Accounting and Information Management
Division
April 2000
EXECUTIVE GUIDE
Creating Value Through World-class Financial Management
GAO/AIMD-00-134
Preface
To help promote effective implementation of federal financial
management reform, we studied the financial management practices
and improvement efforts of nine leading public and private sector
finance organizations to identify the success factors, practices,
and outcomes associated with worldclass financial management. This
executive guide is intended to assist federal agencies in achieving
the objectives of the Chief Financial Officers (CFO) Act of 1990
and subsequent related legislation by providing case studies of 11
practices critical for establishing and maintaining sound financial
operations.
The reforms laid out by the CFO Act and subsequent related
legislation, when effectively implemented, will place the federal
government on par with private sector corporations and state and
local governments that have already made the necessary investment
in financial management. While many agencies have made great
strides toward generating more accurate and reliable annual
financial statements, the process of preparing financial statements
and subjecting them to independent audit is only the first step
toward satisfying the requirements of the legislation. To reap the
full benefits of financial reform, federal finance organizations
must go beyond the audit opinion toward
(1) establishing seamless systems and processes, (2) routinely
generating reliable cost and performance information and analysis,
(3) undertaking other valueadded activities that support strategic
decisionmaking and mission performance, and (4) building a finance
team that supports the agency's mission and goals.
This executive guide was prepared under the direction of Lisa G.
Jacobson, Director, Defense Audits. Other GAO contacts and key
contributors are listed in appendix VIII. Questions can be directed
to me at (202) 5122600, [email protected], or Linda Garrison,
Assistant Director, by phone, email, or regular mail at the
following:
Jeffrey C. Steinhoff Acting Assistant Comptroller General
Accounting and Information Management Division
Contents
Background
Learning from Leading Organizations
Background
Creating a government that runs more efficiently and effectively
has been a public concern for decades. In recent years, however,
the push towards creating a smaller, more results oriented
government has intensified the urgency to find ways to do more with
less. To effectively evaluate and improve the value derived from
government programs and spending, the Congress and other
decisionmakers must have accurate and reliable financial
information on program cost and performance. Further, they must be
able to rely on federal finance organizations to provide analysis
and insight about the financial implications of program decisions
and the impact of those decisions on agency performance goals and
objectives. Currently, financial data are not always useful,
relevant, timely, and reliable enough to be used for federal
decisionmaking, and many federal finance organizations are not yet
well equipped enough to routinely provide analysis or advice
related to this information.
In the private sector, the role of the finance organization
historically has centered on oversight and control, focusing on its
fiduciary responsibilities and paying less attention to increasing
the effectiveness of operating divisions. However, over the past
decade, dramatic changes in the business environment have driven
finance organizations to reevaluate this role. Increased
competition resulting from an emerging global market has put
pressure on finance organizations to find new ways to reduce
administrative costs, add value, and provide a competitive
advantage. At the same time, advances in information technology
have made it possible for the finance function to shift from a
paperdriven, labor intensive, clerical role to a more consultative
role as advisor, strategist, analyst, and business partner.
According to a 1997 study performed by a major public accounting
firm,1 most CFOs in 1989 were spending 75 to 80 percent of their
time on fiduciary issues, essentially external reporting. Today,
the goal of many leading finance organizations is to spend about 20
percent of their time on fiduciary issues and the remaining time
performing strategic support activities, such as cost analysis or
business performance analysis. Also, a 1996 report by the Institute
of Management Accountants found that over the previous 5 to 10
years, management accountants were increasingly being asked to
supplement their traditional accounting role with more financial
analysis and management consulting.2
Dramatic changes also have occurred in federal financial
management in response to the most comprehensive management reform
legislation of the past 40 years. The combination of reforms
ushered in by (1) the CFO Act of 1990, (2) the Government
Management Reform Act (GMRA) of 1994, (3) the Federal Financial
Management Improvement Act (FFMIA) of 1996, (4) the Government
Performance and Results Act (GPRA) of 1993, and (5) the
ClingerCohen Act of 1996 will, if successfully implemented, provide
the necessary foundation to run an effective, resultsoriented
government.
1
Reinventing the CFO: Moving from Financial Management to
Strategic Management (Coopers and Lybrand, New York, New York:
1997).
2
The Practice Analysis of Management Accounting, Institute of
Management Accountants (Montvale, New Jersey: 1996).
4
The CFO Act and GMRA spelled out a long overdue and ambitious
agenda to help the government remedy its lack of useful, relevant,
timely, and reliable financial information. For the government's
major departments and agencies, this legislation (1) established
chief financial officer positions,
(2) required audited financial statements annually, and (3) set
expectations for agencies to develop and deploy more modern
financial management systems, produce sound cost and operating
performance information, and design results oriented reports on the
government's financial condition by integrating budget, accounting,
and program information. FFMIA built on the CFO Act and GMRA by
requiring financial statement auditors to report whether agencies'
financial systems comply with federal financial management systems
requirements, federal accounting standards, and the U.S. Government
Standard General Ledger.
The Government Performance and Results Act of 1993commonly know
as GPRA or the Results Actwas enacted to hold federal agencies
accountable for achieving program results. It requires that
agencies (1) set multiyear strategic goals and corresponding annual
goals, (2) measure performance toward the achievement of those
goals, and (3) report on their progress. Effective implementation
of the Results Act, however, hinges on agencies' ability to
routinely produce meaningful budget, accounting, and program
information needed to manage performance and measure results. The
CFO Act and other related financial reform legislation, if
successfully implemented, will provide the basis for producing this
information.
To help insure that agencies effectively use information
technology to achieve program results, the Congress passed the
ClingerCohen Act of 1996. The ClingerCohen Act builds on the best
practices of leading public and private sector organizations by
requiring agencies to better link their information technology
planning and investment decisions to program missions and goals.
The ClingerCohen Act contains critical provisions requiring federal
agencies to use investment and capital planning processes to manage
their information management technology portfolios. Further, it
requires that agencies modernize inefficient administrative and
missionrelated work processes before making significant technology
investments to support them.
Implemented together, these measures provide a basis for
improving accountability over government operations and routinely
producing sound cost and operating performance information, thereby
making it possible to better assess and improve the government's
financial condition and operating performance.
Learning From Leading Organizations
To help promote effective implementation of federal financial
management reform, we studied the financial management practices
and improvement efforts of nine leading private and public sector
finance organizations to identify the success factors, practices,
and outcomes associated with worldclass financial management. The
six private sector and three state organizations we studied have
been recognized by their peers and other independent researchers
for their outstanding financial management practices and successful
finance reengineering efforts. For more information on the criteria
we used to select these organizations, see appendix I. As federal
agencies continue to improve their management and financial
accountability, they will be able to draw upon the expertise and
experience of these private sector and state government
organizations.
Leading Finance Organizations
At one time, all of these organizations found themselves in an
environment similar to the one confronting federal agencies
todayone in which they were called upon to improve financial
management while simultaneously reducing costs. The key practices
drawn from the organizations we examined can provide a useful
framework for federal agencies working to improve their financial
management. This guide discusses the goals, success factors, and
practices associated with building a worldclass finance
organization. Specifically, we have identified 4 overall goals
common to these leading organizations along with 11 practices that
were critical to their ability to meet these goals. In addition,
this guide includes examples from our case study work that best
illustrate how each practice enabled the selected organization to
achieve the desired outcomes.
We preceded our case study work with an extensive review of
financial management literature, guides, and reports. We also
consulted with leading public and private sector experts in
financial management. Case study data were collected through
interviews and analysis of documentation. Further, the case study
organizations reviewed all case study information included in this
guide for accuracy and completeness. Appendix I provides a more
detailed description of our research objectives, scope, and
methodology.
6
Characteristics of a Worldclass Finance Organization
A worldclass finance organization can best be defined in terms
of the business outcomes it producesoutcomes such as improved
business analysis, innovative solutions to business problems,
reduced operating costs, increased capability to perform adhoc
analysis, and improved overall business performance. To build a
worldclass finance organization and help achieve better business
outcomes, each of the organizations we examined set an agenda for
transforming the finance organization by defining a " shared
vision" -i.e., a mission, a vision for the future, core values,
goals, and strategies- geared toward making the finance
organization a valuecreating, customerfocused partner in business
results. Although the techniques used varied depending on the
organization's size and culture and some efforts were more mature
than others, the goals, practices, and success factors outlined in
the following illustration were instrumental in the organization
achieving its vision.
Goals, Practices, and Strategies To Consider
This section summarizes the results of our research and case
study work. Specifically, it contains the 4 overall goals and 11
practices we identified as critical for building a worldclass
finance organization. To facilitate the practical use of this
guide, information is organized into four sections-each summarizing
one of the four goals as well as those practices that have enabled
leading organizations to achieve these goals. Further, for each of
the 11 practices, we provided (1) a summary of key characteristics,
(2) illustrative case study examples, and (3) strategies for
federal agencies to consider when implementing the practice.
