Canadian Public Sector Financial

Management
- Introduction
Andrew Graham
Queens University
School of Policy Studies
http://post.queensu.ca/~grahama/
Objectives of the Course

You had a
choice:
this
course or
What is Wrong with You? Let’s discuss
this a bit………

• Let’s go around the room to see

what you expect to get out of the
course
• One or two areas of concern or
objectives only
• We’ll then see if we can meet your
needs
Objectives of the Course – ‘As
Advertised’

Focus on tools and understanding in

managing public finances in order
to carry out good public policy
Public sector financial management
as a policy issue itself:
accountability, due diligence,
relationship to taxation and debt
Objectives of the Course – ‘As
Advertised’
An understanding of, but not an
expertise in, the basic elements of
financial management
Over the course, we will move from
a broad understanding of the
macro elements towards more
hands-on management of financial
responsibilities of any public
manager
Objectives of the Course – ‘As Advertised’

To help you be an intelligent 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
What the course is not about

• Public finance – taxation policy,

economic policy
• Getting you certified as a CA – we
are doing a fly past not an
accreditation process
• Seeing if you can do detailed
calculations or math
Structure of the Course
Six areas of focus:
• Public Sector Financial Management
• Concepts of Accounting and Financial
Statements
• Budgeting: Forms and Process
• Managerial Control and Controllership
• Expenditure and Cash Management
• Reporting and Accountability
 Any Questions about the
course, structure, etc?

Remember, there is no
stupid question and make no
assumptions that you are not
comfortable with.
 Where Financial
Management Fits into the
Cycle of Public Sector
Management
 Policy, Direction:
The Public Good to
be Achieved: the
Policy Process

Accounting, It’s Resourcing the

Evaluating and
Reporting
about Policy
Objectives: the
the Budget Process
money..

Delivery the Public

Good: Operations,
Management and
Control
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
– Not-for-profit: voluntary organizations
Public Sector – what is it?

• Limitations to such inclusion:

– No public entities that use private
sector basis of accounting or operate
on fully commercial basis
– General adoption of general public
sector and voluntary sector GAAP and
CICA Accounting Standards, but not
others
– Time and scope cannot accommodate
all variations, especially in areas such
as funds management, fund raising,
Government spends a lot of money
– and it belongs to you

Consolidated federal, provincial, territorial and

local government expenditures, 2001-2002 =
$430,313,000,000

Consolidated federal, provincial, territorial and

local government revenue, 2001-2002 =
$432,912,000,000
Government spends a lot of money
– and it belongs to you
Public sector capital expenditures by level of
government, 2002 (billions of dollars):
Federal $4.4 What is a
Provincial $5.5 capital
Municipal $10.7 expenditure?
All Levels $19.3
Excludes health authorities and educational
authorities.
Government spends a lot of money –
and it belongs to you
•In 2005-2006, consolidated revenues
of $572.9 billion and overall government spending
of $546.9 billion.
•Revenues from income taxes, which amounted
to $224.2 billion, and consumption taxes, which
reached $107.5 billion, together accounted for nearly
three-fifths of consolidated revenues.
•In terms of spending, about half the total increase
in 2005/2006 came from two areas: social services,
where spending hit $164.1 billion; and health, which
reached $102.3 billion.

Source: The Daily. Stats Can,

http://www.statcan.ca/Daily/English/060615/d060615a.htm
An Era of Surplus
Public Finances are complex – example:
transfers
Source: PWGSC: http://www.tpsgc-pwgsc.gc.ca/acquisitions/text/ggwrp/docs/final_report-e.pdf
Federal Government Contracting
Activity
Contracts below $25,000
Number for all departments 1,449,332
Dollar Value
1,393,514,000

Contracts over $25,000

Number for all departments 22,369
Dollar Value 7,699,610

Total For All Contracts

Number for all departments 1,471,701
Dollar Value
9,093,124,000
 Total Professional Services 6,644,789,504
Federal Acquisition of Lands and
Government Buildings
Purchases Land purchases 25,653,944
of Engineering works 151,218,112
Services, Buildings 602,586,581
Lands
Total Land and Buildings 779,458,637
and
Equipment Acquisition of Machinery and
Equipment
for
2004-2005 Computer Equipment 1,011,777,101
Specialized and industrial 576,809,857
equipment
Furniture 167,047,391
Total Acquisition of Machinery 3,603,452,879
and Equipment
Total Purchases of Services, 11,027,701,010
Property and Equipment
The True Size of Government
(in millions) – from an
American Perspective

1.90 full-time-equivalent civil servants

1.50 uniformed military personnel
.85 postal workers
5.65 contractors
2.40 grantees 2.40
4.65 state and local
16.95 Total

