WHERE IS YOUR AMERICAN RECOVERY AND REINVESTMENT ACT MONEY GOING?
By Anthony H. Rainey, April 25, 2009
I keep hearing the terms “accountability” and “transparency” requirements for the American Recovery and Reinvestment Act (ARRA) and think that it will be easy to accomplish. Having worked in public finance for municipal and federal governments, I believe that the federal side needs to understand how local and state finance operates, how the demographic and financial environments affect local and state fiscal conditions, create an information reporting infrastructure using XBRL, utilize “Service Efforts and Accomplishments” performance reporting, and integrate the environmental (demographic and financial factors) within localities and states utilizing the old tried and true “Financial Trends Monitoring System” introduced by the ICMA (International Cities/Counties Management Association) several years ago. The municipal, state, and federal financial technology platforms (public finance software) must be integrated least we spend more time “compiling” rather than “assessing and analyzing”. In other words, make the information Web 2.0 compatible so that citizens can easily find out information about ARRA projects, costs, and and measurable progress.
What is missing is “financial information reporting infrastructure” for combining ARRA local, state and federal goals, objectives, and performance by project and report on the “status” of the “Tasks” of these ARRA funded projects on a monthly basis.
Citizens want “context”. In other words, Recovery.Gov should provide a citizen with a graphical and tabular view of what “the current measurable economic and fiscal conditions” are within a community before ARRA (Recovery Act) a funded project begins. I would expect that some sort of employment, economic activity, and local CPI measurements would be presented as a “baseline” along with the specific ARRA funded project GOAL(s), OBJECTIVE(s) matched against each TASK within each project, and the OUTCOMES of each TASK as well as the entire ARRA Project. With Web 2.0, videos could be embedded to show “progress” by TASK, a graph of the budget being spent and the RESULTS of the Recovery Act investment. Recovery.gov would provide a citizen with information about “WHAT THE CONDITIONS WERE BEFORE HAND” which formed the basis of the Project’s “GOALS, OBJECTIVES and PERFORMANCE MEASURES by each TASK’ which will enable the citizen to assess, by the click of a mouse, whether the project accomplished what it said it would. This is online transparency and online accountability. With Web 2.0 citizens could ask questions or gain clarifications about these projects, which would establish a dialogue with the local, state or federal government undertaking the project.
Creating a common financial information reporting infrastructure will also help the auditing and assessment efforts. The use of “status reporting”, similar to “STAT” reports (see below) would provide more sets of eyes to interpret reported results. I am proposing that this financial information reporting infrastructure follow the outline below, and that the federal government technology and information efforts be utilized to implement this reporting using XBRL – enabling all local and state and federal governments to use XBRL for financial reporting. XBRL (eXtensible Business Reporting Language) is an open standard that supports information modeling and the expression of semantic meaning commonly required in financial reporting. XBRL is XML-based and “tags” financial information to specific organizational components and financial components. Rather than uploading spreadsheets, public sector financial systems would report these ARRA projects through unique XBRL templates.
In the context of the American Recovery and Reinvestment Act, we could start with what is currently published on “Recovery.gov” where the President has identified five “crucial” objectives. I would use these objectives and offer some REQUIREMENTS to be met for local, state and federal governments that receive ARRA funding to meet each of the President’s objectives:
OBJECTIVE 1 – RECOVERY FUNDS ARE AWARDED AND DISTRIBUTED IN A PROMPT, FAIR, AND REASONABLE MANNER;
REQUIREMENTS FOR OBJECTIVE 1:
1.1 LOCAL, STATE AND FEDERAL PROCUREMENT SYSTEMS MUST USE THE SAME DATA FIELDS. Some sort of information technology project to adapt current state and local government procurement systems to accommodate the Central Contractor Registration (CCR) http://www.ccr.gov/ needs to happen very quickly so that the “awardees” contractor and subcontractor can be accounted for between the source (state or local award) and the federal agency. Central Contractor Registration (CCR) is the primary registrant database for the U.S. Federal Government. CCR collects, validates, stores and disseminates data in support of agency acquisition missions. If you are a business interested in doing business with the U.S. Federal Government, then you must be registered in CCR. As ARRA money is federal money going to local and state governments going to small, medium and large organizations (for profit and non-profit), what is the strategy for ensuring that they are registered within the CCR? The public sector financial software publishers (local, state, and federal financial and procurement software) must be called in to modify their software to accommodate the entry of this organization information into the CCR.
