Tackling Federal Mismanagement
SOME good is sure to come from the spreading scandal at the Department of Housing and Urban Development. Housing Secretary Jack Kemp has recommended new measures to end past fiscal abuses and install a financial-management process that will emphasize accountability. Mr. Kemp wants to appoint a chief financial officer for HUD, a comptroller for the Federal Housing Administration, and require that FHA produce meaningful financial statements and submit them to audit. In the past, the federal government has staunchly contended that the financial leadership provided by a CFO and annual audited financial statements were not necessary to assure accountability.
Secretary Kemp's proposals have put a spotlight on the inadequacies of the current financial-management process. He acted promptly on a series of recommendations by the General Accounting Office based on an audit of FHA by my firm, Price Waterhouse, which disclosed that the agency was at least $6.9 billion in the red.
But don't get too optimistic; neither the GAO nor Price Waterhouse was able to conclude that FHA's financial statements ``fairly presented'' its operations. Why? Because the financial-accounting systems in use at FHA - and in many other mismanaged government agencies - are incapable of providing an adequate level of fiscal accountability.
Regarding Kemp's actions, it's encouraging that someone other than the GAO and the accounting profession has at last recognized the need for drastic action to improve the management of the trillion-dollar federal budget. Despite staggering budget deficits and a host of other ``red flags,'' no one else in authority has before seemed willing to admit that a financial-management problem existed in the government.
But Kemp's action is only a first step - recognition of the problem. Continued pressure must be brought to bear on the federal establishment to assure that further steps will be taken. Adequate resources of money and people must be dedicated to a solution. Only when this occurs will the government's financial problems start to be resolved.
Fortunately, an action plan for a solution already exists. A special committee of the American Institute of Certified Public Accountants (AICPA) has published a four-point plan for improving federal financial management. The AICPA proposals have been sent to the president and Congress and will be the focus of a day-long colloquium at the National Press Club in December. Briefly, the AICPA recommends that the president and Congress:
Appoint a chief financial officer for the United States and a controller in each government department and agency.
Establish accounting and reporting standards to be used in all agencies and departments;
Require the preparation of consistent financial statements for each agency and department and for the federal government as a whole;
Require that the federal government's financial statements undergo an independent annual audit.
Under these recommendations, the chief financial officer of the federal government will provide the leadership to assure that appropriate controls, accounting systems, and adequately trained personnel are dedicated to improving fiscal accountability.
Kemp's recent proposal is essentially consistent with the AICPA recommendations. What's needed now is a presidential mandate to institute the same structure governmentwide.
The structure must include leadership, consistent use of accounting systems and reporting practices, and, most important, qualified personnel at all levels of financial activity. And enough money must be budgeted to put the system in place.
President Bush is famous for saying ``read my lips'' on the subject of taxes. We need similar leadership and determination on financial management reform.
Several weeks ago, the AICPA, too, said ``read my lips'' by publishing its recommendations for improving financial management. Secretary Kemp helped that cause by turning on one important political spotlight. Let's hope others in the administration can now see clearly enough to follow his lead.