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
#CPACONGRESS
Brought to you by
Emily Canning & Scott Dilley
Commonwealth Budget Cycle and Major Publications
*Source: Commonwealth Budget Process, Central Budget Management System (CBMS)
Redevelopment Project; Department of Finance and Deregulation
Why do we budget?
Roles and Responsibilities of Government
*Source: HILDA Release 10.0; Reserve Bank of Australia
Current models and the Budget Process - DSS
Impact and Projection on Economy
Social and
Economic
Environment
Behavioural
Pattern
Data
Analysis
Population
Projection
Judgement
Estimates
of $124b
Demographic
Change
Influential factors
Models
Outcome
Current models and the Budget Process - DSS
Impact and Projection on Economy
Social and
Economic
Environment
Behavioural
Pattern
Data
Analysis
Population
Projection
Judgement
Estimates
of $124b
Demographic
Change
Influential factors
Models
Outcome
*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.
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
Current models and the Budget Process - DSS
Impact and Projection on Economy
Social and
Economic
Environment
Behavioural
Pattern
Data
Analysis
Population
Projection
Judgement
Estimates
of $124b
Demographic
Change
Influential factors
Models
Outcome
Where taxpayer’s money is spent (2014-15)
*Source: 2014-15 Budget Overview, The Commonwealth of Australia
Total Social Security and Welfare expenditure
*Source: 2014-15 Budget Overview, The Commonwealth of Australia
Budgeted Administered Expenses by Outcome
($ bil.)
Ageing and
Aged Care,
$13.2
Housing, $0.1
Disability and
Carers, $1.7
Families and
Communities,
$2.9
Social
Security,
$105.9
Current models and the Budget Process - DSS
Impact and Projection on Economy
Social and
Economic
Environment
Behavioural
Pattern
Data
Analysis
Population
Projection
Judgement
Estimates
of $124b
Demographic
Change
Influential factors
Models
Outcome
*Source: Department of Social Services Annual Report 2013-14,
The Australian Government Department of Social Services
What are some of the challenges with budgeting?
• Executive support and buy-in
• Tight budgets
• Priority setting
•
•
•
•
• More bids than funds
• Not enough capital
• Ad hoc decisions
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
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
Case Study: Department of Human Services
How does DHS do budgeting?
Headline Numbers:
• $150 billion administered outlays per
annum – Centrelink, Medicare, Child
Support
• $4 billion in departmental operating
budget
• $220 million in departmental capital
budget
• 34,000 staff
• 5,000 staff in Canberra
• Over 500 offices in regional and
metro areas
• 290 staff in the CFO Division
• CFO reports direct to Secretary
• CFO is an observer on the Executive Committee
• CFO is a member of the Finance and Investment Committee
Departmental Expenditure
2014-15 Forecast - $4.2 billion
Property operating, 11%
Depreciation, 6%
Communications, 5%
IT Maintenance, 4%
Employees, 65%
Consultants and
Contractors, 3%
Other , 5%
Source: 2013-14 DHS Annual Report
Workers Compensation,
2%
Capital Expenditure
2014-15 Forecast - $220 million
Infrastructure Plant
and Equipment,
25%
Buildings, 27%
Computer Software,
48%
How does DHS do budgeting?
•
•
•
•
•
DHS Funding Model – our source of revenue
Finance Investment Committee
Executive Support
Group Finance Managers
Benefits harvesting
Specific budget challenges for DHS:
•
Geographic Footprint
Specific budget challenges for DHS contd…
•
•
•
•
DHS Funding Model
Materiality
Identifying efficiency savings ideas
Understanding budget trends within your organisation
How do you overcome these challenges?
What opportunities can finance professionals
take to navigate these challenges?
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
2. Link financial resources & human resources
Ensure that monthly
finance reporting
covers both
3. Self regulating sanctions
CFO controlling
recruitment when
groups don’t manage
their budget
4. We need a paradigm shift….
APS needs to get better at
benefits identification and
harvesting
We need to move away from salami
slice model to more targeted business
process improvement identification
and realisation
5. What is your risk appetite for budgets?
Do you understand
the budget trends for
your organisation?
What levers does the
CFO have to claw
back / allocate funds?
6. Devolved financial management
The CFO cant be everywhere at once…..
The role of the
group finance
manager.
The CFO needs
eyes and ears out
with the business.
Accountability must
always lie with the
budget owner.
Thank you
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