It would seem that within public sector accounting systems the Accounts Payable (AP) and Accounts Receivable (AR) vendor files utilized for producing IRS Form 1099s is a “measurement focus” that could be monitored and reported on a monthly basis. This way, IRS Form 1099s related to ARRA funding should be correct as the management and internal control reviews would be undertaken monthly as payments are made. It would allow the ability to correct improper payments (complying with the Improper Payments Information Act of 2002 and Recovery Auditing Act of 2002) by having all ARRA funding recipients implement enhanced improper payment detection and prevention methods. This way, local, state and the federal Government can better ensure that taxpayer dollars are spent wisely and efficiently on a monthly basis using this information as a management control review tool.
1.2 LOCAL, STATE AND FEDERAL PROCUREMENT SYSTEMS MUST PORTRAY THEIR RESPECTIVE ACQUISITION PROCESSES. Not every local and state procurement process is the same, but we need to agree upon “what” should be reflected to portray the awarding and distribution of these funds in a fair and reasonable manner. What would that look like? I would think that the CCR would reflect the “type” of contractor and subcontractor, by North American Industry Classification System (NAICS) code, business size, types of employment created and/or sustained, and some type of local or state procurement compliance metric would be helpful. Developed in cooperation with Canada and Mexico, the North American Industry Classification System (NAICS) represents one of the most profound changes for statistical programs focusing on emerging economic activities. NAICS, developed using a production-oriented conceptual framework, groups establishments into industries based on the activity in which they are primarily engaged. Organizations using similar raw material inputs, similar capital equipment, and similar labor are classified in the same industry. Organizations that do similar things in similar ways are classified together. Classifying and reporting ARRA information by the “sectors” of the NAICS would enable local, state, and federal governments, citizens, and auditors to “see” the impact of stimulus monies through contracts by:
A. GOODS-PRODUCING SECTORS:
NAICS NATURAL RESOURCES AND MINING SECTORS
- Sector 11 (Agriculture, forestry, fishing and hunting)
- Sector 21 (Mining)
NAICS CONSTRUCTION SECTOR
- Sector 23 (Construction)
NAICS MANUFACTURING SECTOR
- Sector 31-33 (Manufacturing)
B. SERVICE-PROVIDING SECTORS:
NAICS TRADE, TRANSPORTATION, AND UTILITIES SECTORS
- Sector 42 (Wholesale trade)
- Sector 44-45 (Retail trade)
- Sector 48-49 (Transportation and warehousing)
- Sector 22 (Utilities)
NAICS INFORMATION SECTOR
- Sector 51 (Information)
NAICS FINANCIAL ACTIVITIES SECTORS
- Sector 52 (Finance and insurance)
- Sector 53 (Real estate and rental and leasing)
NAICS PROFESSIONAL AND BUSINESS SERVICES SECTORS
- Sector 54 (Professional, scientific, and technical services)
- Sector 55 (Management of companies and enterprises)
- Sector 56 (Administrative and support and waste management and remediation services)
NAICS EDUCATION AND HEALTH SERVICES SECTOR
- Sector 61 (Education services)
- Sector 62 (Health care and social assistance)
NAICS LEISURE AND HOSPITALITY SECTORS
- Sector 71 (Arts, entertainment, and recreation)
- Sector 72 (Accommodation and food services)
NAICS OTHER SERVICES SECTOR
- Sector 81 (Other services, except public administration)
NAICS PUBLIC ADMINISTRATION SECTOR
- Sector 92 (Public administration)
NAICS UNCLASSIFIED SECTOR
- Sector 99 (Unclassified)
The public sector financial software publishers must be called in to modify their software to accommodate the classification of organizations receiving contracts for ARRA work to utilize NAICS classification codes. As our economy is composed of different sectors, reformatting our local, state and federal financial systems to report on both obligations (encumbrances) by NAICS sector and outlays (payments) by NAICS sector would provide a quick status report on the specific “sectors” of our economy that are being stimulated. Note that the NAICS Sectors presented above are at the highest level, for NAICS codes have more detail. And the CCR, of course, requires organizations to register their NAICS code. Since we already have these systems in place, then why not use them to assess the effectiveness of the ARRA monies?
