Restructuring the Federal Financial Management Operation   12/12/2011

Corporate and public sector (federal, state, and local government) accounting office needs are one and the same when it comes to generating accurate, timely, and user-friendly financial statements. Those public sector needs include the following six basic requirements: (1) A government version of the Sarbanes Oxley Act of 2002 and real whistleblower protection legislation, (2) Transition from the AICPA’s deficient non GAAP-based public sector accounting standard to a single GAAP-based standard that integrates government accounting and budgeting processes and generates accurate financial statements, from a single trial balance, (3) Upgrade all Office of Personnel Management (OPM) accountant, Office of Inspector General (OIG) auditor, and information technology (IT) position standards on a par with the private sector, (4) Insulate the government’s technical accounting and financial systems operation(s) from the political whims of each incoming administration’s politicians, (5) Restructure the Central Agencies and their Department of Defense (DOD), Federal Reserve (FR), Office of the Chief Financial Officer (OCFO) and all department, bureau, and agency accounting offices to include these upgraded OPM accountant and IT position standards, and (6) Create and maintain an open dialogue with the government’s Central Agencies, DOD, FR, OCFO, and (any other) professional accountant and IT managers, college accounting / IT professors, and federal unions. 

The remainder of this section contains a brief narrative of each of the above requirements and the suggested steps for transitioning the government’s collapsed federal financial management infrastructures into corporate-style accounting office organization structures with clean lines of authority and responsibility. There is no reason why the federal government cannot cut its’ financial management bureaucracy by 50% (starting at the top), eliminate its self-imposed reliance on financial management contractors, and generate standard GAAP-based public sector financial statements within a reasonable timeframe; this assumes complete cooperation from the executive, legislative, and judicial branches of government. Those suggested steps and brief narratives are as follow:

(1) A government version of the Sarbanes Oxley Act of 2002 and real whistleblower protection legislation

In the past, Congress passed accountability legislation like the Chief Financial Officer (CFO) Act, Government Management Results Act (GMRA), Federal Managers Financial Integrity Act (FMFIA), and other legislation that provided some semblance of order within the federal financial management community. With the Republican’s executive branch (October 1987) outsourcing of all inherent financial management responsibilities to their financial management contractors (AICPA firms, financial software companies, and management consulting firms), those pre-October 1987 congressional rules and regulations became meaningless.  The executive branch strategies they used for implementing this (and other) outsourcing agenda(s) included weakened (financial management) infrastructures and blatant violations of the constitution, Congress’ accountability legislation, False Claims Act, No Fear Act, perjury, and doing whatever it took to implement those failed political agendas. An equally deficient and self-serving Congress, Democrats and Republicans, allowed unfettered assaults on any professional accountant and OIG auditor that questioned these Republican executive branch lawbreaking tactics. The net result is that, today, 24 years after the fact, billions and trillions in waste, the government’s financial management infrastructures have collapsed and all government financial statements consist of nothing more than manually manipulated Excel spreadsheet totals.  This is despite the rosy and unsubstantiated scenarios portrayed by the current and former Comptroller Generals of the U.S., Gene Dodaro and David Walker, and the government’s former accounting clerks (now GS-13, 14, and 15 accountant and OIG managers).

The Obama administration, Congress, and successive administrations have a fiduciary responsibility to the American people to provide an accurate accounting of the taxpayer’s money and an end to the on-going games of all three branches of government. This effort must begin with an upfront and coordinated effort to pass and enforce a government version of the Sarbanes Oxley Act of 2002 (as outlined in the NAWBC website, Home Section) and real whistleblower protection legislation.

(2) Transition from the AICPA’s deficient non GAAP-based public sector accounting standard to a single GAAP-based standard that integrates government accounting and budgeting processes and generates accurate financial statements, from a single trial balance

As background information, realize that government politicians, Democrat and Republican, empowered the AICPA to oversee two deficient non GAAP-based public sector accounting standards, one for the federal government and yet another for state and local governments. The federal standard is overseen by the AICPA and political appointees within the federal accounting standards advisory board (FASAB). The state and local standard is overseen by the AICPA and political appointees within the state and local government accounting standards board (GASB); GASB is not discussed in this section. 

The AICPA’s / FASAB’s non GAAP-based public sector standard consists of two independent and irreconcilable budgeting and accounting processes that prevent an accurate accounting of the taxpayer’s money. The AICPA’s / FASAB’s budgeting portion of that non GAAP-based standard relies on 4 digit budget object class (BOC) codes to record the government’s trillions in assets and expenses; large corporate accounting offices, like General Motors, could never track its assets and expenses with a 4 digit code and neither can the federal government. To exacerbate and confuse matters even more, the AICPA’s / FASAB’s non GAAP-based standard also uses accountant general ledger accounts (GLA’s) in each of their journal entries to record those same asset and expense transactions, again. Recall from the brief discussion in the NAWBC website, Home Section, that accounting offices use journal entries to record myriad types of transactions, including assets and expenses. Then, all journal entries are summarized in a trial balance, and if the accounting process is GAAP-based, all financial statements are generated from that single trial balance. But why would professional AICPA firms insist upon using conflicting 4 digit BOC codes and GLA codes to record the government’s assets and expenses, twice? Maybe their Republican sponsors and members of Congress, Democrat and Republican, were easily hoodwinked into using these lame processes but surely their financial management contractors knew better! This single example highlights the folly of the Republican’s deregulation and outsourcing political agendas, especially when they had to weaken the government financial management infrastructures to hide all levels of gross incompetence, corruption, and billions and trillions in taxpayer waste. Then there is the issue of culpability by a few very powerful Republicans (former Presidents and Vice Presidents), political appointees, their former accounting clerks, and financial management contractors for knowingly providing services of no value, in violation of the False Claims Act, and then covering up that fact, ever since October 1987.

