In October 2001, the General Accounting Office (now Government Accountability Office) issued a report to Congress titled, FFMIA Implementation Critical for Federal Accountability (GAO-02-29). FFMIA is the Federal Financial Management Improvement Act, a 1996 law requiring auditors to state whether federal agencies have complied with each of the required accounting standards.
A very important accounting standard covered by the requirements of FFMIA is the one mandating that agencies implement managerial cost accounting systems, with an emphasis on activity-based costing and cost management. As GAO noted in its report, federal agencies in large part had not complied with this requirement in a way that gives them the type of cost information they need to manage programs efficiently and effectively, as envisioned by the Government Performance and Results Act. The report states:
A major cornerstone of FFMIA is good cost accounting information that program managers can use in managing day-to-day operations. Managerial cost accounting is aimed at providing reliable and timely information on the full cost of federal programs, their activities and outputs … Developing the necessary information, which is needed as well to support GPRA implementation, will be a substantial undertaking … Our sense is that today few agencies may have good cost accounting information … Further, the move to implementation of performance-based budgeting highlights the need for cost accounting information at the program level.
The following year's GAO report on FFMIA implementation, titled FINANCIAL MANAGEMENT - FFMIA Implementation Necessary to Achieve Accountability (GAO-03- 31) and released in October 2002, made similar arguments linking managerial cost accounting to GPRA, while also noting, "Agency implementation of managerial cost accounting can be a complex and arduous task." Under the subheading "Managerial Cost Information Is Critical for Implementing the President's Management Agenda," GAO stated,
[G]ood information on financial program performance is necessary for the full and effective implementation of GPRA. The success of GPRA is crucial to transitioning to a more results-oriented federal government where agencies are held accountable for achieving specific program results. Cost information supports decision making in a variety to different business environments, such as … to manage resources in the accomplishments of broad program goals, to manage the unit cost of output to ensure that units of output are produced as effectively and efficiently as possible … Linking of agency budgets with performance is enhanced when agencies integrate managerial cost information into their program activities (or lines of business).
As suggested by GAO in these two reports, without good cost accounting information agencies will have difficulty implementing performance-based budgeting.
In July 2007, the Government Accountability Office issued a report titled MANAGERIAL COST ACCOUNTING PRACTICES - Implementation and Use Vary Widely across 10 Federal Agencies (GAO-07-679), in which GAO described the insufficient implementation of managerial cost accounting (MCA) withi the Federal Government:
Our work identified large disparities in the level of MCA implementation among federal agencies as well as the ways in which they use cost information. Of the 10 agencies that were reviewed, only 3 had implemented MCA systems agencywide. . . . Few of the federal agencies we reviewed were using MCA to make day-to-day decisions. . . . Although MCA can be implemented without an integrated financial management system, in those cases it tends to be used fort single programs or projects rather than providing day-to-day information for managerial decision-making agencywide.
Information and insight on revolutionizing government transparency and accountability
This web site provides information and insights, including examples, about Performance Based Budgeting/Management in government. Much of the information applies generally to any government at any level anywhere.
It also includes items relating specifically to the U.S. Federal Government, including implementation of the Government Performance and Results Act of 1993 (GPRA), but which may be useful background for managers and staff at other governments.
Because of the great amount of interest in Performance-Based Budgeting by governments both within the US and internationally, this web site deals with this particular reform in some detail.
