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Fiscal Reporting and Performance Management – A Conceptual Framework Ian Ball Chairman, CIPFA International Japan IMF Sub Acc
Fiscal Reporting and Performance Management – A Conceptual Framework
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
Year
Net Debt
Net Worth
0
10
20
30
40
50
60
..
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
A
B+
B
No rating
B- to C
C-
D
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 [email protected]
Japan IMF Sub Acc
