A PROJECT REPORT ON

FEDERAL FINANCIAL MANAGEMENT LEADS TO DEVELOPMENT

SUBMITTED BY

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE DEGREE OF

POST GRADUATE PROGRAMME OF IILM BUSINESS SCHOOL NEW DELHI

IILM-BUSINESS SCHOOL
BADARPUR, NEW DELHI

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A C K NO W L E D G E M E N T

I am thankful to all th !a"#lt$ % %& '( for their valuable guidance and support throughout my project report completed at time. It was a great learning experience to working process of banking services and insurance with respect to Standard Chartered Bank it is found good exposure and the experience to understand the models of insurance and services of SCB.

PREFACE

The conceptual knowledge ac uired by management students is best manifested in the research and report they undergo. !s a part of curriculum of "B! #IB$% I have got a chance to undergo practical research in F ) 'al !*+a+"*al %a+a, % +t l a)( t- ) . l-/% +t0 The present report gives a perfect vent to my understanding of the I&T'(&!TI)&!* B+SI&'SS specially the most modern concept of ,'conomic -alue !dded. and organi/ation behavior . The report entitled ,0ederal financial management leads to development. is based on the study.

I al(- h-/ that th*( ' /-'t 1*ll & & + !*"*al !-' %$ + 2t &at"h ( a+) !-' th-( 1h- a' ' lat ) t- th*( t-/*"

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TABLE OF CONTENTS

30 40 50 60 70 80 90 :0 ;0 3<0 330

INTRODUCTION OBJECTIVES OF THE STUDY LITERATURE REVIEW RESEARCH METHODOLOGY DATA ANALYSIS AND INTERPRETATION FINIDINGS RECOMMADATIONS CONCLUSION LIMITATIONS OF THE STUDY BIBLIOGRAPHY QUESTIONNAIRE

INTRODUCTION

INTRODUCTION
The )ffice of 0ederal 0inancial "anagement #)00"$ within the )ffice of "anagement and Budget #)"B$ has developed a ,0ramework for Improving 0inancial 1erformance. to provide direction and clarity on how the 1resident2s improvement goals for financial management will be met. This ,0ramework. is the subject of this (eport and also fulfills )00"2s re uirement% under section 345#a$ of the Chief 0inancial )fficers !ct of 5664 #C0) !ct$ for providing Congress and the financial management community with a government7wide ,0ive78ear. financial management plan and status report.

Th F'a% 1-'= *( *+t +) ) t- /'-.*) th /#&l*" 1*th a (*%/l t--l !-' *) +t*!$*+,> #5$ The ultimate objective #or ,apex.$ of the government2s financial management improvement efforts #i.e.% the financial management goals of the PMA$9 #:$ The priority projects currently underway in the 0ederal financial community to help support and facilitate 1"! goals #i.e.% current government7wide financial management reform activities$9 and #3$ The day7to7day financial management activities or core activities that help ensure a strong foundation is in place for achieving the 1"!2s success.

The 1"! provides 0ederal agencies with a concise set of clear and measurable financial management performance goals that allow 0ederal managers% Congress% and the public to gauge whether taxpayer funds are being properly accounted for and wisely spent. These performance measures include the achievement of a clean audit opinion% the elimination of material weaknesses in internal control% timely financial reporting% the elimination of improper payments%
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the disposal of excess real property% and the reduction in government costs through the strategic use of financial data. !s noted throughout this (eport% 0ederal agencies are making significant progress on each of these areas. ;owever% much work remains until the 1resident2s vision for improved financial management is fully achieved.

<hen the C0) !ct was signed into law more than 5= years ago% the 0ederal >overnment was responding to numerous financial management challenges. The Comptroller >eneral at the time had testified that billions of dollars were ,at risk. in the 0ederal >overnment2s programs due to inade uate financial management systems and controls% and agencies generally could not give assurance that their financial statements were accurate and reliable. The C0) !ct was a direct response to these deficiencies and was aimed toward reforming financial management practices within the 0ederal >overnment. In short% the !ct called for stronger financial leadership% more disciplined financial controls% improved financial management systems% and accurate and timely financial information for decision7making. 0ederal C0)s are now in charge of implementing a number of management reforms% including the 0ederal "anagers2 0inancial Integrity !ct of 56?: #0"0I!$ intended to strengthen internal controls and accounting systems% and the 0ederal 0inancial "anagement Improvement !ct of 566@ #00"I!$ intended to improve financial management systems. If implemented effectively% the reform environment created by law% administrative action% and executive order provides a solid foundation for continual improvements in the 0ederal government2s stewardship of the public2s tax dollars.

The primary instrument used by the !dministration to implement the principles of the C0) !ct and other 0ederal financial management laws is the 1"!. The 1"! is most clearly embodied

in the ,Improving 0inancial 1erformance. initiative. +nder this initiative% the 1resident identified a limited number of clear% meaningful% and attainable financial goals that every 0ederal agency must meet. 'ach individual goal is an indicator of financial management excellence% and reflects standards established either by law or !dministrative action. !s a primary goal% every agency C0) is responsible for meeting standards that reflect a sound foundation of 0ederal financial managementA achieving a ,clean. audit% resolving material weaknesses in a timely manner% having in place a financial system that meets 0ederal standards% meeting reporting deadlines% and complying with laws and regulations. These standards ensure that 0ederal agencies are properly accounting for taxpayer dollars and can produce financial information that is both timely and reliable. 0ederal agencies must achieve these standards to move from ,red. to ,yellow. status on the 1"! stop light scorecard system. C0)s must build on these standards% and ensure that financial information is available for managers on demand and is actively being used to drive results in key areas of operations. 0ederal agencies must demonstrate that financial information is being used effectively to manage costs to move achieve a ,green. status score. In addition to the Improving 0inancial 1erformance Initiative% the 1resident has also established additional 1"! initiatives to eliminate improper payments and right7si/e the 0ederal >overnment2s real estate. +nder these initiatives% agencies achieve ,yellow. status by putting the right tools in place to measure improper payments and identify excess real estate. !gencies.

It indicates that financial management improvement efforts are having their intended result. ;owever% the metrics by which we measure the success of 0ederal financial management demonstrate that enormous challenges remain. The Bepartments of Befense and ;omeland

Security% two of the largest and most critical agencies in government% do not have clean opinions on their financial statements. !uditors continue to identify more than34 material weaknesses in financial reporting across the >overnment. Billions of dollars in improper payments and excess real property remain on the 0ederal books and compromise our ability to serve the tax payer most effectively. The 08 :44? results and those achieved over the past five years serve as an important building block toward addressing the longer7term challenges in 0ederal financial management.

The )ffice of 0ederal 0inancial "anagement #)00"$ was created within the )ffice of "anagement and Budget #)"B$ by the Chief 0inancial )fficers #C0)$ !ct of 5664. )00"% led by the )"B Controller under the direction of the Beputy Birector for "anagement% is responsible for the financial management policy of the 0ederal government. )00" responsibilities include implementing the financial management improvement priorities of the 1resident% establishing government wide financial management policies of executive agencies% and carrying out the financial management functions of the C0) !ct.

This year great strides were made in the area of 0inancial Systems and Security% which was reduced by almost =4 percent. ;owever% challenges still remain. &early C4 percent of the material weaknesses are attributable to three agencies and are predominately in the areas of 0inancial "anagement and (eporting and 0inancial Systems and Security. These key areas continue to be a challenge across all agencies and )00" will work with the agencies to reduce material weaknesses.

0inancial "anagement and (eporting material weaknesses were found in seven agencies% primarily as a result of control issues over the financial reporting process. !uditors found the controls over the financial statement preparation needed to be improved in various areas including oversight% data integrity% reconciliations% updating of policies and procedures% and training. By improving controls over the reporting process agencies are better positioned to prepare reliable% useful% and timely financial information for decision making. 0inancial Systems and Security material weaknesses were found in five agencies and primarily were a result of control issues in Information Technology #IT$ security. !uditors found the controls over IT security needed to be improved in areas such as updating risk assessments %providing IT security training% strengthening password controls% and enhancing controls over system software modification. By improving IT security agencies can prevent unauthori/ed access to and increase the reliability of financial information.