4.65

5.65

1.90 .85
1.50
From: “Just How Much Bigger is Government in Canada?”,
F. Steven Ferris and L. Stanley Werner, Carleton University,
October, 2006
The Not-for-Profit Sector

• Taking health care entities into

account, the revenue of the not-for-
profit is $112 billion
• Significant portion of that is from
other governments so funds are
transferred
• One good reason to account for
not-for-profit as part of the greater
public sector
And Government has agencies…
Executive Agencies in the U.K.
State Owned Enterprises in New Zealand
Business Enterprises in Australia
Special Operating Agencies in Canada's federal
government, provinces, and cities
Delegated Administrative Organizations in Alberta
Sociétés d’Économie Mixte in Québec
Service Agencies such as the Canada Food
Inspection Agency, Canada Customs and
Revenue Agency
Enterprise Modeling in Edmonton
Semi-autonomous commissions providing
services to municipalities in New Brunswick
Why Financial
Management?

• Governments could not function

without funds for policy and
programs
• Money is a scarce commodity and
competition for it is fierce which
makes its effective management
critical
Why Financial Management?

• The money is public and administered in

a democracy thereby creating a broad
base of ownership and interest.
Accounting for those funds is a
primordial value of democratic society
• Budgeting and financial management
procedures are the accounting
manifestation of public policy
What is Financial Management?
Finkler: The subset of management
that focuses on generating financial
information that can be used to improve
decision making.

Source: Financial Management for Public, Health and

Not-for-Profit Organization, Steven Finkler, Prentice Hall
What is Financial Management?: Issues
and Discussion
 Focus on information is narrow but good
financial information is a key element
 Focus on information tends to reflect the
accounting perspective that serves decision
makers – the focus of this course is on the
decision maker as well as the interaction
between the two
Financial management is a two way street:
serving managers’ needs and serving the
accounting needs of the public sector
What is Financial Management?: Issues
and Discussion
• Have to recognize that actual financial
management practice also involves such
elements as
– allocating 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
What is Financial Management?: Issues
and Discussion
• More than just receiving reports and
reacting to them
• Financial management is involved in
sound policy making right through to
accounting for past performance
• Especially crucial in program delivery
areas where resources are always scarce
and demands high requiring the most
effective means to manage resources.
What is Financial Management?: Issues
and Discussion
• Financial resource management and
accounting are a hugely powerful
metaphor for government performance
• Often financial information serves as a
surrogate for performance information
 Standards and Financial
Principles: Accrual, Accounting and
GAAP Reports

Framework

Budgets: Process
Dynamics

Budgets: Form and

Understanding Function
the Public Sector
financial mgt
Capital Planning
and Budgeting

Management Managing the

Control Budget: Cash
Forecasting

Reporting and
Accountability
 Positioning Financial Management

Improving Control, Probity,

Value for Accountability
Money

Measuring
and Financial Supporting
Good
Rewarding
Performance
Management Decision-
Making

Enabling
Change Managing
Improving Risk
Performance
What is Financial Management?
Alternative Definition that
encompasses Finkler:

Financial Management is that part of

the management and policy process
that focuses on financial resources and
information to deliver services and
support managerial decision making.
 The
Framework of
Financial
Management
 Financial
Management

Financing Financial
of Accounting
Programs
 Financing of
Programs

Source of Deployment and

Funding Generation
Allocation of of Revenue
Resources
 Financial
Accounting

Accounting for
Accounting for
Management
Financial
Purposes

Managerial Accounting
Generates financial Financial accounting
Information for decision Generates retrospective
Making, accountability Information of financial
And planning Position and performance.
 Accounting for
Management

Optimal Performance
Planning Management of Reporting
Allocated
Resources – Cash
Management

