Financial Reporting: Transparency and Accountability in the Public Sector
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Minchin G. Lewis February 23, 2024
“Infrastructure” for our roadway systems is a major concern with millions of vehicles traveling per day. Our government financial infrastructure systems process billions of financial transactions every day. The public sector’s financial system needs repair.
Major corporations have invested millions in infrastructure to monitor financial performance as closely as transportation departments track rust on bridges. Reporting is current and accurate. Infrastructure investment has made this possible. Government needs a massive investment in financial management infrastructure, including technology and personnel, to strengthen five institutional pillars.
Pillar 1: Replace line-item budgeting:
The first pillar is damaged when financial management infrastructure starts off wrong. Most governments are mired in the line-item budget review process. Many legislative review sessions involve adversarial grilling of department managers on what they are spending, not on what they are doing. Program budgeting needs to replace the micro-management of the line-item review. When financial reporting begins with identifying program results to be achieved, transparency can allow for meaningful decision-making.
Pillar 2: Modernize technology to produce timely reports:
Few public agencies have stringent reporting requirements. Public housing authorities, as shown below, have nine months to submit audited financial statements—General Motors has nine weeks. This exposes two weaknesses. First, audit standards require complete, consistent, accurate and timely information for standard financial statements. Many governmental agencies go through a torturous process of cleaning up their financial records in preparation for a year-end audit. Secondly, this means that they did not have appropriate information for monitoring their performance with monthly interim financial statements.
Source: Department of Housing and Urban Development financial reporting schedule for Public Housing Authorities FinancialReportingDueDates (hud.gov)
The technology exists to avoid such problems. The broken pillar needs to be replaced by modernizing computerized accounting systems—hardware and software. Reporting requirements like HUD’s deadlines for financial reporting should be updated. Even sun-lit transparency will not assure accountability when the information has been in the shadows for nine months.
Pillar 3: Provide staff development for financial management:
The challenge is complexity. Governmental units serving significant client groups generate thousands, and sometimes millions, of financial transactions. And due to the complexity of governmental structures, they don’t look like QuickBooks. Few citizens and fewer legislators are prepared to interpret the financial reports that are currently available. The Government Accounting Standards Board (GASB) made a valiant effort to produce user-friendly statements in the GASB-34 reforms, but the complexity was increased for the average citizen. The Government Finance Officers Association provides a full range of tools to prepare public sector decision-makers as well as citizens who want accountability and transparency. Financial Management Infrastructure needs the light that comes from up-to-date managers continuing their professional education.
Pillar 4: Encourage public participation in the budget process:
Private sector quarterly earnings reports receive public attention when they are released. Investors have a stake in those results. Citizens have a stake in the financial management results of their local governments, the fourth pillar in the financial management infrastructure. The pillar can be strengthened by giving citizens an opportunity to participate in the budgetary process, creating a sense of ownership. As citizens trace government resources from the budget to the financial statements, the financial infrastructure plays its role in supporting accountability and transparency to offset the complexity of governmental reports. In reviewing a government’s general purpose financial statements, interested citizens may find that transportation programs cost $22 million, but this will not tell them if those funds were effective. News media may expose programs that were not effective. But officials and interested citizens, if they have participated in the budget process, may go beyond the superficial news reports and add clarity to the financial statement numbers, strengthening the financial management infrastructure.
Pillar 5: Focus on strategic issues:
Efforts to improve financial management infrastructure can fail when transparency is mistaken for openness—attention is paid to non-strategic measures. A report from U.S. Public Interest Research Group (PIRG) examined government spending transparency from a “checkbook” perspective. Mike Maciag, in Governing, quoted a PIRG author that a review of a government’s expenditures can protect against corruption so citizens can feel confident about how their governments spend tax dollars. The type of information that results from this kind of review can be effective from a political point of view, but it has little impact on creating value for the community. Strategic focus, not simply sunlight, is necessary to support financial management infrastructure.
Conclusion:
The five pillars of financial management infrastructure can be improved by public investment:
Program budgeting to identify results
Timely reporting with modern technology
Training and development for management
Citizen Participation for accountability
Strategic focus for maximum return on investment
The financial management infrastructure for our governments is more difficult to strengthen than the infrastructure for our highways and bridges. But just as the pillars supporting our bridges and highways need investments to safely serve millions of vehicles per day, the pillars that support our financial management systems require investment to process billions of government transactions to serve our communities with clarity and transparency.
Author: Minch Lewis is a part-time instructor at Syracuse University’s Maxwell School. He served as the elected City Auditor in Syracuse, NY, for 9 years. He has developed and installed financial management systems for the affordable housing industry. He earned his MPA degree at the Maxwell School. He is a Certified Government Financial Manager (CGFM). He can be reached at [email protected] .
