Government Financial
Management in a
Time of Transition
McCoy Williams
Managing Director
Financial Management and Assurance
AGA Washington, DC Chapter and GWSCPA
7th Annual Conference
May 7, 2008
Presentation Outline
• Overview of changing environment
• Fiscal sustainability issues
• Opportunities for the accountability
community
2
Overview of Changing
Environment
3
Transitions at GAO
• Jeff Steinhoff retired earlier this year after more than 40 years of
government service. His contributions to the federal audit
community were exceptional.
• These are large shoes to fill and I look forward to working with the
audit community, continuing GAO’s long-standing efforts in
coordinating with professional organizations such as the AGA.
• Following David Walker’s resignation as the Comptroller General,
GAO will continue to work with the audit community under the
leadership of Gene Dodaro, who previously led our Financial
Management and Assurance team. He is well-positioned to provide
continuity and leadership in this area.
4
Overview of 21st Century Changes
•
•
•
•
•
Fiscal environment has changed significantly
Homeland security takes center stage
Defense budget increases dramatically
Domestic needs remain to be resolved
Effective management is essential
• Financial managers need to change
with the times
5
Accountability Is Key
• In this changing environment, achieving financial
accountability becomes even more critical
• A clean opinion is not the finish line but rather a
byproduct of accountability based on sound controls and
accurate, timely, and meaningful financial data
• Important to maintain efforts to achieve the larger CFO
Act goals
• 19 of 24 agencies received clean opinions for FY
2007—up from 6 in 1996
• Work needed on key large departments
6
Impediments Related to the U.S. Government
Consolidated Financial Statements
• Serious, long-standing financial management
problems at DOD
• Inability to account for and reconcile intragovernmental activity
• Ineffective process for preparing the
consolidated financial statements
7
Positive Developments Related to the U.S.
Government Consolidated Financial Statements
• GAO issued first unqualified opinion on the fiscal year 2007
Consolidated Statement of Social Insurance. Covers some of
the largest numbers in the federal government—tens of
trillions of present-value dollars associated with future social
insurance expenditures.
• First-ever “Citizen’s Guide” was issued on February 14, 2008.
Provides a user-friendly summary report of the 2007
Financial Report of the United States Government.
Represents an important step forward in improving public
understanding of the federal government’s true financial
condition and fiscal challenges—both today and over the
longer term.
http://www.gao.gov/financial/fy2007financialreport.html
8
Fiscal Sustainability Issues
9
Aging of the Population
10
Federal Spending for Mandatory and
Discretionary Programs
1966
7%
42%
67%
Net Interest
9%
14%
26%
Net interest
2006
1986
53%
38%
44%
Discretionary
Discretionary
Mandatory
Mandatory
Source: Office of Management and Budget.
11
The Unsustainable Fiscal Path
2019
Percent of GDP 2017
50
Social
40
30
2007
Medicare
Part A
benefits
exceed
taxes
Security
benefits
exceed
taxes
2041
2029
Full
Medicare
Part A
benefits
cannot be
paid from
taxes;
financed by
borrowing
Full Social Security
benefits cannot be paid
from taxes; financed by
borrowing
Debt/GDP
exceeds
historical
peak in
World
War II
period
20
Deficit
Revenue
10
0
2006
2010
Source: GAO analysis.
2015
2020
2025
2030
2035
2040
2045
2050
12
Current Fiscal Policy Is Unsustainable
• The “Status Quo” is not an option
• We face large and growing structural deficits largely due
to known demographic trends and rising health care costs
• GAO’s simulations show that balancing the budget in
2040 could require actions as large as
• Cutting total federal spending by 60 percent or
• Raising federal taxes to 2 times today’s level
• We cannot grow our way out of this problem
• Tough choices will be required
13
Opportunities for the
Accountability Community
14
Challenges as Opportunities
• This challenging environment provides
opportunities for financial managers
• Value-added skills in areas such as financial
analysis, performance metrics, and forensic
auditing are key
• The ultimate goal is having real-time, accurate
information needed for day-to-day management
15
The Need for Good Governance,
Transparency, and Accountability
• Good governance, transparency, and accountability are
critical to supporting a healthy economy and the efficient
and effective administration and assessment of public
policies
• The accountability community has an opportunity and
an obligation to help steer the course for the new
administration in 2009 and beyond.
16
Be Forward Looking and Thinking
• Look at how government does business day to day
• Ensure managers routinely have timely, accurate, and
useful information for managing operations
• Value added and forward thinking activities include
developing useful business metrics and demonstrating
the impact of effective internal controls on mission
effectiveness
• One way to think of this role: we should be the
headlights to guide our organization not the taillights
looking back
17
Financial Managers as Leaders
• Recent CG Forum on Financial Management Systems
brought together leaders from the CFO, CIO, and IG
communities as well as private sector experts
• Emerging theme was the view that in order to remain
relevant, accounting professionals must be willing to embrace
change and identify ways to prove their value to the entire
organization
• Roles of the CFO and federal financial organizations need to
be redefined
(GAO-08-447SP)
18
Financial Managers as Leaders
• Financial managers must be prepared to provide the
tools needed to assist program managers in achieving
the organization’s mission
• Those with the better tools will find themselves with a
seat at the table—side-by-side with agency leadership
for the 21st century
19
Questions and Answers
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