1. #CPACONGRESS A1: Challenges of budgeting in the public sector Emily Canning Chief Financial Officer, Department of Human Services Scott Dilley FCPA Acting CFO and Group Manager, Finance and Services Group, Department of Social Services Thursday 20 November 2014 10:30AM - 11:20AM

2. Brought to you by Emily Canning & Scott Dilley

3. Commonwealth Budget Cycle and Major Publications *Source: Commonwealth Budget Process, Central Budget Management System (CBMS) Redevelopment Project; Department of Finance and Deregulation

4. Why do we budget?

5. Roles and Responsibilities of Government

6. *Source: HILDA Release 10.0; Reserve Bank of Australia

7. ModelsOutcome Data Analysis Judgement Social and Economic Environment Behavioural Pattern Population Projection Demographic Change Estimates of $124b Influential factors Impact and Projection on Economy Current models and the Budget Process - DSS

8. ModelsOutcome Data Analysis Judgement Social and Economic Environment Behavioural Pattern Population Projection Demographic Change Estimates of $124b Influential factors Impact and Projection on Economy Current models and the Budget ProcessCurrent models and the Budget Process - DSS

9. *Source: A Statistical Report on Waves 1 to 11 of the Household, Income and Labour Dynamics in Australia Survey, 2014, Melbourne Institute of Applied Economic and Social Research © Commonwealth of Australia 2014. Reproduced under licence.

10. Redistribution of welfare payments in OECD countries *Source: Daley, J., McGannon, C., Savage, J and Hunter, A., 2013, Balancing budgets: tough choices we need, Grattan Institute

11. ModelsOutcome Data Analysis Judgement Social and Economic Environment Behavioural Pattern Population Projection Demographic Change Estimates of $124b Influential factors Impact and Projection on Economy Current models and the Budget Process - DSS

12. Where taxpayer’s money is spent (2014-15) *Source: 2014-15 Budget Overview, The Commonwealth of Australia

13. Total Social Security and Welfare expenditure *Source: 2014-15 Budget Overview, The Commonwealth of Australia

14. Budgeted Administered Expenses by Outcome ($ bil.)

15. ModelsOutcome Data Analysis Judgement Social and Economic Environment Behavioural Pattern Population Projection Demographic Change Estimates of $124b Influential factors Impact and Projection on Economy Current models and the Budget ProcessCurrent models and the Budget Process - DSS

16. *Source: Department of Social Services Annual Report 2013-14, The Australian Government Department of Social Services

17. What are some of the challenges with budgeting? People who don’t want to follow the process Lack of quality information to make decisions Unforseen changes in the budget throughout the year Identifying tangible and harvestable savings when needed Executive support and buy-in Tight budgets Priority setting More bids than funds Not enough capital Ad hoc decisions

18. What are some of the specific challenges with budgeting in a large APS department? Line of sight and lack of control from the ‘centre’ Budgets are highly distributed – lots of cost centres with small amounts of budget, lots of owners of programmes, very siloed budgeting Geographical footprint Understanding the budget trends within your organisation

19. Case Study: Department of Human Services How does DHS do budgeting?

20. Headline Numbers: 34,000 staff 5,000 staff in Canberra Over 500 offices in regional and metro areas 290 staff in the CFO Division $4 billion in departmental operating budget $220 million in departmental capital budget CFO reports direct to Secretary CFO is an observer on the Executive Committee CFO is a member of the Finance and Investment Committee $150 billion administered outlays per annum – Centrelink, Medicare, Child Support

21. Source: 2013-14 DHS Annual Report

23. How does DHS do budgeting? DHS Funding Model – our source of revenue Finance Investment Committee Executive Support Group Finance Managers Benefits harvesting

24. Specific budget challenges for DHS: Geographic Footprint

26. Specific budget challenges for DHS contd… DHS Funding Model Materiality Identifying efficiency savings ideas Understanding budget trends within your organisation

27. How do you overcome these challenges? What opportunities can finance professionals take to navigate these challenges?

28. 1. Endorsed financial management framework Report regularly on financial risks and emerging financial pressures throughout the year Use the ANAOs’ better practice guide to establish your internal budget framework

29. 2. Link financial resources & human resources Ensure that monthly finance reporting covers both

30. 3. Self regulating sanctions CFO controlling recruitment when groups don’t manage their budget

31. 4. We need a paradigm shift…. We need to move away from salami slice model to more targeted business process improvement identification and realisation APS needs to get better at benefits identification and harvesting

32. 5. What is your risk appetite for budgets? What levers does the CFO have to claw back / allocate funds? Do you understand the budget trends for your organisation?

33. 6. Devolved financial management The CFO cant be everywhere at once….. Accountability must always lie with the budget owner. The role of the group finance manager. The CFO needs eyes and ears out with the business.

34. More information: Emily Canning A/g Chief Financial Officer Department of Human Services (02) 6223 4350 Emily.canning@humanservices.gov.au Scott Dilley A/g Chief Finance Officer Department of Social Services (02) 6146 0150 Scott.dilley@dss.gov.au Emily.canning@humanservices.gov.au Scott.dilley@dss.gov.au Thank you