Government Failures Illustrate the Need for Risk Management

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The government’s recent high-profile failures—the glitchy launch of HealthCare.gov, alleged targeting of interest groups by the Internal Revenue Service, the patient scheduling scandal at veterans hospitals—“show the need for a broader enterprise risk management program,” the U.S. Controller said on Wednesday.

David Mader told an audience of government accountants that while the recent mishaps did not involve chief financial officers, officials running systems designed to mitigate financial risks “will have to think of risk more broadly, to take in mission risk and operational risk,” he said at a Washington breakfast to release a new survey.

The 19th annual survey of chief financial officers by the Association of Government Accountants and Grant Thornton LLP found that officials are preoccupied with budget uncertainty, with results touching on the future workforce, shared services, transparency and data analytics.

“The uncertainty comes from shutdowns and continuing resolutions—CFOs can handle straight cuts,” said panel moderator Jim Taylor, a former CFO for the Labor Department and now a managing director at Grant Thornton. The survey, which comprised 283 online responses and 65 interviews, showed that less than one-fourth of respondents’ agencies have a chief risk officer (though many have committees or rely on all-employee participation). The recent government debacles “represent government as a whole and directly impact the clients we serve,” Taylor added.

Mader said the Office of Management and Budget has been talking about risk management with agencies as well as private-sector specialists and plans to have governmentwide recommendations ready by the end of the second quarter of fiscal 2015. “While Congress will have concerns, agencies should not wait for new legislation to plan,” he said. “When you look at the breadth of different agencies, I don’t think one size fits all.”

In a notable change from last year’s survey, more CFOs worry that pay is having a negative effect on employee engagement, retention and recruitment, with only 13 percent saying pay was a small consideration. “The challenge is not who’s retiring, but the succession plans, and how to replace people with the right skill sets,” Taylor said.

Mader, a longtime IRS official, noted recent surveys showing that millennial generation employees are not staying in government if they don’t feel challenged. “They won’t stay 30 years like I did,” he said.

Perhaps most startling in the survey is that 60 percent of CFOs were either unlikely or very unlikely to see a benefit to transparency in creating the agency’s financial statement. Though Taylor agreed that few in the public may read the statements, he said “they give you a level of certification on Capitol Hill since no CFO wants to testify and get hammered for not having a clean audit.”

Mader said he was surprised when he worked at IRS in the late 1990s at the new commissioner’s puzzlement over the fact that the agency that requires citizens to keep careful financial records did not have its own clean books. “It fundamentally changed my thinking as a government executive,” he said. “To achieve the financial statement is saying, `Yes, we have been good stewards of the taxpayer’s money.’ ”

OMB, he said, is working with the Treasury Department to turn the transparency goals of USASpending.gov into a plan for the executive branch and Congress that connects spending with policy decisions. “The challenge is to get all the data sets in sync, so everyone at all the agencies can say, ‘Yes, those are the right numbers.’ ” Mader said.

Citing the Digital Accountability and Transparency Act, Mader predicted a heightened interest in the relationship between cost and performance. Benchmarking of program performance, he noted, is part of President Obama’s management agenda; OMB held meetings on the topic in September with the Homeland Security, Agriculture and Health and Human Services departments. Many agencies, “still don’t have a good feel for what operations cost, but that understanding is critical” even though the data itself can be hard for Congress and the public to digest. He hopes to see improved agency compliance with requirements of the 2010 Government Performance and Results Modernization Act so that more officials ask, “What was the cost of that program outcome?”

Shift to Shared Services

More than 66 percent of respondents said they were concerned about shared services—the bulk purchasing of everything from office supplies to payroll services—and how they might affect quality. Nonetheless, shared services are “here to stay,” Mader said.

He cited the IRS’s successful transition of its payroll functions to the National Finance Center as an example of the benefits of shared services. “Instead of 24 financial systems, we’d like to get it down to maybe a half-dozen,” he said, citing costs savings and value. But the shift involves “a huge change management, a mindset change. The challenge is building a relationship between providers and clients,” he said.

The AGA-Grant Thornton survey concluded with recommendations: CFOs should streamline and leverage management improvement requirements; Congress and OMB should clarify who is accountable for risk management; agencies should collaborate on the DATA Act’s transparency requirements in a way that minimizes the burden and maximizes benefits; CFOs should embrace the movement toward shared services; and Congress and OMB should factor in the increasing workload of CFOs.

(Image via Lightspring/Shutterstock.com)

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