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MAKING SENSE OF THE NUMBERS: IMPROVING

THE FEDERAL FINANCIAL REPORTING MODEL

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

FEBRUARY 16, 2011

Serial No. 112–3

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION, EFFICIENCY AND FINANCIAL

MANAGEMENT

TODD RUSSELL PLATTS, Pennsylvania, Chairman

CONNIE MACK, Florida, Vice Chairman

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

PAUL A. GOSAR, Arizona

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

EDOLPHUS TOWNS, New York, Ranking

Minority Member

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

ELEANOR HOLMES NORTON, District of

Columbia

(III)

C O N T E N T S

Page

Hearing held on February 16, 2011 ....................................................................... 1

Statement of:

Allen, Thomas, chairman, the Federal Accounting Standards Advisory

Board; Jonathan D. Breul, executive director, IBM Center for the Business of Government; and Michael J. Hettinger, executive director,

Grant Thornton LLP ..................................................................................... 5

Allen, Thomas ............................................................................................ 5

Breul, Jonathan D. .................................................................................... 16

Hettinger, Michael J. ................................................................................ 22

Letters, statements, etc., submitted for the record by:

Allen, Thomas, chairman, the Federal Accounting Standards Advisory

Board, prepared statement of ...................................................................... 8

Breul, Jonathan D., executive director, IBM Center for the Business

of Government, prepared statement of ....................................................... 18

Hettinger, Michael J., executive director, Grant Thornton LLP, prepared

statement of ................................................................................................... 24

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of ........................................................... 3

(1)

MAKING SENSE OF THE NUMBERS: IMPROVING THE FEDERAL FINANCIAL REPORTING

MODEL

WEDNESDAY, FEBRUARY 16, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,

EFFICIENCY AND FINANCIAL MANAGEMENT,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:56 p.m., in room

2203, Rayburn House Office Building, Hon. Todd Russell Platts

(chairman of the subcommittee) presiding.

Present: Representatives Platts, Lankford, Amash, Gosar, Towns,

Cooper, Connolly, and Norton.

Staff present: Michael R. Bebeau, assistant clerk; Molly Boyl,

parliamentarian; Katelyn E. Christ, research analyst; Gwen

D’Luzansky, assistant clerk; Linda Good, chief clerk; Hudson T.

Hollister, counsel; Tabetha C. Mueller, professional staff member;

Ronald Allen, minority staff assistant; Beverly Britton Fraser, minority counsel; Carla Hultberg, minority chief clerk; and Suzanne

Sachsman Grooms, minority chief counsel.

Mr. PLATTS. This committee will come to order.

I certainly would like to welcome my fellow Members, as well as

our witnesses and guests, to this first hearing of our Subcommittee

on Government Organization, Efficiency and Financial Management. I certainly am honored, Mr. Chairman, to be working with

you again. For those who don’t know, when I was last in the majority and had the privilege of chairing this subcommittee, Mr. Towns

was my ranking member for those 4 years; and when he went into

the majority, I got to be his ranking member. So we are playing

musical chairs here, but the same commitment of working together

for just good government issues. So, again, I am delighted to be reunited with you.

I am going to offer an abbreviated opening statement because we

appreciate our witnesses’ patience in holding down the fort here

while we finished up votes on the floor. But we are anxious to get

your testimony.

Our focus here today is really to look at a specific issue: financial

information of the Federal Government, and particularly how that

information is reported and then acted upon, and specifically the

Consolidated Financial Report and how we can make it more useful. The question we are asking is how we take that information

and make it more useful not just to Congress, but to the American

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people. And certainly given the deficit spending that we see year

in and year out and a $14 trillion debt, we know the American people care deeply about this issue, about how we are handling their

money, responsibly or not.

I want to certainly applaud the Federal Accounting Standards

Advisory Board for taking a very important first step in convening

a task force to look at the Federal financial reporting model and

how we can improve that model and make it more beneficial to,

again, the public, as well as Members of Congress.

Delighted to have three wonderful witnesses here today. First,

Mr. Tom Allen, Chairman of FASAB. I understand this is the first

time that FASAB has been invited to testify before Congress. We

are glad to have you here.

Mr. Jonathan Breul, executive director of the IBM Center for The

Business of Government. And we are pleased to have you testifying

before the subcommittee again. Mr. Towns and I certainly benefited from your expertise in the 108th and 109th sessions of Congress, and know we will again benefit and blessed by your information and your expertise.

Finally, Mr. Mike Hettinger, executive director with Grant

Thornton. It is really great to see you here on the other side of the

table. For those of you who don’t know, Mike was our subcommittee staff director for 4 years and did an outstanding job, as well

as other positions here on the Hill, and kind of brings the perspective of both a staff person, as well as now in the private sector.

As we speak, the Government Accountability Office is releasing

its biannual high risk list. Many of the issues identified by GAO

have to do with sound financial management, more likely a lack

thereof. Though this may seem somewhat dry, some of the topics

our subcommittee will deal with, it is incredibly important. Nothing is more important than being effective stewards of the taxpayers’ funds, particularly in difficult financial times as we see facing our Nation today.

This hearing will set the stage for our agenda over the coming

2 years and will especially provide us an opportunity as subcommittee members to prepare for our next hearing, when we will

have Treasury, OMB, and GAO before us to testify about the Consolidated Financial Reports, and what we hope to glean from you

is ideas we can share with those witnesses in a few weeks and get

their input on your recommendations of how we can make the information more valuable and useful to all parties. That hearing will

be on March 9th.

With that, I am going to submit the rest of my statement for the

record and yield to Mr. Towns, if you would like to make an opening statement.

Mr. TOWNS. Mr. Chairman, I am going to place my statement

into the record, and I want to get to the witnesses.

[The prepared statement of Hon. Edolphus Towns follows:]

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Mr. PLATTS. OK. Thank you, Mr. Chairman.

All Members will have 7 days to submit written statements for

the record.

We will now go to our witnesses. It is the policy of the subcommittee to always swear in our witnesses. If I could ask you to

stand and raise your right hands.

[Witnesses sworn.]

Mr. PLATTS. Thank you. Appreciate your affirmation.

And we will begin, Mr. Allen, with your testimony and, again,

thanks for your presence here and sharing your expertise.

STATEMENTS OF THOMAS ALLEN, CHAIRMAN, THE FEDERAL

ACCOUNTING STANDARDS ADVISORY BOARD; JONATHAN D.

BREUL, EXECUTIVE DIRECTOR, IBM CENTER FOR THE BUSINESS OF GOVERNMENT; AND MICHAEL J. HETTINGER, EXECUTIVE DIRECTOR, GRANT THORNTON LLP

STATEMENT OF THOMAS ALLEN

Mr. ALLEN. Thank you very much, Mr. Chairman, Congressman

Towns. I appreciate the opportunity to testify today. I want to convey five key messages in my comments.

The first of those is that citizens want to receive directly information about their government’ finances. The second of those is

that accrual-based financial statements do contain information that

is a good indication of the current financial health of the government and of future financial health.

The third issue is that the Federal Government is such a complex and large organization that it is challenging to convey its financial information in an easily understood manner. The fourth

key point is that Internet tools can help in overcoming these challenges, and the other witnesses will talk about that. No. 5, the task

force developed a series of recommendations that will be considered

in the coming months by FASAB and others to better improve Federal financial reporting.

