[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]




 
MAKING SENSE OF THE NUMBERS: IMPROVING THE FEDERAL FINANCIAL REPORTING 
                                 MODEL

=======================================================================

                                HEARING

                               before the

                SUBCOMMITTEE ON GOVERNMENT ORGANIZATION,
                  EFFICIENCY AND FINANCIAL MANAGEMENT

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 16, 2011

                               __________

                            Serial No. 112-3

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform



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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

   Subcommittee on Government Organization, Efficiency and Financial 
                               Management

              TODD RUSSELL PLATTS, Pennsylvania, Chairman
CONNIE MACK, Florida, Vice Chairman  EDOLPHUS TOWNS, New York, Ranking 
JAMES LANKFORD, Oklahoma                 Minority Member
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
FRANK C. GUINTA, New Hampshire       ELEANOR HOLMES NORTON, District of 
BLAKE FARENTHOLD, Texas                  Columbia


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 16, 2011................................     1
Statement of:
    Allen, Thomas, chairman, the Federal Accounting Standards 
      Advisory Board; Jonathan D. Breul, executive director, IBM 
      Center for the Business of Government; and Michael J. 
      Hettinger, executive director, Grant Thornton LLP..........     5
        Allen, Thomas............................................     5
        Breul, Jonathan D........................................    16
        Hettinger, Michael J.....................................    22
Letters, statements, etc., submitted for the record by:
    Allen, Thomas, chairman, the Federal Accounting Standards 
      Advisory Board, prepared statement of......................     8
    Breul, Jonathan D., executive director, IBM Center for the 
      Business of Government, prepared statement of..............    18
    Hettinger, Michael J., executive director, Grant Thornton 
      LLP, prepared statement of.................................    24
    Towns, Hon. Edolphus, a Representative in Congress from the 
      State of New York, prepared statement of...................     3


MAKING SENSE OF THE NUMBERS: IMPROVING THE FEDERAL FINANCIAL REPORTING 
                                 MODEL

                              ----------                              


                      WEDNESDAY, FEBRUARY 16, 2011

                  House of Representatives,
Subcommittee on Government Organization, Efficiency 
                          and Financial Management,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:56 p.m., in 
room 2203, Rayburn House Office Building, Hon. Todd Russell 
Platts (chairman of the subcommittee) presiding.
    Present: Representatives Platts, Lankford, Amash, Gosar, 
Towns, Cooper, Connolly, and Norton.
    Staff present: Michael R. Bebeau, assistant clerk; Molly 
Boyl, parliamentarian; Katelyn E. Christ, research analyst; 
Gwen D'Luzansky, assistant clerk; Linda Good, chief clerk; 
Hudson T. Hollister, counsel; Tabetha C. Mueller, professional 
staff member; Ronald Allen, minority staff assistant; Beverly 
Britton Fraser, minority counsel; Carla Hultberg, minority 
chief clerk; and Suzanne Sachsman Grooms, minority chief 
counsel.
    Mr. Platts. This committee will come to order.
    I certainly would like to welcome my fellow Members, as 
well as our witnesses and guests, to this first hearing of our 
Subcommittee on Government Organization, Efficiency and 
Financial Management. I certainly am honored, Mr. Chairman, to 
be working with you again. For those who don't know, when I was 
last in the majority and had the privilege of chairing this 
subcommittee, Mr. Towns was my ranking member for those 4 
years; and when he went into the majority, I got to be his 
ranking member. So we are playing musical chairs here, but the 
same commitment of working together for just good government 
issues. So, again, I am delighted to be reunited with you.
    I am going to offer an abbreviated opening statement 
because we appreciate our witnesses' patience in holding down 
the fort here while we finished up votes on the floor. But we 
are anxious to get your testimony.
    Our focus here today is really to look at a specific issue: 
financial information of the Federal Government, and 
particularly how that information is reported and then acted 
upon, and specifically the Consolidated Financial Report and 
how we can make it more useful. The question we are asking is 
how we take that information and make it more useful not just 
to Congress, but to the American people. And certainly given 
the deficit spending that we see year in and year out and a $14 
trillion debt, we know the American people care deeply about 
this issue, about how we are handling their money, responsibly 
or not.
    I want to certainly applaud the Federal Accounting 
Standards Advisory Board for taking a very important first step 
in convening a task force to look at the Federal financial 
reporting model and how we can improve that model and make it 
more beneficial to, again, the public, as well as Members of 
Congress.
    Delighted to have three wonderful witnesses here today. 
First, Mr. Tom Allen, Chairman of FASAB. I understand this is 
the first time that FASAB has been invited to testify before 
Congress. We are glad to have you here.
    Mr. Jonathan Breul, executive director of the IBM Center 
for The Business of Government. And we are pleased to have you 
testifying before the subcommittee again. Mr. Towns and I 
certainly benefited from your expertise in the 108th and 109th 
sessions of Congress, and know we will again benefit and 
blessed by your information and your expertise.
    Finally, Mr. Mike Hettinger, executive director with Grant 
Thornton. It is really great to see you here on the other side 
of the table. For those of you who don't know, Mike was our 
subcommittee staff director for 4 years and did an outstanding 
job, as well as other positions here on the Hill, and kind of 
brings the perspective of both a staff person, as well as now 
in the private sector.
    As we speak, the Government Accountability Office is 
releasing its biannual high risk list. Many of the issues 
identified by GAO have to do with sound financial management, 
more likely a lack thereof. Though this may seem somewhat dry, 
some of the topics our subcommittee will deal with, it is 
incredibly important. Nothing is more important than being 
effective stewards of the taxpayers' funds, particularly in 
difficult financial times as we see facing our Nation today.
    This hearing will set the stage for our agenda over the 
coming 2 years and will especially provide us an opportunity as 
subcommittee members to prepare for our next hearing, when we 
will have Treasury, OMB, and GAO before us to testify about the 
Consolidated Financial Reports, and what we hope to glean from 
you is ideas we can share with those witnesses in a few weeks 
and get their input on your recommendations of how we can make 
the information more valuable and useful to all parties. That 
hearing will be on March 9th.
    With that, I am going to submit the rest of my statement 
for the record and yield to Mr. Towns, if you would like to 
make an opening statement.
    Mr. Towns. Mr. Chairman, I am going to place my statement 
into the record, and I want to get to the witnesses.
    [The prepared statement of Hon. Edolphus Towns follows:]

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    Mr. Platts. OK. Thank you, Mr. Chairman.
    All Members will have 7 days to submit written statements 
for the record.
    We will now go to our witnesses. It is the policy of the 
subcommittee to always swear in our witnesses. If I could ask 
you to stand and raise your right hands.
    [Witnesses sworn.]
    Mr. Platts. Thank you. Appreciate your affirmation.
    And we will begin, Mr. Allen, with your testimony and, 
again, thanks for your presence here and sharing your 
expertise.

