Addressing Financial Management

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Nov 9, 2013 (4 years and 4 days ago)

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Controllership:


Addressing Financial Management

Challenges and Transformation Opportunities


Financial Management Institute

Presented by: Murray Lindo, Director, Financial Management and Control Branch

Ministry of Finance, Ontario Government


February 25, 2009

1


Today’s Discussion


Outline the key public sector financial management issues,
especially during a global economic slow
-
down.



Describe the leadership role that the controllership function and
the financial community must play in supporting the decision
-
makers through this challenging time.



Provide some thoughts on how the financial function may need
to transform to support the emerging economic and public sector
environment.


2


Key Messages


An effective controllership function is forward looking, acting as the
business’s “head lights”: scanning the environment, anticipating issues and
seeking effective resolutions.



Controllership must be involved in the front
-
end of the decision
-
making
process helping to assess options and thereby contribute to successful
implementation.



Controllership function must balance a professional understanding with
practical skills in advanced management accounting, risk management,
process and structure cost control, and revenue management.

3

Section 1:

What is Controllership and

Why is it Challenging?

4


What is (Financial) Controllership?


Controllership is:



ethical behaviour;


conscious managing of risks;


clear lines of accountability;


stewardship of resources; and,


reporting and evaluation of results against stated objectives.


5


Why Controllership is important?


Accountability to the public


Stability and transparency


Ensures compliance against stated standards


Enables efficient and effective use of public resources


Defines roles and responsibilities


Enables performance measurement against agreed expectations


Fulfills legal obligations and mandate

6


Why is Controllership Challenging?


Equal Footing:

financial/controllership analysis not always on an equal footing
to policy, operational and communication considerations, in the decision
-
making
process.



Management Perceptions:

controllership seen by management as “end state”
technical process rather being critical to transparency and accountability.



Credible Information
: ability to produce timely, reliable, usable and accurate
financial and risk information to decision
-
makers.



Communication:

providing clear and accessible financial/controllership
information to line
-
management



Capacity:
revitalizing financial capacity by attracting, retaining and developing
financial/controllership talent.

7


Key Principles in the Controllership’s Evolution


Supporting the evolution of the Controllership function are four key
principles:



Credibility



a trusted business advisor, providing accurate, timely and reliable
financial information and advice;



Competence



combine business knowledge with financial expertise to optimize
value added;



Commitment



a shared commitment to the goals of financial management and
effective program service and delivery; and



Communication


open communication across government, with external
professional organizations and counterparts in other jurisdictions.

8

Section 2:

“Think globally, act locally”


Controllership’s Transformation

in Challenging Economic Times

9


Key Challenges

New Economic Challenges



Borderless global economic recession, where governments have a role supporting families,
jobs and industry.



Financial market uncertainty and impact of the economic environment on government
revenues and expenses.


Existing Structural Challenges


An aging population increasing demands for healthcare and income security.



The need to address the infrastructure deficit through sustainable capital investments.


Current Financial Management Challenge


Governments must balance the need to respond to these immediate economic challenges
without compromising its responsibilities for addressing the longer
-
term objectives.



Increased complexity of transactions and external reporting requirements (PSAB, IFRS).

10


Today’s Operating Environment


Greater public expectations for seamless, quality and value
-
for
-
money services.



Focus on results and financial sustainability in health care, education and

social

services.



Government’s evolving “oversight” role, where increasingly Broader Public Service
(BPS) partners deliver front
-
line services.



Increased intergovernmental cooperation and collaboration between federal/
provincial/ municipal governments.



Advent of new technologies enabling integrated business and financial solutions.



Increasing demand to elevate financial management function in supporting programs,
managing risk and leveraging strategic outcomes.

11


Controllership must exercise Financial Leadership


During economic downturns, the role of the public sector financial
community is even more critical.



Our role is to provide government decision
-
makers with the best financial
information possible, so that they can make well informed decisions amongst
the competing public policy demands.



To be successful in this role, in supporting financial decision
-
making, we
must:


establish a robust financial management framework;


emphasize value for money and fiscal accountability;


balance immediate fiscal impacts with longer
-
term stewardship;


ensure appropriate controls are in place and functioning;


apply financial risk management principles; and


ensure transparency in financial reporting through public disclosure
.

12


Controllership’s role in financial management


The controller/controllership function plays a key financial management role
in making the government’s business objectives achievable.



