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Improving Financial Management

Build a Strong Financial Management Infrastructure

FM02: Clarify and Strengthen the Financial Management Roles of OMB and Treasury

BACKGROUND The fundamental goal of the Chief Financial Officers (CFO) Act of 1990 is to reform and improve financial management in the federal government.[Endnote 1] A key element of the act is the establishment of a new financial management leadership structure. Specifically, the act designated a new Deputy Director for Management in the Office of Management and Budget (OMB) as the chief officer responsible for federal financial management, established an Office of Federal Financial Management (OFFM) with a controller as its director to carry out the functions given the new OMB Deputy Director, and established CFOs in 23 agencies across government. The Deputy Director for Management is charged with establishing financial management policies and requirements, monitoring the establishment and operation of financial systems, outlining the agency structures for CFOs, and developing and reporting on a 5-year plan to improve financial management.

Although the act was very specific about the duties and responsibilities of this new leadership, it also clearly stated that nothing in the act would interfere with the current duties and responsibilities of the Department of the Treasury.[Endnote 2] Those duties specific to governmentwide financial management are designated to the commissioner of the Financial Management Service (FMS). The commissioner is responsible for a wide range of accounting, reporting, disbursing, collecting, and cash management functions for the federal government. FMS operates governmentwide financial information systems and--although these are prototypes--produces the only consolidated financial statements for the federal government. The commissioner reports to the Fiscal Assistant Secretary, who is responsible for administering the government's financing operations and fiscal affairs and reports to the Treasury Under Secretary for Domestic Finance.

In the past, OMB and the Department of the Treasury have tried to outline their working relationships in a memorandum of understanding (MOU). A revision of that MOU was initiated, but has not been finalized.

NEED FOR CHANGE

In the three years since the CFO Act was passed, a tremendous effort has been initiated across government to implement the provisions of the act. While many will agree that progress has been made, it has become more evident that in the area of governmentwide financial management leadership, the division of roles between OMB and the Department of the Treasury has become blurred between policy and implementation. This has resulted in the lengthy and sometimes contentious development of policies and implementing regulations between the two institutions. More seriously, it leaves agencies, which are dependent on this policy and guidance, unable to move forward with reforms and sometimes caught in the middle of policy disputes between the two central agencies. The two areas where this blurring of roles manifests itself are policy and procedure development and governmentwide financial information.

Policy/Procedure Development. There is growing concern in the federal financial management community that OMB has not outlined a broad strategic plan for financial management that clearly outlines priorities and goals for the agencies. Currently, the only document in which a plan for federal financial management exists is OMB's Federal Financial Management Status Report and 5-Year Plan.[Endnote 3] For the past two years, OMB has presented this in a fairly lengthy report to Congress, outlining the status of federal financial management and the 5-year plan for improving financial management. Although the report does describe a multi-year plan, it is also exhaustive in its delineation of the status of programs and initiatives for financial management. As a result, it is very difficult to determine the priorities or goals of its many programs--in turn making it more difficult for the Department of the Treasury and the agencies to implement these programs. OMB should instead provide a clearly stated federal financial management strategic plan and related performance goals. It should be short in length; crisp and specific in terms of expectations. Until OMB develops and presents a broad strategic plan, it will be very difficult to dedicate resources and measure whether progress is being made in improving financial management.

While there is room to improve in outlining a strategic financial management plan, there is no lack for policy and implementing procedure guidance. The enactment of the CFO Act and the establishment of OFFM resulted in the demand for more financial management policy. OMB's response to those demands raises the question of where policy development stops and defining implementing procedures begins, especially in areas where the Department of the Treasury was responsible for financial activities prior to the CFO Act.

OMB issues various governmentwide policies for financial management in a series of circulars. Treasury provides operating guidance to the agencies on the detailed procedures to implement these broad policies in the Treasury Financial Manual. The agencies are responsible for implementing all of the above. Increasingly, OMB's circulars are becoming more lengthy in their description of policies and more prescriptive regarding implementation. This tendency is especially evident in cash management, credit management, and financial systems activities. Clarifying the shared responsibilities of OMB and the Department of the Treasury in these areas and others would save resources.

Governmentwide Budget and Financial Information. The CFO Act requires agencies to develop systems that integrate budget and financial information. Central agency financial systems in both OMB and the Department of the Treasury are not excluded from this challenge. This information should also be integrated and based on consistent accounting and systems standards at the federal government level. Currently, separate systems in OMB and the Department of the Treasury collect this information from the agencies. OMB maintains systems for budget formulation and budget execution, while the Department of the Treasury maintains systems for governmentwide collections, payments, and cash flow management. Data are inconsistently defined, reported, and collected. This leads to a duplicative, labor-intensive process requiring OMB, the Department of the Treasury, and the agencies to dedicate extensive resources in reconciling information to produce useful analyses and reports on the fiscal condition of the federal government. OMB should clearly define, for all agencies, budget and financial data and what constitutes an integrated budget and financial system. Then it should work with the Department of the Treasury and the agencies to achieve integrated governmentwide financial information.

