- Uniform Federal Accounting and Financial Reporting Systems (1986)
- Federal Reporting Requirement for State and Local Income and Property Tax Payments (1986)
- Governmental Accounting and Financial Reporting Model Legislation (1987)
- GASB Measurement Focus/Basis of Accounting Project (1988)
- Five-Year Review of the GASB (1989)
- Service Efforts and Accomplishments Reporting (1993)
- Government Auditing Standards (1993)
- Amending the Single Audit Act (1994)
- Reimbursement of Administrative Costs Incurred by State and Local Governments in Connection with Federal Programs (1994)
- Infrastructure Reporting (1999)
- Opposition to Proposals to Increase the Materiality Threshold Used in the Financial Statement Audit (2000)
- Performance Measurement and the Governmental Accounting Standards Board (2002)
- The GASB Should Not Set Standards For Fiscal Sustainability Reporting (2010)
- Mandating Specific Technologies for Financial Reporting and Disclosure Purposes (2018)
Uniform Federal Accounting and Financial Reporting Systems
As a matter of policy, the Government Finance Officers Association encourages all levels of government to follow Generally Accepted Accounting Principles (GAAP). Uniform governmentwide accounting and financial reporting systems for the federal government would result in an improvement in that level of government's ability to accurately track all government expenditures, revenues, assets, and liabilities. The ability to adequately track the federal financial activity cited above could strengthen public respect for the federal government.
A federal entity should be charged with responsibility for establishing and overseeing federal governmentwide accounting and financial reporting systems. These systems could provide accurate federal fiscal information. The Government Finance Officers Association supports the designation of such an entity whose duties, responsibilities, and authority are clearly defined.
Federal Reporting Requirement for State and Local Income and Property Tax Payments
The approved House tax reform bill proposes to impose a new major information reporting requirement on state and local governments. The provision would require state and local governments to (1) send a federal return (Form 1099) to the Internal Revenue Service for each taxpayer making payments of income and property taxes to the government in excess of $10 and (2) furnish each taxpayer with a written statement showing payments received from the taxpayer. The purpose of the provision is to diminish federal tax evasion.
This late addition to the tax bill was never discussed in public hearings, no analysis was made of the ability of state and local governments to comply with the requirement in a timely fashion, no evidence was presented showing a need for the provision, and no cost-benefit analysis was made to demonstrate that the costs of the provision for states and localities exceeded the benefits to the federal government.
The Government Finance Officers Association opposes the new federal reporting requirement because of the following adverse impacts it will have on state and local tax administration and enforcement:
- It would impose major new compliance requirements.
- Some of its principal requirements are not operationally feasible because local property taxes are levied against the property not a specific individual. Therefore, social security numbers cannot be matched to specific payments. This factor would unintentionally place state and local governments in violation of federal law.
- Financing the requirements (cost of postage, processing and restructuring computer operations) would divert state and local funds from revenue-producing enforcement activities to expenditures that produce no state or local revenue when local government revenue has been decreased through the reduction of federal revenue sharing.
- Estimated federal revenue attributable to this provision is substantially less than the estimated direct and indirect costs to the state and local governments.
- A large part of the information state and local governments would be required to furnish the federal government and the taxpayer would have no value either in discovering unpaid taxes or in promoting accurate filing.
- The Internal Revenue Service has conducted studies that indicate a high degree of accuracy in taxpayers' reporting of state and local deductions.
- The intent of this provision can be accomplished by other means such as improving instructions on the federal tax form assisting the taxpayer in determining the amount of state and local taxes deductible in any tax year.
Governmental Accounting and Financial Reporting Model Legislation
The Government Finance Officers Association, as a matter of policy, has supported the expanded use of generally accepted accounting principles (GAAP) in state and local government accounting and financial reporting and the efforts of the Governmental Accounting Standards Board (GASB) in establishing GAAP.
Model legislation has been developed by the Governmental Accounting Standards Advisory Council (GASAC) for governmental accounting and financial reporting to promote uniformity at a basic level in this area. Conversion to GAAP, as established by the GASB or its successor bodies, provides important benefits to state and local government. These benefits include the ability to present fairly the financial position and results of operations for state and local governments and to demonstrate accountability to the government's constituency.
