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The Era of Full Accountability: Complying with Financial Regulations and Legislation
By Ray Summerell VP, Corporate Development, VISTA The federal government has introduced the “Era of Full Accountability” into both public and private sector business processes. Within the past 24 months, there has been a convergence of requirements and regulations related to disclosure controls and procedures. Now, for the first time ever, the full accounting of assets and their use is focusing on fixed assets such as real property. Organizations are coming to grips with understanding the role real property holdings play in fiscal responsibility and the full cost of implementing organizational missions. That challenge in turn has spawned a requirement for improved real property asset management, to demonstrate a uniformly high level of performance across all sectors in the integration of financial and mission performance objectives. This new emphasis on real property is understandable: For most organizations, real property assets represent their second largest investment, exceeded only by personnel costs. Let’s examine the legislation and regulations that make up this new “Era of Full Accountability,” and why it represents consistent federal financial policy: The Sarbanes-Oxley Act of 2002 (SOX). The SOX provisions address audits, financial reporting and disclosure, conflicts of interest, and corporate governance. Disclosure controls and procedures must be developed and applied to public companies’ transactions as well as its assets – both financial assets and fixed assets such as real property. OMB Circular A-123 on Management Accountability and Control (OMB A-123).This circular is essentially the government counterpart to SOX. OMB A-123 requires federal managers to create policies and procedures regarding program results; use of resources to support agency missions; safeguards from waste, fraud, and mismanagement; and collection and maintenance of reliable and timely data for decision making. Defense Base Realignment and Closure Act (BRAC). Enacted in 1990, BRAC is a Congressionally-mandated requirement to collect, analyze and report on facilities that support operational missions. The BRAC round to conclude in 2005 will involve the entire Department of Defense (DoD). The Secretary of Defense estimates that as much as 25 percent of the DoD’s real property inventory may be in excess of mission requirements. Executive Order 13327 on Federal Real Property Asset Management (EO 13327). Signed on February 4, 2004, EO 13327 requires Executive Branch agencies to prioritize actions to improve operational and financial management of their real property – including the cost and time required to dispose of any surplus holdings. As part of the President’s Management Agenda, EO 13327 is indicative of a fundamental rethinking of real property asset management as it affects funding for essential services. General Accounting Standards Board Statement 34 (GASB 34). GASB 34 establishes financial reporting standards for state and local governments that receive federal grants. Governments must report all capital assets, including infrastructure assets, in their government-wide statement of net assets, and to report depreciation expense in their statement of activities. Immediate implications There is an immediate implication for federal financial executives in this confluence of regulations and legislation, as regards OMB Circular A-123. OMB gave federal agencies a March 31 deadline to summarize test plans to demonstrate internal controls for financial reporting under OMB A-123. The test plans are part of the establishment of program policies and procedures; use of resources to support agency missions; safeguards from waste, fraud, and mismanagement; and collection and maintenance of reliable and timely data for decision making. Unfortunately, many federal agencies have no policy for understanding the financial impact of their real property holdings. Without that understanding, it is nearly impossible to safeguard the organizations’ finances from waste, fraud or mismanagement. As VISTA’s President and CEO David Baxa explains, “Real property is typically the second largest operations budget line item after human resources. Unless an agency’s real property holdings – owned or leased – are placed in the context of mission requirements, there can be no clear understanding of the financial impact of those holdings. Consequently, the financial reporting procedures for agencies that have not yet adopted real property asset analysis must be called into question.” After the March deadline to summarize testing plans, OMB has set a June 30 deadline for the next phase of compliance with OMB A-123. By that date, agencies must submit a management assurance statement that will explain each agency’s internal financial controls how those controls are documented to ensure their effectiveness. The management assurance statement will accompany each agency’s fiscal 2006 financial report. “It’s nearly past time to start thinking about the role of your agency’s real property assets in your overall financial performance,” explained VISTA’s Baxa. “If you haven’t begun already, you’ll find yourselves running to catch up by the time OMB requires its management assurance statement this summer.” Long-term financial and operational benefits Start looking at your real property holdings from the perspective of these financial regulations and legislation right away. By examining business and mission requirements, creating auditable cost and investment management strategies, and optimizing facilities and infrastructure portfolios, any organization can use real property asset management to improve fiscal accountability. Most organizations undertaking see real gains in:
Ray Summerell is VP of Corporate Development for Herndon, VA-based VISTA. He can be reached at 703-561-4100, or via email at ray.summerell@vistatsi.com |
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