 STATEMENTS OF THOMAS ALLEN, CHAIRMAN, THE FEDERAL ACCOUNTING 
    STANDARDS ADVISORY BOARD; JONATHAN D. BREUL, EXECUTIVE 
   DIRECTOR, IBM CENTER FOR THE BUSINESS OF GOVERNMENT; AND 
  MICHAEL J. HETTINGER, EXECUTIVE DIRECTOR, GRANT THORNTON LLP

                   STATEMENT OF THOMAS ALLEN

    Mr. Allen. Thank you very much, Mr. Chairman, Congressman 
Towns. I appreciate the opportunity to testify today. I want to 
convey five key messages in my comments.
    The first of those is that citizens want to receive 
directly information about their government' finances. The 
second of those is that accrual-based financial statements do 
contain information that is a good indication of the current 
financial health of the government and of future financial 
health.
    The third issue is that the Federal Government is such a 
complex and large organization that it is challenging to convey 
its financial information in an easily understood manner. The 
fourth key point is that Internet tools can help in overcoming 
these challenges, and the other witnesses will talk about that. 
No. 5, the task force developed a series of recommendations 
that will be considered in the coming months by FASAB and 
others to better improve Federal financial reporting.
    Exceptional work has gone into improving Federal financial 
reporting since the passage of the Chief Financial Officers Act 
in 1990. The Federal Accounting Standards Advisory Board, 
FASAB, plays a key role by providing generally accepted 
accounting principles, referred to as GAAP standards, and has 
been recognized by the accounting profession as meeting the 
criteria necessary for a standard-setting body. Accrual-based 
financial reporting standards issued by FASAB call for 
recognizing commitments and obligations as they occur, rather 
than when cash may flow in or out of the Federal Government. 
This same measure applies to all companies or organizations in 
the United States that have audited financial statements.
    Since the Federal Government has, for a number of years, 
prepared accrual-based financial statements, I decided to look 
back 10 years, to fiscal 2000, to see if accrual-based 
information was helpful in better understanding the financial 
condition of the government at that time and to see if that 
financial information was of predictive value in looking 
forward. As you know, fiscal 2000 is remembered as the last of 
the great surplus years with a $237 billion budget surplus, and 
fiscal 2000 was a very positive year when compared to more 
recent fiscal years.
    However, information gleaned from the financial statements 
and the disclosures indicated that even though there were cash 
surpluses in the years from 2008 to 2010, the debt, subject to 
the debt limit, actually increased by $152 billion during that 
time. This increase is attributable to the intragovernmental 
debt, which is issued when Social Security and other trust fund 
debt are not needed to pay benefits for that period and are 
loaned to the government. The real financial stress for the 
government would come in future years, as those intragovernment 
borrowings needed to be repaid.
    To discover when repayment may be necessary, I looked 
further. I looked at the financial statements and back on page 
56 I found stewardship information talking about the present 
value of long-term actuarial projections called actuarial 
deficits. It was $13 trillion in fiscal year 2000, and 
increasing by an average of $2 to $3 trillion each of those 
years. These amounts are not reflected in the balance sheet or 
operating statement of the Federal Government, but they do 
impact the financial condition of the Federal Government. The 
financial statements in 2000 included the message from then 
Comptroller David Walker noting the unsustainability of those 
programs and the need to reform them at the earliest 
opportunity.
    These comments are not to imply any inappropriateness of 
the above-stated transactions or noncompliance with Federal 
GAAP but, rather, to note that there was information to help 
financial statement readers better understand the broad 
financial condition of the government at that time, including 
fiscal challenges that would need to be dealt with in the 
future. However, citizens and other readers would probably have 
difficulty in understanding these transactions and what the 
numbers in those financial statements represented.
    Despite the much progress that has been made, FASAB has 
recognized the difficulty of communicating often complex 
Federal financial information and the need to improve the 
understandability of Federal financial reporting. The question 
of how to better communicate this financial information has 
also been a challenge.
    Accordingly, the Federal reporting model project was added 
to the FASAB agenda. Beginning in the year 2008, we undertook a 
user study. We found that citizens do want to know more about 
the financial health of the Federal Government, but they often 
did not know that financial statements even existed and, when 
shown the financial statements, had trouble understanding what 
they meant.
    Our sponsors from Treasury, OMB, and GAO are also seeking 
to better inform citizens regarding the financial condition of 
the Federal Government. Their efforts have resulted in the 
schedules of key amounts in the financial statement management 
discussion analysis. These schedules are illustrated in my 
written comments.
    For fiscal year 2000, additional long-term projections have 
been added to the financial report. These long-term projections 
help inform readers about the challenge of continuing current 
financial policy without change. The task force provided a list 
of 10 recommendations for consideration by FASAB and its 
sponsors. I want to thank them for the expertise they brought 
together and their excellent recommendations. I am hopeful that 
these recommendations and our other efforts will lead to a 
better informed citizenry.
    I look forward to answering your questions. Thank you.
    [The prepared statement of Mr. Allen follows:]

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    Mr. Platts. Thank you, Mr. Allen.
    Mr. Breul.

                 STATEMENT OF JONATHAN D. BREUL

    Mr. Breul. Good afternoon, Mr. Chairman and Ranking Member 
Towns. I am pleased to have the opportunity to testify this 
afternoon regarding the report of the FASAB Financial Reporting 
Task Force.
    Late last year the government released its annual financial 
report, and although that report presents information that is 
important to citizens as they form judgments about the fiscal 
future of the government under current policy, it is unlikely 
that Americans are even aware of its existence or its 
availability. And because the Nation is currently engaged in 
crucial debates about the appropriate role in the near term and 
the long-term fiscal imbalance, the annual financial report is 
now more relevant than ever before to citizens, political 
leaders, and analysts.
    Further, the recent celebration of the 20th anniversary of 
the Chief Financial Officers Act offers a clear reminder of the 
considerable improvement and financial reporting over the past 
two decades. However, the challenge of effectively delivering 
that information to users remains unfinished.
    I served as a member of the FASAB task force. The objective 
of that task force was to increase users' access, their 
understanding, and their use of financial information, while 
avoiding costly requirements that do not add value. To do so, 
the task force focused on the Consolidated Financial Report, 
largely because that is where we judged the public would start 
in order to learn about the fiscal health of the Federal 
Government as a whole.
    And the FASAB user studies, as Mr. Allen indicated, showed 
that citizens and, indeed, many executives and managers in 
government, have difficulty understanding the information in 
that report. Indeed, many of whom believe the document is 
written by accountants or economists, which it is. 
Consequently, they believe the government should adopt a Web-
based method of communicating information about the fiscal 
condition and performance of the Federal Government.
    Since four of the task force's recommendations focus on 
methods to enhance this communication of governmentwide 
financial information, I want to devote the balance of my 
remarks just to highlighting those four items.
    The first task force recommendation was to move away from 
paper-based reporting and to adopt an electronic Web-based 
reporting method. The public relies increasingly on digital 
devices, whether it is BlackBerrys and other devices which we 
all are carrying, and interactive media to obtain their 
information on demand. Accordingly, financial reporting 
information needs to switch from a paper-based static reporting 
model to an electronic, dynamic, and readily available online 
availability.
    The task force's second recommendation urged FASAB to 
explore how to best report additional governmentwide program 
performance in the management discussion and analysis [MD&A], 
section of the consolidated report or in other electronic 
governmentwide presentations. The Nation is engaged in 
deliberations to determine the Federal Government's future role 
in the economy and society, and program performance measures 
presented in the consolidated report could potentially help 
inform that debate, especially if they were structured to 
provide such information about the government's effectiveness 
in achieving its planned goals, as well as the economy and 
efficiency of government operations.
    And I should point out that this recommendation now very 
nicely aligns with the recently enacted GPRA Modernization Act, 
which, as you know, strengthens the existing requirements for 
the reporting of performance information and calls upon the 
Office of Management and Budget to develop a governmentwide 
performance plan.
    The third recommendation of the task force is to present 
net cost and spending by function. The current statement of net 
costs is presented by agency. FASAB focus group discussions 
with citizens indicated that users are much more likely to 
focus on the government's functions, such as health care, 
social services, national security, those kind of functions, 
rather than the agencies which are administering them. And, as 
you know, that is the kind of information which the budget is 
currently presented and it is a breakdown which many in 
Congress and the Federal Government are already familiar and 
use on a regular basis.
    The task force's final recommendation was to establish a 
central Web site for Federal financial information and to 
aggressively inform the public of its availability. Ultimately, 
the success of the previous recommendations requires making the 
public aware of these financial reports and the information 
they provide. A central Web site would enable the Federal 
Government to take advantage of existing technology and to help 
identify improvements that may be needed.
    The static paper-based reports that the Federal Government 
delivers today contain important information about the fiscal 
health of the Federal Government; however, those reports are 
not presented or available in a way that makes them easy to use 
or easy to understand, thereby limiting their impact. The 
government needs to use modern technology to inform the 
presentation of that information and adapt to the way users 
want to receive the information and are much more likely to use 
that information.
    Thank you.
    [The prepared statement of Mr. Breul follows:]

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    Mr. Platts. Thank you.
    Mr. Hettinger.

