Originally Broadcast October 17, 2007
Welcome to The Business of Government Hour, a conversation about management with a government executive who is changing the way government does business. The Business of Government Hour is produced by The IBM Center for The Business of Government, which was created in 1998 to encourage discussion and research into new approaches to improving government effectiveness. You can find out more about The Center by visiting us on the web at businessofgovernment.org.
And now, The Business of Government Hour.
Mr. Morales: Good morning. I'm Albert Morales, your host, and managing partner of The IBM Center for The Business of Government.
Good government, a government fiscally responsible to its people, must have as one of its core purposes the achievement of results for its citizens. In doing so, it must also act as an effective steward of the taxpayers' money. Every year, over $2.7 trillion of taxpayers' money flows through the accounts of the U.S. Federal Government. Managing these funds requires at a minimum keeping the books straight and ensuring that funds are not misspent, but it also means going beyond the fundamentals to improve financial management government-wide.
With us this morning to discuss his efforts in this area is our special guest, Danny Werfel, Acting Controller of the Office of Federal Financial Management within the U.S. Office of Management and Budget.
Good morning, Danny.
Mr. Werfel: Good morning.
Mr. Morales: And joining us in our conversation is Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice.
Good morning, Debra.
Ms. Cammer-Hines: Good morning, Al.
Mr. Morales: Danny, let's begin by talking about the Office of Management and Budget, or OMB. Could you tell us about OMB, what its mission is, how it's organized and give us a sense of scale such as its size, number of employees?
Mr. Werfel: Well, I like this question because OMB is a difficult organization to describe. Not a lot of people understand all the different facets that we get into. But essentially, the primary thing that we are involved with is producing the President's budget each year. That budget is produced in a time frame between essentially August and February, and it's submitted in the first week of February to Congress. And it involves about 200 to 300 examiners reviewing agency requests for funding for new programs or existing programs. The examiners evaluate the requests that come in from all the different agencies, whether it be the Department of Commerce, the Department of State; every agency submits a budget request to OMB.
And we review them and make recommendations to the director of OMB about what the President's budget should look like, and this process is a very deliberative one, a lot of analysis goes into it. There are a tremendous amount of challenging questions that must be answered, a lot of priorities to balance.
We also have roles beyond just producing the President's budget. Sticking with the budget examiners and the budget side of OMB, they are required to become subject matter experts on all these various programs, so they can not only make good recommendations about funding these programs or reforming these programs, how to fix these programs, but they also look at elements of how the programs are managed, suggestions or requirements we can provide to agencies to improve the management of the programs -- basically everything that goes into executing these programs once Congress enacts the law that creates them.
Beyond the budget side -- and I like to remind people that there are two letters in the Office of Management and Budget, "M" and "B." There is the "M" side, or the management side, and on the management side of the house, which is smaller than the budget side of the house, we have the responsibility -- and I say "we" because I primarily sit on the management side of the house -- we have the responsibility to establish different requirements and different initiatives that are targeted at improving management initiatives for the government.
This includes areas such as financial management and accounting, and I think we're going to talk mostly about that today. But there are other areas that we are -- again, establishing requirements that all federal agencies must follow, and in addition to that, establishing initiatives to improve management, and those areas include procurement and information technology, for example.
And one other area of OMB that I think is worth mentioning is the Office of Information and Regulatory Affairs, and that office reviews federal regulations that come in. No agency goes out and regulates to the public without getting an OMB approval first.
So there's 500 total people at OMB, and I think one of the great benefits of being at OMB is that you do get to see every part of the policy process.
Mr. Morales: Well, it's certainly a very broad overview. I believe you said that the management side was slightly smaller than the budget side. Can you just give us a sense for that? Is that a two-thirds/one-third or three-quarters/one-quarter?
Mr. Werfel: Yeah, it's about 300 to 200 or 350 to 150, around that in approximation. My office, the Office of Federal Financial Management, which deals with accounting and financial management issues, has approximately 18 people in it. The Homeland Security branch within OMB has about 12 people. So you see that the branches are pretty big comparatively to our office. We deal with a whole government-wide issue. They're just dealing with the homeland. So you do see more people on the budget side than on the management side.
Ms. Cammer-Hines: Now that you have given us a good overview of the organization, could you spend a little time talking more about your role within OMB, your specific responsibilities and duties as the Acting Controller, and how it supports OMB's mission?
Mr. Werfel: Certainly. The Office of Federal Financial Management is responsible for serving as the government's controller. A controller establishes requirements related to financial management, internal controls, accounting; establish those requirements and oversee the parts of our organization, the larger organization, the federal government, their efforts to implement and meet all these various requirements.
So what we sometimes refer to as a set of core activities that federal agencies are doing to improve stewardship, to mitigate the risk of fraud and error and waste, to make sure that they're accounting appropriately for federal taxpayer dollars. We have a whole series of requirements that we issue through bulletins, or sometimes they're called circulars, and they establish what the agencies must have in place from a people-process-technology standpoint to make sure that the accounting is strong and the controls are strong. And so those core activities, we are responsible for publishing them, developing them, maintaining them. We answer a lot of questions about them, and we look to see where they might need to be improved.
And that takes me to the next responsibility of the controller and the controller's office, is to look at initiatives to improve management to improve management beyond just those core activities, get better results from a financial management standpoint.
