Download 11. Reporting Performance

Accountability,
Financial Reporting
and Performance
Measurement
Andrew Graham
Queens University
School of Policy Studies
Overview and Objectives
• Financial systems and financial information are
changing to meet more demanding needs
– that link financial information with other non-financial
data,
– that provide managerial information about operational
performance and
– that provide public information about the organization’s
overall performance against its plan and in terms of its
stewardship of public funds
• Government and public sector organizations are
using a variety of tools to build better
performance management.
The Public Sector Accountability Landscape
• “Governments are held to a higher
standard of accountability than a
business or a not-for-profit
organization.” – CICA Handbook
The Public Sector Accountability Landscape
• “Accountability in the voluntary
sector is multi-layer. It means
accountability to different audiences,
for a variety of activities and
outcomes, though many different
means.This multidimensional nature
is the principal complexity of
accountability in the public sector.” –
VSI, Building on Strength…..
The word to watch (and never use):
Accountabilism
•Yes, that combines the word-of-words these
days, accountability, with cannibalism.
•Sound odd to you? Even been in front of a Public
Accounts Committee in Ottawa or any province?
•David Weinberger ([email protected]), coauthor
of The Cluetrain Manifesto: The End of Business
as Usual (Perseus, 2000), defines accountabilism
as “the practice of eating sacrificial victims in an
attempt to magically ward off evil.”
Drivers of Public Sector Accountability
• Transparency
• Multiplicity of accountabilities
• Hierarchical and horizontal nature of
accountabilities
• Qualitative and quantitative
• Focus on both results and compliance
• Complexity
What then is Accountability?
• Assignment of authority, power and
resources
• Accountability for performance and
results
• Assignment of duties
• Requirement to report
• Exercise of judgement on
performance
Authority, Power,
Resources, Goals
Individuals or
Organizations
Accepting
Accountability
Individuals or
Organizations
Conferring
Accountability
Accountability
for Performance,
Results and
Efficiency
The Accountability Continuum
INTERNAL ACCOUNTABILITY
EXTERNAL ACCOUNTABILITY
Management
Coefficients
Program
Coefficients
Financial Information
The Accountability Continuum - Comments
• Progression of accountability from
day-to-day operations to full public
accountability
• Information needs change along the
way
The Accountability Continuum - Comments
• Financial data is important at all
stages, but often at different
The Accountability Continuum - Comments
• Need in financial management to ensure that
there is a flow of financial data from one level to
the next to avoid overlap of systems
• Often operational information not well fed into
financial data, leading the creation of ‘black books’
– systems that line managers need to control their
resources separately from financial information
systems that are more ‘corporate’ i.e. oriented
towards higher level upward reporting or external
reporting
The Accountability Continuum – Data
and Information
OPERATIONS
• Staff Activity
Reports
•Clients Served, calls
taken
•Routine Check Lists –
procedural safeguards
•Forms Completed
•Level of work versus
standards - variance
MANAGEMENT
•Cost Reports
•Cash Flow Reports –
variance against plan
•Attendance
•Per Unit Costs –
variances
•Overtime Used
•Period-to-Period
Financial Performance
The Accountability Continuum – Data
and Information
COMPLIANCE
•Inspection Reports
•Financial Reports:
Balance Sheet,
Income Statements
•Performance against
standards –
regulatory, legislated
•Professional
standards
compliance
OUTPUTS
OUTCOMES
•Performance
against plan or
target
•Socio-economic
Indicators
•Annual Reports
•Auditors’ Reports
•Evaluations
•Value for Money
Audits
Where Financial Reporting Fits In
• Public trust issues with public funds
– Fiduciary responsibilities
– Governing legislation on fund management
– Audit and inspection functions
• Financial information as a surrogate for
performance data
– Absence of program data
– Issue of linking financial and non-financial
results reporting
Where Financial Reporting Fits In
• Equity: did I get mine
Users of Financial and Performance
Information
•
•
•
•
•
Citizens
Media
Interest groups
Legislatures and boards of directors
External oversight bodies
Users of Financial and Performance
Information
• Internal oversight bodies
• Central agencies of government
• Senior managers within agencies and
governments
• Staff and clients of organizations
• Individual donors and funding organizations
• Creditors and credit-rating organizations
Why all this reporting?
• To demonstrate accountability
• To permit users to assess the financial
viability of an organizations
• To demonstrate compliance with
legal requirements
Why all this reporting?