Exceptional work has gone into improving Federal financial reporting since the passage of the Chief Financial Officers Act in

1990. The Federal Accounting Standards Advisory Board, FASAB,

plays a key role by providing generally accepted accounting principles, referred to as GAAP standards, and has been recognized by

the accounting profession as meeting the criteria necessary for a

standard-setting body. Accrual-based financial reporting standards

issued by FASAB call for recognizing commitments and obligations

as they occur, rather than when cash may flow in or out of the Federal Government. This same measure applies to all companies or

organizations in the United States that have audited financial

statements.

Since the Federal Government has, for a number of years, prepared accrual-based financial statements, I decided to look back 10

years, to fiscal 2000, to see if accrual-based information was helpful

in better understanding the financial condition of the government

at that time and to see if that financial information was of predictive value in looking forward. As you know, fiscal 2000 is remembered as the last of the great surplus years with a $237 billion

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budget surplus, and fiscal 2000 was a very positive year when compared to more recent fiscal years.

However, information gleaned from the financial statements and

the disclosures indicated that even though there were cash surpluses in the years from 2008 to 2010, the debt, subject to the debt

limit, actually increased by $152 billion during that time. This increase is attributable to the intragovernmental debt, which is

issued when Social Security and other trust fund debt are not

needed to pay benefits for that period and are loaned to the government. The real financial stress for the government would come in

future years, as those intragovernment borrowings needed to be repaid.

To discover when repayment may be necessary, I looked further.

I looked at the financial statements and back on page 56 I found

stewardship information talking about the present value of longterm actuarial projections called actuarial deficits. It was $13 trillion in fiscal year 2000, and increasing by an average of $2 to $3

trillion each of those years. These amounts are not reflected in the

balance sheet or operating statement of the Federal Government,

but they do impact the financial condition of the Federal Government. The financial statements in 2000 included the message from

then Comptroller David Walker noting the unsustainability of

those programs and the need to reform them at the earliest opportunity.

These comments are not to imply any inappropriateness of the

above-stated transactions or noncompliance with Federal GAAP

but, rather, to note that there was information to help financial

statement readers better understand the broad financial condition

of the government at that time, including fiscal challenges that

would need to be dealt with in the future. However, citizens and

other readers would probably have difficulty in understanding

these transactions and what the numbers in those financial statements represented.

Despite the much progress that has been made, FASAB has recognized the difficulty of communicating often complex Federal financial information and the need to improve the understandability

of Federal financial reporting. The question of how to better communicate this financial information has also been a challenge.

Accordingly, the Federal reporting model project was added to

the FASAB agenda. Beginning in the year 2008, we undertook a

user study. We found that citizens do want to know more about the

financial health of the Federal Government, but they often did not

know that financial statements even existed and, when shown the

financial statements, had trouble understanding what they meant.

Our sponsors from Treasury, OMB, and GAO are also seeking to

better inform citizens regarding the financial condition of the Federal Government. Their efforts have resulted in the schedules of

key amounts in the financial statement management discussion

analysis. These schedules are illustrated in my written comments.

For fiscal year 2000, additional long-term projections have been

added to the financial report. These long-term projections help inform readers about the challenge of continuing current financial

policy without change. The task force provided a list of 10 recommendations for consideration by FASAB and its sponsors. I want

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to thank them for the expertise they brought together and their excellent recommendations. I am hopeful that these recommendations

and our other efforts will lead to a better informed citizenry.

I look forward to answering your questions. Thank you.

[The prepared statement of Mr. Allen follows:]

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Mr. PLATTS. Thank you, Mr. Allen.

Mr. Breul.

STATEMENT OF JONATHAN D. BREUL

Mr. BREUL. Good afternoon, Mr. Chairman and Ranking Member

Towns. I am pleased to have the opportunity to testify this afternoon regarding the report of the FASAB Financial Reporting Task

Force.

Late last year the government released its annual financial report, and although that report presents information that is important to citizens as they form judgments about the fiscal future of

the government under current policy, it is unlikely that Americans

are even aware of its existence or its availability. And because the

Nation is currently engaged in crucial debates about the appropriate role in the near term and the long-term fiscal imbalance, the

annual financial report is now more relevant than ever before to

citizens, political leaders, and analysts.

Further, the recent celebration of the 20th anniversary of the

Chief Financial Officers Act offers a clear reminder of the considerable improvement and financial reporting over the past two decades. However, the challenge of effectively delivering that information to users remains unfinished.

I served as a member of the FASAB task force. The objective of

that task force was to increase users’ access, their understanding,

and their use of financial information, while avoiding costly requirements that do not add value. To do so, the task force focused

on the Consolidated Financial Report, largely because that is where

we judged the public would start in order to learn about the fiscal

health of the Federal Government as a whole.

And the FASAB user studies, as Mr. Allen indicated, showed

that citizens and, indeed, many executives and managers in government, have difficulty understanding the information in that report. Indeed, many of whom believe the document is written by accountants or economists, which it is. Consequently, they believe the

government should adopt a Web-based method of communicating

information about the fiscal condition and performance of the Federal Government.

Since four of the task force’s recommendations focus on methods

to enhance this communication of governmentwide financial information, I want to devote the balance of my remarks just to highlighting those four items.

The first task force recommendation was to move away from

paper-based reporting and to adopt an electronic Web-based reporting method. The public relies increasingly on digital devices,

whether it is BlackBerrys and other devices which we all are carrying, and interactive media to obtain their information on demand.

Accordingly, financial reporting information needs to switch from a

paper-based static reporting model to an electronic, dynamic, and

readily available online availability.

The task force’s second recommendation urged FASAB to explore

how to best report additional governmentwide program performance in the management discussion and analysis [MD&A], section

of the consolidated report or in other electronic governmentwide

presentations. The Nation is engaged in deliberations to determine

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the Federal Government’s future role in the economy and society,

and program performance measures presented in the consolidated

report could potentially help inform that debate, especially if they

were structured to provide such information about the government’s effectiveness in achieving its planned goals, as well as the

economy and efficiency of government operations.

And I should point out that this recommendation now very nicely

aligns with the recently enacted GPRA Modernization Act, which,

as you know, strengthens the existing requirements for the reporting of performance information and calls upon the Office of Management and Budget to develop a governmentwide performance

plan.

The third recommendation of the task force is to present net cost

and spending by function. The current statement of net costs is

presented by agency. FASAB focus group discussions with citizens

indicated that users are much more likely to focus on the government’s functions, such as health care, social services, national security, those kind of functions, rather than the agencies which are administering them. And, as you know, that is the kind of information which the budget is currently presented and it is a breakdown

which many in Congress and the Federal Government are already

familiar and use on a regular basis.

The task force’s final recommendation was to establish a central

Web site for Federal financial information and to aggressively inform the public of its availability. Ultimately, the success of the

previous recommendations requires making the public aware of

these financial reports and the information they provide. A central

Web site would enable the Federal Government to take advantage

of existing technology and to help identify improvements that may

be needed.