The 0ederal government has more than 3.5 million charge cards in use under the >eneral Services !dministration2s #>S!2s$ Smart 1ay 1rogram. The cards are used to purchase goods and services% pay for >overnment employee travel and travel7related expenses% and to ac uire fuel and maintenance services for >overnment vehicles% aircraft and other e uipment. In 08 :44?% these transactions totaled more than D34 billion% with D56.C billion #nearly @CE$ spent through purchase cards alone. This program continues to demonstrate the improved efficiencies of charge card use through an estimated D5.?= billion in annual savings as compared to paper based purchase processes. )ther benefits of the program include refunds paid to agencies that were in excess of D5@@ million in 08 :44?% as well as access to reduced7price airfares under the >S! City 1airs 1rogram. 08 :44? usage of the City 1airs 1rogram saved the >overnment a

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projected DF.=: billion over regularly priced airfares. )00" provides oversight of 0ederal charge card programs through !ppendix B of Circular !7 5:3. This guidance re uires agencies to maintain internal controls that reduce the risk of fraud% waste% and error in >overnment charge card programs. !s re uired by !ppendix B% agencies submit updated copies of their Charge Card "anagement 1lans to )"B on an annual basis% and submit performance information on either a uarterly or annual basis depending on the si/e of the agency. )00" works with agencies to ensure strong internal control policies and procedures government7wide. )00" also works closely with the >S! Smart 1ay program% which manages the primary contracts with the 0ederal government2s charge card providers% to ensure the program is operating effectively and efficiently. )00" is currently working with >S! and the 0ederal charge card community to revise !ppendix B. This revision incorporates recommendations made by the >!) in its !pril :44? audit of the 0ederal 1urchase Card 1rogram as well as comments and suggestions made by !gencyG)rgani/ation 1rogram Coordinators. The revised !ppendix B will incorporate internal controls for convenience checks% expand on controls related to property ac uired with government charge cards% and implement specific guidance for ensuring that appropriate disciplinary actions #including dismissal$ are properly considered and imposed for fraud and other egregious abuse of a 0ederal charge card.

FEDERAL FINANCIAL MANAGEMENT leads to development of any country or organi/ation. F ) 'at*-+ is a system of government in which there is division of powers and functions between federal government and several regional governments% each of which in its own sphere

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coordinate with the others and each of which acts directly on the people through its administrative machinery. So we see that its federation which runs countries and organi/ations associated with the country. !t the end of the day it is federal finance management which decides the economy of the nation.

This way federal financial management decides the finance of the nations and organi/ations. !nd if federal financial management works in proper way and move in a right direction% it leads to the overall development of the country.

By utili/ing effective practices from both the commercial and 0ederal sectors% the innovative ideas and model programs are developed to help 0ederal agencies in their efforts to make financial management more efficient and effective for the purpose of core development.

The 0ederal government spends billions in a year on financial systems% and development projects that typically take ?754 years. There are multiple processes within the financial management framework that are common across all agencies.

0ederal financial management is a key component which provides key solutions to the federal government. The professionals assigned to this management system conduct research and develop approaches to address some of the federal government2s most pressing financial management and financial transformation challenges.

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The solutions provided by this management group is most effective as it facilitate bringing all interested parties together to help find common ground alternative approaches to address shared challenges as A7 #5$ 0inancial reporting #:$ Internal controls #3$ 0inancial systems #F$ !sset management #=$ >rant management #@$ !nd !uditing standards

It also facilitates research on what can work in federal financial management and whyH By utili/ing effective practices from both the commercial and federal sectors% the innovative ideas and model programs are developed to help federal agencies in their agencies in their efforts to make financial management more efficient and effective.

F ) 'al !*+a+"*al %a+a, % +t 1*ll h l/ th a, +"$ -' -',a+*?at*-+ t-> #5$ (educe redundancy #:$ "inimi/e complexity #3$ "aximi/e productivity #F$ (esult of cost effective financial management.

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THE FINANCIAL MANAGEMENT SERVICE

The 0inancial "anagement Service is one of TreasuryIs newer major bureaus% having been established as the Bureau of >overnment 0inancial )perations in 56CF. 0"S manages the +.S. governmentIs disbursement and collection systems% provides central accounting and financial reporting for government as a whole% and provides guidance to federal program agencies in cash management% credit administration% debt collection% accounting systems% investment

management% and the use of technology in financial activities. It may seem surprising that an organi/ation that performs so many essential functions took so long to come into existence% but bear in mind that !merica did not begin with more than 344 million citi/ens and a federal budget of more than D3 trillion. The evolution of 0"S and its predecessor organi/ations must be seen in the context of the growth and ever increasing complexity of !mericaIs financial system over the course of more than two centuries. The +.S. Bepartment of the Treasury was created by an !ct of Congress on Sept. :% 5C?6. The Congress directed the Treasury to provide for the collection% safeguarding% and disbursement of public money% and to maintain a system to account for the governmentIs collections and payments. !lthough the collection and control of money is critical to any government% the federal financial infrastructure remained very small for more than 544 years. The (egister of the Treasury originally carried out the account7keeping functions. Individual departments and independent agencies conducted most disbursing functions without Treasury oversight. By modern standards% the administration of federal finances was extremely loose% but then the federal government was much smaller than it is today% and its duties were far more limited.
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)ther than during the relatively few major wars% the government did not collect or spend very much money% and so the need to centrali/e or moderni/e its payment% collection% or accounting systems did not exist. The first major federal financial management reform took place just after <orld <ar I. In late 5656% Treasury Secretary Carter >lass created the forerunners of the current fiscal operations bureaus% 0"S and the Bureau of 1ublic Bebt% by approving the positions of the Commissioner of !ccounts and Beposits and the Commissioner of the 1ublic Bebt. The officials appointed to these positions oversaw the various organi/ations that comprised the new Bureau of !ccounts and Beposits #later renamed the Bureau of !ccounts$ and the Bureau of the 1ublic Bebt. The former of these two bureaus was the first direct ancestor of todayIs 0inancial "anagement Service. !lthough the predecessors of todayIs 0iscal Service organi/ations were established in 5656% most federal payment functions remained decentrali/ed until 5633. That year% 1resident 0ranklin B. (oosevelt issued an executive order mandating the transfer of the 'xecutive BepartmentsI disbursing clerks to the newly established Bivision of Bisbursement% which was assigned to the Bureau of !ccounts. )ne result of this order was the creation of (egional Bisbursing )ffices. 'ventually% :C of these facilities were established to handle the ever increasing number of checks issued by the government. Today% thanks to improved technology and the gradual replacement of checks by 'lectronic 0unds Transfer% 0"S maintains only four payment sites. In June 56F4% Congress approved a reorgani/ation plan that created the Treasury BepartmentIs 0iscal Service and a career 0iscal !ssistant Secretary position. +nder the plan% the 0iscal Service was assigned three componentsA the Bureau of !ccounts% the Bureau of the 1ublic Bebt%
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and the )ffice of the Treasurer of the +nited States. There evidently was considerable bureaucratic inertia% since while the 0iscal Service was established in 56F4% yet the first 0iscal !ssistant Secretary was not appointed until 56F=. ! new era began in January 56CF when a 0iscal Service reorgani/ation plan established the Bureau of >overnment 0inancial )perations #B>0)$ and merged all of the Bureau of !ccountsI functions under the new bureau. B>0) also assumed most functions of the )ffice of the Treasurer% except those performed by the now defunct Cash Bivision. In all but name% this reorgani/ation effectively created 0"S. )n )ct. 54% 56?F% B>0) was renamed 0"S. Treasury 0iscal !ssistant Secretary Carole Jones Bineen explained the reasoning behind the change in nameA K0inancial "anagement Service reflects the bureauIs new emphasis on achieving greater efficiency and economy in government financial management. Through the application of sound cash management practices and increased utili/ation of automated payments% collections% and accounting and reporting systems% the old Bureau of >overnment 0inancial )perations is evolving from the governmentIs IbookkeeperI into the governmentIs central financial manager.K Since 56?F% 0"S has done its utmost to follow this dictum. The old image of men with uill pens hunched over thick% musty registers no longer applies. 0"S strives to continually improve the governmentIs performance by managing the financial infrastructure in support of federal agencies. The Service employs many advanced technologies that were either in their infancy or non7existent as recently as when B>0) was established.

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0"S is continuing to improve its products and services through initiatives such as 'lectronic 0unds Transfer% the Treasury )ffset 1rogram% the 'lectronic 0ederal Tax 1ayment System% and various electronic commerce initiatives. 0"S is proud of the progress it has made and looks forward to the future% confident that it will continue to make many positive contributions to both government financial management and the !merican financial services industry.

