Making the Public Sector Finance Function More Strategic Presented to the Financial Management Institute of Canada - Ontario Chapter FMI Ontario – Controllership

Making the Public Sector Finance Function More StrategicPresented to the Financial Management Institute of Canada - Ontario Chapter

FMI Ontario – Controllership – Professional Development Day

Feb 25, 2009

Financial Management Advisory

ADVISORY

2

Presented on February 25, 2009 to Financial Management Institute of Canada, Ontario Chapter – Controllership Professional Development Day

© 2008 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

Agenda

Issues faced by Public Sector

Challenges Facing Finance Functions

Transition to a Strategic Finance Function

Framework for Strategic Finance Functions

Roles of a Strategic Finance Function

Conclusion

Questions

Issues Faced by the Public Sector

4



Performance Agenda: An International Government Survey

Recent international survey conducted by Economist Intelligence Unit for KPMG:

254 public sector executives from five countries interviewed: Australia, Canada, Germany, the United Kingdom and the United States

37% were heads of departments, financial chiefs, directors or deputy directors

1/3 of respondents have departmental budgets greater than $1 billion, another half have budgets of up to $500 million

5



Performance Agenda: An International Government Survey

Survey identified key issues encountered by Canadian public sector executives and their international counterparts:

Governments are under pressure to focus on performance to maximize value

Global skills shortage negatively impacts the creation of value through efficiency

Forecasting costs/benefits of new projects/programs is a major challenge to preserving value

6



How are the challenges impacting Public Sector Finance Function

Public sector finance function challenges can be classified into three main categories:

Governance: Preserving Value

Performance: Maximizing Value

Efficiency: Creating ValueE

FFIC

IEN

CY

(Cre

atin

g V

alue

)

PERFORMANCE(Maximizing Value)

GO

VE

RN

AN

CE

(Presering V

alue)

MANAGING THE REGULATORY ENVIRONMENT

OPTIMIZING ORGANIZATIONAL

RISK

BEST PRACTICE GOVERNANCE

ADDRESSING UNDER-

PERFORMANCE

MEASURING OPERATIONAL

PERFORMANCE

EFFICIENCY AND COST

OPTIMIZATION

INTERNAL STRUCTURE FOR

EXPANSION

MEET INCREASING DEMAND FOR

SERVICES

ALTERNATE REVENUE SOURCES

7



Challenges

1. Governance:

Managing the regulatory environment

Optimizing organization risk

Best Practice Governance

EFF

ICIE

NC

Y

(Cre

atin

g V

alue

)


GO

VE

RN

AN

CE

(Presering V

alue)



RISK


ADDRESSING UNDER-

PERFORMANCE


PERFORMANCE

EFFICIENCY AND COST

OPTIMIZATION


EXPANSION


SERVICES


8



Performance Agenda

Governance: Disparity between efficiency

measures undertaken and benefits gained

Over 76% of executives indicated improved financial accountability was the most important operational issue to address

Importance of balance between central agency agendas and entities responsible for implementing/operating

9



Challenges

2. Performance:

Efficiency and cost optimization

Measuring operational performance

Addressing under-performance

EFF

ICIE

NC

Y

(Cre

atin

g V

alue

)


GO

VE

RN

AN

CE

(Presering V

alue)



RISK


ADDRESSING UNDER-

PERFORMANCE


PERFORMANCE

EFFICIENCY AND COST

OPTIMIZATION


EXPANSION


SERVICES


10



Performance Agenda

Performance:

Need to measure and analyze performance with financial and operational data

Obtaining appropriate balance between accountability and performance

Canadian respondents placed almost equal value between improved quality of service and greater transparency

11



Performance Agenda

Performance (cont’d):

Two main barriers:

Compensation

Skills shortages

Most serious labour shortages are in professions of information technology and financial services

Canadian respondents indicated demographic changes play largest role in straining resources

12



Challenges

3. Efficiency:

Revenue growth through alternate sources

Meet increasing demand for services

Flexible internal structure for expansion

EFF

ICIE

NC

Y

(Cre

atin

g V

alue

)


GO

VE

RN

AN

CE

(Presering V

alue)