So beyond core activities, we've established what we sometimes refer to as a reform agenda. Now we are developing new tools, new requirements, new approaches -- in our reform agenda are areas like improper payments agencies are changing and improving the way they track payment errors. We are looking at our real estate that the government owns and trying to improve our inventory of that real estate so that we know where the properties are that are in need of repair or that are surplus. We're looking at grants management. So that basically, between those core activities and the reform agenda, that keeps us pretty busy.
Ms. Cammer-Hines: You have a broad set of responsibilities and duties and a lot of challenges in front of you. How would you describe your top three challenges that you face in your position, and how you've started to address those challenges?
Mr. Werfel: This is a tough question, because I think narrowing the challenges that we have in government financial management to three is very difficult. The government is so complex, I struggle to comprehend all the different complexities, but we have a myriad of different programs that each have unique requirements.
These unique requirements create complexity to the transactions that we are undertaking. We have programs that are designed to improve world peace and those that are designed to provide school lunches to children. And with each of these different diverse missions and diverse localities and diverse approaches, all of that results in financial transactions that need to be tracked very closely so that we have reliable and valid information on what's going on.
So that's an introduction into what I would say the first challenge that we have is in such a complex environment and a growingly complex environment, how can we do what we do better? How can we be more efficient? Do we have the right human resources to get the job done? And my sense from the financial community is that government is becoming more complex to look at from a financial management standpoint.
I would say the second area is related to the first, and it's how we help the chief financial officer and the government today move beyond the compliance exercises that take so much of their time to a place where they are acting more as financial managers rather than "compliance officers." So as I described, it's a very complex environment that the CFO community is operating in. They have a very short period of time to gather all the data and produce their financial statements.
But what's also important for the chief financial officer is to move beyond that and to be a strategic leader within their organization.
I often get asked what is the full vision of a CFO in the future beyond just clean audits and financial statements. It's an individual who works for the organization who can identify the critical risks, financial risks and the critical business goals that that agency has. And once those risks and business goals are identified, the chief financial officer can turn around and implement a data strategy to inform on those goals and risks. And that's going to involve tapping all the different data sources within the organization and working across an organization to figure out what are the relevant pieces of information to help agency leaders and managers at all levels to make smart decisions that help mitigate those risks and help meet those business goals.
And right now, what we don't have is a clear path forward for how to get the chief financial officer beyond the clean audits, which are fundamentally important. We have to be very focused on the controls, but we also have this objective, this larger objective to help the agency manage its risks more proactively and more strategically.
And so another challenge: how do we move beyond compliance when we still have a lot of work to get done?
And the third area I would describe is to dedicate resources to program integrity. Let me give you an example: in the area of real property, we can do $7 million in repairs now, or are we going to wait till that roof is about to fall down and invest $70 million? And the goal that we have in financial management and in my world is to help the agencies and help us build the case and build stronger analytics to show where our activities have these types of impacts from a cost avoidance or from a return on investment standpoint.
So I take it upon our office to help build a framework for getting these types of funds more -- a higher priority on Capitol Hill, and making sure that everyone understands that by not funding these activities, there are longer-term bigger impact costs that the government faces that directly impact the taxpayer.
Mr. Morales: Danny, I have only about a minute left, but I'm curious, you've had a sort of a very interesting career path. Could you describe your career path for our listeners, and how has this background prepared you for your current role and informed your leadership style?
Mr. Werfel: I never would have guessed that I would have ended up in financial management particularly. I started at OMB -- started my career over a decade ago in the Office of Information and Regulatory Affairs, where I was reviewing regulations, and got myself into a niche in civil rights. I was reviewing a lot of civil rights regulations, got pretty interested in it and moved over to the Justice Department. I'm a lawyer by background, and so I was able to have the unique experience of helping to develop and review civil rights regulations, and then a couple of months later, to enforce them in courtrooms by litigating defendants who had allegedly violated civil rights regulations and laws.
I tried the litigation thing for a couple of years, but realized that my home and my heart was at OMB, so I begged some of my prior colleagues to have me back, and I went back to OMB and was a budget examiner in the education branch.. That's when, after I did that for a few years, I got the call from Financial Management to see if I wanted to come over, and I really did like the management stuff. Every time I worked on a management issue, I like to say that I was throwing right-handed because it really seemed to come naturally to me and something I could get very passionate about. So I gladly moved over to the "M" side of OMB, and have been there ever since.
Mr. Morales: That's fantastic.
What about OMB's framework for improving government financial performance? We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.
Also joining us in our conversation is Debra Cammer-Hines.
Danny, the President's Management Agenda, or PMA, focuses on five government-wide initiatives, including improving financial performance. Can you tell us about the PMA's objectives for improving financial management and the results they've achieved to date? And how does OMB define and measure financial management success among federal agencies?
Mr. Werfel: Albert, as we discussed earlier, there are billions of dollars moving in and out of federal agencies, sometimes on a daily basis. And what the President's Management Agenda recognizes is that you have to start with a strong foundation of good internal controls and good accounting. You have to ensure that you have the right people, the right process, the right technology to account for the tremendous volume of funds that are moving in and out of the government in a variety of different complex transactions.
