Wednesday, January 17, 2001
Mr. Lawrence: Welcome to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and the co-chair of the Endowment for the Business of Government. We created the Endowment in 1998 to encourage discussion and research into new approaches to improving government effectiveness. Find out more about the Endowment by visiting us on the web at www.endowment.pwcglobal.com.
The Business in Government Hour features a conversation about management with a government executive who is changing the way government does business. Our conversation today is with Mike Smokovich, Chief Financial Officer of the U.S. Agency for International Development. Welcome, Mike.
Mr. Smokovich: Good to be here.
Mr. Lawrence: And joining us in our conversation is Patty Fisher, also a PWC partner. Welcome Patty.
Ms. Fisher: Hello, Paul.
Mr. Lawrence: Well, Mike, let's get started by finding out more about the U.S. Agency for International Development. AID administers economic and humanitarian assistance worldwide; we know that. Can you tell us more about the agency?
Mr. Smokovich: AID's been existence for about 40 years. We operate under the Foreign Assistance Act. We have a budget of about $7.8 billion. Our programs are worldwide. We have about 2,000 people composed of Foreign Service officers and Civil Service personnel who are the mainstay of our program. About one-third of those people were overseas, and we're also supported by Foreign Service national personnel. These people are employed as personal service contractors.
The agency's got many diverse programs and we work to develop both institutions and people. We have programs in health, food and nutrition, we are involved in humanitarian assistance in training and education. And we also work closely with governments to strengthen their institutions in terms of good governance and democracy, and in terms of the environment. So, we're a fairly broad-based agency with a fairly robust agenda delivered in many nations by many people.
Ms. Fisher: Mike, let's spend some time talking about your career. You served 30 years with the Department of Treasury. Can you tell us about your various positions at Treasury?
Mr. Smokovich: Yes, I served in many positions at Treasury. I came to the Treasury from the General Accounting Office in 1967. And I basically worked in all of our operational staff positions there both as a young person in those days and as an older manager. My first senior executive position was in managing all of our accounting and reporting operations which were the essence of the agency at that time.
Over the years, we attempted to grow the agency and it's a small agency of about 2,000 people. And we tried to turn it into a financial management service organization that would help government managers and program people understand how to do cash management well, how to administer grant programs, credit and debt collection services and basically to be better managed from the financial management perspective. My management positions at the agency involved, basically, running most of those operations at one time or another and for a seven-year-period, I served as our chief operating officer. And my last year there, I ran a consulting and training organization, which was a good exit from the Treasury and a good way to get to a CFO position in another agency.
Mr. Lawrence: How did those experiences at Treasury prepare you for the CFO job at the USAID?
Mr. Smokovich: Well, from the first or for the last 20 years in particular, either working on the Treasury agenda or the OMB agenda or the GAO central government agenda for making government better managed. I was often the chief negotiator for the Treasury or for the central government in working with agencies to make financial systems better to work on credit programs on cash management programs, so uniquely. What we did at Treasury was to urge the CFOs to do certain things according to the OMB five-year plan. And now, while I'm at AID, this issue has kind of turned around. I've got to help our agency to respond to all those standards and initiatives so, it was a good experience.
Mr. Lawrence: How would you contrast the two cultures, Treasury and then USAID?
Mr. Smokovich: There are many parallels, we're both relatively small agencies. The financial service where I worked is roughly 2,000 people, like AID. The Treasury is a finance organization, obviously, USAID is basically a program organization, but both organizations are dedicated to making government better managed. At Treasury, we were fairly centralized. AID is highly decentralized. We operate in 75 countries, provide developmental services in another 39 and our people are highly technical people and they are program people, not finance people. So those cultures are different in that regard.
Treasury has a lot of backroom operations and, as you know, a lot of our programs are on the front page. We're providing assistance to people in disasters and we're trying to improve the lot of people and nations across the world. So, there are some differences in the cultures.
Ms. Fisher: You've just articulated a number of different things that you've done throughout the years. What drew you to public service?