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FRAMEWORK FOR DEVELOPING FINANCIAL PERFORMANCE

The 0ramework is intended to provide the public with a simple presentation ofA #5$ The ultimate objective #or ,pinnacle.$ of the >overnment2s financial management improvement efforts9 #:$ The projects currently underway in the 0ederal financial community9 and #3$ The day7to7day financial management activities% or ,core. activities that help ensure a strong foundation is in place for achieving success across all 0ederal agencies.

GOVERNMENT-WIDE FINANCIAL MANAGEMENT IMPROVEMENT GOALS.

0ederal agencies in the executive branch are focused on achieving the financial management performance goals that allow 0ederal managers% Congress% and the public to gauge whether taxpayer funds are being properly accounted for and wisely spent. 'ach reform activity% or ,column%. of the ,0ramework for Improving 0inancial 1erformance. represents a key financial
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management7related initiative that has a defined goal and is monitored for improved results. !s noted throughout this report% 0ederal agencies are making significant progress towards achieving each goal.

Eliminating Improp r Pa!m nt" -

!gencies have improved the

accuracy of 0ederal payments by #5$ strengthening controls over the payment process% #:$ ensuring that dollars are properly accounted for% and #3$ sending the proper recipient the correct amount. Since 08 :44F% the 0ederal government has established an impressive track record of making its improper payment measurements transparent to the public and then taking uick and effective action to eliminate those improper payments. "ore than C4 programs that were designated as high7risk for improper payments in 08 :44F have since been measured. In 08 :44?% almost 544E of programs that were previously designated as high7risk were measured. 0urther% agencies have reduced the improper payment error rate in the programs originally measured and reported from F.FE in 08 :44F to 3.4E in 08 :44?. The goal of reducing the improper payment rate by a tenth of a percent annually was successfully reached in 08 :44?. The goal for 08 :446 is an overall error rate of :.6E or lower. Improper payments occur when 0ederal funds go to the wrong recipient% the recipient receives the incorrect amount of funds% the documentation is not available to support a payment% or the recipient uses the funds in an inappropriate manner. The Improper 1ayments Information !ct of :44: #I1I!$ #Sec. 5% 1ub. *. 54C7344% 55@ Stat. :3=4$ created a permanent framework for assessing every 0ederal program and dollar for risk of improper payments% annually measuring the accuracy of payments% and initiating program

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improvements to ensure that payment errors and improprieties are reduced and ultimately eliminated.

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STRATEGIC GOAL#S$%
(educe the government7wide improper payment rate and total dollar amount.

C&RRENT FOC&S%
1. "easure improper payments in programs that are at significant risk of improper payments on an annual basis. 40 Identify the causes of improper payments and develop specific corrective action plans to address these causes. 50 1repare rigorous return7on7investment analyses for program integrity activities and ensure that these activities achieve an ade uate return7on7investment. 60 70 80 <ork with the Congress to enact legislative reforms to eliminate errors. 'xpand reporting and risk assessment of contract improper payments. 1articipate in a 0ederal7State partnership project to enhance program integrity efforts in 0ederally7funded% State7administered programs such as "edicaid.

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RIG'T-SI(ING T'E GOVERNMENT)S REAL PROPERT*

!gencies have established a comprehensive inventory of the entire >overnment2s real property assets that indicates excess and surplus property. The agencies are taking aggressive action to eliminate those properties from them 0ederal books. Since 08 :44F% the >overnment has identified and disposed of approximately D? billion in unneeded real property. The goal for 08 :44?% to dispose of an additional D5 billion in excess real property% was achieved. *ooking forward% the goal is to maintain an annual real property disposal rate of D5 billion of excess real property with a cumulative disposal goal of D5: billion by :45:. )n 0ebruary F% :44F% the 1resident signed 'xecutive )rder 533:C% 0ederal (eal 1roperty !sset "anagement. To meet the re uirements of the 'xecutive )rder% agencies must develop and implement the necessary tools #e.g.% planning% inventory %performance measures$ to manage their portfolio of real property assets at the right si/e% in the right condition% and at the right cost. This reform activity supports the >overnment2s objective to identify and dispose of excess 0ederal real estate.

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STRATEGIC GOAL#S$%
(ight7si/e the 0ederal real property inventory0

C&RRENT FOC&S%
30 Capture inventory dataGperformance metrics on all constructed assets. 40 Bispose of unneeded 0ederal real property. 50 )btain legislative authority to reform asset management and disposition% including the retention of sales proceeds. 60 'nact legislation to allow 'xecutive agencies to retain a portion of the net proceeds of sales which would be directed toward the agency2s repair and alterations needs. 70 0acilitate inter and intra7agency coordination on real property efforts such as facility security% historic preservation% and sustainability. 80 'nsure that agencies are using asset7specific performance data in their decision making process. 90 Bevelop performance targets and evaluate opportunities to consolidate leased space and maximi/e its utili/ation within a Bepartment as well as government7wide.

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Financial Systems Modernization

'fforts to standardi/e financial systems are improving the cost% uality% and performance of financial management operations by adopting common standards and shared solutions as well as implementing other government7wide improvements to foster efficiencies by standardi/ing% consolidating and optimi/ing 0ederal financial operations. This reform activity supports the objectives of the 0ederal 0inancial "anagement Improvement !ct #00"I!$ of 566@ by significantly improving the uality of financial data >overnment managers need to make timely and successful decisions while reducing the cost of >overnment operations.

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STRATEGIC GOAL#S$%

Implement government7wide solutions that yield lower cost and risk results in financial management activities.

C&RRENT FOC&S
30 40 0inali/e all business process standards% including (eimbursable and (eporting. (evise certified software policy to re uire common government7wide accounting classifications and business process standards to be inherent in the core financial management software. 50 60 70 Issue revised financial system re uirements. Issue revised test scenarios. Collect and report performance metrics for the cost and performance of financial management activities.

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STRENGTHENING INTERNAL CONTROLS

'ffective internal control over financial reporting is essential for successful financial management. (eliable financial information is critical for key decisions being made on a daily basisLranging from routine decisions such as purchasing office supplies to more mission7 related decisions such as building satellites. 0ederal agencies must strengthen internal control over financial reporting in order to sustain clean audit opinions within financial reporting deadlines in the wake of increasing financial audit scrutiny. This reform activity supports effective financial management as evidenced by the achievement of clean audits and the elimination of material weaknesses #"<$.

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STRATEGIC GOAL#S$%
Improve effectiveness of internal control over financial reporting.

C&RRENT FOC&S%
30 40 50 0acilitate sharing of best practices and lessons learned between agencies. +pdate )"B guidance% as necessary% based on lessons learned. (eceive updated corrective action plans from agencies that reflect lessons learned from 08 :44? !75:3% !ppendix ! implementation and achieve consensus between management% Inspectors >eneral% and )"B. 60 (eceive updated implementation plans from two agencies that have not completed a full scope !ppendix ! assessment #testing all key processes$.

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IM RO!ING FISCAL S"STAINA#ILIT$ RE ORTING

0ederal entitlement programs such as "edicare and Social Security are on an unsustainable fiscal path. )"B is working with the Treasury Bepartment% the >!)% and the 0ederal !ccounting Standards !dvisory Board #0!S!B$ to improve fiscal sustainability reporting.F Improved reporting helps 0ederal stakeholders assess long7term fiscal sustainability and alerts lawmakers and the public of the impending fiscal crisis that will occur if no action is taken. Improving fiscal sustainability reporting will result in timely and reliable financial information to help guide decision7making.

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STRATEGIC GOAL#S$%
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1. (eport comprehensive fiscal sustainability data% including social insurance and other programs% that facilitate and guide reform efforts to address the long7term fiscal imbalance.

%. 1rovide comprehensive fiscal sustainability data% including social insurance disclosures% in the 0inancial (eport used by lawmakers and the public to inform the debate on entitlement reform.

C&RRENT FOC&S%

1. Bevelop a ,Statement of 0iscal Sustainability. and include as a principal statement within the >overnment7wide 0inancial (eport.

2. *aunch pilot project to develop a prototype Statement of 0iscal Sustainability.

