Improving Public Sector Financial Management

1. Improving Public Sector Financial Management Capacity Building and Community Development Office of the Comptroller General RDIMS #384903 February 2006

2. Financial Management Environment • Canadians and Parliament are interested in the way public funds are managed • Instances of failure of financial management control frameworks • Increasing complexity of transactions and reporting requirements • Call from stakeholders for increased transparency of financial and performance information • Insufficient financial management expertise and capacity (skills and numbers) to match increasing demand

3. OCG Mandate • Stronger financial & audit controls • Financial standards • Professional development • Overseeing government spending • Government wide financial systems • Financial management advice & support

4. Strengthening Internal Audit and Financial Management … Minister Deputy Head Chief Audit Executive Independent Audit Committee Chief Financial Officer Accountability Comptroller General Advice Assurance Findings Functional Direction … to improve the fundamentals

5. Strengthening Internal Audit

6. Context and Background Re Internal Audit • Budget 2003 - intention to strengthen internal audit • OAG and PAC – reports on internal audit performance • Budget 2004 – further strengthening • President’s November 2004 - bolster the internal audit, government-wide “important element of the Government’s agenda to improve public sector management and ensure the rigorous stewardship of public funds” • January 2005 – start of consultations and analysis • October 2005 - New internal audit policy approved for April, 2006 fully implemented by April 2009

7. Vision for Internal Audit • Provide fact based assurance to Deputy Heads on the health of the internal controls of their departments • Refocus on the basics and ensure adequate audit coverage each year • Provide a base for balanced reporting • Make the IA function credible to Parliamentarians and Canadians

8. Key Pillars of the Internal Audit Vision • Reposition Internal Audit as a critical for effective and credible governance at dept’l and gov’t wide levels • Qualified Chief Audit Executives (CAEs), audit committee members and audit professionals • Standardized approaches, tools, methodologies, periodic practice inspections • Independence and effective governance arrangements, within departments and centrally: • Independent audit committees • Independent audit function • Deputy Head responsibilities • Comptroller General responsibilities • Timely, effective reporting and oversight.

9. Scope of the Policy Change Deputy heads of all departments are responsible for ensuring: • Procedures for systematic review of control and accountability processes in their departments. • Audit committee receives all of the information needed to fulfill its responsibilities • Management action plans adequately address the recommendations and findings arising from internal audits, and that the action plans have been implemented. • Timely audit reports, accessible, bilingual and on departmental web sites. • Minister is briefed periodically on significant items arising from the work of internal audit and the audit committee. Minister to meet annually in camera with the Internal Audit Committee. • Full access to Office of the Comptroller General and its agents. • Management representations needed to support the planning, conduct, and reporting of audits by the Comptroller General.

10. Scope of the Policy Change • Deputy Heads of large organizations • Appropriately resourced internal audit function. • Independent departmental audit committee • Qualified chief audit executive at a senior executive level, reporting to the deputy head. • Departmental internal audit plan addresses all areas of higher risk. • Appropriate internal audit coverage for special operating agencies and other entities within their departments and under their control. • Comptroller General • Small agencies and horizontal audits • Oversee capacity of government-wide internal audit function • Appointments and appraisals of Heads; stewardship of function and reporting on performance • Capacity building through recruitment and learning initiatives • Overall assurance on internal controls government-wide; external reporting on performance of function • Review effectiveness of new policy

11. Strengthening Financial Management

12. Context and Background – CFO Model Budget 2004 • “Re-establish the Office of the Comptroller General of Canada to rigorously oversee all government spending. • Appoint professionally accredited comptrollers to sign off on all new spending initiatives in every government department. • “The appointment of departmental comptrollers will be subject to approval of the Comptroller General” and, “Departmental Comptrollers will also have a functional reporting relationship to the Comptroller General”; • Professional certification standards for departmental comptrollers will be established before the end of the year and these standards are to be met by departmental senior financial officers within three years.” • The Government is moving forward to audit all annual financial statements of departments and agencies within five years.”

13. High level diagnostic • Observations of Comptroller General : • Senior Financial Officers (SFOs) in medium to large departments • The role of the SFO has taken many different forms – “general administrator“, “chief accountant” or “CFO”. • Uneven focus on financial management. Potential conflict of interest • Uneven qualifications and professional background in financial management and reporting • Uneven organizational positioning and authority vis-à-vis Program delivery organization • Lack of preparedness to deliver annual departmental audited financial statements • Lack of back up capacity and succession • Over extended and stretched • Senior Full-time Financial Officers (SFFOs) in medium to large departments and SFOs in Small departments and Agencies • Uneven qualifications and professional background in financial management and reporting • Uneven level of readiness for “executive table” • Lack of back-up capacity and succession

14. Overriding Principles for Proposed Solution Limited delegation of authorities to departments by TBS Greater delegation of authorities to departments by TBS From To Focusing on short and medium term needs of the organization Focusing on short and longer term needs of the organization from a strategic perspective. To From Performing a Corporate Services / Administration role and the breadth of related activities (e.g. Finance, HR, IM/IT Administration, etc,) Focusing on full spectrum of financial management, and the associated depth of knowledge and understanding, as a full-time “seasoned” business and financial executive From To

