reporting performance
TRANSCRIPT
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Accountability,
Financial Reporting
and Performance
Measurement
Andrew Graham
Queens University
School of Policy Studies
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Overview and Objectives
Financial systems and financial information arechanging to meet more demanding needs that link financial information with other non-financial
data, that provide managerial information about operational
performance and
that provide public information about the organizationsoverall performance against its plan and in terms of itsstewardship of public funds
Government and public sector organizations areusing a variety of tools to build betterperformance management.
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The Public Sector Accountability Landscape
Governments are held to a higher
standard of accountability than a
business or a not-for-profitorganization. CICA Handbook
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The Public Sector Accountability Landscape
Accountability in the voluntarysector is multi-layer. It means
accountability to different audiences,for a variety of activities andoutcomes, though many differentmeans. This multidimensional nature
is the principal complexity ofaccountability in the public sector. VSI, Building on Strength..
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The word to watch (and never use):
Accountabilism
Yes, that combines the word-of-words these
days, accountability, with cannibalism.
Sound odd to you? Even been in front of a Public
Accounts Committee in Ottawa or any province?
David Weinberger([email protected]), coauthor
of The Cluetrain Manifesto: The End of Business
as Usual(Perseus, 2000), defines accountabilism
as the practice of eating sacrificial victims in anattempt to magically ward off evil.
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Drivers of Public Sector Accountability
Transparency
Multiplicity of accountabilities
Hierarchical and horizontal nature ofaccountabilities
Qualitative and quantitative
Focus on both results andcompliance
Complexity
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What then is Accountability?
Assignment of authority, power andresources
Accountability for performance andresults
Assignment of duties
Requirement to report Exercise of judgement on
performance
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Individuals or
OrganizationsAccepting
Accountability
Authority,
Power,
Resources,Goals
Accountabilityfor Performance,
Results and
Efficiency
Individuals or
Organizations
Conferring
Accountability
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The Accountability ContinuumINTERNAL ACCOUNTAB ILITY EXTERNAL ACCOUNTABILITY
Management Program
Coefficients Coefficients
Financial Information
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The Accountability Continuum - Comments
Progression of accountability from
day-to-day operations to full public
accountability Information needs change along the
way
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The Accountability Continuum - Comments
Financial data is important at all
stages, but often at different
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The Accountability Continuum - Comments
Need in financial management to ensure thatthere is a flow of financial data from one level tothe next to avoid overlap of systems
Often operational information not well fed intofinancial data, leading the creation of blackbooks systems that line managers need tocontrol their resources separately from financialinformation systems that are more corporate i.e.
oriented towards higher level upward reporting orexternal reporting
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The Accountability ContinuumData
and Information
OPERATIONS
Staff ActivityReports
Clients Served, calls
taken
Routine Check Listsprocedural safeguards
Forms Completed
Level of work versus
standards - variance
MANAGEMENT
Cost Reports
Cash Flow Reports
variance against plan
Attendance
Per Unit Costs
variances
Overtime Used
Period-to-Period
Financial Performance
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The Accountability ContinuumData
and Information
COMPLIANCE
Inspection Reports
Financial Reports:
Balance Sheet,
Income Statements
Performanceagainst standards
regulatory, legislated
Professional
standards
compliance
OUTPUTS
Performance
against plan or
target
Annual Reports
Auditors Reports
OUTCOMES
Socio-economic
Indicators
Evaluations
Value for Money
Audits
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Where Financial Reporting Fits In
Equity: did I get mine
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Users of Financial and Performance
Information
Citizens
Media
Interest groups
Legislatures and boards of directors
External oversight bodies
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Users of Financial and Performance
Information Internal oversight bodies
Central agencies of government
Senior managers within agencies andgovernments
Staff and clients of organizations
Individual donors and fundingorganizations
Creditors and credit-rating organizations
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Why all this reporting?
To demonstrate accountability
To permit users to assess the
financial viability of an organizations
To demonstrate compliance with
legal requirements
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Why all this reporting?
