Fiscal Reporting and Performance Management – A Conceptual Framework

transcript

Ian BallChairman, CIPFA International

Japan IMF Sub Acc

Outline• Session objective• Context• Key changes• The conceptual framework• Implementation and marketing• Current status

Session Objective

• To present a conceptual framework that enables high quality fiscal and performance management

Why it is important…

Algeria (07/1996) Pakistan (12/1999)

Argentina (04/1993, 04/2005) Panama (05/1996)

Brazil (04/1994) Peru (03/1997)

Bulgaria (06/1994) Philippines (12/1992)

Chile (12/1990) Poland (10/1994)

Cote d'Ivoire (03/1998) Russia (08/2000)

Croatia (07/1996) South Africa (09/1993)

Dominican Rep.(08/1994, 05/2005) Ukraine (04/2000)

Ecuador (02/1995, 08/2000) Uruguay (05/2003)

Mexico (05/1990) Venezuela (12/1990)

Morocco (09/1990) Vietnam (12/1997)Nigeria (12/1991) Serbia & Montenegro (07/2004)

Source: Cruces J and Trebesch C, Sovereign Defaults: The Price of Haircuts (Preliminary Paper) December 2010

Countries with Sovereign Restructuring between 1990-2005 (Agreement Date)

• Objective was better performance from all parts of the economy

• Constitutional arrangements made for ease of action– No written constitution– No states– No Upper House of Parliament– “First past the post” electoral system

Context – 1980s New Zealand

Financial management and reporting reform in the wider contexts of:• Microeconomic reform• Public sector management reform

– State-Owned Enterprise Act 1986– State Sector Act 1988– Public Finance Act 1989– Fiscal Responsibility Act 1994

Context

Key Changes

• Permanent tenure for departmental heads replaced with fixed term contracts

• Chief executives with annual performance agreements

• Use of performance agreements and performance related pay within departments

Key Changes

• Very substantial decision-making authority granted to chief executives

• Public Service Manual abolished, Treasury Instructions emasculated

• No central services

Key Changes

• Departments responsible for own accounting systems

• Output focus reflected in performance and “purchase” agreements, budgets, appropriations, & reporting

• Capital charge introduced

Key Changes

• Accounting & appropriations moved to an accrual basis (1989 - 1991)

• Financial statements & budgets progressively moved to an accrual basis (1989 - 1994)

Key Changes

• Financial reporting in accordance with GAAP

• GAAP determined by Accounting Standards Review Board

• Audit required for financial and service delivery statements

CONCEPTUAL FRAMEWORK

• Performance • Accountability• Integration

Performance Defined

• “Owner” / “purchaser” distinction

• Inputs / outputs / outcomes

• “Crown” / department distinction

Accountability Framework

MINISTER

CHIEF EXECUTIVE

SPECIFICATION

PERFORMANCE DECISION

AUTHORITY

INCENTIVES

ON BEHAVIOR

PERFORMANCE

INFORMATION

Integrated Management Cycle

Strategic Planning

Budgeting• Capital• Operating

Operations / Budget Implementation

Monitoring/Reporting

“Purchase” Framework

Input Output Outcome

Cost Revenue Social Benefit

• Outcomes – impacts on the community (e.g., level of crime, standard of living or health status of the population)

What Are Outcomes?

For example:• Quantity• Quality• Timeliness• Location• Population group (e.g. socio-economic status,

children)

Outcomes Can be Measurable, Specifiable

Outcomes - An Outcome Hierarchy

Example:• Biodiversity• Preservation of endangered species• Preservation of endangered birds• Preservation of Yellow-breasted

Bunting

• Outputs – goods and services produced by an organization

What are Outputs?

Output Dimensions

• Quality

• Quantity

• Timeframe

• Location

• Cost

OUTCOMES

INTERVENTIONS Mix of actions to achieve

desired outcomes

RegulationsOutputs Transfers Taxation Ownership

Direct costs• Personnel• Travel• Stores

Indirect costs• Overheads

Driver training

Road traffic research

Vehicle inspections

Reduction in road deaths

Speed of transport

Pollution

INPUTS OUTPUTS OUTCOMES

Outcome 1 2 3

TransportEfficiency

Travel Comfort

Research Output 1 2 3

RoadTrauma

SpeedEnforcement

Education

“Ownership”

• Objectives and scope of business• Strategy – especially products/outputs• Financial performance• Capital maintenance• Risks

• Revenues• Surpluses/deficits• Cash flow performance• Debt level• Capital expenditure (new projects)• Cost of maintenance/replacement of assets

Financial performance indicators

Non-Financial Performance

• Productivity• Legal compliance• Overall service delivery performance

Capability - Financial

Financial Capability:• Net worth• Asset and liability measures

– Net debt• Contingent liabilities

Capability – Non-financial

Non-financial Capability:• Human capital• Physical assets• IT• Intellectual property• Others?