15. Proposed Delivery Model • Multi-tier, risk based approach for all organizations under functional direction of Office of Comptroller General • Criteria for segmentation: • Size of managed cash-flows (revenue, expenses and capital expenditures) • Accounting value of assets and liabilities under management • Complexities of operations (e.g. geographic distribution, decentralized management, stability of organization/operations) • Inherent risks ( e.g. extensive use G&C) • 3-Tier model: Tier 1 20-25 largest and most complex organizations – Initial target — 80-90% of expenditures Tier 2 15 -20 medium size departments Tier 3 all others

16. Proposed Delivery Model (continued) Responsibilities of departmental CFOs • Full spectrum of financial management (short-term and long-term) • Planning, budgeting and forecasting • Accounting and reporting, internal and external ( financial and performance) • Financial Management policies and internal controls • Financial analysis, monitoring and challenge • Departmental financial systems • Investments • Analysis of business case of opportunities • Sign-offs and recommendation for approval by Deputy Head • Subsequent on-going monitoring of implementation • Budget integrity • Value for money monitoring (e.g. via program evaluations) CFO = “In-House TBS”

17. Tier 1 Departments

18. Sign-offs Chief Financial Officers • Exercise the same role as the Comptroller General (CG) but within departmental domain; • Functionally reports to CG; • In support of the Deputy Head, as a minimum, sign-off on all new initiatives; • Monitor new initiatives, once approved by their current respective DM; • Monitoring report by CFO (departmental) goes to DM Comptroller General • Signs off on new initiatives above a given GoC materiality and / or risk threshold (to be determined – anticipate only 30 – 50 per year); • Formally monitors the initiatives he recommends, once approved by the Secretary; • Monitoring report by CG (government-wide or multi-departmental) goes to Secretary; • Periodically undertakes a risk based horizontal audit of the sign-off process in departments Approval of new spending initiatives by Deputy Heads and Departmental Ministers occur before submitted to TBS for sign off and recommendation to Cabinet or TB Ministers.

19. Sign-off: Outcomes • Reasonable assurance that new spending initiatives are “sound” before being submitted for approval to the DM, Treasury Board or Cabinet • “Sound” includes but is NOT restricted to financial management • At the government-wide level: • Comptroller General provides his assurance to the Secretary. • Secretary takes the assurances of Comptroller General into account before submitting to Treasury Board. • At the departmental level: • Chief Financial Officers provides assurance to the Deputy Head. • Deputy Head takes the assurances of Chief Financial Officer into account before seeking approval of the Cabinet or Treasury Board..

20. Summary Statement of Qualifications Professional & Experience Attributes of a CFO 1. Professional Attributes • University degree, preferably but not exclusively, in financial management. AND • Professional certification: CA, CMA or CGA 2. Experience Attributes • Experience, preferably but not exclusively, in management of public sector organizations • Extensive experience, preferably but not exclusively, in financial management of public sector organizations • PROFILE • Professional attributes • - University education • - Accreditation • - Financial mgt knowledge • Experience attributes • “Seasoned” financial expert • Leadership experience • Business knowledge + +

21. Summary Statement of Qualifications Executive and Personal Attributes of CFO 3. Executive Attributes • As defined for the Public Service with special emphasis for: • Leadership • Strategic thinking • Attention to details • Communication (upwards, downwards, internal and external) • Strong organizational compass • PROFILE • Executive attributes • Meets linguistic and competency requirements for public service executives • Personal attributes of CFO • Meets the specific personal attributes for a CFO A fully qualified CFO must meet ALL 3 attributes and CFO Specific Competencies

22. Other Initiatives • Grants and Contributions • Audited Departmental Financial Statements • Policy Suite Renewal

23. Capacity Building and Community Development

24. Office of the Comptroller General – new organization

25. Capacity Building and Community Development Sector

26. CBCD Mission • To strengthen & nurture the HR capacity of the internal audit & financial management communities by providing client focused initiatives & programs in partnership with those communities & others.

27. Capacity Building • Demographics • Recruitment • FORD/IARD • Pre-qualified pools • Interchange • Staffing and recruitment protocols (work descriptions, statements of qualification, competency profiles

28. Capacity Building • Professional Development and learning • Support to the functional community at all levels • FI-03/04 development program • CAP, AEXDP • Special development pools for targeted needs • Orientation and training for external recruits • Required learning for functional community and for non-financial managers at all levels

29. Capacity Building • Accreditation/Certification • Working with professional associations (CMA, CGA, CA, IIA ) • CMA/CIPFA – new joint certification program • CICA working on initiative to have certain Government of Canada departments be recognized for work placements • CGA exploring avenues for collaboration

30. Community Development • Liaison and outreach – federal/provincial/ international • Professional institutes and associations • Conference Board – new Council for Public Sector CFOs • SFO/SFFO communities • Move to community-based approaches to allow greater flexibility and opportunity for the community

31. Questions?

32. Contact info:Dena Palamedes613-952-6255Palamedes.Dena@tbs-sct.gc.ca