OBJECTIVE 2 – THE RECIPIENTS AND USES OF ALL RECOVERY FUNDS ARE TRANSPARENT TO THE PUBLIC, AND THAT THE PUBLIC BENEFITS OF THESE FUNDS ARE REPORTED CLEARLY, ACCURATELY, AND IN A TIMELY MANNER;
REQUIREMENTS FOR OBJECTIVE 2:
2.1 LOCAL, STATE AND FEDERAL FINANCIAL SYSTEMS MUST USE THE SAME DATA FIELDS. Some sort of information technology project to adapt current state and local government financial systems to accommodate the:
• The “General Ledger” – create an enhanced a cross-walk between the United States Standard General Ledger (USSGL) and State and Local government General Ledger GL (Object Class, Cost Element). Investing in this change will allow for easier conversion. If all local, state and federal governments (hint, hint Federal Accounting Standards Advisory Board – FASAB – and Governmental Accounting Standards Board -GASB) were to adopt the utilization of XBRL standards for government financial reporting, then the information could be posted along with a monthly budget status report, project status report, and a report on the status of a government’s goals, objectives, strategies and performance measures for the fiscal year. The U.S. Securities and Exchange Commission at the federal level and the State of Oregon at the state level has experience utilizing XBRL for financial reporting. The federal government financial information technology experts could seize the opportunity of utilizing the SEC’s and State of Oregon’s “best financial practices” with XBRL to provide local, state and federal governments with a standardized and automated financial reporting tool.
• The fund type of the recovery funding will inform the citizen where the federal money will reside and the accounting and budgeting rules the respective state or local government utilizes to disburse payments. There are reporting and usage rules regarding the different types of funds – similar to the bank accounts that local, state and federal governments post the recovery act monies. One of the golden rules of budgeting that may be broken is that of “one-time revenues going to one-time expenditures”. Capital projects utilizing recovery act funding should disclose the fixed asset valuation before the recovery act funds are used, and after the recovery act funds are used. Annual maintenance costs should be disclosed for every capital project utilizing recovery act funds.
2.2 STATE AND LOCAL GOVERNMENTS FINANCIAL SYSTEMS MUST BE ABLE TO INCORPORATE THE RECOVERY ACT PROJECT GOAL, OBJECTIVE, STRATEGY AND PERFORMANCE MEASUREMENT INTO THEIR ACCOUNTING STRUCTURE. State and local government recovery reports must be designed to enable management, stakeholders, citizens, and employees to assess Recovery Act funded programs and financial performance as compared to its goals, objectives, strategies and performance measures and to use this information to make necessary assessments and improvements. I would envision that some sort of presentation of the following would be portrayed:
• Recovery Act Project Name
• Recovery Act Project Goal
• Fund
• Contract Number
• Awardee(s)
• Budget by:
* Object Class
* Encumbrance (Obligations)
*Outlay (tie the outlay to jobs created or retained)
*Remaining Balance
• Recovery Project Plan by Tasks with:
- Task Begin Date,
- Task End Date,
- Task Outcome/Deliverable,
- Task Cost, and
- Task Status.
