Leadership, Accountability and the Inspectors General

A policy address before The Presidents Council on Integrity and Efficiency, which is comprised of the inspectors general of all federal agencies and departments

I'd like to thank the leadership of the PCIE and the ECIE for the invitation to speak to you today.  It is certainly a pleasure to be here with so many people who share my passion for making the government more accountable.  

As stewards of the taxpayers' money, I believe we have no greater responsibility than to ensure that every dollar is spent wisely.  Regardless of party affiliation or ideological bent, all of us entrusted with the handling of public resources must be held accountable for using them effectively and safeguarding them from fraud and misuse. 

The founding fathers recognized the importance of the role of stewardship.  Section 9 in Article I of the U.S. Constitution required that "a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."
 
The role of financial managers has changed a bit since 1789.  While responsible stewardship is paramount, it is no longer the only goal.  As leaders in the IG Community and in your agencies, in many ways, you are the first line of defense against waste, fraud, and mismanagement in the federal government.  All of us in Congress appreciate your leadership.

 In the last two decades, Congress has enacted a number of important management reforms, designed to make the government more accountable.  Perhaps most importantly, Congress enacted the Inspector General Act, creating Inspectors General across the federal government.

When Congress passed this legislation in 1978 it was in response to major management scandals and serious and widespread internal control breakdowns that resulted in significant monetary losses and reduced effectiveness and efficiency within the federal government.  By creating IGs, we added an important balance to our system of separation of powers.  Congress envisioned IGs as permanent, independent, non-partisan, and objective.  Today, I believe IGs function as envisioned.

My Subcommittee commemorated the 25th Anniversary of the IG Act with a hearing in 2003.  We talked about the results we've seen through the work of IGs government-wide:  billions of dollars in savings, thousands of successful criminal prosecutions, and agencies and IGs working together to make government more effective and more accountable.  The IG Act has been largely successful. It has also been aided by other management- related reforms. 

Reforms such as the Federal Manager's Financial Integrity Act (FMFIA) of 1982 helped enhance the baseline of government accountability.  The Chief Financial Officers Act solidified this baseline in 1990.  These laws, together with, the Government Performance and Results Act (GPRA), the Government Management Reform Act (GMRA) and the Federal Financial Management Improvement Act (FFMIA) form the statutory foundation for effective government management.

The CFO Act has had a significant impact on the financial accountability of the Federal government.  After five years of debate, Congress passed the CFO Act of 1990.  The CFO Act became the cornerstone for a host of management reforms.  For the first time, Federal agencies were required to submit to audit.  Congress imparted the importance and prominence of sound financial management by establishing a management structure that placed the Chief Financial Officer in a position of power, reporting directly to the agency head, appointed by the President with the advice and consent of the Senate.  The underlying goal was clear:  CFOs would become more than stewards - they would become strategists who were part of an Agency's top leadership team.  Of course, the success of this vision depends on a cadre of well-trained professionals and the partnership of private-sector contractors.  These are people who ensure, day in and day out, that the government is accountable.

Since the passage of the CFO Act, we have seen remarkable progress.  In the past, the main focus was on paying the bills.  Accounting was relegated to the back room where little attention was being paid.  Financial reporting was neither timely nor useful to management.  Accounting standards for the Federal government simply did not exist.  Automated systems, when they existed, were made for tracking appropriations, not decision-making.  They were not integrated.  Today in the Federal government we are moving from data entry to data analysis.  We are beginning to see the development of cost information and performance data.  A complete set of financial statements is produced at every single agency.  We now have a full set of accounting standards.  More Departments are developing integrated financial management systems, eliminating redundancies, creating efficiencies, reducing the possibility of error, and facilitating analysis.  As these changes continue, we will be closer to the original goal of the CFO Act - strategic financial management - and we will continue to realize more value for the taxpayer.

When the first financial statements were produced in FY 1996, only six agencies produced timely financial statements and only six earned clean opinions from their auditors.  We have made steady progress since that time and today, as in the past two fiscal years, nearly all major agencies achieve clean opinions.

Of course, strategic financial management does not end with a clean opinion.  In fact, clean audits are merely a starting point.  While we applaud agencies for their commitment to getting clean opinions, the majority of agencies are working around financial management systems problems by expending significant resources and making extensive manual adjustments after the end of the fiscal year.  The result has been a clean but stale snapshot of an agency's financial position as of September 30th of any given fiscal year.  This practice does not yield useful information for day-to-day decision-making. 

As part of the audit process and the evolution of agency financial management, IGs are playing an ever-increasing role in ensuring leadership and accountability in federal agencies.

My colleagues and I on the Government Reform Committee believe a clean audit opinion should occur as a natural consequence of top-notch year-round financial management not because of end of the year heroic efforts requiring thousands of hours to create financial statements that are reliable for only one day.  What we need to manage effectively timely, accurate, useful financial data that can be used to manage and make decisions.  Without this information, the federal government cannot analyze costs and benefits or gather an accurate assessment of program performance.

In times of growing budget constraints, reliable financial information takes on even more importance as agencies try to do more with less.

 Congress plays an important role in financial management.  The CFO Act started an important trend by establishing a Congressional stake in government management.  The series of laws that came about in response to management crises in the eighties have taken hold and brought us to where we are today.  By creating a Congressional interest in management and putting requirement in statute, reforms are more likely to work.

