Guide offers agencies advice on financial management

Independent financial advisory committees, similar to those that oversee corporate accounting practices, could help federal agencies prepare more trustworthy financial statements, according to a new management guide.

Advisory committees could give agency heads an "independent, high-level source for obtaining knowledgeable and objective views of financial management problems and possible solutions," said the guide, published by KPMG LLP, a tax and accounting company. The committees could also "increase the public's confidence that management has a vehicle for proactively addressing financial matters and that financial management is properly functioning."

Several federal agencies, including the National Science Foundation, Federal Deposit Insurance Corporation and General Accounting Office, already have such committees, according to John Hummel, partner and federal national industry director at KPMG LLP. The Office of Management and Budget has encouraged other agencies to establish committees, he explained, but has not offered much guidance.

KPMG's report on best practices for financial management advisory committees at federal agencies addresses this void, Hummel said. The guide includes advice from agencies with committees and also from the private sector. OMB also reviewed a draft and offered comments.

Under the 2002 Sarbanes-Oxley Act, passed in the wake of the Enron accounting scandal, all publicly traded companies must establish independent audit committees. Congress and agency inspectors general are responsible for overseeing the government's financial practices, but independent audit committees could play an important support role, Hummel said. The committees would not have legal authority, but would help agency heads through the audit process.

The federal government failed its sixth consecutive financial audit recently, but agencies have made some progress, according to the General Accounting Office. In a record performance, all but three of the 24 agencies covered by the 1990 Chief Financial Officers Act received clean audits, up from 18 agencies in fiscal 2001 and fiscal 2000. Financial management problems at the Defense Department kept the government from passing its fiscal 2002 audit.

"Strong management focus is a hallmark of good governments and effective organizations," Hummel said. "Financial management advisory committees can help federal agencies establish and maintain that focus."

The committees would have different responsibilities depending on an agency's specific needs, but could make sure agencies are disclosing complete and reliable data to inspectors general for year-end audits and meeting standards outlined in the 1996 Federal Financial Management Improvement Act, which requires agencies to produce timely and accurate financial statements.

Outside advisers could also help agencies prepare performance and accountability reports required by the 1993 Government Performance and Results Act, the guide said. The committee could address broader management issues, such as agencies' progress at measuring performance, a central goal in the president's management agenda.

Ideally, the committees would have three to five members appointed for two-year terms, the guide said. Members would understand federal financial management and have accounting expertise. They would also have an understanding of the agency's mission and programs, but would have no personal or ideological ties to the agency, the guide said.

The 1972 Federal Advisory Committee Act established the ground rules for committees. Under the act, agencies need permission from the General Services Administration before establishing a committee. For permission, they need to establish that the committee is in the public interest and no existing committee is capable of performing the same functions. Agencies are also required to publish a Federal Register notice announcing the committee's establishment. Within 15 days of printing the notice, they must file a committee charter statement with the agency head, any congressional committees with jurisdiction over the agency, the Library of Congress and GSA.

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