canadian public sector financial management - introduction andrew graham queens university school of...
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Canadian Public Sector Canadian Public Sector Financial Management Financial Management - Introduction - Introduction
Andrew GrahamAndrew Graham
Queens UniversityQueens University
School of Policy StudiesSchool of Policy Studies
http://post.queensu.ca/http://post.queensu.ca/~grahama/~grahama/
Objectives of the CourseObjectives of the Course
You had a You had a choice: choice:
this this course orcourse or
What is Wrong with You? Let’s What is Wrong with You? Let’s discuss this a bit………discuss this a bit………
• Let’s go around the room to Let’s go around the room to see what you expect to get see what you expect to get out of the courseout of the course
• One or two areas of concern One or two areas of concern or objectives onlyor objectives only
• We’ll then see if we can meet We’ll then see if we can meet your needsyour needs
Objectives of the Course – ‘As Objectives of the Course – ‘As Advertised’Advertised’
Focus on tools and Focus on tools and understanding in managing understanding in managing public finances in order to public finances in order to carry out good public policycarry out good public policy
Public sector financial Public sector financial management as a policy management as a policy issue itself: accountability, issue itself: accountability, due diligence, relationship to due diligence, relationship to taxation and debttaxation and debt
Objectives of the Course – ‘As Objectives of the Course – ‘As Advertised’Advertised’
An understanding of, but not an An understanding of, but not an expertise in, the expertise in, the basic elementsbasic elements of financial managementof financial management
Over the course, we will move Over the course, we will move from a broad understanding of from a broad understanding of the macro elements towards the macro elements towards more more hands-on managementhands-on management of of financial responsibilities of financial responsibilities of any public managerany public manager
Objectives of the Course – ‘As Objectives of the Course – ‘As Advertised’Advertised’
To help you be an To help you be an intelligent intelligent useruser of financial of financial information, take an information, take an informed approach to your informed approach to your role as a financial manager role as a financial manager and carry out your and carry out your responsibilities as a public responsibilities as a public sector financial managersector financial manager
What the course is not aboutWhat the course is not about
• Public finance – taxation Public finance – taxation policy, economic policypolicy, economic policy
• Getting you certified as a CA Getting you certified as a CA – we are doing a fly past not – we are doing a fly past not an accreditation processan accreditation process
• Seeing if you can do detailed Seeing if you can do detailed calculations or mathcalculations or math
Structure of the CourseStructure of the Course
Six areas of focus: Six areas of focus: • Public Sector Financial Management Public Sector Financial Management • Concepts of Accounting and Concepts of Accounting and
Financial StatementsFinancial Statements• Budgeting: Forms and ProcessBudgeting: Forms and Process• Managerial Control and Managerial Control and
Controllership Controllership • Expenditure and Cash ManagementExpenditure and Cash Management• Reporting and AccountabilityReporting and Accountability
Any Questions about the Any Questions about the course, structure, etc?course, structure, etc?
Remember, there is noRemember, there is nostupid question and make no stupid question and make no assumptions that you are not assumptions that you are not
comfortable with.comfortable with.
Where Financial Where Financial Management Fits into the Management Fits into the
Cycle of Public Sector Cycle of Public Sector ManagementManagement
Policy, Direction: The Public Good to
be Achieved: the Policy Process
Resourcing the Policy
Objectives: the Budget Process
Accounting, Evaluating and
Reporting
Delivery the Public Good: Operations, Management and
Control
It’s about
the money..
Public Sector – what is it?Public Sector – what is it?
• Public sector larger and more Public sector larger and more complex than government in complex than government in traditional sensetraditional sense
• Course adopts an inclusive focus:Course adopts an inclusive focus:– Government, all levelsGovernment, all levels– Near government: agencies, crowns Near government: agencies, crowns
(to a limited extent), special entities(to a limited extent), special entities– Greater public sector entities: health Greater public sector entities: health
and educationand education– Not-for-profit: voluntary organizationsNot-for-profit: voluntary organizations
Public Sector – what is it?Public Sector – what is it?
