Originally Broadcast August 9, 2008

Washington, DC

Announcer: 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 this 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.

The U.S. Department of Labor continues to pursue initiatives that seek to produce a workforce investment system which is responsive and agile to the opportunities presented by our 21st century economy. In an effort to meet this critical mission, the Department continues to maintain its dedication to improving performance and ensuring that good government principles inform its day-to-day management and its operations. It has also instilled the importance of sound financial management and internal controls throughout the organization, transforming Labor into a financial management leader.

With us this morning to discuss his efforts in this area is our very special guest Dr. Douglas Webster, chief financial officer at the U.S. Department of Labor.

Good morning, Doug. Good to see you again.

Dr. Webster: Good morning. Good to see you as well.

 

Mr. Morales: Also joining us in our conversation from IBM is Dennis Kaiser, partner in IBM's Federal Civilian Practice.

Good morning, Dennis.

Mr. Kaiser: Good morning, Al.

Mr. Morales: Doug, perhaps you could start by sharing with us a sense of the history and the mission of the U.S. Department of Labor. Can you tell us when it was created and what its mission is today?

Dr. Webster: Certainly, Al. The Department of Labor began in 1884 as a bureau under the Department of the Interior, and it was not until 1913 that Labor achieved the rank of a cabinet agency. Legislation signed by President William Howard Taft in 1913 established the Department and its mission.

Then and now, our mission is to foster and promote the welfare of the job seekers, wage earners, and retirees of America. We do this by delivering programs that improve their working conditions, advancing their opportunities for profitable employment, protecting the retirement and health care benefits, helping employers find workers, strengthening free collective bargaining, and tracking changes in employment, prices, and other national economic measurements.

Mr. Morales: It's certainly a key issue in today's environment. So to give us a few more specifics, Doug, how is the Department organized? Can you give us a sense of the size of its budget, number of full-time employees, how your offices are dispersed across the country?

Dr. Webster: Certainly. The Department's led by Secretary of Labor Elaine Chao. It has 19 agencies, and the largest program agencies are the Employment and Training Administration, the Employment Standards Administration, the Occupational Safety and Health Administration, the Mine Safety and Health Administration, the Veterans Employment and Training Service, and the Employee Benefits Security Administration.

This year, the Department of Labor has a budget of about $50-1/2 billion and workforce of approximately 17,000 full-time equivalents. As for our geographic footprint, we have approximately 500 regional, field, and district offices.

Mr. Kaiser: So with that background, Doug, perhaps you could tell us more about your specific role as the chief financial officer of Labor. You know, what are your specific responsibilities and duties? And maybe you can talk a little bit more about the actual organization under your purview, the number of staff, the size of the budget that you have.

Dr. Webster: Sure. The Office of the CFO, in line with the CFO Act of 1990, develops and manages the accounting and financial management policies for the Department. Now, my role as the CFO is to support the program agencies in achieving their goals by providing information that's accurate, relevant, and useful in their decision-making. For this fiscal year, our agency's budget is about $20 million, and we have a federal workforce of 66 persons. That's supplemented, of course, by contractor support as well.

In my office I have a career deputy, Lisa Fiely. Lisa helps me oversee the Office of Fiscal Integrity and the Office of Financial Systems. The Office of Fiscal Integrity ensures that the Department of Labor adheres to the highest standards of fiscal responsibility by preparing departmental financial statements and aiding in the Department's long-term financial management planning. This office is also responsible for centralized departmental accounting operations

The Office of Financial Systems provides state-of-the-art technology to ensure the delivery of reliable, consistent, and timely financial information. This office also develops, maintains, and operates Department of Labor's centralized core financial management system and other related systems. And to support the mission of the Department, the Office of the CFO assures that all departmental financial functions meet applicable standards, provides leadership in the Department's financial actions, monitors the financial execution of the budget, and enhances the knowledge and skills of departmental staff working in financial management operations.

Mr. Kaiser: So with regard to your specific role as a CFO, can you tell us what your perhaps top three challenges are and what you're doing to address those challenges?

Dr. Webster: Yes. I think my top three challenges probably are keeping the wheels turning and greased, just continue the day-to-day operations that have been so well laid out in the past under my predecessor and the staff that I have currently working for me. Secondly, installing strategic planning and thinking. I think it's very crucial that we continue to improve our skills and our point of view in terms of looking to the future and being able to adapt proactively by planning what the future holds. And finally, creating a change-oriented organization.

Now, what that means more specifically in terms of keeping the wheels turning and greased is we've got the new core financial management system, which is a replacement to our existing core financial management system. Secondly, in terms, again, of keeping the wheels turning and greased, we of course need to maintain a clean audit opinion. If you can't trust the data, then you can't use the data. And so it's essential that we make sure that our data is accurate and complete. And I'd like to highlight that that means that we're expecting to get our 12th straight clean audit opinion this year, so I'm very grateful to be working in an organization that has such a sterling track record of 11 straight clean audit opinions thus far.

And finally, in keeping the wheels turning , I'm very interested in making sure that we institutionalize a CAM, which is our cost accounting manager program. It's a managerial cost accounting program that is providing good information from a cost basis to our various agencies so they better understand their costs and can make more intelligent cost-informed decisions and support our budget performance integration efforts.

