Unrest in Government Accounting

CPA Journal, The, Mar 2008 by Foltin, Craig

The success of the AGA's certificate program based on the suggested GASB criteria gives some indication that this type of reporting is seen as useful. In addition, the International City/County Management Association (ICMA) has devoted considerable resources to promoting performance measurement. Even the GFOA, in its position statement, says it would "rate the chances of succeeding at transferring standard-setting authority from the GASB to the FASB at about even at best."

In this author's opinion, GASB currently appears to be ahead in this battle and likely to emerge the winner. The term "winner" is inappropriate, however. Even if GASB clears this impasse, the wounds will take years to heal. It is clear that ongoing concerns over GASB's role in this dispute are valid. By virtue of the large constituency that encompasses the GFOA's membership, the argument holds credence. The GFOA feels strongly enough to pursue its opposition even though its success will be difficult The GFOA even claims in its position statement that if it does fail, "it will shed light on the situation and bring better accountability to GASB."

Performance Auditing Can Strengthen SEA Concepts

One place to start exploring how to strengthen the SEA argument may be performance auditing. If a concern is that SEA is counterproductive and meaningless because of the myriad differences among different entities, then performance audits may be a constructive start. Performance audits review on an individual-entity basis whether an entity is maximizing and obtaining all revenue resources available and whedier it is expending those resources effectively. Performance audits support SEA modeling by identifying areas of improvement and allowing management to analyze independent feedback and reconfigure operations. They are an objective tool that can be customized for individual government entities. Data of performance audits do not have to be required as part of a comprehensive annual financial report to be useful. The study report by Brown and Pyers stated: "SEA reporting without competent performance audits would be irresponsible ... tantamount to requiring the reporting of misleading data"

Critics may claim that such audits cost more man they are worth. On the other hand, performance auditing, a subject well researched by organizations, including the AGA, GASB, and ICMA, is not uncharted territory. The AGA provides an excellent list of supplemental websites (www.agacgfm.org/performance/sea/ downloads/SEAReportWebSites.pdf) that outline resources and entities that use performance accountability reporting.

The state of Washington has predicted that the benefits of performance auditing will far outweigh the costs, and even convinced the public to buy into the concept. On November 8, 2005, Washington state voters passed Initiative 900, which dedicates 1.6% of state sales tax revenues to fund performance audits. The program has garnered public support and has boasted early success, because it has addressed the many challenges of performance auditing and developed a comprehensive plan to deal with them. Up to $12 million a year is used for performance auditing, but the savings are anticipated to be in the billions. The state of Washington is visibly demonstrating that SEA and performance auditing are, at the very least, worthy of consideration. Exhibit 3 lists websites pertinent to SEA, performance measures, and performance audits.