Effective Transfer Payment Management

1. Effective Transfer Payment Management Presenter: Indira Ramdhan Office of the Provincial Controller Treasury Board Office Indira.ramdhan@ontario.ca February 15, 2012

2. Today’s Discussion • Provide an overview of the current transfer payment (TP) environment. • Examine how to use a risk-based approach to effectively manage TPs. • Outline considerations when assessing a TP recipient’s governance capacity.

3. Key Messages • “Accountability is the cornerstone of effective transfer payment program management.” • “A risk-based approach is integral to the proper management of TP accountability and must be built into each step of the TP Accountability Cycle.”

4. The World of Transfer Payments

5. What are Transfer Payments? • Transfer payments are government transfers of money to an individual, an organization or another government for which the government does not: • Receive goods or services directly in return, as would occur in a purchase or sales transaction; • Expect to be repaid in the future, as would be expected in a loan; or • Expect a financial return, as would be expected in an investment. • Types of TPs: • Entitlements • Shared-cost Agreements • Grants One-time funding Pilot projects Research Capital Operational

6. Why are Transfer Payments so Important? TPs as Share of Total Government Expenditures ($121.6B) 2010-11* • Major part of government spending • Spending taxpayers’ money • Increasingly, the primary means of delivering public services • Provides the means to support “grassroots” innovation • Growing importance of not-for-profit sector as an agent of socio-economic change $12.7 Billion $108.9 Billion * On appropriated basis. Excludes consolidation adjustments and $8.8B Treasury Program (interest on debt). Source: Government of Ontario Public Accounts, 2010-11

7. Balancing Accountability and Capacity / Effectiveness Citizen Accountability RISK MANAGEMENT Client Group Capacity / Program Effectiveness Clients

8. Transfer Payment Accountability Directive Revised TP Accountability Directive • Establishes the principles and mandatory requirements for stronger oversight of transfer payments. • Applies to ministries and classified agencies that administer TPs. • Transfer payments not meeting the requirements of the TPAD must have Treasury Board/Management Board of Cabinet (TB/MBC) approval. • Key principles: risk, good governance and value-for-money.

9. Requires a risk-based approach to TP management Also applies to classifiedagencies that provide TPs Only legal entities or individuals (entitlement programs) can receive transfer payments according to approved criteria, in amounts not exceeding requirements, and in accordance with ministry RbPs Ministries and agencies must consider TPR’s capacity for effective governance and controls Must balance public service accountability and the TPR’s responsibility and capacity to deliver Ministries must have oversightcapacity to ensure TPRs are providing services for which funds are received Corrective action is to be in proportion to the risk associated with the degree of non-compliance and be progressive in nature TB / MBC approval is required for exemptions / exceptions Key Changes to the Directive

10. Transfer Payment Accountability Cycle

11. Using Your Professional Judgment • Use of your professional judgment and discretion is required throughout the TP cycle • When defining expectations: • Determine what is realistic for both parties • Before agreements are signed and money is flowed: • Ensure the TPR has met all of the requirements • Ongoing monitoring and reporting requirements: • Determine if the TPR is meeting your requirements • Are there are any impacts if the TPR is not meeting the requirements set out in the agreement? • When a TPR is not meeting its objectives: • Determine what the appropriate corrective action should be based on the degree of non-compliance • Whenever you interact with TPR staff: • Be mindful and professional in your day-to-day communications and behaviour

12. A Risk-based Approach

13. Risk Management

14. What is Risk / Risk Management? • Risk: the chance of something happening that will affect the achievement of objectives. • Risk can represent an opportunity or a threat to the achievement of objectives. • Risk Management:active process of systematically identifying risks, assessing exposures, and developing appropriate action plans so that risks are managed in a way that will enable a recipient to meet its business objectives.

15. Why use a Risk-based Approach? • It is mandatory! • Risk Management is central to effective TP management • One size does not fit all • Improves understanding of challenges and threats and opportunities • Helps meet strategic and operational objectives • Risk Management formalizes this process, brings more rigour to it and requires documenting and reporting conclusions, plans, actions to be taken and results. • Risk Management aids the program staff by helping to prioritize and decide where best to focus your efforts.

16. Risk Management Process State Objectives Identify Risks Assess Risks Plan & Take Action Monitor Risks

17. Step 1: State Objectives State Objectives Identify Risks Assess Risks Plan & Take Action Monitor Risks Ask: Why does this program exist? • The ministry/classified agency should have already defined objectives, functions, eligibility criteria and TPR obligations for all TP Programs. • Key objectives, performance measures and targets of the program should be stated simply, clearly and accurately. • TPRs should be perfectly clear about why the initiative is being undertaken and what is expected of them.

18. Step 2: Identify Risks Identify Risks State Objectives Assess Risks Plan & Take Action Monitor Risks Ask: What are the threats to meeting the program objectives? • Use a structured approach to ensure that all risks threatening the objectives are identified and documented prior to the risk assessment Ask: What is being done about the possible threats? • Ensure all activities to manage the risks are identified and documented prior to the risk assessment • Increase awareness among staff of the various risks and strategies to manage them

19. Risks

20. Step 3: Assess the Risks Assess Risks State Objectives Identify Risks Plan & Take Action Monitor Risks Ask: How likely are the threats to occur? • Prioritize and assess risks and strategies • For each risk identified in Step 2 – assess it based on likelihood of occurrence & potential impact (consider existing and operational controls) Ask: If the threat materializes – what kind of an impact would it have on the objective? • Prioritize risks based on the assessment • Identify potential control gaps / residual risk (i.e. typically, risks that may not be adequately managed)