• To demonstrate appropriate use of funds
• To provide information to permit
evaluation operating results, including:
– Source of funds
– Meeting objectives
– Changes in financial and operational conditions
• To assess the overall ability of the
organization to meet its objectives
Principles of Good Reporting
• Focus on a few critical aspects of
performance
• Look forward as well as backward
• Explain key risk considerations
• Explain key capacity considerations
Principles of Good Reporting
• Explain other factors critical to
performance
• Integrate financial and non-financial
information
• Provide comparative information
• Present credible information, fairly
interpreted
• Disclose basis for reporting
Basic Structure of Government Financial and
Performance Reporting – THE CAFR: Comprehensive
Annual Financial Report
BASIC FINANCIAL
STATEMENTS
MANAGEMENT’S
DISCUSSION
AND ANALYSIS
REQUIRED
SUPPLEMENTARY
INFORMATION
- STATISTICS
Basic Structure of Government Financial and
Performance Reporting – THE CAFR: Comprehensive
Annual Financial Report
• CAFR has many names and different
ways of being presented: Annual
Report, Financial Statements,
Performance Report
Basic Structure of Government Financial and
Performance Reporting – THE CAFR: Comprehensive
Annual Financial Report
• Three elements remain the same: set by
accounting standards, but all form a complete
picture:
– financial data,
– performance data and explanations (MD&A)and
– statistical supports
• Distinct evolution towards less detail on the
financial side and more on the MD&A side: telling
the story and linking to non-financial data is more
important to improve comprehensibility, resulted
from complaints by citizens and legislators that
detailed financial data alone does not tell the full
story
Quality and Integrity of Financial
Information is Essential
• Elements that will ensure that financial
information reports are accepted:
–
–
–
–
–
–
Use of GAAP for financial statements
Use of GAAP for budgeting
Use of CAFR format
Receipt of an unqualified audit report appended
Timeliness of information
Effective use of ratios (in financial analysis) to
determine the state of liquidity, debt to assets,
debt to tax base
Quality and Integrity of Financial Information
is Essential
• Increasingly, other factors also come into
play:
– Clear linkage to budget plans and
outcome/output measures
– Comprehensible notes and explanations
– A logic model that links what the government
does, the costs of the activity and the value (in
public policy terms) it creates
– This logic model may be implicit to an
experienced management team and governing
body, or it may have been actually documented
Quality and Integrity of Financial Information
is Essential
Program definition structures that are reflected
in statements of accounts for external reporting
and internal management
Credible accounting and information systems
that will extract and summarize the financial
and non-financial information
A data capture and research capability that will
ensure that all the key information
requirements from internal and external
sources are being captured with the frequency,
reliability and accuracy needed for the intended
purposes
What does Integrating Financial Data and
Non-Financial Data Mean?
• A key stewardship issue for governments:
do they take the costs (all costs) into
account when making decisions
• Goal is not only to put costs information
and results information into the same
overall reporting structure
• Goal is to relate one to the other
“The current operating environment within
government encourages managers to
focus on the amount of their original
allotment of money left to spend (free
cash balance) and not on the full accrual
cost of their programs and activities. As a
result, full cost information is not
considered as important as cash
expenditure information. “
Auditor General of Canada, 2004
What does Integrating Financial Data and
Non-Financial Data Mean?
• Assignment of costs move significantly off a
line-item budget approach that assigns
costs to a traditional set of cost drivers
towards a program budget approach that
links costs to results
• Effective alignment takes place over the
entire budgetary cycle and over a number
of years before it is useful for public
discussion
What does Integrating Financial Data and
Non-Financial Data Mean?
• Fully integrated reporting would show or
explain:
– How management bridges between annual costs and outcomes
achieved over the longer term
– How funding levels were derived from decisions about goals
– Alternatively, how resource availability influenced the selection
or achievement of goals
– The return on investment expected and achieved.
What does Integrating Financial Data and
Non-Financial Data Mean?
• Phases in integrating financial and nonfinancial information:
– Framework set: program objectives, results
defined
– Results aligned: results described and measured
– Resources aligned: costs associated with key
results are assigned to them
– Integration: relationship between resources and
results are described and demonstrated
Building the Bridge to Performance
Measurement and Reporting
• Performance measurement has increasingly
been seen as necessary to complement
enhanced accountability for agencies,
departments and third parties
• Greater measurement is intended to
provide an incentive for government
service providers to become more effective
and efficient.
