A FEDERAL CASE.
The federal financial arena has changed at an incredible rate during the last 10 years, and so has the role of the federal CFO. The most recent round of reforms started with the Chief Financial Officers Act of 1990 and continued with the Government Performance and Results Act of 1993. These two laws expanded an ever-increasing list of alphabet-soup acronyms (now numbering an even dozen) that require better control of financial processes and more accountability to Congress, the executive branch and the citizens of the United States.
Essentially, the responsibilities of private and public CFOs don't seem all that different. The U.S. Chief Financial Officers Council (www.financenet.gov) is an organization of the CFOs and deputy CFOs of the largest federal agencies, senior officials of the Office of Management and Budget and the Department of the Treasury, who collaborate to improve federal financial management. Its mission statement says, "We influence the future of the federal government through ethical and effective leadership; serve as a catalyst for constructive change to ensure the integrity of financial information needed for decision-making; and measure program and financial performance to achieve desirable results." Substitute "Company X" for "federal government," and it sounds like any CFO's job. But you really can't make that substitution, because the federal government measures results in a far different way than does the private sector.
According to Roger Scearce, former deputy director of the Defense Finance and Accounting Service (the finance and accounting services provider of the Department of Defense) and now a vice president with American Management Systems (a provider of financial management solutions to the federal government), the federal CFO is "the honest broker: the professionally-credentialled steward of the organization's resources," who provides the tools and financial information an agency needs to succeed in its mission.
Winds of Change
Bert Edwards is assistant secretary for the Bureau of Finance and Management Policy and CFO at the Department of State. Before that, though, when he was at Arthur Andersen, he co-authored a landmark 1986 study, "Sound Financial Reporting in the U.S. Government: A Prerequisite to Fiscal Responsibility." The preface says, "A lack of accountability caused by inadequate information can help produce a fiscal crisis." But there's more at stake than a potential fiscal crisis. "A democratic system," the study concludes, "derives its greatest strength from informed citizens free to express their views, That strength depends upon providing citizens timely and accurate information."
Before 1990, though, such information didn't always exist. There were no CFOs at most agencies, and little financial control. "There was no appreciation of the CFO's role in government," according to Bill Earle, assistant director and CFO of the Bureau of Alcohol, Tobacco and Firearms (ATF). "The United States had unprecedented prosperity during the 1980s," laments Edwards, "and we frittered away our future."
That lack of appreciation of the need for financial control changed with the passage of the CFO Act of 1990. Every large agency was required to have a CFO with proper financial management credentials, and to conduct business according to accepted accounting principles -- including the production of auditable financial statements. The CFO Act and regulations implemented since then have raised the value of the CFO in the government enterprise. As government is expected to be more accountable, the processes and procedures an effective CFO puts in place are critical.
Different Missions, Different Toots
There's no standard-issue uniform for federal CFOs -- even within a single agency. ATF, for example, is a cutting-edge organization with multiple missions. ATF protects the public by preventing violent crime while also collecting $12 billion a year in taxes on alcohol and tobacco. Earle, its CFO, says, "My role is that of resource, conscience and strategic entrepreneur." Earle also "takes the temperature" of the organization and reports to other members of the executive team about the overall health of the enterprise.
Size is another challenge for the federal CFO. Federal agencies are anything but small. If it were private, the State Department -- which supports the diplomatic corps and is responsible for the safety of U.S. citizens all over the world, yet spends less than 0.3 percent of the U.S. government budget -- would be number 234 on the Fortune 500 list. State has 23,000 employees, including 256 diplomatic missions overseas, 40 domestic missions and 12,000 properties worldwide, It also issues 13 million visas and passports every year.
And the Department of Defense, which supports the largest, most effective military establishment in the world, is even bigger. According to Deputy Secretary of Defense John Hamre, a former DoD CFO and comptroller, the Defense Department operates the eighth largest grocery store in the world, the third largest school system and the seventh largest hospital system, and is the world's largest provider of day care services. The DoD disburses about $25 billion per month.
"Keeping up with criminals is important work for the far-flung front-line workers at ATF," says Earle. "The financial management tools we use should be transparent to our employees, allowing them to concentrate on their mission while still providing the information we need to monitor costs." In Edwards' view, the tools also have to be "better, smarter, cheaper," since the citizenry doesn't like to pay for "nonproductive, back-office government."
The CFO in the DoD has a special challenge, according to Scearce, who's also a retired brigadier general. There are too many different financial feeder systems in the various military services' business areas that comprise the DoD, and it's essential, in his view, that there be a standard financial management process everyone follows. He's not suggesting the Armed Services consolidate, but is convinced financial information should flow in a way that allows better control and more uniformity across the department. "We should be singing off the same sheet of music," he contends, "and right now we're in different churches."
Is High-tech Bureaucracy an Oxymoron?
"Technology is a driver of change," says Joy Giordano, principal at American Management Systems. "Government has to respond to people's changing expectations in the Internet-driven, 24/7 e-commerce world." It's not easy, because government moves slowly, and the agencies also have to be sure they meet the accountability requirements of the roster of regulations with which they must comply.
Earle is clear about what he has to do at ATF to make progress. "We have to work closely with the people we regulate and have to perform at the best-practices level for the people we serve," he explains. "The CFO's role is to make sure that not only are technology costs controlled, but that value is added with any technological change."