               STATEMENT OF MICHAEL J. HETTINGER

    Mr. Hettinger. Chairman Platts, Ranking Member Towns, and 
members of the subcommittee, thank you for the opportunity to 
testify today. As you mentioned in your opening remarks, I 
served from 2003 to 2006 as the Staff Director of this 
subcommittee. I am currently an executive director with Grant 
Thornton's Global Public Sector Practice, but I am here as a 
witness today based on my experience serving as a member of the 
financial reporting model task force to the FASAB.
    I applaud the committee for holding this hearing today and 
for your ongoing interest in government efficiency and 
effectiveness.
    Since the enactment of the CFO Act in 1990, we have seen a 
steady and significant improvement in the quality and 
availability of information about the Federal Government's 
finances. That information, contained in individual agency 
financial statements, Performance and Accountability Reports, 
the Consolidated Financial Report, and other reports, provides 
a sound baseline for decisionmakers and citizens alike to 
better understand how the Federal Government is using their 
hard-earned tax dollars.
    The issuance of the CFR in mid-December each year should 
set off a chain of events where Congress, the administration 
and the general public have an opportunity to look at the 
financial condition of the government prior to the issuance of 
the President's Budget. All too often, however, the issuance of 
the CFR goes largely unnoticed.
    About 6 years ago, when I worked on this subcommittee, I 
participated in an effort led by the Department of Treasury to 
improve the usefulness of the CFR. That effort, among other 
things, led to the development of the Citizen's Guide to the 
Financial Report of the U.S. Government. This document provides 
an effective high-level summary of the highlights of that 
year's CFR, useful for citizens seeking a basic understanding, 
but not necessarily useful for Congress or other 
decisionmakers.
    Last spring, FASAB conducted a user needs study to assess 
the financial information needs of the Congress. This study 
follows a mid-1980 study by GAO. The GAO Federal Government 
Reporting Study conducted in 1986 found, with respect to 
legislators, that Congress needed specialized agency 
information for the conducting of committee business, but 
summary level information for use in communicating with 
constituents, providing a means for the Federal Government to 
demonstrate its accountability.
    The spring 2010 FASAB study confirmed that many of these 
same needs are applicable today and fall into four broad 
categories: budgetary integrity, operating performance, 
stewardship, and systems and control.
    From my experience, these broad categories accurately 
reflect the information needs of Congress. Members and staff 
attain this information from a variety of sources, including 
the news media, agencies directly, legislative support 
organizations such as CRS, inspectors general, or via your own 
research and oversight.
    There is also a wealth of information contained in 
statutorily required reports, including the CFR, as well as 
agency PARs, and I believe Congress and the general public 
would benefit greatly from making that information more readily 
available and understandable.
    With the creation of Web sites like USASpending.gov, 
Data.gov, the Federal Procurement Data System, and private Web 
sites looking at the financial condition of the government, 
citizens now have access to more information than ever before 
and clearly more interest in the information contained in those 
sites. Ease of use and the relevance of the information housed 
on these sites drives visitors. However, the completeness and 
accuracy of the data contained within is essential for those 
government-owned sites.
    The mission of the Financial Reporting Model Task Force, as 
Jonathan mentioned in his statement, to increase users' access 
to and understanding and use of financial information in the 
CFR, while avoiding costly requirements that don't add value, 
sought to address this very issue. I was pleased to be a part 
of this effort because I believe that mission gets to the heart 
of where we stand on Federal financial management 20 years 
after the enactment of the CFO Act. We have a great deal of 
information, but that information is not understandable by the 
general public or useful for decisionmakers.
    The Task Force, as Jonathan also mentioned, makes 10 key 
recommendations, ranging from adopting a Web-based reporting 
model, to presenting a functional statement of net cost, to 
establishing a Federal financial information Web site and 
raising awareness of the availability of Federal financial 
information.
    Recommendation 1, asking Treasury to move away from a 
paper-based reporting model by adopting an electronic, Web-
based reporting model, is essential if we are move in the 
direction of improving the availability and transparency of 
government information. This recommendation, combined with 
recommendation 10, which calls for the establishment of a 
Federal financial information Web site to help raise awareness 
of the government's financial information, go a long way toward 
improving the ease of access to information.
    Recommendation 3, regarding a functional statement of net 
cost, would present net cost and spending by function, as 
Jonathan mentioned, such as health care, rather than by agency, 
such as HHS. This recommendation I believe is essential if we 
are to truly understand the cost of government.
    And there are a number of other recommendations that I have 
highlighted in my written statement, and I will skip over those 
because I think they have been addressed by the other 
witnesses.
    I will close by saying there is a wealth of really 
important financial information contained in the CFR, as well 
as in agency financial statements, but to make that information 
relevant, it must be timely, accurate, understandable, and 
usable.
    Thank you again for the opportunity to be here today, and I 
am happy to answer any questions that Members may have.
    [The prepared statement of Mr. Hettinger follows:]