Regarding installing strategic planning and thinking, one of the first things that I did when I came on board was to hold some strategic planning sessions where we went through the formal, typical kind of a strategic planning process in terms of defining strategic goals and objectives. We think that this is especially crucial in this day and age when we're facing, or the looming, certainly, greatly decreasing budgets. So we've already seen this happen. But given the future projections of shrinking discretionary budgets, we think it's going to be crucial that we take a more strategic view and a more risk-based view of how we address our budget priorities.

We're also looking at our human resources to try and make sure that we are better positioned for the future. Everyone knows that we've got human resource issues in the federal government, but we're trying very hard to be proactive and get ahead of that problem.

And finally, I think change management is a major issue, and that's building a more adaptive and agile organization, one that's able to adapt to the changes as they become identified. So I think that that's plenty to keep me busy for the next six months, and hopefully, that's going to add value to my successor.

Mr. Morales: Now, Doug, along with serving, I think, about 21 years in the military, I also understand that you spent some time in the private sector. Can you tell us a little bit about your career path? How did you get started, and what brought you into your current role?

Dr. Webster: Sure. Well, in my Air Force career, half of it largely was in airlift operations. I was a C-130 navigator. And the other half was in weapons systems acquisition, major weapon systems acquisition. My last tour of duty was in the Office of Secretary of Defense in the acquisitions staff.

Along the way, I had the good fortune of being able to pick up a doctorate in business, so when it came to retirement, I was looking at how I'd leverage my experience and my training and so on. And it seemed like, at least for initially, management consulting would make some sense. I transitioned initially out to management consulting, working with a number of major companies. And that's really given me a great opportunity to work with many federal agencies, because I've been working in that portion of consulting that was focused on the federal government. And I really have enjoyed that portion of my career because I think it's not only interesting, but intellectually stimulating, and it's given me a great ability to look at good practices, best practices, and maybe not such good practices as you go in and helping organizations improve. I think it's offered me a breadth of visibility that it's difficult to get outside of the consulting environment. So I've done that for most of the 15 years since I've retired.

The one exception was most of 2004, I spent in Iraq with the Coalition Provisional Authority, where I worked as the principal finance advisor to the Ministry of Transportation. That was as a SES-equivalent DoD employee. And that was challenging, but also a very worthwhile experience.

Mr. Morales: That's great, Doug. So as you sort of reflect on all of these experiences, whether it's in the Air Force, in the various management consulting firms that you've worked for, or your time in Iraq, how have these experiences shaped your current leadership style, if you will, and your management approach?

Dr. Webster: Well, I've got to give a lot of tribute, I think, to my military career and the opportunities that that has offered me. Going into the military typically gives one a lot of management responsibilities earlier in their career than oftentimes you'd find out in the private sector in terms of leadership and so on. And that, combined with my consulting experiences, as I mentioned just a moment ago -- I've worked with over 20 federal agencies over the years and I've seen lots of practices, like I said, both good and bad, and I'm able to utilize what I've learned both from my military experience and my consulting experience in this current position.

So while it's not the typical progression into a CFO job -- I mean frankly, I think most CFOs, if you looked at their resume, it'd probably show that they've been a CFO of some other organization or, at a minimum, that they've got a very strong core accounting background. My background is more broad. I've got a lot of experience with strategic planning, performance management, and so on. But I think that I complement well, and my deputy and she, in turn, complements me well because she's got that very strong accounting background, and I think together we make a very good team.

Mr. Morales: Excellent. Thank you. How is the Department integrating budget and performance information? We will ask Doug Webster, chief financial officer at the U.S. Department of Labor, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm Albert Morales, and this morning's conversation is with Doug Webster, chief financial officer at the U.S. Department of Labor.

Also joining us in our conversation from IBM is Dennis Kaiser.

Doug, I think it's fair to say that your department continues to enhance the model for what arguably constitutes a high quality financial reporting environment. Could you tell us about the Department's financial management modernization strategy? To what extent does OMB's financial management line of business, or the FMLOBs, factor into this strategy?

Dr. Webster: Yes, Al. Our financial management modernization strategy is focused on replacing our current core accounting system, a mainframe computer COBOL application that was implemented back in 1989. An initiative to replace our current system began in 2003, with the Department taking steps to ensure that the investment would be consistent with OMB's financial management line of business policies and meet all federal requirements.

My office, in partnership with the Office of the Chief Information Officer, the CIO, requested a or issued a Request for Proposal in January, requesting a public/private competition for a complete core accounting system solution. The solution would include licensing, hosting, implementation, and operations and maintenance, and would be based on using Oracle federal financials. We received multiple bids and thoroughly reviewed each, looking for certain criteria in the proposals. For example, we looked at the qualifications of their partnerships, their experience in working with systems similar to ours, and their methods of implementing the new system. After much evaluation, we awarded the contract.

The hardest part, however, isn't over. The next 15 months is going to be dedicated to the massive overhaul of our core accounting system and training our staff on the use of the new system. We've provided a comprehensive work breakdown structure that will outline tasks and deliverables against which we will measure progress. We plan to begin operations with the new system on October 1st of 2009, and we're very excited about the new system, as it will free up financial professionals from performing more manual labor-intensive transaction processes and allow more time for what I consider to be more value-added analysis.

Mr. Morales: Now, Doug, Labor, unlike almost half of the other rated federal agencies, has consistently achieved a green rating in the President's Management Agenda, or PMA, in the area of financial performance. From your perspective, why has this been such a challenging area for other federal agencies?