8
Make Financial Management an Entitywide Priority
The quality and image of federal financial management has
suffered from decades of neglect and an organizational culture that
has not fully recognized the value of good financial managementnot
even at its most basic levelas a means of ensuring accountability.
Making financial management a priority throughout the federal
government involves changing the organizational culture of federal
agencies. Although the views about how an organization can change
its culture vary considerably, the organizations we studied
identified leadership as the most important factor in successfully
making cultural changes. Top management must be totally committed
in both words and actions to changing the culture, and this
commitment must be sustained and demonstrated to staff.
The leading organizations we studied made financial management
improvement an entitywide priority by building a foundation of
control and accountability that supports external reporting and
performance management, providing clear strong executive
leadership, and using training to change the organizational culture
and engage line management.
Practice 1
Build a Foundation of Control and Accountability That Supports
External Reporting and Performance Management
Key characteristics
•
The financial reporting and audit process is a basic
management and oversight tool.
•
Accountability is part of the organizational culture and
goes well beyond receiving an unqualified audit opinion.
•
Internal controls meet both external financial reporting
and performance management control objectives without significantly
impacting efficiency.
A solid foundation of control and accountability requires a
system of checks and balances that provides reasonable assurance
that the entity's transactions are appropriately recorded and
reported, its assets protected, its established policies followed,
and its resources used economically and efficiently for the
purposes intended. The private sector and state organizations we
visited built and maintained this foundation largely through the
discipline of preparing routine periodic financial statements and
annually subjecting them to an independent audit. However, senior
executives at leading organizations recognize that the financial
information demanded by decisionmakers to measure and manage
performance requires greater precision and more timely access than
that required to receive an unqualified opinion on the entity's
financial statements. To ensure that decisionmakers have useful,
relevant, timely, and reliable information, leading finance
organizations establish accountability goals that extend well
beyond receiving an unqualified audit opinion. In addition, the
internal controls at these organizations are designed to
efficiently meet the control objectives necessary for performance
measurement and management as well as external financial
reporting.
Similarly, according to a 1998 survey of federal CFOs,3 federal
finance organizations continue to expand their focus from audited
financial statements to include performance measurement and
strategic planning. For example, the CFO Council and the Office of
Management and Budget (OMB) are aggressively working on eight
priority initiatives outlined in the1998 Federal Financial
Management Status Report and FiveYear Plan. Although one of the
eight priorities focused on obtaining an unqualified opinion on
agency financial statements, the eight priorities taken as a whole
aim at improving the financial and performance information needed
to make and implement effective policy, management, stewardship,
and program decisions.
3
CFO Survey: Preparing for Tomorrow's Way of Doing Business,
Grant Thornton LLP and the Association of Government Accountants
(Alexandria, Virginia: March 1998).
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
10
Goals, Practices, and Strategies to Consider ♦ Make Financial
Management an Entitywide Priority ♦ Practice 1
Case Studies
Accountability goals and an effective control structure provide
the basis for a more resultsoriented government
Commonwealth of Virginia
To build a foundation of control and accountability, senior
government leaders in the Commonwealth of Virginia had clear goals
and objectives that went beyond receiving an unqualified audit
opinion. With the passage of the Single Audit Act in 1984, the
Commonwealth of Virginia had to produce and have audited
Comprehensive Annual Financial Reports (CAFR) for the first time.
Although not required by the act, the state Comptroller had each
state agency also produce audited financial statements, thereby
ensuring accountability at every level of government rather than
solely at those levels considered material to CAFR. The goal was to
ensure that managers and lawmakers would have useful, relevant, and
timely information for assessing and managing program
performance.
Now that Virginia routinely receives an unqualified opinion on
its CAFR, only those state agencies with a specific need (e.g.,
agencies' operating trust, enterprise and internal service funds)
are required to produce auditable financial statements. The
remaining agencies now are required to certify the accuracy of
financial information that feeds CAFR. By subjecting all state
agencies to the rigorous discipline of preparing financial reports
and having them audited, the Comptroller increased accountability
for data accuracy beyond that required to receive an unqualified
audit opinion. State officials continue to raise the bar and seek
new ways to increase accountability and improve the state's
performance. For example, the Department of Planning and Budget
currently performs trend analysis and prepares fiscal impact
statements for the state's legislature, using useful, relevant, and
timely financial information from the state's integrated budget and
accounting systems. Also, to ensure that performance data and
longrange plans drive budget decisions, the state has set goals,
including implementing an activitybased accounting and budgeting
system, for enhancing its performance budgeting process.
Texas
Similarly, in Texas the performance management system is an
integral part of agency and statewide planning structures,
evaluation and decisionmaking processes, and accountability
systems. Creating and maintaining a performance management system
required close, consistent, and coordinated attention above and
beyond that required for external financial reporting purposes. In
Texas, the ability to produce fairly stated external financial
reports was only the first step in building a more effective,
resultsoriented government. An unqualified opinion on the state's
CAFR provided, assurance that financial information was accurate
and reliable for evaluating its overall financial position.
However, an unqualified audit opinion by itself does not ensure
that the information needed to measure and manage performance is
useful, relevant, timely, or reliable. The internal controls that
were considered adequate for external financial reporting were not
always sufficient for performance management. For example, internal
controls over expenditure data met the control objectives for
aggregating and reporting this information on the financial
statements; however, they did not meet the objectives for
calculating perunitcost efficiency measures required for
performance management.
Therefore, state agencies, with the help of the State Auditor's
Office, reevaluated and redesigned agency internal controls to meet
both external financial reporting and performance management
control objectives. Because the state routinely receives an
unqualified opinion on its CAFR, the State Auditor's Office and
agency internal auditors no longer spend the bulk of their time on
control issues related to external financial reporting. Instead,
their focus is on improving the reliability of performance
management information.
Strategies to Consider
To build a foundation of control and accountability, senior
executives could:
•
Leverage audit resources and the financial statement
audit process to improve data reliability and increase
accountability.
•
Increase accountability by establishing goals for (1)
producing financial and performance reports for major programs
and/or business segments and (2) moving the organization toward
more frequent financial reporting (e.g., quarterly,
monthly).
•
As part of the agency's GPRA performance planning
process, (1) establish efficiency criteria that measure the cost
associated with program outcomes and (2) develop an approach for
assessing and improving agency internal controls over
financerelated efficiency measures.
•
Use accounting and operational performance data to
support budget formulation and strategic planning.
12
Practice 2
Provide Clear, Strong Executive Leadership
Key characteristics
•
The chief executive recognizes the important role the
finance organization can play in improving overall business
performance and involves key business/line managers in financial
management improvement initiatives.
•
The CFO is a member of the top management
team.
•
Top executives' sustained commitment to improving
financial management is reinforced through both their words and
actions.
A powerful, visionary leader can change the direction, culture,
and perceptions of the finance organization. The chief executive
officers (CEO) of leading organizations understand the important
role the CFO and the finance organization play in improving the
entity's overall business performance. Consequently, the CFO is a
central figure on the top management team and heavily involved in
strategic planning and decisionmaking. In addition, the senior
executives at these organizations demonstrated their sustained
commitment to financerelated improvement initiatives by using key
business/line managers to drive improvement efforts, attending key
meetings, ensuring that the necessary resources are made available,
and creating a system of rewards and incentives to recognize those
who support improvement initiatives. In fact, the committed support
of the CEO and line management are critical to the success of
financerelated improvement initiatives.
In the same way, federal financial management reform has
recently gained momentum through the committed support of top
federal leaders. For example, the President has made financial
management improvement a top priority and established a goal to
obtain an unqualified opinion on the government's financial
statements. To achieve this goal, he directed the head of each
agency without an unqualified audit opinion to submit to the OMB
(1) an initial plan for resolving financial reporting deficiencies
and (2) quarterly progress reports for achieving the goal. Further,
OMB is required to periodically report to the Vice President on the
agency submissions and governmentwide progress. In addition, many
federal CFOs have primary leadership responsibility for
implementing the Results Act at the department or agency level. The
CFO Council has played a key leadership role in establishing
financial and performance improvement goals and priorities for
changing the way federal agencies plan, budget, manage, evaluate,
and account for federal programs.
To ensure that federal financial management improvement efforts
succeed and that the President's and the CFO Council's priorities
are achieved, the support and involvement of key nonfinancial
executives and managers is critical. This commitment starts with
the heads of agencies establishing priorities and setting
expectations and continues with the active involvement of
program/line managers and executives in driving financial
improvement initiatives.
Strategies to Consider
To demonstrate and reinforce commitment to improving financial
management, heads of agencies and senior executives could:
•
Form an executive management team (heads of component
organizations and those reporting directly to the agency head) to
establish a vision and fundamental goals and provide sponsorship
for each major financial management improvement project.
•
Involve key program /business managers in driving
financial improvement initiatives.
•
Develop a plan to ensure that all key constituents
visibly support financial management improvement
initiatives.
