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How the CFO Act is slowly improving the government's financial management.
Lori Calabro, CFO Magazine
December 1, 2006
In the years since the CFO Act of 1990 became law, Linda M. Combs has had a front-row seat for much of its rocky implementation. The controller in the Office of Management and Budget (OMB), formerly the finance chief at both the Department of Transportation and the Environmental Protection Agency, knows how difficult it is for the government's 24 specialized agencies — some of which dwarf the largest corporations both in size and complexity — to improve financial management. Combs has been frustrated at times by the slow pace of change, which would be wholly unacceptable in the corporate world, but she is optimistic that her current focus on improving internal controls will bring greater integrity to government finance. The goal, she says, is to improve timeliness and accuracy, ultimately ushering in a governmentwide consolidated audit. "Why improve financial management?" she asks rhetorically. "You improve financial management because it helps better serve our constituents, the American people."
Last year, all federal agencies filed within the new 45-day deadline. Why was that a priority?
When we came in in 2001, agencies were taking an average of five months to report. We said that was just totally unacceptable. So we gave agencies and departments a year's notice that they would have to report sooner. The 45-day deadline, which surpasses what the corporate world does, was arrived at because someday we want to get a governmentwide clean audit. We figured that if in 45 days we could roll everything up and get the governmentwide audit, we would be consistent with what the corporate world requires within its 60-day reporting time frame.
Will the 24 departments and agencies be able to meet the deadline consistently?
I was so proud that we had 100 percent of our financial statements completed within the deadline in 2005. And while we don't know about this year yet [the deadline was November 15], I believe the deadline will be met year after year. In addition, the accuracy has continued to improve. That's in essence what that 45-day deadline has done. It's driven more-effective reporting processes.
What processes are those?
The agency CFOs started looking at what they were doing on a monthly basis in their business units, their agencies, and their departments. Also, agencies are preparing comprehensive financial statements, including all footnote disclosures, at the end of the third quarter of the fiscal year. These changes ensure that the 45-day deadline will be met, and provide better access to information throughout the year.
You don't have the levers — penalties, incentive compensation — to make the agencies comply. What motivated them?
Most people who go into government work believe that public service is a public trust, and when given high goals and expectations they step up to the plate.... Of course, there's also peer pressure. Nobody likes to be embarrassed. Plus, one of the things that the President did early on, when he established the President's Management Agenda, was make it very clear [that we needed to] achieve results and be accountable to the American taxpayer.
Still, not all agencies are getting clean audits. What do you have to do to improve accuracy?
That's something we work on every day. The CFO Act of 1990 was passed when I was assistant secretary for management at the Treasury Department, and I remember that 5 agencies volunteered to see if they could get a clean audit. Of those, only 1 — the General Services Administration — was successful. By 1996 there were 6 agencies that got clean audits. Last year we had 19. So the trend is moving in the right direction. But fundamentally, we have to continue to improve our internal-controls efforts. We've reduced material weaknesses over the past six years by 58 percent. But we still have a ways to go.
You've tightened the government's internal-control regulations (Circular A123). What did you learn from Sarbanes-Oxley?
Sarbanes-Oxley required the corporate world to put in some measures in a very short time frame, which has pluses and minuses. And in response, we learned to take what I call a reasoned and seasoned approach to 123. Reasoned, because we already have a number of requirements in place that mirror pieces of Section 404, and we wanted people to coalesce or use those requirements in a reasonable way to develop their own internal-controls effort. From the seasoned approach, we decided not to do all this in one year. And when you realize we have four departments — Defense, Health and Human Services, Treasury, and the Social Security Administration — that individually are larger than either Exxon or Wal-Mart, it's [easy to understand] why this is at least a three-year plan.
What makes you comfortable with the integrity of your controls?
We've got a lot of other people looking at us, including the American taxpayer. Internal controls are reviewed as part of our performance and accountability reports. Congress reviews and scrutinizes each of those reports. In addition, each department and agency has its own audit and its own inspector general, who comes up with a top 10 list [of management challenges] in every department every year. And I can assure you, if they're attesting to something that's not accurate, there may be more scrutiny than what one audit on internal controls could uncover.
When will we see a governmentwide consolidated financial statement?
I don't have a crystal ball, but in 1990, if we had not put out a goal of having a CFO and eventually having a clean audit in every department, we wouldn't now be able to aim for a governmentwide audit.
Finally, why have you stuck with it for so long?
Some people say I've got a hole in my head. But what keeps me coming back is the value I see for the American people in having committed managers who want to do the right thing. The magnitude of the decisions made in government daily, the complexity of the issues, and all the outside forces that come into play are unsurpassed by anything in the corporate world.