So what the PMA or the President's Management Agenda does is it says in order to elevate from the red score, which is the worst score you can get, to a yellow score, which is the middle score, and obviously green score is the top, we hold agencies to demonstrate that they have that strong foundation. Well, how do you now that an agency has a strong foundation of good accounting, good internal controls, good people?
So what we do is we've established indicators, things that we can look at to give us an indication that the pieces are there, and those things are things like did the agency get a clean audit opinion on its financial statements; are they reporting their financial statements within the tight deadlines that we've provided; are they eliminating their material weaknesses, which are findings that the auditor provides that says these problems force us or cause us to call into question the reliability of some of what's being reported; are they being compliant with laws and regulations?
This is the objective criteria that we are going to use to say the foundation is there.
And then what we say in the President's Management Agenda for Financial Management is you get to green based on what you build on that foundation. So a green agency is the one that demonstrates that all of the compliance elements are met, that they understand where their key risks and business goals are in the organization, and that they are using data -- timely, reliable data to inform on those business risks and business goals.
And we've made tremendous progress in this area. We have hundreds of agencies, but 24 major ones make up the bulk of all federal expenditures, and these 24 agencies also happen to be the 24 agencies that are listed in the Chief Financial Officers Act which first established the requirement to do audited financial statement.
Of the 24 agencies, as we sit here today, we have 19 with clean audit opinions. Since 2001, we've seen a significant reduction in the number of material weaknesses that auditors identify. We had 62 government-wide material weaknesses in 2001, and we have 41 today. That's approximately a 35 percent decrease.
So in terms of this foundation piece, we see a lot of agencies getting to where they need to be. We have 15 of the 24 agencies are either yellow or green, which means that they've done what they need to do to meet all these various compliance requirements, 12 of those agencies are also demonstrating that they are using information to drive decision-making.
Mr. Morales: Danny, there are still several federal agencies that are receiving a red rating in financial management. From your perspective, the way you describe it, why is it so challenging for federal agencies to get beyond the red?
Mr. Werfel: Well, for the first point, we have very tough standards to get to yellow. We don't just require a clean audit opinion, which is in and of itself, as I described, very challenging for a federal agency. Many of our federal agencies -- you think about an agency like the Defense Department, the Department of Homeland Security, these agencies have thousands and thousands of employees, myriad of different programs, many different missions, many different information technology systems. Just a huge amount of data that needs to be accumulated and aggregated accurately and timely.
But our yellow standard says not only do you have to get clean audit opinion, you have to get down to only one material weakness, which is challenging also for the agencies, and all the compliance elements, too. So the first thing is that is a very high bar to move off red, especially for agencies that are of the size and magnitude -- now, not that they don't work very hard at the National Science Foundation; they do, they are a great team, but they are a $5-billion agency which sounds big, but in government terms it's a relatively small agency, with a relatively straightforward line of business of providing grants.
Agriculture Department, a $40-, $50-billion agency. So many different missions, so many different types of lines of businesses, and for them to get a clean audit opinion is very challenging, and to eliminate those material weaknesses again very challenging.
The other thing is that the financial leaders today are inheriting old systems and old processes and data that isn't always as clean and as pure as you would want it to be. It's a very difficult thing, we've learned time and time again that the status quo is hard to overcome in government.
You can look at it half-full, you can look at it half-empty. We started the PMA in 2001, and we had one green agency, the National Science Foundation. Now we have 12, and 3 additional ones that have met that foundation that I described of good internal controls and accounting.
So I like to look at the glass as half-full, and clearly we have a lot of work to do. But for those 11 remaining red agencies, some of them are getting very close.
Ms. Cammer-Hines: In addition to the improving financial performance initiative, the President has also established additional PMA initiatives such as eliminating improper payments, and right-sizing the federal government's real estate. Could you tell us more about the improper payments initiative? How are the federal agencies doing in this area, and what still needs to be done in order to achieve the fiscal year 2011 target of eliminating $20 billion in improper payments?
Mr. Werfel: The improper payments initiative I think is one of the more important things that we are doing, not just because it has a direct impact on the Treasury and how much money we have and -- but for me and for my office, we look at what we do as trying to build trust in government, that at the end of the day, everything that we're involved in -- improved accounting, improved controls, smarter decisionmaking, it's so that the taxpayer and the citizen can feel more comfortable and have more reliability that the government is acting as an effective steward of their dollars.
I would venture to guess that people outside the Beltway might not know about clean audit opinions, even though that's fundamentally important to us; it might not resonate with them. But what will certainly resonate with them is if John Smith got a $10,000 payment and should have only gotten a $3,000 payment. When we make mistakes like that when the process fails, and we issue checks that we shouldn't, pay for services twice that were only given once, that is something that compromises trust in government.
And so the improper payments initiative is designed to let the American people and let the public, let Congress know what the extent of the problem is, and describe the steps we're taking to improve on the problem. Now, the initiative works like this -- we basically take every outlay in government. We have $2.7 trillion leaves the government each year and goes to a nonfederal entity, whether it's an individual, a university, a company. And what we do is we ask the agencies to put those outlays or those payments into two buckets: a high-risk bucket and a low-risk bucket.
And we give them some guidance on what kind of factors to look into. Whether the program's very complex, the amount of outlays that go out. How many times the money hits a different party, so every time that money touches someone else, there is a risk of an error being made. So those are the types of things that we would ask an agency to look at, to put in high risk and low risk.