Dr. Webster: Well, I really can't speak to the situations at other federal agencies, but I can tell you that I've quickly learned from those who delivered green scores for Labor before I joined in January. And with my colleagues, we reviewed our programs to assess if we were on target to deliver on each of the President's Management Agenda categories. And we continued to do that throughout the year in anticipation of getting green, but never taking it for granted.

We consistently have achieved green on the President's Management Agenda, which reflects the Department's commitment to financial integrity and performance improvement in its day-to-day activities. The one lesson that we've learned is if you continue to take weaknesses and repair the weaknesses in a timely manner, the opportunity to be rated green is far greater than not giving it continued internal review throughout the year.

Even more important than that is what we're doing at my level, I believe, is the tone that has been set at the top by Secretary Chao. While a push for results from OMB is important, it has little impact if it doesn't have the support of the department head. Secretary Chao's been a strong support of the President's Management Agenda, and that support and focus on effective and efficient management processes has filtered down throughout the Department. Our success in getting the green in financial management would not be possible without the support of all the agencies at the Department, and that support would be much less likely without the strong support of the Secretary.

Mr. Morales: So along this line, and you mentioned this in our last segment, your department has received an unqualified opinion on your financial statements for an incredible 11th straight year. From your perspective, what is the significance of a clean opinion, and what are some of the keys to successfully achieving a timely and clean opinion?

Dr. Webster: A clean opinion is important, as it provides a basis for trust in our financial systems and reports. It says that an independent party has come in, looked at your books, did various tests, and concluded that the financial reports reasonably reflect an accurate portrayal of your financial position. Getting a clean opinion is certainly not the end objective for my organization. It's not why we exist. However, the failure to get a clean opinion raises any number of questions that could very much get in the way of our ability to carry out our mission. It would also raise fundamental questions about the validity in the minds of the people who use the information we provide.

I believe one contributing factor to our consistent clean opinions is our very strong A-123 Program. That program I believe is so strong because it's got executive leadership from the Secretary, similar to what I had to say previously about the PMA. Secretary Chao is committed to good, strong controls, and that reflects down throughout the agency, the heads.

Mr. Kaiser: Doug, I'd like to switch gears a little bit and ask you to tell us about your department's efforts at integrating its budget and performance information. Also, how your organization has expanded the use of financial data to inform its management decision-making processes.

Dr. Webster: Well, to help with the management decision-making processes, the Department developed a managerial cost accounting tool called the Cost Analysis Manager, or CAM. It allows managers to make better informed decisions using budget and performance information. It was created in 2003, and it uses an activity-based costing methodology. We've built a cost model for the annual Performance and Accountability Report that allows us to calculate the total cost of achieving the Department's strategic goals. These costs, combined with goal-related performance data, allows the Department to better understand and report on budget and performance integration.

Additionally, as I mentioned previously, we are installing a new core financial management system. This new system will be able to update budget and financial statements in real time, allowing managers to efficiently allocate their resources and provide real-time budget and performance integration data.

Mr. Kaiser: I understand a recent GAO study of managerial cost accounting with federal agencies has commended Labor for having strong leadership that supports managerial cost accounting implementation. Doug, you just mentioned that CAM is at the core of that. So can you tell us what you might be doing to continuously approve the CAM program?

Dr. Webster: Sure, I'd be glad to. We're continuing to tweak the models or upgrade the models to make sure that they remain relevant to the using agencies. My biggest challenge that I see for CAM in the months and in the next couple years ahead even is to moving from one of a systems development mentality to a user application mentality. Ultimately, you can have the best cost management system in the world, but if the data doesn't get used in the decision-making process, it's of limited, if any, value. So one of the things that I'm very much pushing for is to make sure that we do as good a job as possible in terms of getting that data actively used in the decision-making process at the agency level.

Mr. Kaiser: As you know, agencies are required to annually review their programs that identify those susceptible to improper payments. Those are payments that are being made in the wrong amount to an ineligible recipient or improperly used by the recipient. Could you elaborate on the initiatives and strategies that the Department has employed to successfully manage and reduce improper payments? And how much of a challenge, if any, does that still present for your department?

Dr. Webster: Well, like you said, an improper payment occurs when a program or activity funds go to the wrong recipient, the recipient receives the incorrect amount of funds, or the recipient uses the funds in an improper manner. And that's really important to understand, because it does not automatically mean that somebody in the government is doing something incorrectly or abusing things or so on.

Now, that having been said, and it's estimated that, for data that I've got, 2006, federal agencies across the board accrued $40-1/2 billion in improper payments. Now, we've eliminated millions of dollars of waste in improper payments through effective analysis of program policies and collaboration with partners, who've helped us to identify the sources for mishandled payments. We've worked hard in restructuring and cross-checking these high-risk programs, and specifically, we have three that are under the high-risk category: the Unemployment Insurance Program, the Federal Employees Compensation Act Program, and the Workforce Investment Act Program.

Now, when I say "high-risk," what I mean is it's a program that hits a threshold in two categories: one is it's over $10 million and it's in excess of 2-1/2 percent of the program's budget. In the case of Unemployment Insurance Program, that program seeks to provide benefits to eligible workers who become unemployed through no fault of their own. We've worked closely with the Employment and Training Administration, another agency within the Department, and various state workforce agencies to ensure that proper payments are distributed. And we've supported the use of cross-matching new hire directories across federal and state levels to ensure that the payments are made correctly to eligible recipients.