To demonstrate appropriate use of funds
To provide information to permit
evaluation operating results, including: Source of funds
Meeting objectives
Changes in financial and operational
conditions
To assess the overall ability of the
organization to meet its objectives
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Principles of Good Reporting
Focus on a few critical aspects of
performance
Look forward as well as backward
Explain key risk considerations
Explain key capacity considerations
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Principles of Good Reporting
Explain other factors critical toperformance
Integrate financial and non-financialinformation
Provide comparative information
Present credible information, fairlyinterpreted
Disclose basis for reporting
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Basic Structure of Government Financial and
Performance ReportingTHE CAFR:
Comprehensive Annual Financial Report
BASIC FINANCIAL
STATEMENTS
MANAGEMENTS
DISCUSSIONAND ANALYSIS
REQUIRED
SUPPLEMENTARYINFORMATION
- STATISTICS
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Basic Structure of Government Financial and
Performance ReportingTHE CAFR:
Comprehensive Annual Financial Report
CAFR has many names and different
ways of being presented: Annual
Report, Financial Statements,Performance Report
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Basic Structure of Government Financial and
Performance ReportingTHE CAFR:
Comprehensive Annual Financial Report
Three elements remain the same: set byaccounting standards, but all form a completepicture:
financial data, performance data and explanations (MD&A)and
statistical supports
Distinct evolution towards less detail on thefinancial side and more on the MD&A side: telling
the story and linking to non-financial data is moreimportant to improve comprehensibility, resultedfrom complaints by citizens and legislators thatdetailed financial data alone does not tell the fullstory
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Quality and Integrity of Financial
Information is Essential Elements that will ensure that financial
information reports are accepted: Use of GAAP for financial statements
Use of GAAP for budgeting Use of CAFR format
Receipt of an unqualified audit reportappended
Timeliness of information
Effective use of ratios (in financial analysis) todetermine the state of liquidity, debt to assets,debt to tax base
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Quality and Integrity of Financial Information
is Essential
Increasingly, other factors also come intoplay: Clear linkage to budget plans and
outcome/output measures Comprehensible notes and explanations
A logic model that links what the governmentdoes, the costs of the activity and the value (inpublic policy terms) it creates
This logic model may be implicit to anexperienced management team and governingbody, or it may have been actuallydocumented
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Quality and Integrity of Financial Information
is Essential
Program definition structures that are reflectedin statements of accounts for externalreporting and internal management
Credible accounting and information systemsthat will extract and summarize the financialand non-financial information
A data capture and research capability that will
ensure that all the key informationrequirements from internal and externalsources are being captured with the frequency,reliability and accuracy needed for theintended purposes
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What does Integrating Financial Data and
Non-Financial Data Mean?
A key stewardship issue for governments:
do they take the costs (all costs) into
account when making decisions Goal is not only to put costs information
and results information into the same
overall reporting structure
Goal is to relate one to the other
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The current operating environment within
government encourages managers to
focus on the amount of their original
allotment of money left to spend (free
cash balance) and not on the full accrualcost of their programs and activities. As a
result, full cost information is not
considered as important as cashexpenditure information.
Auditor General of Canada, 2004
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What does Integrating Financial Data and
Non-Financial Data Mean?
Assignment of costs move significantly
off a line-item budget approach that
assigns costs to a traditional set of costdrivers towards a program budget
approach that links costs to results
Effective alignment takes place over the
entire budgetary cycle and over a numberof years before it is useful for public
discussion
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What does Integrating Financial Data and
Non-Financial Data Mean?
Fully integrated reporting would show or
explain: How management bridges between annual costs and
outcomes achieved over the longer term
How funding levels were derived from decisions about goals
Alternatively, how resource availability influenced the
selection or achievement of goals
The return on investment expected and achieved.
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What does Integrating Financial Data and
Non-Financial Data Mean?
Phases in integrating financial and non-
financial information:
Framework set: program objectives, resultsdefined
Results aligned: results described and
measured
Resources aligned: costs associated with keyresults are assigned to them
Integration: relationship between resources
and results are described and demonstrated
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Building the Bridge to Performance
Measurement and Reporting
Performance measurement hasincreasingly been seen as necessary to
complement enhanced accountabilityfor agencies, departments and thirdparties
Greater measurement is intended to
provide an incentive for governmentservice providers to become moreeffective and efficient.
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Performance Indicators Performance Indicators -
ExamplesType of Indicator Definition Example
Input Indicator Measure of Resources Equipment Needed
Employed Employees Required
Supplies Used
Output Indicator Quantity of Service Number of projects
Provided Number of classesNumber of people served
Effectiveness/outcome The degree to which the Percentage increase in
Indicator intended objection of the employment
service is being met. Decrease in crime rate
Efficiency Indicator Cost per unit of output Cost/liter of water
delivered by household
Source: Adapted from Harry P. Hatry, 1977, How Effective are your Community Services? Washington,
D.C.: The Urban Institute
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Building the Bridge to Performance
Measurement and Reporting
Traditional government accounting
system normally was designed to
respond to the accountability demandsof societynarrowly defined as being
honest
Old systems not designed to assist inachieving of more efficient and effective
uses of public resources
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Building the Bridge to Performance
Measurement and Reporting - Examples
Government of Canada: Estimates now made upof Spending Estimates,
Report on Plans and Priorities and Performance Reports
Government of Alberta: Consol idated Financial Statements, which provide an
overall accounting of the Governments revenue and
spending, and assets and liabilities. Measu r ing Up, which reports on the progress achieved
on core government performance measures
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How Albertas Integrated Performance
Measurement Works
The intention is to focus on high-level measuresthat give Albertans a good overall indication ofprogress towards achievement of Alberta's goals.
The core measures are like the gauges on thedashboard of a car providing the most essentialinformation. Supplemental information on thecore measures is also provided in Measuring Upto give citizens more information.
Measuring Upincludes an explanation on howmajor influences or external factors affectedperformance results. .