And we take that high-risk bucket and we do statistical sampling. We sample payments and we evaluate what the errors were in the sample that we took, and then we extrapolate that out to the universe. So we might take 200 samples, say we found 17 errors, and then at the end of the day we extrapolate that out and we say this is our improper payment amount. Then what we learn from that, we try to identify why were these mistakes made, so that when we go in and we sample that same program the following year, we hope to see an improvement.
Just to give you an extent, from the ones we measured, and we measured the hugest bulk of them in 2004, we identified $45 billion in improper payments total. Those same programs measured last year in 2006 measured $36.3 billion. So we had a precipitous drop of about $9 billion We're trending in the right direction, and a lot of agencies are hitting their targets to try to reduce improper payments. In the coming years, some of the programs out there that are big-ticket programs that we need a measurement on and don't have -- for example, Medicaid and School Lunch and Temporary Assistance for Needy Families, all of those programs are planned to have improper payment measurements made public in the next year or two.
Ms. Cammer-Hines: The federal government also owns hundreds of billions of dollars in real property assets, so improving the management of these assets is important to ensuring that taxpayer dollars are spent wisely and efficiently. Would you tell us more about the federal real property asset management initiative?
Mr. Werfel: I think real property is my favorite topic to talk about, because we've had such amazing success in this initiative. I think it's really a poster child of success for the President's Management Agenda, and for me and OMB, this interagency initiative worked very well, and we really need to look at what went right to see if we can mimic it in other interagency efforts.
But the way I think about the real estate initiative is we knew there was a problem. We had a lot of surplus and excess property that we didn't need, that we had property that we did need not in the right condition, that we we're operating properties at inappropriately high costs. So what we set out to do was to get for the first time a comprehensive inventory of every property the federal government owns, every building, every structure, every road. And we've done that. It was a lot of blood, sweat, and tears, but we did it.
But not only did we find out where all this property was and report it, we did a very smart thing, I think. We also required the agencies when they report their properties to give us some very significant facts about each property, and those facts are, is the property mission-critical or mission-dependent for your organization? What condition is the property in? Is the property fully utilized? And at what cost are you managing the property?
What that allows us to do today is to tier our properties, and we have a system now where we can run a query basically and say show me all the properties that are not mission-critical, that are underutilized, that are in poor condition and that are running at a high cost. It goes back to kind of that risk management concept. Now you have this set of assets that you can target to do something about. We know exactly what the universe of assets are that we have a problem with.
Since 2004, the federal government has eliminated $4-1/2 billion worth of surplus and excess property. And we've set very aggressive goals for ourselves. It's almost a billion a year. You know, my boss likes to say 9 by '09, 9 billion by 2009 in terms of getting rid of those assets.
Ms. Cammer-Hines: Can we move onto shared services and the Financial Management Line of Business initiative, which has been designed to improve cost, quality, and performance of financial management systems by leveraging shared service solutions? We're interested in hearing about your vision for the FMLoB, and how has it progressed to date, and changes you expect to see over the next five to ten years?
Mr. Werfel: We're in a complex environment. And I say that one of the biggest challenges we have is figuring out how to handle all this and do it more efficiently than we're doing today, because we're always in a tight resource environment.
The Financial Management Line of Business essentially is a strategy for how we can help make government financial management more efficient. And it involves leveraging the private sector or leveraging the public sector where necessary to look at a kind of "buy once use many" philosophy where, rather than have every agency operating their own financial management system and developing their own infrastructure to do all the transaction processing, is it possible that we can essentially pool these efforts and get some economies of scale, and this new term we have come up with, economies of skill, to help us get the job done more effectively?
We're trying to foster a limited number of stable and high-performing shared service providers that offer lower risk and lower cost options for agencies that are modernizing their financial system. Essentially, you have co-located financial systems. You have places that you can go, like if it's a public sector solution, for example, the Department of Treasury's Bureau of Public Debt, or the General Services Administration, where they're saying we're not only going to house our own financial system, we're going to also house your financial system. We'll help you get the work done. Or we have private sector shared service providers as well that are hosting and can host multiple agencies at the same time. And what that does is, it takes a key headache away from the CFO. It's just a lot of the grit work that goes on is being done by somebody else. And now you're more in an oversight role. You want to make sure that they are doing the work effectively, that they are meeting certain performance targets that you're setting for them, a very different role than you actually having to manage improvements, enhancements, changes to the system.
The thought here is that by co-locating some of these functions in places that that's their business, managing multiple financial systems, that's going to be a win-win.
Mr. Morales: Danny, this model sounds very intuitive, yet shared services has made fewer inroads into the federal government despite the benefits that you described. Do you have a sense why this is the case, and how can this paradigm shift?
Mr. Werfel: Well, it's a very good question, Al. The basic challenge that we have is, if you take an agency that has a very unique approach to financial management, they do accounts payable their own way, and have for years. The thought of moving to a new platform can be very daunting, because, again, it goes back to change management. The government doesn't change very easily. And even something that sounds as mundane as accounts payable takes a long time and lot of concerted effort and a lot of cultural change within the organization to get them to change their processes.
