Internal checkbooks out of balance

Agencies are still having trouble balancing their internal checkbooks for interagency transactions. Although they’ve made some progress, agencies still often can’t figure out who gets the debit and who gets the credit when it comes to accounting for funds they exchange for services. The discrepancies in those balances prevent agencies from giving auditors reliable financial data, and as a result, the federal government annually fails to provide reliably accurate data in its consolidated financial statement. The Government Accountability Office has not assessed the governmentwide consolidated financial statement for 10 years in large part because agencies cannot match the way they account for intragovernmental activity, GAO Comptroller General David Walker said in the financial statement report from December 2006. “The Chief Financial Officers Council is aggressively working toward resolving the imbalance in order to restore the public’s trust in our ability to properly account, report and reconcile intragovernmental activity,” said John Cox, the Housing and Urban Development Department’s CFO and leader of the CFO Council’s Central Reporting Transformation Team.Agencies need to resolve those differences to unlock financial performance, said Danny Werfel, deputy controller at the Office of Management and Budget. He has been tapped to be acting controller when Controller Linda Combs leaves government Aug. 10. OMB has initiated a number of actions to break down those difficult transactions to develop a consistent governmentwide approach to handling them, Werfel said.“It’s some of our most important work right now on the intragovernmental front,” he said. “It’s a major subject at every CFO Council meeting.”To improve general financial management, OMB has increased the amount of documentation it requires from agencies, such as documents showing internal controls for financial reporting. Since OMB instituted the reporting requirements, agencies have cleaner audits, fewer major weaknesses and fewer improper payments — all indicators of improved financial management, Werfel said.“Where we stand is that we’re trending in the right direction on all the key metrics,” he said.The intragovernmental imbalances undermine agencies’ ability to know how much money they are spending and with whom they are doing business, Cox said.To identify and resolve differences in how agencies account for transactions, OMB and the CFO Council are setting up the Intragovernmental Dispute Resolution Committee for agencies that are unable to agree on a reconciliation approach and have exhausted other alternatives. Under the plan, agencies can enlist a committee of their peers to provide an impartial assessment and determine the right approach to resolving the imbalance, Werfel said. It should be operational by Sept. 30, Cox added. In addition, OMB and the Treasury Department have created an Intragovernmental High-Risk Watchlist. The agencies on that list will meet with OMB to explain the corrective actions they are taking to resolve any differences, Cox said.OMB and the CFO Council based the first watch list on agency balances in the second quarter of fiscal 2007, the period from January through March. The watch list will be distributed quarterly, he said.  “We can put some of our tougher imbalances we have between agencies on a screen at CFO Council meetings and say, ‘These are the ones we want you to prioritize your resources on,’” Werfel said. “In fact, we’ve been doing that for the previous three meetings. It’s had an effect.” Beginning in 2008, OMB will add a new requirement to audit procedures for agencies that have a long history of imbalances with another agency, Cox said. Auditors will focus on internal controls and the agency’s policies and procedures for accounting, reporting and reconciling the imbalances.  Cox’s workgroup at the CFO Council, which recently held its first meeting, will also look for ways to improve the business processes that can create or exacerbate the imbalances.Resolving those imbalances “is one of the major things we have to get over if we’re ever going to get a clean audit governmentwide, which is one of our goals,” said Combs, who said she will return to North Carolina this month. She has served in a variety of oversight and executive financial management positions for three presidents. Under her watch, 19 of the 24 major agencies have obtained clean audits. All major agencies have completed their year-end Performance and Accountability Reports and financial audits within 45 days of the end of the fiscal year for the past two years. Some agencies took five months to produce their reports before the deadline was accelerated. “The reason that the 45-day deadline is so meaningful is that it drove better management practices throughout the year,” Combs said.