Capability - Additional Dimensions• Reputation• Organisational culture• Staff morale• Political confidence• Ethics and integrity• Stakeholder relationship management• ‘Market’ (operating environment) expertise• Form of organisation / structure• Modes of production e.g. processes and

systems, contracting out?

Managing Risk• Key personnel• Fire or natural disaster• Business/systems failure• Financial• Political• Policy• Legal/litigation• Others?

• Measured quite differently– Financial statements key to ownership

performance– Service performance statements for

purchase performance• May be traded off against one another• Purchase performance normally has

greater political significance

“Ownership” and “Purchase”

“Crown”/Department Distinction

Managing items on behalf of the Crown

Assets (DOC)

Liabilities (DMO)

Revenue (IRD)

Expenses (DSW)

“Crown”/Department Distinction

• Based on controllability• Reflected in output specifications• Reflected in balance sheet

Accountability Framework

MINISTER

CHIEF EXECUTIVE

SPECIFICATION

PERFORMANCE DECISION

AUTHORITY

INCENTIVES

ON BEHAVIOR

PERFORMANCE

INFORMATION

Performance Specification Documents - Departments

• Departmental Forecast Report• Corporate/Strategic Plan • CE Performance Agreement• Purchase Agreement

Performance Specification Documents - Government• Statement on Long-term Fiscal Position• Fiscal Strategy Report• Economic and Fiscal Update• Budget Policy Statement• Budget• Forecast Financial Statements• Estimates of Appropriation• Investment Statement

Decision-making Authority• Human resources• Purchasing• Capital expenditure • Accommodation• Financial management

– systems– information

Incentives

• Personal– term contracts– performance pay

• Departmental– purchase agreement– budget and appropriations– capital charge

Reporting

• Financial performance• Service performance

Departmental Reporting• Statement of Responsibility

• Statement of Accounting Policy

• Operating Statement

• Statement of Financial Position

• Statement of Cash Flows

• Statement of Contingent Liabilities

• Statement of Service Performance

Reporting by the Government

• Financial statements– Annual– Monthly

• Snapshot of the Financial Statements

Integrated Management Cycle

Strategic Planning

Budgeting• Capital• Operating

Operations / Budget Implementation

Monitoring/Reporting

Implementation Strategy

• Departmental level– empower chief executives

• Whole of Government– accounting first, then budgeting

• Early gains to key participants

• Commitment• Speed• Consistency• Authority• Expectations

Implementation Principles

Implementation1989 Passage of the Public Finance Act

Departments move to accrual accounting, budgeting &

appropriations

1992 First annual CFS on accrual basis

1993 First full consolidation of CFSFinancial Reporting Act

1994 Fiscal Responsibility ActFirst whole of government budget on accrual basisMonthly financial statements

1995 First CFS with full budget/actual comparison

Marketing Financial Management Reform

• Briefings– Internal– External

• Material eg “Putting it Simply”• Video “Setting a New Course”

Current Status

• Well-established (business as usual)• A number of reviews• Main threats are slow erosion and centralist

tendencies• But further enhancements as well

Reviews• Logan Report 1991• Accountability Review 1994• Norman and Stace 1995• Schick 1996• Review of the Centre 2001 Improvements suggested - little fundamental

change. Focus on outcomes

Impact of the Reforms on Managerial Behaviour

• Improved departmental cash management• Better control of spending - especially on

personnel and accommodation• More focus on management of human

resources• More focus on asset management

Impact of the Reforms on Managerial Behaviour

• Improved productivity performance• Improved fiscal performance

Fiscal Indicators

Net Public Debt (% GDP)

0.010.020.030.040.050.060.0

Net Debt

Net Worth

20,000

40,000

60,000

80,000

100,000

120,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% GDP$ million

Year ended 30 June

Actual $m Forecast $m %GDP

Rating Public Sector Reform

Change area

Overall comment Overall rating

Financial management; use of accrual accounting Planning for outputs New structures Separation of policy and delivery agencies Use of shorter term employment contracts How have MPs dealt with the changes? Managing the change process

Undisputed success, despite concern over costs A big advance, with some operating problems to resolve Greater clarity of roles, but more protection of territory needed between agencies A range of pluses and minuses More emphasis on performance but may undermine loyalty and create short-term focus Mistrust developing between politicians and managers is likely to affect performance of agencies Could have been much better done

No rating

B- to C

Source: The Centre for Corporate Change

“However, the vast majority of countries continue to provide no comprehensive data on their financial assets and liabilities which makes it difficult to judgetheir overall net financial worth…”

“Between 2004 and 2011, the number of countries that were able to provide the IMF with comprehensive balance sheets including both financial and nonfinancial assets and liabilities and an overall picture of government net worth increased from 9 to 14…”

“International standard-setting bodies (such as the UN, IMF, Eurostat, and IPSASB) should work to harmonize reporting standards for budgets, statistics, and accounts…”

Fiscal Reporting and Performance Management – A Conceptual Framework

Ian BallChairman, CIPFA Internationalian.ball@cipfa.org

Japan IMF Sub Acc