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Simplifying Internal & External Financial Reporting at all PS levels

Simplifying Internal & External Financial Reporting at all PS levels. David Spearritt Director, ORION Consulting Network Pty Ltd. Outline. The real purpose of financial reporting Beyond financial reporting Trends in reporting methods, styles

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Simplifying Internal & External Financial Reporting at all PS levels

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  1. Simplifying Internal & External Financial Reporting at all PS levels David Spearritt Director, ORION Consulting Network Pty Ltd

  2. Outline • The real purpose of financial reporting • Beyond financial reporting • Trends in reporting methods, styles • Checklist of issues to consider when developing reports • How to find out what report readers need/want • Why less is more?

  3. Purpose of Reporting? • Statutory requirement? • Good practice? • It’s my job?

  4. The Real Reason Financial information is Information for decision making

  5. Decision Making • Who are the decision makers? • What decisions do they need to take? • What does success/failure mean?

  6. Internal Reporting • Widespread dissatisfaction with internal reporting • Financial management & knowledge management • A key feedback systems for organisational learning & improvement • Needs to link to organisational objectives • Shift towards holistic reporting eg KPI’s/BSC • Eg. Balanced scorecard/ KPI’s/ QBL

  7. External Reporting

  8. Relevant MDA Practices • Management Discussion & Analysis (MDA) • Australian MDA driven by Corporate concise reporting option • Widely utilised by listed companies. • Optional • Shareholders can elect to receive full AR, concise or none at all. • Now a key part of Public Sector Reporting • Still only half the equation financial)

  9. Public Sector Specifics

  10. Public v Private Sectors Organisational objectives • Private Sector • Financial returns on financial investments • Only Govt Businesses have similar objectives • Public Sector • Community Returns on Taxes • Some variations • Risk / Return relationship differs

  11. Private Sector Financial Return Financial Investment Public Sector Social Returns Taxes or Revenue or Social Returns Community Investment Basis of financial reporting

  12. PS Reporting Dilemma • Financial results are only part of the equation • What was done with the money is just as important • Eg. – value for money. Commitments achieved etc. • This is why PS budgets are more important than financial results

  13. Examples • Investors need to know whether to invest or sell in a company • Managers need to know whether to cut back costs, kick butt etc • What about public sector? • Choose to pay taxes???? • Who to vote for? • Accountability for taxes spent??

  14. Accountability Definitions • Pooled funds – taxes spent for purpose raised • Line item controls • Program budgeting • MFO/ Output budgeting • Inputs -> Outputs matrix

  15. Private/Public Sector Difference • Private Sector • All of the return on investment equation is in the financial statements • Focus on financial returns and risks • Public Sector • Financial results are only part of the ROI equation • Need to match with services/achievements

  16. Risk/ Return Relationships

  17. Framework • Organisations need to monitor and report on: • Operating capacity • Financial risks • long term solvency • liquidity • Achievement of community objectives

  18. Sector Reporting Focus

  19. Beyond Financial Reporting

  20. Financial Reporting Bugbear • Clients never happy, but don’t know what they want!! • Need to understand their business drivers and report on that • Internal consulting • Simplified, non-numeric reporting • Trial and error

  21. Internal Reporting • Management –limited ability to assimilate information • Reports must support decision making • Accurate, timely, reliable, • Include analysis and insights on implications • Forward looking (forecasts, etc) • Reports must support decision making (Cont) • Language of reader (non-numeric, graphs, ratios, charts, explanations and analysis) • Short reports by exception/ pertinent issues • Peer comparisons/benchmarking

  22. Best Practice Fin Reports • Short – not the full ledger • Language of reader (non-numeric) • Graphs, ratios, explanations • Exceptions – decisions required • On-line – drill down • “Accounting is information for decision-making” (What Decision?) • Blend with non-financial info (community returns)

  23. Public sector organisational management cycle

  24. Financial Management Cycle

  25. Local Government Issues Achieve community objectives • Delivery of Promised Outcomes • Value for Money Manage financial risks • Budget setting & monitoring • Integrity of Finances (sustainable revenue) • Borrowings • Capacity to Manage “Shocks” (Reserves) • Forward Financial Planning

  26. Local Government Issues (cont) Enhance operational capacity • Paying Bills on Time • Managing Infrastructure • Adequate provision for depreciation • Systems, processes, controls, audit Competencies/innovation and learning • Innovation(other income streams -enterprise) • External funding contributions • Employing capable finance Staff • Understanding financial management

  27. How to find out what report readers need/want

  28. Reporting Survey • Accrual accounting widely accepted, • But overly complex and too compliance dominated • Managers are feeling the pressures of • cost increases • revenue pressures • increasing community expectations • need to manage their existing assets • Executives spend small proportion of time reviewing financial reports • average 1 hour per week • mainly trying to identify any issues for concern • Reporting needs: • short, • simple to understand • timely

  29. Report Reader Preferences • Shorter reports (5-10 pages); • Simpler variance reports • by exception • major timing issues • highlight problems for review • (not “seek and ye shall find”) • More use of trend and other graphs; • Links between expenditure & services/works performed • Matching revenue / expenditure items • Simpler terminology and additional training • Online enquiries with drill-down capability • Reduced statutory requirements • Improved internal reporting • Customised reports to individual readers • not same standard report.

  30. Why less is more

  31. Less gives more • Focus on decisions to be addressed • Highlights areas of concerns • Makes best use of management time

  32. Key themes • From - Compliance-based external reporting applied to internal reporting • To - Good internal reporting leads to good external reporting • Shift from compliance external reporting to assessing value for money • Shift from ‘selling’ the organisation to balanced reporting

  33. Key Themes (cont) • Reporting = communication, not numbers • Simplification = making it simpler for readers of financial information to make informed decisions • Simplification, not = simplifying requirements for report preparers • More is required, not less, in terms of reporting and value adding advice

  34. Checklist • Identify business drivers • Identify each managers decision framework • Identify tolerances • Identify relevant non-financial data to join • Ensure chart of accounts has necessary info • Negotiate exception report framework • Styles to suit readers • Trial & error

  35. More Information • Website including this paper: www.orionco.net (also includes SFR report for LGAQ) • To contact David Spearritt david@orionco.net 1300 767 466

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