The static paper-based reports that the Federal Government delivers today contain important information about the fiscal health

of the Federal Government; however, those reports are not presented or available in a way that makes them easy to use or easy

to understand, thereby limiting their impact. The government

needs to use modern technology to inform the presentation of that

information and adapt to the way users want to receive the information and are much more likely to use that information.

Thank you.

[The prepared statement of Mr. Breul follows:]

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Mr. PLATTS. Thank you.

Mr. Hettinger.

STATEMENT OF MICHAEL J. HETTINGER

Mr. HETTINGER. Chairman Platts, Ranking Member Towns, and

members of the subcommittee, thank you for the opportunity to testify today. As you mentioned in your opening remarks, I served

from 2003 to 2006 as the Staff Director of this subcommittee. I am

currently an executive director with Grant Thornton’s Global Public Sector Practice, but I am here as a witness today based on my

experience serving as a member of the financial reporting model

task force to the FASAB.

I applaud the committee for holding this hearing today and for

your ongoing interest in government efficiency and effectiveness.

Since the enactment of the CFO Act in 1990, we have seen a

steady and significant improvement in the quality and availability

of information about the Federal Government’s finances. That information, contained in individual agency financial statements,

Performance and Accountability Reports, the Consolidated Financial Report, and other reports, provides a sound baseline for decisionmakers and citizens alike to better understand how the Federal

Government is using their hard-earned tax dollars.

The issuance of the CFR in mid-December each year should set

off a chain of events where Congress, the administration and the

general public have an opportunity to look at the financial condition of the government prior to the issuance of the President’s

Budget. All too often, however, the issuance of the CFR goes largely unnoticed.

About 6 years ago, when I worked on this subcommittee, I participated in an effort led by the Department of Treasury to improve

the usefulness of the CFR. That effort, among other things, led to

the development of the Citizen’s Guide to the Financial Report of

the U.S. Government. This document provides an effective highlevel summary of the highlights of that year’s CFR, useful for citizens seeking a basic understanding, but not necessarily useful for

Congress or other decisionmakers.

Last spring, FASAB conducted a user needs study to assess the

financial information needs of the Congress. This study follows a

mid-1980 study by GAO. The GAO Federal Government Reporting

Study conducted in 1986 found, with respect to legislators, that

Congress needed specialized agency information for the conducting

of committee business, but summary level information for use in

communicating with constituents, providing a means for the Federal Government to demonstrate its accountability.

The spring 2010 FASAB study confirmed that many of these

same needs are applicable today and fall into four broad categories:

budgetary integrity, operating performance, stewardship, and systems and control.

From my experience, these broad categories accurately reflect the

information needs of Congress. Members and staff attain this information from a variety of sources, including the news media, agencies directly, legislative support organizations such as CRS, inspectors general, or via your own research and oversight.

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There is also a wealth of information contained in statutorily required reports, including the CFR, as well as agency PARs, and I

believe Congress and the general public would benefit greatly from

making that information more readily available and understandable.

With the creation of Web sites like USASpending.gov, Data.gov,

the Federal Procurement Data System, and private Web sites looking at the financial condition of the government, citizens now have

access to more information than ever before and clearly more interest in the information contained in those sites. Ease of use and the

relevance of the information housed on these sites drives visitors.

However, the completeness and accuracy of the data contained

within is essential for those government-owned sites.

The mission of the Financial Reporting Model Task Force, as

Jonathan mentioned in his statement, to increase users’ access to

and understanding and use of financial information in the CFR,

while avoiding costly requirements that don’t add value, sought to

address this very issue. I was pleased to be a part of this effort because I believe that mission gets to the heart of where we stand

on Federal financial management 20 years after the enactment of

the CFO Act. We have a great deal of information, but that information is not understandable by the general public or useful for decisionmakers.

The Task Force, as Jonathan also mentioned, makes 10 key recommendations, ranging from adopting a Web-based reporting

model, to presenting a functional statement of net cost, to establishing a Federal financial information Web site and raising awareness of the availability of Federal financial information.

Recommendation 1, asking Treasury to move away from a paperbased reporting model by adopting an electronic, Web-based reporting model, is essential if we are move in the direction of improving

the availability and transparency of government information. This

recommendation, combined with recommendation 10, which calls

for the establishment of a Federal financial information Web site

to help raise awareness of the government’s financial information,

go a long way toward improving the ease of access to information.

Recommendation 3, regarding a functional statement of net cost,

would present net cost and spending by function, as Jonathan mentioned, such as health care, rather than by agency, such as HHS.

This recommendation I believe is essential if we are to truly understand the cost of government.

And there are a number of other recommendations that I have

highlighted in my written statement, and I will skip over those because I think they have been addressed by the other witnesses.

I will close by saying there is a wealth of really important financial information contained in the CFR, as well as in agency financial statements, but to make that information relevant, it must be

timely, accurate, understandable, and usable.

Thank you again for the opportunity to be here today, and I am

happy to answer any questions that Members may have.

[The prepared statement of Mr. Hettinger follows:]

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Mr. PLATTS. Thank you again for the testimony of all three of

you, and your written statements will be made part of the record

as well.

I am delighted to have been joined by one of our freshman Members, Congressman Gosar, from Arizona. Delighted to have you

with us on committee. And returning senior Member, Mr. Cooper,

from Tennessee. So thanks for both of you being with us.

We are going to do a round of questions of basically 5 minutes

and rotate, and then if we have need for a second, third, fourth

round, we will come back around.

Mr. Allen, I would like to start. In your role with FASAB, you

certainly, in setting accounting standards for the Federal Government, you have to kind of please a lot of different communities; the

bond rating agencies, auditors, citizens, Members of Congress, Federal managers. When we talk about some of the recommendations

that the task force has made and going to a Web-based reporting

model for financial statements, going to that model seems to be

kind of mutually beneficial to all communities, whether it be Members of Congress or the public at large.

But is it different when we talk about how the information that

is on that Web-based model is reported? Is there a difference in

what is going to be useful to the public at large versus how it needs

to be presented for Members of Congress or other policymakers

within the Federal Government? Are they mutually exclusive in

how the information is presented within the Web model?

Mr. ALLEN. Clearly, as you indicated, the needs of somebody who

is managing an agency are probably very specific. They have to be

very timely, in fact, real-time; they can’t wait until after the end

of the year to prepare financial statements.

So I think the recommendations are very positive in terms of

electronic data base allows you to actually drill down and access

the level of detail that you want. There are challenges of getting

it real-time for some people and others who look at it at the end

of the year and say, OK, here is a broad overview.

But the efficiencies that need to take place in the Federal Government that I think would be significant is if we had the same

financial statements that provided the information to manage were

also the same financial systems that were used to generate the

numbers that would prepare the financial statements after the end

of the year and would have audit coverage. That gives credibility

to everyone who is using that system.

The challenge right now is often that is not the case in agencies.

So that is one of the things that I would encourage you and your

committee to encourage and look forward to. But, yes, the technology and the drill-down capacity would be beneficial.

Mr. PLATTS. And what you envision when you talk about the

drill-down opportunities is you have the CFR and kind of the overall report, but if it is a Web-based model, then you can link

through that Web-based model down into NASA or DOD or Commerce and get into the nitty-gritty of that individual department

or agency’s financials pretty easily.

