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CFOs report rising cost of financial operations

Most surveyed express dissatisfaction with technology investments; want to change annual financial statements.

A new survey finds most government financial leaders say the cost of financial operations has risen during the past two years, and they are not happy with the return on investments in technology.

"Many executives worry about the cost of maintaining both existing legacy and new financial management systems," stated the survey conducted by Grant Thornton LLP, the Association of Government Accountants, and the National Association of State Auditors, Comptrollers and Treasurers. "One reason may be that, when formulated, IT budgets did not anticipate the full life-cycle costs of upgrades and maintenance."

The survey instrument included interviews with 122 federal chief financial officers, deputy CFOs, other executives, and senior leaders at the Office of Management and Budget.

The survey report noted that for decades, federal financial managers have been pinning their hopes on technology to improve finance and accounting operations while reducing costs. That hope has yet to be realized, "as evidenced by continued spending of hundreds of millions of dollars on financial IT with modest -- often quite modest -- return on investment," the report said. "In an era when technology is often credited with increases in efficiency and reductions in cost, the magic seems to be missing in government financial management."

Most respondents said many of their resources were devoted to producing reports required for legal reasons. Less than half said their offices allocated the majority of resources to high-value, program-focused reporting -- the kind of information nonfinancial executives need to make business decisions, observe trends and shift money to more productive areas.

"Producing after-the-fact reports is not very valuable to internal users," the analysis said. "Audited annual financial reports consume an inordinate amount of time in public sector [CFO offices], yet have little use other than to outsiders. Even then, they are not useful to the largest group of potential users: taxpaying citizens."

A clear majority of federal executives want to see revisions to the way annual financial statements required by the 1990 Chief Financial Officers Act are prepared and presented.

Suggestions for making the statements more useful included: align the reports more with the budget; focus on program results; make the statements more understandable to the layperson; break down costs by program activities, not organizational units; standardize cost and performance measures governmentwide; and stop showing the capitalization and depreciation of historical property.

According to the report: "Survey respondents raised the perennial question, 'Why put a value on the Cape Cod National Sea Shore when we are not going to sell it?' Everyone acknowledges the importance of tracking government property, but capitalization thresholds can be raised to reduce the financial accounting of these assets while having good internal controls to track them. This is especially true for entities with emergency or warfighting readiness capacity -- why depreciate assets that get blown up or destroyed during the readiness operation?"

The survey also found financial executives at both the state and federal levels are concerned about demands placed on their organizations by the 2009 American Recovery and Reinvestment Act. Many predicted Congress and OMB will revise or increase reporting requirements "in ways that will create difficulties and drains on already strained resources."

A major concern is Recovery Act reporting relies on external parties to provide accurate information, with no enforcement mechanism to ensure compliance.

Said one federal executive, "Many local ARRA fund recipients are not equipped to provide the detailed reporting that would effectively track the spending and honestly are not even aware whether the funds they received were ARRA or another source. Consequently, federal entities in charge of the funds will be blamed for inaccurate or inadequate information."