Now, as for the FECA Program, this program provides federal employees with Workers Compensation benefits if they were injured on the job. Such benefits include wage loss benefits for disability, medical benefits, and vocational rehabilitation. The FECA Program is administered by the Employment Standards Administration, an agency within the Department of Labor.

The Department has taken precise measures to reduce improper payments within the FECA Program. For example, we've improved medical bill processing by using an outsourced processing service, which aligns treatments to work-related injuries and includes more sophisticated bill-editing techniques. The Department has taken additional steps to reduce the incidence of improper payments by reviewing medical bill processing performance at the national office in Washington, and by reviewing samples of medical payments, which are audited monthly by FECA district staff around the country for both financial and procedural errors.

Finally, the Workforce Investment Act, or WIA, is a program designed to ensure that America's employers and employees are adequately trained for the workforce. It is designed to reduce the number of Americans dependent on welfare and get them back to work. We've been working very closely, again, with the Employment and Training Administration to implement a multistep approach that ensures proper and administration and effective program performance of these grants.

Grantees are reviewed through desk and on-site reviews as well as by independent auditors. All of the results from these reviews are then sent to a central database for ongoing review and remedial action, if necessary.

In seeking to minimize improper payments, it's important to keep in mind that these improper payments sometimes result, in part, from errors on the part of the recipients, or in some cases, due to fraud. We recognize we may never be able to fully eliminate such improper payment sources. We're also mindful, however, that it's not in the taxpayers' best interest to spend $2 to recover $1 in improper payments. With continuing efforts to make beneficiary requirements more clear, and improve processes and technology to spot errors and fraud, we believe we can continue to make improvements that represent a proper return on the taxpayers' investment.

Mr. Morales: Now, there's been much discussion about the need for revisions to financial reporting models to better address some of the unique needs of the federal government. Can you discuss the existing challenges in financial reporting, and some of the initiatives perhaps underway to address some of these challenges?

Dr. Webster: Well, I can probably speak more to some of the discussion that's going on than specific initiatives. I think there are many in the financial community that are beginning to raise the question or the issue implied by your question. I, for example, before ever coming to the Department, began to wonder a little bit about the nature of our accounting statements. Because if you think about it, what's the source of those?

Basically, we go back to our private sector accounting. And if you think about why those reports are put together, there's a couple reasons that come to my mind at least: one is for taxpayer auditability at the corporate level; the other is for investment information. Those are certain users that need very consistent data, but those are a different set of users from what we have in the federal government. So the question that is on the table, and I'm hearing discussed in a number of venues, is: Are the reports that we currently provide, while based upon generally accepted accounting principles and what's generally accepted as necessary in the private sector, are they structured in such a way to best lend themselves to the type of information we need to be providing to our stakeholders, whether that's OMB, Congress, the White House, or the American taxpayer?

Other issues are along the lines, for example, thinking about the depreciation. We don't have this issue, but I know, for example, the Department of Defense, in tracking their assets, the depreciation value and so on, it's a massive problem. Depreciation in the private sector sense relates back to the uses that I said a moment ago in terms of being able, from a taxpayer perspective, in valuing a company from an investor relations perspective and so on. We don't have those issues in federal government. So it raises the question: Do we need to worry about depreciation in the same sense for federal reporting that we do for private sector reporting?

I don't have answers to those questions, but I think that those questions are increasingly getting asked around town.

Mr. Morales: What is enterprise risk management?

We will ask Doug Webster, chief financial officer at the U.S. Department of Labor, to share with us when we return on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Doug Webster, chief financial officer at the U.S. Department of Labor.

Also joining is Dennis Kaiser from IBM.

Doug, in general, private sector organizations that fail to recognize the risks they face and to manage them effectively can destroy value for their stakeholders, and we began to touch upon this in the last segment. Now, for government entities, value is realized when constituents recognize receipt of valued services at acceptable cost. So to this end, can you tell us a bit about enterprise risk management? Specifically, how does it seek to ensure effective reporting and compliance with laws and regulations? But more importantly, to what extent can it help federal departments get to where they want to go and avoid the pitfalls and surprises that typically come along the way?

Dr. Webster: Sure, Al. Enterprise risk management, often referred to simply as ERM, is an approach to managing risks by taking an integrated view of the various uncertainties involved across the organization. It's the process in which an organization optimizes the manner in which it manages risks. Every organization seeks to manage risks once they're identified and thought to be significant, but this typically happens in an organization within a functional stovepipe. In the federal government, we have a host of regulations and mandates that seek to reduce risk.

For example, the IT and financial management communities each have a number of regulatory mandates, that if complied with, serve to reduce or eliminate various risks. These mandates seek to combat risks such as fraud, waste, and abuse in financial management, or the improper access to sensitive information in the IT community. Other functions have the regulatory compliance mandates as well.

However, risk in the federal government tends to be reviewed and acted upon within these functional stovepipes. We don't actually do a particularly good job, at least in my mind, of bringing together all identified risks across an entire agency or department, or balancing our risk mitigation investments across the organization.

To give you an example, and perhaps it's a bit far out, but I think it makes the point, and to borrow, if I might, from another agency, NASA, because I think it's one that the audience can identify with, clearly when NASA launches a man into space, or a woman, as the case may be, obviously, in the shuttle program there are man in space or person in space risks associated with that. Very important, very key to the mission of NASA.