Although interim systems have been developed to consolidate data, there remains a lack of clear authority and responsibility for the integrity of governmentwide financial information. While most managers already recognize the need to take advantage of the availability of more sophisticated information technology to provide accurate and more timely information, they also must recognize the need to change their approach to the management of this data and information resource. Data stewardship is a current information technology management approach that treats data as a corporate resource and requires management and accountability for that resource. Data stewardship assigns responsibility for collecting and reporting this information, and requires accountability for the integrity of that data.

The ever-increasing demand for timely, accurate, and integrated budget and financial information is equally shared by OMB and the agencies. At the governmentwide level, federal financial managers should be no less rigorous in their drive toward reviewing information needs and then restructuring processes and systems to maximize the use of technology now and in the future. They need to agree on a long-term strategy for the integration of budget and financial information, dedicate the resources toward this effort, and then implement and manage the integrity of that data information resource. Ensuring the responsible management of this function requires senior-level leadership to bring together OMB, the Department of the Treasury, and the agencies.

OMB and the Department of the Treasury have initiated efforts to establish an information architecture to link broad financial information needs with agency-specific requirements. This project, called MIDAS, is at the very early stages. Similarly, initial discussions have occurred between the two central agencies on the need for governmentwide data stewardship. Data steward-ship at the governmentwide level is a shared responsibility. OMB is responsible for defining data needs; the Department of the Treasury and the agencies are responsible for collecting that data; and all are responsible for the data integrity. In order to recognize the shared responsibility for integrated governmentwide financial information, a small, high-level steering group could collectively oversee the planning and implementation of this function. Membership could include OMB, the Department of the Treasury, and the agencies to allow the various data users and collectors to participate in that management function. Since OMB has the responsibility for governmentwide budget and financial policy, it should chair this steering group.

In summary, as the implementation of the CFO Act has evolved, issues on the level of leadership, the dividing point between policy and implementing procedures, and the management of financial information have surfaced that question the clear delineation of leadership roles between OMB and the Department of the Treasury. Resolving these issues now will allow both agencies to dedicate their limited resources toward the development and implementation of a broad strategic plan and guidance to agencies for improving financial management, rather than toward disputes over authority and duplication of federal financial management roles.

ACTIONS

1. Develop a Memorandum of Understanding (MOU) to clarify central agency roles and responsibilities for financial management. (2)

The Director of OMB and the Secretary of the Treasury, in consultation with the CFO Council, should develop an MOU to clarify their respective financial management roles and responsibilities. The CFO Council should review this MOU before it is forwarded for signature by the principals. This MOU should be developed within 90 days of the filling of the position of OMB Deputy Director for Management. The MOU should be updated--at a minimum--with the change of each administration; consideration should be given to updating it with each change of senior financial management leadership. Upon executing this MOU, OMB and the Department of the Treasury should identify two senior-level (i.e., senior executive service) individuals who would have primary responsibility for clarifying roles and responsibilities related to financial policy and procedures and implementing integrated budget and financial information.

2. Develop and publish a strategic plan for improving financial management. (2)

The Director of OMB, in coordination with the Secretary of the Treasury and the agency CFOs, should develop and publish a strategic plan for financial management by July 1994. This strategic plan should clearly identify priorities and performance goals for the Department of the Treasury and for the agencies. It should be short in length--a crisp and specific statement of expectations. It should be developed in conjunction with the CFO status report and 5-year plan, required to be submitted annually to Congress. This plan should be updated annually by OMB and would form the basis for the tactical 5-year plans due each September from the Department of the Treasury and the agencies.

3. Create a governmentwide budget and financial information steering group. (2)

The Director of OMB, in collaboration with the Secretary of the Treasury and the CFO Council, should charter a governmentwide budget and financial information steering group. This group should oversee the planning and management of the data stewardship responsibilities for the federal government. The group should be chartered and convened by May 1994.

4. Develop and publish a definition of an integrated budget and financial system. (2)

The Director of OMB, in cooperation with the Joint Financial Management Improvement Program, which has the responsibility for developing and publishing financial systems requirements, should define and communicate to the agencies what constitutes an integrated budget and financial system by May 1994. The Department of the Treasury and the agencies should be involved in developing this definition.

5. Develop an integrated budget and financial information strategic plan. (2)

The Director of OMB, in collaboration with the Secretary of the Treasury and the CFO Council, should develop by May 1994 a long-range strategy for linking broad budget and financial information needs with agency-specific requirements. This strategy should address the need for integrated financial and program information at all levels to serve the agency program managers in carrying out their programs and central agencies in supporting policy analysis. It should also clearly specify priorities and performance goals. Once this strategy has been developed and approved, support for the project's full implementation should be given by both OMB and the Department of the Treasury.

ENDNOTES 1. The Chief Financial Officers Act of 1990, Public Law 101-576 (November 15, 1990).

2. Ibid., Section 204.

3. U.S. Office of Management and Budget, Federal Financial Management Status Report and 5-Year Plan, (Washington, D.C., August 1993), pp. i-viii.

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