US public finances: State of the union

22 Jan 13
The fiscal challenges facing the US Government have been well documented. Thrust center-stage, government finance professionals now need to their bosses prepare for delivering more with less, as well as to upgrade the financial information available to citizens and other decision-makers, says Daniel J. Murrin

By Daniel J. Murrin | 22 January 2013

The fiscal challenges facing the US Government have been well documented. Thrust center-stage, government finance professionals now need to their bosses prepare for delivering more with less, as well as to upgrade the financial information available to citizens and other decision-makers, says Daniel J. Murrin

Fresh from the campaign trail, US policy-makers may yearn for a rest from the 24/7 media cycle and relentless quest for votes, not to mention the incessant pressure of fundraising. But it’s fundraising of a different sort that is now occupying the minds of today’s generation of best and brightest. Of all the insidious consequences of the financial crash and economic downturn, one of the most notable — and alarming — is the resulting lack of revenue for the US Government.

With the pursuit of US$4t of deficit reduction over the next decade taking priority on both ends of Pennsylvania Avenue, government financial professionals at all levels — federal, state and local — are confronted by a multitude of problems. With their own organizations facing up to budget cuts and staff shortages, they also have to decipher the morass of paper that is pumped out as a result of annual estimated spending of US$3.7t — a sum that, somewhat surprisingly, lacks consistency in how it is reported and in areas such as transparency.

This lack of standardization, together with the sheer volume of data that is available, makes it harder to deliver clear, concise information on the extent of the fiscal crisis to citizens and elected officials. Without such information the chances of being able to understand how to meet the needs of citizens with reduced or flat resources, or establishing whether government can do the same or more with fewer resources, remains remote. What’s clear, though, is that further delays in taking action will leave future generations facing the prospect of paying higher taxes, having less income and health care security in retirement, and less access to education resources. So what can be done?

Firstly, government finance leaders must set the right example. Doing more, the same or less with a smaller budget is unavoidable and will in fact foster innovation and change. One option would be to consolidate operations through reorganizations and development of shared services to achieve cost savings. This should occur within the financial operations first, and then by looking at opportunities across other government agencies. In addition to deploying techniques such as benchmarking and value stream analysis, it is also important for financial managers not to operate in isolation. Stakeholders within organizations and across government agencies must form part of the reform process.

Another problem is that despite the recent wall-to-wall coverage of the recent elections, the American public is not aware enough of the overall budget problems facing policy-makers. Understanding the factors that are driving the need for change and the effects of not dealing with the issues will spur a necessary sense of urgency to deal with the problems. With government shifting from the business of oversight to the business of insight, financial managers must put the long-term consequences of decisions into perspective. This means that despite the fewer resources available, they must still manage to preserve and improve the quality of the information they provide.

When it comes to looking for new ways to provide better financial data for decision-making, improving the communication of information is a prerequisite. While the effective use of social media channels such as Twitter will disseminate the message to a wider audience, it is clear that improving the way that financial information is presented is a key priority. Traditionally, such data has been published in forms accessible only to trained accountants — despite the fact that, as taxpayers, citizens have a right to this information.

The Citizen Centric Report, an initiative of the Association of Government Accountants in the US, aims to counter this trend by providing citizens with financial information in a form that is clear and understandable, updated regularly and available to all. These four-page documents include community information such as population figures, regional characteristics and government goals, as well as a performance report on key services, cost and revenue information, and the plan for the year ahead. These reports make governments more accountable to their citizens and Americans become better educated and better able to participate in government activities.

The need for better information is by no means confined to citizens, however. Policy-makers, too, in both the legislative and executive branches, require enhanced data produced in the timeframes necessary for effective decision-making. The continued development of e-Reporting will in this regard by accelerating the deployment of information, as well as addressing issues of understandability. The spread of e-Reporting is a good example of how the legacy of the financial crisis is forcing government agencies at all levels to examine new ways to do business. The US Treasury, for example, has switched from paper to electronic payments, as well as consolidating functions and offering shared service arrangements.

However, government operations form only a small portion of the solution to the challenges facing the US. Achieving efficiencies while maintaining the effectiveness of government agencies and addressing issues of waste, fraud and abuse will not close the budget gap. Governments will be forced to look at the effectiveness of programs as well as make trade-offs in deciding which programs to fund and what to cut. This will require unbiased and consistent financial information effectively communicated to policy-makers and the general public.

Delivering this at a time of budget cutbacks will not be easy, but it can be done. The government financial community needs not only to explore new ways to provide timely information but also improve the quality and types of data that is available for decision-makers. These two factors, together with ensuring that citizens become better informed on key fiscal issues, are the first necessary steps toward restoring US finances to a sustainable and balanced level. 

Daniel J. Murrin is a Partner with Ernst & Young LLP in the US, Americas Government & Public Sector Services.

This article first appeared in the January edition of Ernst & Young's Citizen Today magazine

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