That having been said, when the CFO, my counterpart at NASA sits down and worries about getting a clean audit opinion, he is concerned about various risks as well. The issue is not that those risks aren't being identified and being worked. The issue is that they tend to be worked in functional stovepipes. Those functional stovepipes have to invest dollars to mitigate those risks, and those dollars ultimately come from a single bucket in terms of appropriations and so on.

So at some point, ideally there should be a balancing of the risk mitigation investments in the financial community, with the operational community, the IT community, and so on. And that doesn't happen so long as those decisions and trade-offs are being made within a functional stovepipe.

So spending money to mitigate risks in one area uses up funds that might be available to mitigate risks in another area. And if we do that intentionally, that's fine. To the degree that we do that unknowingly, I submit that that's a problem.

I'd also like to add that OMB Circular A-123 is often thought of as primary risk management guidance. Now, it's true that OMB A-123, which is the document for internal controls, seeks to identify and reduce risk. However, the stated objectives of internal controls under A-123 are three: effective and efficient operations, reliable financial reporting, and compliance with laws and regulations.

Now, we can immediately agree that any organization faces more risks than regulatory compliance and inadequate financial reporting. So if you consider what's left over, I'd suggest the term "effective and efficient operations" does not capture the extent of all the remaining risks. Such operational risks would likely to be all internal and focused on current operations.

However, what risks might exist from future events unrelated to current operations? How about pandemic flu, or what about budget uncertainties in the years ahead? How about the aging of the workforce and the impact that that'll certainly have in the Departments of Labor, the Departments of Education, Social Security Administration, and many other federal agencies.

We need to be thinking about all risks that can impact achieving our mission and objectives now and in the future. A more enterprise-oriented view of risk is important now and will become increasingly essential as the discretionary portion of the federal budget continues to shrink as a percentage of the total budget in the years ahead due to Medicare and Medicaid and Social Security.

Not only do we need a more complete discussion of relevant risks, we also need to optimize the spreading of limited resources and mitigating diverse sets of risks. We also need a more complete discussion of how reducing risks in one area can actually work to increase in another functional area.

Mr. Morales: So not to get too cliche-ish, but it's really about taking a more holistic view of risk and a more horizontal view as opposed to a very sort of point perspective of risk.

Dr. Webster: That's exactly right. And I think largely we very much try to do that in the budgeting process, but I don't think we do as good a job of that explicitly on the element of the tradeoff of risk.

Mr. Morales: Now, the private sector has worked closely with various federal agencies and governments in assisting to improve financial systems and processes, and typically this is done by conducting financial statement audits or even performing financial operations themselves. What can the private sector do better to help improve the efficiency and the effectiveness of our government's financial management systems?

Dr. Webster: I'm not sure that I've got the answer to that. And first, I guess, I ought to preface this by saying I don't think the private sector's doing a poor job now. I do think that we're very reliant on the private sector as a source of outsourcing much of what we do in the federal government, and in the shorter term, for services such as management consulting.

However, I think that the greatest potential for further improvement may be in the area of collaboration. As large as the federal government is, the private sector is much larger. And moreover, because of different roles and stakeholders, the private seeker is typically much more tolerant of risk than the public sector. As a result, there's a great deal of innovation that takes place in the private sector that we in government need to better and more quickly leverage. We need to learn from the private sector and incorporate new best practices. Now, of course, there are differences been the public and private sectors, and while recognizing those differences, we also need to recognize the many similarities, and take advantage of those similarities wherever we can to import best practices.

Unfortunately, conferences are too often viewed as boondoggles. However, a well-crafted conference can be a great learning opportunity for those in government seeking to understand and import private sector best practices.

And I'll take this opportunity just to say that we've been having some initial discussions with some of my counterparts across government to explore the idea of a conference in enterprise risk management, a topic we were just talking about. Later this year, for federal employees, certainly those at the senior level, what I hope to be able to accomplish if this comes true is to be able to get folks from the government sector, from academia, and from the private sector all coming in and sharing best practices in this area and beginning to build a level of awareness and discussion around town.

Mr. Kaiser: So, Doug, given your perspective, how has the role of the government CFO changed over the last decade? And to what extent do you think this change has enabled the government CFO to provide leadership in promoting efficient management of the government resources and assets?

Dr. Webster: Okay. Well, as you already know, my perspective on the role of the CFO over the past decade is formed much more as an observer than a CFO, having been in my position now only for about six months. Still, I think a number of trends are apparent to someone working in this community for the past 15 years. I can probably sum up my answer in three words: transparency, accountability, and results.

I believe that the change has come about through a series of legislations, going back actually more than 10 years. For example, the CFO Act of 1990, the Government Performance and Results Act of 1993, and the Federal Financial Management Improvement Act of 1996 are all examples of legislation that have had a significant impact on the role of the CFO and encouraging those words, "transparency, accountability, and results." Of course, we'd not be even talking about the role of the CFO if it were not about the CFO Act of 1990, which created that position. But for all this legislation, a requirement on the CFO is ultimately a requirement on the Department, so these requirements have given the CFO leverage for promoting efficient management of resources and assets that would otherwise not have been possible.

I think additionally, in terms of the last few years, and specifically this administration of President Bush, the President's Management Agenda I think has also pushed that message of results, of which the CFO has a crucial role as well.