Financial Reporting: Transparency and Accountability in the Public Sector
The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.
By Minchin G. Lewis
February 23, 2024
“Infrastructure” for our roadway systems is a major concern with millions of vehicles traveling per day. Our government financial infrastructure systems process billions of financial transactions every day. The public sector’s financial system needs repair.
Major corporations have invested millions in infrastructure to monitor financial performance as closely as transportation departments track rust on bridges. Reporting is current and accurate. Infrastructure investment has made this possible. Government needs a massive investment in financial management infrastructure, including technology and personnel, to strengthen five institutional pillars.
Pillar 1: Replace line-item budgeting:
The first pillar is damaged when financial management infrastructure starts off wrong. Most governments are mired in the line-item budget review process. Many legislative review sessions involve adversarial grilling of department managers on what they are spending, not on what they are doing. Program budgeting needs to replace the micro-management of the line-item review. When financial reporting begins with identifying program results to be achieved, transparency can allow for meaningful decision-making.
Pillar 2: Modernize technology to produce timely reports:
Few public agencies have stringent reporting requirements. Public housing authorities, as shown below, have nine months to submit audited financial statements—General Motors has nine weeks. This exposes two weaknesses. First, audit standards require complete, consistent, accurate and timely information for standard financial statements. Many governmental agencies go through a torturous process of cleaning up their financial records in preparation for a year-end audit. Secondly, this means that they did not have appropriate information for monitoring their performance with monthly interim financial statements.
The technology exists to avoid such problems. The broken pillar needs to be replaced by modernizing computerized accounting systems—hardware and software. Reporting requirements like HUD’s deadlines for financial reporting should be updated. Even sun-lit transparency will not assure accountability when the information has been in the shadows for nine months.
Pillar 3: Provide staff development for financial management:
The challenge is complexity. Governmental units serving significant client groups generate thousands, and sometimes millions, of financial transactions. And due to the complexity of governmental structures, they don’t look like QuickBooks. Few citizens and fewer legislators are prepared to interpret the financial reports that are currently available. The Government Accounting Standards Board (GASB) made a valiant effort to produce user-friendly statements in the GASB-34 reforms, but the complexity was increased for the average citizen. The Government Finance Officers Association provides a full range of tools to prepare public sector decision-makers as well as citizens who want accountability and transparency. Financial Management Infrastructure needs the light that comes from up-to-date managers continuing their professional education.
Pillar 4: Encourage public participation in the budget process:
Private sector quarterly earnings reports receive public attention when they are released. Investors have a stake in those results. Citizens have a stake in the financial management results of their local governments, the fourth pillar in the financial management infrastructure. The pillar can be strengthened by giving citizens an opportunity to participate in the budgetary process, creating a sense of ownership. As citizens trace government resources from the budget to the financial statements, the financial infrastructure plays its role in supporting accountability and transparency to offset the complexity of governmental reports. In reviewing a government’s general purpose financial statements, interested citizens may find that transportation programs cost $22 million, but this will not tell them if those funds were effective. News media may expose programs that were not effective. But officials and interested citizens, if they have participated in the budget process, may go beyond the superficial news reports and add clarity to the financial statement numbers, strengthening the financial management infrastructure.
Pillar 5: Focus on strategic issues:
Efforts to improve financial management infrastructure can fail when transparency is mistaken for openness—attention is paid to non-strategic measures. A report from U.S. Public Interest Research Group (PIRG) examined government spending transparency from a “checkbook” perspective. Mike Maciag, in Governing, quoted a PIRG author that a review of a government’s expenditures can protect against corruption so citizens can feel confident about how their governments spend tax dollars. The type of information that results from this kind of review can be effective from a political point of view, but it has little impact on creating value for the community. Strategic focus, not simply sunlight, is necessary to support financial management infrastructure.
Conclusion:
The five pillars of financial management infrastructure can be improved by public investment:
The financial management infrastructure for our governments is more difficult to strengthen than the infrastructure for our highways and bridges. But just as the pillars supporting our bridges and highways need investments to safely serve millions of vehicles per day, the pillars that support our financial management systems require investment to process billions of government transactions to serve our communities with clarity and transparency.
Author: Minch Lewis is a part-time instructor at Syracuse University’s Maxwell School. He served as the elected City Auditor in Syracuse, NY, for 9 years. He has developed and installed financial management systems for the affordable housing industry. He earned his MPA degree at the Maxwell School. He is a Certified Government Financial Manager (CGFM). He can be reached at [email protected] .
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