Mr. ALLEN. And even beyond what they are now reporting, because what we heard from citizens, for example, everyone was interested in the cost of defense, but what they were interested in is

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a lot lower detail than anything that is reported now. They wanted

to know the cost of a war in a particular country or something like

that.

So I think as we gather the data electronically—now, obviously

there is going to be some work in sort of how you cut and dice that

information, but you would clearly be able to answer the detailed

questions people want. Not too many people say just tell me the

total cost of defense and I am happy to know that.

Mr. PLATTS. Is it fair to say that what FASAB and the task force

recommendations are about is we already have right to know laws

and we have a right to know the information, but it is getting access to it in a usable, time-sensitive manner? Your recommendation

is not changing the right to know, but the access to what you do

have a right to know, and through a better resource tool such as

a Web-based model.

Mr. ALLEN. Yes. That is a very good summary. Thank you.

Mr. PLATTS. Mr. Hettinger and Mr. Breul, when the task force

looked at major recommendations, what was maybe the most significant limitation in the way we are doing it now and was it lack

of data or how we are presenting the data, or just the public’s lack

of knowledge that the data is out there for them to get and use?

Mr. BREUL. The Consolidated Financial Report is not a best seller. You couldn’t go to the local bookstore and find one I recall one

of our meetings we looked around and we had a hard time finding

one at our meeting.

So I think the problems are pretty basic. They have to do with

the availability of that information and then, second, the presentation, the readability and understanding. It is a public document

full of spreadsheets, and they are hard-printed spreadsheets, they

are not searchable, they are not readily understandable, and they

are not the kind of thing that an average citizen could quickly lay

their eyes on and understand; it takes some attention and some

skill.

Mr. HETTINGER. I think that certainly sums up the general

thoughts on it. In a way, it is almost too much information. As Jonathan talked about, if you were to pull one out—and I am guessing

no one has one—but if you were to pull one out, it is this big and

it has an awful lot of detailed information in there, and your average citizen is not going to look at that document and, quite honestly, understand much of anything that is in it.

What we tried to do as we looked at this electronic reporting

model is say, OK, what can we put at a summary level that citizens will use, but then those who are decisionmakers and others

will be able to drill down deeper and find the type of information

they need. I think that is what interesting about both the Treasury

effort I mentioned from 5 or 6 years ago, as well as the user needs

study, because there is a balance.

One of the things we learned in that Treasury effort is the bond

rating agencies, Moody’s and Standard & Poor’s and those folks,

are actually very interested in the detailed data that is contained

in the Consolidated Financial Report. Your average citizen doesn’t

want to see the same type of information that Moody’s and Standard & Poor’s want to see. So we try to provide a vehicle that will

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allow for some summary level information, but then a drill-down

that won’t overwhelm people.

Mr. PLATTS. Before I yield to the ranking member, I think what

we have seen over the years, and Mr. Cooper certainly has been

a leader in trying to raise awareness within the public at large of

the importance of these issues, and, as Mr. Breul said, it is not necessarily a best seller, the CFR, but it is really one of the most critical reports that is done for the American people when it comes to

how we are spending their money.

And I have joked in the past, when I have last chaired the subcommittee, in getting attention to this issue of the information and

access to the information. You know, I have gotten to the point

where I think that maybe we need, along with the three of you experts, is to have maybe a baseball player who is doing steroids be

here to show an interest in the Consolidated Financial Reports.

That would help generate interest in this very important information. So we are going to keep trying to raise awareness and work

with you and others on better access to this critical important information.

With that, I yield to the ranking member, Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman. When you get

that baseball player, just make certain he is not a Yankee.

Mr. PLATTS. Well, as a diehard Orioles fan, no problem there.

Mr. TOWNS. Let me again thank you very much for holding this

hearing and let me begin by we keep talking about the word user,

user-friendly. What can we do to sort of make this more userfriendly, so people can sort of understand it in terms of Members

of Congress and the general public in particular? What can we do?

Do you have any ideas of some things that we might be able to do

to make it a little more user-friendly?

Mr. HETTINGER. I will throw out a couple ideas. I mean, obviously, as Jonathan mentioned in his prepared testimony, people get

information quicker, they get information electronically primarily.

It is one of these things, in this age, the information comes so

much quicker.

So I think recognizing that information comes in different forms,

the government, FASAB, and some of the recommendations in the

task force, but primarily the Department of Treasury issues a report, need to recognize the different ways that people get information. And that moves you in a lot of different ways in the recommendations, I think, to go to an electronic reporting model just

like that.

It is important to recognize this is not information contained in

the Consolidated Financial Report that everyone has an interest in.

When you look at USASpending and some of the other Web sites

that are out there, there is very specific information to congressional districts and spending that goes on in those congressional

districts, and I personally believe a lot of the information and the

reason people are driven to those sites is because they want to see

how much of their tax dollars are getting returned to their own

congressional district. The information in here is a little bit different.

So not everyone is going to have an interest in it, but if you get

it out there electronically, usable, findable, if it pops up on Google

32

when you do a search for the Federal Financial Report or U.S. Government Financial Report, folks are going to start to pay more attention.

Mr. BREUL. Let me offer two quick suggestions. One is to use

many more charts and graphs and colorful displays. The document

right now has many spreadsheets and tables, as you might expect,

but USA Today, the newspapers, you read the front page of the

paper today, bars and charts and graphs are often a more effective

way of communicating, particularly to citizens. So more use of devices like that would be helpful. And, again, the Web-based tools

would be helpful in that regard.

The second and also in the Web-based category is this idea of

having it machine-readable. Right now that is a hard document in

which you have usually it is called a PDF file, which is a true copy

of the document reproduced for you in hard form or viewable on the

screen.

But if it was machine-readable data, such as Recovery.gov had

been in the past for the Recovery Act money, you could search by

a county or a title or a period of time and come up with the data

that particularly corresponded to your particular interests, and

would make it a much more user-friendly and user customized tool

for people to begin to dig in. And I think that is indeed why Recovery.gov has been so popular; it is getting millions, hundreds of millions of hits, because citizens are able to dig in, where the financial

statements don’t have that ability right now and could change.

Mr. ALLEN. I think, Congressman, one of the challenges is that

even people who understand how to read financial statements,

when they look at the financial statements of the Federal Government, it is confusing to them. Traditional financial statements have

a very clear bottom line and they have a clear operating statement

that shows how much that financial position changed in a period

of time.

Now, because of the complexities, and it starts with the way

things are budgeted, and when you look at the financial statements

of the Federal Government, you see I have information on social insurance, it is in a separate financial statement; I have information

on long-term projections, that is in a separate financial statement.

I really don’t have a bottom line. If you were to ask me how did

we do last year, just like in my testimony, my written comments.

If I ask you how did we do in 2007, off the top of your head, you

would say great. But, in reality, once you start looking at some of

the information that I laid out, how great was it? And that is something that you would start asking yourself in your mind. It was

great, but we were increasing our debt. How do those two things

reconcile together?

So that is the challenge that we have with the complexity of the

Federal Government, and that probably would require more than

just standards that we would set; that would require the concerted

effort of Congress and the way they approach things and the way

they budget things and the way it is reported to citizens. That

would be a very comprehensive challenge, but would be a challenge

worthy to at least look at to get to an understandable bottom line.