Future Present Past

 Accounting for
Financial Purposes

Internal External Audit

Reporting Reporting
 Source of
Funds

Allocation
Program of Funds
Financing Generation
of Revenue
Planning

Management Cash
Financial
Accounting Management
Management
Performance
Financial Reporting
Accounting Internal
Reporting
Financial
External
Accounting
Reporting
Audit
What are the ‘basic elements of public
sector financial management’?
• Budgets and fiscal policy
• Government as an economic
actor
• Budgetary and planning
processes in government
• Public sector accounting
practice, standards and rules
• Managing budgets
What are the ‘basic elements of public
sector financial management’?
• Control
• Understanding financial statements
• Cash management and cash
forecasting
• Accountability and reporting
What makes government financial
management different
• Government’s goal is to provide
services, regulations or policies, not
make a profit
– Implications: net cost of service and
affordability take on more importance
than a bottom-line of financial
performance
– Inputs and process take on much
more meaning as equity and
distributional measures
What makes government financial
management different
• The principle source of government
revenue is taxation
– Implications: the captive nature of
taxpayers as involuntary contributors
means that they will want access to
simple and understandable
information about what has been done
with their money
What makes government financial
management different
• Governments operate, for the most part, in a
non-competitive environment
– Net cost of services and affordability are
therefore not enough to provide adequate
measurement of efficiency and effectiveness
outside the market model
– Performance measurement is needed but it
is dangerous to take one single measure as
reflective of the reality of government
services
What makes government financial
management different
• Government budgets portray public
policy, establish revenue estimates,
expenditure and financing
requirements, and are important in
the government accounting cycle
– Actual-to-budget information
becomes an important element of
financial reporting
What makes government financial
management different
• Government redistribute wealth
– Financial and performance data must
explain how and where
• Senior governments have debt-
capacity limits unparalleled by any
other organization
– Debt and net debt are crucial to
highlight in government financial
statements
What makes government financial
management different
• Government capital spending may
not focus on maximizing return
because government objectives are
broader
– Capital spending and its impact on
debt is important to highlight
What makes government financial
management different
• Governments are held to a higher
standard of external accountability
and scrutiny than businesses and
not-for-profit organizations
– Leads to a conflicting need to provide
a great deal of detail, both financial
and non-financial while keeping
reporting simple and understandable
– Greater emphasis on cash flows and
accountability to the relevant
constituency
What makes government financial
management different
• Notwithstanding all of the above, many publicly
owned entities are similar to those that make
profits, e.g. utilities, LCBO, Crowns:
• Often they receive more dispensation in terms
of releasing information because of the
commercial nature of their objectives.
• Similarly, their accounting practices will more
closely approximate the private sector.
How are Government and Private Sector
Financial Management the Same?

• Both use forms of GAAP – Generally Accepted

Accounting Principles – more later – that are
adapted to their conditions: there is no one
GAAP
• Both use various financial statements for
information stakeholders (owners, stock
holders, voters) on financial performance
• Both use financial management systems such as
Oracle, SAP, etc to support their transactions
and accounting needs
Governments source their funding in
many ways
• Over 60, in fact, in Canada, not counting
a multitude of quasi-commercial fees
• Total government revenue in 2000 was
over 40% of GDP while federal
government revenue was just below 20%
• This course is not about tax policy or
fiscal policy
 Complexity of the Revenue Landscape in Government –
Taxes
Source: Statistics Canada Classification Grid
Consumption Taxes
General Sales Tax –
Income Taxes GST,PST,HST
Personal Income Taxes – Alcohol beverages and Property Taxes Other Taxes
federal and provincial tobacco taxes
Amusement taxes Payroll taxes
General Property
Corporation Income Gasoline taxes Taxes
Taxes
Custom duties Motor vehicle
Liquor profits Capital taxes licenses
Mining and logging
taxes Remitted gaming profits
Other consumption taxes Other property Natural resource
taxes taxes and licenses
Taxes on payments to
non-residents
Miscellaneous
taxes
Other income taxes
Complexity of the Revenue Landscape in Government –
Fees and Premiums
Source: Statistics Canada Classification Grid

Health and
drug insurance Contributio Sales of goods
premiums ns to social and services by
security public entities
plans

User Fees and

Service
Investment
Charges
Income
Endowments and
Contributions

Partnership
Income
Complexity of How Public Sector
Delivers its “Products”
• Direct government
• Social regulation
All these “tools
• Economic regulation of government”
• Contracting involve some
• Grant
• Direct loan
form of
• Loan guarantee resource
• Insurance management
• Tax expenditure
• Fees, charges
implications.
• Liability law Consider how.
• Government
corporations
• Vouchers
The Public Sector Financial Landscape

• A Mix of Criteria
• Difficulty of Relating Costs and Benefits
• Apples and Oranges
• Performance Measurement is Elusive
• Constraints on Goals and Objectives
• Service Orientation of Many Public
Sector Organizations
• Generally Lower Rates of Compensation
The Public Sector Financial Landscape

• Varying Forms of Governance

• Short-term orientation - one election to the
next Political Realities and Necessities
• Need for Visibility – show me the ribbon to cut
• Multiple external pressures
• In Your Fish Bowl accountability
• Bureaucratic rules and regulations
• Managerial Constraints
• Management cultures
• Legislative restrictions Legislative restrictions
PUBLIC AND PRIVATE
DIFFERENCES
• In the public interest
• Public accountability
• Political sensitivities
• Whole of government ecosystems
• Budget cycle complexity
• Information exchange
• Regulating society
• Machinery of government change
• Culture