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    Mr. Platts. Thank you again for the testimony of all three 
of you, and your written statements will be made part of the 
record as well.
    I am delighted to have been joined by one of our freshman 
Members, Congressman Gosar, from Arizona. Delighted to have you 
with us on committee. And returning senior Member, Mr. Cooper, 
from Tennessee. So thanks for both of you being with us.
    We are going to do a round of questions of basically 5 
minutes and rotate, and then if we have need for a second, 
third, fourth round, we will come back around.
    Mr. Allen, I would like to start. In your role with FASAB, 
you certainly, in setting accounting standards for the Federal 
Government, you have to kind of please a lot of different 
communities; the bond rating agencies, auditors, citizens, 
Members of Congress, Federal managers. When we talk about some 
of the recommendations that the task force has made and going 
to a Web-based reporting model for financial statements, going 
to that model seems to be kind of mutually beneficial to all 
communities, whether it be Members of Congress or the public at 
large.
    But is it different when we talk about how the information 
that is on that Web-based model is reported? Is there a 
difference in what is going to be useful to the public at large 
versus how it needs to be presented for Members of Congress or 
other policymakers within the Federal Government? Are they 
mutually exclusive in how the information is presented within 
the Web model?
    Mr. Allen. Clearly, as you indicated, the needs of somebody 
who is managing an agency are probably very specific. They have 
to be very timely, in fact, real-time; they can't wait until 
after the end of the year to prepare financial statements.
    So I think the recommendations are very positive in terms 
of electronic data base allows you to actually drill down and 
access the level of detail that you want. There are challenges 
of getting it real-time for some people and others who look at 
it at the end of the year and say, OK, here is a broad 
overview.
    But the efficiencies that need to take place in the Federal 
Government that I think would be significant is if we had the 
same financial statements that provided the information to 
manage were also the same financial systems that were used to 
generate the numbers that would prepare the financial 
statements after the end of the year and would have audit 
coverage. That gives credibility to everyone who is using that 
system.
    The challenge right now is often that is not the case in 
agencies. So that is one of the things that I would encourage 
you and your committee to encourage and look forward to. But, 
yes, the technology and the drill-down capacity would be 
beneficial.
    Mr. Platts. And what you envision when you talk about the 
drill-down opportunities is you have the CFR and kind of the 
overall report, but if it is a Web-based model, then you can 
link through that Web-based model down into NASA or DOD or 
Commerce and get into the nitty-gritty of that individual 
department or agency's financials pretty easily.
    Mr. Allen. And even beyond what they are now reporting, 
because what we heard from citizens, for example, everyone was 
interested in the cost of defense, but what they were 
interested in is a lot lower detail than anything that is 
reported now. They wanted to know the cost of a war in a 
particular country or something like that.
    So I think as we gather the data electronically--now, 
obviously there is going to be some work in sort of how you cut 
and dice that information, but you would clearly be able to 
answer the detailed questions people want. Not too many people 
say just tell me the total cost of defense and I am happy to 
know that.
    Mr. Platts. Is it fair to say that what FASAB and the task 
force recommendations are about is we already have right to 
know laws and we have a right to know the information, but it 
is getting access to it in a usable, time-sensitive manner? 
Your recommendation is not changing the right to know, but the 
access to what you do have a right to know, and through a 
better resource tool such as a Web-based model.
    Mr. Allen. Yes. That is a very good summary. Thank you.
    Mr. Platts. Mr. Hettinger and Mr. Breul, when the task 
force looked at major recommendations, what was maybe the most 
significant limitation in the way we are doing it now and was 
it lack of data or how we are presenting the data, or just the 
public's lack of knowledge that the data is out there for them 
to get and use?
    Mr. Breul. The Consolidated Financial Report is not a best 
seller. You couldn't go to the local bookstore and find one I 
recall one of our meetings we looked around and we had a hard 
time finding one at our meeting.
    So I think the problems are pretty basic. They have to do 
with the availability of that information and then, second, the 
presentation, the readability and understanding. It is a public 
document full of spreadsheets, and they are hard-printed 
spreadsheets, they are not searchable, they are not readily 
understandable, and they are not the kind of thing that an 
average citizen could quickly lay their eyes on and understand; 
it takes some attention and some skill.
    Mr. Hettinger. I think that certainly sums up the general 
thoughts on it. In a way, it is almost too much information. As 
Jonathan talked about, if you were to pull one out--and I am 
guessing no one has one--but if you were to pull one out, it is 
this big and it has an awful lot of detailed information in 
there, and your average citizen is not going to look at that 
document and, quite honestly, understand much of anything that 
is in it.
    What we tried to do as we looked at this electronic 
reporting model is say, OK, what can we put at a summary level 
that citizens will use, but then those who are decisionmakers 
and others will be able to drill down deeper and find the type 
of information they need. I think that is what interesting 
about both the Treasury effort I mentioned from 5 or 6 years 
ago, as well as the user needs study, because there is a 
balance.
    One of the things we learned in that Treasury effort is the 
bond rating agencies, Moody's and Standard & Poor's and those 
folks, are actually very interested in the detailed data that 
is contained in the Consolidated Financial Report. Your average 
citizen doesn't want to see the same type of information that 
Moody's and Standard & Poor's want to see. So we try to provide 
a vehicle that will allow for some summary level information, 
but then a drill-down that won't overwhelm people.
    Mr. Platts. Before I yield to the ranking member, I think 
what we have seen over the years, and Mr. Cooper certainly has 
been a leader in trying to raise awareness within the public at 
large of the importance of these issues, and, as Mr. Breul 
said, it is not necessarily a best seller, the CFR, but it is 
really one of the most critical reports that is done for the 
American people when it comes to how we are spending their 
money.
    And I have joked in the past, when I have last chaired the 
subcommittee, in getting attention to this issue of the 
information and access to the information. You know, I have 
gotten to the point where I think that maybe we need, along 
with the three of you experts, is to have maybe a baseball 
player who is doing steroids be here to show an interest in the 
Consolidated Financial Reports. That would help generate 
interest in this very important information. So we are going to 
keep trying to raise awareness and work with you and others on 
better access to this critical important information.
    With that, I yield to the ranking member, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman. When you get 
that baseball player, just make certain he is not a Yankee.
    Mr. Platts. Well, as a diehard Orioles fan, no problem 
there.
    Mr. Towns. Let me again thank you very much for holding 
this hearing and let me begin by we keep talking about the word 
user, user-friendly. What can we do to sort of make this more 
user-friendly, so people can sort of understand it in terms of 
Members of Congress and the general public in particular? What 
can we do? Do you have any ideas of some things that we might 
be able to do to make it a little more user-friendly?
    Mr. Hettinger. I will throw out a couple ideas. I mean, 
obviously, as Jonathan mentioned in his prepared testimony, 
people get information quicker, they get information 
electronically primarily. It is one of these things, in this 
age, the information comes so much quicker.
    So I think recognizing that information comes in different 
forms, the government, FASAB, and some of the recommendations 
in the task force, but primarily the Department of Treasury 
issues a report, need to recognize the different ways that 
people get information. And that moves you in a lot of 
different ways in the recommendations, I think, to go to an 
electronic reporting model just like that.
    It is important to recognize this is not information 
contained in the Consolidated Financial Report that everyone 
has an interest in. When you look at USASpending and some of 
the other Web sites that are out there, there is very specific 
information to congressional districts and spending that goes 
on in those congressional districts, and I personally believe a 
lot of the information and the reason people are driven to 
those sites is because they want to see how much of their tax 
dollars are getting returned to their own congressional 
district. The information in here is a little bit different.
    So not everyone is going to have an interest in it, but if 
you get it out there electronically, usable, findable, if it 
pops up on Google when you do a search for the Federal 
Financial Report or U.S. Government Financial Report, folks are 
going to start to pay more attention.
    Mr. Breul. Let me offer two quick suggestions. One is to 