Mr. PLATTS. Dr. Gosar.

33

Mr. GOSAR. Thank you very much, gentlemen, for being here

today. It is a two-way street. I think it is also from the legislators

to having quick synopses of what we are actually seeing and being

able to convey that to people as well. The non-profits do this very,

very well in some cases, where you see for every dollar we put in,

how many cents are actually derived to the source that we are trying to adjudicate for.

So with that in mind, I think we have to look introspectively, and

from your perspective what is the best way from an accounting perspective to determine if a government program is using its dollars

efficiently?

Mr. ALLEN. Do you want to talk about the recommendations on

uniting the performance information with the financial? Do you

want to go ahead and address that initially or was that directed

to me?

Mr. GOSAR. All of you.

Mr. BREUL. I will just start it off, then. The second of the recommendations was to include performance information; that cost

alone was not a sufficient perspective, you really need to know

what you got for that money. And, again, that is why I mentioned

the recent enactment of the GPRA Modernization Act, which is a

renewed attention by the administration and Congress that you

need a complete picture of not only what we spend, but what we

are getting for that spending, and understanding the performance

and results that are being paid for with this money during that

particular period of time. To me, that is the essential pairing of information that is needed to really make an informed judgment of

whether we are getting the value that we are expecting.

Mr. HETTINGER. I will associate myself with Jonathan’s remarks.

There are lots of ways to try to understand how a Federal program,

whether it is achieving its results. When I worked on the subcommittee, Chairman Platts and I worked together to try to promote a bill which looked somewhat like what the GPRA Modernization Act looked like.

That bill changed over time. The intent was to take a programmatic approach to looking at the performance of programs basically line by line, program by program, building on the Bush administration’s program assessment rating tool; and I think it is effective.

What you then have to do, as Jonathan talked about, is to tie

that program, performance information back to budget; and that is

really the key in assessing the performance, but then demonstrating some budgetary changes as a result of a program’s performance. Easier said than done in a lot of ways, I think, but that is

how I would approach it. That is how I think it has been approached. And there have been many, as you know, many efforts

by Congress and others over the years to try to understand exactly

how effective these programs are being.

Mr. ALLEN. I would add I guess you talked about not-for-profit

organizations, and even there the standard setter identified what

it is you need to report, cost of raising money versus program services you are delivering. But there is no requirement from an accounting standpoint of tell us how effective you are, so it is a challenge.

34

In fact, that probably is an area that is best addressed by those

who are managing those programs, the agencies themselves. And

I think from a standard setter standpoint we can say you should

include program information. But how to effectively present it is

probably going to reside with those agencies, with models that may

be presented by the task force or others.

Mr. GOSAR. A followup question, because I want to make sure

that we are getting the right information in regards to the proper

accounting. So, in your opinion as accountants, and following

through and financial statements, in last year’s health care bill, did

Congress follow its due process in properly accounting for funds

and cost analysis in a transparent and accurate accounting method?

Mr. ALLEN. I don’t see the 10-foot pole, but my understanding is

that there will be a presentation of those people who prepared the

financial statements for 2010 and who audited those financial

statements, and that will be a presentation that they believe is

most appropriately addressed by them, as opposed to us as standards setter. Is that a bailout? It is.

Mr. PLATTS. And, Doctor, sorry, that is March 9th when we will

have Treasury and OMB before us.

Mr. GOSAR. I yield back the rest of my time.

Mr. PLATTS. Thank you.

Before I yield to Mr. Cooper, is it safe to say, when we talk about

getting more performance information in the report and more easily understood, that if you go to that Web-based model and have

more performance, one of the true intents of moving the CFR up

into December is so that it can be used in drafting the subsequent

year’s budget? In the current model it doesn’t lend itself very well,

especially the lack of performance and easy access to performance

information. Is that a fair statement?

Mr. BREUL. I think that is true. And I would simply point out

that with the new GPRA Modernization Act, at least for the high

level, high priority goals, the Congress asked for quarterly reporting so in fact you could begin to buildup a more periodic reporting

and have information not only at the end of the year, but during

the year, when there is some opportunity to make some course corrections or changes if you want to accelerate or decline the trend

that you are currently on. So I think that is exactly right.

Mr. PLATTS. Mr. Cooper.

Mr. COOPER. Thank you, Mr. Chairman.

Let’s be honest. This is one of the most important and most boring hearings in congressional history. We are lucky if this is even

on C–SPAN 3. There are about maybe 20 live people in this room,

and half of them are asleep, because we are not speaking a language the average American voter understands. So let me put the

cookies on a low shelf and, especially, I would like to get Dr.

Gosar’s attention on this, because as a new member perhaps he can

rescue us.

We are now sitting in a room of the only large enterprise left in

America that is exempt from using real accrual accounting. This

violates the first plank of the Contract with America back in 1994–

95, in which Congress was supposed to live by the laws it passes

for the rest of the people. It is my understanding that every enterVerDate 11-MAY-2000 13:09 Jul 14, 2011 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\67174.TXT KATIE PsN: KATIE
35

prise in this country with revenues of about $5 million has to use,

in addition to cash accounting, also real accrual accounting.

But somehow the Federal Government is exempt. We are hypocritical. Now, why is that? Well, first of all, I still can’t find one

lobbying enterprise in this town, and Lord knows there are thousands of them, there are between 30 and 60 lobbyists for every one

of us. Not one of those folks, to my knowledge, is for real accrual

accounting for the Federal Government. Isn’t that interesting?

When the average civic club member back home has to use real

accrual accounting for their business, whether they are for-profit or

non-profit. State and local governments have to use real accrual accounting. It prevents them from hiding their unfunded pension liabilities and things like that. So why isn’t the Federal Government

using it?

This is a mystery that you gentlemen can help us solve, because

while we are talking here about electronic display of information

or fine-tuning these facts, there is not a lack of information, there

is a willful blindness to that information. The rating agencies,

Moody’s and Standard & Poor’s, have already said maybe we have

1 or 2 years left before we face a possible downgrade of the Treasury bond, because we are so mismanaging our Nation’s finances.

Now, how are we mismanaging it? According to cash accounting,

our debt is on the order of $14 trillion. But if you look at our unfunded obligations, programs like Medicare, Social Security, things

like that, it is more like unfunded obligations of 50, 60, who knows

how many trillion dollars? Many times larger. Our debt this year

isn’t at $11⁄2 trillion or so, it is more like $2 trillion. So when are

we going to get real on these numbers? And that is why I think

it is important to be somewhat blunt, be simple without being simplistic to help the average American understand the situation we

are in, because it is very convenient here today for Federal officials

to hide the real numbers.

You are talking about electronic displays for the average citizen.

The Treasury Department has never held a press conference about

the release of the Financial Report of the U.S. Government. Our

own Treasury officials in both parties, whether it was the Bush administration or the Obama administration. They deliberately hide

the release of this document, the only one compiled according to

law passed by Senator John Glenn, that uses the real numbers.