Controllership adds to the financial management discipline by providing
assurance of compliance with financial reporting and controls.



However, the controllership function’s “value” is fully realized by supporting
decision
-
makers with financial analyses that identifies:


links between costs and performance;


opportunities to reduce direct and indirect costs; and


opportunities to increase delivery efficiency in meeting public policy goals.



Realizing this contribution can only happen when we fully apply advanced
management accounting, risk management, effective costing and revenue
management.

13


Financial Management Transformation*

Catalyst

Strategist

Steward

Operator

Controllership:



Focused on the prudent use
of resources by standardizing,
consolidating and automating
processes.


Procedural policies.


Establishing financial data
integrity, timeliness and
accuracy

Results Planning:



Ensuring effective
budgeting, forecasting and
planning systems in place.


Asset/Capital Management.


Establish policy framework


Risk management and
effective controls

Decision Support:



Focused on performance
management and supporting
effective investment decisions


Ensure value
-
for
-
money


Policies that strengthen
performance by promoting
positive behaviours.


Effective BPS management


Robust Cost/Benefit analysis

Leader:



Support decision
-
makers and
identify opportunities for
service delivery transformation


Creates partnerships to drive
innovation and service delivery
efficiency


Finance integrated with policy
and operational considerations


Enterprise risk management


Effective horizontal
management

Trusted Advisor

Analysis

Controls

* Four Faces Framework discussed in Deloitte study
“Mastering finance in government:
Transforming the government enterprise through better financial management”

14


Required Financial Management Elements


Management Decision Support


Financial evaluation expertise


Business risk management expertise


Capital investment analysis expertise


Financial performance management
expertise







Business Planning, Fiscal Planning and
Budgeting


Strategic business planning expertise


Risk
-
based Fiscal planning expertise


Capital planning expertise


Integrated capital, operating and cash
-
flow
budgeting expertise


In
-
year fiscal management expertise



Accounting, Appropriations and
Financial Reporting


Accounting policy application and control
expertise


Appropriation compliance and control
expertise


Costing and pricing expertise


Financial reporting expertise


Financial information analysis and integrity
assurance expertise



Risk Management, Accountability and
Control


Program risk management and control
expertise


Project risk management and control
expertise


Asset and Liability risk management and
control expertise


Transfer Payment, Agency and Trust risk
management and control expertise.

15


Financial Competencies needed

Business Knowledge

Effective Costing, Planning & Evaluation

Risk Management


Standards Compliance


Effective Communication

Performance Management

Forecasting, Planning and Budgeting

Accounting/ Financial Knowledge

Valued
-
added

Advice

Value
-

for
-

Money

Strategic

Focus

Competencies

16


How is the OPS Responding to this challenge


Integrated Planning:

a reconstituted Treasury Board Office integrates fiscal planning,
controllership and audit leadership enabling government to be better equipped to deal with
the competing demands.



Financial Management:

review of the appropriate financial management functions to
assist ministries in providing decision support to line
-
ministry decision
-
makers.



Policy Framework:

revitalize and streamline financial policy framework to clarify and
strengthen roles, responsibilities and accountabilities.



Transfer Payment Accountability:

continue efforts to reduce administrative duplication
for TP recipient partners while ensure improved accountability.



Asset Management:

capitalization of minor Tangible Capital Assets so that ministries can
more effectively plan, account and budget for their portfolio of investments.



Capacity:

revitalize OPS financial capacity through attraction (financial internships and
foreign
-
trained professional programs), training on core competencies and retention, so
that Ontario can build the financial leadership of the future.

17

Section 2: Questions


What do you think needs to happen for the
controller/controllership function to assume a more advisory
“decision support” role?



In your role as controller, what strategies can you employ to
strengthen the controllership function's links with line
-
management decisions?



What incentives can we develop to support the transformation of
the controllership function?

18

Section 3:

Case Studies

19

Case Study 1: Government support for the Auto Sector


Challenge:

Balancing socio
-
economic imperative to save manufacturing jobs against the public
policy and accountability requirements.



Objective:

Provide ailing automobile companies a credit bridge through difficult times.



Key Issues:



Supporting the auto sector is multi
-
jurisdictional issue. Loan agreements cannot be made in
vacuum and must take into account all aspects of the various governments’ initiatives.