Local, state and federal government management would monitor and manage underperforming Tasks before the project fails. We would let the public “see” the status of all Tasks in all projects.
• Performance Measures: Use the GASB’s Service Efforts and Accomplishments (SEA) Model to keep it consistent:
– Inputs (like the number of teachers, or tons of asphalt used to repair roads);
- Outputs (such as the number of students promoted, or the number of potholes filled);
- Outcomes (for instance, percentage of a high school’s students entering college, or the physical condition rating of roads);
- Efficiency (cost per pupil educated, or cost per pothole filled); and
- Effectiveness (attainment of stated goals and measurable objectives).
Use a simple “green”, “yellow” and “red” coding to assess “where” planned performance is at. Do not wait until the fiscal year ends in order to assess performance, assess performance on a monthly basis.
• Jobs Created, By EEO-1 Job Classification Category –
• Jobs Retained, By EEO-1 Job Classification Category –
The nine EEO-1 job classification categories include 1) Officials and Managers, 2) Professionals, 3) Technicians, 4) Sales Workers, 5) Office and Clerical Workers, 6) Craft Workers (skilled), 7) Operatives (semiskilled), 
Laborers (unskilled), and 9) Service Workers.
Is it not practical to report on jobs created or jobs retained based on these existing categories to allow the public and decision makers to assess the impact of recovery act monies?
Would it also be more practical to post the EEO-1 job goals against the actual jobs created or retained to see if these goals were met?
As a refresher, here are the job descriptions of each classification category:
1. “Officials and Managers” includes jobs that require policymaking and overseeing responsibility. Examples are: executives, middle management, and salaried supervisors.
2. “Professionals” includes jobs that require college education or comparable experience. Examples are: accountants, architects, librarians, and teachers.
3. “Technicians” includes jobs that combine basic scientific knowledge, usually obtained through two years of post-secondary education, and manual skill. Examples are: computer programmers, junior engineers, and photographers.
4. “Sales Workers” includes jobs that primarily involve selling. Examples are: real estate agents and sales clerks.
5. “Office and Clerical” includes clerical, non-manual work. Examples are: bookkeepers and office helpers.
6. “Craft Workers” includes manual work that requires comprehensive knowledge of work processes. Examples are: building trade positions, mechanics, tailors, and bakers.
7. “Operatives” includes factory-types duties that require an intermediate skill level with limited training. Examples are: chauffeurs, laundry and dry cleaning operatives, welders, and inspectors.
8. “Laborers” includes manual work with no special training. Examples are: garage laborers and gardeners.
9. “Service Workers” includes jobs in protective and non-protective service occupations. Examples are: barbers, firefighters, door keepers, police officers, waiters, and guides.
Local, State and federal agencies need to automate the EEO-1 Job Category reporting system (i.e., through payroll tax reporting and benefits paid by recovery act monies) to ensure that the jobs were real and payments to employees were made. Again, the federal government financial information technology experts have an opportunity for developing standards for “payroll system” architectures for organizations who “employ” workers with ARRA monies by the EEO-1 Category and by NAICS code. Now that it transparency – by “sector” and by “job classification”. The audit community would have the opportunity to validate and verify this information on a monthly basis.
FINANCIAL TREND MONITORING SYSTEM (FTMS) METRICS {see below}
When an OUTLAY is made against Non-Personal Services (NPS) in the form of a PURCHASE ORDER and/or a Personal Services (PS) salary and benefit payment, it would be reported “when it happens”. A discussion with all of the public sector financial system software publishers would be necessary to make this reporting consistent in all of the systems. I propose all of the systems being modified to accommodate this.
Note that State Employment Security Offices would be involved to assess the EEO-1 Job Classification Categories. The local and state issuers of business licenses, who should also be required to utilize the CCR, would be brought in to assess whether or not they were licensed. The local and state finance offices would be involved in examining revenues as a result of their local firms being involved in Recovery Act funded projects.
