Power Pencils

Chief financial officers shed yesterday's bean-counter image to become executive power players.

When Linda Morrison Combs accepted the chief financial officer position at the Environmental Protection Agency in 2001, she strolled into the building on Pennsylvania Avenue with a curious goal: to make hers the most respected CFO operation in government. Not the best, or the greenest on the President's Management Agenda, but the most respected-however that played out.

"One was to get a clean audit opinion. So we did that. Another was to have no material weaknesses. We did that," she ticks off the list. Monitoring and correcting reportable conditions as diligently as material weaknesses added prestige, so her team did that. The effort propelled the EPA to the first green for a Cabinet-level agency on that all-important score card-a model that eight of 24 agencies have followed.

"It was one of my proudest moments," Combs says. "I didn't know exactly what it meant when I first articulated this goal, but I knew if we kept working and refining what respectability meant, we would get there."

To borrow a phrase from NASA, it was one small step for the EPA, one giant leap for federal CFOs. Success catapulted Combs in June 2005 to become controller at the Office of Management and Budget, her fifth presidential appointment confirmed by the Senate. And the accolades helped elevate CFOs to an even more powerful seat at the management table.

Some see it merely as their due. "In the private sector, well-run companies make no business decisions without the support and consultation of the financial community," says Sandra L. Pack, who was appointed assistant secretary for management and CFO of the Treasury Department in August 2005. "That is becoming more and more true in the federal government as well."

Yet the position has been official only since Congress passed the 1990 Chief Financial Officers Act, which at that time was the most comprehensive and far-reaching financial management improvement legislation in more than 40 years. It handed OMB broad new authority to direct financial management, modernize systems and strengthen reporting. At 23 agencies, the CFO would be a presidential appointee who reported directly to the agency head on a host of responsibilities: accounting and financial management systems, policy guidance, budgets, personnel recruitment and training, assets management systems, and financial execution.

The CFO is primarily the principal financial manager in an agency. Their functions usually range from planning and budgeting to financial control to internal control (including systems) to accountability, which includes both financial audits and performance information. Not every CFO performs all these functions and a few lack authority in some areas.

"A good CFO will be a true partner with the program manager," says Edward DeSeve, OMB controller during the Clinton administration. DeSeve also has served as OMB's deputy director for management and CFO at the Housing and Urban Development Department. "They will help the program manager evaluate the financial resources available and the means of allocating them in a timely way. They will also help to design information systems that provide the program manager and senior management with timely, relevant data upon which to make operational and strategic decisions.

"For example, I am sure that Jennifer Main [CFO at the Small Business Administration] counsels the programs about the ability to make loans given various default rates and various levels of congressional appropriation," he adds.

DeSeve says agency audits should be part of a broader accountability report that meets multiple statutory tests and provides real information to external parties. Program managers need this information even faster and should have it in many forms in almost real time. Such information as the status of appropriated funds, patterns of outlays and the activity level of their programs can all be gained from properly designed financial systems.

Combs, then assistant secretary for management at Treasury, was among those who drew up the CFO job description. "That was a threshold moment," she recalls, "to step up to the plate and say, 'Folks, we really need to do something different.' The risk of not doing something was far greater than the risk of doing it."

The pioneers' intent centered on moving government from a cost-based accounting standard, which recognizes expenses when they are paid, to an accrual-based one, which recognizes expenses as soon as the agency is obligated to pay them. Using accrual-based accounting, agencies would be able to develop financial statements that could be audited and obtain clean opinions. Today, 18 of 24 departments have achieved clean audits. Internal control weaknesses have decreased 70 percent since 2001. Reporting is done in 45 days following fiscal year's end instead of five months. "We've come a long way," Combs says.

"Some people look at that and say, 'But it's been 15 years.' Government is a very large entity. As long as we are making progress, I think we are doing good by the people's money. That alone says an awful lot about how CFOs have stepped up to the plate at appropriate times and continue to do that," she explains.

Today, practitioners such as NASA's CFO, Gwendolyn Sykes, are grateful for the flexibility of the 1990 legislation. "It gave you certain organizational things and things you needed to do, but it wasn't prescriptive as far as how you provide value to your customers," she says. "The excitement for it is because I am able to craft this position and be on the ground floor of shaping that for the future."

Most important, the profession took steps to police itself rather than let external events buffet them into forced oversight, as its private sector colleagues did when they brought the 2002 Sarbanes-Oxley Act down on their heads. And a profession assigned to oversee numbers compliance knows what it takes to police effectively. But that's still not enough for Samuel Mok, Labor Department CFO.

"We want to be like the Tokyo policemen, who don't carry guns," he says. "I always believe when a policeman has to draw a gun, he has failed, because they are enforcing law through intimidation, not because people respect or listen to you. I want my staff to be people others come to because they want to, not because they have to."

Private vs. Public

Presidential appointments often inject into agencies CFOs with impressive résumés from the private world. Yet the two worlds don't match up. According to Mok, government CFOs are more compliance-driven while private sector CFOs focus more on managing the bottom line. On the other hand, templates such as the 1982 Federal Managers Financial Integrity Act, the 1996 Federal Financial Improvement Act and OMB Circular 123, revised in October 2005 to reflect Sarbanes-Oxley, give newbies a roadmap. "If you know how to read English, you know the requirements, and if you have a finance background you know how to go about applying methods to comply," Mok says. "Actually, [starting as CFO] in the federal government is a lot easier than the start as a CFO in the private sector of comparable size."