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How Albertas Integrated Performance
Measurement Works
More detail on performance is providedthrough ministries' annual reports, which isthe second tier of reporting to Albertans on
performance. Each ministry prepares a set of "key"
performance measures that relate to theirbusiness plan goals. These measures are
reported in the fall of each year.
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Uses of Performance Measures
Performance measures can be used in severalways, including:
Controlling costs - enabling managers toidentify costs which are much higher or lowerthan average and determine why thesedifferences exist.
Comparing costs of similar servicesOntariogovernments use of Adequacy Standards andintroduction of performance standards in
municipal governments
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Uses of Performance Measures
Comparing processes - analyzing performance ofa services performed with a particulartechnology, approach or procedure.
Maintaining standards - monitoring serviceperformance against established performancetargets or benchmarks.
Fulfilling external accountabilities to legislators,external review bodies, stakeholders, the public
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Understanding the Behavioral Elements of
Performance Management
All data and information occur in a context
Financial data is not hard and fastalways subject to interpretation andattribution of meaning
The movement towards adding elementsof performance information makes thiseven more challenging, even though thegoals are worthwhile
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Understanding the Behavioral Elements of
Performance Management
Presentation of information, its quality and usesis very important elements of performancemanagement
To understand the environment in which thegovernment managerial accounting system(s), itis necessary to uncover and understand theassumptions that affect the provider of theinformation, the public sector manager and the
user(s) of the information Need to examine:
Organizational assumptions
Participants/ Users behaviour
Managers behaviour
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Understanding the Behavioral Elements of Performance
ManagementOrganizational Assumptions
In complex public sector organizations (mega-departments), the formal goals of the totalorganization tend to be subjected to subversion
by attention to the goals of the composite units,be they program-based or administrative units
Qualitative goals more common to the publicsector are harder to measure and invite thecontribution debate to what extent did the
organization contribute to what is beingmeasured and to what extent did external factorsinfluence the outcome
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Understanding the Behavioral Elements of Performance
ManagementOrganizational Assumptions
In public sector, there is an equally powerfulconcern for efficiency and effectiveness aswell as the program goalsthe how of
spending and control remains highly relevantin the public sector
There is an implicit assumption that the goalsof various units within an organization
contribute to the overall goalsfinding thatlinkage is a challenge at times.
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Understanding the Behavioral Elements of
Performance Management
Organization participants are motivatedby a wide variety of psychological,
social and economic needs and drives:these come into full play wheninterpreting information
The extent of an individuals or groups
participation varies directly with theexpectancy of the achievement of his,her or its goals
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Understanding the Behavioral Elements of
Performance Management
The efficiency and effectiveness of humanbehaviour and decision-making in a publicsector organization is conditioned by:
The ability to concentrate on only a few things atone time,
The concomitant inability to absorb large amountsof information whether in or out of multi-tasking
mode Limited awareness of the environment
Limited awareness of alternative and theirconsequences
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Understanding the Behavioral Elements of
Performance Management
Incomplete and inconsistent preferences
Limited information about the situation or
information overload Incompatibility of objectives between the
supplier of information and the receiver
Differing views on organizations, roles and
ideologiesthe bureaucratic model versus
the advocacy model.
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Qualities of Good Performance Management
Information Design
A clear understanding of the reportingentity: information needs vary according
to the level of the reporting and uses High-level corporate information for theexecutive or governing body
Operational and specific information for
operational management Program reporting on high profile initiatives
that cross organizational lines
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Qualities of Good Performance Management
Information Design
Ownership is in the hands of the user:
regardless of level on the continuum,
the provider of the information(generally finance) should mold the
report to the users language and needs
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Qualities of Good Performance Management
Information Design
When standards or budgets are used, the
report recipients should take part in their
development
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Qualities of Good Performance Management
Information Design
Design and use protocols for the
information should be the result of
mutual consent to the degree possible(external requirements, corporately-
based reporting systems)
The language of financial andperformance reports should be positive
but not Pollyannaishavoid spin
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Qualities of Good Performance Management
Information Design
Reports should have a section for the commentsof operating managers to give users morecomplete information
Performance data should be reported againstexpectations and/or standards
Variance needs to be clearly identified
Information providersaccountants, programmanagersshould also be able to provide whatif types of reports that offer the potential forimprovement against standards or increases inefficiency
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Key Factors in How to Develop Good
Measures
2. Find the most accurate measures anduse them consistently:Its important tomaintain consistency in what and how youmeasure. This is what gives us the ability totrack trends and see the results of programsand services that are operated over the longterm.
3. Report the resultsGood information is ofno value if no one knows about it.
Alberta Treasury Website: www.finance.gov.ab.ca/measuring/aboutperfmas.html
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In Conclusion
Good financial management and goodprogram performance are linked at beginning,middle and end
Performance measurement poses manychallenges that demand focus and attentionnot dismissal
Comparisons are fraught with dangers anddifficulties - they nonetheless offer manypotential uses