If one thinks about it, local, state and federal government jobs (Personal Services) or contracts for products or services (Non Personal Services) should have all ARRA outlays (payments) also linked to a NAICS sector and/or EEO-1 Job Classification. This way, there would be a linkage and alignment in assessing the number of teachers or public works staff being financed through ARRA money “when payments are actually made”. Rather than waiting to the end of the project or fiscal year, citizens and auditors could examine and assess the relationship between the Input (money), Process (job or task or project being undertaken) and Output being undertaken.
OBJECTIVE 3 – RECOVERY FUNDS ARE USED FOR AUTHORIZED PURPOSES AND EVERY STEP IS TAKEN TO PREVENT INSTANCES OF FRAUD, WASTE, ERROR, AND ABUSE;
REQUIREMENTS FOR OBJECTIVE 3:
3.1 LOCAL, STATE AND FEDERAL MANAGERS NEED TO ESTABLISH MANAGEMENT CONTROL REVIEW SYSTEMS. Some sort of consortium with professional organizations (elected officials, state and city and county management, the audit community, state and city and county financial management, state and city and county technology management, state and city and county economic development, and state and city and county procurement management) should be used to develop and distribute some Management Control Review (MCR) policies and procedures to utilize. The purpose of a Management Control Review (MCR) is to evaluate the management controls of a specific activity and determine how well they promote good management. Additionally, the reviews will help local, state and federal governments utilize their ARRA monies more efficiently and effectively, and to provide a reasonable level of assurance that the process and products for which the local or state or federal agency is responsible is adequately protected. Rather than reinvent the wheel, utilizing a generic Management Control Review (MCR) policy and procedure that could be adapted to the specific environment could be undertaken by existing professional organizations and made accessible on the web to prevent instances of fraud, waste, error and abuse. The typical steps of Management Control Review consists of:
1) Conducting a Risk Assessment,
2) Reviewing Internal Controls,
3) Report Findings, and
4) Monitoring.
Why not develop an MCR policy and procedure incorporating these four steps now, automating them through a web based system (with the help of the federal financial information systems experts) to enable these “checks” and “balances” to be disclosed in “real-time”?
3.2 UTILIZE LOCAL, STATE, AND FEDERAL AUDITORS. With the above systems already in place, the careful eye, expertise, and audits of our auditor community would be required. In light of the financial audits that every local, state and federal governmental entity must do, the audit community must weigh in on the timing and initiation of the Recovery Act audits. This raises some questions that need to be addressed:
How does OMB desire local, state and federal governments to audit their ARRA funded projects?
Can local, state and federal governments use a portion of the ARRA monies to have their external auditors perform an audit that is separate or part of the OMB Circular A-133 (Audits of States, Local Governments, and Non-Profit Organizations)?
What should the specific roles of Inspector Generals at the federal level or audit officials at the local, state and federal levels be regarding:
Making independent audits and investigations of their agencies’ programs, operations, activities, and functions that are ARRA funded?
Overseeing the work of non-Federal auditors performed in connection with Federal ARRA funded programs?
Reviewing responses to ARRA related audit reports and reporting significant disagreements to the ARRA related audit followup official?
OBJECTIVE 4 – PROJECTS FUNDED UNDER THE RECOVERY LEGISLATION AVOID UNNECESSARY DELAYS AND COST OVERRUNS;
REQUIREMENTS FOR OBJECTIVE 4:
4.1 LOCAL, STATE AND FEDERAL MANAGERS NEED TO UTILIZE REPORTING SYSTEMS LIKE THAT SUGGESTED IN 2.2 ABOVE TO QUICKLY INTERVENING TO AVOID UNNECESSARY DELAYS AND COST OVERRUNS. Early intervention by managing projects and examining their status within their financial systems could be performed by conducting weekly (yes, weekly) status reports that are transmitted to Recovery dot com along with any remediation plans. With the advent of XBRL, it is time to have the FASAB and GASB oversee the development of the reporting of governmental budget, financial, performance, and project information on a monthly basis and eventually in real-time. The stimulus money could go far in investing in a project with the FASAB and GASB in automating monthly local, state and federal government reporting of financial, project, and performance results (unaudited) and at the end of the fiscal year post the audited results online. Take the guessing out of it. Use the technology and put accountability on line.