So forgive me for being frustrated, but the business mantra is if

you can’t measure it, you can’t manage it. We are refusing to measure the dimensions of our problem. A historian will look back years

hence and say they had the tools to do a good job, but they refused

to use the tools. The tool is real accrual accounting, because that

enables us to see what is not only in the national checkbook, but

what is on the national credit card.

So I know Mr. Allen knows these issues cold. I appreciate his

great service on FASAB. I appreciate the other pioneers who have

worked on it, but somehow we have to break the gridlock on this

issue. Let’s find one business lobby in America that is willing to

support real accounting for the Federal Government. Where is the

Chamber of Commerce? Where is the Business Roundtable? Where

is the NFIB? For that matter, where is The Wall Street Journal?

36

I have a chart in my office, I have had it for years: What is the

debt? What is your share of the debt?

We are using cash numbers. We need the real numbers. And you

gentlemen, while you are doing all the fancy fine-tuning stuff, you

can help us understand the plain, blunt truth. We are not using

honest accounting standards, not using real accounting standards,

not using accrual accounting standards for the Federal Government. So this is more of a statement than a question.

I appreciate your efforts, Mr. Chairman, to highlight these

issues, but I think it is important to make this a less boring and

to put the cookies on a low shelf so that perhaps there is somebody

out there in C–SPAN 3 land who will make this a cause and bring

this to light. Thank you, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Cooper. Your statement is one of the

reasons I am delighted to be back on the committee with you and,

as I said, your efforts over many years to raise this very, very important issues. As you say, maybe boring, but ever, ever important.

And look forward to working with you as we go forward in these

2 years to do a better job in having the American people truly understand the financial crisis facing us, because, as you said, the

real numbers are tens of trillions of dollars of unfunded liabilities

out there.

Mr. COOPER. Thank you, Mr. Chairman.

Mr. PLATTS. Mr. Connolly.

Mr. CONNOLLY. Thank you, Mr. Chairman. And I want to express

to you my delight in being on this subcommittee. I picked a third

subcommittee because you were chairing it. So thank you.

Mr. PLATTS. I am honored.

Mr. CONNOLLY. And, of course, you can imagine how thrilled I

was that our first hearing was on accounting, a wonderful subject.

First of all, Mr. Allen, you should know that I was, for a long

time, a consultant for FASB, and I didn’t lobby for FASB, but I

helped represent FASB here in Washington, working with other

representatives of yours in a consulting status, and enjoyed very

much working with FASB and going to Connecticut and debating

green eyeshade issues and how they might translate into public

policy.

I want to ask two questions. The first is do you all ever look,

though, at the costs of your decisions? Mr. Allen, for example, I

can’t remember the exact number, I used to know it by heart, but

I was in local government for 14 years, and a new GASB standard

added gazillions of dollars to the cost of local government, or eliminated even the option of expanding benefits because of the actuarial implications that GASB required us, all in the name of a new

and more transparent accounting standard.

And I think it depends on where you sit how helpful that is. And

my question is does FASB and do others, and the other panelists

could certainly feel free to comment, ever take into account the cost

implications of your decisions, both on the Federal and State and

local government levels, or, for that matter, on the private sector?

Mr. ALLEN. Can I go ahead and start? Well, thank you. It is nice

to see a welcoming face here understanding the challenges of

standard setting. I suspect I know what standard you are talking

about that was passed. That was probably the last standard that

37

I was involved in before I retired from GASB, and that probably

had to do with recognizing the cost of health care promises for your

employees.

Mr. CONNOLLY. Was that GASB 76 or something like that?

Mr. ALLEN. Fifty-six, I think. However, when one thinks about

that, what has resulted from that decision? In other words, as accountants, we try to be non-political; we provide you information

that you make decisions. In that particular case, we received letters back that were disconcerting: if you make us report this in our

financial statements, they won’t continue that benefit.

And, in fact, in the State of Utah, where I am now a visiting professor at a university, I don’t earn any benefit for health care because the State of Utah legislators, when faced with the decision

of do I put that on the face of my financial statements and recognize that, decided that cost was too great for them to assume.

So when you look at the role of accounting, it isn’t to make decisions about what one should do, but it is to provide you clearly the

information that you have to make a decision understanding the

full cost of that. And I think that is what Mr. Cooper was also addressing, this issue of you put something on the face of the financial statement and recognize it. Would you make the same decision

that you would make if you don’t have to put it on the face of the

financial statement?

Mr. CONNOLLY. Mr. Allen, if I may, I am not sure that is really

true. When GASB came out with that standard, we didn’t have a

choice. The bond rating houses weren’t going to accept our financial

statements if we didn’t do what you in fact set out for us. As a result, it wasn’t just a matter of making sure the public knows the

transparency of the transaction; that meant that when I wanted to

give, on an annual basis, because everything is appropriated on an

annual basis, that is not an applied commitment for tomorrow,

maybe I wanted to increase retirees’ health care offsets because of

the rise in health care costs, I couldn’t just do that on an annual

basis, as we always had done before that new GASB standard, I

now had to account for the actuarial life of each recipient forever.

And that cost suddenly went from whatever it was, X, to 30 times

X.

Well, Mr. Cooper may think that is a good thing, but I can tell

you, as someone who spent 14 years managing a county government that was selected as the best managed in the United States,

we didn’t think it was such a good thing. And it hurt our firefighters and our retirees because we could no longer provide that

extra benefit that they deserved and that they had earned.

So my point is that this is a two-sided coin, that when you make

certain standards, it has implications and suddenly jettisons cost

upward even though nothing has changed other than your accounting requirement.

Mr. ALLEN. And I apologize to any affect that may have caused

to individuals or to organizations. Nevertheless, the issue becomes

not that GASB has any ability to make a government do anything,

like FASAB doesn’t have any ability. The only question was—and

many governments still provide that benefit and still don’t fund

health care. Most fund pensions; many still don’t fund that health

care.

38

But they do have, on the financial statements, the recognition of

the obligation that is there under a concept called intergenerational

equity. In State and local governments, that became the driving

force that the cost of someone providing services ought to be recognized in the period that service is provided, not recognized years

later, when somebody else paid the cost of those services. So that

is the sometimes disconnect that happens between budgeting on a

more cash basis and recognizing that cost on a more accrual basis.

That is the challenge.

Mr. CONNOLLY. Thank you.

My time is up, Mr. Chairman.

Mr. PLATTS. Thank you, Mr. Connolly.

Ms. Norton.

Ms. NORTON. Thank you, Mr. Chairman.

Well, I wanted to be a member of this subcommittee because I

have long had an interest in government efficiency, so that is one

of the things we are supposed to be dealing with and I hope these

reports deal with. I ran a Federal agency with a very serious underlying mission, but immediately became interested in the inefficiency of the mechanisms because they weren’t able to deliver the

strong substantive mandate they had.

Now, Mr. Cooper speaks about making what you do and a CFR

that is boring. Anything with numbers alone is always boring.

When I look at a graph, I always read some text, even though a

graph is pretty picturesque. I don’t even know if you use graphs.

But the notion of making the work understandable to laypeople

could not be more important today, because when we hear some of

what masquerades in what I can only call propaganda for what is

what is right or wrong with the government, you can understand

that it must be that there is no objective, understandable information out there.

