GFOA Budget Criteria: USDA 2016 Document Analysis

Introduction

The Government Financial Officers Association (GFOA) publishes criteria for awards that it uses as a means of encouraging government agencies and their financial officers to improve the caliber of their financial reports. In the private sector, consistency and usefulness in financial statements is enforced through accounting standards set by a regulatory body, to which all publicly traded companies must adhere. There is no government equivalent with respect to financial reporting. The GFOA awards are one of the only mechanisms by which some consistency in government reporting is achieved. The awards approach the issue by defining best practices that government agencies can apply to their financial reporting. In order to analyze a budget according to the GFOA criteria, the budget for the U.S. Department of Agriculture (USDA) will be used, as this document served as the basis for a prior budget analysis.

Background on GFOA Budget Standards

The call for greater consistency and higher quality in government budget documents arose in the 1990s. The high degree of variance in the quality of government budgets was failing to meet the needs of relevant stakeholders. Government budgets serve many different stakeholders, both internal and external. Because there was no conceivable means by which consistency could be externally enforced, a solution was developed to generate internal comparables—best practices—and a set of criteria against which budgets could be evaluated. At a minimum, this would provide governments with a clear understanding of what a budget document should contain (Lehan, 1996). By setting standards and positive examples, the GFOA sought to improve the quality of public budgets and raise the bar for professionalism in governments both large and small (Rivenbark & Allison, 2003).

Today, budget documents have improved as a result of these efforts. In some cases, public budget documents have become marketing tools—a means by which valuable information about government activity can be communicated to external stakeholders, and in particular to voters (Zavattaro, 2013).

The USDA 2016 Budget as an Operating Document

The USDA 2016 budget is an operating budget. It is produced annually, which is one of the defining characteristics of an operating budget, and is intended to show the inflows and outflows associated with the agency's operations for the coming fiscal year.

GFOA Criteria Applied to the USDA 2016 Budget

The USDA's 140-page budget document contains many of the essential elements prescribed by the GFOA, but not all. One of the noteworthy aspects of the GFOA framework is its argument that a budget should contain an explanation of the organization, its background, and its missions. This creates an orientation within the agency toward management by objectives—it must demonstrate to stakeholders that specific expenditures have helped achieve specific goals (Holliman & Bouchard, 2015). The budgeting method is therefore tied to management style, and the degree to which an agency adheres to GFOA prescriptions may reflect its overall approach to administration.

The opening pages of the USDA's budget document describe what the organization is, how it is structured, and what its mission and vision statements are. The document explains that the USDA encompasses several different missions and is organized accordingly. Within any given mission, multiple individual units or agencies may be operating. The major missions and mandates of the USDA include farm and foreign agricultural services, rural development, food nutrition and human services, food safety, and several others. The USDA's operations are explained both in terms of its missions and in terms of these major agencies, and presenting the organization in multiple ways enhances understanding for all stakeholders.

The USDA 2016 budget contains mandatory elements such as a table of contents and page numbers. As noted, the document also includes strategies and non-financial goals. There is no dedicated section for "short-term factors," but these are discussed individually for each mission and agency in the appropriate section. Within the document there is sufficient information to identify the major short-term issues the agency faces. For example, on page 10 the document discusses short-term efforts to prevent foodborne illness, which is one of the USDA's major mandates. Such efforts affect the budgeting process because they may represent temporary spending increases tied to a specific programmatic goal.

Budget priorities are included in the document, outlined in terms of the missions and mandates the USDA is pursuing. New expenditures are thus explained in the context of the agency's spending priorities for the coming fiscal year. Each relevant section also discusses the priorities for specific USDA mission categories. The information may not always be easy to locate, but it is present when the full text is examined.

There is only limited discussion of the trends underlying the budget. The word "trends" appears only a few times in the document, and assumptions are not always made explicit. This appears to be a weakness: the logic behind budget numbers and forecasts is not consistently explained. Greater transparency with respect to assumptions would add considerable value to the document.

The 2016 document does not contain an organizational chart. Prior editions—such as the 2014 budget—did include one, so the 2016 document represents a step backward in that respect. The sections describing different departments within the USDA are also thinner on detail than those in the 2014 version. There is, however, adequate description of the financial structure of the organization, including a breakdown of which expenses are mandatory and which are discretionary—typically an important element of a U.S. federal budget. While there is no graphic illustration of the relationship between departments and funds, those relationships are described in prose. Each department has its own dedicated section discussing its programs and finances, which provides sufficient transparency.

Another element the GFOA looks for is an explanation of the basis of budgeting, and this is not present in the 2016 document. The budgets are presented, and there is ample discussion of the strategic decisions that led to changes in budget line items, but there is no dedicated discussion of the methodology used to prepare the budget. It can be inferred that the budget is prepared on a cash basis, as there do not appear to be line items reflecting accrual accounting. The financial statements use modified accrual techniques—primarily cash-basis accounting, with provision for depreciation and other non-cash items—but the 2016 document does not contain audited financial statements. The 2014 document included both those statements and a full copy of the auditor's report, making their absence from the 2016 document a notable omission.

There is no statement of financial policies, either presented together or distributed throughout the document. No definition of a balanced budget is provided. The budget process is also not outlined anywhere. The 2016 USDA budget document therefore does not meet the GFOA criteria with respect to budget process.

As noted, prior years' documents included financial statements that outlined the financial structure at both the agency and aggregate levels; neither is provided in the 2016 document. This again fails to meet the GFOA criteria for a consolidated financial structure. Multi-year financial projections are also absent. Two years of historical data (2014 and 2015) are provided alongside the 2016 fiscal year budget, but there are no projections beyond the current year. Outlays are explained, but fund balances are not. This leaves unclear where revenues for each agency originate. Some information about budget authority and user fees is present, but readers are left to piece it together themselves.

There are no quantitative performance measures, though there is qualitative discussion of performance at both the USDA level and the individual agency level. This gives stakeholders some basis for evaluating performance, but it falls short of a rigorous performance plan. The document does include a glossary and several charts—particularly pie charts and bar graphs—from which trends can be extrapolated.

The overall layout of the document makes it difficult to follow. Pages are formatted consistently, but the main organizational structure is counterintuitive. A more readable structure would begin at the organizational level and then present each agency in individual chapters. Instead, the report is structured around outlays, budget authority, and similar categories broken out by agency, which makes it harder to develop a comprehensive view of any single agency's finances and performance. For a performance plan, the document does not contain nearly enough information to help an external stakeholder assess this entity relative to its budget.

References

GFOA (2016). Distinguished budget presentation award program. Government Financial Officers Association. Retrieved January 10, 2016 from http://www.gfoa.org/budgetaward

Holliman, A. & Bouchard, M. (2015). The use of management by objectives in municipalities: Still alive? Review of Public Administration and Management.

Lehan, E. (1996). Budget appraisal: The next step in the quest for better budgeting? Public Budgeting & Finance, 16, 13–20.

Rivenbark, W. & Allison, G. (2003). The GFOA and professionalism in local government. Journal of Public Budgeting, Accounting and Financial Management, 15(2), 228.

USDA 2016 Budget Summary and Annual Performance Plan. Retrieved January 10, 2016 from http://www.obpa.usda.gov/budsum/fy16budsum.pdf

Zavattaro, S. (2013). Exploring how U.S. cities use budget documents as marketing and public relations tools. Place Branding and Public Diplomacy, 9, 31–47.