•
Actively market the program benefits of financial
management improvement efforts to secure the necessary resources
and Congressional support.
•
Establish an expectation that top financial executives,
as part of the top management team, provide forward looking
analysis that creates a link between accounting information and
budget formulation and contributes to strategic planning and
decisionmaking.
Practice 3 Key characteristics
Use Training to Change the • Nonfinancial managers are educated
about the financial implications of business Organizational Culture
and decisions.
Engage Line Management
• Training and tools are provided to facilitate and accelerate
the pace of change initiatives.
Improving federal financial management hinges upon leadership's
ability to manage change and create an organizational culture that
values good financial management. Legislation starting with the CFO
Act of 1990 has been directed at enhancing the finance
organization's responsibilities in supporting the management of
federal activities. Although acceptance by the program offices has
sometimes been slow, according to a recent survey of federal CFOs,4
program directors are starting to look to the finance organization
for help. They attribute the change to a joint effort by program
and finance offices to implement the Results Act and develop
strategic plans. In addition, the CFO Council's numerous outreach
efforts and GPRArelated education events have helped to win the
acceptance of program managers.
The key to successfully managing change and changing
organizational culture is gaining the support of line management.
To change the organizational culture and enlist the support of line
managers, many organizations utilize training programs. Some are
generic in nature and are intended to help people anticipate and
cope with change and ensure that every person in the organization
understands the need for change. Others are specifically geared
towards providing line managers with a greater appreciation of the
financial implications of their business decisions. Through these
interactions, financial managers gain a better understanding of
business problems and nonfinancial managers gain an appreciation of
the value of financial information. This not only produces better
managers, it also helps break down functional barriers that can
affect productivity and impede improvement efforts.
In addition, these organizations provide tools to facilitate and
accelerate the pace of the change initiative. According to one
executive we met with, change initiatives that are implemented
slowly generally fail because staff have too much time to
contemplate the potential negative effects that change might bring
and rally opposition that ultimately undermines the effort.
4
CFO Survey: Preparing for Tomorrow's Way of Doing Business,
Grant Thornton LLP and the Association of Government Accountants
(Alexandria, Virginia: March 1998).
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
16
Goals, Practices, and Strategies to Consider ♦ Make Financial
Management an Entitywide Priority ♦ Practice 3
Case Study
Training programs teach nonfinancial managers the value of
financial information and facilitate the pace of change
The Boeing Company
To ensure that nonfinancial managers at all levels understand
the value of financial information, Boeing has developed an
education program that teaches managers basic business competence.
Using a threestep development planning process, managers assess
their current capabilities, determine their specific development
needs, and build and execute a development plan. (See appendix II.)
Depending on individual need, Boeing offers a variety of learning
experiences including selfpaced, team, classroom, case study, and
simulation. For example, through Boeing's Creating Value learning
project, managers learn how to recognize the importance of cash
flow and its influence on business decisions, understand
shareholder expectations and the consequences of not meeting them,
and identify the relationship between individual decisions and
actions and shareholder value.
The information is presented in a "multiple media" format in
order to accommodate different learning styles and to allow
learning to occur in different environments and in periods best
suited to the learner. Other learning experiences include course
work, such as Elements of Product Cost, in which participants
analyze and use cost element information to support decisionmaking
related to improvement efforts, ensuring that resources are applied
to those activities that return the greatest benefits and provide
the highest value to customers. During the class, participants
learn to apply unit cost principles to the products they produce as
well as how process, activity, and individual cost elements, such
as labor, materials, and overhead, are accumulated to become unit
or product cost.
General Electric
General Electric's (GE) education and training programs have
played a crucial role in changing the organizational culture and
facilitating both financial and nonfinancial improvement
initiatives. One of the most successful programs is the Change
Acceleration Process (CAP) workshop. During the CAP workshop, GE
managers and professional staff are given tools and taught
strategies for removing cultural barriers to change. GE's finance
organization has used these tools and strategies to facilitate
improvement initiatives, ranging from organizational restructuring
to changing the role of the internal audit function.
To be successful, the project teams spearheading these
initiatives had to achieve each of the following objectives: (1)
lead change, (2) create a shared need,
(3)
shape a vision, (4) mobilize commitment,
(5)
make change last, (6) monitor progress, and
(7)
change systems and structures. To ensure that each
objective would be accomplished, the team used a survey to profile
the change process and measures its progress. Staff and managers
were surveyed periodically and asked to score each of the five
dimensions from 100 percent to 0 percent based on how well they
think each is being accomplished. For change to be successful, most
dimensions must be rated high.
The profile directed the team's efforts so that they could
develop a strategy to address the areas that needed the most
attention. For example, mobilizing commitment, especially from
those outside the finance organization, was often one of the more
difficult objectives to accomplish. However, the team used a
method, learned in the CAP workshop, for analyzing and increasing
stakeholder commitment levels. First, the team listed the names of
those individuals whose support was critical for the success of the
project. Then, they assessed each stakeholder's level of commitment
based on their perceived level of agreementto what degree does the
individual agree that change is needed? If the team perceived a
person did not agree, it developed an individual plan to get this
person's support. Plans were developed by addressing questions such
as: Why are they resisting this change? Do they have a vested
interest in the status quo? What new opportunities will they have
when the change is implemented? and Who influences this person and
what is their level of acceptance?
Strategies to Consider
To engage line management and create a culture that values good
financial management, heads of agencies and senior executives
could:
•
Identify key financial and nonfinancial managers and
staff whose support is critical to the success of financial
management improvement initiatives.
•
Develop curriculum and provide training that teaches key
nonfinancial managers and staff
•
how to use financial information to improve operational
planning and decisionmaking and
•
how reform legislation (e.g. CFO Act, GMRA, FFMIA, GPRA)
will affect operating unit roles, responsibilities, and processes
within the context of specific agency operations.
•
For all key managers and staff, develop curriculum and
provide training that provides a framework and tools that can be
used to facilitate and accelerate the pace of change
initiatives.
18
Redefine the Role of Finance To Better Support Mission
Objectives
In the private sector, the role of the finance organization
historically has centered on oversight and control, focusing on its
fiduciary responsibilities and external financial reporting
requirements. However, over the past decade dramatic changes in the
business environment have forced finance organizations to
reevaluate this role. The pressure to reduce administrative costs
resulting from competition in an emerging global market drove many
finance organizations to find more efficient ways to deliver their
services. Nonetheless, becoming more efficient is not enough to
remain competitive. Today, leading finance organizations are
focusing more on internal customer requirements by providing
products and services that directly support strategic
decisionmaking and ultimately improve overall business
performance.
Similarly, competition has changed the environment in which
federal agencies operate. Shrinking budgets have increased
competition for scarce resources, requiring managers to make tough
resource allocation decisions that may affect program delivery.
Without the support of federal finance organizations, program
managers may not be able to determine or defend the cost associated
with or benefits derived from government activities. We found the
leading finance organizations we visited had redefined the role of
finance to better support mission objectives by assessing the
finance organization's current role in meeting mission objectives,
maximizing the efficiency of daytoday accounting activities, and
organizing finance to add value.
Practice 4
Assess the Finance Organization's Current Role in Meeting
Mission Objectives
Key characteristics
•
The percentage of resources spent on strategic support
activities is used as an indicator of how well finance is
supporting mission objectives.
•
Benchmarking and customer feedback is used to identify
performance gaps and best practices.
Many leading finance organizations assess their current role in
supporting mission objectives by comparing the percentage of staff
time spent on strategic support activities, such as business
performance analysis or cost analysis, with the percentage of
resources spent on transaction processing and other routine
accounting activities. According to a 1995 Financial Executives
Research Foundation report,5 transaction processing and other
routine accounting activities, such as accounts payable, payroll,
and external reporting, consume about 69 percent of costs within
finance. Other studies indicate that these activities consume as
much as 80 percent of finance's resources. While transaction
processing will always exist, it does not have to drain the finance
organization's resources. Therefore, many leading finance
organizations have calculated and compared these percentages as a
general indication of how well they supported the organization's
business objectives. A goal for many leading organizations is to
reduce the time spent on transaction processing activities to 20
percent.
To further assess the efficiency and effectiveness of specific
products and services, many of the leading finance organizations we
studied relied on benchmarking6 and customer feedback. For example,
comparisons against worldclass benchmarks, such as closing the
books in less than 4 days or processing payroll at $1.39 per
transaction, were used to identify activities or processes in need
of improvement. (See appendix III: Worldclass Performance Metrics.)
In addition, these organizations used feedback from their internal
customers to gather specific information related to quality and
customer expectations. For example, HewlettPackard's finance
organization conducted a detailed survey of about 200 internal
customers worldwide in which customers were asked to rank certain
components, or services, as either high or low in terms of both
importance and satisfaction. The survey results were then used to
guide improvement initiatives.
5
Reengineering the Finance Function, Financial Executives
Research Foundation, Executive Report, Vol. 2, No. 3 (June
1995).