I mean, some things are a little bit easier to understand than

others, for example, Social Security, where people still have to be

told that the trust fund will last X number of years; and that does

give them some sense, a little bit of an understanding of Social Security. Although it is kind of lumped together with everything else

that needs cutting, it does need cutting, but the distinction is an

important one.

But if you take another program that I have always found very,

very difficult to understand, which is even more seriously running

out of money, Medicare, I don’t think the average person for whom

that means everything has any way to fasten on whether or not it

will—you know, if you are young, whether or not Social Security

will be available; if it is not there, you know Medicare certainly

won’t be there. But what you don’t know is Medicare is more seriously running out of money than Social Security is.

Now, Mr. Allen’s testimony, on page 4, mentions a Citizens

Guide to the financial report that began in 2007, and then at the

bottom of the page is the task force necessary still to make recommendations on how to make this more understandable and more

accessible. What was there about the Citizens Guide that I take it

caused the formation of the task force? Would you reconcile the notion that there was a Citizens Guide and what it did, right or

39

wrong, so that we understand why a task force of experts to increase user understanding, access, etc., was later formed?

Mr. ALLEN. The Citizens Guide was an excellent effort not by a

standards setter, it was by Treasury, OMB, and GAO getting together, as Mike indicated, and coming up with what they thought

would be a better way to communicate. It has the same limitations

these two gentlemen have talked about, which is I can look at a

summary total of something, but if I want to know any detail about

that, I can’t go down to the details to better understand that. So

that——

Ms. NORTON. Because?

Mr. ALLEN. Because I show one number. I may show the Department of Defense——

Ms. NORTON. I see.

Mr. ALLEN. Well, what if that isn’t what I want? I want to know

some detail about that. And that is why this electronic delivery of

information and how to organize the information, again, back to

Mr. Cooper’s comment. If you look at some of the illustrations, the

2004 illustration, for example, that came from the Treasury Department, it actually side-by-side and then combined the Social Security and other obligation information, and that was very pleasing

to some people and very disconcerting to others.

But there has been an attempt to try and provide information in

these reports that help you understand better the financial statements. All the Citizens Guide comes from the financial statements.

What they are talking about is giving additional information even

beyond the summary information you see in the financial statements.

Mr. HETTINGER. I will say just a couple things. One interesting

thing is the Citizens Guide is a paper-based document as well, and

Jonathan Breul made the point earlier when the government puts,

whether it be the CFR or other documents, on a Web site, it is a

static document; they essentially copy it, put a PDF up there, and

you can read it, but you may as well be reading the hard copy. And

what we are talking about is trying to get a document on there

that you can go in and work with and drill down and look at this

information, the information that you find important to you, and

really understand that information.

The Citizens Guide is a 10-, 12-, 15-page summary of a 350-, 400-

page Consolidated Financial Report. It is very helpful, and I was

part of the effort when I worked on the subcommittee, working

with the folks at Treasury that came up with the Citizens Guide

model. I thought that was a great first step. I think what we are

suggesting here, and as Tom points out, from a standards setting

standpoint, is that we take it beyond that to something that gets

you better access to more information in a more understandable,

usable fashion.

And as I mentioned in my statement, some of the recommendations really allow you to understand the true cost of government

by function, not just necessarily by agency, and I think that is particularly important going forward as you look at the things that

you are looking at.

Mr. PLATTS. Thank you, Ms. Norton.

Ms. NORTON. Thank you.

40

Mr. PLATTS. We are going to have a second round, and I will kick

it off.

Mr. Allen, I am going to go back to a little bit of your work with

GASB and setting those accounting standards for State and local

governments. In addition to, I think, as you referenced,

intergenerational equity, are there lessons learned from your work

at GASB with State and local government reporting that you think

we can well apply to the Federal Government in what we are

doing?

Mr. ALLEN. I guess the first two that come to mind are probably

some that I have already mentioned, the challenge to, as you know,

State and local governments focus very much on short-term financial resources, and even the thought of adding these obligations to

their financial statement was very disconcerting, and we sought

feedback from the bond rating agency that basically said what is

important isn’t what you report; we already know you have those

things and we already add those up.

What is important is that you clearly communicate where you

are at and then present information that shows where you are

going from there. And I actually think that is applicable to the Federal Government. I think people who have concerns about reporting

stuff, the point isn’t that we don’t know there are obligations are

not obligations out there; the point is what are you doing about it

as you go forward. I think that is a very important focus to look

at.

The other was very consistent with the report. We found that

State and local governments report, as Mr. Connolly would tell you,

on a fund-by-fund basis. People didn’t want to know what was in

a particular fund; they wanted to know what the cost of those services were and who paid that cost. So we had to change the whole

operating statement to do that, and that will be one of the challenges of meeting the cost-based information that they are talking

about.

So, yes, I think we learned the information that people want

about the Federal Government is very similar to what they wanted

about State and local governments.

Mr. PLATTS. Thank you.

Mr. Breul, the 10 recommendations of the task force, we are still

looking at the budget release this week. Are you aware of any of

those recommendations being incorporated into what has been put

forth by the administration on the 2012 budget?

Mr. BREUL. Mr. Chairman, I am not, but I would doubt very

much that there is a cost. In fact, we were hopeful some of these

recommendations would in fact save cost by moving away from

paper-based printing and distribution. And I don’t think any of

them really are costers, I think they are pretty much cost-neutral.

And our recommendations were so recent, I would doubt very much

that the OMB has had an opportunity to incorporate them in any

of their thinking quite yet. In fact, they were made to the FASAB

and they will get to OMB shortly when they come to the next

FASAB meeting.

Mr. PLATTS. OK. Thank you.

Mr. Towns.

Mr. TOWNS. Thank you very much, Mr. Chairman.

41

Let’s talk about how strong the government’s financial statements are for a minute. I guess I will start with you, Mr. Allen.

Your organization sets accounting standards for the Federal Government. That is accurate, right?

Mr. ALLEN. Yes.

Mr. TOWNS. Isn’t it true that every year there are government

agencies with financial statements that cannot meet government

standards?

Mr. ALLEN. Yes. Most of them do. I don’t know this last year, but

there is normally maybe three or four that don’t. But most of the

major agencies do meet those standards.

Mr. TOWNS. Isn’t it basically the same ones each time?

Mr. ALLEN. That is my understanding, yes.

Mr. TOWNS. Will any of the recommendations made here today

help these agencies create more reliable financial statements?

Mr. ALLEN. No. The issue is once you provide the information

that is asked for, these recommendations will help discuss how it

ought to be more effectively communicated, how it can be more effectively accessed. I can tell you, for example, that one of those, as

you well know, is the Department of Defense accounting for their

assets. We have issued additional standards beyond that says to

that and say, well, if you don’t have the information, make estimations, then; do something to try and move forward.

So we recognize that there is value in information. We don’t

want people to spend tons of time researching all costs, so we are

trying to be cost-effective, but that agency still has to arrive at

some point in time of having the information, and then you can

talk about how better to communicate it.

Mr. TOWNS. Right.

Mr. Breul, if an agency publishes unreliable financial statements

on a central Web site, that can lead to all kinds of confusion. So

what can we do to avoid that kind of situation? The point is that

once that gets out there, and if it is not correct, that can create

some serious problems.

