11. reporting performance

Accountability, Accountability, Financial Financial Reporting and Reporting and Performance Performance MeasurementMeasurement

Andrew Graham

Queens University

School of Policy Studies

Overview and ObjectivesOverview 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 The Public Sector Accountability LandscapeLandscape

• “Governments are held to a higher standard of accountability than a business or a not-for-profit organization.” – CICA Handbook

The Public Sector Accountability The Public Sector Accountability LandscapeLandscape

• “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): The word to watch (and never use): AccountabilismAccountabilism

•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 Drivers of Public Sector AccountabilityAccountability

• Transparency• Multiplicity of accountabilities• Hierarchical and horizontal

nature of accountabilities• Qualitative and quantitative• Focus on both results and

compliance• Complexity

What then is Accountability?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

Individuals Individuals or or

OrganizationOrganizations Accepting s Accepting

AccountabilitAccountabilityy

Authority, Authority, Power, Power,

Resources, Resources, GoalsGoals

Accountability Accountability for for

Performance, Performance, Results and Results and EfficiencyEfficiency

Individuals Individuals or or

OrganizatioOrganizations ns

Conferring Conferring AccountabiliAccountabili

tyty

The Accountability ContinuumThe Accountability Continuum INTERNAL ACCOUNTABILITYINTERNAL ACCOUNTABILITY EXTERNAL ACCOUNTABILITY EXTERNAL ACCOUNTABILITY

OPER

ATIONS

OPER

ATIONS

MANAGEMENT

MANAGEMENT

COMPLIANCE

COMPLIANCE

OUTPUTS

OUTPUTS

OUTCOMES

OUTCOMES

ManagementManagement Program ProgramCoefficients CoefficientsCoefficients Coefficients

Financial InformationFinancial Information

The Accountability Continuum - The Accountability Continuum - CommentsComments

• Progression of accountability from day-to-day operations to full public accountability

• Information needs change along the way


• Financial data is important at all stages, but often at different


• 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 – The Accountability Continuum – Data and InformationData 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 – The Accountability Continuum – Data and InformationData and Information

COMPLIANCE

•Inspection Reports

•Financial Reports: Balance Sheet, Income Statements

•Performance against standards – regulatory, legislated

•Professional standards compliance

OUTPUTS

•Performance against plan or target

•Annual Reports

•Auditors’ Reports

OUTCOMES

•Socio-economic Indicators

•Evaluations

•Value for Money Audits

Where Financial Reporting Where Financial Reporting Fits InFits 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 Where Financial Reporting Fits InFits In

• Equity: did I get mine

Users of Financial and Users of Financial and Performance InformationPerformance Information

• Citizens• Media• Interest groups• Legislatures and boards of

directors• External oversight bodies

Users of Financial and Users of Financial and Performance InformationPerformance 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?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?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 ReportingPrinciples 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 ReportingPrinciples 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 Basic Structure of Government Financial and Performance Reporting – THE and Performance Reporting – THE CAFRCAFR: : Comprehensive Annual Financial ReportComprehensive Annual Financial Report

BASIC FINANCIALSTATEMENTS

MANAGEMENT’S DISCUSSION

AND ANALYSIS

REQUIRED SUPPLEMENTARY

INFORMATION- STATISTICS


• CAFR has many names and different ways of being presented: Annual Report, Financial Statements, Performance 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 Quality and Integrity of Financial Information is Financial Information is

EssentialEssential• 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 Quality and Integrity of Financial Information is EssentialInformation 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 Quality and Integrity of Financial Information is EssentialInformation 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 What does Integrating Financial Data and Non-Financial Data Mean?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


• 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


• 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.


• Phases in integrating financial and non-financial 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 Building the Bridge to Performance Measurement and ReportingMeasurement 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 - ExamplesType of Indicator Definition Example

Input Indicator Measure of Resources Equipment NeededEmployed Employees Required

Supplies Used

Output Indicator Quantity of Service Number of projectsProvided Number of classes

Number of people served

Effectiveness/outcome The degree to which the Percentage increase inIndicator intended objection of the employment

service is being met. 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 Building the Bridge to Performance Measurement and Performance Measurement and

ReportingReporting• 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 Building the Bridge to Performance Measurement and Performance Measurement and

ReportingReporting• 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 Building the Bridge to Performance Measurement and Reporting - Measurement and Reporting -

ExamplesExamples

• 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 How Alberta’s Integrated Performance Measurement Performance Measurement

WorksWorks• 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 How Alberta’s Integrated Performance Measurement WorksPerformance 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 How Alberta’s Integrated Performance Measurement WorksPerformance 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 MeasuresUses 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 MeasuresUses 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 Understanding the Behavioral Elements of Performance ManagementPerformance 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


• 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 Understanding the Behavioral Elements of Performance Management – Organizational AssumptionsManagement – 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


• In complex public sector organizations (mega-departments), 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


• 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 Understanding the Behavioral Elements of Performance Management 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


• 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


– 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.


• 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 Qualities of Good Performance Management Information DesignManagement 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


• 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


• When standards or budgets are used, the report recipients should take part in their development


• 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


• 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 Key Factors in How to Develop Good MeasuresMeasures

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 Key Factors in How to Develop Good MeasuresMeasures

2. 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.

3. 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 ConclusionIn 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

11. reporting performance

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