Someone to Mind the Store

Tuesday, September 18, 1990

Imagine an organization with an annual cash budget of $1.2 trillion and more than 2 million civilian employees, whose activities reach around the world and even into outer space.

 

Imagine further that this organization is run by a fractious board of 535 micromanaging directors concerned not with overall profit and loss, but with maximizing their own individual power, visibility and popularity in their states and congressional districts.

 

Now imagine that organization without anything resembling a chief financial officer, and you have a perfect snapshot of our federal government.

 

This has not gone unnoticed in recent years. The Grace Commission, in its report to President Reagan of January 1984, found to its dismay that federal financial management procedures had little in common with accepted private sector practices and standards. Budgeting, accounting, cash/loan/debt management and auditing functions were (and are) conducted in the federal government largely independent of one another. "As a result,” the commission concluded, "the interrelationships between responsibilities for programs and action authorities are unclear, and this is an invitation to inefficiencies, abuse and fraud.” It urged the president to create an Office of Financial Management, reporting directly to the president.

 

In September 1985, the president's Council on Management Improvement looked at the same wasteland of bungled management and found, for example, that less than 50 percent of government accounting and financial reporting systems were capable of producing timely, accurate and relevant information for management decision making; 61 percent of such systems couldn't provide the data necessary for assessing management performance; 35 percent of the systems were incapable of providing sufficient data to support the allocation of funds; and 33 percent didn't provide sufficient data to support the allocation of funds among programs or beneficiaries.

 

In 1986, as an enthusiastic freshman congressman (and a CPA), I introduced legislation to create a chief financial officer of the U.S. government. It proved to be a non-starter in Congress, for the simple reason (as I later found out) that many members of Congress actually benefited from the confusion and slippage in financial management. It disguised the true cost of government, thus allowing the perpetuation and even expansion of their favorite programs.

 

A competent CFO with real authority would be able to force agencies to account for bad loans and unfunded guarantees, close zombie savings-and-loan associations instead of keeping them alive to multiply their taxpayer-covered losses, manage cash so that interest accrues to the government rather than to a depository bank and get rid of superfluous employees operating incompatible and inefficient computer information systems, just to name a few possibilities. None of these advances generated any enthusiasm among congressmen who appeared to be more concerned about the interests of insolvent borrowers, savings-and-loan looters, depository banks and federal employee unions, respectively.

 

Although Congress was not then prepared to act, on July 23, 1987, OMB Director James Miller III appointed a "chief financial officer for the federal government." Unfortunately, Mr. Miller was unable to confer upon the new CFO the real power and status that an effective CFO requires. The new appointee was also the associate director of OMB for management, three layers down from the president. The present occupant of those two posts, Frank Hodson, has the right idea but also lacks the statutory authority or presidential mandate to do the kind of job the nation needs and our taxpayers deserve.

 

Thus despite six years of growing attention to this issue, we have yet to do anything about creating a CFO with real statutory authority and enforcement powers, despite growing support from such key members of Congress as Sen. John Glenn, Ohio Democrat, and Reps. Frank Horton, New York Republican, and John Conyers, Michigan Democrat.

 

There is now, thanks to Mr. Hodson and OMB Director Richard Darman, a "Chief Financial Officer's Council" composed of designated CFOs from some two dozen agencies. Only two of them, however (Housing and Urban Development, and Veterans Affairs), have CFOs with statutory authority. HUD has one because its monstrous financial scandal forced Congress to approve every stringent management step proposed by Secretary Jack Kemp. The Department of Veterans Affairs has one because it was included in the legislation creating this newest Cabinet department in 1988, when the CFO idea was finally becoming more popular.

 

Make no mistake about it: This is more than just a technical management issue to be debated among accountants and financial managers. This is big bucks. The Grace Commission, reporting six years ago, estimated that more than $120 billion was being spent in programs and systems lacking adequate financial management, and that at then current rates, more than $1.8 trillion would be spent in those areas by the year 2000. The commission estimated that its financial management recommendations alone implemented in 1985, could save as much as $1.4 trillion over the ensuing 15 years. Some modest progress has been made since 1985, but I dare say that the bulk of the savings to the taxpayer have yet to be realized.

 

Today and tomorrow, both House and Senate committees will hold hearings on proposals for a CFO statute. The respective chairmen (Mr. Conyers and Mr. Glenn) will hear every witness declare it is a wonderful and badly needed idea. The trouble will come when the question arises of just where to put the CFO and how much control to give the CFO over cherished executive agency and congressional turf.

 

If there is anything that a seasoned corporate leader knows, it is that the CFO must report to the chief executive officer of the corporation. In the case of the federal government, that means to the president. The CFO must be the president's trusted appointee, confirmed by the Senate for professional competence and integrity, occupying an independent organization within the Executive Office of the President close to the president's ear. It will not do to have a token CFO buried two levels down in OMB.

 

This Article was Originally Published in The Washington Times

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