Survey of Best Practices of Comptrollership
Consulting
and Audit Canada
July
1997
Executive Summary
Background
The Auditor General (AG), in his 1994 Annual Report, identified the
application of comptrollership as an issue to be addressed within the Government
of Canada. In more specific terms, the AG recommended that departments and
agencies avail themselves of the best practices in comptrollership experienced
by other countries such as Australia and New Zealand in order that the
experience derived may be applied to incur savings, simplify delivery mechanisms
and upgrade the quality of financial and operational information on Canadian
programs.
As a response to this recommendation, the Treasury Board Secretariat, the
Royal Canadian Mounted Police, Transport Canada, National Defence and Health
Canada decided to pool their resources to survey the best practices of
comptrollership as practised by the national governments of Australia,
New Zealand, the United Kingdom and the United States. The survey was
conducted on their behalf by Consulting and Audit Canada, a special operating
agency within Public Works and Government Services Canada.
Definition of Comptrollership
The Comptroller General of Canada defines comptrollership as follows:
"The essential, integrated business processes that must be in place in
any organization to:
- manage financial risks;
- understand the financial implications of decisions before they are taken;
- properly track and account for the financial transactions and operating
results of all financial decisions; and
- protect against fraud, financial negligence, violation of financial rules
and principles, and losses of assets."
In order to have an objective basis on which to evaluate the comptrollership
function, the Treasury Board Manual - 'Financial Management' was employed
as an accountability framework.
Objective
The objective of this assignment is to assist the departments and agencies
authorizing this project survey and summarize the best practices of
comptrollership as practised by the national governments of Australia,
New Zealand, the United Kingdom and the United States in order that the
experience derived may be applied to incur savings, simplify delivery mechanisms
and upgrade the quality of financial and operational information on Canadian
programs.
Scope
The scope of the survey was limited to the current best practices in
comptrollership which are operational and exceptional to the national
governments of Australia, New Zealand, the United Kingdom and the United
States, are documented in electronic and/or hard copy format through books,
articles, briefing papers, speeches, presentation notes, etc., and are
accessible to the public.
Methodology
The methodology employed during this assignment included the following
activities:
- reviewing the definition of comptrollership with the Office of the Auditor
General and the Treasury Board Secretariat;
- developing a comptrollership framework and evaluation criteria for the
survey;
- communicating with designated contact officers to explain the survey terms
of reference and to identify research requirements;
- obtaining and examining research material, summarizing the findings and
confirming with the contact officers; and
- proposing recommendations.
Summary of Findings
The following is a summary of the major findings of the survey.
Deputy's Accountability
Deputies need to be confident that their managers understand and report
appropriately on their financial accountability.
In the United States, six departments and agencies are pilot-testing a new
Accountability Report issued under the Government Management Reform Act.
This report consolidates what had been separate reports on agency performance
and financial information into a single document.
Approach
The approach used to gather information and provide assurances on
departmental financial management practices, systems and services.
In New Zealand, the annual reports of government departments and most
Crown entities include a Statement of Service Performance containing performance
measures for each output class. The performance information is audited by the
Audit Office. The targets for each performance measure are set before the
beginning of the year in the Statements of Intent (Crown entities) or the
Departmental Forecast Report (departments).
Annual Management Representation
Management can demonstrate their annual performance by making assertions
(sometimes called management representations) about the state of affairs within
their area of responsibility.
Eight U.S. Cabinet-level agencies are pilot-testing an Accountability Report,
a performance-related financial management report which includes measures of
program performance, the agency's financial statement, and the status of
controls that safeguard resources and ensure the integrity of agency programs
and administrative activities.
Revenue Management
Recent initiatives in the policies and practices of managing a
department's revenue from services, sale of assets and/or other sources.
A. Accounts receivable management including limits on credit, use of
offsets of payables and receivables, seizure of assets to settle accounts,
etc.
Tax Refund Offset: In the United States, the General Services
Administration (GSA) has entered into an agreement with the Internal Revenue
Service which allows the GSA to submit an electronic list of delinquent
debtors for matching against taxpayer refund files.
B. Cash flow management, e.g. use of electronic data interchange (EDI)
to simplify and speed payments.
In the United States, the market for EDI and EDI-related technologies is
expanding each month. Based on this momentum, it is inevitable that electronic
message formatting and transmission will soon be the preferred way of
conducting business in the U.S. The goal is to streamline, improve, and lower
the cost of federal procurement and finance-related activities by making new
payment tools available government-wide within five years. The following are
some examples of this practice:
- Pre-authorized Debit (PAD);
- Paperless Information Exchange (PIX).
Expenditure Management
Cash management techniques, e.g. use of predetermined recurring payment
to avoid interest charges on late payments.
In the United States, the primary goal is to pay bills on time and to collect
debts on time. The U.S. cash management policy is "zero float." In
order to eliminate float, the United States is using modern techniques, such as
electronic funds transfer, EDI, electronic benefits transfer (EBT), credit cards
for collections and payment cards for travel, fleet management and small
purchases. The U.S. also has the ability to do offset without inconveniencing
the payor or the payee. The following are some specific examples:
- The Fixed Contract Payment System provides for automatic payment of fixed
amounts at regular intervals without submission of an invoice or receiving
report.
- The International Merchant Purchase Authorization Card (IMPAC) is a
commercially issued purchase card for federal purchases. The IMPAC card
allows for streamlined acquisition of goods and services under $2,500,
eliminating the need for petty cash purchase orders.
- Electronic benefits transfer uses debit cards to deliver cash and in-kind
government-funded benefits such as food stamps, welfare and social security
to individuals.
- The Department of Treasury employs a service called "Quick Pay,"
where invoices under a certain dollar amount are paid prior to certification
of receipt of goods and services.
- In the United States, the Rural Development Finance Office has initiated a
project to implement digital signature electronic invoicing for certain
project cost payments.
Financial Benchmarking
The establishment of performance measurement criteria for budgeting purposes
and the development of benchmarks for comparing actual results.
In New Zealand, a significant amount of information is collected and
published on the quality, quantity and cost of government outputs.
Information Technology
Modern techniques to capture data and produce meaningful information in a
useable format for management and staff of a department.
In 1996, the President of the United States signed the Information
Technology Management Reform Act (ITMRA), which established agency chief
information officers (CIOs) and required the OMB director to develop, as part of
the budget process, a process for analysing, tracking and evaluating the risks
and results of all major capital investments made by an executive agency for
information systems. Furthermore, the ITMRA builds on the CFOs Act
requirements for integrated accounting systems by requiring the agency head to
work with the CIO and CFO to ensure that agency systems effectively provide
financial or program performance data for the agency's financial statements.
Role as "Conscience" of Department
Extending the role of the financial officer-comptroller beyond finance to
act as an external objective "conscience" of the department by taking
a formal position on the data, assumptions and projected results in any major
initiative.
The United States has suggested the use of "controller" rather than
"comptroller," the point being that the controller, as well as each
agency chief financial officer, acts as a person who regulates, directs and
restrains as well as one who checks agency expenditures and finances. As such,
this senior financial management position acts much like a mirror for agencies
to better see whether their programs are implemented effectively and
efficiently.
Other Modern Trends
The United States has provided the following examples of modern trends in
comptrollership:
- As part of the Omnibus Appropriation Act, Congress enacted the
administration's proposal to phase in electronic funds transfer (EFT) by
1999 for wage, salary and retirement benefits, vendor payments, expense
reimbursement and benefit payments.
- In February 1996, the Department of the Treasury signed an agreement
to provide electronic benefits transfer (EBT) services to direct federal
recipients in a one-card environment across eight southern states. By 1999,
when all scheduled programs are implemented nationwide, EBT will deliver
over $100 billion in benefits annually.
Conclusions and Recommendations Proposed by Consulting and Audit
Canada
The findings of the survey reveal that significant progress has been made by
Australia, New Zealand, the United Kingdom and the United States in the
application of comptrollership theory and policy to the operational activities
of their programs. Examples and case studies of best practices in
comptrollership were provided by the respondents and referenced to specific
departments and/or agencies.
In addition, this survey has initiated a dialogue between the project
sponsors and the governments of Australia, New Zealand, the United Kingdom
and the United States on the issue of comptrollership. Practical initiatives
must be developed to take advantage of this window of opportunity and further
this dialogue.
The following are proposed by Canada and Consulting and Audit Canada as
significant and viable recommendations for implementation by the project
sponsors.
(1) Documentation
One of the criteria established for the survey was for information and
documentation relating to concrete examples of comptrollership referred to by
the respondent country.
All countries have indicated a willingness to provide information and
documentation to representatives of the Government of Canada on the specific
applications and/or practices identified in their responses.
Recommendation
It is recommended that the Treasury Board and the other sponsors of the
survey create a project team that would develop case studies on those areas
deemed to be of significant immediate application and share the results within
the Government of Canada. The team could consist of members of the departments
and agencies sponsoring this survey as well as exchange students from schools of
public and business administration.
(2) Directory
The responses to the survey included the names, position titles, and
telephone and fax numbers of many of the respondents.
This data would facilitate the exchange of information and the retrieving of
documentation from the survey participants.
Recommendation
It is recommended that a directory be prepared and issued to the survey
sponsors and participating countries with the names, position titles, telephone
and fax numbers, and e-mail addresses of all survey participants (the four
countries responding and the five Canadian sponsors) to facilitate the exchange
of ideas and information in the area of comptrollership.
(3) User Groups
Through the North American Free Trade Agreement (NAFTA), the Immigrant
Investor Program and other programs, the Government of Canada has extensive
experience with user groups as a means to share common policy and operational
objectives with central agencies, departments and other countries such as
Mexico, Australia, New Zealand and the United States. The comptrollership
survey has identified a number of significant areas, such as funds management,
performance indicators, risk management, annual departmental reports and
information technology, where it would be advantageous to compare notes on the
current status and proposed initiatives.
Recommendation
It is recommended that the Treasury Board identify and prioritize areas of
interest from the survey and establish user groups with the responding countries
to facilitate the free exchange of ideas and experience in these areas of mutual
interest
(4) Statutory Considerations
The United States Information Technology Management Reform Act
(ITMRA) encourages, inter alia, departments and agencies to:
- establish criteria to evaluate IT investment programs, modelled on the
best practices of successful companies;
- build on successful corporate models;
- use interagency groups to share expertise and technology;
- procure information technology in smaller, incremental purchases -
rather than massive mega-contracts - to better target their technology
needs.
Enacting these concepts into law provides all parties concerned with a formal
and statutory basis for encouraging comptrollership in the IT area.
Recommendation
It is recommended that the Treasury Board Secretariat review the legislative
basis for upgrading the quality of comptrollership in the United States,
including (but not limited to) the Information Technology Management Reform
Act, and incorporate these concepts, where deemed applicable, into the
relevant Canadian statutes and regulations.
Acknowledgements
The Treasury Board Secretariat, the Royal Canadian Mounted Police, National
Defence, Transport Canada, Health Canada, and Consulting and Audit Canada wish
to thank the following for participating in the survey.
Australia
Jim Stevenson
(formerly) Australian Department of Finance
New Zealand
The Office of the Controller and Auditor-General:
Bruce Anderson
Assistant Auditor-General
Martin Matthews
Assistant Auditor-General
The following Ministries and Agencies
Department of Agriculture
Department of Customs
Department of Education
Treasury Board Secretariat
State Services Commission
Office of the Prime Minister and Cabinet
Department of Defence
Department of Housing
The United Kingdom
John Oughton
Head of the Efficiency Unit
Office of Public Service
Michael J. Bailey
Head of the Finance, Housing and General Division
Department of the Environment
Michael C. Davey
Team Leader
Financial Policy Division
Accounting Officer Issues
Department for Education and Employment
The United States of America
G. Edward DeSeve
Controller
Executive Office of the President
Office of Management and Budget
Scott Quehl
(formerly) Special Assistant to the Controller
The following Ministries and Agencies
Department of Agriculture (USDA)
Department of Commerce
Department of Defense (DOD)
Department of Education
Department of Energy
Department of Housing and Urban Development (HUD)
Department of the Interior (Interior)
Department of State
Department of Transportation (DOT)
Department of the Treasury
Department of the Treasury, Financial Management Service (FMS)
Department of Veterans Affairs (VA)
Environmental Protection Agency (EPA)
General Services Administration (GSA)
National Aeronautics and Space Administration (NASA)
National Science Foundation (NSF)
Nuclear Regulatory Commission (NRC)
Social Security Administration (SSA)
Office of Management and Budget (OMB)
Canada
Office of the Auditor General of Canada
David H. Roth
(formerly) Assistant Auditor General
John W. Holmes
Principal
Tom Wileman
Researcher
Consulting and Audit Canada
Project Team
Kevin Larkin
Shirley James
Suzanne Lavigne
François Mongeon
David Roberts
Table of Contents
Executive Summary
Acknowledgements
Introduction
Chapter I Comptrollership Questionnaire Accountability Framework
Chapter II Survey Questionnaire Responses and Findings
1. Deputy's Accountability
2. Managerial Accountability Framework
3. Approach
4. Financial Statements
5. Annual Management Representation
6. Revenue Management
7. Expenditure Management
8. Financial Benchmarking
9. Information Technology
10. Stewardship Reporting
11. Role as "Conscience" of Department
12. Internal Control
13. External Auditing
14. Managing Risk
15. Alternative Delivery Mechanisms
16. Lessons Learned
17. Other Modern Trends
Chapter III Synopsis, Conclusions, Recommendations and Action Plan
Introduction
Background
The Auditor General of Canada (AG), in his 1994 Annual Report, identified the
application of comptrollership as an issue to be addressed within the
government. In more specific terms, the AG recommended that departments and
agencies avail themselves of the best practices in comptrollership experienced
by other countries such as Australia and New Zealand in order that the
experience derived may be applied to incur savings, simplify delivery mechanisms
and upgrade the quality of financial and operational information on Canadian
programs.
As a response to this recommendation, the Treasury Board Secretariat, the
Royal Canadian Mounted Police, Transport Canada, National Defence and Health
Canada decided to pool their resources to survey the best practices,
of comptrollership as practised by the national governments of Australia,
New Zealand, the United Kingdom and the United States.
Definition of Comptrollership
The Comptroller General of Canada defines comptrollership as follows:
"The essential, integrated business processes that must be in place in
any organization to:
- manage financial risks;
- understand the financial implications of decisions before they are taken;
- properly track and account for the financial transactions and operating
results of all financial decisions; and
- protect against fraud, financial negligence, violation of financial rules
and principles, and losses of assets."
Objective
The objective of this assignment is to assist the departments and agencies
authorizing this project survey and summarize the best practices of
comptrollership as practised by the national governments of Australia,
New Zealand, the United Kingdom and the United States in order that the
experience derived may be applied to incur savings, simplify delivery mechanisms
and upgrade the quality of financial and operational information on Canadian
programs.
Scope
The scope of the survey was limited to the current best practices in
comptrollership which are operational and exceptional to the national
governments of Australia, New Zealand, the United Kingdom and the United
States, are documented in electronic and/or hard copy format through books,
articles, briefing papers, speeches, presentation notes, etc., and are
accessible to the public.
Methodology
The methodology employed during this assignment included the following
activities:
- reviewing the definition of comptrollership with the Office of the Auditor
General and the Treasury Board Secretariat;
- developing a comptrollership framework for the questionnaire and
evaluation criteria for the survey;
- developing a questionnaire for the survey, ensuring that any specific
activities and/or area of concern of the project sponsors was included;
- making contact, in Ottawa, with representatives of the national
governments of Australia, New Zealand, the United Kingdom and the
United States to review the project terms of reference and obtain initial
documentation and the names of contact officers in their respective national
capitals;
- communicating with the designated contact officers to explain the survey
terms of reference and to identify research requirements;
- obtaining and examining research material, summarizing the findings and
confirming with the contact officers;
- proposing recommendations; and
- developing an action plan to implement the proposed recommendations.
Structure of Report
This report is organized into three chapters.
Chapter I contains the criteria employed to develop a comptrollership
framework for the survey.
Chapter II presents the responses to the questionnaire.
Chapter III provides a synopsis, the major conclusions and
recommendations of the report, and a proposed action plan.
In order to have an objective basis on which to evaluate the comptrollership
function, the criteria detailed in the Treasury Board Manual - Financial
Management were employed as an accountability framework.
In addition, survey sponsors provided questions which reflected specific
concerns and/or comptrollership issues deemed to be significant and
contemporary.
The following sections summarize the responses to the survey questionnaire
provided by the governments of Australia, New Zealand, the United Kingdom
and the United States.
In most instances, the comments are taken verbatim from the replies to the
questionnaire by the aforementioned countries.
1. Deputy's Accountability
Deputies need to be confident that:
A. Their managers deliver programs giving consideration to obtaining
the best possible value from public resources.
- In the United Kingdom, it is the long-standing practice that the
permanent head of a government department (known as the permanent
secretary) is appointed as its accounting officer. This reflects the fact
that the accounting officer has personal responsibility, under the
minister, for the overall organization, management and staffing of the
department and for department-wide procedures, where these are
appropriate, in financial and other matters. The permanent secretary must
ensure that there is a high standard of financial management in the
department as a whole; that financial systems and procedures promote the
efficient and economical conduct of business and safeguard financial
propriety and regularity throughout the department; and that financial
considerations are fully taken into account in decisions on policy
proposals. Specific responsibility for the organization, management,
staffing and financial and other procedures in a defined area of the
department, such as an agency, may be assigned to an additional accounting
officer.
- Chief executives of government departments in New Zealand have
formal annual performance agreements over and above their departmental
statements of objectives and outputs. Performance on both strategic and
immediate management issues is subject to annual assessment by the State
Services Commission, which draws on the views of the minister, central
agencies and key interested parties. There is an element of
performance-related pay linked to the performance assessment. In addition,
chief executives are employed on term contracts where reappointment, or
appointment to another position, is dependent upon performance.
Most chief executives have formal annual performance agreements with their
key divisional managers which mirror their own performance agreements.
- In the United States, the Government Performance and Results Act
(GPRA) is targeted to attain best performance for best value for
government programs. Other specially targeted programs have been enacted
recently with this objective in mind. For example, the Franchise Fund
Pilot Program (Sec. 403, Government Management Reform Act
(GMRA)) creates business-like competition among federal agencies to
provide common administrative services better, faster, and at lower cost.
- The U.S. Vice-President's National Performance Review recommended that
common administrative services be offered on a competitive,
fee-for-service basis. The results would lead to more efficient and
effective operations for the federal government as a whole, and federal
program managers in particular. The Department of Treasury is one of six
agencies allowed under the Government Management Reform Act
(GMRA) to operate a franchise fund on a pilot basis. This fund will
finance entrepreneurial services, such as training, consulting, accounting
systems cross-servicing, debt collection, and other administrative
services provided to federal agencies and other entities.
B. Their managers make decisions in light of timely, relevant and
reliable financial information, analysis and advice.
- The Department of Transport in the United States has developed an
Executive Reporting Framework (ERF) to provide complete, consistent,
reliable and timely information and create an environment that fosters
cross-cutting identification, analysis, discussion and resolution of
issues. The system accesses information from departmental financial
systems as well as financial and programmatic systems in use by the
various operating administrations. ERF will contain data to aid decision
makers in managing resources or communicating information about those
resources to senior management.
C. Cost-effective controls, suitable to the government environment, are
in place to safeguard assets and to ensure probity.
- In the U.K., mechanisms exist in government departments to control
assets and ensure probity. For example, a register of assets is maintained
and responsibilities are separated for placing contracts and other
ordering and receiving goods.
- In the United States, the Federal Managers' Financial Integrity Act
(FMFIA) was designed to improve the government's ability to manage its
programs through strong management controls and accounting systems. The
Act specifically mandates the safeguarding of assets. Agency heads are
required to make an annual report to the President and Congress to certify
that an agency has "reasonable assurance" that the appropriate
safeguards are in place and are being used.
- The American Quality Assurance Program of the Environmental Protection
Agency (EPA) is based on the Federal Managers' Financial Integrity Act
(FMFIA) requirements and is designed to safeguard assets by maintaining an
internal control system which includes statistical tests of accounting
transactions to ensure compliance with policies and procedures. The
financial managers complete an annual certification of their assessment of
financial controls and [compliance] with required accounting principles
and standards. In addition, EPA prepares annual financial statements of
its appropriations and the scope of the annual CFO financial statement
audit includes an evaluation of the internal control systems.
D. Their managers understand and report appropriately on their financial
accountability.
- All budget managers in the Department of the Environment in the U.K. are
required to attend training on their financial responsibilities and to
submit stewardship reports at the year-end to confirm that they have
carried out a structured review of their management of resources in the
preceding year and identified any shortcomings and priorities for
improvement. The stewardship report process is intended to demonstrate
that managers have satisfied themselves that, in their areas of
responsibility, financial controls are satisfactory and are operating
properly and financial management is effective. The reports are collated
by the central Finance Directorate and submitted to the accounting
officer, with an overall comment on the stewardship of resources in the
year concerned and advice on any lessons learned and action required.
- In the United States, aside from FMFIA controls, the CFOs Act
includes specific financial reporting requirements. Foremost is the
requirement of annual audited financial statements reporting on the
activities of the entire agency, starting for FY 1996. A Consolidated
Government-wide Financial Statement will also be required for
FY 1997, audited by the Government Accounting Office (GAO).
- Six departments and agencies in the United States are pilot-testing a
new Accountability Report issued under the Government Management
Reform Act. This report consolidates what had been separate reports
on agency performance and financial information into a single document.
The report contains overviews of the department's mission, goals and
performance measures; audited financial statements; status of management
controls; Prompt Payment Act compliance; audit follow-up, and other
items of interest to departmental managers and customers. Data and information
for the report are obtained from all departmental organizations and financial
reporting systems. The purpose is to present a comprehensive picture of the
department's performance as compared to its stated goals and objectives. It is
intended to answer the question, "How well did the department do in what
it set out to do?"
- In the United States, several departments and agencies are developing
Activity-Based Cost Management Programs.
- In practice, accounting officers in the United Kingdom delegate
financial management responsibility not just to their Finance Divisions,
but also to their line managers.
As an example, in the Department of the Environment, cash budgets for
running costs are delegated to heads of command, who then delegate them to
directors and to divisional managers. This means that the Department's running
costs are managed at some 90 separate cost centres. The Finance
Directorate controls the Department's running costs at departmental, or vote,
level.
The Department of the Environment also has over 100 expenditure
programmes, ranging through grants to local authorities, agencies and
non-departmental public bodies, to partnerships of local authorities and
business, to voluntary organizations, and grants to individuals.
Responsibility for planning and controlling expenditure on these programs is
formally delegated to line managers.
The responsibilities of budget managers are set out in Statements of
Resource Management Responsibility. Further guidance on how managers should
carry out these responsibilities is given in two levels: the first covers the
mandatory rules or key requirements that managers must meet; the second,
called the Resource Management Handbook, gives more discretionary guidance on
best practice.
The Statements of Resource Management Responsibility set out in detail the
level of delegations given to the Department by the Treasury. Each year
Parliament approves the level of programme and administration expenditure
budgets. Administration budgets for each cost centre are set following the
Department's corporate planning round. Where budget managers delegate
financial functions, they are required to set out in writing the limits of the
delegations they give to their staff. Budget and programme managers are not
allowed to create new expenditure commitments beyond the amount and value of
the delegations they currently have, without Finance and, in some cases,
Treasury approval.
E. The financial management organization, systems and processes meet the
department's operational needs.
- In the Department of the Environment in the United Kingdom, a clear
organization and framework of financial responsibility has recently been
agreed for the Department which takes into account the nature of the
Department's programmes and delegates responsibility to the lowest
effective level. Financial processes and a financial system have been
developed to support this.
- In the United States, the CFOs Act identifies the functions
that should report to the CFO and stipulates that the CFO should have a
direct reporting relationship to the agency head. Each of the
24 agencies subject to the Act must submit an organization plan to
the Office of Management and Budget (OMB) for the OMB director's approval.
This organization plan describes the CFO's specific role and
responsibilities.
- Ultimately, the head of the agency in the United States is the principal
policy official who decides on the appropriate CFO structure necessary to
carry out the financial management mission of the agency, subject to the
approval of the OMB director as required by the CFOs Act.
2. Managerial Accountability Framework
A. Management
(i) Program delivery and major project decisions routinely take into
account financial management considerations.
- In the United Kingdom, responsibility for improving the efficiency of
departmental administration and the effectiveness of policies and
programmes lies in the first place with line managers. A department's
approach needs to take account of how its activities are delivered -
whether, for example, by the department itself or by third parties.
- In the United Kingdom, the forward planning of all expenditure is
carried out in the public expenditure survey conducted each year by the
Treasury and the Public Expenditure Committee of the Cabinet. For example,
within a department, budget managers submit forward plans to the Finance
Directorate, together with strategic priorities in accordance with
government policy. These are then submitted by the minister in charge of a
department to the Cabinet's Public Expenditure Committee. The Public
Expenditure Committee then makes recommendations on the overall total of
expenditure to be allocated to each department. Once these recommendations
have been ratified by the full Cabinet, the Finance Directorate advises
the secretary of state on how resources should be allocated among
programmes.
Part of the public expenditure settlement is a decision on the level of the
department's running costs over the next three years. Within this,
administration budgets and forward plans for individual commands are
negotiated and agreed internally, taking into account the implications for
budgets of changing policy priorities.
- In the United Kingdom, all submissions for ministerial agreement of new
programmes/initiatives with financial implications are scrutinised by the
Finance Directorate before reaching ministers.
B. Assets, liabilities, revenues and expenditures are managed to
optimize cash flows and minimize capital costs.
- The following are examples of the process in the United States:
- Collections - The Environmental Protection Agency (EPA) utilizes
lockboxes, Fedwire, private collection agencies, and Department of Justice
(DOJ) attorneys to expedite receiving and processing collections. EPA is
investigating the use of electronic lockboxes.
- Investments - EPA strives to make timely and efficient transfers of
collections to the U.S. Treasury in order to minimize borrowing costs.
- Payments - EPA utilizes the Electronic Certification System (ECS)
for invoice payment, which provides same-day payment versus the 3-day time
frame for the manual process. Grant advances and payments are made via the
automated clearing house process, which is also an electronic funds transfer
system.
- Imprest Funds - EPA has experienced a 48% reduction in imprest funds
due to: implementation of a bank credit card for small purchases; travellers'
use of their government travel card to obtain a travel advance; and use of
third-party drafts for other reimbursements.
C. Information and Advice
Timely and reliable advice is available to the managers at all levels
to report their financial government responsibilities.
- In the United States, EPA has incorporated senior resource official
(SRO) responsibilities into senior management positions in headquarters
and regional offices to include resources management responsibilities in
the acquisition, grant and financial management areas. SRO financial
management responsibilities include budget formulation and execution,
implementation of the Chief Financial Officers Act, and
management of resources for internal and external agency use. SROs and
their staffs have access to the IFMS, the Agency's financial management
system, and ad hoc financial reports are available through another
automated system.