4.2 REVIEW AND/OR APPROVAL BY FEDERAL AGENCIES OF LOCAL, STATE AND FEDERAL REMEDIATION PLANS MUST BE AUTOMATED. The success of the Obama campaign using new media and participatory democracy techniques has set high expectations for those same techniques being used in actual governing. I think the principles and practices of Web 2.0 can help bring increased ARRA transparency, public involvement and reduced cost to government. How will the federal, state and local technology experts integrate the aforementioned as a mechanism to quickly inform management and to make a decision to take remedial action? Web 2.0 must be used to help local, state and federal government ARRA projects easily report on their status, communicate issues and challenges, and collaborate with federal officials in resolving issues and challenges. I would imagine that a web-based form on Recovery.gov where a local, state or federal agency completes the information on an ARRA funded project could make decision-making more “fact-based”. Remember, however, that unlike program and service Web 2.0 transactions, government financial transactions and reporting requires additional internal controls. Perhaps the Federal Systems Integration Office (FSIO) could develop some “ARRA Web 2.0 reporting standards” for local, state and federal governments to utilize.
OBJECTIVE 5 – PROGRAMS MEET SPECIFIC GOALS AND TARGETS, AND CONTRIBUTE TO IMPROVED PERFORMANCE ON BROAD ECONOMIC INDICATORS.
5.1 LOCALITIES AND STATES SHOULD USE THE FINANCIAL TRENDS MONITORING SYSTEM AS A COMPONENT OF THEIR PERFORMANCE REPORTING. The Financial Trend Monitoring System (FTMS), adapted from the system developed by the International City/County Management Association (ICMA), “identifies the factors that affect financial condition and arranges them in a rational order so that they can be more easily analyzed and measured.”
5.2. ENVIRONMENTAL FACTORS
5.2.1 COMMUNITY NEEDS AND RESOURCES
• Population
• Density
• Age
• Income
• Property value distribution
• Home ownership
• Vacancy rates
• Crime rate
• Employment
• Business activity
The local, state and federal governments need to know what were the community needs and available resources based on the indicators above “before” and “after” the Recovery Act investments. Community needs and resources influences the demand for services as well as the capacity to generate revenues to fund these services. Add to this the cause and effect relationship of the financing of projects for medical care, transportation, education and green technology and citizens would have a clearer view of “what it is” we are trying to accomplish and “what the anticipated effect’ we expect these projects to have on the variables cited above. I would expect that ARRA projects would address their anticipated impact on anticipated trends of population, density, age, income, property value distribution, home ownership, vacancy rates, crime rate, employment and business activity in the community.
5.2.2 INTERGOVERNMENTAL CONSTRAINTS
• Intergovernmental mandates
• Tax restrictions
The local, state and federal governments need to identify what were the intergovernmental constraints based on the indicators above “before” and “after” the Recovery Act investments.
Are there any lessons learned or were laws, rules and regulations streamlined as a result of these ARRA investments?
Will Recovery.gov track any new legislation at the local or state or federal level that must be modified in order to achieve a ARRA project goal or objective?
These are a few value-added measurements that could make Recovery.Gov more informative.
5.2.3 DISASTER RISK
• Potential for natural disaster
• Local preparedness
Local, state and federal government need to assess their disaster risk before they received the Recovery Act investment and determine whether they were addressed as a result of receiving these monies. Mind you, if there is a natural disaster in a town, borough, neighborhood, city or county, then they are going to see whether local preparedness was addressed by local and state and federal emergency management agencies to be funded by ARRA monies.