 Prior efforts to make the federal government more effective, including the Hoover Commission, Zero-Based Budgeting, the Planning-Programming-Budgeting System, Reinventing Government, have come and gone with little lasting effect.  Federal managers had learned -correctly -that if they waited, each new administration would likely attempt yet another broad-based reform.  From a management standpoint, it is difficult in that type of environment to make long-range plans; and it's next to impossible to achieve the kind of cultural shift needed to reform the management of the federal government. 

 Major reform takes time.  With the IG Act, the CFO Act and the Government Performance and Results Act and the Federal Financial Management Improvement Act, Congress put government reform in statute.  Because of this statutory framework, federal managers now look at the requirements for financial audits, performance plans, and strategic plans and know they are here to stay regardless of changes in Congress and the Executive Branch.  We have seen slow, sustainable improvement

 Adapting to these principles should not be seen as an additional "cost of doing business". This type of strategic focus should be an integral part of doing business the right way.

 While statutory requirements must underlie reform efforts, it takes bold leadership in the Executive Branch to make these reports and requirements more than just a paperwork exercise.  President Bush should take great pride in the improvements we've seen as a result of the President's Management Agenda.  Unfortunately, the accomplishments of the PMA are often overlooked, but I believe they will be one of the most important and lasting legacies of this Administration.  Through leadership and recognition, the underlying strategy of the PMA is to make the government more citizen-centered and less bureaucracy-centered.  It employs market-based solutions through a focus on five government-wide goals:  improved financial performance, better human capital management, expanded use of technology, more competition to encourage innovation, and the linking of performance to budget decisions.

 I've heard Improved Financial Performance referred to as the "quiet" part of the PMA.   I would argue that it is the most important initiative.  It is the foundation for all the others.  Without reliable, useful financial information - including cost information -we simply do not know if other initiatives are working effectively.  The PMA is making a difference.

 The reforms I just discussed are each, in their own right, extremely important to the successful management of the government.  However, we cannot complete this cycle without effective financial management systems.

Unless there is a marked improvement in the financial systems used throughout the executive branch, the federal government will not be able to produce the kind of financial information that it needs to effectively manage its day-to-day operations.  Furthermore, Congress and the Administration need timely, accurate, and useful financial and performance information to make choices about today's needs versus the long-term fiscal future. 

The CFO Act calls for modernization of financial management systems so that the systematic measurement of performance, the development of cost information, and integration of program, budget, and financial information from management reporting can be achieved.  The Federal Financial Management Improvement Act of 1996 (FFMIA) builds on the foundation laid by the CFO Act by emphasizing the need for agencies to have systems that can generate reliable useful and timely information with which to make fully informed decisions and to ensure accountability on an ongoing basis. 

GAO is required to report annually to the Congress on how the agencies are complying with the congressional mandates of FFMIA.  According to GAO, (GAO-03-1062) the nature and seriousness of the reported problems indicate that agency management does not yet have a full range of reliable information needed for accountability, performance reporting, and decision-making.  This situation exists notwithstanding the fact that the majority of CFO Act agencies received clean audit opinions.  The number of unqualified or clean opinions has been increasing over the past six years, but the number of agencies reported to have substantially noncompliant systems has remained relatively stable: many agencies are working around systems problems to obtain clean opinions by expending significant resources and making extensive manual adjustments after the end of the fiscal year.  The discrepancy between earning clean opinions and actually achieving sound financial management is a serious problem that must be addressed.  We need to have the right systems in place.

Conclusion

 Congress must resist the temptation to ignore management reforms.  They are not the most exciting issues.  They rarely make headlines.  In fact, while the CFO Act was being debated in Congress, someone said it was about as exciting as sorting cranberries.  That may be true, but in reality there are few matters more urgent than ensuring that the federal government is accountable to the American people.

 Congress also must work to ensure that those laws that are in place - the IG Act, the Integrity Act, the CFO Act, GPRA and FFMIA and others are enforced and the agencies know that if they are not in compliance with these laws, there is a penalty.  Further, we must ensure that these laws - designed to make government more efficient - actually do make government more efficient.  The federal management environment has changed a great deal in the last two decades and because of this I believe we should take a look at all of these laws, the pluses and minuses of each and where they overlap to determine if we can improve the overall statutory structure.  

 Part of this process is to review the IG Act itself.  I have spoken to many IGs personally about the need for IG reform, and I have been working with my colleagues in Congress and with representatives of the PCIE and ECIE to develop a reform proposal that would enhance the independence of IGs, establish a statutory term of office, and create a unified IG council in statute.  These changes, while not easily accomplished in any administration, are important to allowing the IG Act to fully function as Congress envisioned back in 1978.

 My staff and I are also now beginning the massive project of trying to get our arms around the more than 800 pages of statutory text that provides direction for government financial managers.  It is my goal, over the next few months to begin to draft legislation that would simplify, streamline and enhance the laws governing agency financial management.  If there are areas where these laws overlap, we should consolidate them.  If there are duplicative reporting requirements, we should look to streamline that process to ensure that we are not just generating reports for the sake of generating reports.  Too often in the past we in Congress have simply sought to add additional requirement on top of additional requirement without any thought to what we are really trying to accomplish - making the government more effective and efficient.  I look forward to working with you on these proposals in the coming months and years.  The role and leadership of IGs in making the government accountable cannot be understated.

 Thank you for inviting me to speak here today, and, again, I appreciate the leadership of all of you in making the government more accountable.