And that's the rub with shared services, is that you've got to transition. It's almost like a market barrier. The problem is the travel costs. It's getting there. They can see the great solution on the horizon, but they are not exactly sure how to get there. And so we came together and realized that what we needed to do was to standardize government financial management more than it is today.
And so what we've set out to do, and what we're in the middle of doing, is issuing standardization requirements for all of our core financial management activities. This starts with the basic fundamental accounting code or accounting string that all agencies capture information on. We have diversity in our accounting codes and now we're moving to a standard accounting code government-wide.
We're looking to standardize things like accounts payable and accounts receivable and other types of basic financial management fundamentals. What we're asking agencies to do is over time. as they look to re-engineer their processes, as they look to consolidate change and gain efficiencies in how they do financial management, here's the standard federal template, here is what you should move to, it's the default.
And these are being published right now. Some of them are out for public comments. So this is a long-term effort. I will say that we are seeing some success and interest in movement to shared service providers. We have seven agencies that are currently on shared service providers, four of them are shared service providers themselves. And we have four agencies that are actively in procurements to get to a shared service provider. There's a take-up rate here. I would envision that 10 years from now, you will see a dramatic shift in the number of agencies on shared service providers. And what we're doing today is making that shift more fluid by making the path very familiar to them.
Mr. Morales: What can the private sector do better to help improve the efficiency and effectiveness of our government's financial management?
We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.
Also joining us in our conversation is Debra Cammer-Hines, vice president and practice leader of IBM's public sector financial management practice.
Danny, what is the Chief Financial Officers Council, and what is your role in this Council? And if I may, how does the Council inform and shape federal financial management policy and procedures?
Mr. Werfel: The Chief Financial Officers Council was created in the Chief Financial Officers Act, which really started this whole process of requiring audit and financial statements and requiring -- the Act itself actually created the position of chief financial officer at each agency. And what it also said, the Act, is that a council will be formed, and all the chief financial officers and the deputy chief financial officers from the major agencies will come together and provide a forum where they can discuss common challenges, share knowledge, work on initiatives together. It's really an important process to make sure that we are acting as one government. OMB's role is to chair the Council, and we help manage and lead the Council activities.
And the Council activities are as diverse as I just described. We do a lot of best practice, we share common challenges, we get together once a month and we will talk about what's going on in our agencies, what's going right, what's going wrong. We'll also break into teams and committees and tackle new challenges, new requirements. I like to say that at OMB in the Office of Federal Financial Management, we don't establish requirements in an office with no window. We make it an open process, so we leverage the Chief Financial Officers Council to help us.
We bring the Council together and we talk about, okay, what does the road map look like? What are our objectives, what does success look like; it's a big question we like to ask ourselves. And once we define success and define where we are going, what's the critical path, what are the steps we need to take. And the Council can help us answer our questions, like what's going to be challenging and expensive for the agencies that's going to force them to take on resources that they might not be prepared to, versus what are steps that are easier to do that can leverage existing technologies or solutions they have in their organization?
So I can't imagine a world without the Council. I think we would end up having requirements that are not appropriately right-sized to what we need to do, and would have difficulty getting buy-in from the community, and the Council plays a critical role in that type of coordination.
Ms. Cammer-Hines: Danny, you talked earlier about the need for revisions to the financial reporting model to better address the unique needs of the federal government. More specifically, you discussed the needed revisions with respect to public reporting, internal controls, and decision support. Can you discuss the existing challenges of financial reporting, and initiatives underway to address those challenges?
Mr. Werfel: Absolutely. November 15th, an important day. It's the day that all the financial reports are due. We have a very quick turnaround for our financial reports. This fiscal year closes September 30th, and our financial reports are due on November 15th, which is 45 days, but November 15th has other meaning. On November 15th, 1990, President George H.W. Bush signed the CFO Act into law, so we're coming up on the 17-year anniversary, and members of the community, both on the audit side and the preparer side, as we like to say, or the chief financial officer side, have begun to express interest in looking at what the next 17 years are going to look like.
There's a variety of different reasons for taking a close look at the Act itself, and thinking about what we might want to improve or change going forward. The first reason is that it's been 17 years, and so certainly, we are due to take a look at what's going right and what's going wrong. The other big reason to act now and to look at this question is the Defense Department. The Defense Department, which is basically half the government's balance sheet, is getting ready to launch into its major audit readiness and clean audit plan.
They're still on the cusp of a lot of activities that are going to take place and a lot of resources that will be expended. Shame on us if we don't look at the examples of the last 17 years. The examples of the other agencies who are out-of-head, sort of like the lead blocker for the Defense Department -- let's look at the last 17 years and see if we can fix it before DoD -- or address any improvements that are needed before DoD moves too far down the path.
There's a lot of chatter out there in both the public and private sectors about financial reporting. In the private sector, are we bogging down our companies with too many compliance requirements and reducing their competitiveness? And you see similar types of questions being asked with respect to government.
We've come together, a small group of thought leaders, to think about these questions, and we've come to the conclusion that we needed to start figuring out why do we come to work every day, what's financial management all about. And what we came up with was three basic things: transparency in the nature of the government's finances, in the sustainability of all the different operations and the cost of operations that are going on, and in the cost effectiveness of government programs.