RISK


ADDRESSING UNDER-

PERFORMANCE


PERFORMANCE

EFFICIENCY AND COST

OPTIMIZATION


EXPANSION


SERVICES


13



Performance Agenda

Efficiency:

Keeping pace with workloads while improving operational efficiencies

Difficulty in measuring and assessing costs and benefits of programs and projects

Impedes efficient allocation of limited resources

14



Performance Agenda

Efficiency (cont’d):

Limited appetite for tax increases requires innovative funding initiatives

Increasing pressure to deliver modern and effective services

Non tax revenue instruments preferred nearly 3 to 1 over tax revenues

Public-Private partnerships and initiatives are seen as best approach

Challenges FacingFinance Functions

16



Challenges faced by All Finance Functions

TRAINING ANDDEVELOPMENT

LEADERSHIPAND VISIONCULTURE

MEASURES

Shared Services

ORGANZATIONALSTRUCTURE

REPORTINGFINANCING

TECHNOLOGYPEOPLE &CULTURE

PERFORMANCEMEASURES

Shared Services

FINANCEFUNCTION

PERFORMANCE MEASURES

Multiple Finance agendas – not aligned

No single version of the truth Too much time gathering/reconciling

data Inadequate management

information (KPIs) to support decision making

Communication to stakeholders of performance is constrained

ORGANIZATIONAL STRUCTURE

Local autonomous functions not aligned

Confused roles / responsibilities / accountabilities and duplication of effort

Lack of objectivity and / or transparency

Shadow Finance functions Limited mobility of Finance leaders No formal Finance governance

structures

PEOPLE & CULTURE

Individuals not a Finance team Lack of skills (beyond technical) Ineffective communication /

business contact Low morale and motivation Poor talent management Inadequate succession plans

REPORTING

Inconsistent policies/ procedures/ controls

Significant reconciliation issues/errors

Too many late adjustments / JNLs Close process is long / highly manual Budgeting, planning and

forecasting / capital management processes are ineffective and / or inefficient

TECHNOLOGY

Multiple consolidation layers/COAs & GLs

Inconsistent data models / reference data

Multiple systems / varying maturity with too many manual interfaces

Multiple sources for technology including maintenance and development

Limited / no scale or flexibility and reliance on end user computing is high

FINANCING/REVENUES

Poor integration between point of sale systems and reporting/GL systems

New product initiatives difficult to measure due to quality of information

No alignment of various revenue recognition systems used in subsidiaries

Lack of centralized strategy for revenue generation

Sound familiar…?

17



Applicability to Public Sector Finance Functions

PERFORMANCE MEASURES Primary focus is quality of servicesand improved productivity rather

than profitability

TRAINING ANDDEVELOPMENT

LEADERSHIPAND VISIONCULTURE

PERFORMANCEMEASURES

ORGANIZATIONAL STRUCTURE

PEOPLE AND CULTURE Human capital management:

attracting and retainingexperienced and trained

professionals

TECHNOLOGYDifficulties in determining costsand benefits associated with ITinitiatives, and lack of choice in

available technologies

Increasing demand and cost ofservice delivery will require innovative financing options.

Public expectations for accountabilityand transparency are higher relative

to the private sector

Shared

Services

ORGANZATIONALSTRUCTURE

REPORTINGFINANCING

TECHNOLOGYPEOPLE &CULTURE

PERFORMANCEMEASURES

Distribution of Finance Function amongdepartments, ministries, agencies,

boards and crown corporations.

FINANCING REPORTING

Shared

ServicesFINANCE

FUNCTION

Transition to a Strategic Finance Function

19



GUIDANCE

DIRECTION

EXPERTISE

ACCOUNTABILITY

AUTHORITY

CONTROL

EFFICIENCY

Transitioning the Role to Strategic

STRATEGICNON–STRATEGIC VALUE ADD

COMMUNICATION

Collecting budgetingand forecasting information

Prepare/provide financialinformation and financialstatements as requested

Design financial controlsand meet auditrequirements

Prepare an processjournal entries

Provide instructions andanalysis of budgets andforecasts

Prepare and analyzefinancial and operationalperformance

Provide leadership anddirection in transparencyand accountability

Support accurate andcomplete journal entryprocessing

ScorekeeperStrategicPartner

Framework for StrategicFinance Functions

21



Key to Effective Strategic Finance Function

Internal:• Relevant, reliable

& timely information• Integration of financial and non financial data• Forward looking