The need to do more with technology is paramount for the finance office of the future. "Paper must go," declares Scearce -- and it's clearly on the way out. State already pays its employees throughout the world via electronic funds transfer. And it's aiming for a totally paperless system for every aspect of its financial operation within five years. ATF's new financial system provides for 100-percent electronic requisitions, credit card purchases, training requests and all payments. In addition, ATF uses electronic funds transfer to pay all its employees and 95 percent of its vendors.
But there are serious security problems that will have to be resolved before the government can realize this paperless future. Although the problems are similar to those in the private sector, they're complicated by the size of the government enterprise and the sensitive and personal nature of the information in its computer systems. Identification and validation of users to allow access -- not only to computer systems but also to the buildings that house them -- will be critical.
Outsourcing will be required in the future for all government activities and, used properly, will help the CFOs do their jobs more effectively. The Federal Activities Inventory Reform (FAIR) Act requires federal agencies to develop lists of federal jobs that could be outsourced to the private sector. The Department of Defense alone has a list of 504,000 jobs that could be outsourced, while government-wide the number is over 800,000 out of 1.8 million civilian employees. The use of commercial, off-the-shelf software instead of homegrown systems and partnering with the private sector will also help federal CFOs increase efficiency while decreasing costs.
The real improvements in federal financial management over the last 10 years have been driven by regulations. However, the current regulatory climate has a flavor-of-the-month quality that makes it difficult for federal CFOs to be effective. The regulations demonstrate little understanding of what CFOs need to do their jobs efficiently, focusing instead on what each monitor of financial performance would like to see.
The CFO Council, and its smaller subsidiary councils within agencies, undoubtedly will help to rationalize the sometimes-conflicting requirements. These groups have played an important role over the last decade, and should become more prominent in the future. The CFO councils are "grassroots organizations giving real-world, implementable advice," according to Earle. The federal CFO Council provided the leadership that produced the latest improvements in the core financial software certification process, for example. "They create real value," says Giordano.
Government CFOs have to relate the important work of their agencies to the public. That really isn't an issue in the private business world where the balance sheet tells the story. In the federal environment, though, it's not that easy. "It's frustrating," says Edwards, "to have political reporters rather than financial reporters covering stories like the issuing of government financial reports. If we could have balanced reporting, we could rely on the tremendous collective knowledge of the American people to understand what we're doing."
Today's federal CFOs recognize the contribution they make. But -- like their private-industry counterparts -- they have to be able to attract and retain talented, motivated financial professionals to continue their legacy.
"We have to be more innovative in our recruiting to get the best and the brightest to consider federal service," Scearce thinks. And Earle agrees. "We need to continue to attract people who consider this a 'calling,' and give them the tangible and intangible rewards that will make them stay," he says.
Marcia Dresner is a writer based in Silver Spring, Md.
William T. Earle
Assistant Director/CFO Office of Management, Bureau of Alcohol, Tobacco and Firearms (part of the U.S. Treasury Department)
Job description: Principal assistant to the director in planning and executing all the management support programs of the bureau, including financial management, personnel and position management, contracting and procurement, program measurement and improvement, administrative management and facilities management.
Prior experience: Joined ATF in 1971, serving in positions of increasing responsibility, including area supervisor (1977), chief of the ATF Academy (1980), regional director of Midwest Region compliance operations (1988) and deputy associate director of regulatory enforcement programs (1995). Retired Little League and soccer coach.
Education: Bachelor's degree, political science/geology, Rutgers University, 1967. MBA, Southern Illinois University, 1978. Also attended Brooklyn Law School.
Memberships: Financial Executives Institute, District of Columbia Chapter. International Association of Chiefs of Police.
Family: "Married 29 years to Diane, who has endured seven household moves and my chronic snoring to raise Jessica (a Secret Service special agent), Emily (in dental school), David and Jonathan (twins completing their first year in college) and Holly (a yellow Lab)."
Last book read: Letters from Yellowstone by Diane Smith. "It's a 19th-century look, from a woman's perspective, at what it might have been like to explore a new national park."
How the federal sector differs from private industry: "A CFO in the federal sector often has to manage annual budgets and reports to Congress as if he or she had a board of directors with 535-plus members. In my organization, I get a significant sense of accomplishment knowing I'm contributing to missions that make America a safer place."
Philosophy of business: "Conduct your professional life with the same principles that you rely on outside the office. For me, that's a combination of three core values: love, forgiveness and humor. Success is a function of wisely following these values. I also try to remember that I never learned anything by talking."
Biggest business challenge: "We've been moving governmental organizations from being paper-dependent to the dot-coin environment. This is a work process, but one where government can be innovative and provide leadership. The Internet, after all, is a product of the public sector. I see the transition to a government with less paper and the sharing of information as a function of restoring public confidence in government. Within organizations, CFOs are at the front end of that change."
Checks and Balances
CFOs the federal government have to follow the dictates of an ever-growing list of laws and mandates. Although they re designed to provide greater accountability for the federal agencies, meeting their sometimes conflicting requirements can be a challenge.
Debt Collection Act of 1982
Federal Managers' Financial Integrity Act of 1982
Chief Financial Officers Act of 1990
Cash Management Improvement Act of 1990
Government Performance and Results Act of 1993
Federal Acquisition Streamlining Act of 1994
Government Management Reform Act of 1994
Inspector General Reform Act of 1994
Accounting Standardization Act of 1995
The Federal Acquisition Reform Act of 1995
Federal Travel Disclosure Act of 1995
Federal Financial Management Improvement Act of 1996