Clarify and Strengthen OMB/Treasury Finance Roles

Clarify and Strengthen the Financial Management Roles of OMB and
Treasury

BACKGROUND

The fundamental goal of the Chief Financial Officers (CFO) Act of 1990
is to reform and improve financial management in the federal
government.[Endnote 1] A key element of the act is the establishment of
a new financial management leadership structure. Specifically, the act
designated a new Deputy Director for Management in the Office of
Management and Budget (OMB) as the chief officer responsible for federal
financial management, established an Office of Federal Financial
Management (OFFM) with a controller as its director to carry out the
functions given the new OMB Deputy Director, and established CFOs in 23
agencies across government. The Deputy Director for Management is
charged with establishing financial management policies and
requirements, monitoring the establishment and operation of financial
systems, outlining the agency structures for CFOs, and developing and
reporting on a 5-year plan to improve financial management.

Although the act was very specific about the duties and responsibilities
of this new leadership, it also clearly stated that nothing in the act
would interfere with the current duties and responsibilities of the
Department of the Treasury.[Endnote 2] Those duties specific to
governmentwide financial management are designated to the commissioner
of the Financial Management Service (FMS). The commissioner is
responsible for a wide range of accounting, reporting, disbursing,
collecting, and cash management functions for the federal government.
FMS operates governmentwide financial information systems and--although
these are prototypes--produces the only consolidated financial
statements for the federal government.  The commissioner reports to the
Fiscal Assistant Secretary, who is responsible for administering the
government's financing operations and fiscal affairs and reports to the
Treasury Under Secretary for Domestic Finance.

In the past, OMB and the Department of the Treasury have tried to
outline their working relationships in a memorandum of understanding
(MOU). A revision of that MOU was initiated, but has not been finalized.

NEED FOR CHANGE

In the three years since the CFO Act was passed, a tremendous effort has
been initiated across government to implement the provisions of the act.
While many will agree that progress has been made, it has become more
evident that in the area of governmentwide financial management
leadership, the division of roles between OMB and the Department of the
Treasury has become blurred between policy and implementation. This has
resulted in the lengthy and sometimes contentious development of
policies and implementing regulations between the two institutions. More
seriously, it leaves agencies, which are dependent on this policy and
guidance, unable to move forward with reforms and sometimes caught in
the middle of policy disputes between the two central agencies. The two
areas where this blurring of roles manifests itself are policy and
procedure development and governmentwide financial information.

Policy/Procedure Development. There is growing concern in the federal
financial management community that OMB has not outlined a broad
strategic plan for financial management that clearly outlines priorities
and goals for the agencies. Currently, the only document in which a plan
for federal financial management exists is OMB's Federal Financial
Management Status Report and 5-Year Plan.[Endnote 3] For the past two
years, OMB has presented this in a fairly lengthy report to Congress,
outlining the status of federal financial management and the 5-year plan
for improving financial management.  Although the report does describe a
multi-year plan, it is also exhaustive in its delineation of the status
of programs and initiatives for financial management. As a result, it is
very difficult to determine the priorities or goals of its many
programs--in turn making it more difficult for the Department of the
Treasury and the agencies to implement these programs. OMB should
instead provide a clearly stated federal financial management strategic
plan and related performance goals. It should be short in length; crisp
and specific in terms of expectations. Until OMB develops and presents a
broad strategic plan, it will be very difficult to dedicate resources
and measure whether progress is being made in improving financial
management.

While there is room to improve in outlining a strategic financial
management plan, there is no lack for policy and implementing procedure
guidance. The enactment of the CFO Act and the establishment of OFFM
resulted in the demand for more financial management policy. OMB's
response to those demands raises the question of where policy
development stops and defining implementing procedures begins,
especially in areas where the Department of the Treasury was responsible
for financial activities prior to the CFO Act.