Designing, testing, and implementing a single public sector GAAP-based standard that integrates government (federal, state, and local) budgeting and accounting processes is not rocket science. It is simply a matter of adapting the AICPA’s existing GAAP-based private sector accounting standard (and formulas) to fit government’s unique budgeting and accounting needs. Integrating the government’s budgeting and accounting processes is easily accomplished by replacing the government’s 4 digit BOC asset and expense codes with the accountant’s general ledger account (GLA) asset and expense account(s) at the time this data is entered into the financial software. The logic for this change is that, now, the GLA asset and expense account number records both: (1) Congress’ budgeted (asset and expense) amounts of each DOD, FR, OCFO, and all department, bureau, agency, and program office budgets at the start of each fiscal year, and (2) Then, the DOD, FR, OCFO, and all accounting offices process accounting-related transactions, via accounting journal entries, that track those budgeted asset and expense items during each phase of the accounting cycle [procurement, receipt of goods/services, payment, and expenditure (or consumption)], cradle to grave. Now, there are no longer two divergent budgeting and accounting processes, as in the AICPA and FASAB process, but a single GAAP-based public sector standard that integrates the government’s budgeting and accounting activities in a single set of “standard” public sector -style financial statements. A scaled down version of the public sector GAAP-based standard appears in the Taxpayers for Government Accounting Reform (TGAR) website, http://www.tgar.org.

The remainder of this document contains suggestions for transitioning the government’s broken financial management infrastructures into corporate-style accounting offices. The benefits are many and include the elimination of the monumental taxpayer cost of retaining both these unqualified accounting clerk managers and self-serving financial management contractors.

(3) Upgrade all Office of Personnel Management (OPM) accountant, Office of Inspector General (OIG) auditor, and information technology (IT) position standards on a par with the private sector.

Corporate accounting offices could never survive with the government’s cadre of unqualified accountants, IT, and Office of Inspector General (OIG) auditor staff and managers and neither can the federal government. The first step to rebuilding these executive / legislative branch-sponsored weakened financial management infrastructures begins with an upgrade to the Office of Personnel Management (OPM) positions standards for all (GS-7 thru GS-15) accountant, IT, and OIG auditor position standards; those OPM standards should include minimal 4 year college degrees in those respective accountant and IT disciplines. The Office of the Inspector General (OIG) auditors (like the private sector auditors) should also be independent of all political and budgetary pressures in order to better ensure an accurate and unbiased audit opinion. 

(4) Insulate the government’s technical accounting and financial systems operation(s) from the political whims of each incoming administration’s politicians.

There is no point in going through a government-wide federal financial management restructuring effort unless upfront steps and precautions are taken to prevent these same financial management infrastructure weaknesses from occurring in the future. The first step, as mentioned in item 1 above, begins with a coordinated effort by the executive, legislative, and judicial branches to pass and enforce a government version of the Sarbanes Oxley Act of 2002 and real whistleblower protection legislation, ASAP. The second step includes a government-wide financial management restructuring effort that insulates the professional career service (GS-7 thru GS-15) accountants, OIG auditors, and IT staff and managers from the political whims and deficient guesses of each incoming administration’s politicians, Democrats and Republicans.

