Japan IMF Sub Acc
Fiscal Reporting and Performance
Management – A Conceptual
Framework
Ian Ball
Chairman, CIPFA International
Outline
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Session objective
Context
Key changes
The conceptual framework
Implementation and marketing
Current status
Session Objective
• To present a conceptual framework that
enables high quality fiscal and
performance management
Why it is important…
Countries with Sovereign Restructuring between
1990-2005 (Agreement Date)
Algeria (07/1996)
Pakistan (12/1999)
Argentina (04/1993, 04/2005)
Panama (05/1996)
Brazil (04/1994)
Peru (03/1997)
Bulgaria (06/1994)
Philippines (12/1992)
Chile (12/1990)
Poland (10/1994)
Cote d'Ivoire (03/1998)
Russia (08/2000)
Croatia (07/1996)
South Africa (09/1993)
Dominican Rep.(08/1994, 05/2005)
Ukraine (04/2000)
Ecuador (02/1995, 08/2000)
Uruguay (05/2003)
Mexico (05/1990)
Venezuela (12/1990)
Morocco (09/1990)
Vietnam (12/1997)
Nigeria (12/1991)
Serbia & Montenegro (07/2004)
Source:
Cruces J and Trebesch C, Sovereign Defaults: The Price of Haircuts (Preliminary Paper) December 2010
Context – 1980s New Zealand
• Objective was better performance from all parts
of the economy
• Constitutional arrangements made for ease of
action
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No written constitution
No states
No Upper House of Parliament
“First past the post” electoral system
Context
Financial management and reporting reform in the
wider contexts of:
• Microeconomic reform
• Public sector management reform
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State-Owned Enterprise Act 1986
State Sector Act 1988
Public Finance Act 1989
Fiscal Responsibility Act 1994
Key Changes
• Permanent tenure for departmental heads
replaced with fixed term contracts
• Chief executives with annual performance
agreements
• Use of performance agreements and
performance related pay within departments
Key Changes
• Very substantial decision-making authority
granted to chief executives
• Public Service Manual abolished, Treasury
Instructions emasculated
• No central services
Key Changes
• Departments responsible for own accounting
systems
• Output focus reflected in performance and
“purchase” agreements, budgets,
appropriations, & reporting
• Capital charge introduced
Key Changes
• Accounting & appropriations moved to an
accrual basis (1989 - 1991)
• Financial statements & budgets progressively
moved to an accrual basis (1989 - 1994)
Key Changes
• Financial reporting in accordance with GAAP
• GAAP determined by Accounting Standards
Review Board
• Audit required for financial and service
delivery statements
CONCEPTUAL FRAMEWORK
• Performance
• Accountability
• Integration
Performance Defined
• “Owner” / “purchaser” distinction
• Inputs / outputs / outcomes
• “Crown” / department distinction
Accountability Framework
MINISTER
PERFORMANCE
DECISION
INCENTIVES
PERFORMANCE
SPECIFICATION
AUTHORITY
ON BEHAVIOR
INFORMATION
CHIEF EXECUTIVE
Integrated Management Cycle
Strategic Planning
Budgeting
• Capital
• Operating
Monitoring/
Reporting
Operations / Budget
Implementation
“Purchase” Framework
Input
Output
Cost
Revenue
Outcome
Social
Benefit
What Are Outcomes?
• Outcomes – impacts on the community (e.g.,
level of crime, standard of living or health status
of the population)
Outcomes Can be
Measurable, Specifiable
For example:
• Quantity
• Quality
• Timeliness
• Location
• Population group (e.g. socio-economic status,
children)
Outcomes - An Outcome Hierarchy
Example:
• Biodiversity
• Preservation of endangered species
• Preservation of endangered birds
• Preservation of Yellow-breasted
Bunting
What are Outputs?
• Outputs – goods and services produced by an
organization
Output Dimensions
• Quality
• Quantity
• Timeframe
• Location
• Cost
OUTCOMES
INTERVENTIONS
Mix of actions to achieve
desired outcomes
Outputs
Regulations
Transfers
Taxation
Ownership
INPUTS
Direct costs
•Personnel
•Travel
•Stores
Indirect costs
•Overheads
OUTPUTS
Driver training
Road traffic research
Vehicle inspections
OUTCOMES
Reduction in
road deaths
Speed of
transport
Pollution
Road
Trauma
Outcome
Output
1
1
Speed
Enforcement
Transport
Efficiency
Travel
Comfort
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Research
Education
“Ownership”
• Objectives and scope of business
• Strategy – especially products/outputs
• Financial performance
• Capital maintenance
• Risks
Financial performance indicators
• Revenues
• Surpluses/deficits
• Cash flow performance
• Debt level
• Capital expenditure (new projects)
• Cost of maintenance/replacement of assets
Non-Financial Performance
• Productivity
• Legal compliance
• Overall service delivery performance
Capability - Financial
Financial Capability:
• Net worth
• Asset and liability measures
– Net debt
• Contingent liabilities
Capability – Non-financial
Non-financial Capability:
• Human capital
• Physical assets
• IT
• Intellectual property
• Others?