• Limitations to such inclusion: Limitations to such inclusion: – No public entities that use private No public entities that use private
sector basis of accounting or operate sector basis of accounting or operate on fully commercial basison fully commercial basis
– General adoption of general public General adoption of general public sector and voluntary sector GAAP and sector and voluntary sector GAAP and CICA Accounting Standards, but not CICA Accounting Standards, but not othersothers
– Time and scope cannot accommodate Time and scope cannot accommodate all variations, especially in areas such all variations, especially in areas such as funds management, fund raising, as funds management, fund raising, etc.etc.
Government spends a lot of money Government spends a lot of money – and it belongs to you– and it belongs to you
Consolidated federal, provincial, territorial and local government expenditures, 2001-2002 =
$430,313,000,000
Consolidated federal, provincial, territorial and local government revenue, 2001-2002 =
$432,912,000,000
What is a capital
expenditure?
Government spends a lot of Government spends a lot of money – and it belongs to money – and it belongs to youyou
Public sector capital expenditures by level of government, 2002 (billions of dollars):
Federal $4.4
Provincial $5.5
Municipal $10.7
All Levels $19.3
Excludes health authorities and educational authorities.
Government spends a lot of Government spends a lot of money – and it belongs to youmoney – and it belongs to you
•In 2005-2006, consolidated revenues of $572.9 billion and overall government spending of $546.9 billion.
•Revenues from income taxes, which amounted to $224.2 billion, and consumption taxes, which reached $107.5 billion, together accounted for nearly three-fifths of consolidated revenues.
•In terms of spending, about half the total increase in 2005/2006 came from two areas: social services, where spending hit $164.1 billion; and health, which reached $102.3 billion.
Source: The Daily. Stats Can, http://www.statcan.ca/Daily/English/060615/d060615a.htm
An Era of SurplusAn Era of Surplus
Public Finances are complex – Public Finances are complex – example: transfersexample: transfers
Source: PWGSC: http://www.tpsgc-pwgsc.gc.ca/acquisitions/text/ggwrp/docs/final_report-e.pdf
Federal Government Contracting Federal Government Contracting ActivityActivity
Contracts below $25,000 Number for all departments
1,449,332Dollar Value 1,393,514,000
Contracts over $25,000Number for all departments 22,369Dollar Value 7,699,610
Total For All ContractsNumber for all departments 1,471,701Dollar Value 9,093,124,000
Total Professional Services 6,644,789,504
Acquisition of Lands and Buildings
Land purchases 25,653,944
Engineering works 151,218,112
Buildings 602,586,581
Total Land and Buildings 779,458,637
Acquisition of Machinery and Equipment
Computer Equipment 1,011,777,101
Specialized and industrial equipment
576,809,857
Furniture 167,047,391
Total Acquisition of Machinery and Equipment
3,603,452,879
Total Purchases of Services, Property and Equipment
11,027,701,010
Federal Federal Government Government Purchases Purchases
of of Services, Services,
Lands Lands and and
Equipment Equipment for for
2004-20052004-2005
4.65
.85
5.65
2.40
1.501.90
The True Size of The True Size of GovernmentGovernment(in millions) – from an (in millions) – from an American PerspectiveAmerican Perspective
1.90 full-time-equivalent civil servants1.90 full-time-equivalent civil servants 1.50 uniformed military personnel1.50 uniformed military personnel .85 postal workers.85 postal workers 5.65 contractors5.65 contractors 2.40 grantees2.40 grantees 4.65 state and local4.65 state and local16.95 Total16.95 Total
From: “Just How Much Bigger is Government in Canada?”, F. Steven Ferris and L. Stanley Werner, Carleton University, October, 2006
The Not-for-Profit SectorThe Not-for-Profit Sector
• Taking health care entities into Taking health care entities into account, the revenue of the not-account, the revenue of the not-for-profit is $112 billionfor-profit is $112 billion
• Significant portion of that is from Significant portion of that is from other governments so funds are other governments so funds are transferredtransferred
• One good reason to account for One good reason to account for not-for-profit as part of the not-for-profit as part of the greater public sectorgreater public sector
Executive Agencies in the U.K. State Owned Enterprises in New Zealand Business Enterprises in Australia Special Operating Agencies in Canada's federal government, provinces, and cities Delegated Administrative Organizations in Alberta Sociétés d’Économie Mixte in Québec Service Agencies such as the Canada Food Inspection Agency, Canada Customs and Revenue Agency Enterprise Modeling in Edmonton Semi-autonomous commissions providing services to municipalities in New Brunswick
And Government has And Government has agencies…agencies…
Why Financial Why Financial Management?Management?
