Digital Financial Reporting

Are you ready for the "digital switch-over" for U.S. federal grant reporting?

The Data Foundation published the following report which is excellent information: Transforming Federal Grant Reporting: Open the Data, Reduce Compliance Costs, and Deliver Transparency. You can read most of the report on that link or you can provide your email address and download an easier to read PDF.

Here is my synopsis: The report describes the flaws in the existing document-centric federal grant tracking and management system and how an open data standard, such as XBRL, can both increase transparency within the system and reduce costs of compliance with federal grants and of operating and managing the system.

This is a description of the report provided by the Data Foundation:

In this report, the Data Foundation describes the flaws with the federal government’s current document-based grant reporting system and envisions an open data future for the way grants are tracked and managed.

The federal government continues to rely on outdated, burdensome document-based forms to track $662.7 billion in annual grant dollars - but open data could transform the system. Adopting a government-wide open data structure for all the information grantees report would alleviate compliance burdens for the grantee community, provide instant insights for grantor agencies and Congress, and enable easy access to data for oversight, analytics, and program evaluation.

The report explains that the grant reporting system is broken, in two distinct ways: first, it does a poor job of delivering transparency to agencies, Congress, and taxpayers; and, second, grantees sustain unacceptable costs of compliance. Replacing documents with data could address both problems.

Open data or structured information or XBRL-based information or whatever you want to call it is a very good idea. Imagine an "EDGAR"-type system (i.e. the SEC repository of public company financial information in XBRL) for all federal grants.  Imagine the ability to query that information using automated processes.  Imagine a similar system for the financial reports of state and local governments.  Think of the transparency offered to voters, government leaders, economists, financial anslysts, etc.  This can work.  The XBRL-based financial reports public companies are creating and submitting to the Securities and Exchange Commission are beginning to prove that.

The document points out that by replacing document-centric reporting with data-centric reporting using open data, "the government of Australia saves Australian companies over $1 billion annually, because the companies’ software can automatically generate and submit regulatory reports to multiple government agencies at once."

Undoubtedly, federal grant reporting will be part of the "digital switch-over".

So ask yourself some questions:

• What technical format will be used for all this "open data"?  Will it be XBRL-based open data or will it be some other technical format such as the Semantic Web Stack of technologies? Does it matter?  Should you have an opinion?
• Let's say that whoever is responsible for making that decision, I think it is the U.S. Treasury Department, picks XBRL.  What technical architecture will they use for XBRL? Will they use the Standard Business Reporting (SBR) architecture employed by the governments of Australia and the Netherlands?  Or, will they use one of the XBRL implementation styles of the US SEC, UK HMRC, or ESMA? Which is best? Why is it best?
• Who is going to create that "comprehensive taxonomy" that describes all of that open data?  Professional accountants maybe?  They are the ones that created the US GAAP XBRL Taxonomy and the IFRS XBRL Taxonomy.  How good are the US GAAP and IFRS XBRL Taxonomies?  Who decides how "good" they are?  The publishers of the taxonomy?  The users of the taxonomy?  How do you measure "goodness" of the taxonomy?
• Do you, or other professional accountants, have the appropriate skills for creating that comprehensive taxonomy?  Do you have the knowledge to even have an opinion as to how good a taxonomy is?  What skills or experience provided you with that knowledge?
• Will "open data" work?  How exactly do you know it will, or will not, work?  Was enough testing done to make sure that open data will work?  There are quality issues with the XBRL-based financial reports created by public companies.  Will those same issues be repeated in federal grant reporting, or will the issues be fixed?
• How well is open data really working in Australia and the Netherlands?  What public information exists to figure that out?

What is my point?  My point is that it is one thing to have a good idea.  It is another thing to actually implement that idea and make it work.  There is no magic here.  It takes skills, knowledge, good engineering practices, testing, attention to detail, domain knowledge, and other such things to make open data work the way we will want it to work.  In fact, it takes those same skills to decide and specify how it should work.

Ask yourself a question: Do I have the skills I need to do accounting, reporting, and auditing in the digital age?  What are those skills? How do I get the right skills.