Capability - Additional Dimensions
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Reputation
Organisational culture
Staff morale
Political confidence
Ethics and integrity
Stakeholder relationship management
‘Market’ (operating environment) expertise
Form of organisation / structure
Modes of production e.g. processes and
systems, contracting out?
Managing Risk
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Key personnel
Fire or natural disaster
Business/systems failure
Financial
Political
Policy
Legal/litigation
Others?
“Ownership” and “Purchase”
• Measured quite differently
– Financial statements key to ownership
performance
– Service performance statements for
purchase performance
• May be traded off against one another
• Purchase performance normally has
greater political significance
“Crown”/Department Distinction
Managing items on behalf of the Crown
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Assets (DOC)
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Liabilities (DMO)
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Revenue (IRD)
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Expenses (DSW)
“Crown”/Department Distinction
• Based on controllability
• Reflected in output specifications
• Reflected in balance sheet
Accountability Framework
MINISTER
PERFORMANCE
DECISION
INCENTIVES
PERFORMANCE
SPECIFICATION
AUTHORITY
ON BEHAVIOR
INFORMATION
CHIEF EXECUTIVE
Performance Specification
Documents - Departments
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Departmental Forecast Report
Corporate/Strategic Plan
CE Performance Agreement
Purchase Agreement
Performance Specification
Documents - Government
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Statement on Long-term Fiscal Position
Fiscal Strategy Report
Economic and Fiscal Update
Budget Policy Statement
Budget
Forecast Financial Statements
Estimates of Appropriation
Investment Statement
Decision-making Authority
• Human resources
• Purchasing
• Capital expenditure
• Accommodation
• Financial management
– systems
– information
Incentives
• Personal
– term contracts
– performance pay
• Departmental
– purchase agreement
– budget and appropriations
– capital charge
Reporting
• Financial performance
• Service performance
Departmental Reporting
• Statement of Responsibility
• Statement of Accounting Policy
• Operating Statement
• Statement of Financial Position
• Statement of Cash Flows
• Statement of Contingent Liabilities
• Statement of Service Performance
Reporting by the Government
• Financial statements
– Annual
– Monthly
• Snapshot of the Financial Statements
Integrated Management Cycle
Strategic Planning
Budgeting
• Capital
• Operating
Monitoring/
Reporting
Operations / Budget
Implementation
Implementation Strategy
• Departmental level
– empower chief executives
• Whole of Government
– accounting first, then budgeting
• Early gains to key participants
Implementation Principles
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Commitment
Speed
Consistency
Authority
Expectations
Implementation
1989
Passage of the Public Finance Act
Departments move to accrual
accounting, budgeting &
appropriations
1992
First annual CFS on accrual basis
1993
First full consolidation of CFS
Financial Reporting Act
1994
Fiscal Responsibility Act
First whole of government budget
on accrual basis
Monthly financial statements
1995
First CFS with full budget/actual
comparison
Marketing Financial
Management Reform
• Briefings
– Internal
– External
• Material eg “Putting it Simply”
• Video “Setting a New Course”
Current Status
• Well-established (business as usual)
• A number of reviews
• Main threats are slow erosion and centralist
tendencies
• But further enhancements as well
Reviews
• Logan Report 1991
• Accountability Review 1994
• Norman and Stace 1995
• Schick 1996
• Review of the Centre 2001
Improvements suggested - little fundamental
change.
Focus on outcomes
Impact of the Reforms on
Managerial Behaviour
• Improved departmental cash management
• Better control of spending - especially on
personnel and accommodation
• More focus on management of human
resources
• More focus on asset management
Impact of the Reforms on
Managerial Behaviour
• Improved productivity performance
• Improved fiscal performance
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Fiscal Indicators
Net Public Debt (% GDP)
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Year
Net Debt
Net Worth
% GDP
$ million
120,000
60
100,000
50
80,000
40
60,000
30
40,000
20
20,000
10
..
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year ended 30 June
Actual $m
Forecast $m
%GDP
Rating Public Sector Reform
Change area
Overall comment
Overall rating
Financial management; use of
accrual accounting
Undisputed success, despite concern over costs
A
Planning for outputs
A big advance, with some operating problems to
resolve
B+
New structures
Greater clarity of roles, but more protection of
territory needed between agencies
B
Separation of policy and delivery
agencies
A range of pluses and minuses
Use of shorter term employment
contracts
More emphasis on performance but may
undermine loyalty and create short-term focus
How have MPs dealt with the
changes?
Mistrust developing between politicians and
managers is likely to affect performance of
agencies
C-
Managing the change process
Could have been much better done
D
No rating
B- to C
Source: The Centre for Corporate Change
“However, the vast majority of countries continue to
provide no comprehensive data on their financial
assets and liabilities which makes it difficult to judge
their overall net financial worth…”
“Between 2004 and 2011, the number of countries
that were able to provide the IMF with
comprehensive balance sheets including both
financial and nonfinancial assets and liabilities and
an overall picture of government net worth
increased from 9 to 14…”
“International standard-setting bodies (such as the
UN, IMF, Eurostat, and IPSASB) should work to
harmonize reporting standards for budgets,
statistics, and accounts…”
Japan IMF Sub Acc
Fiscal Reporting and Performance
Management – A Conceptual
Framework
Ian Ball
Chairman, CIPFA International
ian.ball@cipfa.org