The Government Finance Officers Association supports the concepts embodied in the GASAC's model legislation dated April 21, 1987.
Governmental Accounting Standards Advisory Council Model Legislation
Section 1: STATEMENT OF INTENT
It is intent of this legislation to establish uniform requirements for (state, local, special district, public authority, etc.) financial accounting and reporting, so that the financial position and results of operations of each (state, local, special district, public authority, etc.) government can be publicly available to citizens, legislators, financial institutions, and others interested in such information. (Note: The desired result of this section of the legislation is to ensure that financial reports prepared in accordance with generally accepted accounting principles promulgated by GASB are issued by all state and local general and special purpose governments and their agencies, boards, departments, branches, districts, commissions, or authorities, or other political subdivisions, whether issued separately or included as a dependent unit of another, depending on the provisions of state law or local ordinance. Therefore, the statement of intent section should clearly define what is meant by the terms "local government" or "state government" when used in these sections. Further, the legislation is also intended for implementation by home rule units of local government where appropriately enacted by such units instead of or in addition to state government legislation. Appropriate modifications should be made by the enacting body in such circumstances.)
Section 2: FINANCIAL ACCOUNTING AND REPORTING STANDARDS
All (state, local, special district, public authority, etc.) governments shall issue annual financial reports prepared in accordance with generally accepted accounting principles (GAAP) promulgated by the Governmental Accounting Standards Board (GASB), or its successor bodies. The governing body of each (state, local, special district, public authority, etc.) government shall provide for and cause to be made an annual audit of the financial affairs and transactions of all funds and activities of such government (and of any entity that constitutes part of the reporting entity in accordance with generally accepted accounting principles) for each fiscal year of such government.
Section 3: CONTENTS OF ANNUAL FINANCIAL REPORTS
All annual financial reports shall contain at least the following:
- Financial statements prepared in accordance with generally accepted accounting principles promulgated by the GASB or its successor bodies, setting forth the financial condition and results of operations.
- Any additional information that may be required by the GASB or the State Auditor (or other appropriate state official or department) or that may be deemed appropriate by the (state, local, special district, public authority) government.
- The opinion of the auditor with respect to the conformity of the financial statements with generally accepted accounting principles.
Section 4: SUBMISSION OF ANNUAL FINANCIAL REPORTS
Each annual financial report shall be completed within (120) days after the close of the respective government's fiscal year. A copy of the report shall be maintained as public record for public inspection at all reasonable times at the principal office of the government. A copy of the report shall also be submitted to each member of the governing body of the government [and a copy shall be sent to the State Auditor (Comptroller, etc.)] within 30 days of its completion. (Note: the intent of this section is to establish a timely reporting deadline. There may be circumstances that make it difficult for a particular government to meet the 120 day deadline for completion set forth in the model legislation, such as a government's participation in a private joint venture or the existence of a complex reporting entity. The appropriate government official should be responsible for considering these circumstances.)
Section 5: EFFECT
The requirements of this [chapter] supersede all other requirements of law in conflict with this [chapter].
GASB Measurement Focus/Basis of Accounting Project
The Government Finance Officers Association (GFOA) recognizes and supports the Governmental Accounting Standards Board's (GASB) authority to establish generally accepted accounting principles (GAAP) for government.
The GASB, in December 1987, issued an exposure draft of a proposed statement on "Measurement Focus and Basis of Accounting--Governmental Funds" (MF/BA) which, if adopted as is, will introduce a new emphasis on accountability and interperiod equity. The exposure draft calls for this guidance to be adopted by governments for their fiscal periods beginning after December 15, 1989.
The GASB plans to implement this proposed statement together with the results of other projects relating to intergovernmental grants, entitlements, shared revenues and nonexchange transactions. However, the proposed statement specifically indicates that issues relating to recognition and measurement in governmental funds for pension expenditures, other post-employment benefits, special termination benefits, claims and judgments, and related risk management transactions, and capital improvement special assessment transactions are being considered in other GASB projects. In addition, the GASB also has a major financial reporting project in progress. All these projects represent major financial issues. The due process leading to separate resolution of these other issues may also lead to results that are conceptually inconsistent with those in the proposed MF/BA exposure draft. The GFOA believes that in order for the MF/BA proposed statement to be generally accepted, concurrent resolution of these other projects is required.