Jack Martin, CFO at the Education Department, notes that federal chief information officers need to understand both budgetary and proprietary accounting. Proprietary accounting shows actual financial position and results by tracking assets, liabilities, revenues and expenses. Budgetary accounting tracks the use of each appropriation in a separate ac-count, and records receipts and other collections by source. Congress and the executive branch speak this language so they can better set priorities and allocate resources among alternative uses and still comply with the Constitution. It's a body of accounting knowledge that goes beyond what most universities teach. "So coming from the private sector, it is challenging to learn, especially late in your career," Martin says.

Pack homed in on a fundamental distinction after accepting a financial role at the Army in 2001. Private CFOs, she knew, focus on building value for the shareholder. "In government, many programs you undertake are not necessarily the most efficient from a financial standpoint-they're undertaken because they're the right thing to do for the American people," she says. "It is a striking difference that takes a little getting used to."

"Public sector CFOs often have to remember that we are not here to do good accounting. We do good accounting to serve the public's interest, so that's a very big difference," Mok says.

He's preaching to the choir in Combs' office. "The public expects CFOs will provide accountability, respectability and transparency in everything we do," she says flatly.

Systems Struggles

Combs tempers her enthusiasm and praise for federal CFOs' accomplishments with a caveat: The financial management systems scattered throughout Washington are in various stages of development, implementation and upgrades. "We certainly aren't all there yet," she notes.

Take Dale Sopper, deputy commissioner for finance, assessment and management at the Social Security Administration. Before he came, SSA was tapped as a pilot for the first accountability report for fiscal 1996, which consolidated the 1993 Government Performance and Results Act, the 1978 Inspector General Act and the 1982 Debt Collection, CFO and Federal Managers Financial Integrity measures. The pressure meant SSA began extensive prep work to dump its antiquated accounting system in favor of one with a Joint Financial Management Improvement Program seal of approval that came on line in 2001.

"I can't say enough about what a success that was," Sopper says. Today, his is the only entity that has upgraded to Oracle Federal Financials version 11.5.10. But the story isn't ending. In the next 12 months, he needs to replace the system so SSA's operations managers will have real-time financial information to use in decision-making.

Paul R. Corts, who holds down the financial fort at the Justice Department, faces the unenviable job of unifying its system. Each component group at Justice operates its own accounting system on varying platforms, with no standard data definition. Corts must roll 10 audits into a departmental consolidated financial statement. He has to request data from individual components, which opens the door for them to clean their numbers and turn in the report they want the boss to have instead of a snapshot of reality. "We don't have the independence that the CFO office ought to have in being able to call up information," he says. "It's not the best practice and we know it."

Help, at least on the drawing board, should arrive in 2006, but realistically he knows that whatever Justice buys won't be up and running for several years yet. Meanwhile, Corts is stuck in a vortex of time crunches and veracity checks while tinkering with commercial off-the-shelf products to jury-rig a solution.

Mok says Labor is the only agency in recent times to stand up a successful payroll system from scratch. He also moved Labor's payroll system to the National Finance Center without hiccup. Even through Hurricane Katrina, employees received their paychecks on time and for the correct amount. For an encore, Mok is shooting for Labor to be the first agency to have an electronic travel system that handles everything from travel request to reimbursement sans paper.

He chalks up the achievement to leadership, starting with Combs and getting in applause for his management team of financial gurus collected from Fortune 100 companies such as Pacific Gas and Electric Co., and Fidelity Investments. "Centralized databases aren't the answer to everything," says Mok. "The software systems that serve people's needs are those that are well managed by people."

When Martin stepped into Education in 2001, he inherited an agency with "very serious problems," as he puts it. Former Secretary Rod Paige established a team of senior career and political people to develop a roadmap out of the morass. "We had about 160 items on that blueprint, and the first two were to implement a new integrated financial management system and get clean audit opinions," Martin says. Just like that, he was in the pressure cooker.

It's a familiar spot for CFOs in 2005. Both Mok and Martin note that they receive more effective oversight from the Government Accountability Office and OMB than do publicly traded companies wrestling with Sarbanes-Oxley. The PMA score card holds everyone's feet to the fire; Combs' office takes financial performance very seriously. "We ensure that the objectives and strategic priorities in each of the departments and agencies are identified, a plan is put in place, and we hold people accountable for achieving those specific standards," she explains.

Martin likes the return on investment. "I have been around Washington for a long time, and I have never expected that we would have so many of our major Cabinet agencies and large independent agencies receiving clean audits," he says.

Kathleen Turco, the General Services Administration's acting deputy administrator and CFO, thanks the oversight for placing her in the middle of the action. "We used to be the back office. We're in the front office now and sometimes we have to use some sharp elbows at the table. But that place comes with a responsibility for conducting the business analysis along with the financial analysis-how it operates, the metrics, its problems and how you can solve them. We have to understand from input to output because it all flows through the financial systems," she says.

To Corts, his profession's expanding status means government is no longer a hiding place for introverts and pure numbers crunchers. "You better be a master at networking," he says. "Frankly, it is one of the things that keeps the job a lot of fun."