Mr. Smokovich: Largely the opportunity to have an impact. I came out of Pittsburgh, Pennsylvania and it was the coal belt, or the rust belt, you could see that happening if you looked ahead. Coming to Washington provided an opportunity in the 1960s to have an impact on the whole country, and at the Treasury, we had an opportunity to affect government. And you don't get that type of opportunity in a lot of the jobs that you might go into. If you look at the career aspect of government for young people in particular, if you have a vision and if you're interested in people and if you're interested in improving the country and you feel pride in the country, there's a lot of opportunity there to make the world a better place. And that's what draws people to Washington.
Mr. Lawrence: You've described working for leaders as well as being a leader and I'm curious, in your opinion, what qualities are the key characteristics of good leaders?
Mr. Smokovich: All good leaders have to have courage, maintaining the status quo doesn't require leadership. Seeing that things need to be changed takes a vision, it takes an energy and good leaders and strong leaders quite often have to keep working at it for a long time. So, having a vision, having energy and stubbornness are important but also, I think, seeing the need that change doesn't come easy and working with people, finding followers is essential. I used to say to a lot of our people at Treasury when they would ask me, "what's it take to be a leader?" I said, "well, you have to find at least one follower and build on that."
Mr. Lawrence: Have these qualities changed over time, do you think?
Mr. Smokovich: No, I think those are pretty fundamental. You know, the situations that we have to manage and change quite often. In Treasury, I had one situation, at AID there's another situation. If you're in the corporate environment or in the government environment or university environment, the situations change, but those basic capabilities of seeing the need for change, having the will power and the staying power and building consensus and followers, I think they're essential.
Mr. Lawrence: How about looking out into the future, I mean, we are in the twenty-first century now, but do you think in the future those qualities would change?
Mr. Smokovich: I don't think they're going to change, but some of the issues, I think, are more significant and more dramatic. I think, particularly, for CFOs and even leaders of organizations, whether you're number one, two, or three, I think, is less relevant than being a part of the management or leadership team.
In the past ten years, we've seen a lot of change in the way we do business and government quite often is slower to change than industry. I think the issue of seeing what needs to be done to transform the organization, to transform the agency about the way it does its business. My charge was to put an accounting system but the types of changes that are needed in the next five-to-ten years require more than putting in a system. I think they require a commitment and a need to transform the business so we can connect with the customers our suppliers and our stakeholders and in ways that we haven't done before.
Mr. Lawrence: I'm talking with Mike Smokovich of USAID. This is the Business of Government Hour. We'll rejoin our conversation in just a few minutes. (Intermission)
Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and tonight's conversation is with Mike Smokovich, Chief Financial Officer of the U.S. Agency for International Development. And joining me in our conversation is Patty Fisher, another PWC partner.
Well, Mike, let's find out more about your position as the chief financial officer. What are your main responsibilities?
Mr. Smokovich: As the chief financial officer at USAID, I'm charged with managing all of our accounting and reporting systems and in my particular case, managing the development and integration of our accounting systems, and making sure that when we have any systems initiative underway, whether it's procurement, personnel, payroll, what-have-you, that it all comes together. So there are a lot of CFO, CIO, IT aspects tied into my job, at least in the present that may not be tied into other CFO jobs at that particular moment in time.
The other big area of responsibility that we have is that we are an operational CFO organization, both in Washington and in the field. And we're providing direct accounting support and financial management support to people in Washington and to the 75 missions where we have operations. Because of the nature of our business, which is developmental, there is a large role that we play with our inspector general in making sure that audit recommendations and audit solutions are implemented in a timely fashion. So, we spend a lot of time with OIG and with our program people making sure that our processes for integrity, audit follow-up are in place.
Because we're highly decentralized, we spend a lot of time, and this is something we need to do more of, is investing in the training and education of people. Because of modern systems implementations and because of the downsizing of government, the financial management role has been dispersed among more and more people in operating the agencies.
And as I said earlier on, our people tend to be, you know, engineers or doctors or economists, and one of the challenges is to educate them to the fundamentals of financial management and to make sure that when we're making a grant or making a contract or executing its management, that we're following sound management principles. So, we have a large educational role in the agency.
And because we are investing systems, there's a large responsibility for the CFO at USAID, as well as the CIO, the procurement official. We have a management or team responsibility to make wise investments in systems and to make sure that when we make the investment, we get things implemented on time and on schedule for both the technical people but, also, for all the users, be they inside the agency or outside the agency. So, it's a fairly, fairly broad job.
