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IMA Study: Change Federal Costing to Improve Government Decisions

The federal government can improve internal management decision making by taking a new approach to understanding resources, processes, and, ultimately, costs, according to a new report by IMA® (Institute of Management Accountants).

Developed with input from IMA’s Strategic Cost Management Task Force, the report, “Improving Federal Costing for Better Decisions,” outlines how and why federal executives and managers should use IMA’s Conceptual Framework for Managerial Costing (CFMC), the first comprehensive accounting framework focused purely on creating cost information for decision support and optimization.

“There’s a significant opportunity for the federal government to better use cost information to make better management decisions,” said Larry R. White, CMA, CFM, CPA, CGFM, and co-author of the report. “This paper explores the shortcomings of the current federal approach and how the CFMC can be applied to more effectively serve taxpayers.”

For several decades, advances in financial accounting, reporting, and audit have not yielded improvements in the federal government’s ability to optimize their resources, the report finds. A primary weakness in the current federal approach is that the official audited report of cost data is not used for decision making or planning. Furthermore, federal systems are focused on reporting compliance rather than decision optimization.

Key recommendations
The report defines the principles, concepts, and constraints associated with creating cost information for internal decision support. It argues for applying the IMA CFMC to the internal decision making of managers in government operations with the following recommendations:

  • The federal government should go beyond the standards in Statement of Federal Financial Accounting Standards Four and require causal modeling to ensure that agencies use correct information for decision making.
  • The federal government should prescribe an analytical doctrine for decision-making information that departs from financial reporting and compliance regulations and places dominance on causality.
  • Federal financial and resource management doctrine needs to emphasize capacity management and optimization rather than expenditure control.
  • Budget protocols should be reoriented to causal cost, resource, and operational information.

You can read the full report on the IMA website.