AGA/ASMC David M. Zavada March 15, 2012

1. Emerging Issues in Federal Financial Management AGA/ASMC David M. Zavada March 15, 2012

2. Agenda • Federal Financial Management Now • Emerging Issues • My Perspectives

3. FM Status Report • Focused on Audited Financial Statements • Standards/Framework Developed • Improved Discipline and Control • Made it Harder to Do • Didn’t Focus on Making Operations/Reporting more Efficient, or • Making Reporting/Information More Meaningful • CFO Council/CIGIE Report July 2011 http://www.whitehouse.gov/sites/default/files/omb/financial/cfo-act-report.pdf

4. Summary of FY 2011 Audited Financial Statement Results by Agency .

5. Current Environment • The Budget • L-T issues, S-T pressure, sequester, political gridlock • Driving/Pushing Federal FM to the Next Phase • Greater Demand for • Reliable Information • Decision-Support Information • Identification of Efficiencies • Challenge: Having the Capacity to Respond • Maintaining Disciplines/Financial Integrity • Financial/Analytical Skills • Information/Systems/Business Intelligence • Many Focused Requirements

6. A New Phase • Moving Into a New Phase of Federal FM • Value and Efficiency are Key • Technology – Broader/Quicker Access to Information • Can’t Take our Eye off the Ball

7. Emerging Issues • Lower Cost more Capable Financial Systems • More Efficient and Effective Risk Management • Building CFO Capacity • Refining Financial Reporting • Developing, Reporting and Using Cost Information • Oversight that Drives Positive Change • Reducing Improper Payments • Audit Readiness at DoD

8. Lower Cost More Capable Financial Systems • Issue Evolving • Costly Failed Projects • Frustration: Management, Capabilities, Information Access • OMB Oversight - - Where the $$s Are • Smaller, More Defined Project Elements • Centralized Streamlining/Standardization • Treasury’s OFIT, FMS GTAS, CARS • Agency Data Warehouses/Business Intelligence • Leadership/Government-wide Vision

9. More Efficient and Effective Risk Management • A-123 Appendix A Implementation a Success • More Efficient and Effective Governance, Risk and Compliance Framework • Better Integrated/Efficient • More Proactive – Risk/Timeline/Preventative Controls • More Broadly Applied

10. Achieving Greater Value and Efficiency A-123 Assessment Process • Integration/Efficiency • Greater integration with: • Financial audit • Improper payment assessments • FISMA IT assessments • Other program reviews • Corrective action plans • Streamline internal controls More Efficient and Effective Risk Management • Risk Assessment • More robust risk assessment • Utilizing all available information • Addressing risks proactively before problems occur (i.e., do not pay list) Phase 1: Planning and Scoping Phase 2: Understanding and Documenting • Program Integrity and Effectiveness • Apply assessment methodology to program mission/objectives • Understanding program risks • Structuring solutions/corrective actions • Improving program outcomes Phase 3: Testing and Evaluation Phase 4: Remediation and Reporting

11. Preventative Controls/ Predicative Analytics (Courtesy of Recovery Operations Center) INPUT SYNTHESIS OUTPUT Target Lists Data Matching Risk Models Risk Mapping Referrals to IGs Fusion Centers OIG Offices Hotline RFAs Resource Mgt Analysis Screening

12. Building CFO Capacity • More Strategic Thinking • Demand Increasing Decision Support Information • Budgetary/Costs/Performance • Enhance Analytical Skills – Blended Workforce/Retirements • Business Intelligence/Leveraging Technology • Operations, Reporting and Compliance Needs to be Routine/Efficient • Away from Compliance Stovepipes • Shared Service Centers/Cloud/Technology • Streamlined Processes and Controls • Financial Integrity/Internal Controls/Discipline

13. Refining Financial Reporting • Wide Spectrum of Financial Information Reported • Users and Their Needs are Not Well Defined • Need to continually ask Why and Who is Using? • Financial Statements – Underlying Benefits • Opportunities for a Second Look (+/-) • Asset Valuation/Grant Accrual/Credit Footnote • Statement of Spending/Budgetary Information • Audit Assurance • Data Integrity/Consistency Questions

14. Developing and Reporting Cost Information • Growing Need and Expectation for Cost Information • Area where CFO Act Implementation Fallen Short • Only Isolated Areas Within Government • FASAB Standard Since 1995 • Would Additional Reporting Help?

15. Oversight that Drives Positive Change

16. Oversight that Drives Positive Change • A Powerful Tool to Drive Positive Change • Not Just a Distraction • Recovery Act Oversight Model • Innovative approach • “Prevention-Oriented” oversight • Risk advisory reviews • Early transaction review/audit/data mining • Ongoing communication of results with management

17. Reducing Improper Payments • Improper Payments - Estimated to be > $100B • Reduction Targets $50 B/$2 B Recovered by 2012 • Focused Problem • Good Things - - “Do Not Pay List”, etc • Measurement Issues/Definitional Issues – Improper Payment v Documentation/Control Problem • IPERA Compliance Audits • IPERA of 2010 - Separate Opinion on Internal Control

18. Reducing Improper Payments

19. Audit Readiness at DoD • 2014 Accelerated Goal for SBR • Budgetary Information – Most Used • Focused Multi-Year Effort Underway • Coast Guard Lessons Learned • Leadership • Embracing the Audit • Sustained Focus on What’s Important • Complex, Unique High Volume Environment • Greater Awareness and Understanding of the Audit

20. What Does it Mean to Be Audit Ready? • Leadership Understands Commitment of Time and Resources (Especially in Mission Areas) • Understand that a Financial Audit is a Structured Process • Key Financial Processes/Controls are Identified, Documented and Operating Effectively • Reconciliation are Performed…and Done Timely • An Audit Trail Exists from Financial Statements back to Underlying Accounting Transactions • Journal Vouchers are Minimized and Supported • Supporting Documents are Readily Available

21. Commerce OIG Flash Reports(Courtesy of Commerce OIG) Flash Reports Commerce Experience with Past Relief and Initiatives. Best Practices and Lessons Learned on How to Balance Expediency with Accountability (ARR-19692) NTIA Should Apply Lessons Learned from Public Safety Interoperable Communications Program to Ensure Sound Management and Timely Execution of $4.7 Billion Broadband Technology Opportunities Program (ARR-19583) http://www.recovery.gov/News/press/Documents/ARR-19583_for_recovery.gov_.pdf

22. Kearney & Company Technical Resources dzavada@kearneyco.com http://www.kearneyco.com/