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  Daily Briefing  

October 26, 1999

Agencies prepare first-ever annual reports

By Brian Friel

For the first time, federal agencies are preparing what for private companies are the most important documents of the year: annual reports.

Under the Government Performance and Results Act, agencies are required to submit to Congress annual reports detailing their performance for fiscal 1999, which ended Sept. 30. The reports are due by the end of March 2000.

In a recent interview, former New Zealand cabinet minister Maurice McTigue, whose country pioneered results-based management in government agencies, discussed the importance of annual reports in public-sector organizations. McTigue not only served in the New Zealand parliament, but at various times headed the country's ministries of employment, state-owned enterprises, labor and immigration. He is now a distinguished visiting scholar at the Mercatus Center at George Mason University in Arlington, Va.

On the importance of the first annual reports: Whether people like it or not, the very first annual report is going to be the benchmark against which the organization is going to be judged for all time. That requires, in my view, some very special consideration by the senior management team of the organization to be certain that the benchmark they are setting is a benchmark that they would want to set, that they can live with that benchmark over time. This is not an issue that should be approached from the point of view that we have a compliance requirement here, that we must produce an annual report, so we will produce an annual report.

In my view, and from the experience of this process in my country for about 12 years, that approach is likely to have disastrous consequences for at least some agencies. And that risk can be managed by just having senior management consider the presentation of this particular report as a strategic opportunity to establish what kind of image they are trying to create for the organization.

On comparing agencies' annual reports with corporate annual reports: I see these reports as being every bit as important for government organizations as they are for Fortune 500 companies, because they are going to describe in a very succinct way why this organization currently exists, why it should continue to exist in the future and what scale it should have.

[The reports are] going to build up over time as the formal recorded history of the organization. That parallels very closely what happens with the annual reports of General Motors, Coca Cola, etc. The difference is that the annual report for Fortune 500 companies needs to reflect on the bottom line, on how they have improved the quality of the investment of their shareholders. The bottom line for governmental organizations would be on how they have improved the value they deliver to the community by being able to achieve certain outcomes.

On the objectives an agency can achieve with its annual report: It can help to build the reputation that would make it more attractive to people wanting to join your organization.

It can help to improve morale because you can portray to everyone who works inside your organization exactly what it does and how successful it is at doing that.

It can provide a major risk management tool, in that if you can persuade the majority of the public and particularly the Congress that this organization is successful at a majority of what it does, it helps insulate you against the anecdotal story of something that went wrong from time to time. The anecdote can be managed and put in perspective.

Right around the world, not unique to the United States, the bane of government organizations is a legislature moving to micromanage the process of what they do on a day-to-day basis. Clever use of an annual report can help to insulate you against that micromanagement and help to build confidence in your ability to succeed in delivering the outcome the Congress and the administration wants from you. As you develop that confidence, then the process of getting the money and resources necessary to perform becomes easier.

On the presentation of the annual report: In reporting on performance under the requirements of the act, you have to report on your achievements against your performance plan. You also have to report on those areas where you underachieved or overachieved, and you have to explain why. That really allows you to describe the barriers to improving your success.

The barriers break into two groups: Those barriers which are under the control of the organization itself and that they can remove. If you're wise, you will indicate in that document what the strategy is you will use to remove those barriers, thereby forestalling some of the criticism that might otherwise be applied. The other barriers are those which are external to the organization and it does not have control over.

The annual report gives the organization the opportunity of being able to say, particularly to the legislature, we can perform at this level, but we have these constraints on our activities at this moment that are statutory, that are regulatory or administrative orders. If they could be removed, this would be the level of achievement we would be able to get. Government departments have never had that opportunity before. The annual report is a strategic opportunity government departments and agencies should avail themselves of.

On the image of the agency portrayed by the annual report: The clear impression that the reader of the report should get is that here is an organization that is involved in these activities and is having this level of success. The major impact on me as the reader must overwhelmingly be that this organization has succeeded in those areas.

The Coast Guard has written a very competent report. The overwhelming impression you get from the report is here is a highly dynamic, creative organization that's very good at what it does. It's also honest enough to say these are some areas of limitation and these are the areas we need to have an improvement in.

Government organizations generally do not have a good image with the public. There's not a good understanding of what agencies do. There's not a good understanding of their benefits. In the early annual reports, these things need to be well-established. They become a foundation upon which you build future reports.

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