A Look at Digitization and XBRL
There’s no greater picture of a government’s work than what’s represented in agency annual reports. Take the Comprehensive Annual Financial Report (CAFR), for example, on the local level. Short of driving on paved roads, enjoying clean water, or sending kids off to school in buildings with sound infrastructure, the CAFR presents the most accurate and meaningful representation of a local government’s service priorities and financial performance for the public.
Governments at all levels put out such a wealth of revealing information, but what is its external value if it’s not reaching people? How accessible is it to non-governmental readers? Can non-financial staff and residents decipher it?
From Paper to People
Annual financial statements are most commonly produced as PDF documents. “As a result,” explained Marc Joffe and Jacqueline Reck in a Mercatus Center working paper[1] around the topic, “the financial data included in these documents cannot be readily harvested and consolidated via an automated process.”
Cumbersome, manual extraction of information such as what is found in the CAFR can lead to dated and inconsistent information in required reports up the chain, which presents a barrier to truly useful analysis or comparisons. At a more basic level, information locked in static paper or PDF documents simply isn’t accessible to the average citizen, or even to decision-makers.
Important in our digital world, the movement to ensure that CAFR-type data is machine-readable will move information from paper to people. Machine-readable data holds tremendous power to transform numbers on paper into accessible, consumable, and actionable information. This, in turn, increases meaningful insight, drives public engagement, and facilitates smarter decisions around financial policy.
Evolving Standards
Focusing on the local level, to automate extraction of a CAFR’s data, experts such as Joffe and Reck are touting a move to structured text files such as those in eXtensible Business Reporting Language (XBRL). XBRL is not a software – it’s a standard in its own right that ensures data in a report can be easily imported into spreadsheets or databases and usefully analyzed. Cities can use open source or commercial software applications to extract and analyze XBRL-formatted data.
According to a session on the topic at GFOA’s last annual conference, thousands of companies in the U.S. use XBRL to report to the Securities and Exchange Commission. In Australia, all government and businesses use XBRL for a $1.1 billion annual savings through efficiency and insight.
Some states are already exploring standardization using XBRL. Legislation in Florida enables the CFO to build XBRL taxonomies for state and local government filings. Pending legislation in California forms a commission to explore transitioning municipal financial reporting to XBRL standard.
Information in Use
Once the digitization of the CAFR is realized, the next progression is digitalization. Although these words seem similar their meaning is quite different. While digitization is the conversion of information to a format that can be understood by machines, digitalization is the use of digital technologies and digitized data to change social, business, and economic behavior.
Machine learning, robotic process automation, advanced analytics, cognitive computing, and blockchain technologies will be a catalyst for this digitalization. Predictive models can help identify fiscal stress and provide suggested action. Financial information can be communicated in a way that is easily understood by people even without financial backgrounds. The information can be shared in real-time to auditors and regulatory agencies, and it can be obtained by having conversation with machines.
From this digitalization, stakeholders—from elected leaders to community members and regulatory agencies—can better understand a government’s information, and faster. Analysis itself is less expensive, and leaders can more easily compare their jurisdiction’s performance against that of other locales.
All government leaders should think about how they can create more useful and usable CAFRs and other financial reports, with an eye toward digitization.
[1] Marc Joffe and Jacqueline Reck. “Applying XBRL to US State and Local Government Audited Financial Reports.” Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, January 2019.
Meredith Trimble is a GovLoop Featured Contributor. She is a former municipal official and Town Council Acting Chair, who focused on strategic planning, annual budgeting, and bonded infrastructure projects. Her government experience also includes posts in both federal and state-level executive branch agencies: Associate Editor of the U.S. Federal Election Commission’s FEC Record; and Director of Education for the CT Office of State Ethics. In her current role as a Senior Content Specialist with Tyler Technologies, Inc., she writes content to help empower those who serve the public. Her current focus is to help facilitate data-enabled organizations as well as to create connections between governments and those they serve. You can read her posts here.
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