6
Benchmarking is the continuous process of measuring products,
services, and practices against the toughest competitors or those
organizations recognized as industry leaders.
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Worldclass Financial Management
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Goals, Practices, and Strategies to Consider ♦ Redefine the Role
of Finance to Better Support Mission Objectives ♦ Practice 4
Case Study
Assessing and revising the organization's charter, processes,
products, and services enables finance to better support business
objectives
The role of Pfizer's finance organization has changed
significantly over the past several years, from an organization
focused primarily on control and compliance, to one that is
integral to making strategic business decisions. About 6 years ago,
under the leadership of Pfizer's CEO and CFO, Pfizer's corporate
finance organization embarked on a reengineering initiative to
transform its charter, processes, products, and services. The CEO
and CFO's vision was to make Pfizer " the preeminent corporate
finance organization in the industry." At the heart of this vision
was the concept that the finance organization should actively
support the strategic imperatives of Pfizer Inc.
Unlike many finance organizations going through this type of
transformation, Pfizer's change effort was not in reaction to a
crisis. In fact, given the company's long history of profitable
growth, there seemed to be little reason to change. Pfizer's CFO,
on the other hand, saw an opportunity to do things more effectively
and efficiently and thereby redeploy resources from transactional
activities (e.g., closing the books, preparing tax returns, paying
invoices) to value added activities (e.g., operations, treasury and
tax planning). The finance organization, for example, was producing
too much data and not enough information. To build a case for
change, Pfizer's CFO initiated a benchmarking survey to determine
exactly how his organization stacked up against the other leading
finance organizations. The results dramatized the magnitude of the
opportunity.
For example, Pfizer took 7 days to close its books versus the 3
to 4 day worldclass standard. Further, it cost Pfizer twice as much
as the benchmark average to pay an invoice. This sobering news
served a vital purposeit created a sense of urgency surrounding the
need to change and helped the CFO rally the organizational support
needed to institute a comprehensive reengineering initiative
To facilitate change within the finance organization, several
crossfunctional process improvement teams were established. Through
comprehensive revisions to its charter, processes, organization and
systems, Pfizer has reduced the cost associated with transaction
processing activities by up to 50 percent in certain functions and
shifted its focus to activities that directly support Pfizer's
business objectives.
The shift in focus and resources has allowed Pfizer's finance
organization to become a " growth enabler" on behalf of the company
by:
•
supplying the necessary resources (from information to
capital);
•
providing increased opportunities to invest (redeploy
financial gains or savings on behalf of the business);
• offering business solutions (" how," not " why not");
and
•
assisting in making the right business
decisions.
Strategies to Consider
To assess the finance organization's current role in meeting
mission objectives, agency CFOs and senior finance executives
could:
•
Identify all major functions performed by the finance
organization (e.g., accounts payable, payroll, performance
reporting, performance analysis) and group each function into
meaningful categories (e.g., transaction processing, control and
compliance, mission support).
•
Establish and monitor agency specific performance goals
and measures that reflect the finance organization's role in
meeting mission objectives (i.e., the percentage of time or
resources devoted to mission support vs. transaction processing or
control and compliance activities).
•
Benchmark financial management practices and processes
with recognized industry leaders (e.g. the cost of finance as a
percentage of total outlays, unit cost per accounting transaction)
in order to measure performance and identify best
practices.
•
To the extent that operating in a federal environment
affects specific benchmarks, compare financial management practices
and processes with other federal agencies to provide a context with
which to interpret benchmarking results.
•
Periodically survey internal customers to obtain
information related to the quality and value of the products and
services they receive and use this information to guide improvement
initiatives.
22
Practice 5
Maximize the Efficiency of Daytoday Accounting Activities
Key characteristics
•
Inefficient processes are eliminated or
streamlined.
•
Transaction processing activities are consolidated,
standardized, and reengineered at shared service
centers.
•
The cost and benefits of outsourcing routine accounting
activities are considered.
As part of an overall strategy to reduce the cost of finance and
better support business objectives, many leading organizations have
reduced the number of staff required to perform routine transaction
processing activities by eliminating or streamlining inefficient
processes and/or consolidating these activities at shared services
centers. Similarly, some federal agencies are aggressively
expanding their use of Electronic Funds Transfer to include
contract payments and travel payments as a means of increasing the
efficiency of their routine accounting activities.
Each of the six private sector finance organizations we visited
consolidated, standardized, and reengineered routine processes,
such as accounts payable, fixed asset accounting, and payroll at
shared service centers. The primary objective for moving to shared
services is to reduce operating costs. However, other benefits
included better control and standardization of processes, more
costeffective technology deployment, and an enhanced position for
continual improvement and customer service.
Although their approach varied depending on the size, culture,
and industry, leading organizations have realized the benefits of
shared services by completing each of the following stages. The
first stage is consolidation and includes changing the
organizational structure and gaining control over processes. The
second stage is standardization and entails changing processes,
adopting a common technology platform, and continuous improvement.
The final stage is reengineering and involves changing workflow and
leveraging technology through the use of electronic commerce, data
warehousing, and document imaging.
Similar to the findings in our previous report on outsourcing
the finance function,7 we found that although outsourcing is
considered an option for reducing costs and improving efficiency,
none of the leading organizations we visited were currently
outsourcing any significant aspect of their finance organizations.
The primary reason for not outsourcing is due to the limited
capacity of outsourcing vendors to perform larger, more complex
finance and accounting operations. However, these organizations
indicated that they are continually evaluating opportunities to
reduce costs and improve quality; therefore, as the outsourcing
market evolves and the capacity and quality of outsourcing vendors
improves, outsourcing may become a more attractive alternative.
7
Financial Management: Outsourcing of Finance and Accounting
Functions (GAO/AIMD/NSIAD9843).
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
Case Study
Effectively implementing shared service centers can result in
reduced operating costs and better customer support
Over the past decade, hightech companies have seen their gross
margins shrink smaller and smaller as a result of increased
competition and the steady introduction of newer, faster, and more
advanced technology. To remain competitive and ensure continued
growth, Hewlett Packard formed a task force to find ways to reduce
the cost of the finance organization. At the time, the cost of
finance was
2.8 percent of company revenues and accounting transaction costs
were more than two to three times that of comparable companies. The
task force recommended that Hewlett Packard consolidate its
transaction processing activities such as accounts payable,
accounts receivable, payroll, and fixed assets accounting from over
100 decentralized centers into just 8 Financial Service Centers
worldwide. As a result, the number of employees needed to process
accounting transactions was reduced by more than halffrom about
2,500 to only 1,200 employees worldwide.
By implementing the Financial Service Centers, Hewlett Packard
reduced the costs of its finance organization from 2.8 percent of
revenues in 1989 to 1.4 percent in 1994 and to less than 1.0
percent by 1998. The company's finance costs are now in the top
quartile of comparable organizations.
However, creating a shared service center was much more than
simply centralizing activities and cashing in on economies of
scale. To achieve these cost savings and provide innovative,
costeffective shared business services, Hewlett Packard not only
had to consolidate its activities, but it also had to reengineer
its processes and change its organizational structure.
At one Financial Service Center, processreengineering
initiatives alone have resulted in cost savings of $36 million
since 1990. Through the use of electronic data interchange,
document imaging, and common software platforms, the center has
maximized its use of human resources. Each month the center's 295
employees process 165,000 invoices, 15,000 travel expense reports,
44,000 checks, 77,000 payments, and 122,000 electronic
transactions, reimbursements, and deposits. In addition, the center
performs general ledger and fixed asset accounting and responds to
customer inquiries. As part of its overall effort to reduce
infrastructure costs, the center also redesigned its organizational
structure using a selfdirected, teambased approach. Each of the
fourto eightperson teams is responsible for a number of tasks, such
as timecards, overtime, and discretionary budget management. The
benefits of a team concept include ownership of customer problems,
higher morale, and increased creativity/problem solving.
24
Strategies to Consider
To maximize the efficiency of daytoday accounting activities,
senior executives could:
Identify highvolume processes or transactions that do not
directly support the agency's mission (lowvalue, lowrisk) and
evaluate opportunities for
•
consolidating, standardizing, and reengineering
transaction processing and other routine accounting activities at a
shared service center, initially by department and then across
departments;
•
eliminating, streamlining, or reengineering costly,
inefficient transaction processing and routine accounting
activities, or
• outsourcing transaction processing and routine accounting
activities.
Key characteristics
Organize Finance to Add Value • The finance organization's
mission supports the entity's business objectives.
• The organizational structure and human capital strategies
support strategic business unit needs as well as traditional
controllership and transaction processing needs.
According to a recent survey of federal CFOs,8 the federal
finance organization of the future will have fewer people, with a
greater percentage of analysts than clerks. Currently, however,
most functions within finance organizations are focused primarily
on (1) establishing and administering policy,
(2) tracking, monitoring, and reconciling account balances, or
(3) ensuring compliance with laws and regulations. While they
recognize the need for change, according to the CFOs surveyed, many
questions remain unanswered regarding how best to scope, define,
and organize finance office responsibilities.
