Most state and local governments have achieved clean audit opinions, but a new poll of state finance officials found that implementing the Affordable Care Act and funding the pension costs of current and retired employees are among their biggest ongoing challenges.

The survey, by the National Association of State Auditors, Comptrollers, and Treasurers, the Association of Government Accountants, and Grant Thornton LLP, polled 271 state and local government financial leaders in 42 states, including 38 senior state executives, between April and July 2013. The majority of the financial leaders said their governments have already achieved clean audit opinions, and most believe it unlikely they would lose those clean opinions.

“Not only do state financial executives see value in a clean audit opinion, but they believe their state agency heads also see that value,” said NASACT executive director Kinney Poynter in a statement. “These clean opinions help with bond issuances and demonstrate to the federal government, state legislatures and citizens that government is meeting its financial reporting requirements.”

The survey asked about organizational capabilities and risks facing financial leaders, with respondents indicating that personnel issues remain one of their top challenges, along with revenue and technology.

“Health care has become terribly challenging to state and local financial leaders, especially implementing state responsibilities under the Affordable Care Act,” said AGA executive director Relmond Van Daniker. “These financial leaders also worry about pensions, both pensions for the current workforce and funding for the trust funds that finance retiree pensions.”

Survey respondents indicated that revenues may be returning to pre-recession levels, but cost cutting is an ongoing challenge. Sequestration is just beginning to have an impact, reducing badly needed federal support to states.

“These state and local government financial leaders are often forced to use across-the-board cost-cutting techniques, even while they realize that these techniques are not effective,” said Srikant Sastry, managing principal of Grant Thornton’s Global Public Sector. “Many state and local governments still have a way to go before they can adopt a more effective, strategic cost management approach.”

The survey revealed untapped potential in further developing the strategic capabilities of state and local government financial organizations. Nearly all the survey respondents agreed on the need for more analytic talent to deal with the mountains of data they face. About half the survey respondents said they have expanded the scope of their internal control programs to include operational and programmatic risk.

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