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Getting Government on the Right Financial Management Track
There may be no more important responsibility of government than to act as an effective steward of the taxpayers’ money. It is therefore no surprise that the President has made improving financial performance one of his top management priorities by setting ambitious, yet attainable, goals to improve financial management government-wide.

I am pleased to report that the Executive Branch is on schedule in meeting those goals. This is demonstrated by 19 of the 24 major Federal agencies, representing more than 75 percent of all Federal dollars, obtaining unqualified or “clean” audit opinions on their financial statements this past year, while publishing their audited financial statements merely 45 days after the close of the fiscal year (a deadline comparable or shorter than that given to the private sector). Those same agencies reduced the number of material weaknesses identified by financial auditors by approximately 15 percent last year and by more than 34 percent since 2001. In addition, over the past two years, Federal agencies have eliminated $9 billion in improper payments and disposed of $3.5 billion in excess Federal real estate. These accomplishments are especially noteworthy in today’s climate, where audit scrutiny continues to increase for all organizations in the wake of corporate scandals in the private sector and the Sarbanes-Oxley Act. These accomplishments are also noteworthy when considering how far we have come since the Chief Financial Officers Act was passed in 1990. At that time, only one Federal agency achieved a clean audit opinion, and until recently, Federal agencies took as long as five months to complete their financial reports.

While much work remains, it is clear from the results achieved to date that Federal managers are making significant progress in ensuring that all Federal dollars are properly accounted for and wisely spent. Of equal note, improvements made by Federal agencies to the accuracy and timeliness of financial reporting have provided taxpayers with a more transparent view into the Federal government’s finances.

An important example of improved transparency is the work of the Department of the Treasury and the Office of Management and Budget to report financial results for the government as a whole. This past year, a debate emerged over the best measure for reporting the Federal budget deficit. Some have argued that the budget deficit total reported in the President’s Budget understates the deficit because it is reported on a “cash” basis and does not include accrued costs (i.e., costs incurred during the year, but not paid out until sometime in the future). Those that support this argument believe that the “net operating cost,” which includes accrued costs for certain programs (e.g., Federal employee pensions), and is reported in the Financial Report of the United States Government (Financial Report), is the “right” measure for assessing the deficit.

In reality, the deficit total in the President’s Budget and the net operating cost total in the Financial Report complement one another, each providing valuable information, that together provide a full picture of the Government’s finances. Unfortunately, the debate over which is the “right” financial measure – the budget deficit or the net operating cost – deflects attention from the more important question of what these measures, taken together, are telling us about the short and long-term outlook for the government’s finances. Specifically, in recent years, both reports have indicated that the President’s economic plan is having a positive impact on the short-term financial condition of the Federal government. Most notably, spending restraint and increased tax revenues from a strong economy have led to significant reductions in the budget deficit total and the net operating cost of government. However, both reports demonstrate that in the long-term, we face a staggering financial imbalance for entitlement programs that must be addressed by policymakers through reforms soon. I hope that future debates about the government’s finances will focus, not on whether one measure is superior to another, but on how we can be proactive in making changes to show improvements on all key indicators of the Federal government’s financial health.

As I meet with our Federal Chief Financial Officers and Deputy Chief Financial Officers on a regular basis, I know the financial community is taking the commitment to improve financial management seriously. I am confident that our collective efforts will be fruitful and ultimately provide the Administration, Congress and the American taxpayers with reliable information on which to base some of our most critical decisions yet to be made.