(planning & forecasting)• Focus on KPIs and

value for moneyExternal:• Transparent• Efficient production

of Public Accounts

• Appropriate Authority• Financial Management culture• Strong planning & monitoring functions• Effective Policy Framework• Effective management of Assets, Liabilities, Revenues, and Expenses

• Well defined Roles & Responsibilities• Clear lines of accountability• Capacity & competence (technical finance skills)• Documented goals and objectives• Strong team and change management skills

• Leading practices in transaction processing (efficient and effective)• Accurate, timely and relevant data• Standardized and simplified processes• Proper authorization

• One Integrated System• One Version of the

Truth• Limited Use of Spreadsheets/ Offline Tools• Efficient data

capture at source• Information

integrity

Valued Partner within

Organization

Organization Decision Support

PeopleTransactions

Technology

Enterprise Risk Management Internal Control FrameworkStrong Stewardship role

Regular M

onitoring for

effectiveness and efficie

nciesD

elegation Lim

itsD

ocum

ent

ed

pro

cess

es

and

con

trol

sC

lear

doc

umen

ted

over

sigh

t

Governance & Risk Management

22



Effective Strategic Finance Functions

TECHNOLOGY:

Appropriate processes and systems to produce and deliver accurate and timely financial data

Integrity of information through controls and policy compliance

Automation and integration promotes efficiency

• One Integrated System

• One version of the “Truth”

• Limited Use of Spreadsheets/

Offline Tools• Efficient data

capture at source• Information

integrity

TechnologyTechnology

23




ORGANIZATION:

Organizationally independent from ministry program delivery

Oversight role and responsibility over ministerial or governmental activity

Requires constant relationship management with valued partners

Organization

• Appropriate Authority• Financial Management culture• Strong planning & monitoring functions• Effective Policy Framework• Effective management of assets, liabilities, revenues & expenses

24




DECISION SUPPORT:

Key strategic support to departmental or program decision maker

Enhance financial and operational data into “intelligent information”

Prioritize initiatives for reliable forecasting and focus on value for money

Internal:• Relevant, reliable & timely information• Integration of financial and non financial data• Forward looking (planning & forecasting)• Focus on KPIs and value for moneyExternal:• Transparent• Efficient production of

Public Accounts

Decision Support

25




PEOPLE:

Accredited financial and accounting professionals with experience

Clearly defined roles and responsibilities with appropriate authority

Culture of development and opportunity that rewards initiative and innovation

• Well defined Roles & Responsibilities• Clear lines of accountability• Capacity & competence (technical finance skills)• Documented goals and objectives• Strong team and change management skills

People

26




TRANSACTIONS:

Accountable for enterprise financial system architecture

Consistency and standardization of accounting policies and procedures for transaction processing

Formalize and manage the centralized service delivery model

• Leading practices in transaction processing (efficient and effective)• Accurate, timely and relevant data• Standardized and simplified processes• Proper authorization

Transactions

Roles of the StrategicFinance Function

28



Defining the Role of the Finance Function

Direct (lead / own / accountable)

Influence and guidance

Decision support for value creationFinancial control to protect value

Transactional processing

FOCUS ON PERFORMANCE

SERVICEPROVIDER

Risk management

Governance / stewardship

Stakeholder relationships

Capital Asset Management (Infrastructure)

Strategic planning

Value for money based management

Public Reporting

GL / COAMaintenance

Budgeting and forecasting

Information Technology

Human Resources

Treasury / ALM

Accounting policy & procedures

Control optimisation

Transactional Processing

Cost optimization

Sourcing

Sourcing

Variances analysis

Management reporting

Public serviceusers

Basic financial information

ServiceDelivery

FOCUS ON GOVERNANCE

FOCUS ON CONTROL

FOCUS ON EFFICIENCY

Quality and levelof service


Internal Controland Design

Operational Statistics

Audit

Initiatives and agenda

PERFORMANCE& EFFICIENCY

SENIORMANAGEMENT

REGULATION& CONTROL

29




Focus on Performance:

