Business-style financial statements under the CFO Act: An examination of audit opinions

Is management in the public and private sectors similar or different? Can private sector management practices really be transferred into the public sector? These questions are examined through an analysis of the efforts of twenty-four federal departments and agencies to achieve unqualified audit opinions on agency-wide financial statements. The requirement for federal agencies to prepare business-style financial statements and subject these statements to independent audit was the centerpiece of the Chief Financial Officers Act of 1990 and the Government Management Reform Act of 1994. This dissertation examines how organizational factors and management strategies have affected the ability of federal agencies to meet these requirements and achieve unqualified audit opinions.; The relationship between audit opinions and certain organizational factors and management strategies is explored through extensive document reviews, interviews and case studies. The research examines audit results in connection with agency size, age, geographic dispersion, and organizational complexity; it compares audit opinions based on the relative “businesslikeness” of agencies; and it considers the relationship between audit opinions and selected financial management characteristics. Some organizational factors are found to relate to the frequency and distribution of audit opinions, but none is found to be an absolute barrier to success. Looking for other explanations for the differences in agency audit opinions, the research identifies six management strategies that are found in most agencies with successful audit histories and which appear to be missing in unsuccessful agencies. They are: leadership support, positive resourcing, partnering with auditors, cooperation with non-financial managers, extraordinary effort, and short-term systems solutions.; These findings have important implications for public sector administrative reforms that are based on the concept of applying private sector management models in government organizations.