Government Financial Management in a Time of Transition

1. Government Financial Management in a Time of Transition McCoy Williams Managing Director Financial Management and Assurance AGA Washington, DC Chapter and GWSCPA 7th Annual Conference May 7, 2008

2. Presentation Outline • Overview of changing environment • Fiscal sustainability issues • Opportunities for the accountability community

3. Overview of Changing Environment

4. Transitions at GAO • Jeff Steinhoff retired earlier this year after more than 40 years of government service. His contributions to the federal audit community were exceptional. • These are large shoes to fill and I look forward to working with the audit community, continuing GAO’s long-standing efforts in coordinating with professional organizations such as the AGA. • Following David Walker’s resignation as the Comptroller General, GAO will continue to work with the audit community under the leadership of Gene Dodaro, who previously led our Financial Management and Assurance team. He is well-positioned to provide continuity and leadership in this area.

5. Overview of 21st Century Changes • Fiscal environment has changed significantly • Homeland security takes center stage • Defense budget increases dramatically • Domestic needs remain to be resolved • Effective management is essential • Financial managers need to change with the times

6. Accountability Is Key • In this changing environment, achieving financial accountability becomes even more critical • A clean opinion is not the finish line but rather a byproduct of accountability based on sound controls and accurate, timely, and meaningful financial data • Important to maintain efforts to achieve the larger CFO Act goals • 19 of 24 agencies received clean opinions for FY 2007—up from 6 in 1996 • Work needed on key large departments

7. Impediments Related to the U.S. Government Consolidated Financial Statements • Serious, long-standing financial management problems at DOD • Inability to account for and reconcile intra-governmental activity • Ineffective process for preparing the consolidated financial statements

8. Positive Developments Related to the U.S. Government Consolidated Financial Statements • GAO issued first unqualified opinion on the fiscal year 2007 Consolidated Statement of Social Insurance. Covers some of the largest numbers in the federal government—tens of trillions of present-value dollars associated with future social insurance expenditures. • First-ever “Citizen’s Guide” was issued on February 14, 2008. Provides a user-friendly summary report of the 2007 Financial Report of the United States Government. Represents an important step forward in improving public understanding of the federal government’s true financial condition and fiscal challenges—both today and over the longer term. http://www.gao.gov/financial/fy2007financialreport.html

9. Fiscal Sustainability Issues

10. Aging of the Population

11. Federal Spending for Mandatory and Discretionary Programs 1966 1986 2006 Net Interest Discretionary Mandatory Source: Office of Management and Budget.

12. The Unsustainable Fiscal Path 2019 Full Medicare Part A benefits cannot be paid from taxes; financed by borrowing 2041 Full Social Security benefits cannot be paid from taxes; financed by borrowing 2029 Debt/GDP exceeds historical peak in World War II period 2017 Social Security benefits exceed taxes 2007 Medicare Part A benefits exceed taxes Deficit Outlays Revenue Source: GAO analysis.

13. Current Fiscal Policy Is Unsustainable • The “Status Quo” is not an option • We face large and growing structural deficits largely due to known demographic trends and rising health care costs • GAO’s simulations show that balancing the budget in 2040 could require actions as large as • Cutting total federal spending by 60 percent or • Raising federal taxes to 2 times today’s level • We cannot grow our way out of this problem • Tough choices will be required

14. Opportunities for the Accountability Community

15. Challenges as Opportunities • This challenging environment provides opportunities for financial managers • Value-added skills in areas such as financial analysis, performance metrics, and forensic auditing are key • The ultimate goal is having real-time, accurate information needed for day-to-day management

16. The Need for Good Governance, Transparency, and Accountability • Good governance, transparency, and accountability are critical to supporting a healthy economy and the efficient and effective administration and assessment of public policies • The accountability community has an opportunity and an obligation to help steer the course for the new administration in 2009 and beyond.

17. Be Forward Looking and Thinking • Look at how government does business day to day • Ensure managers routinely have timely, accurate, and useful information for managing operations • Value added and forward thinking activities include developing useful business metrics and demonstrating the impact of effective internal controls on mission effectiveness • One way to think of this role: we should be the headlights to guide our organization not the taillights looking back

18. Financial Managers as Leaders • Recent CG Forum on Financial Management Systems brought together leaders from the CFO, CIO, and IG communities as well as private sector experts • Emerging theme was the view that in order to remain relevant, accounting professionals must be willing to embrace change and identify ways to prove their value to the entire organization • Roles of the CFO and federal financial organizations need to be redefined (GAO-08-447SP)

19. Financial Managers as Leaders • Financial managers must be prepared to provide the tools needed to assist program managers in achieving the organization’s mission • Those with the better tools will find themselves with a seat at the table—side-by-side with agency leadership for the 21st century

20. Questions and Answers