The GFOA recommends that the GASB resolve all these issues and require their implementation as of the same date so that governments can make all significant adjustments at once. To accomplish this, the GASB needs to provide at least a one-year period from the issuance of the final statement to the first of the initial year of implementation. In addition, the GFOA recommends governments be provided a three year implementation window to permit governments to determine the impact, prepare the public, adjust or modify internal accounting procedures and address the significant policy decisions pertinent to these newly recognized liabilities on an as-incurred basis. The GFOA also recommends that the GASB consider the possibility of a phased implementation for the effects of one or more of the issues listed above.
The GASB needs to provide substantial guidance on how governments and their elected officials will explain the significant changes that will result from complying with the new accounting standards. Specifically, the GASB should complete the financial reporting project so that preparers, attestors, governmental officials and other users have an opportunity to know not only how, but why, financial statements are henceforth to be presented in this manner.
The GFOA supports the underlying concept that financial statements should strive to present accountability and to measure interperiod equity. However, the GASB must address these issues before the proposed MF/BA will be acceptable to the government community.
Five-Year Review of the GASB
The Government Finance Officers Association (GFOA) has long supported the establishment and ongoing operations of the Governmental Accounting Standards Board (GASB). The Financial Accounting Foundation (FAF) and the Governmental Accounting Standards Advisory Council (GASAC) recently conducted a five-year review of the GASB's activities as prescribed by the 1984 Structural Agreement. This review resulted in 35 recommendations concerning the GASB's structure and procedures.
The GFOA emphatically supports the continuance of a separate standard-setting body for governments. In connection with the five-year review, the GFOA supports the following positions:
- The GASAC should continue to participate with the FAF in the approval of GASB members.
- The current jurisdiction of the GASB should not be reduced. The GFOA will not accept a standard-setting body for governments which does not exercise full and exclusive jurisdiction over all government entities. Accordingly, were the FAF to remove certain government entities from the GASB's jurisdiction, the GFOA would have no option but to provide its membership with an alternative standard-setting mechanism that they would find acceptable.
- The FAF should establish a special committee, composed of an equal number of governmental and private-sector trustees, to determine the jurisdiction of the GASB and the FASB in specific situations. The definition of "governmental" to be used in such determinations should be set by the GASB alone, subject to FAF approval.
- The state and local government representation on the FAF should be increased from three members to five members. In addition, individuals from government and identified users of the financial statements of government entities should be given consideration in the trustees' appointments to at-large seats.
- All members of the GASB should serve full-time. However, adequate funding sources should be in place before a full-time board is established.
Service Efforts and Accomplishments Reporting
Elected officials and others charged with the management of public funds are responsible for ensuring and demonstrating that those funds are managed efficiently and effectively in the public interest. The measurement and reporting of service efforts and accomplishments (SEA) indicators by state and local governments can play an important role in helping to meet this responsibility.
The subject of SEA reporting is not a new one for the Governmental Accounting Standards Board (GASB). In 1987, the GASB passed its first resolution encouraging governments to experiment with SEA reporting. The GASB passed a similar resolution again in 1989. The GASB also has sponsored research on SEA reporting practices and potential reporting practices for a variety of specific government functions and activities. Most recently, the GASB has directed its efforts toward preparing a formal concepts statement outlining the potential role of SEA reporting within the context of general-purpose external financial reporting.
The GFOA commends the GASB for the efforts it has taken to heighten state and local governments' awareness of the potential benefits of SEA reporting. The GFOA also joins with the GASB in encouraging state and local governments to experiment with SEA reporting. At the same time, the GFOA believes it is important that the GASB appropriately define the scope and direction of its SEA research and future standard-setting activity.
There is no question that the full range of potential SEA indicators necessarily includes measures of both financial and nonfinancial performance. That is not to say, however, that the full range of potential SEA indicators properly falls within the purview of general purpose external financial reporting. General purpose external financial reporting is only one of several means used by state and local governments to demonstrate accountability. Other types of reporting (e.g., the appropriated budget, the capital plan) also play an integral role in achieving this goal.