use many more charts and graphs and colorful displays. The 
document right now has many spreadsheets and tables, as you 
might expect, but USA Today, the newspapers, you read the front 
page of the paper today, bars and charts and graphs are often a 
more effective way of communicating, particularly to citizens. 
So more use of devices like that would be helpful. And, again, 
the Web-based tools would be helpful in that regard.
    The second and also in the Web-based category is this idea 
of having it machine-readable. Right now that is a hard 
document in which you have usually it is called a PDF file, 
which is a true copy of the document reproduced for you in hard 
form or viewable on the screen.
    But if it was machine-readable data, such as Recovery.gov 
had been in the past for the Recovery Act money, you could 
search by a county or a title or a period of time and come up 
with the data that particularly corresponded to your particular 
interests, and would make it a much more user-friendly and user 
customized tool for people to begin to dig in. And I think that 
is indeed why Recovery.gov has been so popular; it is getting 
millions, hundreds of millions of hits, because citizens are 
able to dig in, where the financial statements don't have that 
ability right now and could change.
    Mr. Allen. I think, Congressman, one of the challenges is 
that even people who understand how to read financial 
statements, when they look at the financial statements of the 
Federal Government, it is confusing to them. Traditional 
financial statements have a very clear bottom line and they 
have a clear operating statement that shows how much that 
financial position changed in a period of time.
    Now, because of the complexities, and it starts with the 
way things are budgeted, and when you look at the financial 
statements of the Federal Government, you see I have 
information on social insurance, it is in a separate financial 
statement; I have information on long-term projections, that is 
in a separate financial statement. I really don't have a bottom 
line. If you were to ask me how did we do last year, just like 
in my testimony, my written comments. If I ask you how did we 
do in 2007, off the top of your head, you would say great. But, 
in reality, once you start looking at some of the information 
that I laid out, how great was it? And that is something that 
you would start asking yourself in your mind. It was great, but 
we were increasing our debt. How do those two things reconcile 
together?
    So that is the challenge that we have with the complexity 
of the Federal Government, and that probably would require more 
than just standards that we would set; that would require the 
concerted effort of Congress and the way they approach things 
and the way they budget things and the way it is reported to 
citizens. That would be a very comprehensive challenge, but 
would be a challenge worthy to at least look at to get to an 
understandable bottom line.
    Mr. Platts. Dr. Gosar.
    Mr. Gosar. Thank you very much, gentlemen, for being here 
today. It is a two-way street. I think it is also from the 
legislators to having quick synopses of what we are actually 
seeing and being able to convey that to people as well. The 
non-profits do this very, very well in some cases, where you 
see for every dollar we put in, how many cents are actually 
derived to the source that we are trying to adjudicate for.
    So with that in mind, I think we have to look 
introspectively, and from your perspective what is the best way 
from an accounting perspective to determine if a government 
program is using its dollars efficiently?
    Mr. Allen. Do you want to talk about the recommendations on 
uniting the performance information with the financial? Do you 
want to go ahead and address that initially or was that 
directed to me?
    Mr. Gosar. All of you.
    Mr. Breul. I will just start it off, then. The second of 
the recommendations was to include performance information; 
that cost alone was not a sufficient perspective, you really 
need to know what you got for that money. And, again, that is 
why I mentioned the recent enactment of the GPRA Modernization 
Act, which is a renewed attention by the administration and 
Congress that you need a complete picture of not only what we 
spend, but what we are getting for that spending, and 
understanding the performance and results that are being paid 
for with this money during that particular period of time. To 
me, that is the essential pairing of information that is needed 
to really make an informed judgment of whether we are getting 
the value that we are expecting.
    Mr. Hettinger. I will associate myself with Jonathan's 
remarks. There are lots of ways to try to understand how a 
Federal program, whether it is achieving its results. When I 
worked on the subcommittee, Chairman Platts and I worked 
together to try to promote a bill which looked somewhat like 
what the GPRA Modernization Act looked like.
    That bill changed over time. The intent was to take a 
programmatic approach to looking at the performance of programs 
basically line by line, program by program, building on the 
Bush administration's program assessment rating tool; and I 
think it is effective.
    What you then have to do, as Jonathan talked about, is to 
tie that program, performance information back to budget; and 
that is really the key in assessing the performance, but then 
demonstrating some budgetary changes as a result of a program's 
performance. Easier said than done in a lot of ways, I think, 
but that is how I would approach it. That is how I think it has 
been approached. And there have been many, as you know, many 
efforts by Congress and others over the years to try to 
understand exactly how effective these programs are being.
    Mr. Allen. I would add I guess you talked about not-for-
profit organizations, and even there the standard setter 
identified what it is you need to report, cost of raising money 
versus program services you are delivering. But there is no 
requirement from an accounting standpoint of tell us how 
effective you are, so it is a challenge.
    In fact, that probably is an area that is best addressed by 
those who are managing those programs, the agencies themselves. 
And I think from a standard setter standpoint we can say you 
should include program information. But how to effectively 
present it is probably going to reside with those agencies, 
with models that may be presented by the task force or others.
    Mr. Gosar. A followup question, because I want to make sure 
that we are getting the right information in regards to the 
proper accounting. So, in your opinion as accountants, and 
following through and financial statements, in last year's 
health care bill, did Congress follow its due process in 
properly accounting for funds and cost analysis in a 
transparent and accurate accounting method?
    Mr. Allen. I don't see the 10-foot pole, but my 
understanding is that there will be a presentation of those 
people who prepared the financial statements for 2010 and who 
audited those financial statements, and that will be a 
presentation that they believe is most appropriately addressed 
by them, as opposed to us as standards setter. Is that a 
bailout? It is.
    Mr. Platts. And, Doctor, sorry, that is March 9th when we 
will have Treasury and OMB before us.
    Mr. Gosar. I yield back the rest of my time.
    Mr. Platts. Thank you.
    Before I yield to Mr. Cooper, is it safe to say, when we 
talk about getting more performance information in the report 
and more easily understood, that if you go to that Web-based 
model and have more performance, one of the true intents of 
moving the CFR up into December is so that it can be used in 
drafting the subsequent year's budget? In the current model it 
doesn't lend itself very well, especially the lack of 
performance and easy access to performance information. Is that 
a fair statement?
    Mr. Breul. I think that is true. And I would simply point 
out that with the new GPRA Modernization Act, at least for the 
high level, high priority goals, the Congress asked for 
quarterly reporting so in fact you could begin to buildup a 
more periodic reporting and have information not only at the 
end of the year, but during the year, when there is some 
opportunity to make some course corrections or changes if you 
want to accelerate or decline the trend that you are currently 
on. So I think that is exactly right.
    Mr. Platts. Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman.
    Let's be honest. This is one of the most important and most 
boring hearings in congressional history. We are lucky if this 
is even on C-SPAN 3. There are about maybe 20 live people in 
this room, and half of them are asleep, because we are not 
speaking a language the average American voter understands. So 
let me put the cookies on a low shelf and, especially, I would 
like to get Dr. Gosar's attention on this, because as a new 
member perhaps he can rescue us.
    We are now sitting in a room of the only large enterprise 
left in America that is exempt from using real accrual 
accounting. This violates the first plank of the Contract with 
America back in 1994-95, in which Congress was supposed to live 
by the laws it passes for the rest of the people. It is my 
understanding that every enterprise in this country with 
revenues of about $5 million has to use, in addition to cash 
accounting, also real accrual accounting.
    But somehow the Federal Government is exempt. We are 
hypocritical. Now, why is that? Well, first of all, I still 
can't find one lobbying enterprise in this town, and Lord knows 
there are thousands of them, there are between 30 and 60 
lobbyists for every one of us. Not one of those folks, to my 
knowledge, is for real accrual accounting for the Federal 
Government. Isn't that interesting?
    When the average civic club member back home has to use 
real accrual accounting for their business, whether they are 