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O+JECTIVES OF T'E ST&D*

O+JECTIVES OF T'E ST&D*

To understand how important is F ) 'al !*+a+"*al %a+a, % +t to the ) . l-/% +t of nations and industries. The role of government in deciding the F ) 'al !*+a+"*al %a+a, % +t.
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;ow to get high performance through F ) 'al !*+a+"*al %a+a, % +t0 +tili/ing effective practices from both the commercial and 0ederal sectors. To provide 0ederal C0)s with services% ideas%approaches% and model To disclose material weaknesses in internal control over financial reporting. To strengthen internal controls and accounting systems. To identify programs that were vulnerable to improper payments% to estimate annually the amount of under payments and over payments made by these programs% and to include this information in the annual performance and accountability reports.

To publish data online regarding improper payments in high priority and high cost programs.

To improve the cost% uality% and performance of federal financial management systems by combining agency core systems .

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LITERATURE REVIEW

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LITERATURE REVIEW OF FEDERAL FINANCIAL MANAGEMENT:

Deloitte Federal Financial Management Sol tion! Center

Deloitte offers a unique combination of consulting, financial advisory, tax, and audit services specifically designed to help Federal agencies address their most complex challenges.

Solutions Center
The Beloitte 0ederal 0inancial "anagement Solutions Center #Solutions Center$% located in <ashington% B.C.% is a key component of Beloitte2s overall strategy to provide innovative solutions to the 0ederal >overnment. The professionals assigned to our Solutions Center conduct research on and develop alternative approaches to addressing some of the 0ederal government2s most pressing financial management and financial transformation challenges.The Solutions Center is most effective when it can facilitate bringing all interested parties together to help find common7ground alternative approaches to addressing such shared challenges as financial reporting% internal controls% financial systems% asset management%grants management% and auditing standards. In addition% research efforts have identified real7world and time7tested methods that agency C0)s can use to help transform their organi/ations from transaction processors and financial systems operators to catalysts and strategists. In leading these
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improvements% C0)s can serve as change agents to stimulate beneficial behaviors across their agencies% while providing the financial leadership needed to determine and align business direction with financial strategies.

Effective Practices in Financial Management

The Solutions Center also facilitates research on what can work in 0ederal financial management% and why. By utili/ing effective practices from both the commercial and 0ederal sectors% the innovative ideas and model programs have been developed to help 0ederal agencies in their efforts to make financial management more efficient and effective. <e have listened to our 0ederal clients% and have focused much of our research and development activities on financial management ideas and programs that areA

ractical M whether they are technical% operational% or policy7oriented9

A&ency'(oc)sed M addressing the needs and concerns of various stakeholders9

Inno*ati*e M utili/ing effective practices from both commercial and 0ederal7sector organi/ations9 and

N Res)lts'dri*en M positively impacting the 0ederal financial management community and its stakeholders.

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,)ur objective is to provide 0ederal C0)s with services% ideas %approaches% and model programs to help their agencies in their efforts to better achieve their mission% and thereby give the !merican taxpayer a greater return on investment%. said >ene 1rocknow% "anaging Birector% 0ederal >overnment Services% Beloitte O Touches +S! **1.,By integrating effective practices and personnel with excellent 0ederal and commercial financial improvement experience% knowledge% and skills% we provide a fresh and more effective approach%. said Ira >oldstein% &ational Birector% 0ederal >overnment Services%Beloitte Services *1.

A Real'+orld, Time'tested rocess (or -ri*in& Inno*ation

The Solutions Center facilitates the development of workable alternative approaches by understanding independent and shared research% bringing together relevant stakeholders through roundtables and other forms of engagement% and applying a deep knowledge of 0ederal financial management L in both practice and policy L to the analysis. "ore specially% the Solutions Center professionals make speeches% participate in panel presentations% prepare short articles and publications% and conduct training sessions.The Solutions Center also offers tailored% fast7paced ,solution sessions. where C0)s%key stakeholders% and subject matter specialists can come together to discuss and evaluate practical answers to the most pressing financial management problems in the 0ederal agencies.

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Led .y a Former Federal Go*ernment CFO

The Solutions Center is led by Beloitte Consulting **1 Birector Clarence Crawford% who served most recently as the C0) at the )ffice of 1ersonnel "anagement #)1"$. 1rior to joining )1"% Crawford was C0)GChief !dministrative )fficer for the +.S. 1atent and Trademark )ffice and Commerce Bepartment. ;e also worked in the <hite ;ouse as !ssociate Birector for !dministration in the )ffice of "anagement and Budget #)"B$. Crawford has also chaired a Capital Investment Committee and an Investment (eview Board% and served as a member of the 0ederal government2s Chief 0inancial )fficers Council. !s an !ssociate Birector at the >!)% he fre uently testified before ;ouse and Senate !ppropriations Committees.0or more information on The Beloitte 0ederal 0inancial "anagement Solutions Center% please contact Clarence Crawford at :4:73C47:F@4 or email clcrawfordPdeloitte.com.

As used in this document, the term Deloitte includes Deloitte & Deloitte & ouche ##$,

ouche !"A ##$,

Deloitte %onsultin& ##$, Deloitte 'in(nci(l Ad)isor* "er)ices ##$, Deloitte (nd Deloitte

(+ ##$

T, Finan-ial R port o. t, &.S. Go/ rnm nt%

'ach year% the Bepartment of the Treasury% in coordination with )"B% prepares the Financial Report of the U.S. Government (Financial Report) . The Financial Report contains the consolidated financial statements of the >overnment as a whole% which are subject to audit by the >overnment !ccountability )ffice #>!)$. The Financial Report also serves as an important

41

example of improved transparency for reporting government7wide financial information. The Treasury and )"B promote the Financial Report to increase awareness of !merica2s fiscal position and condition.

The 2008 Financial Report was published on Becember 5=% :44?% and is located on the web athttpAGGwww.fms.treas.govGfrGindex.html. The Treasury issued the Financial Report as an important piece of the 0ederal effort to increase public awareness of the >overnment2s current and future spending obligations. 0or the past five years% )"B has re uired the Treasury to issue the Financial Report on Becember 5=% rather than on the "arch 35 statutory deadline% to provide financial information early enough to be useful in the budget process. )n 0ebruary 5F% :44?% the Treasury and )"B% in coordination with >!)% released the first7 ever summary of the Financial Report entitled% The Governments Financial Health:

F 0 ral Finan-ial Manag m nt R port #1223$%

@3A G#*) t- th 4<<9 F*+a+"*al R /-'t -! th U+*t ) Stat ( G-. '+% +t0 The ?7page >uide is a user7friendly overview of the +.S. >overnment2s short7term and long7term financial outlook including the >overnment2s biggest fiscal challenge% the unsustainable growth in entitlement programs. The 08 :44? >uide was published on Becember 5=% :44?% and is included in the 2008 Financial Report. In addition to focusing on the growth in entitlement programs% the 08 :44? >uide summari/es the recent events in the housing market and the >overnment2s efforts to

42

calm the resulting effects on the financial markets and what these efforts mean to the taxpayer. !lso% this past year% the Treasury Bepartment and )"B successfully closed 3= of >!)2s ?5 recommendations reported in July :44C. In their June :44? report% >!) cited 54 new findings% which resulted in a total of =@ open recommendations during >!)2s 08 :44? audit. (ecent )"B and the Treasury Bepartment actions% taken to address >!)2s new findings and ecommendations% include updating guidance on standard processes for reconciling intragovernmental imbalances and continuing outreach efforts to address differences between what is reported in 0ederal agencies2 financial statements and the consolidated financial statements. Buring 08 :446% )"B will continue working with the Treasury Bepartment to address all of >!)2s recommendations from their 08 :44? and prior reports. This includes focusing on the three primary material weaknesses that contribute to the disclaimer of an opinion on the consolidated financial statementsA #5$ elimination of intragovernmental imbalances. #:$ development of effective processes for preparation of the consolidated financial statements% #3$ resolution of management issues at the Bepartment of Befense.

43

Material /ea0nesses Re1orted .y A)ditors and Federal Mana&ers2 Financial Inte&rity Act Ta.les3

)"B audit guidance re uires auditors to disclose material weaknesses in internal control over financial reporting. The 0"0I! and )"B guidance re uire the head of each executive agency to annually report whether there is reasonable assurance that the agency2s controls are achieving the intended objectives and whether the agency2s financial management systems conform to government7wide re uirements. !gency heads are re uired to identify material weaknesses related to agency programs and operations #pursuant to Section : of 0"0I!$ and non7 conformances with government7wide financial systems re uirements #pursuant to Section F of 0"0I!$. (eporting material weaknesses under 0"0I! is not limited to weaknesses over financial reporting. The following tables includeA the number of material weaknesses reported by independent auditors% the number of material weaknesses reported by agency heads under Section : of 0"0I!% and the number of financial system non7conformances reported by agency heads under Section F of 0"0I!. Table BefinitionsA

N B ,*++*+, M the number of material weaknesses #beginning balance$ reported in the Independent !uditor2s (eport for the prior fiscal year.

