Financial Management 827 – Setting the Stage 2018 Andrew Graham Queens University School of Policy Studies

Structure of Today’s Class Introductions The Financial Management Context Financial Literacy Financial Management and the Policy Cycle The Architecture of Financial Management Andrew.Graham@queensu.ca

You had a choice. This course or… Why would you take this course? Let’s get over the fear of finance. Andrew.Graham@queensu.ca

Why Do People Fear Financial Management? I hate numbers. It’s a different language. My focus is policy not money. Bean counters don’t understand policy. It all scares me.

Introduction

Pracademic: What That? Pracademic Federal ADM – 14 Years Analyst Caseworker Director, Minimum Security Warden, Kingston Pen Director General Policy Assistant Commissioner Deputy Commissioner Ontario Senior Deputy Commissioner Assistant Deputy Minister Corporate Conference Board of Canada Queens Federal ADM – 14 Years President, APEX In Jail Pracademic: What That? In my career I have moved among the key roles that we play in delivering public goods: front-line practitioner, operational manager, policy manager, operational executive, corporate support executive. Looked at it in another way, I have worked in the field, in a region and at headquarters – the bubble known as Ottawa. In fact, the large part of my career was in field and operational roles, all of what I enjoyed. I spent 14 years in an ADM role of some kind. I was always engaged with my community, but none more so than the executive group through my roles at APEX, which provided me with some amazing insights about executive leadership in the many and varied contests, culture and locations in which they work. Once again, as my stories will show, I experienced and came to respect the need for good financial information, but more than that - another key message - I came to need financial knowledge and insight. Not just the what but also the how and the why and, really key here, the what if.

Research, Teaching and Writing Management and Leadership First Nations Police Governance Financial Management and Literacy Case Study Program IPAC Risk and Policy Police Governance Risk and Management Learning and Curriculum Design   Given my background and given the fertile learning and research atmosphere of an academic environment like the Queens School of Policy Studies, I have pursued a number of research, teaching and learning areas. I bristle when someone says something like that is only an academic matter. Of course I encounter and do not play well with those academics that restrict their relationship to the real world or those with experience in it to the occasional disdainful look or request for money. But they are few and far between, especially in a professional school such as QSPS. I also disdain those practitioners who come along for a visit or interchange and just want to tell war stories without doing the intellectual work needed to translate those war stories in something more than ego-gratifying vignettes. I have taken on the role as the National Editor of the IPAC Case Study Program for the past 10 years because I believe so strongly in bringing experiential learning not just into the classroom but also into organizations that struggle to learn from others but have few tools with which to do so except for stories of disasters. We need more stories about success for surely we successfully deliver good results, good information and sound reporting much more than the negative exceptions, which grab headlines, would suggest. www.andrewbgraham.ca

I write in a number of areas and really love to do it I write in a number of areas and really love to do it. I just wanted to tell you about that Blue one – Canadian Public-Sector Financial Management. That’s a textbook on, well the title is pretty straight forward, but I wrote it when I took on the financial management course in our program almost ten years ago now. Why? Well, the simple truth was that there wasn’t a Canadian textbook on financial management for non-financial managers. That kind of shocked me at the time, but then, looking back I realized that everything that I learned about financial management was experiential, mostly through mistakes, having a really good financial advisor or being thrust into roles in finance where sink or swim appears to be the learning methodology. As I said, I am real believer in experiential learning, but with somewhat reduced levels of stress. The text was actually written with the new manager in mind, not necessarily just for the student. Many who have used it have called in avuncular rather than didactic. I am very pleased that it is used in a number of public administration programs across the country and elsewhere. It is in the second edition and there is always room to improve it and respond to the changing world of public sector financial management.   All along this ride, I have used financial information and learned how important it is to me. More significantly, I have come to understand what I need from the finance leaders I work with and to value the good ones. They did some things in a special way that I want to talk about. Because, when I became ADM Corporate, I had to do the same.