for-profit or non-profit. State and local governments have to 
use real accrual accounting. It prevents them from hiding their 
unfunded pension liabilities and things like that. So why isn't 
the Federal Government using it?
    This is a mystery that you gentlemen can help us solve, 
because while we are talking here about electronic display of 
information or fine-tuning these facts, there is not a lack of 
information, there is a willful blindness to that information. 
The rating agencies, Moody's and Standard & Poor's, have 
already said maybe we have 1 or 2 years left before we face a 
possible downgrade of the Treasury bond, because we are so 
mismanaging our Nation's finances.
    Now, how are we mismanaging it? According to cash 
accounting, our debt is on the order of $14 trillion. But if 
you look at our unfunded obligations, programs like Medicare, 
Social Security, things like that, it is more like unfunded 
obligations of 50, 60, who knows how many trillion dollars? 
Many times larger. Our debt this year isn't at $1\1/2\ trillion 
or so, it is more like $2 trillion. So when are we going to get 
real on these numbers? And that is why I think it is important 
to be somewhat blunt, be simple without being simplistic to 
help the average American understand the situation we are in, 
because it is very convenient here today for Federal officials 
to hide the real numbers.
    You are talking about electronic displays for the average 
citizen. The Treasury Department has never held a press 
conference about the release of the Financial Report of the 
U.S. Government. Our own Treasury officials in both parties, 
whether it was the Bush administration or the Obama 
administration. They deliberately hide the release of this 
document, the only one compiled according to law passed by 
Senator John Glenn, that uses the real numbers.
    So forgive me for being frustrated, but the business mantra 
is if you can't measure it, you can't manage it. We are 
refusing to measure the dimensions of our problem. A historian 
will look back years hence and say they had the tools to do a 
good job, but they refused to use the tools. The tool is real 
accrual accounting, because that enables us to see what is not 
only in the national checkbook, but what is on the national 
credit card.
    So I know Mr. Allen knows these issues cold. I appreciate 
his great service on FASAB. I appreciate the other pioneers who 
have worked on it, but somehow we have to break the gridlock on 
this issue. Let's find one business lobby in America that is 
willing to support real accounting for the Federal Government. 
Where is the Chamber of Commerce? Where is the Business 
Roundtable? Where is the NFIB? For that matter, where is The 
Wall Street Journal? I have a chart in my office, I have had it 
for years: What is the debt? What is your share of the debt?
    We are using cash numbers. We need the real numbers. And 
you gentlemen, while you are doing all the fancy fine-tuning 
stuff, you can help us understand the plain, blunt truth. We 
are not using honest accounting standards, not using real 
accounting standards, not using accrual accounting standards 
for the Federal Government. So this is more of a statement than 
a question.
    I appreciate your efforts, Mr. Chairman, to highlight these 
issues, but I think it is important to make this a less boring 
and to put the cookies on a low shelf so that perhaps there is 
somebody out there in C-SPAN 3 land who will make this a cause 
and bring this to light. Thank you, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Cooper. Your statement is one of 
the reasons I am delighted to be back on the committee with you 
and, as I said, your efforts over many years to raise this 
very, very important issues. As you say, maybe boring, but 
ever, ever important. And look forward to working with you as 
we go forward in these 2 years to do a better job in having the 
American people truly understand the financial crisis facing 
us, because, as you said, the real numbers are tens of 
trillions of dollars of unfunded liabilities out there.
    Mr. Cooper. Thank you, Mr. Chairman.
    Mr. Platts. Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman. And I want to 
express to you my delight in being on this subcommittee. I 
picked a third subcommittee because you were chairing it. So 
thank you.
    Mr. Platts. I am honored.
    Mr. Connolly. And, of course, you can imagine how thrilled 
I was that our first hearing was on accounting, a wonderful 
subject.
    First of all, Mr. Allen, you should know that I was, for a 
long time, a consultant for FASB, and I didn't lobby for FASB, 
but I helped represent FASB here in Washington, working with 
other representatives of yours in a consulting status, and 
enjoyed very much working with FASB and going to Connecticut 
and debating green eyeshade issues and how they might translate 
into public policy.
    I want to ask two questions. The first is do you all ever 
look, though, at the costs of your decisions? Mr. Allen, for 
example, I can't remember the exact number, I used to know it 
by heart, but I was in local government for 14 years, and a new 
GASB standard added gazillions of dollars to the cost of local 
government, or eliminated even the option of expanding benefits 
because of the actuarial implications that GASB required us, 
all in the name of a new and more transparent accounting 
standard.
    And I think it depends on where you sit how helpful that 
is. And my question is does FASB and do others, and the other 
panelists could certainly feel free to comment, ever take into 
account the cost implications of your decisions, both on the 
Federal and State and local government levels, or, for that 
matter, on the private sector?
    Mr. Allen. Can I go ahead and start? Well, thank you. It is 
nice to see a welcoming face here understanding the challenges 
of standard setting. I suspect I know what standard you are 
talking about that was passed. That was probably the last 
standard that I was involved in before I retired from GASB, and 
that probably had to do with recognizing the cost of health 
care promises for your employees.
    Mr. Connolly. Was that GASB 76 or something like that?
    Mr. Allen. Fifty-six, I think. However, when one thinks 
about that, what has resulted from that decision? In other 
words, as accountants, we try to be non-political; we provide 
you information that you make decisions. In that particular 
case, we received letters back that were disconcerting: if you 
make us report this in our financial statements, they won't 
continue that benefit.
    And, in fact, in the State of Utah, where I am now a 
visiting professor at a university, I don't earn any benefit 
for health care because the State of Utah legislators, when 
faced with the decision of do I put that on the face of my 
financial statements and recognize that, decided that cost was 
too great for them to assume.
    So when you look at the role of accounting, it isn't to 
make decisions about what one should do, but it is to provide 
you clearly the information that you have to make a decision 
understanding the full cost of that. And I think that is what 
Mr. Cooper was also addressing, this issue of you put something 
on the face of the financial statement and recognize it. Would 
you make the same decision that you would make if you don't 
have to put it on the face of the financial statement?
    Mr. Connolly. Mr. Allen, if I may, I am not sure that is 
really true. When GASB came out with that standard, we didn't 
have a choice. The bond rating houses weren't going to accept 
our financial statements if we didn't do what you in fact set 
out for us. As a result, it wasn't just a matter of making sure 
the public knows the transparency of the transaction; that 
meant that when I wanted to give, on an annual basis, because 
everything is appropriated on an annual basis, that is not an 
applied commitment for tomorrow, maybe I wanted to increase 
retirees' health care offsets because of the rise in health 
care costs, I couldn't just do that on an annual basis, as we 
always had done before that new GASB standard, I now had to 
account for the actuarial life of each recipient forever. And 
that cost suddenly went from whatever it was, X, to 30 times X.
    Well, Mr. Cooper may think that is a good thing, but I can 
tell you, as someone who spent 14 years managing a county 
government that was selected as the best managed in the United 
States, we didn't think it was such a good thing. And it hurt 
our firefighters and our retirees because we could no longer 
provide that extra benefit that they deserved and that they had 
earned.
    So my point is that this is a two-sided coin, that when you 
make certain standards, it has implications and suddenly 
jettisons cost upward even though nothing has changed other 
than your accounting requirement.
    Mr. Allen. And I apologize to any affect that may have 
caused to individuals or to organizations. Nevertheless, the 
issue becomes not that GASB has any ability to make a 
government do anything, like FASAB doesn't have any ability. 
The only question was--and many governments still provide that 
benefit and still don't fund health care. Most fund pensions; 
many still don't fund that health care.
    But they do have, on the financial statements, the 
recognition of the obligation that is there under a concept 
called intergenerational equity. In State and local 
governments, that became the driving force that the cost of 
someone providing services ought to be recognized in the period 
that service is provided, not recognized years later, when 
somebody else paid the cost of those services. So that is the 
sometimes disconnect that happens between budgeting on a more 
cash basis and recognizing that cost on a more accrual basis. 
That is the challenge.
    Mr. Connolly. Thank you.
    My time is up, Mr. Chairman.
    Mr. Platts. Thank you, Mr. Connolly.
    Ms. Norton.
    Ms. Norton. Thank you, Mr. Chairman.