5.2.4 POLITICAL CULTURE
• Attitudes toward taxes, services and political processes
Local, state and federal governments have a once in a lifetime opportunity to assess the public’s attitudes as to whether these projects were efficiently implemented, effectively met their performance measures, and whether attitudes about government have changed. Feedback is needed.
5.2.5 EXTERNAL ECONOMIC CONDITIONS
• National & regional
o Inflation
o Employment
o Markets
Local, state and federal governments need to tailor the economic analysis of specific areas and uses the NAICS data to assess expansion or contraction by sector of the economy, disposable income, housing, and employment. The federal government should work closer with local and state governments in assessing the components of the local Consumer Price Index (CPI) as a part of community and economic development initiatives. A measure of other federal aid (such as the SBA, EDA, MBDA, etc) should also be shared with local and state officials. The federal, state and local governments should post this on a Geographic Information System (GIS) so that the public can see where we are based on empirical data.
I would expect that a database of organizations that undertook ARRA related projects that created or retained jobs within a locality would be posted on Recovery.gov. As the CPI may be influenced by uncontrollable variables (trends of population, density, age, income, property value distribution, home ownership, vacancy rates, crime rate, employment and business activity) in the community, that could be empirically shown on the website. Working with the U.S. Bureau of Labor Statistics (BLS) and the colleges and universities that report CPI data, as well as the local and state economic development, housing, criminal justice, health care, transportation and education agencies to provide their assessment would make this invaluable.
5.3. FINANCIAL FACTORS
5.3.1 REVENUES
• Growth
• Flexibility
• Elasticity
• Dependability
• Diversity
• Administration
Local and state governments need to carefully assess their revenue streams now and in the future. After all, investments in Going Green, transportation, education, automated health records, job training, affordable housing, and other areas need to assess when the return on the investments will occur, and how much it will impact the future government revenue stream.
5.3.2 EXPENDITURES
• Growth Priorities
• Productivity
• Effectiveness
• Mandated costs
Local and state governments must utilize their comprehensive plans and GIS to project growth. From these projections, plans must be developed which take into account the cost of implementing, the cost of no growth, and the cost of a decline in growth. This will have an impact on the future role of local and state government. I am envisioning the development of a “Stats” systems, where program/division/department/agency heads and representatives meet regularly with executive officials to discuss performance data and develop strategies to improve or sustain the performance of each participating program/division/department/agency. Meetings would enable program/division/department/agency heads, staff, and executive officials to review and analyze measurements of program/division/department/agency performance and efficiency. A stats system would be developed on Recovery.gov based on the idea of holding program/division/department/agency directors responsible for ARRA project results through a regular review of performance data. If any ARRA funded programs or services were not performing as expected, then strategies would then be developed to quickly correct any problems. Because a stats system relies on real-time access to operational level data, and resources to develop strategies to quickly correct problems, it requires an investment in technology and commitment from executives.
Stats systems at times would be viewed as confrontational as program/division/department/agency directors would be “put on the spot” for poor performance. This however, is not their intent. The purpose of a stats program is to focus decision makers attention on operational level data to identify and correct unwanted trends before they become big problems. ARRA Stats systems would be most effective when operational reviews were connected with achievement of defined ARRA funded project goals and objectives.
5.3.3 OPERATING POSITION
• Operating results
• Fund balances
• Reserves
• Liquidity
Local and state governments must assess the impact of the Recovery Act investments on their respective operating results, fund balances, reserves, and liquidity. Local and state government financial policies and financial plans must run some scenarios on these measures from which to base decisions upon and to discuss with citizens, taxpayers, ratepayers and bondholders. Moody’s, Standard and Poor’s, and Fitch Financial utilize similar financial metrics to assess credit worthiness. If ARRA monies have a direct impact on a local or state government’s credit worthiness, then why do we not model and report on it on Recovery.gov on a monthly basis?