Mr. Kaiser: Doug, speaking of managing assets, if I had my figures correct, the balance sheet of the federal government shows a historical value of over $900 billion in physical and financial assets. It would seem obvious that sound asset management is critical to the efficient government operations and effective financial management. Would you tell us more about the federal Real Property Asset Management Initiative? And what are some of the issues facing the federal government, and how's Labor doing in this area?

Dr. Webster: Yes. The federal Real Property Asset Management Initiative was issued by the Office of Management and Budget in 2004 to make federal departments more accountable for their physical and financial assets. Prior to the initiative, there was no system of accountability for asset management within federal departments. There was a lack of useful property information within federal agencies, an abundance of underused and unneeded federal property, and a lack of necessary tools and incentives for agency disposal of underused properties. This resulted in an excessive cost to the federal government.

Now, the initiative established a senior real property officer in each of the federal departments to better oversee the efficient use of physical and financial assets. With the initiative, OMB expects an improved standard disposal process for real properties in the near term. In the long term, they hope that this will lead to well-organized inventory of federal assets management practices without comprehensive government-wide legislation. Data will be used to determine the future use or disuse of such properties. And with comprehensive government-wide legislation, we can expect improved incentive-driven processes for agencies to exchange and dispose of their properties.

While working towards the goal, we have eliminated surplus assets, better managed the costs of our inventory, and improved the condition of our critical assets. We closed 10 offices last year, saving $300,000, and releasing more than 10,000 square feet of space to the private sector. We implemented an online space management system to monitor space utilization and identify targets for improvement through consolidation and co-location.

Finally, we enhanced the budgeting system in FY 2008, or Fiscal Year 2008, to address real property management goals. This led us to green in the real property asset management category on the President's Management Agenda scorecard in March of this year.

Mr. Kaiser: Thanks, Doug. You know, you had mentioned that you'd only been the CFO at Labor now for about six months. Your predecessor, Sam Mok, I believe was the longest-serving CFO in department history. I think he served there for about seven years. With such a long-tenured individual preceding you, how have you managed your transition within the organization?

Dr. Webster: Well, I think the transition's gone very smoothly. As you said, my predecessor was Sam Mok, and he left almost eight months before I arrived. I can thank Sam for having left behind a strong and capable team with a sterling track record. Shortly after Sam left, my deputy, Lisa Fiely, arrived at the Department of Labor from the United States Agency for International Development, where she served as the CFO there.

During that eight-month period when Sam was gone, Lisa did -- and before I arrived, Lisa did an outstanding job of meeting the responsibilities of our office. Thanks to both Sam and Lisa, I did not come into the job with major challenges facing me, and that makes a huge difference in terms of trying to get up to speed as well as getting something done in a relatively short tenure.

Much of my focus has been on doing what I can in the remaining months I have in this position to further improve the Office of the CFO to run smoothly for the next CFO. To this end, I instituted a strategic planning process that I mentioned earlier. And that's providing guidance for where we need to focus our efforts. Out of that process came a recognition that we were not doing enough to train and sustain our workforce, and that we needed to improve succession planning. We're also in the process of implementing some organization realignments to make better use of the available personnel resources that we already have.

Another initiative driven by our strategic plan is to implement a risk-based budgeting system. And my deputy, Lisa, is leading that effort.

Aside from changes like these, one of my biggest challenges is to leave this organization in another five months or so even better able to adapt to change. That will, of course, be important with a new administration coming to town and a new set of management initiatives.

I have co-authored a book on change management that's going to be published at the end of the year. And the reason I bring that up is in this book, we talk about building a change-oriented organization. I believe that it's more important today than ever before in government to have such an agile or change-oriented organization. Much of the public, I suspect, has this notion of the government rarely changes and is somehow immune from the pressures of the world around us. And I'd suggest that nothing could be further from the truth. The need to change is not something that's unique to the private sector. In setting a strategic vision, communicating that vision, and keeping pressure to execute the plan for implementing the vision are I believe important elements of creating that change-oriented organization. And we're working hard to make the Office of the CFO an example of such an organization.

Mr. Morales: So, Doug, as we all know, and staying with this theme, most work in government is not really accomplished by individuals, but by teams of individuals. So perhaps you could give us a preview into your book and elaborate on your approach to empowering your employees and teams to drive change in the organization.

Dr. Webster: Sure. You're certainly right that achievements are not solo acts. I'll carry that a step further and say that leadership is, in a sense, also not a solo act. I am ultimately accountable for the results of the Office of the CFO. However, I've learned over the years that several minds are typically better than one, and that applies to a leader of an organization just as much as it does to someone lower in the organizational chain of command. The advantage of my coming into the Office of the CFO from outside is that I have a different background and different experiences, and I can view things in a different light. At the same time, those already here have insights and experiences that I don't have.

When we get together or got together in our strategic planning sessions shortly after I arrived, it was very interactive in that we had participation from all the managers. Exploring the strengths and weaknesses and the opportunities and threats to the organization in an open way with key managers helps greatly in building a vision that they can all understand and accept. You know, if I'm convinced about a certain course of action, I find it's always more effective if I can sell that vision for action based on logic rather than on dictates. I believe the leadership team which I had has all bought into the same vision. And I think that that has come about by discussing it and sharing the same vision.

One that vision's been articulated, then it's mostly about communicating a message of accountability for results and implementing the strategic plan. We frequently review progress on the plan and hold people accountable for measurable results.