44

N N 1 M the number of new material weaknesses reported in the Independent !uditor2s (eport for the current fiscal year which could include reportable conditions reported by the auditors from the prior fiscal year whose severity has risen to the level of a material weakness.

N R (-l. ) M the number of material weaknesses reported in the Independent !uditor2s (eport for the current fiscal year that were reported as resolved by the auditors or whose severity has been reduced to that of a reportable condition.

N C-+(-l*)at ) M the number of material weaknesses reported in the Independent !uditor2s (eport that were combined with other repeat material weaknesses from a prior fiscal year or with a new material weakness from the current fiscal year.

N E+)*+, M the number of material weaknesses #ending balance$ reported in the Independent !uditor2s (eport for the current fiscal year. The number is calculated by adding the number of new material weakness reported by the auditors from the current fiscal year to the number of material weaknesses reported the prior fiscal year and then subtracting the number of weaknesses resolved and consolidated weaknesses during the current fiscal year.

45

RESEARCH REPORT PREPARED FOR MEMBERS AND COMMITTEES OF CONGRESS>

CRS I((# Stat % +t -+ F ) 'al F*+a+"*al Ma+a, % +t R !-'% V*',*+*a A0 M"M#'t'$, C--')*+at-' Specialist in !merican &ational >overnment January 55% :454

C-+,' ((*-+al R ( a'"h S '.*"

CRS

I((#

Stat % +t

-+

F ) 'al

F*+a+"*al

Ma+a, % +t

R !-'%

C-+,' ((*-+al R ( a'"h S '.*" 3

"embers of the 0irst Congress recogni/ed the importance of financial management for the new federal government by promptly approving the Treasury !ct% signed into law by 1resident >eorge <ashington on September :% 5C?6 #5 Stat. 5:$. In addition to creating the Treasury Bepartment% this measure established the basic elements for the federal financial system including disbursements% accounting% and reporting% and the offices of Secretary of the Treasury %Comptroller% and !uditor. 0ederal financial management evolved over the years% but the pace of change accelerated in the last three decades with enactment of a series of laws to

46

reform and improve financial management in the federal government. The 0ederal "anagers 0inancial Integrity !ct of 56?: #1.*. 6C7:==% 6@ Stat. ?5F$% one of the first of these measures% was intended to strengthen internal controls and accounting systems. Internal control involves agency policies and practices regarding the effectiveness and efficiency of operations% reliability of financial reporting% and compliance with laws and regulations.5 The Chief 0inancial )fficers !ct of 5664 #C0) !ct% 1.*. 5457=C@% 54F Stat. :?3?$ created new chief financial officer positions in :F major executive departments and agencies. The original re uirements for audited financial statements in the C0) !ct were substantially expanded by provisions in the >overnment "anagement (eform !ct of 566F #1.*. 54373=@% 54? Stat. :?=$% re uiring the :F C0) agencies to prepare annual audited financial statements covering all accounts. The statements are now submitted as a part of an agency2s performance and accountability report% due F= days following the end of the covered fiscal year #generally% &ovember 5=$. The !ccountability of Tax Bollars !ct of :44: #1.*. 54C7 :?6%55@ Stat. :4F6$ further amended the C0) !ct% extending the re uirements for preparation of audited financial statements to virtually all executive branch agencies. In the same year% approval of the Improper 1ayments Information !ct #1.*. 54C7344% 55@ Stat. :3=4$ re uired federal agencies to identify programs that were vulnerable to improper payments% to estimate annually the amount of underpayments and overpayments made by these programs% and to include this information in the annual

performance and accountability reports. , mproper pa!ment is defined as any payment that should not have been made or that was made in an incorrect amount. This includes duplicate payments% payments to ineligible recipients or for ineligible services% or for services not received or that do not reflect applicable discounts.

47

!nother component of federal financial management subject to significant statutory changes in the last three decades is that of debt recovery% beginning with the Bebt Collection !ct of 56?: #6@ Stat. 5CF4$. ! debt% claim% or receivable #the terms are used synonymously$ arises when a responsible federal official determines that an amount is owed the government. "any types of government activities generate receivables% including improper beneficiary payments% but the largest number of federal debts originate from federal credit programs% direct loans along with loans insured or guaranteed by the government. <ith enactment of the Bebt Collection Improvement !ct of 566@ #BCI!% 554 Stat. 53:5$% Congress provided for the centrali/ed collection of delin uent debt owed to federal departments and agencies. The 0inancial "anagement Service #0"S$ of the Bepartment of the Treasury manages the government2s debt portfolio and uses various tools% including the Treasury )ffset 1rogram and cross7servicing% to collect delin uent debts. Since 5666% TreasuryG0"S has issued uarterly reports on receivables. 5 )"B issued a revised Circular !75:3% "anagement2s (esponsibility for Internal Control% on Becember :5% :44F. The new Circular !75:3 emphasi/es an integrated approach% coordinating internal control assessments with other activities related to internal controls. It also provides specific new re uirements for conducting management2s assessment of the effectiveness of internal control and for reporting on internal control over financial reporting% reflected in an assurance statement to be included in the agency performance and accountability reports beginning with 08:44@.

48

CRS I((# Stat % +t -+ F ) 'al F*+a+"*al Ma+a, % +t R !-'% C-+,' ((*-+al R ( a'"h S '.*" 4

Bue from the public and has submitted an overview annual report to Congress on federal debt collection. In addition to these legislative actions% during the >eorge <. Bush !dministration the "resi#ents $ana%ement &%en#a identified five government7wide initiatives% one of which was improved financial performance% as representing ,the most apparent deficiencies where the opportunity to improve is greatest..: !t the outset of the &%en#a in :445% the )ffice of "anagement and Budget reported that :4 of the :F major departments and agencies covered by the C0) !ct had one or more of the following financial management problemsA financial management systems fail to meet federal financial management system re uirements and applicable federal accounting and transaction standards as reported by the agency head9 chronic or significant !nti7deficiency !ct violations9 agency head unable to provide un ualified assurance statement as to systems of management% accounting% and administrative controls9 auditors cite material non7compliance with laws and regulations% or repeat material internal control weaknesses9 or are unable to express an opinion on the annual financial statements.3 !t the end of Becember :44?% 6 of the :F C0) agencies continued to have one or more of these problems.F

49

Two other aspects of financial management originally subsumed under this initiative were later designated by the Bush !dministration as separate program initiatives in the !gendaL improving management of real property assets and eliminating improper payments. )n &ovember :3% :446% 1resident Barack )bama issued 'xecutive )rder 53=:4% titled ,(educing Improper 1ayments and 'liminating <aste in 0ederal 1rograms..= '.). 53=:4 goes beyond the re uirements in the I1I! to chart new policy directions% with increased transparency and public scrutiny of federal payments to program beneficiaries% grants recipients% and contractors. <ithin 5?4 days% the )"B Birector% !ttorney >eneral% and Secretary of the Treasury are to publish data online regarding improper payments in high priority and high cost programs% including names of the entities that have received the largest amount of outstanding improper payments and of the accountable federal officials tasked with meeting reduction targets in their respective agencies. !n ongoing effort launched by )"B in :44: involves the 0inancial "anagement *ines of Business #0"*oB$ initiative ,to address the 0ederal >overnment2s long7term need to improve : +.S. )ffice of "anagement and Budget% The "resi#ents $ana%ement &%en#a'F(2002 #<ashingtonA )"B% :445$% p. 5. Subse uently referred to as !genda. The four other government7wide initiatives include strategic management of human capital% competitive sourcing% expanded electronic government% and budget and performance integration. 3 )"B% 1erformance and "anagement !ssessments #<ashingtonA >1)% :443$% p. F. This volume was part of the 1resident2s budget submission for 08:44F. 1resident Barack )bama% ,(educing Improper 1ayments%. CF Fe#eral Re%ister @::45% &ovember :=% :446.

