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Comments on AICPA financial management proposal, November 22, 1989.

Comments on AICPA Financial Management Proposal

November 22, 1989

This is in response to your October 20, 1989, letter requesting Tax Executives Institute's support for a four-point plan proposed by the American Institute of Certified Public Accountants for the financial management of the federal government. Although we decline your invitation to participate in the AIRPA's December 11 colloquium on the report, we appreciate the opportunity to comment on the AICPA proposal.

Tax Executives Institute generally shares the AICPA goal of improving the financial reporting system for the federal government. As explained below, however, the Institute does have reservations about several aspects of the AICPA's proposal.

In a report prepared by an AICPA Task Force on Improving Federal Financial Management, the AICPA recommended the following:

* The appointment of a Chief Financial Officer (CFO) in the Executive Branch and a controller in each federal agency and department.

* The establishment of a Presidential Commission to recommend consistent accounting and reporting standards for federal agencies and departments.

* The preparation and publication of financial statements government-wide and by each federal agency and department.

* The annual audit of federal finnancial statements by independent auditors.

AICPA Task Force on Improving Federal Financial Management, Federal Financial Management: Issues & Solutions 58-59 (1989)(hereinafter cited as the "AICPA Report").

TEI shares the AICPA's concern that existing financial management practices of the federal government, if allowed to continue, may "undermine the credibility of government data used to discuss and define the true magnitude of the federal government's financial problems." See AICPA Report at 3-4. We also agree that rectifying these financial issues in any meaningful way will require enabling legislation.

The Institute generally supports the AICPA's four-point proposal as a rational and thoughtful starting point upon which a sound federal financial management program may be built. We remain concerned, however, about several aspects of the proposal.

The cornerstone of the AICPA's proposal is the appointment of a chief financial officer for the Executive Branch. TEI endorses the appointment of an Executive Branch CFO. We agree that financial management responsibility and authority within the government should be centralized; we agree that the CFO's term of office should be fixed and long; and we agree that the CFO's responsibility should be broad and direct. We have concerns, however, about two aspects of the CFO proposal.

First, the AICPA recommends that the CFO be appointed by the President with the advice and consent of Congress. AICPA Report at 58. We suggest, however, that it may be more appropriate to provide for approval by only the Senate. This procedure would be consistent with the manner in which other Executive Branch officials are confirmed.

Second, we question the AICPA recommendation that the CFO should report to both the President and the Congress. Consistent with the lines of authority delineated for other Executive-level officials, we believe further consideration should be given to whether the CFO should report only to the President, thereby making the CFO unmistakably an Executive Branch official. This is not to say that congressional oversight of the CFO's activities -- through the activities of the General, Accounting Office, the hearings process, or otherwise -- would be inappropriate, but rather only that such oversight should be in accord with existing processes and procedures.

TEI also has reservations about the AICPA's recommendation that a Presidential Commission be created to draft governmental accounting and reporting principles. AICPA Report at 59. We suggest that the appointment of a commission could serve to delay the implementation of financial reporting reforms. We further suggest that meaningful and uniform accounting and reporting standards could be more efficiently established by the CFO. Thus, in our view, the CFO would be best able to address the concerns that governmental financial accounting and reporting be "sensitive to the unique 'business' of the federal government ...." See AICPA Reports at 32.

Finally, TEI agrees that the financial statements of the federal government and all its departments and agencies should be audited in accordance with Government Auditing Standards. AICPA Report at 59. We must question, however, whether such audits need to be performed other than by the General Accounting Office. In other words, although the AICPA Report embraces a tripartite approach involving independent public accounting firms, as well as the Comptroller General and inspectors general (AICPA Report at 49), TEI believes that absent a demonstrable need the legislative authority and responsibility should reside with the General Accounting Office. (Obviously, the inspectors general would play a role in preparing the agency or department financial statements that would be subject to the GAO audit.)

Tax Executives Institute again commends the AICPA for undertaking such a far-reaching and fundamental project on government financial accounting. Although TEI declines to participate in your December 11 colloquium on the AICPA Report, we appreciate this opportunity to comment on the four-point financial management proposal.

If you have any questions about the Institute's position or need further information, please contact [William M. Burk] at (201) 894-2641, or Timothy J. McCormally, the Institute's Tax counsel, at (202) 638-5601.
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Author:Burk, William M.
Publication:Tax Executive
Date:Jan 1, 1990
Previous Article:Comments on pending Canadian income tax issues, December 20, 1989.
Next Article:Comments on proposed pay increase for government employees, November 16, 1989.

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