Inspired by GFOA's Vision for Next Generation Financial Reporting

The GFOA highlighted a major problem with current financial reporting - ACFR’s take a huge amount of resources and are not delivered until roughly 6 months into the next fiscal year. The reason for this is often the rigor needed to validate the data. 

You’ve probably heard the expression: “Garbage in, garbage out.” It’s a phrase often used to explain how poor-quality data leads to poor-quality outcomes. But here’s the reality—sometimes you have to start with the garbage to understand what to clean. For local governments, financial data is often messy, fragmented, or incomplete, yet it remains the foundation of trust, decision-making, and transparency.

In its Next Generation Financial Reporting framework, the Government Finance Officers Association (GFOA) lays out how local governments can transform their data, leveraging validation and technology to clean, analyze, and optimize for better insights. And thus, reducing the labor required to generate their annual report.

In this blog, we’ll explore:

• Where critical financial data comes from,
• Why validation is key to trust,
• How emerging technologies are reshaping reporting, and
• Practical ways governments can turn messy data into actionable, audience-specific insights.

Four Key Data Sources for Financial Reporting

The GFOA identifies four foundational sources of data for next-generation reporting:

1. Audited Financial Statements
   These remain the gold standard for third-party validation, offering stakeholders confidence in the accuracy and reliability of reported figures.
2. Periodic Financial Reports
   Often produced for internal management, these reports provide real-time insights into the financial health of a government. They can also form the backbone of more frequent external reporting, bridging the gap between annual reports and ongoing decision-making needs.
3. Budgets and Long-Term Financial Plans
   Budgets and plans tell a forward-looking story, highlighting how resources are allocated and how well financial activities align with long-term goals like infrastructure development or community services.
4. External Data Sources
   Complementary data—such as demographics, economic trends, or climate risk metrics—can provide valuable context, helping governments anticipate challenges and assess performance against broader benchmarks.

The Importance of Validation

Most of the key data sources come from the Government ERP system. But when that data is messy or incomplete, how do you turn it into something reliable and actionable?

It must be trustworthy, validated, and actionable. As the GFOA notes:

“Finally, we should not overlook first-party validation (self-monitoring) or second-party validation (internal auditors). Using standardized self-check methods or algorithms could show audiences that a baseline standard of first- or second-party validation is in place.”

Validation ensures that stakeholders—whether bond analysts, elected officials, or the public—can trust the insights drawn from financial data. Here’s how different types of validation contribute to this trust:

• First-Party Validation: Self-monitoring techniques, such as automated exception monitoring, catch issues like discrepancies, duplicate payments, or unusual trends early in the reporting process. The Institute of Internal Auditors would classify this as first or second line of defense mechanisms.
• Second-Party Validation: Internal auditors play a crucial role by ensuring compliance and evaluating the effectiveness of controls throughout the year, reducing the risk of surprises during external audits.
• Third-Party Validation: External auditors provide independent assurance, validating that financial data aligns with established standards.

The GFOA emphasizes that leveraging tools like exception monitoring—which flags performance that deviates from acceptable limits—can make the validation process both faster and more efficient.

Emerging Technologies in Financial Reporting

Technology is transforming financial reporting, enabling faster, more accurate, and more personalized insights. For instance, the GFOA highlights the use of AI and machine learning to identify risks and anomalies:

“Using AI tools could be used for other elements of the process. For example, machine learning algorithms can be used to recognize patterns that suggest irregular or fraudulent activities.”

Key applications of analytics and AI in financial reporting include:

• Fraud Detection: Machine learning algorithms can scan transactions to flag unusual patterns or behaviors indicative of fraud.
• Exception Monitoring: Analytics and AI can continuously monitor data for deviations from predefined standards, ensuring early identification of potential issues.
• Custom Insights: By analyzing vast datasets, analytics and AI can create personalized reports tailored to the needs of different stakeholders, from elected officials to department leaders.

As financial reporting evolves, technology will continue to play a critical role in making data more actionable, timely, and transparent.

Why This Matters: The Shift to Continuous Reporting

For decades, local governments relied on annual reporting as the primary mechanism to share financial performance. However, stakeholders today demand timely, ongoing insights.

By pulling data directly from ERP systems and external sources, this vision enables a shift to:

• Timely Financial Updates: Move from annual PDFs to real-time dashboards, or a clean spreadsheet.
• Risk Monitoring: Identify risks early using periodic reporting and external data.
• Outcome-Based Insights: Go beyond numbers to measure the impact of spending on infrastructure and services.

Unbundling and Tailored Insights

The GFOA envisions a future where financial reports are no longer one-size-fits-all. Instead, they are “unbundled” to meet the unique needs of diverse audiences:

• Elected Officials: High-level summaries with actionable insights presented through visual dashboards and charts.
• Management: Receives timely email notifications of irregularities and quicker methods of reporting.
• Internal Auditors: Detailed data with clear audit trails to evaluate controls and ensure compliance.
• The Public: Easy-to-understand visuals and explanations that build trust and transparency.

This modular approach not only makes reports more accessible but also ensures that stakeholders get the information they need—when and how they need it.

ThirdLine has been quietly waiting for this moment

At ThirdLine, we provide the tools to help local governments tackle these challenges and align with the GFOA’s vision:

• Data Integration: We connect seamlessly with ERP systems like Tyler Munis to extract and unify financial data. We aim for less than 2 hours of your time, and 2 weeks.
• Validate with Automated Exception Monitoring: Our platform flags anomalies and performance deviations in real-time, supporting first- and second-party validation efforts.
• Analytics Powered Insights for the End User: From fraud detection to stakeholder-specific reporting, we leverage advanced algorithms to turn raw data into actionable information.
• Tailored Reporting & Visualization: We enable governments to “unbundle” financial reports, delivering the right insights to the right audiences.

By focusing on timely, validated, and stakeholder-aligned data, ThirdLine helps local governments modernize their reporting processes, reduce inefficiencies, and build trust with their communities.

Final Thought

The future of financial reporting lies in understanding where the data comes from and how to turn it into something meaningful. Remember you need to start with garbage in, garbage out to begin to validate. By adopting techniques like validation, leveraging emerging technologies, and unbundling reports for diverse audiences, local governments can go beyond simply reporting numbers to creating transformative, trustworthy insights that drive decisions and build confidence.

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