So mission number one, transparency to the public on our finances. Mission number two is internal controls. We're putting in disciplines and rigors to make sure that we're accounting for taxpayer money in a low-risk environment. The process of going through audited financial statements is so challenging, but at the same time, it requires such discipline and rigor that you are dramatically reducing the risk of fraud and error and waste in government.
And finally, we've talked about it, decision support. We want financial information to be available to decisionmakers and leaders to make smarter decisions.
We figured out the three things that make us tick and why we come to work, and then we started asking ourselves how are we doing in each area? How are we doing in making our finances transparent to the public? How are we doing on internal controls? Are they aligned well to the financial risks that the government faces, and how are we doing in decision support? Are we identifying those critical business goals and critical financial risks that an agency faces, and are we getting the data that's necessary to manage those risks and achieve those goals? And what we found, which is not surprising, is we have a lot of work to do.
We can empower our CFOs better than we have today to develop these data strategies so that they are providing leaders with critical and timely information. We have to figure out what does success look like for more transparency, for a more rational internal control process and for better decision-making activities?
So when you are that stretched, and you're losing people to the private sector and to retirement and you've got these human resources challenges, and these resource challenges, to start thinking about the future and moving that CFO beyond compliance to results, and thinking about how we strategically can be more transparent in our reports, it's challenging to find the time and the resources for the federal agencies to get involved and chart that path forward, but it's so fundamentally important that we have to make the time. We are starting that process.
Ms. Cammer-Hines: You raised a good point about being a resource constraint on the federal government. I know that the private sector works closely with the federal government to assist in many of these things. You've talked about improving financial systems and processes, conducting financial statement audits, and even performing, in some cases, financial operations. What additional things do you think the private sector can do to better help improve the efficiency and effectiveness of our government's financial management as we go forward?
Mr. Werfel: I think the private sector and the government both have an education gap that we are constantly trying to close, and we need to do a better job in closing it. What I mean by that is from the private sector standpoint, there is an education gap in understanding the unique challenges that the government faces, the unique elements of government that mean that some private sector solutions and many private sector solutions can't be automatically applied in the government environment.
Very different animal, so to speak, and so it's informing the private sector better on those unique challenges so that they can help apply those technology in other private sector solutions in the government context, and then we have an education gap on the government side. We need to understand better what commercial solutions are out there and how they can help us meet our missions. I'm not meaning to imply that we don't leverage the private sector daily; we do. But in looking forward, I don't think we can get anything done that we get done today without the many, many different private sector solutions that we leverage.
I think the private sector can play an important role in helping us with these data strategies. We have a tremendous amount of data in the federal government, and we've done a lot to try to improve the quality and timeliness of that data, but it's using that data and finding our way through all those data bytes to figure out what trends are developing, what areas are developing.
I will give you an example in improper payments.
p> As we move forward on improper payments, one of things that the private sector does better than us is they have models for focusing due diligence in review of their customers to know where they need to take an extra look versus where they can just let something lapse. We don't want to be spending money on individuals or companies that we know are higher risk for either an error being made or fraud occurring, and I think the private sector can help us -- share with us how they do that, and also share with us the techniques they use with their data to build these types of programs that are more right-sized.
Ms. Cammer-Hines: Could you talk a little bit about what is Federal Accounting Standards Advisory Board, FASAB, or would you elaborate on your ongoing involvement with them and its efforts to identify and remedy critical accounting standards issues?
Mr. Werfel: Yes. FASAB is a very important part of government financial management accounting. For reasons which escape me, they're always referred to whenever you read about them in the press as the little-known board, or the board that nobody knows about. But they actually play a critically important role. They're an advisory board that was created by OMB, the Department of Treasury, and the Government Accountability Office, to help us establish accounting standards for the federal government. It's a board made up of 10 people. I'm one of the members. There are four government members: in addition to OMB, Treasury, GAO, and the Congressional Budget Office, CBO is also a member. And then we have six private members: individuals retired from accounting firms or statistics professors, or a former state auditor -- those are the type of individuals that we have on the board.
And the board works very hard and has done an incredible amount of work in a relatively short period of time to establish comprehensive accounting standards for the federal government, and those accounting standards importantly are recognized by the American Institute of Certified Public Accountants, or AICPA, as being generally accepted accounting principles. The analogy used is kind of like certified, it's like USDA choice beef.
David Walker, who's the Comptroller General, talked about the importance of this moniker from the AICPA, of this approval -- he said you used to hear before we had this, well, that's government accounting. And he says you don't hear that anymore, because government accounting is on the same level as all accounting, because the AICPA has provided this generally accepted accounting principles designation. And the FASAB process -- right now, we are at the point with the board where we do have a very comprehensive set of accounting standards, and now we are looking to hone them.
Mr. Morales: Danny, by most measures, federal entitlement programs such as Medicare and Social Security are on an unsustainable fiscal path. Now I only have a minute, but could you tell us how OMB is working with the Treasury Department, the Government Accountability Office and the Federal Accounting Standards Advisory Board to improve and expand on current social insurance reporting, and how are these efforts going to help alert lawmakers and the public to possible fiscal crises?
Mr. Werfel: The number one priority for FASAB or the Accounting Standards Advisory Board right now, and I am in complete agreement that this should be our number one priority, is to figure out better ways that we can report on the sustainability of Medicare, Social Security and the government as a whole. We need to shout it from the rooftops that we are on an unsustainable fiscal path that in the long term is going to create major, major financial crisis for the government and for our citizens and for states.