Assist and support partners to effectively and efficiently manage and complete budgets

Improve ability to determine costs and benefits of programs and projects

Relevant forecasting to prepare for future challenges to public services

Assist in planning for innovative funding initiatives to meet growth in demand for services


SERVICEPROVIDER

Risk management




Strategic planning

Value for money based management (EVA)

Public Reporting

GL / COAMaintenance



Human Resources

Treasury / ALM




Cost optimisation

Sourcing

Sourcing

Variances analysis


Public serviceusers


ServiceDelivery

FOCUS ON GOVERNANCE

FOCUS ON CONTROL

FOCUS ON EFFICIENCY



Internal Control

and Design


Audit



SENIORMANAGEMENT

REGULATION& CONTROL

30




Focus on Governance:

Manage and control formal relationships between partners

Lead and direct internal initiatives and agenda related to financial information

Ensure appropriate service level agreements are issued to formalize relationships

Development of standardised control and accounting policies

Improve consistency of reported information


SERVICEPROVIDER

Risk management




Strategic planning


Public Reporting

GL / COAMaintenance



Human Resources

Treasury / ALM




Cost optimisation

Sourcing

Sourcing

Variances analysis


Public serviceusers


ServiceDelivery

FOCUS ON GOVERNANCE

FOCUS ON CONTROL

FOCUS ON EFFICIENCY



Internal Control

and Design


Audit



SENIORMANAGEMENT

REGULATION& CONTROL

31




Focus on Control:

Provide leadership and guidance on continuous risk management process

Central agency with actual and/or perceived authority to maintain sound financial and operational information

Support partners with accurate and timely reporting of financial and performance information

Elevate government transparency in reported information


SERVICEPROVIDER

Risk management




Strategic planning


Public Reporting

GL / COAMaintenance



Human Resources

Treasury / ALM




Cost optimisation

Sourcing

Sourcing

Variances analysis


Public serviceusers


ServiceDelivery

FOCUS ON GOVERNANCE

FOCUS ON CONTROL

FOCUS ON EFFICIENCY



Internal Control

and Design


Audit



SENIORMANAGEMENT

REGULATION& CONTROL

32




Focus on Efficiency:

Integration of financial and operational performance data

Assist in properly assessing the effectiveness and efficiency of public service delivery

Improve ability to manage assets and liabilities

Increase the access to and sharing of information between partners

Promote gains through economies of scale and leveraging through procurement and sourcing


SERVICEPROVIDER

Risk management




Strategic planning


Public Reporting

GL / COAMaintenance



Human Resources

Treasury / ALM




Cost optimisation

Sourcing

Sourcing

Variances analysis


Public serviceusers


ServiceDelivery

FOCUS ON GOVERNANCE

FOCUS ON CONTROL

FOCUS ON EFFICIENCY



Internal Control

and Design


Audit



SENIORMANAGEMENT

REGULATION& CONTROL

Conclusion

34



Conclusion

Challenges:

Public sector organizations under pressure to operate more efficiently

Requirement to focus on performance and improve quality of service

Opportunities:

Finance Function strongly influence and control government agendas, departments and agencies

35



Conclusion

Keys:

Effective management of financial resources critical to meeting expectations of service users and future challenges

Results:

Provide stakeholders with tools to effectively and efficiently perform in accordance with public expectations

36



QUESTIONS?

Presenter’s contact details

Daniel Zbacnik, CPA (Illinois), MBA, FCMAKPMG CanadaCanadian Lead Partner, Financial Management Advisory

KPMG LLP Tel: (416) 459-7751Yonge Corporate Centre Fax: (416) 228-71234100 Yonge StreetSuite 200 Toronto, Ontario M2P 2H3

[email protected]

Documents

Making the Public Sector Finance Function More Strategic Presented to the Financial Management Institute of Canada - Ontario Chapter FMI Ontario – Controllership