I believe that empowering staff is important. I've seen too many micromanagers fail because they did not have the time to step back and look at the bigger picture.

Also, I've mentioned the need for a change-oriented organization. Building and sustaining such an organization requires a staff with the right balance of a change versus a stability-oriented mindset. Now, what I mean by that is that we want processes under control. We don't want someone to do things differently every time they execute a process. You lose control of the process and ultimately the results, if that's the case. This is why stability's important.

However, I also don't want someone so wedded to the old ways of doing business that they never look for opportunities to improve, or fight improvements when offered. I frankly believe that my role is not to make the decision on the balance as much as it is to help the staff to understand the need for such a balance, and to build a capacity in the staff to make the right choices at the right time.

Now, that's what I mean by a change-oriented organization. It's an empowered organization that understands the need for change and maintains the needed balance between change and stability.

Mr. Morales: What does the future hold for the U.S. Department of Labor?

We will ask Doug Webster, chief financial officer, to share with us when the conversation about management continues on The Business of Government Hour.

(Intermission)

Mr. Morales: Welcome back to our final segment of The Business of Government Hour. I'm your host, Albert Morales, and this morning's conversation is with Doug Webster, chief financial officer at the U.S. Department of Labor.

Also joining us in our conversation from IBM is Dennis Kaiser. Doug, I talk to many of my guests about the topic of collaboration, and in fact, you mentioned that earlier. So what kinds of partnerships are you developing now to improve operations and outcomes at Labor? And how may these partnerships perhaps change over time?

Dr. Webster: First off, we're partnering with the various agencies when it comes to A-123 and internal controls. I think for some agencies, at least, and certainly not so much at the Department of Labor, A-123 is sometimes viewed as a CFO document. My predecessor and the Secretary have done an outstanding job in sending the message that responsibility for internal controls is a management responsibility, which, by definition, applies to all agencies. What that means is there's a duty on us to really collaborate with those agencies in making sure they have the tools and the understanding and so on. So I think that's been a successful example of collaboration.

Another is with the Office of the Chief Information Officer. We worked very closely with the OCIO to develop the IT systems that will protect the financial data. They have responsibility for the non-financial systems. We have responsibility for the financial systems, but we certainly can't do that by ourselves. So I think that's an example of a good collaborative kind of a relationship.

And then finally, I've got a collaborative relationship with the various agencies relative to CAM, our managerial cost accounting system. While previously we've been more in the role of developing the system and providing the data to them, as I noted before, we are increasingly moving to being a tool facilitator rather than having accountability for the system, because accountability ultimately needs to transition to actual use of the data. That's a very collaborative effort as we make that transition.

I think also a great deal of discussion around town, at least in meetings that I've been to, has recently been on collaboration, partly around addressing preparedness for the upcoming transition between administrations. However, meeting organizational challenges and addressing enterprise risks increasingly requires crossing organizational boundaries. So collaboration, by definition, becomes part of the requirement for success in these cases. Otherwise, we're likely tobe doomed to failure, or at least to a more arduous and costly implementation approach if we try and take this stovepipe by stovepipe.

Mr. Morales: So, Doug, sort of continuing this line of thought into the future, can you give us a sense of what some of the key issues that will be faced and affect CFOs government-wide over the next few years?

Dr. Webster: Sure. I think the new administration's views on financial initiatives may be different. I mean, I have not personally heard a lot said at this point in the campaign between the two parties of what their thinking is in terms of a management agenda in general, much less financial management. So those are clearly going to have to come into better focus before we can be more specific. What I would hope we don't do is begin to change simply for the sake of change. Certainly whoever wins the elections in November will probably want to have their management agenda. I am certainly hopeful that whatever that may be, that we don't just toss out what I think has been a major improvement in accountability for results under this past administration, but instead build upon that.

I believe we do need to keep in mind going forward the concepts of transparency and accountability. They remain just as important as they have in the past. But again, I hope we maintain this balance of not trying to spend $2 to go after $1, because transparency and accountability have to be balanced against results. What I mean by that is you can spend -- every dollar that we spend on more and more detailed distribution of data in terms of spending and so on is a dollar that we're taking away from executing some program. So it's not that it's not important, it's that they come out ultimately from the same set of taxes.

We need to figure out what that appropriate balance is. And I'm fearful that sometimes, you know, more in the realm of Congress because they're being -- responding to what's popular out in the public, you don't see, for example, headlines about so much effectiveness of programs. I don't know who's reading the performance and accountability reports of agencies around town. What you do see in the headlines is the occasional GAO report that talks about some abuses in some agency regarding purchase cards or premium class travel or so on. Those are important, but there's a limit to how important those come relative to actually executing the mission of the agencies.

Mr. Morales: So transparency really has to extend itself into understanding what those costs are and where that balance may lie.

Dr. Webster: Exactly.

Mr. Morales: Right.

Mr. Kaiser: Doug, we've talked a little bit about the new administration and change that would come with that. Earlier, you mentioned some topics about an aging workforce. It becomes clear that agencies need to have effective strategies for organizing and retaining its intellectual resources and its institutional knowledge. To that end, can you elaborate on your efforts to implement effective knowledge management efforts within the Office of the CFO at Labor?

Dr. Webster: Sure. I think basically it gets down to getting the right information to the right people at the right time. Now, that's almost an old cliche, but I think in our area, I could probably point to three areas.