Ms. Fisher: Mike, can you tell us a little bit more about the system that you're referring to? I know that it hasn't been very long ago that you just went live on that system and then, also, embellish about the modernization plan related to the integration of all the financial systems, if you would.
Mr. Smokovich: Right, I was hired 23 months ago to basically do two things: To acquire and implement an accounting system and to develop a plan for the ultimate role out of that system and the integration of all of our systems in USAID. And we had some fairly finite objectives. One of the things we wanted to do was have an acquisition that we could accomplish within a very short time, namely, by September 30 of 1999. So that was a major objective.
And we needed to have a plan and we worked on the plan of the acquisition simultaneously. The plan was almost as important, if not more important, than the accounting system's implementation. Because it gave us the opportunity to set, not the CFO priorities, but the agency's priorities to invest in and fix our accounting systems both in Washington and across the world to do the same thing with our procurement systems, and to lay out the priorities for investments we needed for our telecommunications and computing systems. So there was the process of setting these priorities and then moving along fairly rapidly on the implementation.
We've been successful in getting a plan established. We continue to work on that plan and we've been successful in the implementation process of getting the acquisition out the door and having it done without protest and having it done timely and getting a system implemented. So, it's been a fairly finite schedule and set of priorities that we've managed these past 23 months.
Mr. Lawrence: I understand that the strategic vision for this implementation incorporated several best practices in financial management. What are these practices and how did you adopt them?
Mr. Smokovich: One of the best practices was to read and follow and believe in all the guidance that the CFO council and the central agencies have developed, which is to acquire an off-the-shelf system and to implement an off-the-shelf system. Now, typically, what most agencies will do is they will buy an off-the-shelf product and then they will develop their plans to customize it.
We had a different plan. We're going to buy an off-the-shelf system and we were going to make zero changes to that system. That was key to our strategy and that is the best practice. I would recommend to everyone that as an agency or as a management team you keep it at zero. If you can't keep it at zero, keep it in the single or double digits at worst.
The other thing we did is to really look to our users both in the acquisition and the implementation process. We spent a lot of effort on defining our requirements very precisely and very finitely. That helped us in the acquisition because both we and the vendors understood what we were buying and that enabled us to essentially have numerous understandings and avoid protest, which can be troublesome and mean automatic delays in schedule.
The other thing that allowed us to do with our users and our developers is to schedule the developmental process very tightly from a developmental perspective and in terms of working users that when we had a certain developmental phase completed, they could check in and check out fairly quickly. We spent a lot of time with users in bringing them on-board. And this comes down to the negotiation process.
In USAID, we have many offices and they all have diverse needs. One of the issues in the agency was standardized reporting. We spent a lot of time with the management team both policy people and program people deciding that we would have a standard account coding structure down to a point. But then that we would let our operating units define their business needs and processes and we would accommodate those. That created a lot of work for everybody, but it also bought us loyalty and buy-in and confidence and pride in the result.
And for example, in working on our data migration process, defining the types of data that would go into the system and working to have people understand their needs and the system's capabilities. We worked with, I believe it was 26 or 29 distinct units who had a different cut or a different spin on the product. But the result was that those people owned that data and when it came to migrating our data, nearly 100 percent of that data migrated, which is very unusual in the federal environment.
Ms. Fisher: In addition to all of the work around the systems, I understand that you recently released results of a benchmarking study. What were the findings in that study and how do you think that those findings will help aid you in the financial management tasks ahead?
Mr. Smokovich: Well, the benchmarking study was something that I thought we needed to do when I walked in the door 23 months ago because we appear to be short-staffed in many cases. The agency has gone through a lot of downsizing, so our performance was a mystery in some respects. And I was not used to that. At Treasury, I either had operating units, and I had been an operating manager and I knew what I could produce and couldn't produce, so we got into the benchmark to kind of benchmark and validate and verify what we were doing. The benchmark helped validate some of our ideas and priorities in the modernization plan. We need to invest systems more, we need to train and educate people more, and we have opportunities for achieving cost benefits, both in Washington and in the missions. So, we've let all of our people in Washington and in the missions get involved in using the data to target improvement initiatives.