This second step that insulates the government’s financial management infrastructures from the political and self-serving whims of each incoming administration includes the following 4 part strategy: First, eliminate the time honored political tradition of allowing incoming administrations to appoint Executive Schedule (EX) political appointees to fill each of the Central Agencies, DOD, FR, OCFO, and all Chief Financial Officer (CFO) accountant positions. These overpaid, politically astute, and technically unqualified CFO’s contribute nothing to resolving the federal government’s on-going and technical accounting and IT problems. Each incoming administration’s technical problems are simply covered-up and passed on to the next incoming administration’s equally inept political appointees with the end result of continually replacing accountant whistleblowers with more politically astute non-accountants. Second, create a permanent career service (non-political) CFO position with strong managerial experience and credentials in both the accountant and IT fields. In other words, each of the CFO’s that fill the Central Agencies, DOD, FR, OCFO, and all accounting-related positions must have a certified public accountant (CPA) certificate, and complimentary experience in the IT field. This is necessary in order to allow GAO (and the Comptroller General of the U.S. and his / her staff) to oversee the design, testing, and implementation of the government’s public sector GAAP-based financial software that will be used within each of the DOD, FR, CFO, and all accounting offices. Unlike the past, complete and detailed documentation supporting both the government’s GAAP-based public sector accounting standard and its financial software specifications must include flow charts, and detailed explanations of that documentation that must be maintained (and kept current). Also, just as college accounting classes provide courses associated with the AICPA’s private sector GAAP-based standard, colleges should also provide courses on the public sector’s GAAP-based accounting standard in order to ensure the highest qualified government accountants. Third, eliminate all senior executive service (SES) political appointee accountant and IT-related positions within the Central Agencies, DOD, FR, OCFO, and all government accounting offices. Again, these agency-level political appointees contribute nothing to resolving the government’s technical accounting and financial system problems. Fourth, insulate the newly created professional career service (and non political) CFO position and his/her professional accountant and IT staff and managers (GS-7 thru GS-15) within the Central Agencies, DOD, FR, OCFO, and all accounting offices from the political whims of each incoming administration’s Executive Schedule (EX) political appointees. 

(5) Restructure the Central Agencies and their Department of Defense (DOD), Federal Reserve (FR), Office of the Chief Financial Officer (OCFO), and all department, bureau, and agency accounting offices to include these upgraded OPM accountant and IT position standards,

Once step 3 (above) has been completed and the federal government’s OPM accountant, IT, and OIG auditor position standards have been upgraded, the next step is to replace those former accounting clerks and non-accountants with managers who meet the federal government’s upgraded OPM position standards. A good first step in finding qualified candidates to fill these positions begins within the federal government. This is because during the Republican’s (and now the Obama administration’s) purge of professional accountants and OIG auditors many of these professionals were forced into non accounting-related program offices. All other professional accountant, OIG auditor, and IT professional positions would be filled by hiring new professionals.

(6) Create and maintain an open dialogue with the Central Agencies, DOD, FR, and OCFO professional accountant and IT managers, college accounting professors, and federal unions

Restructuring an entire federal financial management bureaucracy is obviously no small feat. That is why there must be strong legislation and support from both the executive and legislative branches to clearly define and support each of the above five items within the Central Agencies, DOD, FR, OCFO, and all government accounting offices. Assuming this level of support, the following suggested Central Agencies, DOD, FR, OCFO, and all department, bureau agency responsibilities should occur concurrently to speed up the government-wide financial management restructuring effort as much as practicable, as follows:

  Central Agencies (OMB and GAO) / college accounting & IT

 Professors

OMB is responsible for overseeing the federal government’s department, bureau, and agency budgets, as in the past, using accountant general ledger accounts (GLA’s), instead of the 4 digit BOC codes. This modification promotes: (1) a public sector GAAP-based accounting standard that integrates the government’s accounting and budgeting processes, and (2) a more accurate identification and accounting of the government’s assets and expenses by using general ledger accounts (GLA’s) with more than 4 digits; the number of digits and their configuration should be patterned after large corporations. OMB, GAO, and Treasury is responsible for the design, testing, and implementation of a GAAP-based public sector accounting standard that has application within the federal (state and local) government. I offer my government accounting prototype (GAP) and GAAP-based public sector model that I completed in the mid 1980’s, http://www.tgar.org, as a starting point to begin this process. To the best of my knowledge and ability, this model is technically correct. The quickest way to test the accuracy of GAP is to make my copyrighted material (which I authorize for government use only) to colleges, and anyone (except contractors) to cut-up, dissect and do whatever is necessary to produce a GAAP-based public sector model, ASAP. Upon satisfactory testing of a GAAP-based public sector accounting standard and financial software model, the necessary supporting documentation to explain this model can be completed and this information made available to DOD, FR, and OCFO accounting offices and state, and local government accounting offices, alike.  

DOD, FR, and OCFO user agencies

The non-political CFO’s (and CPA’s) and their professional accountant and IT staffs are charged with the following five responsibilities: (1) work with the former accounting clerk manager and his / her staff for a period of 3 to 6 months to gain a working knowledge of their current operation, (2) review the qualification of each of the staff and work with Health and Human Services and the federal union to determine whether or not each individual meets the upgraded 4 year college degree requirement for the accounting and IT field, (3) review existing organization structure(s) within his / her accounting office, (4) work with both OMB, GAO, and Treasury non-political CFO’s in determining standard corporate accounting office organization structures with clean lines of authority between the accounting and IT offices, and (5) work with the Central agencies in reviewing and critiquing the public sector GAAP-based standard in discussing the best (and standard) general ledger account (GLA) code structure that will be used government-wide. Large corporate accounting office procedures should be reviewed to determine the best and most optimal configuration possible of theie asset and expense GLA structures.

Unlike the past, the GAAP-based public sector that is decided upon should be tested before the DOD, FR, OCFO, and all accounting offices have access to these processes. For expedience sake, many of these accountant and IT processes can occur concurrently (not discussed in this brief summary).