By Wallick, Ruth
Government Finance Review , Vol. 10, No. 4
Over the years, the membership of the Government Finance Officers Association (GFOA) has approved more than two dozen "Recommended Practices" to be followed by finance officers in their application of the various disciplines involved in public finance. These Recommended Practices represent official GFOA policy positions and are designed to enhance and promote the professional management of governmental financial resources. They have been developed by the GFOA Standing Committees, approved by the GFOA Executive Board and adopted by the GFOA membership at the annual business meeting held in conjunction with the GFOA annual conference.
The year 1994 saw a continuation of this important GFOA activity. Five new Recommended Practices were approved by the membership at the association's 88th annual conference held in Minneapolis, Minnesota, in early June. They relate to practices in the areas of budgeting and financial management, cash management, debt management and pension administration. A brief explanation of the background and content of each of the Recommended Practices follows.
This Recommended Practice stems from the key role that the budget development process plays in developing and managing governmental services, programs and resources as efficiently and effectively as possible. It cites the importance of meaningful performance measurements in providing for governmental accountability, identifying financial and program results, and evaluating past resource decisions and facilitating qualitative improvements in future decisions regarding resource allocations and service delivery options. It calls for the development of performance measures relating to finances, services and programs, for their use as an important component of decision making and for their incorporation into governmental budgeting.
Eight performance measurement criteria are identified in the Recommended Practice. They relate to program goals and objectives, program results or accomplishments, comparisons over time, efficiency and effectiveness, reliability, verifiability and understandability. The criteria also include the need for internal and external reporting, monitoring and use in decision-making processes and the importance of limiting performance measures to a number and degree of complexity that will provide an efficient and meaningful way to assess the effectiveness and efficiency of key programs.
The Recommended Practice recognizes that considerable research with regard to performance measures has been done and that many governments are experimenting with such measures and their use. Although acknowledgement of their importance is growing, an accepted set of measures for services, finance and programs has not yet been developed. The GFOA recommends that performance measures be used by governments and identifies three levels of practices for performance measures:
* acceptable practice represents a level of practice required to do a proper job of performance measurements,
* current best practices consistently produce successful budget results, and
* developing practices are at the cutting edge that seem to offer potential for budget results.
Each of the practice levels is described in some detail.
Governments' Use of Derivatives
This Recommended Practice defines a derivative as a financial instrument created from or whose value depends on (is derived from) the value of one or more underlying assets or indexes of asset values. Pointing out that state and local governments are potential users of derivatives in their roles as debt, cash and pension fund managers, it gives a number of examples of derivative products.
GFOA urges government finance officers to exercise extreme caution in the use of derivative instruments and to consider their use only when they have developed a sufficient understanding of the products and the expertise to manage them. …