The Academy The National Academy of Public Administration is a non-profit, nonpartisan, collegial organization chartered by Congress to improve governance at all levels -- federal, state, and local. NAPA works toward that end chiefly by using the individual and collective experiences of its Fellows to provide expert advice and counsel to governance leaders. Its congressional charter, signed by President Reagan in 1984, was the first granted to a research organization since President Lincoln signed the charter for the National Academy of Sciences in 1863. The unique source of the Academy's expertise is its membership. It consists of more than 400 current and former Cabinet officers, members of Congress, governors, mayors, legislators, jurists, business executives, public managers, and scholars who have been elected as Fellows because of their distinguished practical or scholarly contributions to the nation's public life. Since its establishment in 1967, NAPA has responded to a large number of requests for assistance from various agencies and has undertaken a growing number of studies on issues of particular importance to Congress. In addition, NAPA has increasingly conducted projects for private foundations and has begun to work closely with corporations. Its work has covered a wide range of topics, including: agriculture, education, health, human services, housing, urban development, prisons, courts, space, defense, environment, emergency management, human resources, organization and management analysis, and international public management. A MESSAGE FROM THE Almost exactly a decade ago, in February 1985, GAO issued a two-volume report entitled Managing the Cost of Government: Building an Effective Financial Management Structure. We pointed out that the federal government-then as now the largest financial operation in the world-was employing financial management concepts and practices that were weak, outdated, and grossly inefficient. The problem spanned the whole spectrum of federal agencies. It hampered the ability of federal managers to prevent waste, fraud, and abuse. It denied policymakers the information they needed to make informed decisions. It undercut the public's perception of government, creating a loss of confidence that was largely deserved. In response to this problem, we called for Congress to bring some order to the government's financial affairs. Our report outlined the need for firm commitment, clearly identified leadership responsibility, and continuity of purpose. It called for the preparation and audit of annual financial statements. It stressed the need for accountability and accurate reporting, improved planning and programming, systematic performance measurement, reliable information systems, and adequate accounting standards. In the years that followed, we worked closely with Congress to pursue these goals, and our efforts have paid great dividends in the past 5 years. In 1990, the Chief Financial Officers (CFO) Act was passed, creating the federal government's first pilot program for agencywide financial statements. Three years later, the Government Performance and Results Act (GPRA) made performance management the touchstone of government operations. And in 1994, the Government Management Reform Act expanded the provisions of the CFO Act and set the stage for consolidated, governmentwide financial statements by 1998. ACCOUNTABILITY: A LONG TIME COMING Taken together, the ideas we advanced in Managing the Cost of Government were really nothing more than the elements of modern, responsible business practice. And yet, logical as they may seem today, these ideas took a long time to gain a footing-not just among federal agencies, but among publicly owned corporations and state and local governments as well. Simply put, the ingredients needed for sound financial management tend not to capture the public's imagination until things get out of hand-or near to it. There was a time, for example, when publicly owned corporations were under no requirement to have audited financial statements. It took a dual calamity—the stock market crash of 1929 and the Great Depression-to bring about the creation of the Securities and Exchange Commission and comprehensive financial reporting requirements for publicly owned firms. That was in 1934. Forty years later, no corresponding requirements existed for state and local governments. Then, New York City nearly went bankrupt. The city overestimated its revenues, underestimated its expenses, never knew how much cash it had on hand, and borrowed repeatedly to finance its deficit spending. Poor accounting practices were common among state and local governments, but New York City's financial crisis put these problems in the spotlight. Sensitive now to the implications of financial management deficiencies at the state and local levels, Congress focused on an issue directly affecting federal interests: the states' and localities' widespread lack of accountability for the financial aid the federal government provided them. That aid had expanded from 132 programs costing $7 billion in 1960 to over 500 programs costing nearly $95 billion in 1981. Considering the lack of comprehensive audits done of state and local governments, no one could be sure of the extent to which all this money was subject to waste or misuse. With the stakes grown so high, and with the signs of trouble so apparent, Congress passed the Single Audit Act of 1984. The act required every state or local entity receiving $100,000 or more in federal financial assistance in any fiscal year to undergo a comprehensive, “single” audit of its financial operations by an independent auditor on an annual basis. The objec tive was to replace separate grant-by-grant audits with comprehensive audits of the entities receiving these grants, eliminating both the duplication that comes from having several different audits of the same entity and gaps in audit coverage created by haphazard audit schedules. Last June, we completed a study of the effects of the Single Audit Act and reported that over 21,000 state and local entities had audited financial statements under the act. State and local officials told us the single audit process has contributed to improving their financial management practices. They have installed new accounting systems, begun having annual comprehensive financial statement audits, adopted or accelerated the adoption of generally accepted accounting principles, 89-838 98-7 |