21. Step 4: Plan and Take Action Plan & Take Action State Objectives Identify Risks Assess Risks Monitor Risks Ask: Which risks do you need to act on? How? • Identify risk exposures (residual risks) and determine whether they are acceptable • For risks deemed acceptable, the rationale should be documented by the person responsible for it • For risks deemed unacceptable, develop, document and implement action plans to manage them • Determine correctiveactions that need to be taken (by whom & by when) to adequately manage each risk exposure

22. Sample Risk Impact-Likelihood Matrix

23. Step 5: Monitor the Risks Monitor Risks State Objectives Identify Risks Assess Risks Plan & Take Action • Periodically monitor the risk profile and effectiveness of action plans, revising as necessary, e.g., conduct mandatory risk-based reviews • Was action taken under the Plan and Take Action step? • Share relevant risk-related information on a timely basis in regular reporting as per the TP agreement, and as TB/MBC or Minister of Finance may request • Learn from experience and foster a pro-active risk-responsive approach to decision making

24. Risk-based Approach to TP Management • Integrated throughout the TPA Cycle (see TPA Cycle diagram) • One size does not fit all • Balance public service accountability with the TPR’s responsibilities and capacity to deliver • Document, Document, Document!!!

27. Remember . . . Risk is both opportunity and threat!

28. Transfer Payment Recipient Governance

29. What is Governance? • Governance refers to the processes and structures through which power and authority are exercised, including the decision-making processes. • Good governanceis about both achieving desired results and achieving them in the right way.

30. TP Recipient Governance • The TPAD requires ministries and classified agencies to consider the TPRs’ capacity regarding: • Expertise and experience necessary to discharge responsibilities in compliance with ministry requirements; • Required and appropriate governance and control structures;and • Reliable, accurate and timely reporting.

31. executes board’s strategies • not normally a board member but can be an ex-officio member • accountable for operations Operations Finance Human Resources What is the Organizational Structure? Other Funders Ministry/TP Program Media Board of Directors Sub-committees Legislation Chief Executive Officer/ Executive Director

32. Some Common Roles ofBoards of Directors Set strategic direction Appoint the leaders (e.g., CEO, senior managers, committee members, project manager) Can delegate responsibilities to sub-committees Directors’ Key Roles Monitor performance & respond as required Determine or approve the mission & objectives (i.e. what is valued) Evaluate activity plans and budgets Advocate externally Provide financial, legal & ethical oversight Allocate resources effectively

33. Poor service and communications amongst clients and/or partners, TPRs and ministry Excessive turnover of executive directors/CEOs and/or board members Difficulties in recruiting board members Lack of (or weak/poor) relationship between ministry / classified agency and TPR Chronic, persistent deficits Low attendance at board meetings Failure to address conflicts of interest Unclear roles and responsibilities Irregular reporting practices Partisan or conflicted boards Signs of Weak Governance

34. Volunteer boards may not have the range of expertise needed to fulfill fiduciary responsibilities. Board membership may not be representative of the population served (changing demographic or cultural profiles of clients). Boards may assume an operational, rather than an oversight role. Overdependence on key (or long tenured) administrators. Small organizations can have underdeveloped processes and procedures but deliver tangible “grassroots” results. Capacity limitations can result in roles and responsibilities being blurred. Performance management (financial and non-financial) maynot strongly link to decisions. Established organizations can be wedded to an single or dated method of delivery. TP Organizations: Governance Challenges

35. Assessing Board Effectiveness Interview select stakeholders Meet Staff Confirm TPR is legally established Look at client-satisfaction surveys Meet the Board Ask for the Business / Risk Management Plan Review manuals/other documents Review annual reports Look at TPR’s by-laws

36. Importance of Good Governance • Ensures accountability and value-for-money for the public • Provides stability and transparency • Ensures efficient use and management of public resources • Clearly defines roles and responsibilities • Provides a yardstick to measure performance against agreed expectations • Fulfills legal obligations and mandates • Enables and monitors desired client outcomes

37. Pensions Funding: Government (Fed / Prov.) investment Established governance Professional skills Assets (land, buildings) / Liabilities Separation of role / duties Funding Incorporated / financially complex Hire staff Private donations Volunteer (Non) Corporate Flat organization Organization Maturity Model Organization Maturity Size ($ / # FTEs / OPs)

38. Other Tools

39. Relationship Management • An effective and ongoing relationship between a program manager and a TP recipient organization is a critical ingredient for success. • These relationships hinge on the interplay between three dynamics: • Legal: TPR and the Ministry / classified agency • Formal: Ministry / classified agency staff and TPR staff • Personal: between individuals

40. Financial Management • Financial management is the process by which the financial aspects of public sector business are directed and controlled to support the delivery of the organization’s goals. • Importance of TP financial oversight • TPRs are spending public money • Concise, timely, accurate reports and records are excellent indicators of management effectiveness • Financial information supports key decisions • Financial information facilitates identification and management of risk

41. What is Performance Measurement? • Performance measurement (PM) is the process of assessing results – to improve them if possible • PM tracks how well program objectives are being achieved • Performance measures (PMs) can provide you with accurate information for risk management and decision-making • The better informed your risk management and decision-making, the better the TP results and value for money

42. Resources • offers 2 day course – Transfer Payments: Effectively Managing Transfer Payment Programs • Transfer Payment Accountability Forum chaired by MGS’ Corporate Policy Branch • Examines issues and shares best practices

43. Questions or Comments