Mr. Lawrence: We'll be back in a few minutes with more of the Business of Government Hour, and our conversation with Mike Smokovich of the USAID. (Intermission)
Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and tonight's conversation is with Mike Smokovich, Chief Financial Officer of the U.S. Agency for International Development. And joining me is Patty Fisher, another PWC partner.
Well, Mike, we came to a short end of that last segment, so let me double back. What I found interesting in that last segment was that you talked about benchmarking, measurement and also implementing new financial systems successfully. Two things that many people don't try or can't do and so I'm curious, how were you able to do this?
Mr. Smokovich: In our case, it was fairly easy because in terms of the accounting system, we didn't have a lot of choices. AID's needed an accounting system for more than a decade, and when we got our management team to make this the first priority, it became relatively easy. We then had to look to ourselves. And we said, "how do we support that priority?" We didn't have a lot of people, so we simply took our best and brightest and that meant our number one and number two managers from our operating units and from our systems organization and from our CIO organization. So we had a fairly tight team. We also knew that we couldn't manage it all ourselves, so we used a public accounting firm. We used the vendor for our accounting system and we used our integrator to build a team of people who would focus on getting the system implemented.
The other consideration we had was that this was not a small effort for us or for anyone and we looked at it from a risk-management perspective. The objective was to get operational in Washington and we developed a strategy that would allow us to do that by saying, "okay, how do you make Washington operational?" And the way you make Washington operational is to turn the vendor�s product on.
And part of that strategy was to delay some of the automated interfaces. And so, and in a short- run, you can live with manual interfaces. You can get things done that way. So we made those kinds of decisions looking at the team, looking at our skills, our strengths and weaknesses and say, no changes to the software, stick to the schedule, make decisions. A lot of these projects get off schedule because the vendor and the government cannot make a decision in a timely way and the clock turns. So, some of those types of things are what enabled us to take on the accounting thing.
In terms of some of the measurement issues, we know that we process a lot of transactions, both on the accounting side and on the procurement side and we're looking for ways to really improve our practices. And one of the things we said, "if we can engage people and provide them with information about the results of their business practices today, we can engage our whole work force, begin to manage the change process, and to also begin to look forward to implementing the systems."
You know, one of the things that motivates us right now in that way is that part of our plan involves implementing the system in Cairo and San Salvador. So, we spent time there building energy both in Washington and in the field to the challenge of making a system operational in Washington. I know measuring scares some people, but in the CFO business, in particular, if you don't know what you're doing and don't know where your opportunities are, you can't defend your organization and you can't fine tune it. So we've used these things, I think, in very, very positive ways to engage the work force.
Ms. Fisher: Mike, it was in 1990 that Congress created the CFO position within the government, but you've been involved in financial management for much longer than that. How has the field changed over your 30 years and what has been the impact of that Act, the CFO Act?
Mr. Smokovich: Well, the field's changed in this way. Twenty years ago, for example, we wouldn't be doing this show. The visibility for CFOs has increased dramatically. The CFO community whether the CFO was called a controller or whether the CFO was called an assistant secretary for management in the old days, the community worked very hard to get visibility. Well, we've gained visibility.
The other thing that's occurred, and it's just not in the government, it's across the world is that there's been a tremendous increase in the demand for accountability. How many CFO types or program types or CIO types talk to you without raising the issue of accountability?
The other thing is performance, with the changes in the ways services are delivered, people expect more. So, I think CFOs are more visible from a management perspective and they're certainly more visible from an operational or service perspective. These are the changes that, I think, all of us are dealing with and that we're all challenged by. And they're going to continue to be a challenge.
Mr. Lawrence: What skills are needed to be a federal CFO?
Mr. Smokovich: Well, if you look in the organization chart or in a textbook, every CFO is going to have to have some credentials for accounting, budgeting, credit-debt management. Those are the skills that all the people in these jobs bring to the job from their set of experiences. But the real issue, I think, today for CFOs is understanding how business works and understanding how systems work.
If you're a CFO of an agency, just as in the case of the private sector, you have to understand what generates your revenue. In our case, it's mostly appropriations, but it can be enterprise funds, too, where you're actually conducting business day-to-day with people and earning a revenue stream. So, those things are fundamental. Understanding the business, understanding systems, but more understanding the changes that are needed today, that's what, I think, any CFO has to bring to the table for the next five- to-ten years.
