Financial Management: Providing a Foundation for Transition - AGA

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24Financial statements and audits: a closer lookExecutives in our survey stressed that unqualified orclean auditor opinions on financial statement shouldbe a by-product of good accounting that supportsprogram management. However, even after yearsof clean opinions, an entity can receive qualified ordisclaimer opinions, which can be a career-enderfor a CFO. One reason this may happen, say someexecutives, is because GAO and IGs keep changingthe rules and auditors are inconsistent in applyingthem. We asked executives where they thought theyshould focus attention in order to gain clean auditopinions in FY 2009 through 2011. Their responsesapply mainly to their own entities, but taken togetherthe results shown in Table 4 offer some guidance tonew CFOs and financial executives.Table 4:Executives’ opinions on where a CFO should focus attention toobtain or sustain a clean opinion on annual financial reports,ranked in order of importanceInitiative1. Financial statement audit readiness2. Account reconciliations3. Internal controls over financial reporting (Appendix A)4. Internal controls over program efficiency and effectiveness(Section 2)5. Property, Plant and Equipment6. Internal controls over information technology (Section 4)7. Compliance with government mandates8. Intragovernmental transfers9. Liabilities10. Decision support informationAudit readiness refers to preparing an entityand its financial statements, systems and proceduresfor the annual audit of the CFO Act financialreport. Executives report that their work onA-123 has improved their audit readiness, bothfor the annual financial report and other reports.Now, many are looking to combine the workof preparing their various finance and controlsrelatedreports.Account reconciliations include basic reconciliationsto the fund balance with Treasury,insufficient set of tools to perform accountreconciliation activities, lack of systemsintegration and lack of standard expenditurecategory definitions.Internal control issues will continue todominate the financial management and auditlandscapes in the near future, says an executive.Others say that controls over systems havebecome much more important as they automateprocesses. In addition, considering theBabyboomer retirement wave, now is the righttime to document processes and work oninternal controls.Property, Plant and Equipment (PP&E)remains problematic for some entities. PP&Egenerally includes buildings and structures, furnitureand fixtures, equipment, vehicles and land.Valuing and accounting for what the governmentowns can be time consuming, and some questionthe value of doing so. Says an executive,“Is it any value to know the depreciation valueversus the replacement value of a governmentownedbuilding? Depreciation is a tax benefitfor for-profit concerns. The replacement value isimportant for government management purposes,so why not audit it? That would enhance thereliability of budget estimates.” Other examples,
25say executives, include trying to put a value ona historic monument that will never be sold orrequiring periodic valuation of warships.Reconciling intragovernmental transfers is mademore difficult by a lack of clear guidelines fromthe Treasury, say some respondents. Together,PP&E and intragovernmental transfers may bethe biggest current barriers to gaining a cleanopinion for the U.S. consolidated financial report.Liabilities are of major concern to the FederalGovernment, including environmental cleanupcosts. Grant makers are concerned, because grantaccrual methods can be opinion busters andtypically involve a great deal of conversation withauditors and grantees, says an executive.Decision support is not exactly at the bottomof the priority focus list (some items not listedranked a bit lower), and the question posed inTable 4 is about annual financial reports, notmanagement accounting. Still, it seems a pitythat the current model for federal financialstatements does not motivate CFOs to make thehighest and best use of financial information atop concern. We will discuss this shortly.Working with auditorsThree out of four executives think that theapproach that financial auditors take today influencescontrols and accountability mechanisms inways that add value to the management of government(see Figure 3). It is all about communicationand transparency, say many executives. Their topsuggestion for a successful audit is to have early,frequent and focused meetings with auditors and tofully disclose issues and potential risks with them.Early, because if auditors come at mid-year, asthey often do, then issues they identify will bedifficult to fix by the end of the year. Frequent, inorder that all parties stay on track throughout theaudit cycle. Focused, to prevent “fishing expeditions”should auditors go outside the scope oftheir charge. Full disclosure, to inspire trust andavoid surprises to either party.Figure 3:Opinions of executives on whether theapproach used by federal auditors addsvalue to government management75%Yes25%NoEducate auditors about the mission and operationsof an entity, say several executives, andmake sure that they are on board with theorganization’s vision and goals. If auditors askfor something, give it to them (but talk to theaudit manager if a request does not make sense).Always talk to the IG about risks (hopefullythroughout the year) and get IG and auditorinput on plans to mitigate risk and beforemaking accounting changes.Several respondents advised preparing a memorandumof understanding with an agreed-uponscope for the audit, then tracking the auditclosely to keep it in scope. This is not as mucha problem when the auditor is an independentpublic accounting (IPA) firm on contract to an
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Page 4 and 5: 2Table of contentsAbout the Associa
Page 6 and 7: 4Road to transformationReviewing th
Page 8 and 9: 6government decision making. From t
Page 10 and 11: 8Positive opinions on A-123When the
Page 12 and 13: 10more likely to add value to opera
Page 14 and 15: 12• Better guidance and clearer r
Page 16 and 17: 14Cost/benefit analysis and targete
Page 18 and 19: 16• Many executives say their peo
Page 20 and 21: 18Some CFOs report success in reduc
Page 22 and 23: 20SystemsSurvey respondents listed
Page 24 and 25: 22the top of those that they want c
Page 28 and 29: 26IG office, as it is when the audi
Page 30 and 31: 28ConclusionDesign by www.sparkdesi
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Financial Management: Providing a Foundation for Transition - AGA

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