• Governments could not Governments could not function without funds for function without funds for policy and programspolicy and programs
• Money is a scarce commodity Money is a scarce commodity and competition for it is and competition for it is fierce which makes its fierce which makes its effective management effective management criticalcritical
Why Financial Management?Why Financial Management?
• The money is public and The money is public and administered in a democracy administered in a democracy thereby creating a broad base of thereby creating a broad base of ownership and interest. Accounting ownership and interest. Accounting for those funds is a primordial value for those funds is a primordial value of democratic societyof democratic society
• Budgeting and financial Budgeting and financial management procedures are the management procedures are the accounting manifestation of public accounting manifestation of public policypolicy
What is Financial What is Financial Management?Management?
Finkler: The subset of management that focuses on
generating financial information that can be used to improve
decision making.
Source: Financial Management for Public, Health and Not-for-Profit Organization, Steven Finkler, Prentice Hall
What is Financial Management?: What is Financial Management?: Issues and DiscussionIssues and Discussion
Focus on information is narrow but good financial information is a key element Focus on information tends to reflect the accounting perspective that serves decision makers – the focus of this course is on the decision maker as well as the interaction between the twoFinancial management is a two way street: serving managers’ needs and serving the accounting needs of the public sector
What is Financial Management?: What is Financial Management?: Issues and DiscussionIssues and Discussion• Have to recognize that actual Have to recognize that actual
financial management practice also financial management practice also involves such elements as involves such elements as – allocating resources, allocating resources, – monitoring financial and program monitoring financial and program
performance, performance, – monitoring the use of funds within monitoring the use of funds within
assigned budgets assigned budgets – deciding on adjustments to deciding on adjustments to
spending or fees as a result of spending or fees as a result of financial information and financial information and
– accounting for all the aboveaccounting for all the above
What is Financial Management?: What is Financial Management?: Issues and DiscussionIssues and Discussion
• More than just receiving reports and More than just receiving reports and reacting to themreacting to them
• Financial management is involved in Financial management is involved in sound policy making right through to sound policy making right through to accounting for past performanceaccounting for past performance
• Especially crucial in program delivery Especially crucial in program delivery areas where resources are always scarce areas where resources are always scarce and demands high requiring the most and demands high requiring the most effective means to manage resources.effective means to manage resources.
What is Financial Management?: What is Financial Management?: Issues and DiscussionIssues and Discussion
• Financial resource management Financial resource management and accounting are a hugely and accounting are a hugely powerful metaphor for powerful metaphor for government performancegovernment performance
• Often financial information Often financial information serves as a surrogate for serves as a surrogate for performance informationperformance information
Budgets: Form and Function
Budgets: Process Dynamics
Capital Planning and Budgeting
Management Control
Managing the Budget: Cash Forecasting
Standards and Principles: Accrual, GAAP
Financial Accounting and Reports
Reporting and Accountability
Understanding the Canadian Public Sector
CourseCourse
FrameworkFramework
Positioning Financial ManagementPositioning Financial Management
Financial Financial ManagementManagement
ImprovingImprovingValue forValue for
MoneyMoney
MeasuringMeasuringandand
RewardingRewardingPerformancePerformance
EnablingEnablingChangeChange
ImprovingImprovingPerformancePerformance
ManagingManagingRiskRisk
SupportingSupportingGood Good
Decision-Decision-MakingMaking
Control, Probity,Accountability
What is Financial Management?What is Financial Management?
Alternative Definition that Alternative Definition that encompasses Finkler: encompasses Finkler:
Financial Management is that part Financial Management is that part of the management and policy of the management and policy
process that focuses on financial process that focuses on financial resources and information to resources and information to deliver services and support deliver services and support managerial decision making.managerial decision making.
The The Framework of Framework of
Financial Financial ManagementManagement
Financial Management
Financing of
Programs
Financial Accountin
g
Financing of
Programs
Source of Funding
Deployment and Allocation of Resources
Generation of
Revenue
Financial Accounting
Accounting for Management
Accounting for Financial Purposes
Managerial AccountingGenerates financial
Information for decisionMaking, accountability
And planning
Financial accountingGenerates retrospective Information of financial
Position and performance.