Managing the risk of longer
-
term investments in an industry with weak consumer demand
and volatile stock markets.


Ensuring public money is spent appropriately and contributes to wider public policy goals,
such as more environmentally friendly cars.


Making sure public loans are repaid and that government exposure is based on the
associated risks.

20

Case Study 2: Vancouver Olympics Capital Projects


Challenge:

City of Vancouver has taken full financial control of the 2010 Olympics
athletes village $1 billion project.



Objective:

Balancing increasing costs against a drop
-
dead deadline, without
encumbering the city with substantial debt.



Key Issues:



Short
-
term “showcase” event against a substantial public debt at a time of falling revenues.


Original Alternative Financing and Procurement (AFP) agreement was supposed to transfer
the “risks” of construction and financing to the developer. With evaporation of “market”
credit the construction company has been unable to make payments. Since September, 2008
the city has covered construction costs through a $100 million loan to the developer.


The city’s takeover could help cut the interest rate from as much as 11.5 per cent to as little
as five per cent.


Risk that assuming the liability could downgrade of the city’s triple “A” credit rating which
could make it harder to borrow other funds until the athletes’ village loan is paid off.


The take
-
over of financial responsibility for the project means that the city now has the
entire “village” as an asset (and project liabilities), not just the land it sits on.

21

Case Study 3: Alternative Financing Arrangements


Challenge:

Ontario has an infrastructure deficit estimated at more than $100 billion.



Objective:

Alternative Financing and Procurement (AFP)
represents an opportunity
to leverage private
-
sector project management expertise and financing to help bridge
the infrastructural deficit.



Key Issues:


Public policy considerations in the government’s construction, management and ownership
of assets.


The higher private
-
sector financing rates must be balanced against construction risks (i.e.
cost overruns) transferred to the private partners.


Long
-
term AFPs that include design, build and asset management components, require
performance criteria to ensure value
-
for
-
money throughout the asset’s life
-
cycle.


The openness and transparency of the alternative financing process are critical to ensure the
highest return on investments and public accountability.


Differing financing rates methodologies impact the recognised value of the assets. Using a
project costing model will increase financing costs, while a internal discounted rate will
decrease financing costs and change the asset’s value.

22


From a Controllership Perspective


We need to ensure:


solid financial management information is provided to support an effective balance
between the need to stimulate the economy against the stewardship role of asset
management for the longer
-
term;



a strong and transparent decision
-
making framework is in place that provides value
-
for
-
money to taxpayers;



public resources are effectively controlled in accordance with legislative and public sector
accountability standards;



a strong understanding and independent assessment of AFP rival bids based on robust and
reasonable costing/financing assumptions; and,



transactions are accurately accounted for and represented in the province’s Public
Accounts.



Overall, we need to put this in a language that helps the decision makers make
informed investment choices.

23

Section 4:

Looking Forward

24


Key Requirements for Success


Informed Decisions:

Further integration of risk and performance management into the fabric of financial
decision
-
making.



Effective Governance:
establishing clear roles and accountabilities, linked to decision
-
making structure and
supported by a robust policy framework.



Financial Leadership:

to set priorities, support capacity improvements and provide a strategic financial
“voice” at the decision
-
making table.



Financial transformation:
continue to

migrate the financial function away from a transaction
-
rules focus to
an “advisory” decision support and oversight role.



Business “ownership” of Finance:
progressively, delegate financial management to program managers and
other government organizations, while maintaining accountability and oversight.



Measuring Progress:

establish clear performance measures, evaluate progress toward achieving the desired
goals and taking remedial action when necessary.



Communications:

open and transparent communications to allow knowledge of risks, challenges and
solutions to flow throughout the organization(s).



Financial Capacity:
attract, retain and develop financial capacity that is aligned to future needs.


25

Looking Ahead


Controllership closes the financial management “accountability loop”.



Effective controllership provides the front
-
end financial information to make
informed business decisions but also ensures controls are met in the
achievement of results.



As the demands of controllership function increase, it is critical to integrate
risk management, process and structure cost control, and revenue
management into the fabric of decisions.



Ultimately, our success depends upon the professional knowledge we bring
to the decision
-
making table. Only up
-
to
-
date, strategic competencies and a
robust financial community can ensure we provide value
-
added expertise
needed to achieve public policy goals.

26

A more complex world…