And we need to alert everyone that can be alerted: Congress, the public -- that this problem exists, and we need good public reporting to explain the nature of the problem, how it gets worse over time, and importantly, give insight into what are some of the triggers, what are some of the things that can be done to help alleviate the problem. And FASAB, working together with OMB, Treasury, GAO and the Congressional Budget Office, are looking to develop a sustainability report, a new financial statement that we would hope would be as relevant, and if not more relevant and important than the balance sheet, to say this is what it's all about.
The sustainability of government operations from a fiscal standpoint. And the picture that this will paint when we publish it is a very bleak one in the long term. The short term, you know, we have a declining budget deficit and a lot of our economic indicators look very good in the short term, but in the long term, due to Medicare, Social Security, and Medicaid, the problem is very significant. It gets worse each year. So I can't think of a more important thing for FASAB to be doing than to elevating this issue and ensuring that the government is reporting a very clear transparent view of the problem, so that more people will know about it and the right action can be taken.
Mr. Morales: Certainly a very critical issue.
What does the future hold for OMB's Office of Federal Financial Management?
We will ask OMB Acting Controller Danny Werfel to share with us when the conversation about management continues on The Business of Government Hour.
Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.
Also joining us in our conversation is Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice. Danny, we talk with many of our guests about collaboration. What types of partnerships are you developing now to improve operations or outcomes in the future, and how may these partnerships change over time?
Mr. Werfel: Al, one of the most important partnerships that we need to foster in financial management is the partnership between the federal government and the state and local governments. We have many, many of our programs that are managed and implemented at the state level. So we provide the funds, but the state government and the local governments do the day-to-day management of the program. And therefore, they shoulder tremendous responsibility on their program integrity efforts, on the internal controls, on the accounting, on the different measures that are needed to reduce improper payments or to reduce fraud.
What we need to have is a clear delineation -- I think clearer than we have today -- in terms of roles and responsibilities between the federal government and the state governments in terms of who is expected to do what, what are the various requirements, what are the various expectations.
So to improve this communication, and to look for solutions that the federal and the state government can share together and implement together to drive more program integrity, we're working closely -- the Office of Management and Budget is working closely with the Association of Government Accountants to facilitate a new forum on federal-state partnerships.
And we have a group of thought leaders that have been brought together from federal and state government that are starting to chart out a permanent committee, if you will, to make sure that we understand what are the various state-federal issues that need to be on the table with respect to financial management and program integrity, what's expected for a certain program, and what are the expectations of the federal government. I'm hoping that this partnership is both a knowledge-sharing, communications, and a solutions-driven group.
Mr. Morales: Continuing to look towards the future, can you give us a sense of some of the key issues that will affect CFOs and budget offices government-wide over the next few years?
Mr. Werfel: I think some of the hot issues coming up, the first one I would say internal controls in new areas beyond financial management but related to financial management. One of the things that's happening right now is, I like to say that Congress is stepping up their game, so to speak, and they are pointing out different areas of problems that we have in government that we need to do more on, whether it's an area of where we're spending too much money, or excessive spending, or sometimes it happens to do in the area of travel, government travel. There is a lot of problems that we're still working on to fix, to eliminate abuses in federal travel programs.
What we need to do is make sure that agencies are integrating these new areas of focus into their current work, and leveraging their current processes. So as new risk areas are identified by Congress, GAO, and OMB, whether it's the travel and purchase card, or different types of procurement activities, rather than having separate processes in place to say, okay, this is where we study internal controls for financial reporting, this is where we study internal controls for, let's say, information technology, or privacy, or data breaches, this is where we study internal controls for this new risk area, we're going to fall on our own weight if we don't have a more synthesized and strategic approach.
The other area is, in tight budget environments, you see a lot of ideas to improve our cash management and our savings, and one such area that's getting a lot of attention right now on the Hill, and we're seeing a lot of bills moving on this, is offsets and levies to vendors and grantees, but to implement that is very challenging. We got to get the right data to know which grantees and which vendors are delinquent. So this is another area that I've started to talk about with the CFO community, that we need to be prepared for the challenges that lay ahead.
And the last issue I'll mention is a bill that was introduced and enacted last year, which is the Transparency Act as we refer to it, or the Coburn-Obama Bill, which requires that all federal spending is reported and made publicly available on a website in a searchable and readable way. So this is every grant that we make over a certain threshold, but every grant, every loan, every contract payment, we have to put into a database now that's publicly searchable.
Again, the absolute right thing to do, it's going to provide great sunshine and great transparency into what we do. So for example, you will be able to type in on this website, which is going to be fedspending.gov by the way, www.fedspending.gov. You're going to be able to type in Yale University, for example, and then every federal award that Yale University has received will appear on your screen, the amount of the award, what it was for.
Again, it's the right thing to do. It's just a question of changing our reporting mechanisms, our systems infrastructure, to be able to report that information. All this information has to be up on the Web within 30 days of award.
Ms. Cammer-Hines: As we move towards an election cycle, how do you think PMA objectives and the approach to measuring success will extend beyond this administration?
Mr. Werfel: I think they will certainly transcend, because it's all about good government. Nothing that we've talked about today seems to me to cross party lines, so to speak. We're talking about making government more efficient, reducing improper payments, getting rid or surplus and excess real estate, making smarter investments in financial systems, making smarter business decisions, understanding our risks better.