Performance Indicators Performance Indicators Examples
Type of Indicator
Definition
Example
Input Indicator
Measure of Resources
Employed
Equipment Needed
Employees Required
Supplies Used
Output Indicator
Quantity of Service
Provided
Number of projects
Number of classes
Number of people served
Effectiveness/outcome
Indicator
The degree to which the
intended objection of the
service is being met.
Percentage increase in
employment
Decrease in crime rate
Efficiency Indicator
Cost per unit of output
Cost/liter of water
delivered by household
Source: Adapted from Harry P. Hatry, 1977, How Effective are your Community Services? Washington,
D.C.: The Urban Institute
Building the Bridge to Performance
Measurement and Reporting
• Traditional government accounting system
normally was designed to respond to the
accountability demands of society –
narrowly defined as being honest
• Old systems not designed to assist in
achieving of more efficient and effective
uses of public resources
Building the Bridge to Performance
Measurement and Reporting
• We are in the midst of movement away from
systems that simply encourage government to act
honestly to ones that display uses of resources
that are policy-based as well as end-result based
• New government accounting systems are
generally now only one part of the ways that
government now report
• New systems are designed to account for results,
stimulate improved performance
Building the Bridge to Performance
Measurement and Reporting - Examples
• Government of Canada: Estimates now made up of
– Spending Estimates,
– Report on Plans and
– Priorities and Performance Reports
• Government of Alberta:
– Consolidated Financial Statements, which provide an overall
accounting of the Government’s revenue and spending,
and assets and liabilities.
– Measuring Up, which reports on the progress achieved on
core government performance measures
How Alberta’s Integrated Performance
Measurement Works
• The government's business plan is an ongoing
three-year plan that focuses the government's
efforts on three core businesses - People, Prosperity
and Preservation.
• Goals are established for each of the cores
businesses.
• To track progress in meeting goals, "core"
measures are determined and targets set.
• Each year in Measuring Up the government reports
to Albertans on progress made towards achieving
the goals set out in the government business plan.
How Alberta’s Integrated Performance
Measurement Works
• The intention is to focus on high-level measures
that give Albertans a good overall indication of
progress towards achievement of Alberta's goals.
• The core measures are like the gauges on the
dashboard of a car providing the most essential
information. Supplemental information on the
core measures is also provided in Measuring Up to
give citizens more information.
• Measuring Up includes an explanation on how major
influences or external factors affected
performance results. .
How Alberta’s Integrated Performance
Measurement Works
• More detail on performance is provided through
ministries' annual reports, which is the second tier
of reporting to Albertans on performance.
• Each ministry prepares a set of "key" performance
measures that relate to their business plan goals.
These measures are reported in the fall of each
year.
Uses of Performance Measures
• Performance measures can be used in several
ways, including:
– Controlling costs - enabling managers to
identify costs which are much higher or lower
than average and determine why these
differences exist.
– Comparing costs of similar services – Ontario
government’s use of Adequacy Standards and
introduction of performance standards in
municipal governments
Uses of Performance Measures
• Comparing processes - analyzing performance of a
services performed with a particular technology,
approach or procedure.
• Maintaining standards - monitoring service
performance against established performance
targets or benchmarks.
• Fulfilling external accountabilities to legislators,
external review bodies, stakeholders, the public
Understanding the Behavioral Elements of
Performance Management
• All data and information occur in a context
• Financial data is not hard and fast – always
subject to interpretation and attribution of
meaning
• The movement towards adding elements of
performance information makes this even
more challenging, even though the goals
are worthwhile
Understanding the Behavioral Elements of
Performance Management
• Presentation of information, its quality and uses is
very important elements of performance
management
• To understand the environment in which the
government managerial accounting system(s), it is
necessary to uncover and understand the
assumptions that affect the provider of the
information, the public sector manager and the
user(s) of the information
• Need to examine:
– Organizational assumptions
– Participants/ Users behaviour
– Manager’s behaviour
Understanding the Behavioral Elements of Performance Management
Organizational Assumptions
• Legislation, regulation or directives prescribe
organization goals: when these are obscure,
measurement is obscure
• Announced goals may be secondary to implicit
goals – hence measuring the wrong things
• Organizational goals may be subverted to the
goals of a dominant member of the organization
or subject to constraints imposed by other
organizations
• In today’s public sector, there is seldom one single
organizational goal
Understanding the Behavioral Elements of Performance Management
Organizational Assumptions
• In complex public sector organizations (megadepartments), the formal goals of the total
organization tend to be subjected to subversion by
attention to the goals of the composite units, be
they program-based or administrative units
• Qualitative goals more common to the public
sector are harder to measure and invite the
‘contribution debate’ – to what extent did the
organization contribute to what is being measured
and to what extent did external factors influence
the outcome
Understanding the Behavioral Elements of Performance Management
Organizational Assumptions
• In public sector, there is an equally powerful
concern for efficiency and effectiveness as well as
the program goals – the how of spending and
control remains highly relevant in the public
sector
• There is an implicit assumption that the goals of
various units within an organization contribute to
the overall goals – finding that linkage is a
challenge at times.