The GFOA is concerned about recent indications that the GASB may attempt to use its power of setting "generally accepted accounting principles" to require the presentation of certain SEA indicators that attempt to measure, not the cost, but the quality of goods and services provided by governments to their citizens. While such "outcome" indicators undoubtedly can be of great value to elected officials, financial managers, citizens and others (and indeed often are used in the budgetary process), they clearly lie outside the proper scope of generally accepted accounting principles (GAAP). To use GAAP to mandate the reporting of such "outcome" indicators, in the GFOA's view, would exceed both the GASB's jurisdiction and its technical competence.
Therefore, the GFOA takes the following position on the GASB's proper role in the matter of service efforts and accomplishments reporting:
- GASB members are selected for their expertise in accounting and financial reporting. Accordingly, the GASB enjoys the GFOA's full confidence and support when issuing standards involving accounting and financial reporting;
- Many SEA measures, particularly those involving nonfinancial measures of the quality of services provided by governments to their citizens (i.e., "outcome" measures), transcend accounting and financial reporting;
- Ultimate decisions on quality of service or "outcome" measures need to be made by professionals with specialized expertise in the services under consideration, not by accountants;
- The GASB would be exceeding its mandate if it attempted to use generally accepted accounting principles (GAAP), either directly or indirectly, to require the presentation of nonfinancial measures of the quality of service as part of general purpose external financial reporting. The GASB would be considered to be using GAAP indirectly to require the presentation of quality of service measures in situations such as the following:
- The board mandated the presentation of such SEA measures as "required supplementary information;"
- The board required such SEA measures to be reported within the comprehensive annual financial report/component unit financial report (CAFR/CUFR), though not within the general purpose financial statements/component unit financial statements (GPFS/CUFS);
- The board required the issuance of a separate SEA report as a prerequisite for a "clean" opinion on the GAAP financial statements.
- Therefore, the GASB should take the lead in limiting the scope of its SEA research and standard-setting activities to those SEA measures that clearly fall within the GASB's jurisdiction and expertise, i.e., general purpose external financial reporting;
- Also, the GASB should ensure that its work on SEA reporting in no way distracts the board's attention from its long-delayed comprehensive financial reporting model project;
- The GFOA should join with other appropriate professional organizations to encourage the greater use and standardization of those SEA indicators that do not properly fall within the scope of general purpose external financial reporting.
Government Auditing Standards
Audits in both the public and private sectors are conducted in accordance with generally accepted auditing standards (GAAS). GAAS are established in the private sector by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) following extensive due process.
Public-sector officials have long recognized the need to supplement GAAS to meet the special needs of grantors and other users of state and local government audit reports. Accordingly, the U.S. General Accounting Office (GAO) has established generally accepted government auditing standards (GAGAS) to supplement GAAS requirements concerning the independent auditor's reporting responsibilities for compliance and internal controls.
The Government Finance Officers Association (GFOA) believes the public sector has been well served by both GAAS and GAGAS. We believe that the federal government should continue to revise GAGAS as needed to meet the special needs of grantors of federal financial assistance. At the same time, however, we believe it is essential that the basic standards governing the conduct of financial statement audits continue to be established by the AICPA in accordance with due process involving all interested parties, including federal, state and local governments.
Concerns have been raised about the effectiveness of some single audit engagements. Indeed, there have been some proposals to remedy problems through changes either in the Single Audit Act itself or in federal circulars or other related guidance. While some changes could undoubtedly be beneficial, we believe it is essential to distinguish weaknesses in existing standards from the perceived failure of some audits to meet the needs of grantors of federal financial assistance.
Grantors of federal financial assistance, like other users of audit services, are free to prescribe the level of assurance desired from audit professionals. However, it is not appropriate for users of audit services to attempt to dictate to auditors how they achieve that level of assurance. As professionals, auditors must rely upon their experience and judgment in applying professional standards.
Furthermore, to the extent that grantors of federal financial assistance desire a level of assurance beyond that provided in a financial statement audit, they should pay for the cost of providing such additional assurance.
