The Chief Financial Officers (CFO) Act of 1990 requires the DoD to produce private sector-style financial statements that can win unqualified opinions from auditors. After many years of effort to comply, the department is now projecting that its balance sheets will not be ready until 2017 and is unable to predict when its income statements will be ready. Given that discouraging situation, combined with the increasingly widespread realization that external financial statements are of no practical use for internal management, the question arises whether it makes sense for the DoD to continue its pursuit of “CFO compliance.”
The Financial Systems Integration Office, the federal office that manages the Financial Management Line of Business, will stop testing and certifying federal financial systems on March 31.
In a letter posted to the Office of Management and Budget website March 16 OMB controller Danny Werfel said OMB will “develop the new path for financial systems in the Federal government.”
With a planned March 31 update to core financial systems requirements, “we believe that FISO has finished developing FMLoB business process and data standards as it related to its mission,” Werfel wrote. “In response to these challenges, we have reassessed the need for the core financial systems testing and product certification program and will be discontinuing this function,” he added.
The FMLoB has been an effort to consolidate financial systems within the government, with four federal agencies and private sector organizations acting as centralized service centers to other agencies.
For example, the Interior Department’s National Business Center hosts financial systems and business operations for external executive branch organizations, and a few legislative branch organizations.
The General Services Administration might have caused agencies to inadvertently break the rule restricting the use of one fiscal year’s funds for services rendered in another.
In a report dated Sept. 13, the GSA inspector general says the agency’s HSPD-12 managed service office set up an interagency agreement for other federal entities to purchase private sector support in implementing the homeland security presidential directive, which requires standardized identity cards for government workers.
The GSA office has treated HSPD-12 support as a “nonseverable” service, meaning that GSA said the value of the service depends on a discrete outcome, such as is the case with a research project. With a nonseverable service, the benefit of the service isn’t realized until the project reaches completion.
However, the Government Accountability Office (.pdf) last December that the HSPD-12 services in question are in fact “severable.” That is, they are recurring in nature, which means that the value of the service doesn’t depend on a single outcome as with a research report, but is realized periodically through the life of the service contract. Other examples of severable services include janitorial work and help desk support–the value of the service contract is incrementally realized every time a bathroom floor gets mopped.
The difference between “nonseverable” and “severable” matters because of something called the bona fide rule of federal spending, which is meant to uphold the part of the Constitution that prevents federal agencies from spending money without congressional approval. The bona fide rule states that a federal agency can spend money tied to a particular fiscal year only for needs which it has during that current fiscal year. That is, agencies must have a sincere (a bona fide) reason for spending current fiscal year money, the sincerity (the bona fideness) measured by its current, not future, needs.
For future needs, Congress demands the right to evaluate their legitimacy via an annual appropriations bill. The bona fide rule should make it impossible for a federal agency to use funds appropriated this fiscal year for something it won’t need until the next fiscal year.
However, agencies are allowed to fully fund nonseverable service contracts with current fiscal year appropriations, even if their outcome will occur in future fiscal years. They are also allowed to fund severable service contracts with current fiscal year funds for a period of up to 12 months, even if that 12 month period crossed the federal fiscal year, which starts every Oct. 1. (We are in the final weeks of fiscal 2010.)
However, the 12 month rule for severable services also means that a contract for them cannot be open-ended with respect to the period of performance–exactly as the GSA interagency agreement was constructed, the GAO found. GSA officials told the GAO they consider HSPD-12 services to be nonseverable because each card has a life cycle consisting of a bundle of tasks, none of which would have value standing alone. However, the GAO ruled otherwise, stating that the services purchased via the GSA interagency agreement consist of two discrete undertakings–production of HSPD-12 identity cards, and maintenance of the cards. The latter is a severable service, the GAO said.
-David Perera, FierceGovernmentIT.com
WASHINGTON, D.C. (July 28, 2009) – Reporting that broad restructuring
is urgently needed, the U.S. Government Accountability Office (GAO)
today added the financial condition of the U.S. Postal Service (USPS) to
its High-Risk List of federal areas in need of transformation.
“There are serious and significant structural financial challenges
currently facing the Postal Service. New technology is profoundly
affecting services in both the private and public sectors, including
traditional mail delivery. Compounded by the current recession, the
volume of mail being sent is dropping substantially, leading to a
sizeable decline in revenue. At the same time, the Postal Service faces
significant infrastructure and personnel costs,” said Gene L. Dodaro,
Acting Comptroller General of the United States and head of the GAO.
“The Postal Service urgently needs to work with Congress and other
key stakeholders to develop and implement a restructuring plan to help
put it on a more sustainable financial path. By adding the U.S. Postal
Service’s financial condition to the High-Risk List, we hope to bring
attention to the agency’s financial viability and its ability to
provide sustainable, affordable, high-quality mail service,” Dodaro
Mail volume fell by 9.5 billion pieces in fiscal year 2008 to a total
of 203 billion pieces and is projected to fall by 28 billion pieces in
fiscal year 2009 to a total of 175 billion pieces. USPS expects mail
volume and revenue to continue declining next year, and flat or
continued volume decline over the next 5 years. USPS projects a net loss
of $7 billion this fiscal year, with outstanding debt increasing to over
$10 billion, and a cash shortfall of about $1 billion. USPS also expects
that its projected losses will continue in fiscal year 2010.
USPS has relied on growth in mail volume to help sustain its
operations, a strategy that has enabled it to remain self-supporting.
During the past decade, however, businesses and consumers have
increasingly turned from traditional mail delivery to electronic
communication alternatives. Mail volume has bounced back after past
recessions, but USPS’s forecast suggests that may not be the case this
time as more and more postal customers embrace electronic options.
To remove its financial condition from the High-Risk List the Postal
Service needs to undertake a number of major structural changes, Dodaro
said. In the short term, a key challenge is to cut expenses quickly
enough to offset mail volume and revenue declines to avoid running out
of cash to pay its expenses. In the long term, USPS should consider
consolidating operations, closing unneeded facilities, and reducing its
workforce to reflect new trends in mail use. It has been slow to cut
overhead costs to offset volume declines and continues to maintain an
infrastructure of about 38,000 facilities nationwide. The Postal Service
should also explore opportunities to increase revenue. Congressional
support for these actions will be crucial, Dodaro added.
The government should adopt web-based financial reporting and establish a central website for the public distribution of federal financial information, panelists urged a House panel Feb. 16.
“Financial reporting information needs to switch from a paper-based, static reporting model to more electronic, dynamic and readily available online availability,” said Jonathan Breul, executive director of the IBM Center for the Business of Government. Breul testified before the House oversight and Government Reform government organization, efficiency and financial management subcommittee, chaired by Rep. Todd Platts (R-Pa.).
Breul, along with panel member Mike Hettinger, an executive director at Grant Thornton, assisted with a(.pdf) commissioned by the Federal Accounting Standards Advisory Board on improving the relevancy of the annual consolidated financial report of the federal government. Among the 10 recommendations were calls for replacing paper-based reporting with electronic measures and establishing a public website.
Electronic reporting “is essential if we are to move in the direction of improving the availability and transparency of government information,” Hettinger said.
-David Perera, FierceGovernmentIT.com
AGA’s Financial Management Standards Board (FMSB) has issued a comment letter to the Governmental Accounting Standards Board (GASB) on its exposure draft of a proposed statement on
-Sean McCalley, FederalNewsRadio.com