BackgroundIn 2013, United States government spending cuts were implemented, resulting in major budget reductions for several Federal agencies. In a message delivered on April 10, 2013, President Barack Obama said, “…this Budget continues my commitment to reforming and streamlining our Government for the 21st Century. It builds on my Campaign to Cut Waste by further targeting and eliminating wasteful spending wherever we find it. It reorganizes and consolidates agencies and programs to make them leaner and more efficient. It increases the use of evidence and evaluation to ensure we are making smart investments with our scarce taxpayer dollars. And it harnesses new technologies to allow us to do more with less.” By having a robust analytical and process improvement solution to continuously recover and reuse funds prior to expiration, Agencies can be several steps closer to meeting the President’s agenda.

Federal agencies are at a pivotal point and seek to maximize efficient and effective operations. In light of this, many agencies are seeking refined processes that would reduce potential waste or abuse of government funding. If sufficient processes are not immediately implemented, there is a likelihood that mission critical programs may not be funded if the funds allocated to those programs are allowed to expire. Agency Chief Financial Officers (CFOs) and financial managers can take steps to address potential waste and abuse by addressing the root cause of this issue and implementing strong internal controls and business processes.

Importance of funds managementSeveral Federal agencies have been cited for deficiencies in budgeting and financial management. The causes of these deficiencies include inadequate financial management system controls, insufficient controls over the review of obligated balances or insufficient policies and governance. These deficiencies coupled with reduced top-line budgets are causing agencies to seek ways to cut costs while maximizing mission execution.

While execution of funding for government organizations has shown to be complex and top-line budget cuts are evident, there is a major opportunity to meet mission objectives through increased efficiency and execution of existing unexpired funds. This can be achieved through the proper management of undelivered orders (UDOs) and unliquidated obligations (ULOs).

In FY13, the DoD returned $9.4 billion in budgetary resources to Treasury, mainly due to funds not being recovered and used prior to the expiration of the appropriation.

Federal CFO InsightsCFO’s commitment to funds recovery

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Current CFO challengesDoing more with less has become a common theme in the Federal Government. There is an unforgiving demand for consistent performance with fewer resources. Agencies must process growing amounts of data, and their decision makers must be able to comprehend and utilize that data effectively. These challenges enforce the need for CFOs to proactively manage risk in an increasingly stringent regulatory environment. However, identifying the warning signs of the operational issues that can lead to wasteful spending is not always straightforward.

Many government agencies experience a variety of difficulties in managing UDOs and ULOs due to several constraints. The effectiveness of financial systems may be limited by design gaps or voluminous data. Agency policies and guidance in this area may not extend beyond the requirements of laws and regulations. Additionally, the resource constraints that affect the overall Agency may reduce the workforce’s availability to focus on UDOs and ULOs. These challenges and others are depicted in Figure 1 below.

The issues are intertwined and a comprehensive analytical framework is needed to help address them. Predictive analytics, along with robust processes, can help organizations to deconstruct complexities, allowing for improved fiscal oversight.

Figure 1.

Technologyand

systems gaps

Personnel/governance

gaps

Resourcelimitations

Technology and systems gaps• Large and disparate data sets• Reactive vs. predictive approach• Lack of analytical tools• Insufficient systems controls (i.e., limited

use of required data fields, required data formats, basic accounting controls within systems)

• Inadequate system interfaces• Limited reporting

capabiliites

Personnel/governance gaps• Application of laws and regulations• Deep, technical skill sets (i.e., data

analytics, data visualization, and systems analysis and improvement)

• Organizational culture• Reliance on manual vs.

automated processes and controls

• Insufficient policies and guidance

Resource limitations• Limited manpower availability• Hiring limitations to acquiring needed skill sets• Untrained UDO management workforce

Federal CFO Insights CFO’s commitment to funds recovery 3

Using a comprehensive analytical and process improvement frameworkLeveraging predictive analytics can highlight problematic patterns as agencies address UDOs and ULOs. It can also help agencies make better, more informed decisions. Setbacks to a sufficient analytics program include not having sufficient data or data that is readily available. CFOs can gain a meaningful understanding into the root causes of their Agency’s current state and develop robust solutions to address technology, process, policy, and resource issues. The potential outcome is ultimately recovering funds for the “mission.” The comprehensive analytical and process improvement framework depicted in Figure 2 below can help to provide Agency CFOs with the insight into the current state as well as tools to correct problems with UDOs and ULOs going forward.

Figure 2.

Perform data analyticsUnderstanding the current status of UDOs, the sources of data for analytics, and the organization’s current processes for the obligation and disbursement cycle.

Continuous improvementsImplementing business process improvements throughout the organization, monitoring progress, and mitigating UDO creating behaviors.

Identify root causesUsing data analysis, assessing existing business processes, and understanding budget execution to identify commonalities and trends that contribute to problematic UDOs.

Remediate and recover UDOsImplementing remediation actions in the recovery of dormant UDOs in improving business processes, and enhancing the identification of re-use opportunities.

1. Dataanalytics 2. Identify

root causes

3. Remediate and recover

4.Continuous

improvements

CFOs should perform data analytics to learn more about their current posture. They can use the results of the data analytics to key in on the sources of issues. The types of gaps will drive the corrective actions that their Agency can implement. Lastly, the Agency can monitor the process to discover improvements.

Used effectively, this framework can help CFOs and other government leaders to gain deeper, more accurate business insights to inform decision making, better anticipate and respond to business challenges as they emerge, reduce cost through more accurate, data driven decision making, and create a culture that thrives on fact-based decisions and improved processes.

This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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Primary contactsChristina CanavanSenior Manager Deloitte & Touche LLP, +1 571 205 8985 ccanavan@deloitte.com

Jason CollinsManager Deloitte & Touche LLP +1 571 858 0897 jascollins@deloitte.com

Frances LegallManager Deloitte & Touche LLP +1 571 882 8427 flegall@deloitte.com

Eric RoseSenior Consultant Deloitte & Touche LLP +1 571 814 7993 erose@deloitte.com

Deloitte Federal CFO Insights are developed with the guidance of Roger Hill, Principal, Federal CFO Program Leader, Deloitte & Touche LLP; and Philippe Podhorecki, Manager, Federal CFO Program, Deloitte Consulting LLP

About Deloitte’s Federal CFO ProgramThe Federal CFO Program brings together a multidisciplinary team of Deloitte leaders and subject matter specialists to help Federal finance leaders stay ahead in the face of growing challenges and demands. The Program harnesses our organization’s broad capabilities to deliver forward thinking and fresh insights for every stage of a leader’s career — helping Federal CFOs manage the complexities of their roles, tackle their company’s or agency’s most compelling challenges, and adapt to strategic shifts in the market.

For more information about Deloitte’s Federal CFO Program, visit our website at www.deloitte.com/us/FederalCFO.