Therefore, the GFOA believes:
- Grantors of federal financial assistance should continue to rely upon GAAS for basic standards governing audits of both financial statements and federal financial assistance. If changes are needed in GAAS, they should be accomplished by means of the AICPA's existing due-process procedures.
- Specific federal requirements should in no way preempt or otherwise limit the proper exercise of auditor judgment.
- Grantors of federal financial assistance should compensate grant recipients for the cost of providing a level of assurance beyond that provided by a financial statement audit.
Amending the Single Audit Act
Recently, the federal government has been studying possible amendments to the Single Audit Act of 1984. The purpose of these amendments would be to make Single Audits more efficient and effective. The GFOA continues to be a strong supporter of the Single Audit Concept. Accordingly, the GFOA stands ready to support any proposal that would improve the efficiency and effectiveness of audits of federal financial assistance at the state and local level.
The GFOA supports the following specific proposals that are currently under consideration by the federal government:
- The GFOA strongly supports the recommendation to raise significantly the dollar thresholds at which Single Audits become mandatory;
- The GFOA supports the recommendation to allow auditors more flexibility in selecting individual federal financial assistance programs for testing (i.e., based on risk rather than on size alone);
- The GFOA supports the recommendation to require that the Compliance Supplement for Audits of State and Local Governments be updated on a more timely basis;
- The GFOA supports the recommendation to build a Single Audit database that could be useful in identifying emerging problems and trends; and
- The GFOA supports the recommendation that the President's Council on Integrity and Efficiency work with federal program managers to help the latter make more effective use of Single Audit information.
The GFOA wishes to voice its concerns, however, regarding certain other specific proposals under consideration:
- The GFOA strongly objects to shortening the period for submitting Single Audit reports. There is no sound reason for requiring state and local governments to incur substantial additional costs to make Single Audit reports available even earlier when federal agencies have yet to make timely use of the Single Audit reports now being prepared under existing deadlines;
- The GFOA objects to requiring that auditors formally assess certain management representations regarding the implementation of internal controls. Internal controls are already tested as part of the audit of the financial statements. Additional testing of internal controls would lead to higher audit fees with no demonstrated practical benefit to either federal agencies or state and local governments; and
- The GFOA objects to requiring summaries of auditor's reports. The best way to improve reporting on the Single Audit is to reduce and simplify the number and content of the existing auditor's reports, not to add yet another layer of auditor reporting.
- The GFOA strongly objects to any federal effort that would have the effect of introducing the federal government into the audit procurement process, either directly or indirectly.
The GFOA also believes that both the federal government and state and local governments are best served when high quality auditors perform Single Audits. To encourage audits by high quality auditors, it is essential that the audit control review process be fair. For example, in accordance with generally accepted government auditing standards, reviews of audits should focus on systemic weaknesses rather than on isolated instances of noncompliance. In addition, auditors should be provided with the opportunity to appeal the results of quality control reviews to someone other than the Inspectors General (e.g., the Office of Management and Budget), whenever there is a disagreement regarding facts or the exercise of auditor judgment. Also, the GFOA believes that federal reviews of audit quality should be limited to matters of direct concern to the federal government. For example, it is not appropriate for federal reviewers to question the professional judgment of management or the auditors regarding the format and content of the audited financial statements.
The GFOA applauds and supports recent federal efforts to improve the efficiency and the effectiveness of Single Audits. At the same time, the GFOA wishes to reiterate the importance that must be placed on auditor judgment if audits of federal financial assistance are to be truly effective. The GFOA will not support any proposal that has the practical effect of preempting auditor judgment in the conduct of Single Audits.
Reimbursement of Administrative Costs Incurred by State and Local Governments in Connection with Federal Programs
State and local governments deliver most of the services provided through federal assistance programs. Traditionally, state and local governments have been reimbursed by the federal government for at least part of the cost of administering these programs. Recently, the federal government has begun to reexamine the cost allocation methods used to reimburse state and local governments for these costs.
