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? Lets discuss
this a bit
Lets go around the room to see
what you expect to get out of the
course
One or two areas of concern or
objectives only
Well 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
Resourcing the
Policy
Objectives: the
Budget Process
Accounting,
Evaluating and
Reporting
Delivery the Public
Good: Operations,
Management and
Control
Its
about
the
money..
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, etc.
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
What is a
capital
expenditure?
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
Provincial $5.5
Municipal $10.7
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
Acquisition of Lands and
Buildings
Land purchases 25,653,944
Engineering works 151,218,112
Buildings 602,586,581
Total Land and Buildings 779,458,637
Acquisition of Machinery and
Equipment
Computer Equipment 1,011,777,101
Specialized and industrial
equipment
576,809,857
Furniture 167,047,391
Total Acquisition of Machinery
and Equipment
3,603,452,879
Total Purchases of Services,
Property and Equipment
11,027,701,010
Federal
Government
Purchases
of
Services,
Lands
and
Equipment
for
2004-2005
4.65
.85
5.65
2.40
1.50
1.90
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
4.65 state and local
16.95 Total

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
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
Socits dconomie Mixte in Qubec
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

And Government has agencies
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


Budgets: Form and
Function
Budgets: Process
Dynamics
Capital Planning
and Budgeting
Management
Control
Managing the
Budget: Cash
Forecasting
Standards and
Principles: Accrual,
GAAP
Financial
Accounting and
Reports
Reporting and
Accountability
Understanding
the Canadian
Public Sector
Course
Framework
Positioning Financial Management
Financial
Management
Improving
Value for
Money
Measuring
and
Rewarding
Performance
Enabling
Change
Improving
Performance
Managing
Risk
Supporting
Good
Decision-
Making
Control, Probity,
Accountability
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
of
Programs
Financial
Accounting
Financing of
Programs
Source of
Funding
Deployment and
Allocation of
Resources
Generation
of Revenue
Financial
Accounting
Accounting for
Management
Accounting for
Financial
Purposes
Managerial Accounting
Generates financial
Information for decision
Making, accountability
And planning
Financial accounting
Generates retrospective
Information of financial
Position and performance.
Accounting for
Management
Planning
Optimal
Management of
Allocated
Resources Cash
Management
Performance
Reporting
Future Present Past
Accounting for
Financial Purposes

Internal
Reporting
External
Reporting
Audit
Financial
Management
Program
Financing
Financial
Accounting
Source of
Funds
Allocation
of Funds
Generation
of Revenue
Management
Accounting
Financial
Accounting
Planning
Cash
Management
Performance
Reporting
Internal
Reporting
External
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
Governments 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
Income Taxes
Personal Income Taxes
federal and provincial

Corporation Income
Taxes

Mining and logging
taxes

Taxes on payments to
non-residents

Other income taxes
Consumption Taxes
General Sales Tax
GST,PST,HST
Alcohol beverages and
tobacco taxes
Amusement taxes
Gasoline taxes
Custom duties
Liquor profits
Remitted gaming profits
Other consumption taxes

Other Taxes

Payroll taxes

Motor vehicle
licenses

Natural resource
taxes and licenses

Miscellaneous
taxes
Property Taxes

General Property
Taxes

Capital taxes

Other property
taxes
Complexity of the Revenue Landscape in Government
Fees and Premiums
Source: Statistics Canada Classification Grid
Health and
drug insurance
premiums
Contributio
ns to social
security
plans
Sales of goods
and services by
public entities
User Fees and
Service
Charges
Investment
Income
Endowments and
Contributions
Partnership
Income
Complexity of How Public Sector
Delivers its Products
Direct government
Social regulation
Economic regulation
Contracting
Grant
Direct loan
Loan guarantee
Insurance
Tax expenditure
Fees, charges
Liability law
Government
corporations
Vouchers
All these tools
of government
involve some
form of
resource
management
implications.
Consider how.
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