50

CRS I((# Stat % +t -+ F ) 'al F*+a+"*al Ma+a, % +t R !-'% C-+,' ((*-+al R ( a'"h S '.*" 5

0inancial management and assist agencies in substantially complying with 00"I!..@ The intent of the 0"*oB is to improve the cost% uality% and performance of federal financial management systems by combining agency core systems #such as accounting$ at a limited number of shared service providers #SS1s$ and by devising uniform government7wide business standards and processes.C The general objective of improving financial performance in the federal government is noncontroversial. Striving toward more timely and accurate financial information% strengthening internal controls% reducing improper payments% increasing debt recovery% and bringing greater order to the management of federal assets appear beyond reproach. In order to reap full benefits from more timely and accurate financial data% some say such information needs to be taken into account by government decision makers% within both the executive branch and Congress. The financial statements may prove of interest for various facets of congressional oversight. *ikewise% some say the clearer identification of overpayments and underpayments may lead to administrative actions to correct deficiencies in program implementation. !t the same time% Congress may use the information for oversight hearings or for consideration of possible amendments in the authori/ing legislation to remedy existing statutory weaknesses which may have become evident. !dditional data on improper payments soon will be available online% pursuant to re uirements in '.). 53=:4.

51

U+) 'l$*+, P-l*"$ P'-&l %

To what extent have recent management initiatives improved federal financial performance% and what significant problems remainH <hat role canGshould Congress play in oversight of continuing implementation effortsH

S/ "*!*" P-l*"$ Q# (t*-+(

1. Is a single integrated financial management statute neededH !re existing processes for reviewing and reporting on internal controls in the federal government sufficient% or is additional legislation to mandate audited assessments of internal controls #akin to Sarbanes7)xley for the private sector$ neededH

2. ;ow should unfunded liabilities of the federal government% such as "edicare and social security% be treated in financial statementsH

3. <hat changes in federal financial management systems and practices may be necessary for reducing improper payments% once high priority and high cost programs have been identified pursuant to '.). 53=:4H

52

4. <hat have been the results of the implementation of the Bebt Collection Improvement !ct of 566@H ;ow much delin uent debt has been collected% written off% or is still outstanding% and would any amendments to the law facilitate greater collectionsH

=. )"B% 0ederal 0inancial "anagement (eport :44?% p. ::. C 0or further discussion of the 0"*oB initiative% see C(S (eport (*33C@=% )$*s Financial $ana%ement +ine of *,siness nitiative: *ac-%ro,n#. ss,es. an# )/servations% by >arrett ;atch.

53

P#'/-( BF'a% 1-'= !-' F ) 'al F*+a+"*al Ma+a, % +t S$(t %(

The 0ramework is the foundation document for the 0ederal 0inancial "anagement System (e uirements series published by J0"I1. The 0ramework document describes the common financial management environment% vision% performance outcomes% business processes% information flows and desired characteristics that are applicable to all financial management systems covered by the J0"I1 re uirements. Together with all J0"I1 re uirements documents% the 0ramework achieves an illustration of an integrated financial management infrastructure that financial applications must be designed to support% and provides a broader context for understanding and interpreting the re uirements outlined in the J0"I1 0inancial "anagement System (e uirements #00"S($ series.

Th F'a% 1-'= )-"#% +t>

Q 'xplains how federal financial management supports federal agencies and the mission of government as an inherent component of the delivery of all federal programs.

Q Sets forth financial management performance goals% outcomes% and desired capabilities and characteristics that future systems should be designed to meet.

Q Bescribes financial management functions% information flows% and systems that support the federal agencies in carrying out programs.
54

Q Bescribes the agency and central agency roles.

Q *inks financial management to program performance and describes how it supports budget and performance.

Q 1resents the business needs% performance goals% and information architecture that drive financial systems re uirements9

Q Summari/es the J0"I1 0ederal 0inancial "anagement Systems (e uirements and their interrelationships. The 0ramework targets the following audiencesA

Q 0F)s an# the financial mana%ement comm,nit!. 1resents a more strategic and programmatic perspective that supports the increased emphasis on improving financial and program performance and providing meaningful information to multiple levels of users.

Q 0 )s an# enterprise architects. 1rovides a model for the government7wide financial business and information framework that complements agencyarchitectures and fosters collaboration among the C0)C% CI)% and programcommunities9

55

Q "ro%ram e1ec,tives an# fe#eral a%encies. 'xplains financial management and systems and links financial systems to improved program performance. The 0ramework raises awareness regarding the importance of financial management systems and encourages program executives to be partners in developing more effective mission support and decision making tools.

Q 0ommercial service provi#ers. 1rovides information allowing contracted service providers and systems vendors to better support the 0ederal government.

56

Th R-l ( -! F ) 'al F*+a+"*al Ma+a, % +t

0ederal financial management consists of the financial policies% processes% organi/ations% applications% and services that ensure financial integrity and efficiency in government. 0inancial management fundamentally supports the mission of government and is an inherent function of the delivery of all programs. 0inancial management% at all levels of the government% must account for and control program execution through activities thatA capture business event information9 ensure budgetary integrity9 establish financial control over obligations and costs9 and produce accurate% consistent% and complete financial data to enable cost7effective mission achievement and risk mitigation.

O. '.* 1 -! th F ) 'al F*+a+"*al Ma+a, % +t E+.*'-+% +t

The federal financial management environment encompasses an integrated process of program authori/ation% resourcing% governance% execution% and reporting ffective financial management depends upon appropriate control of business transactions% in accordance with internal control standards% and recording business event information in a manner that satisfies multiple users and uses.

57

0inancial events are the basis for producing financial related information. The combined data from all financial transactions provide the data for enterprise management information and decision support. +sers of financial information include the public% the 1resident% Congress% agency heads% program managers% financial managers% the private sector% and other governments.

S/ "*!*"all$, !*+a+"*al . +t *+!-'%at*-+ %#(t (at*(!$ th !-ll-1*+,> Q Budgetary re uirements #i.e.% planned% authori/ed% and executed budgetary resources$9 Q Cash management re uirements #i.e.% recording and accounting for cash flows$9 Q !ccrual re uirements #i.e.% recording financial impactLexpenses or revenues associated with business eventsLat the point those business events occur$ Q Internal control and audit re uirements9 and Q Information exchange re uirements.

58

RESEARCH METHODOLOGY
.

RESEARCH METHODOLOGY
59

(esearch methodology is the systematic way to solve the research problem. "ethodology can beA Kthe analysis of the principles of methods% rules% and postulates employed by a disciplineK. Kthe systematic study of methods that are% can be% or have been applied within a disciplineK. ! documented process for management of projects that contains procedures% definitions and explanations of techni ues used to collect% store% analy/e and present information as part of a research process in a given discipline. The study or description of methods.

RESEARCH DESIGN
(esearch design provides the glue that holds the research project together. ! design is used to structure the research% to show how all of the major parts of the research project 77 the samples or groups% measures% treatments or programs% and methods of assignment 77 work together to try to address the central research uestions0

RESEARCH APPROACH
(esearch !pproach refers to the approach or the methodology that has been adopted to conduct the research. It basically involves the selection of research uestions% the conceptual framework that has to be adopted% the selection of appropriate research method such as primary research% secondary research etc. SAMPLE DESIGN

60

Sample design is that part of statistical practice concerned with the selection of a subset of individual observations within a population of individuals intended to yield some knowledge about the population of concern% especially for the purposes of making predictions based on statistical inference. S!"1*' will be collected from the studies published earlier of federal financial management from India and abroad.

SAMPLE SICE

The sample si/e of a statistical sample is the number of observations that constitute it. It is typically denoted n% a positive integer. The sample si/e is an important feature of any empirical study in which the goal is to make inferences about a population from a sample. In practice% The
study sample will constitute @4 respondents constituting in the research area .% and the need to have

sufficient statistical power. In a census% data are collected on the entire population% hence the sample si/e is e ual to the population si/e.

