Accounting and Financial Reporting

Performance Measurement and the Governmental Accounting Standards Board

The Government Finance Officers Association (GFOA) has long been a zealous advocate of performance measurement in the public sector. Most recently, GFOA has undertaken a comprehensive strategic initiative designed to promote the expanded use of performance measurement by state and local governments.

GFOA routinely seeks opportunities to work with other groups to promote common goals; performance measurement has been no exception to this general rule. GFOA was a strong supporter, for example, of the National Advisory Council on State and Local Budgeting (Budget Council), which identified performance measurement as an essential component of a sound budgeting process. Likewise, GFOA has supported the research on performance measurement undertaken by the International City/County Management Association. GFOA, however, must go on record again, opposing in the strongest possible terms the efforts of the Governmental Accounting Standards Board (GASB) to play a role in the development of performance measurement in the public sector.

To be effective, performance measurement must be thoroughly integrated into a government's budgetary process. This natural relationship between performance measurement and budgeting was underscored in the Budget Council's Guidelines, and can be briefly summarized as follows:

  • A government uses strategic planning to identify its broad organizational objectives, which it then translates into specific goals and objectives.
  • A government frames its budgetary decisions on the basis of results and outcomes that are directly linked to these specific goals and objectives.
  • A government uses performance measures to monitor actual results and outcomes.
  • A government compares actual and projected results and outcomes and uses this analysis as a basis for identifying any adjustments that are needed.

Consequently, to be effective, performance measures must be specific rather than generic. That is, a performance measure is only relevant to the extent it is clearly linked to the goals and objectives that a government has set for itself. Furthermore, inasmuch as goals and objectives reflect public policy, it is only to be expected that they will differ, sometimes substantially, from government to government.

GASB's involvement with SEA (Service Efforts and Accomplishments) is fundamentally incompatible with the understanding of performance measurement just described for several reasons:
Performance measures are inherently budgetary and managerial in character and clearly fall outside the purview of accounting and financial reporting, as those disciplines have traditionally and commonly been understood. The GFOA emphatically rejects GASB's attempt to assert its own self-imposed and ill-defined concept of "accountability" to justify the extension of its jurisdiction to virtually all aspects of public finance.

In the public sector, goals and objectives are the concrete realization and reflection of public policy. In a democracy, it is the unique prerogative of elected and appointed officials to set public policy. If GASB were to mandate the reporting of specific performance measures it would effectively be usurping this prerogative.

There is no such thing as a "neutral" performance measure. The selection of what to measure will inevitably drive performance. Therefore, it is unrealistic to believe that performance measures mandated by GASB would remain purely informational and somehow not have an effect on how governments manage their programs. Even were GASB to establish completely "voluntary" measures of performance for those governments that wish to use them, the very existence of benchmarks established by a national standard-setting body would put pressure on governments to conform their own performance measures to GASB's model measures.

GASB standards or recommendations would inevitably involve generic measures, which would break the crucial link between performance measurement and a government's specific goals and objectives.

The inclusion of performance measures as part of financial reporting inevitably would require at least some degree of involvement on the part of the government's independent auditor, resulting in additional audit costs. While we freely admit that data verification is essential if performance measurement is to be credible, we do not believe it should be necessary to involve independent auditors for this purpose. Internal auditing procedures should suffice.

GASB's expertise is limited to accounting and financial reporting. Expertise in accounting and financial reporting, while invaluable in many aspects of public finance, does not provide a sufficient basis for making decisions regarding how to measure the quality of services. Even if subject-matter experts were consulted, as the GASB promises, the fact remains that the ultimate decision would still be GASB's.

GASB's efforts ultimately will not succeed in helping the cause of performance measurement. Real progress must come from governments themselves and the organizations that serve them. GASB's efforts, however, could succeed at diverting scarce resources from the board's proper mission of improving accounting and financial reporting. GFOA believes that both performance measurement and accounting will best be served by the GASB returning to its proper role as an accounting and financial reporting standard-setting body.

  • Publication date: June 2002