If you’ve just joined government with the Trump administration, welcome to the chief financial officers community. No need to worry if your knowledge of accounting is limited. Some of the most effective CFOs are not CPAs.
You might be surprised to learn that your position is relatively new. CFOs have existed only since passage of the 1990 Chief Financial Officers Act, which established the positions of CFO (a political appointee) and deputy CFO (a career civil servant) in the 24 largest federal agencies. The law also required agencies to upgrade their financial management systems and, for the first time, have their financial statements independently audited. Some audits are performed by the Government Accountability Office, but most are performed by an accounting firm designated by the agency’s inspector general, with a few performed by the inspector general him or herself.
Some CFOs have tried to function primarily as advisors to senior management, while others felt they were responsible for “keeping the books.” The most effective CFOs fall in between. They think of the future by seeking opportunities to increase revenues, reduce costs, eliminate unnecessary activities, and initiate efficiencies. They leave the financial processing, knowledge of accounting standards, and reporting requirements to the deputy CFO and other careerists. Of course, CFOs need to ensure the deputy has the requisite skills and is doing a good job. The most effective CFOs also think beyond their agencies and consider the needs of the entire government.
New CFOs should know the federal government uses two kinds of accounting: budgetary accounting and financial accounting (also called proprietary accounting by career employees), and they are performed by different staff with frequently competing interests.
- Budgetary accounting is concerned with the agency’s appropriations, which are akin to the agency’s revenues. It ensures that appropriations are not exceeded, which can be a criminal violation.
- Financial accounting reports the costs, usually at the organization, strategic goal, appropriation, or fund level. Some agencies report costs at the program, product, output, or location level. It also provides intergenerational information to support short- and long-term fiscal decisions.
Agencies prepare annual financial statements unique to the federal government’s needs: a balance sheet, statements of net cost, changes in net position, and budgetary resources.
Guidance for budgetary and financial accounting is provided in the following publications:
- Office of Management and Budget (OMB) Circular A-11, Preparation, Submission and Execution of the Budget
- Circular A-123, Management's Responsibility for Enterprise Risk Management and Internal Control
- OMB Circular A-136, Financial Reporting Requirements
- OMB Bulletin 15-02, Audit Requirements for Federal Financial Statements
- OMB Controller Alerts (which provide explanations for the foregoing guidance)
- U.S. Treasury, Bureau of the Fiscal Service’s Treasury Financial Manuals, also known as TFMs
Federal financial accounting standards are promulgated by the Federal Accounting Standards Advisory Board. The standards have been designated as generally accepted accounting principles by the AICPA. FASAB’s Handbook of Federal Accounting Standards and Other Pronouncements provides guidance for preparing the agencies’ financial statements. Likewise, the Government Accountability Office’s Standards for Internal Control in the Federal Government, which is based on the COSO framework, provides guidance on evaluation and implementation of internal controls. Finally, the Association of Government Accountants independently reviews the reports containing the financial statements and provides recommendations for improvement (called the CEAR program).
As in business, the annual financial statements are not used by management for day-to-day decisions. Their primary purpose is to ensure agencies maintain their financial records based on sound internal control and thus are able to produce reliable and complete financial data. This reliability is further enhanced by the independent audit process. Nonetheless, the statements are capable of providing such information as costs for agencies whose fees must cover costs or the total amounts of real property.
What to Focus On
The effective CFO will focus on what can be done to improve the future, rather than just meet current requirements. There are many opportunities in the present financial environment. Some examples of these many opportunities include the following:
- Successfully implementing the DATA Act will enable your agency to connect data in currently unlinked data banks (for example, financial, procurement, grants, agency-unique) and determine what was budgeted, procured, spent, etc., for a program. From here, you can then perform additional research, make decisions, and justify positions. Examples are determining grants to the City of Detroit not yet expended, or determining how quickly Puerto Rico bills for grant expenditures.
- Agency heads have been required to provide signed assurance on the effectiveness of internal controls since 1982. Unfortunately, the statements have focused on financial matters. Yet the big risks in government are nonfinancial. Consider Veterans Affair’s falsified patient waiting-time lists or the IRS’ delayed approvals of tax exempt status for organizations with conservative names. OMB has recently initiated an enterprise risk management (ERM) program to ensure the risks associated with each agency’s activities do not prevent achievement of strategic objectives. CFOs, with their extensive understanding of resources and controls, are in an ideal position to drive the ERM process within their agencies.
- One of the benefits of technology is it enables organizations to transfer labor-intensive processes to others. Shared services, a recently-begun program in which agencies turn their administrative support activities over to others, is an example. Fostering the migration of your agency’s support activities to shared services is another way to use your position to add value.
As with any new position, it can be overwhelming to grasp all elements of the role. One of the challenges is to identify and successfully utilize the resources available to support your new responsibilities. Two of the most important resources are the career staff and the organizations that provide accounting guidance, which may differ from those to which you are accustomed. Another challenge is to effectively pursue and be able to derive the benefits from the many existing federal initiatives. A key to your success will depend on how you meet these challenges.
Harold “Hal” I. Steinberg, CPA, CGFM, was appointed in 1991 as the first Deputy Controller/Acting Controller for the Office of Federal Financial Management to oversee the implementation of the Chief Financial Officers Act. He previously served in the Office of Management and Budget; and as a partner in KPMG LLP.
D. Scott Showalter, CPA, CGFM, is a professor of practice in the Accounting Department at Poole College of Management, North Carolina State University. He is a retired partner from KPMG LLP.