Why Trust and Transparency in Local Government Can't Wait
In my recent blog posts, I’ve written about visionaries in state and local government who are using technology to reshape their public sector financial reporting. They’re connecting their teams, so they can work smarter—automating processes to save more time and increasing insight into their data to make better decisions.
Even with those new, streamlined processes, leaders in government finance must still overcome a huge challenge: how to build trust and transparency in their work. The public’s trust in the federal government hovers around 17%. While it’s substantially better at 63% at the state level, that still leaves a lot of room for improvement.
When it comes to trust, they say "numbers don't lie." But, it can be difficult for financial reporting managers to even find the numbers when dealing with a tsunami of data. Interesting fact: IBM has said 90% of the world’s data was created in the last two years.
Even if government finance teams could sort through all that data, it doesn’t mean that leaders, elected officials, and constituents understand it—or even believe it. We live in an era where what’s true or what's real is constantly in question.
In light of all of that, how can state and local governments build trust and transparency in their work?
The key is communicating context and building consistency around the financial data that drives decisions.
Providing the meaning behind the numbers and offering a narrative people can understand—paired with standardized, universally accepted definitions—help to create context for data. Standardized reporting processes, which pull from a centralized, single source of data and deliver it in a predictable and regular time frame, builds consistency.
Both communicating context and building consistency start with the right technology.
Create context with XBRL
One way state and local governments can build context around data is helping people see behind the numbers so they can understand where they come from and what they mean. Extensible Business Reporting LanguageTM (XBRL®) does just that. Used around the world, the XBRL format provides a standardized way to tag each piece of financial data so it’s clear, testable, easy to share, machine-readable, and independent of any one platform.
The Securities and Exchange Commission (SEC) requires all publicly traded companies to submit financial statements using XBRL tags. It’s not required for state and local governments—but it's on the way. Almost all state and local governments still use PDF formats to file their annual financial reports. The static nature of a PDF means that if you want to analyze data in a file, or across a group of files, you must first rekey all that data into a spreadsheet. That’s a huge barrier not only to accessing the data but understanding it as well.
Florida has passed legislation that eventually will require local governments to submit financial reports in XBRL format. That means more context and greater insight for decision-makers and constituents in those states. It is not hard to imagine another handful of states following suit, especially considering that the federal government is also moving in this direction.
In the private sector, Workiva is the XBRL market leader. More SEC XBRL facts are filed through Wdesk than any other software platform. Workiva understands the complexities associated with XBRL taxonomies and their application, and Workiva also supports the value that XBRL adds to the context and usability of financial reporting.
As an interesting side note, Will County, Illinois, is the first government in the nation to officially publish AI-enabled financial data. While there is not currently XBRL legislation in Illinois, Will County is out in front leading the XBRL charge.
"We are doing this because we want our financial performance to be easily comparable, and even automatically comparable, across time and against other governments. With software automatically able to illuminate and challenge and risk, we are more accountable to our citizens and financial markets," said Will County Auditor Duffy Blackburn.
Build consistency with connected reporting
The traditional financial reporting process for state and local governments involves pulling data from dozens of sources, manually checking for errors, and struggling with clunky reporting templates. That outdated process creates inconsistencies, increases risk and that, ultimately, generates distrust.
The rise of connectivity and standardized processes eliminates time-consuming, difficult work traditionally associated with reporting, while building context and consistency around financial data. Connected reporting automates the collection of data from different sources into a centralized location where it can be managed as the single source of truth. Then that data can be applied to a full range of financial reports using repeatable processes.
The connected reporting cycle maintains data integrity and allows financial teams in state and local governments to share information in a reliable format that facilitates analysis and supports consistency—all of which builds trust and transparency. It’s a win, win, win.
Some visionaries in local government budgeting and finance are already a part of the connected reporting revolution. They’re using municipal government software solutions to build trust and transparency by supporting consistency in their process and providing context to their data and financial reports.
Trust and transparency is good for everyone
All stakeholders benefit from greater trust and transparency generated by connected reporting. Report production times and error rates are reduced. Teams can focus on more value-added, engaging work. Government leaders gain greater insight, so they can make more-informed decisions on behalf of their constituents.
Connected reporting helps the bond market, too. When state and local governments need funding for infrastructure projects, they borrow money from the municipal bond market. To borrow, they must provide a financial disclosure often with information included in the annual comprehensive financial report (ACFR). Delays and errors created by rekeying data can lead the market to make inaccurate assessments about a municipality’s financial fitness and, therefore, their ability to borrow for civic improvements. ACFRs that are standardized and machine-readable would make it easier for bond market analysts to get faster, more accurate data that they can use to make better investment decisions.
More-informed government leaders and citizens, smarter municipal investments, and greater trust in government all starts with connected reporting. And, these things all support the ultimate goal for government: better service for constituents and greater stewardship of tax dollars.
Extensible Business Reporting LanguageTM and XBRL® are trademarks of XBRL International, Inc. All rights reserved. The XBRLTM/® standards are open and freely licensed by way of the XBRL International License Agreement.