Canadian Public Sector Financial Management - Introduction

1. Canadian Public Sector Financial Management - Introduction Andrew Graham Queens University School of Policy Studies http://post.queensu.ca/~grahama/

2. You had a choice: this course or Objectives of the Course

3. What is Wrong with You? Let’s discuss this a bit……… • Let’s go around the room to see what you expect to get out of the course • One or two areas of concern or objectives only • We’ll then see if we can meet your needs

4. Objectives of the Course – ‘As Advertised’ Focus on tools and understanding in managing public finances in order to carry out good public policy Public sector financial management as a policy issue itself: accountability, due diligence, relationship to taxation and debt

5. Objectives of the Course – ‘As Advertised’ An understanding of, but not an expertise in, the basic elements of financial management Over the course, we will move from a broad understanding of the macro elements towards more hands-on management of financial responsibilities of any public manager

6. Objectives of the Course – ‘As Advertised’ To help you be an intelligent user of financial information, take an informed approach to your role as a financial manager and carry out your responsibilities as a public sector financial manager

7. What the course is not about • Public finance – taxation policy, economic policy • Getting you certified as a CA – we are doing a fly past not an accreditation process • Seeing if you can do detailed calculations or math

8. Structure of the Course Six areas of focus: • Public Sector Financial Management • Concepts of Accounting and Financial Statements • Budgeting: Forms and Process • Managerial Control and Controllership • Expenditure and Cash Management • Reporting and Accountability

9. Any Questions about the course, structure, etc? Remember, there is no stupid question and make no assumptions that you are not comfortable with.

10. Where Financial Management Fits into the Cycle of Public Sector Management

11. Policy, Direction: The Public Good to be Achieved: the Policy Process It’s about the money.. Accounting, Evaluating and Reporting Resourcing the Policy Objectives: the Budget Process Delivery the Public Good: Operations, Management and Control

12. Public Sector – what is it? • Public sector larger and more complex than government in traditional sense • Course adopts an inclusive focus: • Government, all levels • Near government: agencies, crowns (to a limited extent), special entities • Greater public sector entities: health and education • Not-for-profit: voluntary organizations

13. Public Sector – what is it? • Limitations to such inclusion: • No public entities that use private sector basis of accounting or operate on fully commercial basis • General adoption of general public sector and voluntary sector GAAP and CICA Accounting Standards, but not others • Time and scope cannot accommodate all variations, especially in areas such as funds management, fund raising, etc.

15. Government spends a lot of money – 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

16. Government spends a lot of money – and it belongs to you 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. What is a capital expenditure?

17. Government spends a lot of money – 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

18. An Era of Surplus

19. Public Finances are complex – example: transfers

20. Source: PWGSC: http://www.tpsgc-pwgsc.gc.ca/acquisitions/text/ggwrp/docs/final_report-e.pdf

21. Federal Government Contracting Activity Contracts below $25,000 Number for all departments 1,449,332 Dollar Value 1,393,514,000 Contracts over $25,000 Number for all departments 22,369 Dollar Value 7,699,610 Total For All Contracts Number for all departments 1,471,701 Dollar Value 9,093,124,000

22. Federal Government Purchases of Services, Lands and Equipment for 2004-2005

23. The True Size of Government(in millions) – from an American Perspective 1.90 full-time-equivalent civil servants 1.50 uniformed military personnel .85 postal workers 5.65 contractors 2.40 grantees 4.65 state and local 16.95 Total

24. From: “Just How Much Bigger is Government in Canada?”, F. Steven Ferris and L. Stanley Werner, Carleton University, October, 2006

26. The Not-for-Profit Sector • Taking health care entities into account, the revenue of the not-for-profit is $112 billion • Significant portion of that is from other governments so funds are transferred • One good reason to account for not-for-profit as part of the greater public sector

27. And Government has agencies… 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

28. Why Financial Management? • Governments could not function without funds for policy and programs • Money is a scarce commodity and competition for it is fierce which makes its effective management critical

29. Why Financial Management? • The money is public and administered in a democracy thereby creating a broad base of ownership and interest. Accounting for those funds is a primordial value of democratic society • Budgeting and financial management procedures are the accounting manifestation of public policy

30. What is Financial 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

31. What is Financial Management?: Issues 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 two • Financial management is a two way street: serving managers’ needs and serving the accounting needs of the public sector

32. What is Financial Management?: Issues and Discussion • Have to recognize that actual financial management practice also involves such elements as • allocating resources, • monitoring financial and program performance, • monitoring the use of funds within assigned budgets • deciding on adjustments to spending or fees as a result of financial information and • accounting for all the above

33. What is Financial Management?: Issues and Discussion • More than just receiving reports and reacting to them • Financial management is involved in sound policy making right through to accounting for past performance • Especially crucial in program delivery areas where resources are always scarce and demands high requiring the most effective means to manage resources.

34. What is Financial Management?: Issues and Discussion • Financial resource management and accounting are a hugely powerful metaphor for government performance • Often financial information serves as a surrogate for performance information

35. Course Framework Standards and Principles: Accrual, GAAP Financial Accounting and Reports Budgets: Process Dynamics Budgets: Form and Function Understanding the Canadian Public Sector Capital Planning and Budgeting Management Control Managing the Budget: Cash Forecasting Reporting and Accountability

36. Positioning Financial Management Improving Value for Money Control, Probity, Accountability Measuring and Rewarding Performance Financial Management Supporting Good Decision- Making Enabling Change Managing Risk Improving Performance

37. What is Financial Management? Alternative Definition that encompasses Finkler: Financial Management is that part of the management and policy process that focuses on financial resources and information to deliver services and support managerial decision making.

38. The Framework of Financial Management

39. Financial Management Financing of Programs Financial Accounting

40. Financing of Programs Source of Funding Deployment and Allocation of Resources Generation of Revenue

41. Financial Accounting Accounting for Management Accounting for Financial Purposes Managerial Accounting Generates financial Information for decision Making, accountability And planning Financial accounting Generates retrospective Information of financial Position and performance.

42. Accounting for Management Optimal Management of Allocated Resources – Cash Management Performance Reporting Planning Future Present Past

43. Accounting for Financial Purposes Internal Reporting External Reporting Audit

44. Source of Funds Allocation of Funds Program Financing Generation of Revenue Planning Cash Management Management Accounting Financial Management Performance Reporting Financial Accounting Internal Reporting Financial Accounting External Reporting Audit

45. What are the ‘basic elements of public sector financial management’? • Budgets and fiscal policy • Government as an economic actor • Budgetary and planning processes in government • Public sector accounting practice, standards and rules • Managing budgets

46. What are the ‘basic elements of public sector financial management’? • Control • Understanding financial statements • Cash management and cash forecasting • Accountability and reporting

47. What makes government financial management different • Government’s goal is to provide services, regulations or policies, not make a profit • Implications: net cost of service and affordability take on more importance than a bottom-line of financial performance • Inputs and process take on much more meaning as equity and distributional measures

48. What makes government financial management different • The principle source of government revenue is taxation • Implications: the captive nature of taxpayers as involuntary contributors means that they will want access to simple and understandable information about what has been done with their money

49. What makes government financial management different • Governments operate, for the most part, in a non-competitive environment • Net cost of services and affordability are therefore not enough to provide adequate measurement of efficiency and effectiveness outside the market model • Performance measurement is needed but it is dangerous to take one single measure as reflective of the reality of government services

50. What makes government financial management different • Government budgets portray public policy, establish revenue estimates, expenditure and financing requirements, and are important in the government accounting cycle • Actual-to-budget information becomes an important element of financial reporting