Financial Management and the Public Policy Context

“It’s all about the money.” – Tommy Douglas “Good financial management is connected to every facet of the organization's operations – and it’s essential to success.” – Wallace Foundation

What are the financial challenges facing the public sector today?? 11

Governance, Bureaucratic and Resources Factors that Define Financial Management Governance Factors It’s not your money. There is never enough. No shortage of opinions. Policy is seldom truly evidence based or objective: wishful costing, mushy results. Multiple oversight. Bureaucratic Factors Someone else wants your money. There is never enough. Accountability can be fuzzy. Rules mazes and timing delays. Overlapping responsibilities. Resource Factors Resource allocation can be inefficient. Delegated authorities need to be clear. Financial information: sometimes too little, sometimes too much . Accounting can be fuzzy.

public funds are managed prudently and honestly; “Canadians expect the government to be well managed and to handle taxpayers’ money prudently and economically. To do this, the government must exercise sound financial management and control and risk management within the requirements of the Financial Administration Act and regulations. It must also follow relevant Treasury Board policies, directives, and standards, and be guided by principles of value for money, accountability, transparency, and risk management. This means that systems, practices, and resources need to be in place to ensure that public funds are managed prudently and honestly; assets are safeguarded; resources are used effectively, efficiently, and economically to achieve government objectives; accountabilities for financial management are clearly established; financial risks are being mitigated by effective internal controls; and the Canadian public and parliamentarians are provided with pertinent and reliable information on the use of public funds. Significant deficiencies in these areas of financial management and control and in risk management can have detrimental effects on the level of service that Canadians receive and the government’s credibility.” - Auditor General of Canada, 2011 Andrew.Graham@queensu.ca

THE COURSE Andrew.Graham@queensu.ca

Objectives of the Course Focus on tools in managing public finances in order to carry out good public policy Understanding how financial considerations fit into good policy formulation, choice of policy instruments and implementation Public sector financial management as a policy issue itself: accountability, due diligence, relationship to taxation and debt Andrew.Graham@queensu.ca

Objectives of the Course The basic elements of financial management – aware not expert Hands-on management of financial responsibilities of any public manager Public managers can no longer ignore core financial skills or leave them to others – vastly increased cost sensitivities, more and more emphasis on bang for buck, accountability, growth in contracting means have to understand costs

Objectives of the Course To help you Understand where financial management is an integral part in delivering public goods Be an effective user of financial information, Take an informed approach to your role as a financial manager and Carry out your responsibilities as a public sector financial manager Andrew.Graham@queensu.ca

What the course is not about The politics of budgetary processes Public finance – taxation policy, economic policy Getting you certified as a CPA – we are doing a fly past not an accreditation process Seeing if you can do detailed calculations or math Balancing your own personal budget, or lack thereof. Andrew.Graham@queensu.ca

Reporting and Accountability In-Year Budget Control: Forecasting and Managing Managerial Control and Controllership Reallocation and Cut-backs Budgeting: Forms and Process Concepts of Accounting and Financial Statements Accountability and Risk Public Sector Financial Management Andrew.Graham@queensu.ca

Structure of the Course Format Open Lectures – designed to invite participation and debate PowerPoints as text Small group work and discussions Table drops – mini-cases and exercises Take-homes assignments Cash Management Exercise – the big assignment Andrew.Graham@queensu.ca

Evaluation/Tests/Exams “Test as you go” approach Nothing during the class weeks No final exam – final assignment is a complex case involving all aspects of the course Take homes are due on time and failure to turn them in will affect the mark: if you are facing timing issues, let me know Participation is rated on involvement in the various small group exercises, table drops and general engagement Andrew.Graham@queensu.ca

Evaluation/Tests/Exams Take Home Tests (2 in all) 40% Cash Management Exercise 50% Participation 10% Andrew.Graham@queensu.ca

Course Material Second Edition, 2014 Note: use onQ Lectures will be posted in advance on onQ and on my website Tests and related readings will be posted I will communicate through e-mail. Second Edition, 2014 Andrew.Graham@queensu.ca

Remember, there is no stupid question. Andrew.Graham@queensu.ca

Individual Financial Literacy for a Policy or Program Manager and Organizational Financial Capacity Andrew.Graham@queensu.ca

Having capacity in finance is key to… Providing sound policy advice Understanding the implication of changes to policy or programs as well as the costs of sustaining existing programs and policies Linking budgets, planning and implementation Managing an operation, large or small Controlling your budget Meeting your performance expectations Andrew.Graham@queensu.ca

Why do You Need to be Financially Literate? Right from the start of public policy process, through design to legislation to execution and accountability, it is all about the money Financial management is not a separate part of what governments do, but integrated into the whole and you have to be able to take it in, understand it and use it You need it to get promoted. You will inevitably be managing a budget someday so get ready. You will inevitably be competing for scarce resources and need all the help you can get. You will have to explain what you do in financial terms to your staff, yourself, your boss, your stakeholders, the public. Andrew.Graham@queensu.ca

What You Don’t Need to be Financially Literate A CPA An accounting degree.

What is Financial Literacy? Understand the lingo: Some core terminology, much of which is addressed in the text, is essential. Read the Reports: This is best translated as being an intelligent user of financial information, be it costing for policy design or cash forecasts for the first quarter of the fiscal year or an organizational balance sheet.