Ms. Fisher: You just mentioned one example of how a private-sector CFO might look at financial information that differs from a federal CFO. Are there other job differences between the public sector and the private sector CFOs?
Mr. Smokovich: I think there are some, but really I don't think there are that many. In fact, I looked at a magazine called "CFO," and it's oriented toward private-sector CFOs. And if you look in this month's issue or last month's issue and you look at rating or managing effective CFOs, all the issues look the same: managing revenue stream, managing working capital. You might say in the government, "well, what is the government's working capital?" Well, we just obtained a working capital fund from the Congress, which will allow us to run more of our operations in a businesslike way.
We just spent a year, going back and mining and reviewing our unliquidated obligations and we were able to basically take funds that were tied up in stale accounting and budget information and turn that into budget authority that can be used in our programs. These are the types of things that a CFO in a private-sector organization would do, the business of managing investments. Every CFO's involved in managing investments in one way or another. In structuring deals, every CFO in the private sector is involved in structuring deals. Federal agencies don't work in isolation, they work with contractors or vendors, they work with other governments or other agencies, and memoranda-of-understanding or deals are always being formed. So, I think, when you try to compare the two there, I think there are more similarities than not.
Mr. Lawrence: You are also a member of the CFO Council. What's the council and what does it do?
Mr. Smokovich: The CFO Council is composed of all the statutory CFOs and, in recent years, the deputy CFOs, which has been a good thing. The CFO Council develops a five-year plan in cooperation with OMB. It's been a place where CFOs can come together to share experiences, good and bad. The Council has been effective in working with the central agencies in this way. Many times a standard or law is proposed for implementation but it's the CFO community that has to actually implement the process. In the Council, we come together and we work on issues to improve systems or improve processes. We spend a lot of time trying to help ourselves in the recruitment and training and education area. So, it's those types of things the Council tends to try to make implementation effective and try to make CFOs more effective as a group of people.
Mr. Lawrence: It's time for a break. We'll be right back with more of the Business of Government Hour, and our conversation with Mike Smokovich of the USAID. (Intermission)
Mr. Lawrence: Welcome back to the Business of Government Hour. I'm Paul Lawrence, a partner at PricewaterhouseCoopers and tonight's conversation is with Mike Smokovich, Chief Financial Officer, U.S. Agency for International Development. And joining me in our conversation is Patty Fisher, also a PWC partner.
Ms. Fisher: Recently, Mike, the CFO Council issued the statement on the twenty-first century CFO. Can you tell us about this statement?
Mr. Smokovich: Yes, there was some interesting process involved here. The Act's been in place, the CFO Act's been in place for ten years, and what we did is to go back and look at the results and the implementation of the Act and to look at the CFO community at large. And a number of focus groups were established. The document that you're talking about here, is a result of CFOs talking to CFOs and considering what we've accomplished and what we haven't accomplished.
CFOs are visible today, they have accountability, they have responsibility and, clearly, that's one of the things that CFOs need to have in the future. I think all of us are aware that there's a great change going on in the way we conduct business. A CFO cannot be successful today, nor can an organization be successful today, if we continue to think of our business processes as a collection of organizational boxes that really separate us. I think the issue of how CFOs will help organizations change in the new economy is one of the things that's highlighted in this document.
The other issue we're all well aware of, is that it's not systems that solve problems, it's people do and the CFOs, in particular, have a lot of competition for a quality work force. We need to train people, we need to educate people and we need to acquire and retain people who can deal with the new business processes.
The report also talks about compensation. I mean, it's a fact, if you're working in the federal government, you're not going to make the salary that you might have in the private sector. But still, CFOs are at risk in the sense that they, today, are challenged to take on issues that require performance and part of the thesis of the document is that CFOs ought to be compensated based on performance. And it's something that, I think, is a point that needs to be made. But I think, fundamentally, what is done with the document is to pose to all of us, both those of us who are in the career community and in the new administration to ask the question, what is the proper role for the CFO and how can CFOs and other officials help make the government a better operating in-service organization.
Mr. Lawrence: We hear a lot these days about the forthcoming retirement wave of federal employees. How has this impacted your office?
