reporting performance

8/12/2019 REPORTING PERFORMANCE

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Accountability,

Financial Reporting

and Performance

Measurement

Andrew Graham

Queens University

School of Policy Studies


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Overview and Objectives

Financial systems and financial information arechanging 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 organizationsoverall performance against its plan and in terms of itsstewardship of public funds

Government and public sector organizations areusing a variety of tools to build betterperformance management.


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The Public Sector Accountability Landscape

Governments are held to a higher

standard of accountability than a

business or a not-for-profitorganization. CICA Handbook


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The Public Sector Accountability Landscape

Accountability in the voluntarysector is multi-layer. It means

accountability to different audiences,for a variety of activities andoutcomes, though many differentmeans. This multidimensional nature

is the principal complexity ofaccountability in the public sector. VSI, Building on Strength..


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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 anattempt to magically ward off evil.


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Drivers of Public Sector Accountability

Transparency

Multiplicity of accountabilities

Hierarchical and horizontal nature ofaccountabilities

Qualitative and quantitative

Focus on both results andcompliance

Complexity


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What then is Accountability?

Assignment of authority, power andresources

Accountability for performance andresults

Assignment of duties

Requirement to report Exercise of judgement on

performance


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Individuals or

OrganizationsAccepting

Accountability

Authority,

Power,

Resources,Goals

Accountabilityfor Performance,

Results and

Efficiency

Individuals or

Organizations

Conferring

Accountability


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The Accountability ContinuumINTERNAL ACCOUNTAB ILITY EXTERNAL ACCOUNTABILITY

Management Program

Coefficients Coefficients

Financial Information


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The Accountability Continuum - Comments

Progression of accountability from

day-to-day operations to full public

accountability Information needs change along the

way


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Financial data is important at all

stages, but often at different


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Need in financial management to ensure thatthere is a flow of financial data from one level tothe next to avoid overlap of systems

Often operational information not well fed intofinancial data, leading the creation of blackbooks systems that line managers need tocontrol their resources separately from financialinformation systems that are more corporate i.e.

oriented towards higher level upward reporting orexternal reporting


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The Accountability ContinuumData

and Information

OPERATIONS

Staff ActivityReports

Clients Served, calls

taken

Routine Check Listsprocedural 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


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The Accountability ContinuumData

and Information

COMPLIANCE

Inspection Reports

Financial Reports:

Balance Sheet,

Income Statements

Performanceagainst 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


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Where Financial Reporting Fits In

Equity: did I get mine


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Users of Financial and Performance

Information

Citizens

Media

Interest groups

Legislatures and boards of directors

External oversight bodies


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Users of Financial and Performance

Information Internal oversight bodies

Central agencies of government

Senior managers within agencies andgovernments

Staff and clients of organizations

Individual donors and fundingorganizations

Creditors and credit-rating organizations


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Why all this reporting?

To demonstrate accountability

To permit users to assess the

financial viability of an organizations

To demonstrate compliance with

legal requirements


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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


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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


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Principles of Good Reporting

Explain other factors critical toperformance

Integrate financial and non-financialinformation

Provide comparative information

Present credible information, fairlyinterpreted

Disclose basis for reporting


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Basic Structure of Government Financial and

Performance ReportingTHE CAFR:

Comprehensive Annual Financial Report

BASIC FINANCIAL

STATEMENTS

MANAGEMENTS

DISCUSSIONAND ANALYSIS

REQUIRED

SUPPLEMENTARYINFORMATION

- STATISTICS


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CAFR has many names and different

ways of being presented: Annual

Report, Financial Statements,Performance Report


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Three elements remain the same: set byaccounting standards, but all form a completepicture:

financial data, performance data and explanations (MD&A)and

statistical supports

Distinct evolution towards less detail on thefinancial side and more on the MD&A side: telling

the story and linking to non-financial data is moreimportant to improve comprehensibility, resultedfrom complaints by citizens and legislators thatdetailed financial data alone does not tell the fullstory


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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 reportappended

Timeliness of information

Effective use of ratios (in financial analysis) todetermine the state of liquidity, debt to assets,debt to tax base


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Quality and Integrity of Financial Information

is Essential

Increasingly, other factors also come intoplay: Clear linkage to budget plans and

outcome/output measures Comprehensible notes and explanations

A logic model that links what the governmentdoes, the costs of the activity and the value (inpublic policy terms) it creates

This logic model may be implicit to anexperienced management team and governingbody, or it may have been actuallydocumented


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Quality and Integrity of Financial Information

is Essential

Program definition structures that are reflectedin statements of accounts for externalreporting and internal management

Credible accounting and information systemsthat will extract and summarize the financialand non-financial information

A data capture and research capability that will

ensure that all the key informationrequirements from internal and externalsources are being captured with the frequency,reliability and accuracy needed for theintended purposes


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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


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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 accrualcost of their programs and activities. As a

result, full cost information is not

considered as important as cashexpenditure information.

Auditor General of Canada, 2004


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Assignment of costs move significantly

off a line-item budget approach that

assigns costs to a traditional set of costdrivers towards a program budget

approach that links costs to results

Effective alignment takes place over the

entire budgetary cycle and over a numberof years before it is useful for public

discussion


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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.


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Phases in integrating financial and non-

financial information:

Framework set: program objectives, resultsdefined

Results aligned: results described and

measured

Resources aligned: costs associated with keyresults are assigned to them

Integration: relationship between resources

and results are described and demonstrated


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Building the Bridge to Performance

Measurement and Reporting

Performance measurement hasincreasingly been seen as necessary to

complement enhanced accountabilityfor agencies, departments and thirdparties

Greater measurement is intended to

provide an incentive for governmentservice providers to become moreeffective and efficient.