Accounting for Management
PlanningOptimal
Management of Allocated
Resources – Cash
Management
Performance Reporting
Future Present Past
Accounting for Financial Purposes
Internal Reporting
External Reporting
Audit
Financial Management
Program Financing
Financial Accounting
Source of Funds
Allocation of Funds
Generation of Revenue
Management Accounting
Financial Accounting
Planning
Cash ManagementPerformance ReportingInternal Reporting
External Reporting
Audit
What are the ‘basic elements of What are the ‘basic elements of public sector financial public sector financial management’?management’?• Budgets and fiscal policyBudgets and fiscal policy• Government as an economic Government as an economic
actoractor• Budgetary and planning Budgetary and planning
processes in governmentprocesses in government• Public sector accounting Public sector accounting
practice, standards and practice, standards and rulesrules
• Managing budgetsManaging budgets
What are the ‘basic elements of What are the ‘basic elements of public sector financial public sector financial management’?management’?• ControlControl• Understanding financial Understanding financial
statementsstatements• Cash management and cash Cash management and cash
forecastingforecasting• Accountability and reportingAccountability and reporting
What makes government What makes government financial management differentfinancial management different
• Government’s goal is to provide Government’s goal is to provide services, regulations or policies, services, regulations or policies, not make a profitnot make a profit– Implications: net cost of service Implications: net cost of service
and affordability take on more and affordability take on more importance than a bottom-line of importance than a bottom-line of financial performancefinancial performance
– Inputs and process take on much Inputs and process take on much more meaning as equity and more meaning as equity and distributional measuresdistributional measures
What makes government What makes government financial management differentfinancial management different
• The principle source of The principle source of government revenue is taxationgovernment revenue is taxation– Implications: the captive nature of Implications: the captive nature of
taxpayers as involuntary taxpayers as involuntary contributors means that they will contributors means that they will want access to simple and want access to simple and understandable information about understandable information about what has been done with their what has been done with their moneymoney
What makes government What makes government financial management differentfinancial management different
• Governments operate, for the most Governments operate, for the most part, in a non-competitive environmentpart, in a non-competitive environment– Net cost of services and affordability Net cost of services and affordability
are therefore not enough to provide are therefore not enough to provide adequate measurement of efficiency adequate measurement of efficiency and effectiveness outside the market and effectiveness outside the market modelmodel
– Performance measurement is Performance measurement is needed but it is dangerous to take needed but it is dangerous to take one single measure as reflective of one single measure as reflective of the reality of government servicesthe reality of government services
What makes government What makes government financial management differentfinancial management different
• Government budgets portray Government budgets portray public policy, establish revenue public policy, establish revenue estimates, expenditure and estimates, expenditure and financing requirements, and financing requirements, and are important in the are important in the government accounting cyclegovernment accounting cycle– Actual-to-budget information Actual-to-budget information
becomes an important element of becomes an important element of financial reportingfinancial reporting
What makes government What makes government financial management differentfinancial management different
• Government redistribute wealthGovernment redistribute wealth– Financial and performance data Financial and performance data
must explain how and where must explain how and where
• Senior governments have debt-Senior governments have debt-capacity limits unparalleled by capacity limits unparalleled by any other organizationany other organization– Debt and net debt are crucial to Debt and net debt are crucial to
highlight in government financial highlight in government financial statementsstatements
What makes government What makes government financial management differentfinancial management different
• Government capital spending Government capital spending may not focus on maximizing may not focus on maximizing return because government return because government objectives are broaderobjectives are broader– Capital spending and its impact Capital spending and its impact
on debt is important to on debt is important to highlighthighlight
What makes government What makes government financial management differentfinancial management different
• Governments are held to a higher Governments are held to a higher standard of external accountability standard of external accountability and scrutiny than businesses and and scrutiny than businesses and not-for-profit organizationsnot-for-profit organizations– Leads to a conflicting need to provide Leads to a conflicting need to provide
a great deal of detail, both financial a great deal of detail, both financial and non-financial while keeping and non-financial while keeping reporting simple and understandablereporting simple and understandable
– Greater emphasis on cash flows and Greater emphasis on cash flows and accountability to the relevant accountability to the relevant constituencyconstituency
What makes government What makes government financial management differentfinancial management different
• Notwithstanding all of the above, many Notwithstanding all of the above, many publicly owned entities are similar to publicly owned entities are similar to those that make profits, e.g. utilities, those that make profits, e.g. utilities, LCBO, Crowns: LCBO, Crowns:
• Often they receive more dispensation Often they receive more dispensation in terms of releasing information in terms of releasing information because of the commercial nature of because of the commercial nature of their objectives. their objectives.
