For Federal CFOs, the Pressure is on

Do you feel like the frog being boiled? Only four years ago, it was cool to be in government again – but now the pot’s boiling on extra high. The heat continues to rise with the taxpayers’ distrust of the management and stewardship of their money; whether it’s anything from ballooning deficits to irksome conference spending – the federal CFO community is in the thick of things. And the view from the bunker is not pretty either, as we emerge from the turbulence of continuing resolutions, threats of government shutdowns, whilst still toiling away under the cloud of sequestration. And do not forget what we all did to make the execution of the Recovery Act a success with transparency in reporting and very little instances of fraud, waste, and abuse.

As we approach the presidential election and despite recent history and events, there has been somewhat of a hiatus from new management initiatives – but expect this to change quickly (no matter who wins the election) with a newly invigorated administration, some severe externalities hanging over us, and a backlog of legislative proposals aimed at improving how the government spends its money. The federal CFO community will continue to experience increasing pressure and demands to keep performing with ever eroding levels of resources. I see that these challenges are starting to drive an emerging agenda for the federal CFO to address and work on over the next handful of years. So, here are four of the bigger things I see on the agenda:

1. Maintain the measure of fiscal integrity: Job number one for a federal CFO is to keep your clean audit opinion. It’s a little like oxygen – you never really notice it until it’s not there anymore. With recent spending transgressions, the CFO community is usually the one left to pick up the pieces, find out and sign-off on what really happened, and tighten the screws to make sure the chance of reoccurrence is diminished. CFOs will need to move from rote, compliance-based internal control programs to thinking more broadly about financial and enterprise risks to strengthen the overall control environment in their organizations. CFOs will need to start thinking in terms of risk – what are the material financial and programmatic risks? what is their likelihood of occurring? their consequence? and what can we do to mitigate them? It’s basic fodder for CFOs, though they will need to be in pole position in their organizations on this one.
2. Build a relentless focus on cost management: Whether through budget cuts, appropriation actions, initiatives like the Campaign to Cut Waste – or just plain old good management – the easy cuts have been made and savings already taken. CFOs will need to look closer, work harder, and cut deeper to balance the books. A favorite line of mine that captures the incentive for program managers and mission support operators is, “we understand the budget of everything, but the cost of nothing.” CFOs will need to continue with a relentless focus to take their organizations up the evolutionary curve from budget execution, to cost reporting, to cost management; taking action to reduce spending in a sustainable way. A further extension will be to partner with the federal acquisition community to drive strategic sourcing initiatives to really drive down input prices in the long-run.
3. Mitigate severe human capital risks: The retirement wave is crashing over us and, unfortunately, many of us still have faith in the umbrella we bought from one of those Metro station vendors to keep us dry. The Office of Personnel Management recently reported the devastating one-two combination punch of an increasing rate of retirement and a declining rate in hiring the next generation of public servants. Trying to, “do more with less” is nonsense – CFOs will need to need to trim back the scope of their responsibilities to the measure of their organizational capability.
4. Find capital to invest in new business systems (or find someone else to run them): The Office of Management and Budget (OMB) has been working diligently to revise A-127, its circular focused on financial management systems – bringing some much needed freedom for federal CFOs to build the business systems architecture to meet their needs. However, I anticipate that these newly found freedoms will create some unintended friction in the community, should more standardization and central controls be sought through shared service models by OMB. The intensive financial systems reviews conducted by OMB a couple of years ago canceled replacement systems or halted investment in upgrades. New capital will be needed to keep the pace of innovation going, if only to get ahead of being left holding obsolete software no longer supported by software vendors.