Mr. BREUL. Well, I am not sure the information is unreliable. It

hasn’t passed the audit standards, but I think it is just as important to have that disclosure, what we do know about that situation.

It might add a little shame and humiliation to the situation so that

might get people’s attention to insist that they do adhere to the

standards.

So, again, I think the idea of a little disclosure is helpful by making it known that is the condition, and it is a condition that doesn’t

satisfy the auditors yet, and that ought to upset the public and give

some an opportunity to insist that the matter be corrected.

Mr. TOWNS. In closing, is there anything on this side that we

need to do as Members of Congress to make this work, these 10

recommendations? Anything we need to do?

Mr. HETTINGER. I mean, I think, obviously, drawing attention to

the issue, as we are doing today, is an important first step. I mean,

the recommendations, I think, speak for themselves, but there are

a lot of recommendations in there. These are recommendations that

we have made to FASAB. There is absolutely no reason that, as

you look at legislation, as you conduct your oversight, that you—

I mean, you should look at these recommendations, and some of

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them may be things that you all could incorporate into a legislative

proposal. Some may not, and some would have to be tweaked to be

incorporated into a legislative proposal.

But certainly the transparency, the things that call for the centralized Web site and the Web-based reporting, those are all things,

quite honestly, that Congress could do through legislation.

USASpending, all of those things have been legislated, so certainly

you could do that. Beyond that, you certainly want to take a look

at them, and there may be partial solutions to some issues, full solutions to others, but I think you want to take a look at that. And

certainly those of us who were on the task force and others who

have been involved in this process would be happy to help.

Mr. TOWNS. Thank you, Mr. Chairman.

Mr. PLATTS. Mr. Connolly.

Mr. CONNOLLY. Thank you, Mr. Chairman. By the way, I would

ask unanimous consent to enter my statement into the record.

Mr. PLATTS. Without objection.

Mr. CONNOLLY. I thank the Chair. I said I had two questions, so

now I go to my second one.

We hear a lot about what more transparent and accurate accounting could do for the Federal Government. I wonder what your

thoughts are about the critique that is sometimes raised, but what

we don’t do very well, and you alluded to it, Mr. Breul, or maybe

you, Mr. Allen, with respect to the Pentagon, accounting for assets.

But in the public sector we are not always good at differentiating

between consumption spending and investment, which we do do in

the private sector. And we are not always good at accounting for

what is an asset. Especially in the public sector; it is a little

squishier sometimes than it is in the private sector, for good reasons.

But, in any event, I would like your views on that. How do we

get our arms around assets and spending that constitutes investments versus some other kinds of spending?

One of the concerns I have, and we have the continuing resolution on the floor of the House right now, is almost a mindless approach to spending: it is all bad and it is all the same. Well, it isn’t.

The spending on the interstate highway system, which was initiated by a Republican president, had a return on it that is impossible to calculate it was so great, and aren’t we glad we made that

spending decision? Yes, it cost money, but it is different than purchasing a bottle of water and consuming it.

I wonder what your thoughts are on those two issues and how

we can better account for them and how they would perhaps perfect that picture.

Mr. BREUL. Well, Mr. Connolly, I think your point is exactly the

one that is addressed by this new GPRA Modernization Act, which

is recognizing the need to marry the information about cost with

information about what the results or performance is that you are

buying them for. Is it just water you are consuming or is it a longterm investment that is going to accrue benefits over time? And

having that kind of performance information visible alongside the

cost so you can make a judgment as to whether that dollar is more

or better spent here rather than there.

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And that is why one of the recommendations of this task force

to inform those kind of decisions was to have performance information highlighted in the consolidated report as well, so that citizens

would have some more information about what they are getting for

those dollars that are being spent.

Mr. HETTINGER. I will just add real quick the property plan

equipment, the asset issue is one that I am sure, as the committee

conducts its oversight and you begin to look at individual agency

financial statements, you are going to see a recurring theme, and

part of that recurring theme is going to be it is very difficult, as

part of the financial statement process, to properly account for assets.

And in particular you are going to see that problem, I think, as

it relates to places where they have huge assets like the Department of Defense, where you have aircraft carriers and ships, or

NASA, where you have satellites and things like that. Those are

assets, from my experience—and I am not an auditor, but I did

work on the committee for 4 years—those are the things that as

we looked at financial statements when I was on the committee, repeatedly we heard concerns about.

So to back to Mr. Towns’ question, as you are looking at these

things and looking at agency financial statements, one of the

things you probably ought to take a look at is is there a way to

better account for assets for property, plant, and equipment in a

way that it is not property, plant, and equipment that is drawing

down the entire financial statement but something that can be

dealt with and allows those agencies to effectively manage their finances without having that pull it down.

Mr. ALLEN. And I would just add that property, plant, and equipment is not the most important thing to account for in the Federal

Government absolutely. I think, from my personal opinion, and everything I say obviously is my opinion, not FASAB’s opinion, but

from my personal opinion, the most important thing is to decide

what are you going to do.

Should we expense all of these things when we buy them? Should

we capitalize? And it almost doesn’t matter. What matters is that

you apply something. You make a decision, you apply it consistently going forward from that point. Then you can measure its impact on the rest of the operations of the Federal Government.

Is this truly something that has long-term benefits that we want

to capitalize and use up over the long-term? If it isn’t really significant because the Federal Government is sure significant, maybe we

would be better off just expensing it in the year that we make that

expenditure.

Mr. CONNOLLY. And, Mr. Chairman, I know my time is up, but

I do think this is a very important aspect of what we are talking

about, and I hope some day we can expand on it. I can just tell you

my own local government, when I first got elected, there was no

ROI analysis on certain investments.

So it was the clipboard method. Someone went around and said,

OK, Jonathan, what do you think you need this year for technology? Well, I think I need six computers and maybe I should

have eight, just because government being government, who knows

when I will get replacements. And there was no question of, well,

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but wait a minute, let’s match your request against Mike’s because

he actually can show ROI and we know he is productive, and you

need to compete with him. For us to make that investment, you are

going to have to justify it. At the time, a completely alien concept.

Today I am proud to say we do it very rigorously and everybody

understands they are going to have to justify that and other kinds

of investments, and that they are in competition with other agencies. And I am just wondering—I mean, we haven’t got time to do

it, but it is my fervent hope that we can have a similar appreciation in the Federal Government so that we are actually looking at

return on investment when we make investments.

Thank you, Mr. Chairman.

Mr. PLATTS. I want to thank our witnesses again, both for your

expertise that you shared and your knowledge, but also your patience here with hearing, because the floor votes didn’t start for

about almost an hour and a half late. And we look forward to continuing, as a committee, working with each of you individually and

collectively as we go forward, and helping to set the stage today for

our March 9th hearing when we do shed some light on the consolidated financial report.

And as Mr. Cooper said, there may not have been a press conference held when it was released, but we are going to do our best

to make sure the American people know what it says and how important it is for them to know what it says because it is about their

money.

With that, we are going to keep the record open for 2 weeks if

there is any additional information to be shared, along with written

statements from Members.

Again, thanks, and this hearing stands adjourned. Thank you.

[Whereupon, at 4:14 p.m., the subcommittee was adjourned.]

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