• Similarly, their accounting practices Similarly, their accounting practices will more closely approximate the will more closely approximate the private sector.private sector.
How are Government and Private How are Government and Private Sector Financial Management the Sector Financial Management the Same?Same?
• Both use forms of Both use forms of GAAP – Generally GAAP – Generally Accepted Accounting PrinciplesAccepted Accounting Principles – more – more later – that are adapted to their later – that are adapted to their conditions: there is no one GAAPconditions: there is no one GAAP
• Both use various financial statements Both use various financial statements for information stakeholders (owners, for information stakeholders (owners, stock holders, voters) on financial stock holders, voters) on financial performanceperformance
• Both use financial management Both use financial management systems such as Oracle, SAP, etc to systems such as Oracle, SAP, etc to support their transactions and support their transactions and accounting needsaccounting needs
Governments source their funding Governments source their funding in many waysin many ways• Over 60, in fact, in Canada, not Over 60, in fact, in Canada, not
counting a multitude of quasi-counting a multitude of quasi-commercial feescommercial fees
• Total government revenue in Total government revenue in 2000 was over 40% of GDP while 2000 was over 40% of GDP while federal government revenue was federal government revenue was just below 20%just below 20%
• This course is not about tax This course is not about tax policy or fiscal policypolicy or fiscal policy
Complexity of the Revenue Landscape in Complexity of the Revenue Landscape in Government – TaxesGovernment – TaxesSource: Statistics Canada Classification GridSource: Statistics Canada Classification Grid
Income Taxes
Personal Income Taxes – federal and provincial
Corporation Income Taxes
Mining and logging taxes
Taxes on payments to non-residents
Other income taxes
Consumption Taxes
General Sales Tax – GST,PST,HST
Alcohol beverages and tobacco taxes
Amusement taxes
Gasoline taxes
Custom duties
Liquor profits
Remitted gaming profits
Other consumption taxes
Other Taxes
Payroll taxes
Motor vehicle licenses
Natural resource taxes and licenses
Miscellaneous taxes
Property Taxes
General Property Taxes
Capital taxes
Other property taxes
Complexity of the Revenue Landscape in Complexity of the Revenue Landscape in Government – Fees and PremiumsGovernment – Fees and PremiumsSource: Statistics Canada Classification GridSource: Statistics Canada Classification Grid
Health and drug insurance premiums
Contributions to social security plans
Sales of goods and services by public entities
User Fees and Service Charges
Investment Income
Endowments and Contributions
Partnership Income
Complexity of How Public Sector Complexity of How Public Sector Delivers its “Products”Delivers its “Products”
• Direct governmentDirect government• Social regulationSocial regulation• Economic regulationEconomic regulation• ContractingContracting• GrantGrant• Direct loanDirect loan• Loan guaranteeLoan guarantee• InsuranceInsurance• Tax expenditureTax expenditure• Fees, chargesFees, charges• Liability lawLiability law• Government Government
corporationscorporations• Vouchers Vouchers
All these “tools All these “tools of government” of government” involve some involve some form of form of resource resource management management implications. implications. Consider how.Consider how.
The Public Sector Financial The Public Sector Financial LandscapeLandscape
• A Mix of Criteria A Mix of Criteria • Difficulty of Relating Costs and Benefits Difficulty of Relating Costs and Benefits • Apples and Oranges Apples and Oranges • Performance Measurement is Elusive Performance Measurement is Elusive • Constraints on Goals and Objectives Constraints on Goals and Objectives • Service Orientation of Many Public Service Orientation of Many Public
Sector Organizations Sector Organizations • Generally Lower Rates of CompensationGenerally Lower Rates of Compensation
The Public Sector Financial The Public Sector Financial LandscapeLandscape
• Varying Forms of Governance • Short-term orientation - one election to
the next Political Realities and Necessities• Need for Visibility – show me the ribbon
to cut • Multiple external pressures • In Your Fish Bowl accountability• Bureaucratic rules and regulations • Managerial Constraints• Management cultures • Legislative restrictions Legislative
restrictions