Page 136 - Encyclopedia of Business and Finance

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Chief Financial Officers Act of 1990 and Federal Financial Management Act of 1994

Financial management systems were obsolete and the area of financial management, heads this office and
inefficient. Management, program funding, and revenue- serves as principal adviser to the deputy director for man-
generating activities were impaired. Hundreds of separate agement.
accounting systems made monitoring, comparison, and The final component of organizational reform was
auditing difficult. Enormous investments to upgrade the designation of CFOs and deputy CFOs for fourteen
financial systems were failing to achieve the benefits of cabinet departments and eight major agencies of the exec-
integration because planning and coordination were lack- utive branch. Accounting, budgeting, and financial activ-
ing. ities were consolidated under agency CFOs who report
No one federal official or agency had statutory directly to agency heads. These positions were created to
responsibility for coordination of federal financial man- foster organizational uniformity in management opera-
agement practices. Congress was concerned that manage- tions and to facilitate coordination of federal financial
ment functions and innovations were being neglected as a management. Additionally, the chief financial officers
result of the preoccupation of the Office of Management council was created to coordinate improvements in federal
and Budget (OMB) with the budget. financial management among agencies.
In 1990 the CFO Act was adopted to improve the Under the CFO Act, the deputy director of manage-
general and financial management practices of the federal ment has overall responsibility for the development of
government by establishing a structure for the central management systems, including systems to measure per-
coordination of financial management. The act provided formance. Each agency CFO has specific responsibility to
for the implementation of accounting systems and inter- develop and maintain integrated financial management
nal controls to produce reliable financial information and systems. These responsibilities include directing the
to deter waste, fraud, and abuse. Additionally, the act design of agency financial management systems and
required extensive changes in reporting to improve the enhancement projects as well as overseeing assets manage-
information available to administrators and to the Con- ment systems that encompass cash management, debt col-
gress. lection, and inventory management and control.
In creating new financial management systems, the
primary objective was to develop comprehensive financial
REQUIREMENTS OF THE CFO ACT
management systems that would integrate agency
AND ITS 1994 EXPANSION
accounting, financial information, and financial manage-
The CFO Act changed federal financial management in ment systems. Priorities include the elimination of dupli-
three ways: It created a new organizational structure for cate systems and establishment of strong internal controls.
financial management, it encouraged the development of With respect to accounting systems, conformity with
new and compatible accounting systems, and it required applicable accounting principles and standards were
new forms of reporting. required. Integrated systems were needed to support the
Three basic changes to organizational structure were production of financial statements and to generate quality
introduced in the CFO Act to provide for central coordi- financial information for a variety of decision-making
nation of financial management. In addition, a coordinat- purposes.
ing council was created. First, to heighten management To encourage the availability of sufficient resources to
priorities and centralize primary accountability, the act adequately support financial systems, the deputy director
provided for the statutory appointment by the president of management was required to review and monitor
of a deputy director for management to report directly to agency budgets for financial systems and to assess the ade-
the director of OMB. This individual, one of two deputy quacy of agency personnel. The Office of Federal Finan-
directors at OMB, is the chief financial officer of the cial Management was funded under a separate and
United States with responsibility for general management distinct line item, and agency CFOs were empowered
and financial management policies. His or her responsibil- with budget responsibility for financial management
ities include guiding improvements in government-wide functions.
financial systems, monitoring the quality of financial The Federal Financial Management Act provided
management personnel, and working to ensure that the specific improvements in financial management. To
executive branch has a financial structure capable of pro- reduce the cost of disbursements, it required the use of
ducing quality financial information. electronic transfers in making wage, salary, and retirement
The second component of organizational reform was payments. To encourage debt collections, it provided that
the creation within OMB of the Office of Federal Finan- agencies could retain a percentage of delinquent debts col-
cial Management under the control of the deputy director lected. To promote internal markets and competition, it
for management. A controller, who functions primarily in established four franchise funds on a pilot basis. To reduce

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 113