The GFOA believes that the current system of federal administrative cost reimbursement has become unduly burdensome. The GFOA also believes that any changes that are to be made to the current system should be governed by the following basic principles:
- The federal government should pay its fair share of the cost to state and local governments of administering federal assistance programs
- The cost of administering federal assistance programs necessarily includes both direct and indirect costs
- Any change in the system of administrative cost reimbursement should not result in shifting a greater share of the cost of federal programs to state and local governments.
The GFOA wishes to underscore two practical applications of these principles. First, it would be unreasonable to assume that administrative costs will be uniform throughout the country. Second, it would be unfair to "lock in" current reimbursement levels as a "base" for future reimbursement, because not all governments currently have sophisticated systems in place to identify and allocate administrative costs. Such a deficiency should not be allowed to jeopardize a government's future reimbursement of actual administrative costs.
The GFOA also recommends that the federal government consider the feasibility of allowing state and local governments the options of either 1) accepting a standardized percentage of program costs as an appropriate measure of administrative costs for reimbursement purposes, or 2) claiming reimbursement of actual administrative costs up to a specified maximum level. It is essential that the use of a standard percentage remain optional to ensure that the rate selected fairly reflects actual administrative costs.
Adopted: June 7, 1994
The Government Finance Officers Association (GFOA) strongly believes that state and local governments should adequately maintain their infrastructure assets. Achieving this goal requires that governments do all of the following in regard to their infrastructure assets, consistent with the Budget Guidelines (Guidelines) set forth by the National Advisory Council on State and Local Budgeting (NACSLB):
Assess capital assets, and identify issues, opportunities and challenges (Guidelines 2.2)
Prepare policies and plans for capital asset acquisition, maintenance, replacement and retirement (Guidelines 5.2)
Develop options for meeting capital needs and evaluate acquisition alternatives (Guidelines 6.2)
Develop a capital improvement plan (Guidelines 9.6)
Monitor, measure, and evaluate capital program implementation (Guidelines 11.5)
The capital budgets of many state and local governments provide strong evidence that significant progress has been made in this regard in recent years.
Under current generally accepted accounting principles (GAAP), state and local governments are not required to report the infrastructure assets of the general government in their financial statements. Recently, however, the Governmental Accounting Standards Board (GASB) has proposed to require the presentation of general government infrastructure assets on the face of the statement of position at their historical cost. This amount would subsequently be allocated to the statement of activities over the useful life of the assets in the form of depreciation expense. Alternatively, the GASB is considering the possibility of allowing governments to forego the depreciation of infrastructure assets (although those assets would still need to be reported on the statement of position), provided that the government had demonstrated that it was preserving or maintaining such assets at an "acceptable" condition level.
GFOA is persuaded that the type of information needed concerning a governments general infrastructure assets is the type of information set forth in the NACSLBs Guidelines. Furthermore, GFOA continues to believe that the budget, rather than the financial statements, is the appropriate setting for infrastructure reporting. The infrastructure reporting requirements proposed by the GASB (i.e., the retroactive reporting of infrastructure assets at their historical cost and the subsequent depreciation of such assets) are potentially costly and provide information of little practical benefit to financial statement users. Furthermore, GFOA adamantly opposes any effort to move financial reporting into the realm of what "ought to be," as would clearly be the case if GASB were to adopt the "preservation/maintenance option" for reporting infrastructure assets. Such an approach not only potentially encroaches upon public policy (which is properly decided by elected officials), but would clearly "tip the scales" in favor of capital expenditures at the expense of other services to citizens.
To affirm GFOAs strong opposition to GASBs proposal to mandate the reporting and depreciation of general infrastructure assets.
To authorize GFOAs Executive Board to give consideration to withholding GASB funding if the GASB proceeds with its infrastructure reporting proposal.
To authorize the GFOA Executive Board to consider encouraging governments not to implement the infrastructure provisions of GASBs proposed financial reporting model.
To allow governments that do not comply with the infrastructure provisions of GASBs proposed financial reporting model to participate in the Certificate of Achievement for Excellence in Financial Reporting Program.
Adopted: May 25, 1999
Opposition to Proposals to Increase the Materiality Threshold Used in the Financial Statement Audit
Materiality is an essential consideration in any financial statement audit. The concept of materiality is inherently relative. In the private sector, materiality is assessed in relation to the basic financial statements taken as a whole. In the public sector, however, where accountability has been identified as the paramount objective of financial reporting, materiality has been assessed in relation to fund types rather than in relation to the government's basic financial statements taken as a whole.
