State Auditor recommends financial management reforms

January 4, 2013

After 20 years in office it is no surprise to see retiring State Auditor Brian Sonntag continue to fight for good government reforms up to his last day.

Yesterday Sonntag released his final annual report highlighting the need for ongoing open government reforms as well as a performance audit recommending improvements to the way Washington State Ferries contracts for ferry construction.

The State Auditor's Office is also working on a performance audit for release in 2013 that "focuses on the risks and costs associated with trying to maintain the state's outdated and inadequate information technology legacy systems related to financial management."

Sonntag mentioned this pending performance audit in a November 19, 2012 letter to Governor-Elect Inslee:

I'm writing today to urge you to carefully consider the future role of the Office of Financial Management. The state is a large and complicated organization. Comparing it to the private sector, its revenue fall in between those of Microsoft and Amazon.com. Yet, state government operates without the benefit of clear, strong financial management. It is at a crossroads. It needs strong enterprise-wide financial management, but that is not part of our current culture of way of doing business . . . I'm attaching a short research paper we prepared to address the opportunity that awaits you.

From the SAO research paper sent to Inslee:

The state's financial management system provides effective stewardship over public resources. This includes accounting for public funds and safeguarding assets. However, its core financial system was put in place in 1984 and its enabling legislation was passed in 1959, providing OFM with primary responsibility for administering the state's financial management system. OFM has established policies and procedures that push much of this responsibility down to individual state agencies. Consequently, the state lacks strong centralized financial management . . .

To address these challenges, I urge you to:

  1. Consider expanding the role of the OFM Director to modernize how the state does financial management.

  2. Work with the Legislature to gain financial support for the replacement of the state's legacy systems.

  3. Establish long-term statewide strategic and financial plans that reflect the priorities and expectations of the citizens.

The research paper goes on to say:

Modern systems and the information they generate are critical to the new administration's LEAN management initiative, which requires data analytics the current systems do not support. Current systems also do not support the state's budgeting process. State law (RCW 43.88.090) requires agency budget requests to include performance measures to be used by OFM to objectively assess each agency's success in achieving its goals. Although OFM is supposed to consider this success when it reviews agency budget requests and prepares the Governor's proposed budget, the state's current systems cannot readily produce this performance information. It does not have the capacity to provide robust information necessary to support policy and decision making like the cost of products and services and other measures of performance. 

OFM has submitted decision packages to modernize the state's budgeting and accounting system in consonance with its biennial budgets; those packages have to date not been approved or funded by the Legislature.

As noted by Sonntag, this problem is known by OFM and the agency has attempted to secure the funding necessary to bring Washington's financial management system into the 21st Century. With the budget challenges of the past few years, however, spending operating funds on financial management tools has lost out to Legislative priorities on other programs in social services and education.

This is why Washington Policy Center has been meeting with OFM, SAO and lawmakers encouraging them to treat the need to improve the state's financial management system as a capital expense versus operating and use the capital budget to move these system upgrades forward.

Hopefully the performance audit to be released later this year will help make that case for policy makers. 

Sonntag concluded his paper to Inslee saying:

The state's fiscal challenges are expected to extend to at least the 2015-17 biennium. If the state continues to budget without the use of state-wide strategic and long-term financial planning, it cannot adequately manage its risks and assure sustainable services.