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Transparency is a worthwhile goal, but before your state or local government puts financial information on the internet, consider the risks as well as the benefits.

Governance

The Pros and Cons of Publishing Government Financial Data on the Web

  • Lance Schmidt
  • Hannah Erickson
  • 6/20/2018

Financial transparency for governmental agencies is important because people want to know where their tax dollars are going.

Public records laws require that any non-sensitive information be provided when requested, and financial statement disclosures mandated by standard-setting bodies contain information that inquiring citizens find helpful. Just the same, many state and local governmental organizations are taking transparency a step further and maintaining websites and databases with detailed, specific financial information at the transaction level. Anyone with an internet connection can easily access this data.

For example, several large municipalities, such as San Francisco (SF OpenBook), New York City (Checkbook NYC), and Denver (Transparent Denver) operate websites that provide payment, contract, and budgetary information. These databases are updated daily and include menus and search bars for easy navigation.

At first glance, this extra level of transparency seems highly beneficial to both governmental organizations and the populations they represent. There are, indeed, several substantial benefits to undertaking this effort, but there are also costs and risks. If your state or local government is considering a similar public website, weigh the pros and cons carefully before you move forward.

Benefits of publishing government financial data

Greater transparency may help foster better communications and improve time management. Publishing financial data on a public website has a number of crucial benefits:

  • Communicates a standard of accountability — A government’s willingness to voluntarily publish its financial data and documentation conveys a level of trustworthiness, to those who do and do not utilize the information. It may improve public perception of the reporting entity’s accountability and openness, on a scale wider than just potential users.
  • Reduces records requests — If financial reports, payment and vendor information, and documentation of procurement processes are routinely updated or posted, document requesters can be referred to the website. This will likely reduce the number of records requests and the related time that government employees spend fulfilling them.
  • Extends existing information to a broader audience — The majority of governmental reporting units create and customize routine reports for board and finance committee meetings that summarize financial performance in a user-friendly format, even for those without a strong financial background. These reports already exist and could provide benefit to an audience that also already exists. A website for publishing the information provides the missing piece: a platform to deliver the information to the audience.

Costs and risks of putting government financial data on the internet

Voluntarily publishing additional government financial data on the internet also comes with certain risks and costs:

  • Increases exposure to fraud — Making vendor invoices publicly available provides a template for someone looking to submit fraudulent invoices to a governmental entity. This not only includes vendor documents, but internal documents as well, such as purchase orders and contractual templates that facilitate a more thorough fraud scheme.
  • Adds time requirements for effective review — The possibility for human error exists in all systems, and a transparency platform has the potential to highlight them if proper and timely systems of review are not in place. If financial information is being uploaded on a daily basis, this also means that it must be reviewed on a daily basis to ensure that any errors can be corrected before they are made available to the public.
  • Heightens susceptibility to public scrutiny — Increased availability of any information is likely to draw in new attention. More value for less effort is universally appealing. If citizens were previously unaware of procurement policies or other such behind-the-scenes decision making processes, the level of scrutiny applied to governmental decisions may increase with a better informed population. And though a more informed public can be considered a positive, those unfamiliar with these matters may bring more questions and scrutiny based on uninformed conclusions.

No one-size-fits-all answer

Determining if your government organization should add an additional level of financial transparency is contingent on several variables. How much time do your employees spend fulfilling disclosure requests? How much time would it take to keep a publicly available financial database current and complete? Does this create any fraud risk for the organization? How much information is being internally generated and compiled that would be externally useful?

The answers to all of these questions depend on populations, growth rates, demographic concentrations, organizational goals and projects, and the general level of scrutiny of the represented citizens. To strike the right balance, analyze these factors, identify the needs of the public, and find effective and efficient ways to meet them.

How we can help

CLA’s state and local government professionals understand the critical importance of accurate financial data, both to your governmental agency and the public you serve. We can help you compile and report your information and be confident in sharing it with an engaged citizenry. We can also help assess your risk of exposure to fraud and implement efficiencies that facilitate the level of transparency you wish to achieve.