Mr. Smokovich: It is a really big issue that every organization has. I will be 58 on my next birthday, which comes in March. I did not help the average age at AID. But our foreign service are 49 years old, or Civil Service are 47 years old and we have an aging work force. The other issue that we have in the work force is that because of the downsizing of government, there just are not many people in the pipeline.
And so the lack of a pipeline is an issue and, again, because the way we have to conduct business, both in the present and more so in the future has changed. We'd have to acquire people with different skills. And the whole CFO Council and CFO community is heaving invested in this, but if, without the right people, we're hard pressed to provide the right services.
Ms. Fisher: What do you think the government should do to attract more young people to public service?
Mr. Smokovich: One of the things we can do, and we've worked on this in USAID because it's very expensive to hire people, but it's more expensive not to hire them. If, particularly when you think you might have hired them and this has to do with expectations. One of the things we can do in organizations is recruit people based on what we believe their career will be. There are many jobs in government. There are many jobs in industry, but the way you attract people is to convince them that you're a good place to work, but then sell them on a future. And I believe if we can break down some of the barriers that relate to time-in-grade, for example. People should not be promoted based on how long they've been in the organization, they should be based on how well they're performing. And that's what happens in the private sector. And CFOs in particular.
And the document we were talking about a moment ago makes this an issue. If we cannot attract and retain and reward people based on a CFO's management assessment of the priorities and performance of the types of people we need in the organization, we're going to lose out, not to industry, but we're just going to lose because we will not be able to retain the people.
Mr. Lawrence: What types of skills and knowledge will this future federal financial and management work force need?
Mr. Smokovich: The future work force has to be able to communicate. Being an accountant or a computer technician is not sufficient, being trained in a particular skill. We need to hire people who communicate and can understand how business is conducted. The business model that we're looking at today relates to buying products or services so that you can deliver your products or services and managing the internalities and the externalities. If we can't communicate with our customer, our supplier, our stakeholders or our regulators in effective ways, we won't get the job done. So, I think, understanding the business of government is probably the most important thing we have to work on with all these people.
Mr. Lawrence: What other challenges do you think the future CFOs will face?
Mr. Smokovich: I think the biggest challenge is having to deal with the fact that business has changed dramatically in the past decade. The PC was something that was not common in the work place, even in many computing firms. The Internet was not here, and those things are ubiquitous now and we're all pressed to transform the way we do business. Well, unfortunately, we haven't hired a lot of people who are conversant with those technologies and those business processes. So, I think for the next few years, CFOs are going to be really challenged to get people on to be able to deal with these business issues.
Ms. Fisher: What advice would you give a young person considering government service in the area of financial management?
Mr. Smokovich: If you want to come to work for government, and I do recommend it, been at it for 36 years, I believe you need to have a personal plan. You need to to know what your priorities are. The first thing you want, obviously, is a job, but you need to have a plan for what you want to have happen in a three-to-five-year time frame. Do you want to be a manager? Do you want to be a staff person? Do you want to be a negotiator? Do you want to have your career and/or mature in your technical line, or do you want to aspire to be a general manager, so to speak?
And you have to have that contract with yourself. And when you're interviewing for jobs in government, I think that's going to be part of the interview and if you interview the right agencies and you get that handshake, I think you'll find a career in government that will satisfy your job interest and your career interest.
Mr. Lawrence: We've talked a lot about technology in our time together today, and, I'm just curious, what's the role of technology in the work of the CFO?
Mr. Smokovich: Technology enables a CFO in an organization to get work done. Without technology, you can't process your transactions. Without technology, you don't have productivity. But, more importantly, for the CFO and for all managers now, you don't have good technology, you don't have good information and that means you don't know what's happening.
Very few operations can rely on a monthly report. Most of us have issues that involve success or failure every day. The more informed we are about those successes and failures, the better we can manage.
Mr. Lawrence: Well, it's a good stopping point, Mike. Patty and I want to thank you for spending time with us today. It's been an excellent conversation.
This has been the Business of Government Hour, featuring a conversation on management with Mike Smokovich, Chief Financial Officer of the U.S. Agency for International Development. To learn more about the Endowment's programs and research into new approaches to improving government effectiveness, visit us on the web at www.endowment.pwcglobal.com. See you next week.