61

DATA COLLECTION
he rese(rch ,ill -e done on 45alitati/ -(sis. .ere the d(t( ,ill -e collected throu&h #6$ S5r/ !" "ur)e*s ,ill -e done e+tensi)el* to /ind out ,h(t 0eo0le (nd o//ici(ls thin1 (-out this #1$ Cro""-" -tional7 -orr lation "ome correl(tion ,ill -e est(-lished to m(1e it more credi-le. #8$ E9p rim nt "ome e+0eriment ,ill (lso -e done to chec1 i/ it is re(ll* the /(ct. "ome 0rim(r* d(t( ,ill (lso -e collected throu&h 45antitati/ method. D(t( ,ill -e collected ,ith the use o/23 rese(rch

#6$ #1$

Ca" "t50i " R lat 0 :oo;"

62

Data will be collected through continuous:#6$ #1$ #8$ #=$ #>$ #?$ #@$ O:" r/ation" Int r/i <" R port" R -or0" N <"pap r" Jo5rnal" Arti-l "

63

ANANL*SIS INTERPRETATION

AND

64

ANANL*SIS AND INTERPRETATION

30 0rom the data%it is clear that federal financial management plays a vital role in developing the nation by providing innovative solutions to the federal government. It helps in developing alternative approaches to addressing some of the 0ederal government2s most pressing financial management and financial transformation challenges%it facilitates in bringing all interested parties together to help find common7ground alternative approaches to addressing such shared challenges as financial reporting% internal controls% financial systems% asset management%grants management% and auditing standards.

0rom industrial point of view it helps to stimulate beneficial behaviors across their agencies% while providing the financial leadership needed to determine and align business direction with financial strategies.it provides uni ue combination of consulting%financial advisory%tax and audit services specially designed to help industries address their most complex challenges.it helps in integrating effective practices and personnel with excellent 0ederal and commercial financial improvement experience% knowledge% and skills.

2. After analyzing the ata!it gives us the notion that "ovt also #lays its role in eci ing the fe eral financial management %'ach year% the Bepartment of
the Treasury% in coordination with )"B% prepares the Financial Report of the U.S. Government (Financial Report). The Financial Report contains the consolidated financial statements of the
65

>overnment as a whole% which are subject to audit by the >overnment !ccountability )ffice #>!)$. The Financial Report also serves as an important example of improved transparency for reporting government7wide financial information. The Treasury and )"B promote the Financial Report to increase awareness of !merica2s fiscal position and condition. the >overnment put efforts to calm the resulting effects on the financial markets. !lso% this past year% the Treasury Bepartment and )"B successfully closed 3= of >!)2s ?5 recommendations reported in July :44C. In their June :44? report% >!) cited 54 new findings% which resulted in a total of =@ open recommendations during >!)2s 08 :44? audit.

$. From the

ata %e came to &no% that fe eral management lea s to

enhancement of #erformance 'y increasing public awareness of the >overnment2s

current and future spending obligations. 0or the past five years% )"B has re uired the Treasury to issue the Financial Report to providefinancial information early enough to be useful in the budget process. elimination of intragovernmental imbalances% development of effective

processes for preparation of the consolidated financial statements% and resolution of management issues at the Bepartment of Befense.

60 !fter the analysis of data it is clear that we utili/ing effective practices from both the commercial and0ederal sectors% the innovative ideas and model programs have been developed to help 0ederal agencies in their efforts to make financial management more efficient and effective.<e have listened to our 0ederal clients% and have focused much of our research and development activities on financial management ideas and programs that areA

66

 ractical ( whether they are technical% operational% or policy7oriented9

N A&ency'(oc)sed M addressing the needs and concerns of various stakeholders9

N Inno*ati*e M utili/ing effective practices from both commercial and 0ederal7sector organi/ations9 and

Res)lts'dri*en ( positively impacting the 0ederal financial management community and its stakeholders.

By integrating effective practices and personnel with excellent 0ederal and commercial financial improvement experience% knowledge% and skills%

7. 0rom the datait is clear%that material weaknesses can be disclosed through Auditors and )"B audit guidance re uires auditors to disclose material weaknesses in internal control over financial reporting. The 0"0I! and )"B guidance re uire the head of each executive agency to annually report whether there is reasonable assurance that the agency2s controls are achieving the intended objectives and whether the agency2s financial management systems conform to government7wide re uirements. !gency heads are re uired to identify material weaknesses related to agency programs and operations #pursuant to Section : of 0"0I!$ and non7 conformances with government7wide financial systems re uirements #pursuant to Section F of

67

0"0I!$. (eporting material weaknesses under 0"0I! is not limited to weaknesses over financial reporting. The following tables includeA the number of material weaknesses reported by independent auditors% the number of material weaknesses reported by agency heads under Section : of 0"0I!% and the number of financial system non7conformances reported by agency heads under Section F of 0"0 .the number of material weaknesses #beginning balance$ reported in the Independent !uditor2s (eport for the prior fiscal year. N 1 M the number of new material weaknesses reported in the Independent !uditor2s (eport for the current fiscal year which could include reportable conditions reported by the auditors from the prior fiscal year whose severity has risen to the level of a material weakness. R (-l. ) M the number of material weaknesses reported in the Independent !uditor2s (eport for the current fiscal year that were reported as resolved by the auditors or whose severity has been reduced to that of a reportable condition. C-+(-l*)at ) M the number of material weaknesses reported in the Independent !uditor2s (eport that were combined with other repeat material weaknesses from a prior fiscal year or with a new material weakness from the current fiscal year E+)*+, M the number of material weaknesses #ending balance$ reported in the Independent !uditor2s (eport for the current fiscal year. The number is calculated by adding the number of new material weakness reported by the auditors from the current fiscal year to the number of material weaknesses reported the prior fiscal year and then subtracting the number of weaknesses resolved and consolidated weaknesses during the current fiscal year.

68

80 0rom the data%it is clear that financial management and assist agencies in substantially complying with 00"I!..@ The intent of the 0"*oB is to improve the cost% uality% and performance of federal financial management systems by combining agency core systems #such as accounting$ at a limited number of shared service providers #SS1s$ and by devising uniform government7wide business standards and processes.

90 The general objective of improving financial performance in the federal government is non controversial. Striving toward more timely and accurate financial information% strengthening internal controls% reducing improper payments% increasing debt recovery% and bringing greater order to the management of federal assets appear beyond reproach. In order to reap full benefits from more timely and accurate financial data% some say such information needs to be taken into account by government decision makers% within both the executive branch and Congress. The financial statements may prove of interest for various facets of congressional oversight. *ikewise% some say the clearer identification of overpayments and underpayments may lead to administrative actions to correct deficiencies in program implementation. !t the same time% Congress may use the information for oversight hearings or for consideration of possible amendments in the authori/ing legislation to remedy existing statutory weaknesses which may have become evident.

To what extent have recent management initiatives improved federal financial performance% and what significant problems remainH <hat role canGshould Congress play in oversight of ontinuing implementation effortsH

69

).

0rom the given data it is clear% that federal financial management has helped a lot in

increasing the productivity and have minimi/ed the complexity in different sectors and have improved a lot in enhancing the By utili/ing effective practices from both the commercial and0ederal sectors% the innovative ideas and model programs have been developed to help0ederal agencies in their efforts to make financial management more efficient and effective.

;0 0rom the data %we find that we can strengthen internal controls and accounting systems. Internal control involves agency policies and practices regarding the effectiveness and efficiency of operations% reliability of financial reporting% and compliance with laws and regulations. The Chief 0inancial )fficers !ct of 5664 #C0) !ct% 1.*. 5457=C@% 54F Stat. :?3?$ created new chief financial officer positions in :F major executive departments and agencies. The original re uirements for audited financial statements in the C0) !ct were substantially expanded by provisions in the >overnment "anagement (eform re uiring the :F C0) agencies to prepare annual audited financial statements covering all accounts. The statements are now submitted as a part of an agency2s performance and accountability report% due F= days following the end of the covered fiscal year . The !ccountability of Tax Bollars !ct of :44: #1.*. 54C7 :?6%55@ Stat. :4F6$ further amended the C0) !ct% extending the re uirements for preparation of audited financial statements to virtually all executive branch agencies. In the same year% approval of the Improper 1ayments Information !ct re uired federal agencies to identify programs that were vulnerable to improper payments% to estimate annually the amount of under payments and over payments made by these programs% and to include this information in the annual performance and accountability reports.

70

14. 0rom the data% it is clear that data is published online regarding improper payments in high priority and high cost programs% including names of the entities that have received the largest amount of outstanding improper payments and of the accountable federal officials tasked with meeting reduction targets in their respective agencies.

330 0rom the data it is clear% research efforts have identified real7world and time7tested methods that agency C0)s can use to help transform their organi/ations from transaction processors and financial systems operators to catalysts and strategists. In leading these improvements% C0)s can serve as change agents to stimulate beneficial behaviors across their agencies% while providing he financial leadership needed to determine and align business direction with

financial strategies.

