Facilitating Change in Financial Reporting
Of the 24 Federal agencies required to prepare financial statements, only seven received unqualified opinions in 1998, an indication that the Federal government is a long way from achieving accurate and reliable financial reporting. Two of the major problem categories reported by the General Accounting Office (GAO) were internal control and accounting system weaknesses-when translated, that means opportunities for CPAs.

The quality of internal controls is determined by the ability of those controls to aide an organization in achieving its mission and to protect against risks. CPAs can help in four specific ways:

• identify risk in existing processes,
• evaluate the effectiveness of current controls,
• participate with management in designing improved processes with lower inherent risks, and
• construct controls which more effectively guard against faulty financial reporting.

Because managers are generally skilled in a specific area, they may not be acquainted with how their section of the agency contributes to the quality of the overall control structure. This is true particularly along the fringes, where one business area interfaces with another. Managers who focus on core processes may not see the larger picture, and CPAs can help management clearly understand the significant link between individual parts and the organization as a whole.

The old way of doing business relied on a vertical thought process, starting with identifying a primary function, such as payroll, and ending with creating one system to support that function. That must change. CPAs understand the financial impact of each activity and can introduce management to a matrix approach for system development. First, primary functions are clearly established, after which supporting processes are created with those that overlap being targeted for integration.

Using the matrix as a guide, management can design a single system to achieve most, if not all, of the entity's primary functions. For example, instead of a separate system for payroll, managers should think in terms of an information system that meets all of its needs. After showing management how each function of an organization passes through accounting to merge into financial statements, CPAs can convincingly demonstrate the benefit of using a central information system.

In this information age where data is a commodity in high demand, CPAs can bring a much-needed cohesiveness to the development of Federal information systems. Managers know what information they need to make decisions, programmers understand how to write program code, and system users know how to enter data and execute transactions. Nevertheless, it is the CPA who can bridge the gap among all three groups to help define management's needs, accumulate the required data and present the information in a meaningful format.

The bottom line for measuring performance is the ratio of a program's funding provided by Congress to the quality and quantity of the outputs generated by the program. Managers using traditional government approaches would create a process uniquely suited to performance reporting; however, CPAs can demonstrate that efficiencies can be achieved by accumulating pertinent performance data through the same mechanisms used by the entity for financial reporting.

The GPRA requires each agency to develop standards and indicators for measuring performance. Indicators are defined by events, such as loans made, audits conducted and customers served. Each event has a corresponding cost reflected in an accounting transaction or combination of transactions. CPAs can illustrate how to link accounting transactions to performance indicators so an entity can use accounting data to measure the quantity of outputs and the corresponding costs. Accurate accounting transactions also should closely match the date an event occurred and thus be useful for measuring timeliness.

For example, job costing is a common practice in private industry that is comparable to using performance indicators in government. Industry identifies how a job will be defined and measured, then while conducting routine accounting, allocates income and cost information to those jobs. Management uses the same accounting data for measuring job profitability, job completion and job quantity rates that is used for preparing financial statements.

As the Federal government tightens its purse strings, organizations cannot afford the luxury of operating disparate processes to accumulate essentially duplicate data. By targeting strategic areas of weakness and capitalizing on emerging legislative requirements, CPAs can facilitate improvements in process used by the Federal government to account for the resources of the American people. Opportunities are plentiful; the challenge for CPAs in government is to effectively use them.