What is Financial Literacy? Understanding the Implications: Developing an analytical capacity and intuitive sense of the consequences of certain financial decisions, e.g. contracting. Understanding cost and cost behaviours: This means that you understand what things cost (salaries, supplies, equipment) in terms of what you are delivering and what happens when circumstances change.

What is Financial Literacy? Get Clarity: This may mean asking dumb questions. It may also mean pushing the point of understanding so that everyone is actually talking about the same thing. Marry up Numbers on a Pages with What Happens at the Mission End of the Organization: A financially literate manager can see the link – or insist that it be clearly stated – between what may be for some just a bunch of numbers and the policy and operational impact. A financially literate manager needs a financially literate organization.

Core FM Skills Costing Financial Condition Analysis Forecasting Controlling Identifying, Assessing and Managing Risk Communicating financial and program information Andrew.Graham@queensu.ca

Financial competencies grow with level and experience At the outset: Has some awareness of budgeting and financial regulations and process Understands rules of careful use and protection of resources Takes value for money into account in research and writing Intermediate: Monitors program expenditures and individual expenses for reporting purposes Understands how to read, interpret and use relevant financial reports Andrew.Graham@queensu.ca

Financial competencies grow with level and experience Seasoned: Understands the processes by which financial resources are approved, obtained, allocated, managed and accounted for. Takes the lead or active role in the preparation of budgets, forecasts and cost reviews. Advanced: Ensures adequate internal control systems over financial assets, investments, liabilities, revenues and expenditures Operates and monitors financial information systems, internal audit and evaluation Mastery Oversees principal planning, budgeting and implementation systems Links and actions linkages of strategic intent with the financial systems. Ensures adequate governance of financial processes, adequate accountability systems and the overall quality of the financial management of the organization. Andrew.Graham@queensu.ca

Financial Literacy is Both Personal and Organizational “Why bother. No one takes this financial stuff into account at the top. They are all policy wonks.” Or “Who cares? It’s all arbitrary and no amount of good control at our level will make any difference.”  

A Financially Literate Organization is One That: Works hard to ensure integrated approaches to policy and delivery that take into account costs and related financial implications, Establishes decision-making bodies that regularly review financial performance, Develops means to communicate financial information widely throughout the organization, Makes financial literacy a core competency in developing its staff,

A Financially Literate Organization is One That: Links financial performance to overall performance on objectives, Ensures that financial advisors are on the team, that their work is integrated and that they too are held to account for achieving the organization’s mission, and Works hard to train managers and upcoming staff on financial issues.

Polcies and Governance A Financially Literate Organization Addresses the Elements of Financial Capacity Polcies and Governance Regular engagement of senior management Clear accounting policies Skilled Personnel See Financial Literacy Financial skills for both program and specialists Systems Goldilocks Rule Processes Budgets Risk and Control Accountability Performance Measurement

How Financial Management Fits in the Cycle of Public Sector Policy and Management Andrew.Graham@queensu.ca

The Big Bad Public Sector….. Andrew.Graham@queensu.ca

The Public Sector Challenge Complexity Transparency Limited resources Increased political context Definition difficulties Common activities across more than one government, department or project Risk diversity Andrew.Graham@queensu.ca

Public Sector – what is it? Public sector larger and more complex than government in traditional sense Course adopts an inclusive focus: Government, all levels Near government: agencies, crowns (to a limited extent), special entities Greater public sector entities: health and education Andrew.Graham@queensu.ca

Andrew.Graham@queensu.ca

Federal Government Revenue Sources: 2014-15 Total Revenue: $282,346,000,000 From Public Accounts of Canada Andrew.Graham@queensu.ca

Federal Government Expenses 2014-15 Total: $280,435,000,000 Andrew.Graham@queensu.ca

Public Finances are complex – example: transfers Andrew.Graham@queensu.ca

The 2011-2012 budgetary deficit of $26.2 billion compares to a deficit of $33.4 billion in 2010-2011. Revenues were up $8.1 bil- lion, or 3.4 percent, from the prior year, reflecting increases in income tax revenues and EI premium revenues, which were offset in part by a decrease in other revenues Andrew.Graham@queensu.ca

Andrew.Graham@queensu.ca

Capital and Infrastructure: From Roads to Rinks: Asset Share by Order of Government Andrew.Graham@queensu.ca