When it comes to organizational design, we found that leading
finance organizations often had the same or similar core functions
(i.e., budgeting, treasury management, general accounting,
payroll). However, the way these functions were organized varied
depending on individual entity needs. In practice 5 of this guide,
we discussed how leading organizations reduced the number of
resources required to perform financial management activities by
(1) consolidating activities at a shared service center and (2)
eliminating or streamlining duplicative or inefficient processes.
Their goal was not only to reduce the cost of finance but also to
organize finance to add value by reallocating finance resources to
more productive strategic support activities.
To accomplish this, leading finance organizations have realigned
their mission and organizational structure to better support the
entity's business objectives. Specifically, many leading
organizations have (1) organized around core business processes to
simplify work and flatten hierarchies,
(2) consolidated certain transaction processing activities to
gain economies of scale, and (3) moved functions, such as cost
accounting and financial analysis, to the business units to support
business units' strategic planning and decisionmaking needs. In
addition, these organizations have created a coherent human capital
strategythat is, a framework of human capital policies, programs,
and practices specifically designed to steer the organization
toward its shared visionand integrated this strategy with the
organization's overall strategic planning. (See practices 10 and 11
for information on attracting, retaining, and developing financial
professionals.)
8
CFO Survey: Preparing for Tomorrow's Way of Doing Business,
Grant Thornton LLP and the Association of Government Accountants
(Alexandria, Virginia: March 1998).
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
26
Goals, Practices, and Strategies to Consider ♦ Redefine the Role
of Finance to Better Support Mission Objectives ♦ Practice 5
Strategies to Consider
To organize finance to add value, senior executives could:
•
Define the finance organization's mission, vision for the
future, core values, goals, and strategies to support the agency's
overall mission objectives.
•
Develop an explicit workforce planning strategy that is
linked to the agency's strategic and program planning efforts to
ensure that financial managers and staff with skills for analyzing
and interpreting financial data will support the agency's strategic
planning and decisionmaking needs at both the field and
headquarters level. (See practices 10 & 11 for information on
attracting, retaining, and developing financial
professionals).
28
Provide Meaningful Information to Decisionmakers
Financial information is meaningful when it is useful, relevant,
timely, and reliable. However, many federal agencies lack the
systems and processes required to produce meaningful financial
information needed for management decisionmaking. For example, many
agency financial and management information systems do not
routinely provide adequate, timely cost or performance information
needed to manage cost, measure performance, make program funding
decisions, and analyze outsourcing or privatization options.
Similarly, many private sector and state organizations have
struggled to overcome some of the same management information
issues that now face federal agencies.
Over the past decade, global competition and advances in
information technology have changed information requirements and
users' expectations regarding the availability and usefulness of
financial information. Financial information that, in the past, was
considered adequate for decisionmaking is now considered
overaggregated and too late to be useful. The leading finance
organizations we visited enhanced their capabilities for providing
meaningful information to decisionmakers by developing management
information systems that support the partnership between finance
and operations, reengineering processes in conjunction with
implementing new technology, and translating financial data into
meaningful information.
Practice 7
Develop Systems That Support the Partnership Between Finance
and Operations
Key characteristics
•
The general ledger system is integrated into business
processes and is adequate for financial reporting and
control.
•
Automated system(s) are designed and deployed that (1)
accurately measure the costs of activities, processes, products,
and services and (2) provide line managers with timely, accurate
financial and nonfinancial information on the quality and
efficiency of business processes and performance
•
An enterprisewide system integrates operating, financial,
and management information and allows decisionmakers to access
relevant information easily and perform adhoc data
analysis.
As federal agencies develop plans for acquiring and installing
financial systems, the ClingerCohen Act of 1996 and related
executive branch guidance will provide a framework for designing
and deploying information technology. The ClingerCohen Act requires
agencies to better link their information technology planning and
investment decisions to program missions and goals. If implemented
effectively, this legislation will provide a foundation that will
help federal agencies improve the interoperability of financial,
operating, and management systems.
The leading finance organizations we visited have long had
general ledger systems capable of generating auditable financial
statements efficiently and routinely, thereby providing information
on stewardship and accountability at a high level. Further, they
historically have had adequate systems for measuring and managing
cost and performance. However, over the last decade new technology
has made it possible for these organizations to integrate these
systems and provide more relevant, accessible information that
meets the changing needs of decisionmakers. Many leading
organizations have already implemented, or are in the process of
implementing an enterprisewide system to integrate financial and
operating data to support both management decisionmaking and
external reporting requirements. Some abandoned their legacy
systems all together and turned to stateoftheart integrated
architectures, while others used wellfunctioning legacy systems and
tied them together with a data warehouse. Regardless of the
approach, these systems provided financial analysts, accountants,
and business unit managers access to the same cost, performance,
and profitability information.
Similarly, the CFO Council, JFMIP, OMB, Treasury, and individual
agencies are working to improve the integration of budget,
accounting, and program information and systems. To support this
process, a Program Management Office was recently established to
develop financial systems requirements, address system integration
issues, and generally facilitate the system selection and
procurement process. This and other measures are important to
ensure that federal systems provide meaningful information for
managing and measuring cost and performance as well as preparing
external financial reports.
30
Strategies to Consider
To develop systems that support the partnership between finance
and operations senior executives could:
•
Acquire and install a general ledger system adequate for
external financial reporting purposes.
•
Develop managerially relevant cost information systems
and strategic performance management systems that access data from
financial transaction systems and relevant operating
systems.
•
Integrate the agency's financial (including budgetary),
operating, and management systems and equip decisionmakers with the
tools to easily access relevant information and perform adhoc
analyses.
•
Ensure that financial systems comply with federal
financial management systems requirements, federal accounting
standards, and the U.S. Government Standard General Ledger
by
•
establishing the goal of using a single general ledger
chart of accounts (the U.S. Government Standard General Ledger)
and
•
developing an interim approach to convert general ledger
accounts not consistent with the U.S. Government Standard General
Ledger. This approach should use automated crosswalks performed by
those business segments responsible for the data.
32
Practice 8
Reengineer Processes in Conjunction With Implementing New
Technology
Key characteristics
•
Commercial offtheshelf software packages implemented with
limited modification.
•
Processes and controls adapted to fit commercial
offtheshelf software.
•
Processes are reengineered across functional
lines.
At many of the leading finance organizations we visited, the
vast majority of financial applications were commercial offtheshelf
(COTS) packages that were implemented with limited modification to
the basic application package itself. The advantages of using COTS
software include (1) COTS software is less costly than developing
inhouse applications, (2) software upgrades are affordable and are
regularly available, and (3) COTS software is designed to include
best practices.
The key to successfully implementing COTS systems and best
practice processes, according to leading finance organizations, is
reengineering business processes to fit the new software
applications. In fact, productivity gains typically result from
more efficient processes, not from simply automating old ones.
Effectively reengineering business processes, however, requires
moving from a functionalbased organization to a processbased
organization. For example, the procurement process in a
processbased federal organization would start when a solicitation
is issued, continue through contract award and signature, as well
as the issuance of purchase/work orders and receipt of goods, and
end when the vendor properly received payment. The business
processes would be designed to maximize the efficiency and accuracy
of the entire process.
The ClingerCohen Act contains provisions requiring federal
agencies to modernize inefficient administrative and missionrelated
work processes before making significant technology investments to
support them. As a result, federal agencies are beginning to
consider the merits of information technology approaches that
involve reengineering business processes in conjunction with
implementing COTS software without significant modification.
According to a report by the Financial Systems Committee of the CFO
Council, most agencies favor an approach that uses COTS software
for core financial systems and other financial management
applications. However, agency efforts to use COTS products have
been hampered by the government's failure to communicate
requirements and functionality effectively to the vendors and a
proclivity on the part of agencies to modify software to meet
existing business processes and to replicate previous system
functionality. To encourage the use of COTS, OMB and JFMIP are
working to improve (1) the testing and certification of COTS
systems, (2) existing procurement schedules, and (3) processes to
obtain COTS systems.
Case Study
Reengineering core business processes across functional lines is
the key to successful COTS implementation
When implementing its new financial management system rather
than fitting new technology to outofdate processes, Owens Corning
redesigned its business processes to fit the new technology. The
objective was to improve customer service and, at the same time,
cut logistical costs related to various business processes. To
achieve these objectives Owens Corning formed crossfunctional
process improvement teams for each major business process to
improve or replace longstanding and often ineffective business
processes.
During this effort, the improvement teams used many common
reengineering tools, such as process mapping and process modeling.
However, successfully reengineering its business processes had more
to do with the parameters Owens Corning placed on its process
improvement teams. For example, the teams were given compressed
schedules for completing " as is" modeling to prevent overanalysis
and to force decisions. Documenting current processes should be
accomplished in a matter of a week or two. The bulk of time should
be spent on defining user requirements and designing new processes.