The first, I would again refer back to CAM. I think it's identifying and disseminating a good, relevant cost information for appropriate decision-making, because ultimately where the costs incurred in the agency are not in the Office of the CFO, which is relatively small in comparison, but it's the decisions that drive costs are being made out in the agency. So our role is one of providing good data to support that decision-making.

Secondly, an example I could bring up would be e-Gov travel. We have partnered with the GSA to be a lead agency in terms of getting the travel process implemented with the proper technology tools, IT tools, to facilitate the booking process, the travel arrangement process, the voucher process, and so on, on a very automated fashion. We're using less manpower in reservations and payment of vouchers, but I think there's an element of knowledge management in that as we work through and taking information that was previously -- had access to, but executed in a very manually intensive process.

And finally, I'd offer up as an example the new core financial management system. We are going to be able to generate additional detailed data that's going to really facilitate decision-making relative to the accounting processes, and disseminate that information much more quickly and do all of that with much less manpower.

Mr. Morales: So we've talked about a variety of things here, Doug. So at a very macro and broad level, what are some of the major opportunities and challenges that your organization's going to encounter in the future? And how do you envision that your office, the Office of the CFO within Labor, may need to evolve over the next couple of years?

Dr. Webster: Well, I think one thing is the role of the CFO is going to change as issues of the Department of Labor, of course, change. And one thing that I made a brief reference to earlier is the shrinking discretionary portion of the budget. Anyone that knows the name David Walker, the former comptroller of the General Accountability Office, may be familiar with, frankly, the horror story that he's painted if we don't do some significant changes in terms of Medicare, Medicaid, retirement, and so on. It's the proverbial third rail of politics that people don't want to touch, or those in Congress, and I can understand that. But if that doesn't change, the consequences are a drastically shrinking budget.

And when -- for the audience's benefit, when we talk about "discretionary budget," we're not talking about things that necessarily are discretionary in terms of discretionary spending at home. What we're talking about is things like national defense. You know, it's things that aren't guaranteed payments, like Medicare and Medicaid. So "discretionary" doesn't translate into necessarily "optional." I think that that's something we're going to have to deal with. And we're going to have to -- the CFO is going to have to take a more risk-based approach and be a facilitator in this discussion across the agency.

I also believe that the impact will be for a broadening of A-123. Right now, A-123 that we talked about before, internal controls, is focused on operations efficiency and effectiveness, regulatory compliance, and financial reporting. We're going to need to broaden that out more to that enterprise risk management approach that I mentioned previously.

I think there's also that challenge of increasing public scrutiny that I've talked about a couple times. It's important, but we cannot allow that to become our overall driving factor, because it's important to keep the public informed, but we also have to balance that with getting the mission done. And the impact will be more resources spent on tracking and reporting dollars if we don't, and less available for meeting the needs of the public.

Finally, seniority of the workforce. At Labor at least, we've fortunately seen a little bit less number of folks leaving the government than had been originally projected, but nevertheless, that number that are eligible to be retiring in the next five years is a little bit scary in terms of its size, and we need to be prepared to deal with that. So we're going to have to continue to be aggressive in our recruiting processes and our retention processes.

Mr. Morales: Great. So given your extensive federal service, both as a civilian and within the military, what advice might you give a person who's out there considering a career in public service, perhaps in the federal government?

Dr. Webster: Well, I'd say probably most generally that one's compensation is more than the paycheck you bring home. And I think that the federal government, for most cases, and there are some exceptions, depending on the career field, pays very competitively. But that having been said, I think there are a lot of benefits that the federal government potentially has in terms of intrinsic compensation that is more difficult to provide in the private sector.

The private sector, as you know, and I know having spent time there, ultimately it's driven by the bottom line of profit. And so the private sector rewards folks in various ways. One of the advantages that government has is it doesn't have the bottom line of a profit. What it does have is a mission. And to the degree that folks can identify with that mission and believe that being a part of executing that mission means that they're providing a service back to their fellow citizens, I think that can be a very rewarding element of, frankly, overall compensation that's difficult to match in the private sector. So I would say that for those folks who that would have value, I think that a career in public service should be considered as a potential calling.

Mr. Morales: That's a wonderful perspective. So compensation is more than money. That certainly makes sense.

Doug, unfortunately, we have reached the end of our time. I want to thank you for spending this hour with us, but more importantly, Dennis and I would like to thank you for your dedicated service to our country, both in your military and now in your government executive career.

Dr. Webster: Well, Al and Dennis, thank you both for the opportunity to be here. I appreciate the opportunity to share some thoughts. And I'd also like to say, and I probably need to say this less than many CFOs in town because it may be more obvious that I've only been here a short time, but I've got to say any little amount that I've personally been able to contribute is only because of the team that I've got. I think that Sam Mok, my predecessor, laid some excellent groundwork, and I am truly indebted to the quality of the folks that I've got, because there's no one that -- in a leadership position that can ever lay personal claim to anything that they achieved other than through the results of the team. And we've got a great team at the Department of Labor, as I think our consistent track record has shown for many years.

Mr. Morales: That's great. Thank you very much.

This has been The Business of Government Hour, featuring a conversation with Doug Webster, chief financial officer at the U.S. Department of Labor. My co host has been Dennis Kaiser, partner in IBM's Federal Civilian 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 may not be able to 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.

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