Again, this is all about -- very patriotic -- this is all good for America. I think this administration through the PMA has hit on something very profound. We've learned a tremendous amount of lessons. It hasn't been perfect. But the PMA, the President's Management Agenda, is truly changing the way government does business.
There's a lot of positive lessons learned that I hope the new administration will leverage the accountability of those red, yellow, and green circles, driving agencies to try to do better, the simplicity of the scorecard, focusing on key areas like e-government and financial management and human capital, and not getting it too dispersed into every single area that's possible, having clear definitions of success and clear roadmaps. So I believe these things will sustain for many, many years to come.
Ms. Cammer-Hines: You've just touched on human capital as one of the things that we're being focused on. And the recent annual CFO survey identified human capital as one of the biggest barriers to overcome in order to meet top CFO priorities.
What steps are being taken to attract and maintain a high quality technical and professional workforce, especially at the Deputy CFO level?
Mr. Werfel: This is clearly a huge challenge for us. You know, earlier in the show when I said it was going to be difficult to narrow my challenges to three, this was probably a close fourth to figure out what to do. It's an ongoing and dynamic process where we're losing people that have institutional knowledge that have tremendous productivity. And when we lose those people, it's hard to fill them.
So recruitment and retention has to be the focus; focusing on how do we retain our good people and how do we recruit people behind them. And so we are looking at many different strategies.
Right now, the CFO Council has an initiative underway to expand and improve our training at all levels. We're looking at new and enhanced training programs on all three levels. We're looking at doing more outreach to local colleges and colleges throughout the country. We're looking to improve our intern programs beyond just master's degrees, but into undergraduate degrees, someone even mentioned high school, but I think that's maybe going too far -- I don't know -- and the use of the Web.
We're looking right now at USAJOBS, which is the number one central repository, and we are looking right now to create a separate website just for Financial Management so that if you're interested in financial management, you'll have one-stop shopping for where those jobs are.
So we're definitely being active on this. It is a huge challenge. The more resources you put in it, the better your outcome is, so we have to keep trying in this area.
Mr. Morales: Danny, the breadth and depth of OMB's mission, especially given its relatively small size, is just absolutely mind-boggling. And OMB has a reputation of being a very demanding and stressful place to work. Yet it also achieved the number one ranking in the Partnership for Public Service as a best place to work in the federal government.
What are some of the benefits of working in such an environment, and what advice would you give to a person who perhaps is out there considering a career in public service and possibly interested in joining OMB?
Mr. Werfel: I think I'm going to be a good salesman for OMB, because I love my job and I love the organization. I started my career there over a decade ago, and I feel a tremendous sense of pride and loyalty. I think one of the things is that it's small. I went to a very large college, and my wife went to a very small college. And I'm often jealous of her, because in the small college environment, everyone has this bond that they all went to this small school. And OMB has that feel to it. Because we're only 500 people, everybody over time really gets to know each other. And it's really a place where you can go and feel like you're part of a small dedicated team.
And you don't get lost in the bureaucracy at OMB. There is too much work to do. We have a very flat hierarchy. One of the unique things about OMB is that our entry-level policy analysts that are at the General Schedule 9, right out of policy school, once a year, they come into a meeting with the Director of OMB and present their findings and answer questions about the upcoming budget release. I don't know many agencies where GS-9 policy analysts have an opportunity to meet directly with the head of the organization.
And so that kind of flat hierarchy, that kind of experience, it's nerve-racking. I'll tell you, I was there as a GS-9 doing it, and the walk to that meeting is a very nerve-racking walk. But it's invaluable experience.
And probably the biggest reason is that we have just tremendous impact. When we issue a policy or show up to a meeting or are in the room, a lot of attention is paid to our position and our opinion because of where we sit in government, and it allows you, early in your career in the government, or even as you get older, to impact policy day-in and day-out -- long term, short term, not a day goes by where we don't touch things that change the way government does business.
And that is great. And you're working towards good government, so you go to sleep at night, you're tired -- certainly tired, but you can feel good about the work that you're doing.
Mr. Morales: That's great. Your passion clearly shows.
Danny, unfortunately we have reached the end of our time. I want to thank you for fitting us into your busy schedule today, but more importantly, Debra and I would like to thank you for your dedicated service to our country in helping to lead the President's Management Agenda.
Mr. Werfel: Thank you very much, Al and Debra. It was a pleasure.
Mr. Morales: This has been The Business of Government Hour, featuring a conversation with Danny Werfel, Acting Controller of the Office of Federal Financial Management at OMB.
My co-host for this morning's program has been Debra Cammer-Hines, vice president and practice leader for IBM's public sector financial management practice.
As you enjoy the rest of your day, please take time to remember the men and women of our armed and civil services abroad who can't hear this morning's show on how we're improving their government, but who deserve our unconditional respect and support.
For The Business of Government Hour, I'm Albert Morales.
Thank you for listening.
Announcer: This has been The Business of Government Hour. Be sure to join us every Saturday at 9:00 a.m., and visit us on the Web at businessofgovernment.org.
There, you can learn more about our programs, and get a transcript of today's conversation.
Until next week, it's businessofgovernment.org.