Federal Government Contracting Activity 2014 All Contracts 2014   Contract Type Number % of Total $ Value (Thousands) % of Total Value Goods 198,931 58 4,502,706 16 Services 125,700 37 22,426,317 79 Construction 16,711 5 1,351,118 Total 341,342 28,280,141 All Contracts Below $25K 315,443 1,283,239 All Contracts Above $25K 25,899 27,176,972 Andrew.Graham@queensu.ca

Total Government Purchasing No one knows for sure WTO estimates that it is 10-15% of GDP for developed countries Leads us to $130-$200 billion annually All governments and broader public service included “Government purchasing typically represents between 10 and 15 per cent of national GDP in developed countries.” WTO, Trade Topics, “Government Procurement,” http://www.wto.org/ english/tratop_e/gproc_e/gproc_e.htm. Andrew.Graham@queensu.ca

Government Flexibility: Discretionary and Non-Discretionary Spending Entitlement Program Spending Flexible Driven by Budget Cycle Built into Specific Legislation Appropriations Legislation Andrew.Graham@queensu.ca

US Federal Budget _______________________ $1.481 Trillion $857 Billion* 19% 9%

Financial Management in the Public Sector: Underlying Ideas at Play Andrew.Graham@queensu.ca

Policy, Direction: The Public Good to be Achieved: the Policy Process It’s about the money.. Accounting, Evaluating and Reporting Resourcing the Policy Objectives: the Budget Process Delivery the Public Good: Operations, Management and Control Andrew.Graham@queensu.ca

HOLDING AND BEING HELD TO ACCOUNT FOR THE RESOURCES RESOURCE LEVELS SET USING THE RESOURCES HOLDING AND BEING HELD TO ACCOUNT FOR THE RESOURCES Otherwise, in plainer speak, Getting the Money, Spending the Money, Explaining what you did with the Money.

Funding Your Objectives Plan, budget, cost, authorize Funding Your Objectives Report, account, audit, evaluate, recost, reallocate Control, monitor, adjust, reallocate Achieving Your Objectives Measuring Performance against Objectives and Retooling

Pillars of Sound Financial Management Program and policy designs that include sound and reliable costing and risk analysis Stable budgeting systems that delivery resources in time for use Funding that ensures both meeting immediate (in-year) resource requirements and longer-term sustainability of the program Dependable financial systems, reports and statements that provide information needed to both manage and account Andrew.Graham@queensu.ca

Pillars of Sound Financial Management Skills and capabilities in all players: financial, policy, programmatic and management as well as oversight bodies such as boards Systems to identify risk, monitor performance and make adjustments to changing circumstances Governance of all the processes that is consistent Systems of accountability that emphasize both internal accountability and public reporting Andrew.Graham@queensu.ca

Public Financial Management Objectives Cost effective service Fiscal Discipline Procedural Control Fiscal Control Efficient resource allocation Accounting Discipline Effective decision making

Building Blocks of Financial Management Planning, Policy and Budgeting Accounting and Reporting Risk, Control and Adaptation Decision Support

Financial management practice involves such elements as .. Costing policies and programs Securing resources, Allocating resources, Reallocating resources, Monitoring financial and program performance, Monitoring the use of funds within assigned budgets Deciding on adjustments to spending or fees as a result of financial information and Accounting for all the above Andrew.Graham@queensu.ca

Gauging Financial Performance: the Questions You Will Always be Asking What happened? What is happening? Why did it happen? What will happen? What do I want to happen? Andrew.Graham@queensu.ca

The Architecture of Financial Management Andrew.Graham@queensu.ca

Financial Management Financing of Programs Financial Accounting Andrew.Graham@queensu.ca

Source of Funding: Budgeting Deployment of Resources: Control Financing of Programs Source of Funding: Budgeting Deployment of Resources: Control Generation of Revenue Reallocation and Reduction Andrew.Graham@queensu.ca

Accounting for Management Accounting for Financial Reporting Financial Accounting Accounting for Management Accounting for Financial Reporting Managerial Accounting generates financial Information for decision making, accountability and planning Financial accounting generates retrospective information of financial position and performance. Andrew.Graham@queensu.ca

Accounting for Management Planning Cash Management and Control Reporting Compliance and Performance Future Present Past Andrew.Graham@queensu.ca

Accounting for Financial Purposes Internal Reporting External Reporting Audit Andrew.Graham@queensu.ca

How the Course is Structured to Address These Elements 827 The Basics Context Risk Accounting Financial Statements Budgets Budgeting Reallocation Control Cash Management Accountability Reporting Audit Andrew.Graham@queensu.ca

As the one Buckley’s ad says, “That is about as much as we can do As the one Buckley’s ad says, “That is about as much as we can do. Anything more would be cruel.” Andrew.Graham@queensu.ca