71

FINDINGS

72

FINDINGS

The study2s findings% albeit from a small sample% reinforce the changes and trends reported previously by other studies.(espondents in interviews and the online survey indicate thatA

N <orkforce planning is being done as part of the budget process at most agencies. <hat is lackingLand is more importantLis the identification of competency gaps and development of strategies to make sure the people with the right skills are available to ensure mission accomplishment. Technological and demographic changes% among other factors% are driving a major shift in the workforce% and targeted workforce planning is urgently needed to develop and implement strategies that are effective in responding to and implementing these changes.

N The mix of federal financial management positions is changingA clerical and technical positions are decreasing and professional and administrative positions are increasing. Technology is the major driver of this shift. Improved technology has decreased reliance on manual processes and the need for the clerical and technical staff that process transactions. 1ositions that are still needed re uire a better educated workforce.

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N )rgani/ations are experiencing a greater demand for people capable of providing analysis that supports decision7 making. !ll three major federal financial management positionsLaccountant% budget analyst and management and financial analyst #see page 6$Lre uire analytical and decision7support competencies. "uch of this analytical and decision support work is being driven by the influx of new reporting re uirements such as )"B Circulars !75:3 and !753@% by the 1erformance !ssessment (ating Tool #1!(T$ and the budgeting process% and )"B and congressional re uests of agencies to provide program outcomes and measures.

N (espondents indicate that the top competencies re uired for accounting% budget analysis% and management and financial analyst positions are knowledge of basic federal budgeting% accounting% and program concepts and principles. College graduates will not enter the federal workforce with these competencies. !gencies will have to train them.

N The major competencies that college graduates lack are knowledge of federal appropriations law and the federal accounting and budget process. 0or existing staff% communication skills and analytical capabilities are competencies that survey respondents cited most often as missing.

N Changes in technology% more demands for analytical and decision support skills% and new laws and regulations re uire a long7term commitment by employees and management to continuing professional education. !uditors and ac uisition professionals in the federal government show

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this commitment. They must complete a certain number of continuing professional education #C1'$ hours in every reporting period to prove that they are maintaining their skills. There is currently no similar re uirement for federal financial managers.

RECOMMENDATIONS

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RECOMMENDATIONS

The federal government shouldA

N Bevelop a comprehensive improvement plan for the federal financial management workforce% including proven strategies for making sure the people with the right skills are in the right jobs. !<orkforce 1lanning >uide specific to federal financial management is needed to help agencies develop and implement their plans.

N Incentives are necessary to push this process along. There have been some attempts to make legislative changes to provide incentives% such as better compensation and benefits% but more is needed. The ability to make use of such incentives would encourage agencies to do more effective workforce planning

N Institute a re uirement for continuing professional education #C1'$ for professional and administrative federal financial management positions% as is done now for federal government auditors. "anagers would have to obtain a specific number of C1' hours every two years. 'ducation providers could tailor courses that would provide the C1' hours and ensure that managers obtain and maintain the skills they need. )ne way to ensure that managers obtain C1' would be to have a certification that includes a C1' re uirement.

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N +rge the &ational !ssociation of State Boards of !ccountancy and the !merican Institute of Certified 1ublic !ccountants to include basic federal accounting examination% which already includes uestions on the C1!

uestions on state and local government accounting.

Including these would encourage colleges and universities to include a ,0ederal !ccounting 545. course in their curriculum. !>! is currently working with colleges and universities to have such a course included in their curriculam

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LIMITATIONS OF THE STUDY

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LIMITATIONS
30 The limitations of the study are that the study is limited to specific individuals and is not broadly studied.

40

Bue to the time constraint the study remained limited to certain sectors and does not cover the impact of federal financial management on all the sectors.

50

The respondents may not respond properly because of being busy in their personal matters% this may effect the validity of the data.

60

This study covers the importance of federal financial management in preventing improper payments and other financial problems% but it does not focus on over all significance of federal financial management.

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The study is limited to India and +S! and does not consider other economies of the world.

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The study takes into consideration the study of federal managers and C0)%s and do not consider other professionals. This suffers the validity of federal financial management.

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CONCLUSION

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CONCLUSION

It is concluded that the federal agencies have faced the challenge of providing financial services in an environment where work is being shaped by new technology integrated financial systems and the need to respond to new re uirements and re uests for value7added services% often with existing or reduced budgetary resources. !s federal work is changing% there has been increased federal government focus on workforce issues and ac uiring ,the right people with the right skills.. ;owever% progress toward that goal has been slow. In :445% the >overnment !ccountability )ffice #>!)$ identified human capital management as a government wide high7 risk area because federal agencies lacked a strategic approach to human capital management that integrated human capital efforts with their missions and program goals. In following agency progress on addressingthis high7risk area% >!) has issued a number of reports and provided testimony before the Congress #several of these are cited in the 'nd &otes to this paper$. In :445% the 'xecutive )ffice of the 1resident released the 1resident2s "anagement !genda #1"!$% which set out five management government twide reform initiatives for federal agencies. The first of the five% Strategic "anagement of ;uman Capital% encourages federal agencies to implement strategic workforce planning to support the development of a high7 performing workforce. This report provides another glimpse into the changes taking place in the federal financial management workforce in :44C and confirms the trends identified in previous reports. The federal financial management workforce is becoming more professioni/ed. "ore people have competencies focused on doing a better job supporting decisionmaking. ;owever% there is no
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overall strategy for ac uiring the right people with the right skills for the right jobs. (ecent college graduates do not possess the competencies federal financial managers need to support fully the information re uired for decision support% and strategies must reflect this reality. There is no evidence that competencies specific to federal financial management #for example% knowledge of federal appropriations law or the budget$ are likely to be a part of a new college graduate2s skill set. !s a result% federal agencies must implement programs to fill in the training gap for these new hires. Some agencies are already doing so. <orkforce planning is lacking in the federal financial management community. Technology% demographics and other factors are driving a major change in the workforce% and ade uate workforce planning is urgently needed to implement strategies that are effective in handling this change. ! <orkforce 1lanning >uide specific to federal financial management is needed to help agencies develop and implement the plans and incentives% including legislative% necessary to push this process along These changes also re uire a long7term commitment by employees and management to continuing professional education. "andatory certification and continuing professional education for federal financial management professionals% similar to what is in place for auditors and ac uisition professionals% would enable agencies to ensure that their workforce has up7to7date skills. The implications are clear. Changes in the federal financial management workforce will continue to take place. <ithout ade uate planning and strategies to handle these changes% agencies will not be able to support ade uately future financial decisions for the most complicated entity in the world. If they fail% the result could be inefficiencies and ineffectiveness on a grand scale% or a costly and perhaps inappropriate dependency on contract staff.

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BIBLIOGRAPHY
BOOKS>-

1 ( (usyagi

0inancial "anagement#Tata "C>raw ;ill%3rd 'dition$

-an ;ome

0inancial "anagement and 1olicy% 1earson 'ducation%:443% 5:th 'dition

1rasanna Chandra

0undamentals of financial "anagement

WEBSITES>

www.federal.financial.in www.financialmanagement.com www.financialmanage.co.org www.googlesearchengine.com

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QUESTIONNAIRE

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QUESTIONNAIRE
30 In which areas the federal financial management is important to the development of nations and industriesH #!$ Innovative solution #C$!dvisory Tax 40 #B$ !lternative approach #B$!udit

Is there any role of >overnment in deciding the 0ederal 0inancial "anagementH #!$ 8'S #B$ &)

50

Is there are any different ways to get high performance through federal financial managementH #!$ 8'S #B$ &)

60

Can we utili/e effective practices from both the commercial and 0ederal sectorsH #!$ 8'S #B$ &)

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<e can disclose material weaknesses in internal control over financial reporting by H #!$!uditors and )"B audit #C$Consolidated #B$!gencies #B$(esolved

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80

Can we improve the cost% uality% and performance of federal financial management systems by combining agency core systemsH #!$8'S #B$ &)

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<hat is the role of 0ederal financial management in "inimi/ing complexity and in "aximising productivityH #!$0inancial 1erformance #B$0inancial Information

#C$(educing improper payments #B$Increasing debt recovery

:0

The internal controls and accounting systems can be strengthen byH #!$Innovative Ideas #C$1ractices #B$ "odel programs

;0

<e publish data online regarding improper payments in high priority and by highH

3<0

Is there any role of C0)s with services% ideas% approaches% and modelsH #!$8'S #B$&)

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