The Governmental Accounting Standards Board's Statement No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, establishes a new governmental financial reporting model. This new financial reporting model not only retains fund accounting, but provides even higher levels of accountability by placing special emphasis on major individual governmental and enterprise funds. Accordingly, there is no reason to believe that the assessment of materiality would change significantly as a result of implementing the new financial reporting model.
Recently, some in the auditing profession have been advocating a change in auditing guidance that would allow auditors to assess materiality solely in relation to the government's basic financial statements taken as a whole. GFOA strongly opposes this initiative, which would substantially decrease the level of assurance provided by the independent audit of the financial statements, and which is inconsistent with the focus of the new governmental financial reporting model. GFOA believes that accountability for public funds requires that materiality be assessed, not only in relation to a government's basic financial statements taken as a whole, but also in relation to major individual governmental and enterprise funds and in relation to the internal service and fiduciary fund types.
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.
Adopted: June 18, 2002
- Service Efforts and Accomplishments Reporting (1993)
The GASB Should Not Set Standards For Fiscal Sustainability Reporting
Accounting and financial reporting in the public sector traditionally have focused on providing users of basic financial statements with historical information concerning a governments financial position, results of operations, cash flows, and compliance with finance-related legal and contractual provisions. In recent years, there has been some movement on the part of authoritative accounting standard-setting bodies in the public sector to expand this traditional understanding of accounting and financial reporting to embrace all forms of financial accountability (a much broader concept than accounting), which would effectively justify their involvement in virtually any aspect of public finance, including budgeting. One highly visible practical manifestation of this trend has been the Governmental Accounting Standards Boards (GASB) involvement in performance measurement. More recently, the GASB has expressed an interest in developing standards of reporting for fiscal sustainability as part of its economic condition reporting project.
Whereas, the GFOA recognizes that accounting and financial reporting are essential to accountability; and
Whereas, the GFOA recognizes at the same time that accounting and financial reporting are just one component of accountability; and
Whereas, the involvement of an accounting standard-setting body in matters beyond the scope of accounting and financial reporting exceeds its legitimate authority and expertise and constitutes an inappropriate use of scarce resources; and
Whereas, the GFOA believes that the issue of assessing a governments future fiscal sustainability clearly is beyond the scope of accounting and financial reporting as they have traditionally and universally been understood
Therefore, be it resolved that the GFOA adamantly opposes any effort on the part of the GASB to set standards of reporting for fiscal sustainability.
Policy adopted by the GFOA Membership, June 8, 2010 - Back to Top
The Government Finance Officers Association (GFOA) has long encouraged governments to demonstrate accountability and transparency by making financial information of the highest quality readily accessible to citizens and other interested parties. GFOA is aware of the developing technological advances toward the development of standardized financial information. However, GFOA is also aware of efforts to mandate the use of specific technologies for the purpose of reconciling and reporting financial information. Such a mandate imposes significant burdens on state and local governments including:
- Unfunded mandate. Implementing a specific technology for the purposes of financial reporting would convey significant cost to state and local governments, including the costs required to equip the local governments with the technology, to train the employees of the local government in order to effectively use the new technology and to protect the information housed in the new technology. Additionally, due to the iterative nature of new technologies, they will also carry a high likelihood of continued maintenance or updates.
- No viable taxonomy. While numerous small-scale efforts have been made to develop a taxonomy that incorporates necessary elements of GASB GAAP financial statements, there currently exists no viable taxonomy. The very substantial differences between the private sector and government make existing private sector taxonomies substantially unusable. Moreover, the vast differences in structure and operations among and between general purpose and special purpose governmental entities makes the creation of a single, uniform taxonomy especially challenging. Efforts to limit the development of a taxonomy to only selected elements of financial statements will mean that only incomplete data – rather than the level of detail deemed necessary for GAAP reporting -- will be available.
GFOA opposes efforts to mandate the use of specific technologies by state and local governments for financial reporting and disclosure.