May 18, 2022

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The 5 dimensions to further transform federal financial management

The Evolution of the Role of the CFO

It’s essential that the CFO organization has and will continue to move from being an enabling function to being an empowering function.

Inclusion of Modernization in Financial Planning and Strategy

We’re seeing a ton of interest in business intelligence tools where even your standard accountant is really embracing the use of tools that allow them to analyze data faster.

When Congress passed the CFO Act of 1990, their goal was to bring some consistency and standardization to how agencies manage and report on their funding.

Now, 30-plus years later, the law not only empowered the role of the chief financial officer but transformed the entire financial management area for agencies.

Nearly every agency received a clean audit in 2020, most have implemented strong internal controls, and the CFO role itself has been elevated to that senior strata.

Now it’s time for the CFO office to transform once again.

Rep. Carol Maloney (D-NY) introduced the CFO Vision Act 2022 in March to do several things, including standardizing CFO responsibilities to enhance strategic decision-making, providing deputy CFOs with sufficient authority to minimize the effects of CFO turnover and revising financial management planning by requiring the release of governmentwide and agency-level plans to gauge progress in addressing financial management challenges.

New CFO bill would codify agency programs

In many ways, the legislation would confirm and codify a lot of what agencies are already doing today.

Nikki Reid, a partner at KPMG, said agencies don’t have to wait for a new law to accelerate the transformation of their financial management efforts.

“It’s essential that the CFO organization has and will continue to move from being an enabling function to being an empowering function,” Reid said on the Modern Government: Expanding the Impact of Federal Finance show. “To me, that is literally what all of this is all about really going from nuts and bolts accounting to being a purely compliance based organization to being someone that’s focused on operations and really empowering mission areas and leadership in these agencies to make strategic decisions.”

Data and technology are the enablers to drive those decisions. CFO organizations didn’t always have high-quality data, and the technology evolution over the past five years has really driven this transformation.

Agencies now have more transparency into their data and more accountability around the quality of the information, Reid said. Laws ranging from the Digital Accountability and Transparency Act (DATA) Act to several of those focused on improper payments have driven progress across the board, she added.

Data helps drive better financial decisions across government

“Some of the agencies are really embracing and leveraging predictive analytics, which is something that I am so excited about,” she said. “When you think about the impacts to cash and receivables, and the impacts from a budget perspective, the government needs all this data to make decisions.

“Being able to leverage sometimes nonquantitative — or more and more qualitative aspects of data — in that decision-making effort, from a predictive standpoint, is eye opening and amazing. That’s probably the biggest thing that I’m seeing our clients start to do, and it’s great.”

That means agencies need to take advantage of historical data and combine it with new tools and methodologies to inform that predictive analytics, Reid said. She offered an example of a client going through a major transformation effort, deciding whether to move from a general fund to a working capital fund model.

“In order to be in a working capital fund, you have to have a lot more insight and detail about how you’re spending your money to develop whatever product or service you produce. In doing that, they have to have a lot more insights and information with respect to their data,” Reid said. “They are realizing that their data is not perfect, but they have to start. The great thing about this organization is they’re using visualization and data analytics, and it’s easier to see where they have holes in their data.”

This is one of the reasons why it’s important to get started in using data to drive decisions, she said, because the data will “clean itself up,” so to speak.

The four factors of federal financial transformation

On the technology side, CFOs are partnering with other senior leaders whether it’s the chief information officer, chief acquisition officer or chief data officer.

“We really look at transformation in what we call dimensions. The first one is service delivery model, really understanding how you deliver your services. So that could be your funding model, your general fund or your working capital fund. That could be your service level agreements. Do you have shared service providers? It’s anything that enables you to operate effectively as a finance function,” she said. “The second would be people. Yes, we use tools, but you need people to make that activity work correctly. So really focusing on people, making sure they’re empowered, that they know what their job is, that they’re trained appropriately. All of that has to be a real aspect of transformation.”

The third dimension is data. Agencies need to make sure their data is clean, but they also must begin moving forward to use data to improve their decisions.

The fourth dimension is technology, which means automating manual processes through robotics process automation and other capabilities.

“We’re seeing a ton of interest in business intelligence tools where even your standard accountant is really embracing the use of tools that allow them to analyze data faster. No one will ever stop using Excel, right? But some of our government counterparts are really embracing the use of more effective tools to analyze data,” she said.

“There’s large-scale implementations of hardcore financial systems going on today, and there is a push to go to shared service providers. But there still are agencies that are truly implementing new financial systems. That’s not what I’m talking about today. I’m really focused on these technology enablers like low-code applications that allow you to really manage your data in, manage decision-making and manage workflow in a more effective way.”

And the final one is process and policy.

“Most CFOs are very, very familiar with process cycle memos, and process narratives, and all of these things that go with controls and internal control documentation. But your policy and your process should really be foundational to what you’re doing to ensure that you have consistency and that your teams are doing things right,” Reid said. “At the foundation of it all is your program and change management. You need to embrace those dimensions if you are really going to have true strategy and true change.”

Listen to the full show: