The Annual Financial Report of the Government of Canada Fiscal Year 2017-2018[1] reports revenues of $313.6 billion and expenditures of $332.6 billion. Expenditures include $99.2 billion direct program expenses, which “represent the operating expenses of the Government’s 128 departments, agencies, and consolidated Crown corporations and other entities, etc.”
Decisions about these billions of operating expenditures are made not just at the senior management level of deputy ministers and assistant deputy ministers but also by director generals, directors and other budget holders at the operational level where business and project plans are executed and movement toward objectives occurs.
It’s at the operational level where the heavy lifting take place: where contracts are awarded, equipment purchased, staff and contractors hired, commitments made, budgets allocated and reallocated, and lapses or overspending occur. The effects of these operational decisions, good or bad, roll up through directorates, branches, sectors, departments, ministries, Treasury Board, parliamentary committees and eventually to Parliament itself.
It is therefore vital that expenditure decisions, made at the operational level, are informed and effective. As mentioned, it is here where expenditure decisions for billions of dollars are made based on facts, management experience, financial and management training, intuition and advice and guidance available from the finance function, especially the assigned Financial Management Advisor(s) (FMAs).
Facts are the foundation of informed decisions enabling better business outcomes.[2] However, it’s been my experience working as a contract senior FMA in the finance function of nine federal government departments that those facts are very hard to come by for the average operational manager in program or policy or procurement shops.
They are hard to come by because reliable, mature and comprehensive portfolios of generally accepted financial operating reports, such as those found in well managed private-sector enterprises, do not exist. Current reporting systems rely heavily on cumbersome Excel based manual report production and delivery which is time-consuming, labour-intensive, error-prone and inefficient. Often multiple human resources must be dedicated to assembling the information and creating and distributing the reports. This manual work significantly disrupts normal work schedules – especially with demands for ad hoc information.
And with new demands for information, the whole manual process must be repeated.
What is needed then is a new way of thinking about the value and use of information and a much better systematic process for delivering valuable information to end users. The prevalence of ‘black books’ at the operational level is symptomatic of the need for a modern, flexible, agile and responsive reporting capability. Treasury Board Secretariat (TBS) itself encourages “Business Innovation – New business models (i.e. doing things completely differently) …Potential unlocked through completely different workflows”[3] Furthermore, “Financial information supports decision making and accountability to Canadians.”[4]
What is needed are comprehensive portfolios of internal reports, sourced from a rigorously maintained database (the Government of Canada Financial and Materiel (GCFM) solution [5]) and automatically produced and delivered by business intelligence tools – all with greater reliability, efficiency, economy and much-reduced human effort.
So, what is operational reporting? Wikipedia defines it as “reporting about operational details that reflects current activity. Operational reporting is intended to support the day-to-day activities of the organization.”
Operational reporting is not public reporting, such as is the purview of the Public Sector Accounting Standards Board (PSAB), nor does operational reporting include ‘big data analytics.’ Rather, operational reporting focuses on day-to-day decision making, the nuts-and-bolts work of program, policy and procurement shops.
Operational report portfolios focus on key expenditure areas such as salaries, operations & maintenance (O&M), capital investments, grants & contributions, etc., in such detail as to provide financial and statistical information that will help operational managers efficiently and economically execute business plans and achieve business objectives within budget.
To efficiently provide core operational data to decision-makers, a modern financial reporting system needs to be created that has:
- Comprehensive portfolio(s) of core and standard-format internal reports.
- Data sourced from the rigorously maintained Enterprise Resource Planning (ERP) system, produced and delivered automatically by business intelligence tools.
- Transactions input to the ERP processed in accordance with a set of rules.
- The ERP adjusted at period-end in accordance with accounting principles adapted for the federal government, providing a consistent full and complete economic picture.
- Reports that cover a consistent time period – i.e. calendar month, fiscal year etc. – and produced at period-ends.
Broadly, a modern reporting system will:
- Inform various levels of the governance system in a common, consistent, reliable, accurate, cohesive, coherent, understandable and timely manner.
- Provide embedded analyses, evaluations and recommendations for action.
- Improve the understanding and decision making of operational managers.
- Highlight areas of interest for more detailed examination.
- Help to detect errors and fraud and provide early warning of potential problem areas.
- Have great utility in performance measurement of organization units and managers.
- Provide common, consistent and timely communications throughout government.
- Enable increased efficiency, effectiveness, economy, transparency, accountability and compliance.
- Enable fact-based decision making, improving resource utilization, monitoring and control.
For every new planned activity, the final planning question is “How will we report on this activity?”
Benefits of a Modern Reporting System
Comprehensive portfolios of internal financial and statistical reports provide operational managers with objective and holistic views of their business, better understanding of business dynamics and the significant costs of resources used. The disruption of demands for ad hoc reporting is reduced.
System automation of report production and delivery saves time, money and disruption, and in the year 2019 makes absolute sense.
Managers have confidence in the information they are routinely receiving and are familiar with. Decision making is faster and more agile since the manager has a familiar, full, complete and consistent picture of their business.
Data contained in the reports is supplemented with embedded written analysis, evaluation and recommendations by Financial Management Advisors – turning data into insights. This enables operational managers to focus their energy, talent and specialized subject matter expertise on evaluating and expanding on the recommendations and implementing action.
Operational managers have in-depth education and experience in their technical specialization. However, typically these same managers, responsible and accountable for millions of dollars of annual budget, may have little or no experience in managing organizations, especially when it relates to financial management activities such as are usefully defined in the old Policy on Internal Control (2009) as “…planning, budgeting, accounting, reporting, control and oversight, analysis, decision support and advice, and financial systems.”
Reports showing variances to plans/budgets provide early warning of future problems and will direct management’s attention to areas requiring remedial and proactive action, as well as provide satisfaction and confidence that plans are being executed as expected.
The ERP system is the “official departmental system of record.” A corollary of this is that subunits ensure that all transactions are processed in the ERP in a timely manner and in accordance with transaction processing rules.
Comprehensive reports developed with input from operational managers obviate the need for ‘black books,’ the scourge of ‘good’ information. Black books are informal accounting and reporting records, maintained by operational managers who cannot otherwise easily get this information from the ERP system. Black books are not integrated with the official departmental system of record, nor maintained using any set of rules that ensure accuracy and consistency.
A single source, secure and centralized, online report repository such as GCDOCS, SharePoint or RDIMS provides easy access to historical information when responding to ad hoc requests for information (senior management, parliamentary questions, regulatory bodies or internal audit).
When standardized reports are used across government, managers and finance officers moving between departments can more rapidly and efficiently understand their new organization’s finances and immediately start making expenditure decisions. New employees as well as finance contractors on-boarding at contract-start will more rapidly understand the dynamics of the organization and begin to contribute to their projects.
Consistency of data among different historical periods enables accurate comparisons to identify what is changing and why. Trends can be extrapolated to answer such questions as: “Where will we be at period-end if the velocity of spending shown in the report continues? Can we forecast a usable surplus or a deficit (deficits are contrary to the FAA)?” The point being that potential disasters can be averted or at least mitigated.
Data provides objective support for decisions going forward. It also provides hindsight support for reviews of results especially when at negative variance with the plan. Good data reduces biases and suppositions of senior managers; James Barksdale, former CEO of Netscape, famously said, “If we have data, let’s look at data. If all we have is opinions, let’s go with mine.”[6]
Report production and delivery by the ERP/BI systems is efficient and economical, occurring at off-peak times, freeing up more expensive human time. Managers can do more with less.
Automation reduces the possibility of errors inherent in manual systems, performing multiple tasks simultaneously and costing less.
Online database and search engines reduce time spent looking for information.
It’s long been recognized that per transaction costs with computers are significantly lower than with humans. However, automation requires capital investment. Costs shift from salary and operations and maintenance budgets to capital budgets that can be written off over multiple years.
Additionally, routine evaluation of period-end reports increases possibility of detection of fraud and errors.
High quality data is maintained through rigorously applied transaction processing rules and period-end adjustments. These become automatic and familiar for trained clerical staff, increasing efficiency and productivity and reducing errors. Clerical staff and supervisors are trained to rigorously follow these rules. Standard period-end adjustments are made by the finance function to ensure data is comparable and consistent.
Automated reporting improves monitoring and control. Managers can routinely and easily view the financial positions of their organization. Monitoring is facilitated by using exception reporting where reports are system generated when variances exceed stated values.
Good reporting contributes to internal control processes. The Office of the Auditor General’s (OAG) report, March 2004, Chapter 6, Managing Government Information: Using Financial Information notes: “Integrated and comprehensive internal control systems play a significant role in ensuring that high-quality financial information is available.”
Routine and ongoing performance monitoring and measurement occurs in the background and complements the internal control process. Timely remedial and proactive actions are taken to adjust undesirable variances or trends.
Attributes of a Modern Reporting System
A modern reporting system consists of comprehensive portfolios of core and standard-format reports containing data that is relevant, focused, up-to-date, reliable, error-free and consistent – supplemented with analyses, evaluations and other information, all generally accepted as valuable by end users.
Data reported is congruent with at least two important perspectives:
- The business perspective which reflects projects>programs>strategic outcomes (SOs per program alignment architecture).
- The traditional cost centre perspective, complying with the Financial Administration Act (FAA).
Report data is sourced from the department’s ERP system which is full, accurate and complete – a “Single Source of Truth.”[7] Data quality is rigorously maintained using in-period transaction processing rules. At period-end there is a cycle of review, error corrections, back-dating, reconciliations, commitment management and finally standard adjustments in accordance with a set of accounting principles adapted for government. This ensures data accuracy and comparability between periods.
Report production and delivery occurs automatically shortly after period-end from the ERP/BI systems, on schedule, to authorized and secure targets, and with minimal human intervention.
Report layouts have ‘common look and feel’ formats. This includes unique report identification numbers as part of the inventory of reports within each portfolio. Reports identify the person who has input textual comments. Standardization in format and content across all federal government report portfolios is the long-term goal.
The embedded textual notes section is used by the FMA and manager to provide clarification. Forecasting assumptions and estimates are included as well as other information not otherwise recorded in the ERP, such as dates of anticipated flows of funds, contract finalizations etc. Also embedded are FMA analyses, evaluations and recommendations for remedial and proactive actions. To facilitate the latter, calculations are included such as budget usage ratios, burn rates, averages, period comparisons, common sizing, etc.
Reports have a roll-up, drill-down capability to display different levels of aggregation depending on the needs of the manager. The highest degree of granularity is the general ledger accounts with links to individual transactions.
Chart of Account names are customized to align with the specific business activities. Expenditures are assigned to enough general ledger accounts such that aggregation of non-homogenous expenditure types is avoided. Naming conventions for individual general ledgers facilitate easy and intuitive understanding of the expenditure.
Security protocols are effective. This includes an application, review and authorization mechanism for access. Delivery, storage and archiving are issues to be resolved. Centralized document sharing systems such as GCDoc, SharePoint, RDIMS, etc. are made secure. Each report is classified per security protocols.
Each month, operational managers allocate time with their FMA to review financial reports and recommendations, and then to initiate remedial and proactive actions.
In Summary
Acquiring the data and other information is only the beginning of the decision-making process. The real value-add is the analysis, evaluation, recommendations and ensuing optimal choice among many possible actions.
Good financial and statistical information, easily accessible and well used will have positive tactical and strategic impacts on the key concepts of efficiency, effectiveness, economy, transparency, accountability and compliance.
Federal government managers, central agencies, the Office of the Auditor General of Canada, parliamentary committees and parliamentarians will all benefit from an up-to-date, common, reliable, consistent, accurate, timely, full and complete picture of the financial state of their organization within the Government of Canada.
Managers especially will leverage the enormous potential of government’s multi-million-dollar information systems and the immense value of good information enabling informed and effective decisions and better outcomes.
[1] Department of Finance Canada.
[2] ‘Organizations of all sizes and types will often succeed or fail on the quality of their decision-making’, Dr. Jon Warner, CEO RX4 Group.
[3] TBS document ‘Financial Management Transformation’ dated November 22, 2016, GCDOCS #22991927
[4] The Policy on Financial Management (April 01, 2017) 3.2.3
[5] Standard on Enterprise Resource Planning Systems (May 01, 2012)
[6] A Dozen Things I’ve Learned from Jim Barksdale and “Barksdaleisms”
[7] Implementing Centralized Reporting using SAP Analytics 2016 ASUG Annual Conference.
