Enterprise Risk Management. Hardy Karen

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style="font-size:15px;">      Association for Federal Enterprise Risk Management

      PREFACE: MANAGING RISK IN THE CURRENT FEDERAL ENVIRONMENT

      It has been said that the only thing constant is change and the risks and opportunities that come with it. Over the past century, we have seen constant change in every aspect of life. Traditions that were once seen as mainstays and permanent fixtures in our society are now distant memories. Thanks to changes in technology and social norms, the ways in which we live and interact with our families, businesses, and communities continue on a path of rapid evolution. Key indicators of this change include simple, yet transformational events that we may have taken for granted. Consider the once-popular radio disc jockey; to a great extent, these announcers have been replaced by iTunes playlists. For many, the iPod has erased memories of the CD player, and books have been transformed into electronic delivery devices such as the Kindle. People by the millions are unplugging from telephone landlines and instead connecting with cell phones – allowing 24/7 access from almost anywhere in the developed and developing world. Telephone booths are now on display in museums rather than on street corners, and drones are fast becoming the next big delivery service. Even the system for manufacturing products has changed. With development of the new 3D printing technology, the use of factory assembly lines will no longer be limited to big car manufacturers in Detroit or Michigan. Rather, manufacturing will be personalized and accessible to ordinary individuals, such as doctors, dentists, and small business owners. On a larger scale, these individuals may soon be able to replicate and customize organs, tools, parts, and other products in minutes – and within the confines of their private garages and offices.

      Government is not exempt from this constant change, which produces both risk and opportunity. However, as agents of change, the federal workforce must be aware of the environmental factors that will influence the context in which agency risk and opportunity will be managed. These factors include, but are not limited to, the political environment, budgetary constraints, workforce culture, policies, and laws and regulations, to name just a few.

      ENVIRONMENTAL FACTORS

      When Theodore Roosevelt set the foundation of the Civil Service Reform Act of 1883, one of his presidential goals was to modernize, expand, and reform the federal government. This included establishing a hiring system for America’s workers based on fairness and equal access and protection.1 Certainly, Roosevelt considered the political environment as well as the risk that came with pursuing such lofty goals, yet the risk of not reforming the system would have meant forfeiting historic transformational opportunities.

      Based on a merit system, Roosevelt’s philosophy regarding government reform was based on three principles:

      • Opportunities should be made equal for all citizens.

      • Only those who have merit should be appointed to federal jobs.

      • Public servants should not suffer for their political beliefs.

      Under his leadership as both civil service commissioner and U.S. president, Roosevelt led efforts to investigate fraud and political abuse in government. During his administration, there was also great expansion of the federal government, including new laws protecting the health of Americans, regulating the pharmaceutical industry, and increasing the workforce. From 1901 to 1909, the federal workforce more than doubled, from 110,000 to 235,000 employees. That pales in comparison to the number of employees hired into the civil service system since the days of Roosevelt. However, the continuum of reform and modernization that began over one hundred years ago continues to resonate throughout government today. A snapshot of measurable changes can be seen in the employment trends impacting the federal service regarding age, salary, and education. As of September 2012, the federal government employed more than 2.6 million people in the executive branch versus 699,000 in 1940.2 By 2011, the average salary for all federal employees was $75,296, and cabinet-level agencies employed the majority of that workforce. As a whole, the federal workforce is growing better educated. The majority of federal employees have obtained at least a high school degree and nearly half at least a college degree.3 More than 40 percent of the employees added from 2004 to 2012 had at least a bachelor’s degree; an additional 53 percent had at least a master’s.4

      Policies, Laws, and Regulations

      In addition to seeing demographic changes, over the years since the Civil Service Reform Act the federal government has instituted many new policies, laws, and regulations that have redefined how our government works – most notably the passage of the U.S. Patriot Act, Chief Financial Officers Act of 1990, Government Performance and Results Act (GPRA) of 1993, American Recovery and Reinvestment Act (ARRA), and the Federal Manager’s Financial Integrity Act of 1982 (FMFIA). All were instituted to address and manage some level of risk and opportunity inside and outside the government. These and other policies, laws, and regulations have shaped the ways in which government operates and executes its internal day-to-day activities as well as monitors and regulates industry. Issuance of such policies also demonstrates the government’s political willingness and need to respond to changes in society as a whole. For example, in response to the Enron acts of fraud and abuse, the government created the Sarbanes-Oxley Act of 2002 (SOX), which President Bush signed into law on July 30, 2002. He characterized it as “the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt.” The Act mandated a number of reforms to enhance corporate responsibility and financial disclosures and to combat corporate and accounting fraud.5

      On February 13, 2009, in direct response to the economic crisis and at the urging of President Obama, Congress passed the American Recovery and Reinvestment Act (ARRA) of 2009 – commonly referred to as the “stimulus” or the “stimulus package.” Not long after that, the president signed the Recovery Act into law. The three immediate goals of the Recovery Act were to:

      • Create new jobs and save existing ones

      • Spur economic activity and invest in long-term growth

      • Foster unprecedented levels of accountability and transparency in government spending

      The Recovery Act intended to achieve those goals by providing $787 billion in:

      • Tax cuts and benefits for millions of working families and businesses

      • Funding for entitlement programs, such as unemployment benefits

      • Funding for federal contracts, grants, and loans

      Eventually, ARRA’s original expenditure estimate of $787 billion was increased to $840 billion. To achieve the goal of transparency, the Act required recipients of Recovery funds to report on a quarterly basis how they were using the money. Today, all the data affiliated with Recovery Act spending is posted on Recovery.gov so the public can track how the money is being spent.6

      A year after ARRA was passed, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law on July 21, 2010, by the Obama administration. The legislation set out to reshape the U.S. regulatory system in a number of areas, including but not limited to consumer protection, trading restrictions, credit ratings, regulation of financial products, corporate governance and disclosure, and transparency.7

      Culture

      While the demographics and policies of the federal

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