Another important aspect of Owens Corning process improvement
effort was its use of a process reengineering management council.
The council was made up of key process and business unit executives
that acted as arbitrators when conflicts developed.
By reengineering business processes in conjunction with
implementing new technology, Owens Corning increased its ability to
meet customer needs. In the past, for example, many of the
company's computers were not linked, making it impossible for sales
people to check on the availability of products or address problems
on a customer invoice. Now, all activities that occur from the time
a customer places an order to the time Owens Corning receives
payment are part of the Customer Fulfillment Process. In addition,
new technology has integrated functions related to the Customer
Fulfillment Process, such as sales, ordering, production, shipping,
billing, and accounts receivable, providing users with greater
access to data. As a result, Owens Corning's salesforce not only
has access to uptodate information, but more efficient processes
allow sales staff to respond immediately to customer inquiries,
instead of handing the problem off to another department.
Other outcomes related to process improvement included (1)
reducing the time it takes to close the books from 13 days to 5
dayswith a target of 1 day, (2) reducing the chart of accounts from
2,400 to 900, and (3) standardizing reporting, which allows
comparisons to be made between operating divisions.
34
Strategies to Consider
To reengineer processes that support new technology, senior
executives could:
•
Form crossfunctional teams to (1) examine existing core
business processes and (2) define user requirements.
•
Compare COTS products against the agency's requirements
and identify the COTS packages that most closely match the agency's
needs.
•
Reevaluate user requirements not supported by COTS
software and determine, before customizing software, whether each
requirement is still valid or whether alternatives exist that may
be more costeffective.
•
Where software modifications are required, implement an
effective configuration management system that includes (1) clearly
defining and assessing the effects of modifications on future
product upgrades before the modification is approved, (2) clearly
documenting software products that are placed under configuration
management, and (3) maintaining the integrity and traceability of
the configuration throughout the system life cycle.
•
Implement a quality assurance process that ensures that
project activities and software products adhere to management's
established plans, standards, and procedures. This includes
ensuring that the configuration management process is effectively
implemented and that product changes are clearly documented and
tested before being placed into production.
•
Implement an effective risk management strategy to ensure
that project risks, such as customization and vendor's ability to
deliver a given system, are adequately identified and effective
mitigation strategies are implemented.
Key characteristics
Translate Financial Data • Reports are designed around key
drivers into Meaningful Information such as markets, products, and
customers.
• Relevant financial information is presented in an
understandable, simple format with suitable amounts of detail and
explanation.
While new technology has made financial data more available,
without the ability to translate that data into relevant,
understandable information, decisionmakers are left powerless.
Traditionally, finance organizations have used voluminous paper
reports, based primarily on the prior month's activity, to
communicate financial information. Further, management reports were
often designed around current organizational structures.
Consequently, as organizational structures changed over time, many
management reports became irrelevant.
Today, leading finance organizations have eliminated, reduced,
and/or redesigned much of their old management reporting formats to
better meet the needs of the user. These organizations have
designed new reporting formats around key business drivers rather
than organizational structures to provide executives and managers
with relevant, forwardlooking information on business unit
performance. During this process, one company we visited actually
stopped distributing selected management reports to determine
whether anyone would miss them. They used the subsequent lack of
reaction as an indicator that the information in the report was no
longer relevant.
Further, standardized reports are designed to present
information that is analyzed to bring out pertinent and fundamental
points with suitable amounts of detail and explanation. For
example, Owens Corning's executives and managers access a
standardized monthly financial report via the company's internal
area network. The report's executive summary is 10 pages long and
contains executivelevel reporting, forecasting, and budgeting
information. However, multiple levels of detail are available, and
decisionmakers can drill down to the desired level of detail.
Similarly, efforts are currently underway across government to
develop a meaningful, userfriendly accountability report on
individual departments and agencies. These reports consolidate and
integrate audited financial statements and reporting under the
Results Act and other related laws to (1) show the degree to which
an agency met its goals and at what cost and (2) aid the reader in
determining whether the agency was well run.
36
Strategies to Consider
To improve management reporting of financial information, senior
finance executives, as part of the top management team, could:
•
Meet with key policymakers and managers on an ongoing
basis to define key business drivers and determine what key
business information is needed for management and oversight of the
agency's mission and objectives.
•
Determine what information is needed by program
executives and managers to meet and support key business
information requirements.
•
Present various reporting format and content options to
executives, managers, and Congressional Committees.
38
Build a Finance Team That Delivers Results
As the finance function has evolved over the past decade, from a
paperdriven, labor intensive, clerical role to a more consultative
role as advisor, analyst, and business partner, many leading
finance organizations have seen a corresponding shift in the mix of
skills and competencies required to perform this new role. To
respond to these changing business needs, the leading organizations
we visited developed finance teams with the right mix of skills and
competencies and built finance organizations that attract and
retain talent as part of an overall strategic approach to human
capital planning.
Similarly, the CFO Act, GMRA, and GPRA have placed new demands
on federal finance organizations. Accordingly, federal agencies
need to reassess their human capital practices to ensure that
federal financial professionals are equipped to meet these new
challenges and support their agencies' mission and goals. This
executive guide, along with our 1998 report on the training and
qualifications of key financial management personnel and our 1999
human capital selfassessment checklist,9 can provide a framework to
strengthen the qualifications, skills, and competencies of federal
financial management personnel.10
Vision: To be a ValueCreating, CustomerFocused Partner in
Business Results
9
Human Capital: A SelfAssessment Checklist for Agency Leaders
(GAO/GGD99179, September 1999).
10
Financial Management: Profile of Financial Personnel in Large
Private Sector Corporations and State Governments (GAO/AIMD9834,
January 1998).
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management 39
Practice 10
Develop a Finance Team with the Right Mix of Skills and
Competencies
Key characteristics
•
A defined set of technical, management, and leadership
skills and competencies is developed as part of the entity's
overall approach to strategic humancapital planning and is used as
a foundation for all humancapital management activities and
decisions.
•
Training and career development programs use both
classroom instruction and rotational assignments.
•
Opportunities to "learn the business" are
provided.
At leading finance organizations, developing a finance team with
the right mix of skills and competencies starts by defining a set
of skills and competencies that will enable the finance team to
meet the current and future technical, management, and leadership
needs of the business. The resulting competency profile is used to
assess gaps in individual or group competency levels and develop
human capital strategies to address current or expected future
deficiencies. In this practice we discuss the training, career
development, and successionplanning strategies leading finance
organizations use to develop a team with the right mix of skills
and competencies.
The training and career development programs of the leading
finance organizations we visited provided intensive 2to 3year entry
level programs as well as midcareer and executivelevel programs
that used both classroom instruction and rotational assignments to
develop technical, management, and leadership skills and
competencies. The programs' course work focuses initially on the
tools and techniques of advanced accounting and finance as well as
general business skills. Then, the focus shifts to the strategic
application of these tools within businessspecific environments.
However, the key to implementing a successful career development
program is to complement course work with reallife business
experience through the use of planned rotational assignments. The
leading finance organizations we visited provided opportunities for
staff to rotate through various positions throughout the finance
organization as well as the operating divisions. Such opportunities
are critical not only in developing employees that understand the
whole business and, in turn, provide greater value to their
customers in the operating divisions but also as a way of ensuring
that an adequate supply of wellprepared financial professionals is
available to fill key positions.
Similarly, federal finance organizations are recognizing the
need to provide a broad range of experience to its financial
professionals. For example, as a way to develop a cadre of
experienced and diverse leaders, the CFO Council Fellows Program
was initiated in April of 1998 with the selection of nine fellows
to serve 1year appointments at host organizations.
40
Strategies to Consider
To develop a team with the right mix of skills and competencies,
senior executives could:
•
As a part of an agencywide strategic approach to human
capital planning
(1)
determine the leadership, management, and
functional/technical competencies required for the finance
organization to support agency missions, goals, and objectives, (2)
evaluate the finance organization's current and future human
capital capabilities, (3) identify skill gaps, (4) develop human
capital policies and practices that will allow agencies to fill the
identified skill gaps, and
(5)
evaluate these efforts and use performance data to
continually update human capital strategies.
• As a first step, assess the finance organization's human
capital policies, programs and practices to determine whether they
support the organization's mission and vision for the future. (See
GAO's human capital selfassessment checklist.11)
•
Using both classroom training, planned staff rotations,
and interagency assignments, design a career development program
geared toward
•
improving leadership, management, and traditional
financial management competencies, including the analytical skills
needed to support program decisionmaking;
•
understanding how reform legislation (e.g., CFO Act,
GMRA, FFMIA, GPRA) will affect the finance organization's roles,
responsibilities, and processes within the context of specific
agency operations; and
•
understanding overall agency operations, including
program implications of financial decisions.