    Well, I wanted to be a member of this subcommittee because 
I have long had an interest in government efficiency, so that 
is one of the things we are supposed to be dealing with and I 
hope these reports deal with. I ran a Federal agency with a 
very serious underlying mission, but immediately became 
interested in the inefficiency of the mechanisms because they 
weren't able to deliver the strong substantive mandate they 
had.
    Now, Mr. Cooper speaks about making what you do and a CFR 
that is boring. Anything with numbers alone is always boring. 
When I look at a graph, I always read some text, even though a 
graph is pretty picturesque. I don't even know if you use 
graphs. But the notion of making the work understandable to 
laypeople could not be more important today, because when we 
hear some of what masquerades in what I can only call 
propaganda for what is what is right or wrong with the 
government, you can understand that it must be that there is no 
objective, understandable information out there.
    I mean, some things are a little bit easier to understand 
than others, for example, Social Security, where people still 
have to be told that the trust fund will last X number of 
years; and that does give them some sense, a little bit of an 
understanding of Social Security. Although it is kind of lumped 
together with everything else that needs cutting, it does need 
cutting, but the distinction is an important one.
    But if you take another program that I have always found 
very, very difficult to understand, which is even more 
seriously running out of money, Medicare, I don't think the 
average person for whom that means everything has any way to 
fasten on whether or not it will--you know, if you are young, 
whether or not Social Security will be available; if it is not 
there, you know Medicare certainly won't be there. But what you 
don't know is Medicare is more seriously running out of money 
than Social Security is.
    Now, Mr. Allen's testimony, on page 4, mentions a Citizens 
Guide to the financial report that began in 2007, and then at 
the bottom of the page is the task force necessary still to 
make recommendations on how to make this more understandable 
and more accessible. What was there about the Citizens Guide 
that I take it caused the formation of the task force? Would 
you reconcile the notion that there was a Citizens Guide and 
what it did, right or wrong, so that we understand why a task 
force of experts to increase user understanding, access, etc., 
was later formed?
    Mr. Allen. The Citizens Guide was an excellent effort not 
by a standards setter, it was by Treasury, OMB, and GAO getting 
together, as Mike indicated, and coming up with what they 
thought would be a better way to communicate. It has the same 
limitations these two gentlemen have talked about, which is I 
can look at a summary total of something, but if I want to know 
any detail about that, I can't go down to the details to better 
understand that. So that----
    Ms. Norton. Because?
    Mr. Allen. Because I show one number. I may show the 
Department of Defense----
    Ms. Norton. I see.
    Mr. Allen. Well, what if that isn't what I want? I want to 
know some detail about that. And that is why this electronic 
delivery of information and how to organize the information, 
again, back to Mr. Cooper's comment. If you look at some of the 
illustrations, the 2004 illustration, for example, that came 
from the Treasury Department, it actually side-by-side and then 
combined the Social Security and other obligation information, 
and that was very pleasing to some people and very 
disconcerting to others.
    But there has been an attempt to try and provide 
information in these reports that help you understand better 
the financial statements. All the Citizens Guide comes from the 
financial statements. What they are talking about is giving 
additional information even beyond the summary information you 
see in the financial statements.
    Mr. Hettinger. I will say just a couple things. One 
interesting thing is the Citizens Guide is a paper-based 
document as well, and Jonathan Breul made the point earlier 
when the government puts, whether it be the CFR or other 
documents, on a Web site, it is a static document; they 
essentially copy it, put a PDF up there, and you can read it, 
but you may as well be reading the hard copy. And what we are 
talking about is trying to get a document on there that you can 
go in and work with and drill down and look at this 
information, the information that you find important to you, 
and really understand that information.
    The Citizens Guide is a 10-, 12-, 15-page summary of a 350-
, 400-page Consolidated Financial Report. It is very helpful, 
and I was part of the effort when I worked on the subcommittee, 
working with the folks at Treasury that came up with the 
Citizens Guide model. I thought that was a great first step. I 
think what we are suggesting here, and as Tom points out, from 
a standards setting standpoint, is that we take it beyond that 
to something that gets you better access to more information in 
a more understandable, usable fashion.
    And as I mentioned in my statement, some of the 
recommendations really allow you to understand the true cost of 
government by function, not just necessarily by agency, and I 
think that is particularly important going forward as you look 
at the things that you are looking at.
    Mr. Platts. Thank you, Ms. Norton.
    Ms. Norton. Thank you.
    Mr. Platts. We are going to have a second round, and I will 
kick it off.
    Mr. Allen, I am going to go back to a little bit of your 
work with GASB and setting those accounting standards for State 
and local governments. In addition to, I think, as you 
referenced, intergenerational equity, are there lessons learned 
from your work at GASB with State and local government 
reporting that you think we can well apply to the Federal 
Government in what we are doing?
    Mr. Allen. I guess the first two that come to mind are 
probably some that I have already mentioned, the challenge to, 
as you know, State and local governments focus very much on 
short-term financial resources, and even the thought of adding 
these obligations to their financial statement was very 
disconcerting, and we sought feedback from the bond rating 
agency that basically said what is important isn't what you 
report; we already know you have those things and we already 
add those up.
    What is important is that you clearly communicate where you 
are at and then present information that shows where you are 
going from there. And I actually think that is applicable to 
the Federal Government. I think people who have concerns about 
reporting stuff, the point isn't that we don't know there are 
obligations are not obligations out there; the point is what 
are you doing about it as you go forward. I think that is a 
very important focus to look at.
    The other was very consistent with the report. We found 
that State and local governments report, as Mr. Connolly would 
tell you, on a fund-by-fund basis. People didn't want to know 
what was in a particular fund; they wanted to know what the 
cost of those services were and who paid that cost. So we had 
to change the whole operating statement to do that, and that 
will be one of the challenges of meeting the cost-based 
information that they are talking about.
    So, yes, I think we learned the information that people 
want about the Federal Government is very similar to what they 
wanted about State and local governments.
    Mr. Platts. Thank you.
    Mr. Breul, the 10 recommendations of the task force, we are 
still looking at the budget release this week. Are you aware of 
any of those recommendations being incorporated into what has 
been put forth by the administration on the 2012 budget?
    Mr. Breul. Mr. Chairman, I am not, but I would doubt very 
much that there is a cost. In fact, we were hopeful some of 
these recommendations would in fact save cost by moving away 
from paper-based printing and distribution. And I don't think 
any of them really are costers, I think they are pretty much 
cost-neutral. And our recommendations were so recent, I would 
doubt very much that the OMB has had an opportunity to 
incorporate them in any of their thinking quite yet. In fact, 
they were made to the FASAB and they will get to OMB shortly 
when they come to the next FASAB meeting.
    Mr. Platts. OK. Thank you.
    Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    Let's talk about how strong the government's financial 
statements are for a minute. I guess I will start with you, Mr. 
Allen. Your organization sets accounting standards for the 
Federal Government. That is accurate, right?
    Mr. Allen. Yes.
    Mr. Towns. Isn't it true that every year there are 
government agencies with financial statements that cannot meet 
government standards?
    Mr. Allen. Yes. Most of them do. I don't know this last 
year, but there is normally maybe three or four that don't. But 
most of the major agencies do meet those standards.
    Mr. Towns. Isn't it basically the same ones each time?
    Mr. Allen. That is my understanding, yes.
    Mr. Towns. Will any of the recommendations made here today 
help these agencies create more reliable financial statements?
    Mr. Allen. No. The issue is once you provide the 
information that is asked for, these recommendations will help 
discuss how it ought to be more effectively communicated, how 
it can be more effectively accessed. I can tell you, for 
example, that one of those, as you well know, is the Department 
of Defense accounting for their assets. We have issued 
additional standards beyond that says to that and say, well, if 
you don't have the information, make estimations, then; do 
something to try and move forward.
    So we recognize that there is value in information. We 
don't want people to spend tons of time researching all costs, 
so we are trying to be cost-effective, but that agency still 