Understanding the Behavioral Elements of
Performance Management
• Organization participants are motivated by
a wide variety of psychological, social and
economic needs and drives: these come
into full play when interpreting information
• The extent of an individual’s or group’s
participation varies directly with the
expectancy of the achievement of his, her
or its goals
Understanding the Behavioral Elements of
Performance Management
• The efficiency and effectiveness of human
behaviour and decision-making in a public sector
organization is conditioned by:
– The ability to concentrate on only a few things at one
time,
– The concomitant inability to absorb large amounts of
information whether in or out of ‘multi-tasking’ mode
– Limited awareness of the environment
– Limited awareness of alternative and their
consequences
Understanding the Behavioral Elements of
Performance Management
– Incomplete and inconsistent preferences
– Limited information about the situation or
information overload
– Incompatibility of objectives between the
supplier of information and the receiver
– Differing views on organizations, roles and
ideologies – the bureaucratic model versus the
advocacy model.
Understanding the Behavioral Elements of
Performance Management
• The manager in the public sector is accountable
for managing public resources and maximizing
their use for program objectives.
• Balancing this is the continuous pressure on both
program and support managers to use these
resources effectively, efficiently and honestly.
• The willingness of other players to acknowledge
and accept the dual managerial roles may be weak
and inconsistent.
Qualities of Good Performance Management
Information Design
• A clear understanding of the reporting
entity: information needs vary according to
the level of the reporting and uses
– High-level corporate information for the
executive or governing body
– Operational and specific information for
operational management
– Program reporting on high profile initiatives
that cross organizational lines
Qualities of Good Performance Management
Information Design
• Ownership is in the hands of the user:
regardless of level on the continuum, the
provider of the information (generally
finance) should mold the report to the
user’s language and needs
Qualities of Good Performance Management
Information Design
• When standards or budgets are used, the report
recipients should take part in their development
Qualities of Good Performance Management
Information Design
• Design and use protocols for the
information should be the result of mutual
consent to the degree possible (external
requirements, corporately-based reporting
systems)
• The language of financial and performance
reports should be positive but not
Pollyannaish – avoid spin
Qualities of Good Performance Management
Information Design
• Reports should have a section for the comments of
operating managers to give users more complete
information
• Performance data should be reported against
expectations and/or standards
• Variance needs to be clearly identified
• Information providers – accountants, program
managers – should also be able to provide ‘what if ’
types of reports that offer the potential for
improvement against standards or increases in
efficiency
Key Factors in How to Develop Good
Measures
1. Measure the right stuff: If you want to find
out how healthy people are, you might measure
hospital visits. But then, you’d only find out how
many are sick rather than healthy.To measure
how healthy people are, it’s best to ask them how
they feel.
Alberta Treasury Website: www.finance.gov.ab.ca/measuring/aboutperfmas.html
Key Factors in How to Develop Good
Measures
2.
3.
Find the most accurate measures and use
them consistently: It’s important to maintain
consistency in what and how you measure.This is
what gives us the ability to track trends and see
the results of programs and services that are
operated over the long term.
Report the results – Good information is of
no value if no one knows about it.
Alberta Treasury Website: www.finance.gov.ab.ca/measuring/aboutperfmas.html
In Conclusion
• Good financial management and good program
performance are linked at beginning, middle and
end
• Performance measurement poses many challenges
that demand focus and attention not dismissal
• Comparisons are fraught with dangers and
difficulties - they nonetheless offer many
potential uses