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Performance Indicators Performance Indicators -

ExamplesType of Indicator Definition Example

Input Indicator Measure of Resources Equipment Needed

Employed Employees Required

Supplies Used

Output Indicator Quantity of Service Number of projects

Provided Number of classesNumber of people served

Effectiveness/outcome The degree to which the Percentage increase in

Indicator 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


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Measurement and Reporting

Traditional government accounting

system normally was designed to

respond to the accountability demandsof societynarrowly defined as being

honest

Old systems not designed to assist inachieving of more efficient and effective

uses of public resources


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Measurement and Reporting - Examples

Government of Canada: Estimates now made upof Spending Estimates,

Report on Plans and Priorities and Performance Reports

Government of Alberta: Consol idated Financial Statements, which provide an

overall accounting of the Governments revenue and

spending, and assets and liabilities. Measu r ing Up, which reports on the progress achieved

on core government performance measures


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How Albertas Integrated Performance

Measurement Works

The intention is to focus on high-level measuresthat give Albertans a good overall indication ofprogress towards achievement of Alberta's goals.

The core measures are like the gauges on thedashboard of a car providing the most essentialinformation. Supplemental information on thecore measures is also provided in Measuring Upto give citizens more information.

Measuring Upincludes an explanation on howmajor influences or external factors affectedperformance results. .


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How Albertas Integrated Performance

Measurement Works

More detail on performance is providedthrough ministries' annual reports, which isthe second tier of reporting to Albertans on

performance. Each ministry prepares a set of "key"

performance measures that relate to theirbusiness plan goals. These measures are

reported in the fall of each year.


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Uses of Performance Measures

Performance measures can be used in severalways, including:

Controlling costs - enabling managers toidentify costs which are much higher or lowerthan average and determine why thesedifferences exist.

Comparing costs of similar servicesOntariogovernments use of Adequacy Standards andintroduction of performance standards in

municipal governments


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Uses of Performance Measures

Comparing processes - analyzing performance ofa services performed with a particulartechnology, approach or procedure.

Maintaining standards - monitoring serviceperformance against established performancetargets or benchmarks.

Fulfilling external accountabilities to legislators,external review bodies, stakeholders, the public


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Understanding the Behavioral Elements of

Performance Management

All data and information occur in a context

Financial data is not hard and fastalways subject to interpretation andattribution of meaning

The movement towards adding elementsof performance information makes thiseven more challenging, even though thegoals are worthwhile


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Presentation of information, its quality and usesis very important elements of performancemanagement

To understand the environment in which thegovernment managerial accounting system(s), itis necessary to uncover and understand theassumptions that affect the provider of theinformation, the public sector manager and the

user(s) of the information Need to examine:

Organizational assumptions

Participants/ Users behaviour

Managers behaviour


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Understanding the Behavioral Elements of Performance

ManagementOrganizational Assumptions

In complex public sector organizations (mega-departments), the formal goals of the totalorganization 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 publicsector are harder to measure and invite thecontribution debate to what extent did the

organization contribute to what is beingmeasured and to what extent did external factorsinfluence the outcome


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Understanding the Behavioral Elements of Performance

ManagementOrganizational Assumptions

In public sector, there is an equally powerfulconcern for efficiency and effectiveness aswell as the program goalsthe how of

spending and control remains highly relevantin the public sector

There is an implicit assumption that the goalsof various units within an organization

contribute to the overall goalsfinding thatlinkage is a challenge at times.


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Organization participants are motivatedby a wide variety of psychological,

social and economic needs and drives:these come into full play wheninterpreting information

The extent of an individuals or groups

participation varies directly with theexpectancy of the achievement of his,her or its goals


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The efficiency and effectiveness of humanbehaviour and decision-making in a publicsector organization is conditioned by:

The ability to concentrate on only a few things atone time,

The concomitant inability to absorb large amountsof information whether in or out of multi-tasking

mode Limited awareness of the environment

Limited awareness of alternative and theirconsequences


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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

ideologiesthe bureaucratic model versus

the advocacy model.


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Qualities of Good Performance Management

Information Design

A clear understanding of the reportingentity: information needs vary according

to the level of the reporting and uses High-level corporate information for theexecutive or governing body

Operational and specific information for

operational management Program reporting on high profile initiatives

that cross organizational lines


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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 users language and needs


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Information Design

When standards or budgets are used, the

report recipients should take part in their

development


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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 andperformance reports should be positive

but not Pollyannaishavoid spin


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Information Design

Reports should have a section for the commentsof operating managers to give users morecomplete information

Performance data should be reported againstexpectations and/or standards

Variance needs to be clearly identified

Information providersaccountants, programmanagersshould also be able to provide whatif types of reports that offer the potential forimprovement against standards or increases inefficiency


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Key Factors in How to Develop Good

Measures

2. Find the most accurate measures anduse them consistently:Its important tomaintain consistency in what and how youmeasure. This is what gives us the ability totrack trends and see the results of programsand services that are operated over the longterm.

3. Report the resultsGood information is ofno value if no one knows about it.

Alberta Treasury Website: www.finance.gov.ab.ca/measuring/aboutperfmas.html
http://www.finance.gov.ab.ca/measuring/aboutperfmas.htmlhttp://www.finance.gov.ab.ca/measuring/aboutperfmas.html


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In Conclusion

Good financial management and goodprogram performance are linked at beginning,middle and end

Performance measurement poses manychallenges that demand focus and attentionnot dismissal

Comparisons are fraught with dangers anddifficulties - they nonetheless offer manypotential uses

reporting performance

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