•
Establish continuing professional education requirements
for financial managers similar to those required for
auditors.
11
Human Capital: A Self Assessment Checklist for Agency Leaders
(GAO/GGD99179, September 1999).
42
Practice 11
Build a Finance Organization that Attracts and Retains
Talent
Key characteristics
•
Top financial leadership participates in the recruitment
of new talent.
•
A variety of clear career path opportunities are offered
and staff development programs are used as a means of exposing
staff to different career opportunities.
•
Competitive compensation and benefits packages are
available.
As discussed in practice 10, sound training and career
development strategies are needed for the finance organization to
meet the current and future human capital needs of the business.
Equally important, however, are recruitment, retention, and reward
strategies that enable the finance organization to attract and
retain talented financial professionals at all levels. Although
their styles and strategies varied, the leading organizations we
visited agreed that several key factors were important in
attracting and retaining talent.
First, recruiting a talented workforce requires the commitment
of top leadership. The CFOs at these organizations are often
heavily involved talent assessment and senior executive leaders are
actively involved in oncampus recruiting. This sends a powerful
message to potential new recruits that the position is important
enough to the organization that it warrants senior executive
attention.
Second, attracting and ultimately keeping a highly qualified and
motivated workforce involves providing meaningful career
opportunities, such as the opportunity to
(1) participate in exciting groundbreaking projects, (2) build a
portfolio of new skills, and (3) choose a variety of career paths.
These organizations often used their staff development programs to
provide these opportunities. For example, as discussed in practice
10, career development programs often include rotational
assignments and not only provide excellent growth opportunities but
also expose staff to a variety of career path opportunities.
Third, compensation is a key factor in any career decision.
While, according to employee compensation surveys, compensation is
fairly comparable between the private and public sectors for entry
level and middle management positions, executive compensation in
the private sector far exceeds that of federal executives, thereby
limiting federal agencies' ability to attract and retain federal
executives. (See appendix IV for compensation survey results.)
However, other factors such as the desire to effect change and make
a difference may attract senior executives to public service. In
addition, opportunities may exist that will enhance agencies'
ability to attract and retain talent at all levels. For example,
the revolutionary changes that are taking place as a result of the
CFO and Results Acts provide an ideal occasion to revamp the
opportunities available to federal financial professionals and to
market the possibilities offered by a career in federal financial
management.
Strategies to Consider
To build an organization that attracts and retains talent, the
CFO and senior executives could:
•
Actively work with colleges and universities to (1)
market the opportunities available for financial professionals and
(2) include a federal accounting and financial management
curriculum that will not only prepare students for careers in
federal accounting but will also help promote federal career
possibilities.
•
Continue to work with the Office of Personnel Management
to provide more flexible career paths that provide opportunities
for movement throughout the finance organization and agency program
offices.
•
Utilize staff development programs and planned staff
rotations to expose financial managers and staff to a variety of
career paths.
Appendix I
Research Objectives, Scope, and Methodology
The objectives of our research were to (1) define and describe
the characteristics of a worldclass finance organization, (2)
identify the factors that are essential for finance organizations
to improve their financial management and move towards worldclass
standards, and (3) provide case studies which illustrate the
efforts of leading finance organizations from private sector
companies and state governments to improve their financial
management and the overall performance of their organizations.
We formed an advisory group to assist with job design, our
overall scope and methodology, and case study selection as well as
to critique our research findings and comment on our draft report.
The group consisted of private sector executives, state and local
comptrollers, academicians, and other experts and consultants
outside the federal government. (Key contacts and project advisors
are listed in appendix VII.) We also consulted with members of
various CFO Council committees and representatives from OMB and
Treasury.
To meet our research objectives, we performed an extensive
literature search on the subject of financial management best
practices using commercial best practice databases, the Internet,
prior GAO reports, trade journals and magazines, federal
guidelines, private sector studies, and other resources. We
synthesized and analyzed the numerous documents acquired from our
literature search and case study organizations to determine the
objectives essential for organizations to improve their financial
management. Based on consultations with our advisory group and our
case study entities, we consolidated and refined the factors to
those presented in this guide.
We selected six private sector companies and three state
governments to serve as our case studies. We selected the private
sector companies based on (1) recognition for outstanding financial
management practices and/or successful financial reengineering
efforts, (2) size and complexity comparable to federal government
agencies, and (3) discussions with members of our advisory group.
We selected the state governments based on (1) the 1995 "The State
of the States" report issued by Financial World magazine and (2)
discussions with members of our advisory group and the CFO Council.
We interviewed various officials, including chief financial
officers, chief information officers, business unit executives,
state executive and legislative branch officials, treasurers,
controllers, internal auditors, agency administrators, and human
resource specialists. We also reviewed various company documents,
including vision statements, strategic plans, core competencies for
finance personnel, training and development guides, key financial
reports, performance metrics, and other documents related to
reengineering efforts of the finance organization.
We asked officials at the private sector companies and state
governments profiled in the case studies to verify the accuracy of
the information presented on their respective organizations and
incorporated their comments as appropriate; however, we did not
independently verify the accuracy of that information. In addition,
we provided a draft of this entire guide to OMB, members of the CFO
Council, and our advisory group for their review and comment.
46
Appendix II
Supplemental Case Study Information The Boeing Company's
Personal Planning Guide for Developing Business Competence
(excerpt) Performance Expectation: Include business process and
financial information in decisionmaking
Key elements Supporting actions Rating Importance/Personal*
Use appropriate facts • Locate sources of company information ��
and data from company • Operate selected information systems ��
information systems to • Select appropriate data and information ��
support accomplishment • Make decisions based on analysis of data
�� of business plans • Manage information resources to ensure ready
access to information ��
Make informed • Apply company integrity, values, and ethics ��
decisions • Identify key components of decisions ��
•
Collect pertinent data ��
•
Analyze alternatives ��
•
Use selection criteria ��
•
Apply wisdom, judgement, and experience ��
•
Take action ��
Create business • Lead the estimating and budgeting process ��
forecasts • Develop schedules ��
• Apply target costing (should cost) ��
Apply total cost • Monitor budgets, costs, and schedules ��
management principles • Apply variance analysis ��
•
Reallocate resources to meet objectives ��
•
Predict management estimate at completion ��
•
Use earned value ��
Recognize cost • Apply unit cost practices �� structure
(elements of • Apply process cost practices �� product cost) •
Identify cost elements ��
•
Use life cycle costing to identify present and future
costs ��
•
Identify components of rates ��
Note 1: Importance Rating of the supporting action to your
specific assignment (H = high, M = medium, L = low.) Note 2:
Personal Rating of your level of competence for the supporting
action. Use a scale of 1 to 5 (1 = weak, 5 = strong.)
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
Appendix III
Worldclass Finance Performance Metrics
Table 1: Comparison of Performance MetricsAverage vs. Worldclass
Companies
Performance metric Average Worldclass
Cost as % of revenue 1.4% 0.97%
A/P productivity per FTE 12,500 15,900
Processing locations >3 1
Systems per process 23 1
Budget cycle 95 days 60 days
Closingcycle 58days <4days
Source: The Hackett Group.
Table 2: Comparison of Labor Costs per TransactionAverage vs.
Worldclass Companies
Process Measure Average Worldclass
Payables Invoice $3.55 $1.98
Receivables Remittance $0.36 $0.14
Travel & expense Expense report $6.05 $3.96
Payroll Paycheck $1.91 $1.39
Source: The Hackett Group.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
48
Appendix IV
Comparison of Selected Federal Agencies & Case Study
Entities
Table 1: Total Revenues/Outlays at Case Study Entities and
Federal Agencies for 1998
Agency/company Total revenues/outlays (in millions)
Social Security Administration $393,311
Department of the Treasury 379,345
Department of Health and Human Services 339,535
Department of Defense 288,604
General Electric Company 100,469
Boeing Company 56,154
Department of Agriculture 52,547
Hewlett Packard Company 47,061
Office of Personnel Management 45,404
State of Texas 43,816
Department of Transportation 39,832
Department of Veteran Affairs 39,280
Commonwealth of Massachusetts 31,249
Department of Labor 30,458
Department of Education 30,009
Department of Housing and Urban Development 27,527
Commonwealth of Virginia 19,245
Chase Manhattan Corporation 18,656
Department of Energy 14,467
Pfizer Inc 13,544
Owens Corning 5,009
Department of Commerce 3,783
Federal Emergency Management Agency 3,326
National Science Foundation 3,130
Source: 1998 company annual reports, 1998 state comprehensive
annual financial reports, Budget of the United States Government,
Fiscal Year 1999.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
Source: 1997 company annual reports, 1997 state comprehensive
annual financial reports, 1997 U.S. Office of Personnel
Management.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management Appendix IV ♦ Comparison of Federal
Agencies and Case Study Entities
Table 3: Comparison of Revenues/Outlays In Millions with CFO
Compensation (Salary and Bonus) at Selected Case Study Entities for
1997
Company Revenues/outlays CFO Bonus Total salary
General Electric Company $100,469,000 $1,100,000 $2,000,000
$3,100,000
Federal Agency $72,568,000 $151,800 $151,800 (average) (max.)