OMB issues various governmentwide policies for financial management in a
series of circulars. Treasury provides operating guidance to the
agencies on the detailed procedures to implement these broad policies in
the Treasury Financial Manual. The agencies are responsible for
implementing all of the above. Increasingly, OMB's circulars are
becoming more lengthy in their description of policies and more
prescriptive regarding implementation. This tendency is especially
evident in cash management, credit management, and financial systems
activities. Clarifying the shared responsibilities of OMB and the
Department of the Treasury in these areas and others would save
resources.

Governmentwide Budget and Financial Information. The CFO Act requires
agencies to develop systems that integrate budget and financial
information. Central agency financial systems in both OMB and the
Department of the Treasury are not excluded from this challenge. This
information should also be integrated and based on consistent accounting
and systems standards at the federal government level.  Currently,
separate systems in OMB and the Department of the Treasury collect this
information from the agencies. OMB maintains systems for budget
formulation and budget execution, while the Department of the Treasury
maintains systems for governmentwide collections, payments, and cash
flow management. Data are inconsistently defined, reported, and
collected. This leads to a duplicative, labor-intensive process
requiring OMB, the Department of the Treasury, and the agencies to
dedicate extensive resources in reconciling information to produce
useful analyses and reports on the fiscal condition of the federal
government. OMB should clearly define, for all agencies, budget and
financial data and what constitutes an integrated budget and financial
system. Then it should work with the Department of the Treasury and the
agencies to achieve integrated governmentwide financial information.

Although interim systems have been developed to consolidate data, there
remains a lack of clear authority and responsibility for the integrity
of governmentwide financial information. While most managers already
recognize the need to take advantage of the availability of more
sophisticated information technology to provide accurate and more timely
information, they also must recognize the need to change their approach
to the management of this data and information resource. Data
stewardship is a current information technology management approach that
treats data as a corporate resource and requires management and
accountability for that resource. Data stewardship assigns
responsibility for collecting and reporting this information, and
requires accountability for the integrity of that data.

The ever-increasing demand for timely, accurate, and integrated budget
and financial information is equally shared by OMB and the agencies. At
the governmentwide level, federal financial managers should be no less
rigorous in their drive toward reviewing information needs and then
restructuring processes and systems to maximize the use of technology
now and in the future. They need to agree on a long-term strategy for
the integration of budget and financial information, dedicate the
resources toward this effort, and then implement and manage the
integrity of that data information resource. Ensuring the responsible
management of this function requires senior-level leadership to bring
together OMB, the Department of the Treasury, and the agencies.

OMB and the Department of the Treasury have initiated efforts to
establish an information architecture to link broad financial
information needs with agency-specific requirements. This project,
called MIDAS, is at the very early stages. Similarly, initial
discussions have occurred between the two central agencies on the need
for governmentwide data stewardship. Data steward-ship at the
governmentwide level is a shared responsibility. OMB is responsible for
defining data needs; the Department of the Treasury and the agencies are
responsible for collecting that data; and all are responsible for the
data integrity. In order to recognize the shared responsibility for
integrated governmentwide financial information, a small, high-level
steering group could collectively oversee the planning and
implementation of this function. Membership could include OMB, the
Department of the Treasury, and the agencies to allow the various data
users and collectors to participate in that management function. Since
OMB has the responsibility for governmentwide budget and financial
policy, it should chair this steering group.

In summary, as the implementation of the CFO Act has evolved, issues on
the level of leadership, the dividing point between policy and
implementing procedures, and the management of financial information
have surfaced that question the clear delineation of leadership roles
between OMB and the Department of the Treasury. Resolving these issues
now will allow both agencies to dedicate their limited resources toward
the development and implementation of a broad strategic plan and
guidance to agencies for improving financial management, rather than
toward disputes over authority and duplication of federal financial
management roles.

ENDNOTES

1. The Chief Financial Officers Act of 1990, Public Law 101-576
(November 15, 1990).

2. Ibid., Section 204.

3. U.S. Office of Management and Budget, Federal Financial Management
Status Report and 5-Year Plan, (Washington, D.C., August 1993), pp.
i-viii.