of Ariwna
Budget Director,
Fiscal Affairs Division,            john R. Q;m:sch
Executive Office fur                Principal Depury Asst. Secretary
Administration and Finance          ( Comptroller)
Commonwealth of MassachusettS       Department of Defense

                                    1985
1988
                                    C. Morgan Kinghorn
Kenneth P. Boehne
                                    Comptroller
Chief Executive Officer
                                    Environmental Protection Agency
U.S . Railroad Retirement Board
                                    Edward J. M=ur
Louis L. Goldstein
                                    State Comptroller
Comptroller of the Treasury
                                    State of Virginia
State of Maryland

Elizabeth E. Smedley                1984
Deputy Assistant Secretary fur      Clyde E. jejf&oat
Financial Management and Control-   Deputy Commissioner
ler                                 Department of the Army
Department of Energy
                                    Earle E_ Morri.
1987                                Comptroller General
                                    State of South Carolina
Conrad R. Hoffman
Director,
Office of Budget & Finance          1983
(Controller)                        Roger B. Feldman
Veterans Administration             Comptroller
                                    Deparonent of State
William R. Snodgrass
Comptroller of the Treasury         james F. Antonio
State of Tennessee                  State Auditor
                                    State of Missouri




39
Chapter 4
Award Winners




1982                              1978
Harold I.. Stugart                William M. Hendenon
AuditOr General                   Fiscal Affairs Specialist
Department of the Army            Department of the Treasury

Roland W. Burris                  Frank I.. Greathouse
Comptroller                       Director, Division of Department
State of llIinois                 of the Treasury
                                  State and Municipal Audit
1981                              State of Tennessee
David Sitrin
Deputy Associate Director fur     1977
National Security                 Rear Admiral James R. Ahern
Office of Management & Budget     Deputy Comptroller of the Army
                                  Department of the Army
ThomlU W. Hayes
Auditor General                   Lloyd F. Hara
State ofCalifurnia                Auditor, King County
                                  State of Washington
Financial Management
Improvement Award Wmners
                                  1976
                                  Alice M. Riplin
1980
                                  Director
Manus Page                        Congressional Budget Office
Director, Division of Financial
Management                        Joseph T. Davis
Environmental Protection Agency   Assistant Commissioner
                                  (Administra tion)
Ronald Cronson                    Internal Revenue Service
Auditor General
State of Illinois
                                  1975
                                  Terrence E. MeC/a.ry
1979
                                  Assistant Secretary of Defense
June Gibbs Brown                  (Comptroller)
Inspector General                 Depamnent of Defense
Department of the Interior
                                  John E. Deper
Anthony Piccirilli                City Manager of Sunnyvale
Auditor General                   State of California
State of Rhode Island




40
Chapter 4
Award Winners




1974                               1972
Be ...."rd B. ~"                   Robert C Moot
Director                           Assistant Secretary of Defense
Defense Con tract Audit Agency     (Comptroller)
                                   Department of Defense
Martin l'11es
Deputy Comptroller                 Ruhard W. Miller
Stare of New York                  Associate Asst. Secretary
                                   for Administration
1973                               Department ofl..:lbor
Ed",,,rd S. Stepniclt
Director, HEW Audit Agency         1971
Department of Health , Education   ]. Patrick Dugan
and Welfare                        Treasurer·Controlier
                                   Export·Import Bank
Robert R. Ringwood
Stare Auditor                      John P. Abbadessa
State of Wisco nsin                Controller
                                   Aromic Energy Commission




41
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