(max.)
Boeing Company $56,154,000 $392,261 $137,700 $529,961
Hewlett Packard Company $47,061,000 $997,625 $147,804
$1,145,429
Chase Manhattan Corporation $18,656,000 $628,846 $1,168,750
$1,797,596
Pfizer Inc $13,544,000 Not available
Owens Corning $5,009,000 $371,875 $795,000 $1,166,875
Source: 1998 company annual reports; Budget of the United States
Government, Fiscal Year 1999; 1999 company proxy statements; 1998
Senior Executive Service pay schedule.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management Appendix IV ♦ Comparison of Federal
Agencies and Case Study Entities
Appendix V
Related Resources, Information Links, and Tools
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
52
Accounting and Financial Management
International Federation of Accountants- www.ifac.org
IFAC is an organization of national professional accountancy
organizations that represent accountants employed in public
practice, business and industry, the public sector, and education
as well as some specialized groups that interface frequently with
the profession. This site provides access to publications and
technical guidance related to accounting, auditing, financial
management, and information technology.
American Institute of Certified Public
Accountants-www.aicpa.org
This site provides online access to accounting publications like
the Journal of Accountancy and the CPA Newsletter. In addition, "
CPA Links" provides a gateway for online users who wish to visit
other accountingrelated sites on the Internet.
Association of Government Accountants-www.agacgfm.org
AGA is an educational organization dedicated to the enhancement
of public financial management. AGA serves the professional
interests of financial managers from local, state, and federal
governments as well as public accounting firms.
Business Finance Magazine- www.businessfinancemag.com
This site maintains links to academic resources, accounting
organizations, accounting and auditing resources, accounting
software, business and management resources, government resources,
and other noncommercial web sites.
FinanceNet- www.financenet.gov
FinanceNet serves as a vehicle and catalyst for continual
improvement and innovation, at all levels of government, by
impacting financial management resources, practices, policies, and
professional standards through the electronic sharing of best
practices and dissemination of electronic information. This site
provides links to other federal financial management related sites
such as the Federal Accounting Standards Advisory Board, Joint
Financial Management Improvement Program, CFO Council, and federal
finance offices.
Financial Accounting Standards Board- www.fasb.org
The mission of the Financial Accounting Standards Board is to
establish and improve standards of financial accounting and
reporting for the guidance and education of the public, including
issuers, auditors, and users of financial information.
Governmental Accounting Standards Board- www.gasb.org
GASB's mission is to establish and improve standards of state
and local governmental accounting and financial reporting that will
result in useful information for users of financial reports and
guide and educate the public, issuers, auditors and users of
reports.
Institute of Management Accountants- www.imanet.org
The IMA is a professional organization devoted to management
accounting and financial management. This site provides for its
members access to research databases, custom bibliographies, and
fulltext articles related to accounting and financial
management.
Rutgers Accounting Web- www.rutgers.edu/Accounting/
This site includes a database of accounting research and
publications. Other accounting organizations on this site include:
Association of Government Accountants, American Accounting
Association, Institute of Internal Auditors, Inc., Institute of
Management Accountants, Financial Accounting Standards BoardFASB,
and Governmental Accounting Standards BoardGASB.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management Appendix V ♦ Related Resources,
Information Links, and Tools
Treasury Board of Canada Secretariat- www.tbssct.gc.ca
This site highlights the reports and assessment guides
associated with Canada's initiative to modernize its
comptrollership function.
Auditing
AuditNet- www.auditnet.org
This site provides information links, tools, and resources
developed for the benefit of the audit profession, including audit
programs, best practices, and research services.
The Institute of Internal Auditors-www.theiia.org
For IIA members who are internal auditing practitioners,
executive management, boards of directors, or audit committees,
this site provides standards, guidance, and information on internal
auditing best practices.
Internal Auditing World Wide Web-
www.bitwise.net/iawww/index.html
This site promotes the sharing information and knowledge
pertaining to the internal auditing profession across associations,
industries, and countries.
Performance Management
The Balance Scorecard Institute- www.balancedscorecard.org
The Balanced Scorecard Institute is a web clearinghouse for
managers to exchange information, ideas, and lessons learned in
building strategic management systems using the balanced scorecard
approach. This site provides guidance, information and tools to
government and nonprofit managers as they attempt to design and
implement measurementbased management in state, local, and federal
government environments.
Hackett Benchmarking & Research-
www.answerthink.com/hackett/
Hackett Benchmarking & Research maintains comprehensive,
ongoing benchmarks of finance, human resources, information
technology, planning/performance measurement, procurement, customer
contact centers, and shared services centers.
Information Technology
The International Institute of Business Technologies, Inc.-
www.iibt.org
IIBT is a nonprofit educational and research institution for
advancing the management of business technologies in the public and
private sectors in order to improve performance.
IT Governance Institute- www.itgovernance.org/itgi/
This web site is designed enhance the vital link between IT and
enterprise governance by offering information and resources for
efficiently and effectively deploying secure, reliable information
and applied technology, and providing best practice guidance on the
management of ITrelated risks.
Carnegie Mellon Software Engineering Institute-
www.sei.cmu.edu
The purpose of the Software Engineering Institute (SEI) is to
improve the practice of software engineering.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management Appendix V ♦ Related Resources,
Information Links, and Tools
Appendix VI
Bibliography
Buckingham, Marcus and Coffman, Curt. First, Break all the
Rules: What the World's Greatest Managers Do
Differently, The Gallup Organization, 1999. Camp, Robert C.
Benchmarking: The Search for Industry Best Practices That Lead to
Superior Performance. ASQC Quality Press, 1989.
Conference Board, The. " Benchmarking In the Finance Function: A
Council Report," The Conference
Board, 1994. Cooper, Robin and Kaplan, Robert S., Cost and
Effect: Using Integrated Cost Systems to Drive Profitability and
Performance, Harvard Business School Press, 1998.
Davis, Henry A. and Militello, Frederick C. " The Empowered
Organization: Redefining the Roles and
Practices of Finance." Financial Executives Research Foundation,
1994. Dunleavy, John, Hjelm, Elizabeth, Johansson, Henry, and
Walther, Thomas. Reinventing the CFO: Moving From Financial
Management to Strategic Management. Coopers & Lybrand,
1997.
Gates, Stephen. " The Changing Global Role of the Finance
Function." The Conference Board, 1994.
Heian, James B., Jablonsky, Stephen F., and Keating, Patrick J.
" Business Advocate or Corporate Policeman? Assess Your Role as a
Financial Executive." Financial Executives Research Foundation,
1993. Hackett Group, The. " Reengineering the Finance Function."
Financial Executives Research Foundation,
1995. McLemore, Ivy. " The New And Improved Business Analyst."
Controller Magazine, 1998.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
Appendix VII
Leading Organization Contacts and Project Advisor
Acknowledgements
We would like to acknowledge the following private sector and
government executives whose advice and assistance throughout this
project has been invaluable.
Key contacts at leading organizations
Bruce H. Adams Senior Vice President, Global Services
Administration The Chase Manhattan Bank
David Devonshire Chief Financial Officer Ingersoll Rand
Corporation (formerly with Owens Corning)
Lynn L. Saylor General Electric DirectorCorporate Finance
General Electric Company
Boyd E. Givan (Retired) Chief Financial Officer The Boeing
Company
Richard L. Hoddeson Vice President, Operations Planning and
Analysis Pfizer Inc
Larry Lazicki Executive AssistantFiscal Mgmnt. Div. Comptroller
of Public Accounts State of Texas
William Landsidle Comptroller Commonwealth of Virginia
William C. Steere, Jr. Chairman of the Board & Chief
Executive Officer Pfizer Inc
William Kilmartin Vice President American Management Systems,
Inc. (formerly with the Commonwealth of Massachusetts)
Project advisors
Julia Carroll Chief Financial Officer Naperville, Illinois
Thomas V. Fritz President & Chief Executive Officer Private
Sector Council
Edward J. Mazur Vice President Virginia State University
John L. Puckett Assistant Vice President Information Technology
www.toysmart.com
Gerald R. Riso (deceased) Chief Executive Officer Riso &
Riso
Cornelius E. Tierney Professor of Accountancy George Washington
University
Patricia M. Wallington Vice President & Chief Information
Officer Xerox Corporation
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
56
Appendix VIII
GAO Contacts and Staff Acknowledgements
♦ Linda P. Garrison (404) 6791902 ♦ Diane G. Handley (404)
6791986
Acknowledgements
In addition to those names above, Francine M. Delvecchio,
Marshall L. Hamlett, and Elizabeth M. Mixon made key contributions
to this report.
GAO/AIMD00134 ♦ Executive Guide: Creating Value Through
Worldclass Financial Management
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