5.3.4 DEBT STRUCTURE
• Pension obligations
• Pension assets
• Post employee benefits
Local and state governments adherence to GASB Statement 50 that amended GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers, by requiring:
Disclosure in the notes to the financial statements of pension plans and certain employer local and state governments of the current funded status of the plan—in other words, the degree to which the actuarial accrued liabilities for benefits are covered by assets that have been set aside to pay the benefits—as of the most recent actuarial valuation date.
Local and state governments that use the aggregate actuarial cost method to disclose the funded status and present a multi-year schedule of funding progress using the entry age actuarial cost method as a surrogate; these governments previously were not required to provide this information.
Disclosure by local and state governments participating in multi-employer cost-sharing pension plans of how the contractually required contribution rate is determined.
The status of local and state governments to meet these obligations must be disclosed to citizens along with the fiscal impact on the cost of future government service. Citizens will probably ask whether the federal government is fully disclosing the future cost of federal pension liabilities on its financial statements. This is an issue that cannot be swept under the rug.
5.3.5 CONDITION OF CAPITAL PLANT
• Maintenance of effort
• Capital outlay
The useful life of capital assets needs to be carefully examined at the local, state and federal level. Citizens will want to know whether we are underfunding capital asset maintenance within our current operating budgets. Perhaps now is the time for local, state and federal governments to enhance the budget descriptions of capital asset maintenance that is funded in the operating budgets in terms of its expected impact on the capital assets useful life. As the commercial says, “you can pay me now or you can pay me later”. It would be extremely is unfortunate if the bulk of these Recovery Act investments did not go for bringing lagging capital asset conditions to a locality or state or federal government’s published asset condition standard. Does your government have capital asset condition standards in its annual capital and fixed asset inventory?
If these tools were used and implemented in a standardized manner then it could be used to pull together the pertinent information from the local or state government’s budgetary and financial reports, mix it with the appropriate economic and demographic data, and creates a series of local government financial indicators that, when plotted over a period of time, can be used to monitor changes in financial condition as a result of receiving Recovery Act money.
Note that the financial indicators include such things as cash liquidity, level of business activities, changes in fund balance, and external revenue dependencies. This system can also assist the elected officials in assessing how the recovery act monies affect their long-range policy priorities and can provide a logical way of introducing long-range considerations into the annual budget process. Using technology for financial, performance and project reporting as well as audited financial statements utilizing XBRL on internet would create accountability. Mapping these projects on a Geographical Information System along with the project status would create millions of eyes on the prize.
JUST DO IT
I have listened to all of the “planning” and “integration” discussions about the implementation, reporting and monitoring of the ARRA from a conceptual level. I offer some implementation details at the logical level that would help the local, state and federal financial information systems experts create an “data architecture” at the physical level and fund the modification of existing financial and procurement systems to collect and report ARRA information through a Web 2.0 approach. If you have had the opportunity to listen to NPR “All Things Considered” program called REMAKING MICHIGAN, RETOOLING DETROIT, I think that you would see how utilizing my recommendations would help citizens monitor and track progress that the State of Michigan is undertaking to restructure its economic base and how Detroit is retooling its business base. For those of you who read the Comprehensive Annual Financial Reports (called CAFRs) of local and state governments, you know that CAFRs contain a section on the “Top Taxpayers” and the “Top Employers”. If local and state governments were to report this information by NAICS codes (sectors) and compare these sections for the past 10 to 15 years, then it would indeed show how the economic sectors have been changing. here again, government has this information and must use it more strategically. What is the impact that these ARRA funded projects expected to have on the FY 2009 and FY 2010 Top Taxpayers” and the “Top Employers” of local and state governments that prepare CAFRs?
Why re-invent the wheel? Make a decision on the tools, collaborate with professional organizations and financial/procurement public sector software publishers, automate the reporting, and accountability and transparency awaits. These are actions that Washington needs to lead, and for some aspects, invest in technology and enhanced reporting to make it accessible.
It is that simple. “Just Do It”.
Anthony H. Rainey
