KPMG GOVERNMENT INSTITUTE The Future of Government Financial Reporting: Where Do We Go From Here? AGA Baltimore Chapter AUDIT Andrew C. Lewis, CPA, CGFM, CIPP/G Partner, KPMG LLP February 17, 2016

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Is a discussion on the future exciting? 1

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Or does it invoke fear and worry? 2

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. For me, the future is a little more like this... 3

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What does financial reporting look like today? 4

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. A Comparison of Reporting 5 State and Local Government Reporting Federal Government Reporting FrameworkGASB 34OMB Circular A-136 Frequency for external users Annual Basis of accounting Full accrual; modified accrual; budget-based Full accrual; budget-based Level of detailVery detailed – Individual fund level Limited – summary only Example length of annual report ~150 pages (City of Baltimore 2013 CAFR) ~250 pages (SSA 2015 AFR) Derived value/performance reporting NoneLimited

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What does the future of financial reporting look like? 6 What words do you think describe the future state of government accounting and auditing?

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? 7 Incredible advancements in technology and computing power

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? 8 Availability and instantaneous access of data

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? 9 Availability and instantaneous access of data

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? 10 Tools to visual and manage data

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? Unsustainable current budget deficits and long-term fiscal paths 11

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the accelerators of change? 12 Considerable gulf between public expectations and its view of government performance Choices between wants and needs in the context of value and affordability Structured consideration of costs and benefits

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 13 Establishing Long-Term Sustainability: Daunting Choices and Shared Sacrifice Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 14 Attacking the Fiscal Crisis: What the States Have Taught Us about the Way Forward Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the obstacles of change? Skills gaps among current and future workforce 15

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the obstacles of change? Costs of modernization and finance transformation 16

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What are the obstacles of change? Pace of change of accounting and auditing standards 17

How can you prepare ?

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved Move from the “backroom” to the “board room” Create Value? Preserve Value?

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership The KPMG Executive Guide to High Performance in Federal Financial Management Available at institute.htmlhttp:// institute.html 20

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2. Help create the next generation of government financial managers 21 Preparing for a new workforce Adopting a human capital framework – Organizational alignment – Workforce analysis – Addressing KSA gaps – Attracting and attaining highly skilled workforces

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 22 Paving the Way for the Next Generation of Federal Financial Managers to Answer the ‘Call to Duty’ Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3. Enhance financial management systems 23 Continuing big advances in information technology Shared services Data standardization Centralize systems Simplification Cloud solutions Integration with program and enterprise systems Elimination of one-off and cuff systems Information as an asset

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 24 Shared Finance Services and Standardization: Can One Size Fit All? Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4. Back to Basics – Effective and efficient internal controls 25 Technology driven – more effective, more agile, more efficient Common systems and control platforms Cyber an ever bigger deal ERM focus – Risk appetite – Highest risks – Cost / benefit considerations Continuous monitoring Greater accountability

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 26 Don’t Delay—The Time Has Come to Use the Full Potential of Enterprise Risk Management to Reduce Cost and Enhance Program Delivery Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5. Embrace the age of ‘digital’ auditing 27 Modernizing financial statement audit procedures using ever more high-powered business intelligence and data analytic tools to continuously audit higher-risk transactions as they are recorded Challenges include: – Getting access to data – Data integrity Benefits include: – Enhanced effectiveness – Additional business insights – Greater efficiency – Better detection of fraud, waste and abuse

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Related thought leadership 28 Digital Auditing: Modernizing the Government Financial Statement Audit Approach Available at institute.html and institute.htmlwww.agacgfm.org

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. What’s your view of the future now? 29

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 30 About the KPMG Government Institute The KPMG Government Institute was established to serve as a strategic resource for government at all levels and also for higher education, and nonprofit entities seeking to achieve high standards of accountability, transparency, and performance. The Institute is a forum for ideas, a place to share leading practices, and a source of thought leadership to help governments address difficult challenges, such as effective performance management, regulatory compliance, and fully leveraging technology.

© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 31 Contact information Andrew C. Lewis, CPA, CGFM, CIPP/G Partner, KPMG LLP Executive Fellow, KPMG Government Institute (202) institute.html The views and opinions expressed herein are those of the author and do not necessarily represent the views and positions of KPMG LLP. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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