has to arrive at some point in time of having the information, 
and then you can talk about how better to communicate it.
    Mr. Towns. Right.
    Mr. Breul, if an agency publishes unreliable financial 
statements on a central Web site, that can lead to all kinds of 
confusion. So what can we do to avoid that kind of situation? 
The point is that once that gets out there, and if it is not 
correct, that can create some serious problems.
    Mr. Breul. Well, I am not sure the information is 
unreliable. It hasn't passed the audit standards, but I think 
it is just as important to have that disclosure, what we do 
know about that situation. It might add a little shame and 
humiliation to the situation so that might get people's 
attention to insist that they do adhere to the standards.
    So, again, I think the idea of a little disclosure is 
helpful by making it known that is the condition, and it is a 
condition that doesn't satisfy the auditors yet, and that ought 
to upset the public and give some an opportunity to insist that 
the matter be corrected.
    Mr. Towns. In closing, is there anything on this side that 
we need to do as Members of Congress to make this work, these 
10 recommendations? Anything we need to do?
    Mr. Hettinger. I mean, I think, obviously, drawing 
attention to the issue, as we are doing today, is an important 
first step. I mean, the recommendations, I think, speak for 
themselves, but there are a lot of recommendations in there. 
These are recommendations that we have made to FASAB. There is 
absolutely no reason that, as you look at legislation, as you 
conduct your oversight, that you--I mean, you should look at 
these recommendations, and some of them may be things that you 
all could incorporate into a legislative proposal. Some may 
not, and some would have to be tweaked to be incorporated into 
a legislative proposal.
    But certainly the transparency, the things that call for 
the centralized Web site and the Web-based reporting, those are 
all things, quite honestly, that Congress could do through 
legislation. USASpending, all of those things have been 
legislated, so certainly you could do that. Beyond that, you 
certainly want to take a look at them, and there may be partial 
solutions to some issues, full solutions to others, but I think 
you want to take a look at that. And certainly those of us who 
were on the task force and others who have been involved in 
this process would be happy to help.
    Mr. Towns. Thank you, Mr. Chairman.
    Mr. Platts. Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman. By the way, I would 
ask unanimous consent to enter my statement into the record.
    Mr. Platts. Without objection.
    Mr. Connolly. I thank the Chair. I said I had two 
questions, so now I go to my second one.
    We hear a lot about what more transparent and accurate 
accounting could do for the Federal Government. I wonder what 
your thoughts are about the critique that is sometimes raised, 
but what we don't do very well, and you alluded to it, Mr. 
Breul, or maybe you, Mr. Allen, with respect to the Pentagon, 
accounting for assets.
    But in the public sector we are not always good at 
differentiating between consumption spending and investment, 
which we do do in the private sector. And we are not always 
good at accounting for what is an asset. Especially in the 
public sector; it is a little squishier sometimes than it is in 
the private sector, for good reasons.
    But, in any event, I would like your views on that. How do 
we get our arms around assets and spending that constitutes 
investments versus some other kinds of spending?
    One of the concerns I have, and we have the continuing 
resolution on the floor of the House right now, is almost a 
mindless approach to spending: it is all bad and it is all the 
same. Well, it isn't. The spending on the interstate highway 
system, which was initiated by a Republican president, had a 
return on it that is impossible to calculate it was so great, 
and aren't we glad we made that spending decision? Yes, it cost 
money, but it is different than purchasing a bottle of water 
and consuming it.
    I wonder what your thoughts are on those two issues and how 
we can better account for them and how they would perhaps 
perfect that picture.
    Mr. Breul. Well, Mr. Connolly, I think your point is 
exactly the one that is addressed by this new GPRA 
Modernization Act, which is recognizing the need to marry the 
information about cost with information about what the results 
or performance is that you are buying them for. Is it just 
water you are consuming or is it a long-term investment that is 
going to accrue benefits over time? And having that kind of 
performance information visible alongside the cost so you can 
make a judgment as to whether that dollar is more or better 
spent here rather than there.
    And that is why one of the recommendations of this task 
force to inform those kind of decisions was to have performance 
information highlighted in the consolidated report as well, so 
that citizens would have some more information about what they 
are getting for those dollars that are being spent.
    Mr. Hettinger. I will just add real quick the property plan 
equipment, the asset issue is one that I am sure, as the 
committee conducts its oversight and you begin to look at 
individual agency financial statements, you are going to see a 
recurring theme, and part of that recurring theme is going to 
be it is very difficult, as part of the financial statement 
process, to properly account for assets.
    And in particular you are going to see that problem, I 
think, as it relates to places where they have huge assets like 
the Department of Defense, where you have aircraft carriers and 
ships, or NASA, where you have satellites and things like that. 
Those are assets, from my experience--and I am not an auditor, 
but I did work on the committee for 4 years--those are the 
things that as we looked at financial statements when I was on 
the committee, repeatedly we heard concerns about.
    So to back to Mr. Towns' question, as you are looking at 
these things and looking at agency financial statements, one of 
the things you probably ought to take a look at is is there a 
way to better account for assets for property, plant, and 
equipment in a way that it is not property, plant, and 
equipment that is drawing down the entire financial statement 
but something that can be dealt with and allows those agencies 
to effectively manage their finances without having that pull 
it down.
    Mr. Allen. And I would just add that property, plant, and 
equipment is not the most important thing to account for in the 
Federal Government absolutely. I think, from my personal 
opinion, and everything I say obviously is my opinion, not 
FASAB's opinion, but from my personal opinion, the most 
important thing is to decide what are you going to do.
    Should we expense all of these things when we buy them? 
Should we capitalize? And it almost doesn't matter. What 
matters is that you apply something. You make a decision, you 
apply it consistently going forward from that point. Then you 
can measure its impact on the rest of the operations of the 
Federal Government.
    Is this truly something that has long-term benefits that we 
want to capitalize and use up over the long-term? If it isn't 
really significant because the Federal Government is sure 
significant, maybe we would be better off just expensing it in 
the year that we make that expenditure.
    Mr. Connolly. And, Mr. Chairman, I know my time is up, but 
I do think this is a very important aspect of what we are 
talking about, and I hope some day we can expand on it. I can 
just tell you my own local government, when I first got 
elected, there was no ROI analysis on certain investments.
    So it was the clipboard method. Someone went around and 
said, OK, Jonathan, what do you think you need this year for 
technology? Well, I think I need six computers and maybe I 
should have eight, just because government being government, 
who knows when I will get replacements. And there was no 
question of, well, but wait a minute, let's match your request 
against Mike's because he actually can show ROI and we know he 
is productive, and you need to compete with him. For us to make 
that investment, you are going to have to justify it. At the 
time, a completely alien concept.
    Today I am proud to say we do it very rigorously and 
everybody understands they are going to have to justify that 
and other kinds of investments, and that they are in 
competition with other agencies. And I am just wondering--I 
mean, we haven't got time to do it, but it is my fervent hope 
that we can have a similar appreciation in the Federal 
Government so that we are actually looking at return on 
investment when we make investments.
    Thank you, Mr. Chairman.
    Mr. Platts. I want to thank our witnesses again, both for 
your expertise that you shared and your knowledge, but also 
your patience here with hearing, because the floor votes didn't 
start for about almost an hour and a half late. And we look 
forward to continuing, as a committee, working with each of you 
individually and collectively as we go forward, and helping to 
set the stage today for our March 9th hearing when we do shed 
some light on the consolidated financial report.
    And as Mr. Cooper said, there may not have been a press 
conference held when it was released, but we are going to do 
our best to make sure the American people know what it says and 
how important it is for them to know what it says because it is 
about their money.
    With that, we are going to keep the record open for 2 weeks 
if there is any additional information to be shared, along with 
written statements from Members.
    Again, thanks, and this hearing stands adjourned. Thank 
you.
    [Whereupon, at 4:14 p.m., the subcommittee was adjourned.]

                                 
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