- Executive Window, the official on-line information system in the United
States for the General Services Administration (GSA), provides
comprehensive financial, program and performance information as well as
tools for its graphic portrayal and analysis.
- The United States Commerce Department is implementing a state-of-the-art
administrative management system which will replace and/or integrate
existing financial and administrative management systems. The Department
is also developing a Financial Executive Decision Support System which
will provide access to data from other existing databases.
3. Approach
The approach used to gather information and provide assurances on
expectations could have the following characteristics:
A. Departmental focus - aimed at departmental financial management
practices, systems and services.
- In the United Kingdom, a separate internal audit function reviews and
provides assurance on the department's financial and operating systems on
a rolling basis.
- In New Zealand, the annual reports of government departments and
most Crown entities include a Statement of Service Performance containing
performance measures for each output class. The performance information is
audited by the Audit Office. The targets for each performance measure are
set before the beginning of the year in the Statements of Intent (Crown
entities) or the Departmental Forecast Report (departments). The
appropriateness of performance information is not yet as strong as it
should be to ensure accountability, but the process is in place.
- In the United States, financial management is primarily the
responsibility of each federal agency. The CFOs Act describes the
roles and responsibilities of the CFO and the deputy CFO, and the CFO's
direct reporting relationship to the head of the agency. The Office of
Management and Budget provides guidance and policy direction, but
operational implementation is at the agency level. Annual or other
mandated reporting such as CFOs Act reporting, annual audited
financial statements and the Federal Managers' Financial Integrity Act
(FMFIA) Assurance Statements sent to the President and Congress are
primary tools for focusing agency attention.
B. Meaningful to the deputy head - the assurance statements, and
reports on remedial actions taken, should be at a level of detail that is
meaningful.
- In the United Kingdom and New Zealand, a summary of significant
audit findings and proposed action is circulated to the permanent
secretary. Summary information on significant divergence from financial
plans is circulated to senior management. An overview of the progress is
provided for review meetings with the permanent secretary.
- In the United States, the FMFIA report identifies any agency material
weakness(es), and a corrective action plan is included, with milestone
dates for accomplishing correction. These items are reviewed at the deputy
department level.
C. Common framework - using a common set of objectives and
expectations, which allows for overall consistency across departments and
agencies.
- In the United Kingdom, the framework of responsibilities and the
objectives of financial management for a department are agreed by the
permanent secretary and possibly by the Management Board of senior staff.
Common payment, accounting and other systems are developed where
necessary.
- The United States Department of Commerce has developed several policy
handbooks covering the following areas of financial management: accounting
principles and standards, cash management, and credit and debt management.
These handbooks provide bureaus with a one-source tool for referencing
financial management policies issued by oversight agencies (OMB) and/or
adopted specifically by Commerce. The handbooks also reference source
documents, such as public law or OMB circulars, to assist financial
managers in more detailed research and resolution of accounting and
reporting issues.
D. Uniquely adapted - tailored to the organization's specific
requirements, the nature of its management.
- In the United States, EPA has established a Superfund cost recovery
program, which enables parties responsible for site contamination to
obtain more information than is available in the Agency's accounting
system. To address these needs, the Agency maintains two other systems,
the Superfund Cost Recovery Image Processing System (SCRIPS) and the
Superfund Cost Organization and Recovery Enhanced System (SCORE$). SCORE$
produces concise summaries of all Superfund site transactions, and SCRIPS
maintains document images supporting the summary statement.
E. Not burdensome - as far as possible, the assurance statements
and the data underlying them should be based on mechanisms and sources of
information already available, using modern information technology.
- In the United States, the Accountability Reports, an authorized pilot
program for six agencies and departments - Social Security
Administration, General Services Administration, National Aeronautics and
Space Administration, Nuclear Regulatory Commission, Department of
Veterans Affairs, and Department of the Treasury - will consolidate
separate financial management reports into a single document so that a
reader may find relevant information in one place. As well, the Office of
Management and Budget has consolidated several of its financial management
reports into its Federal Financial Management Status Report and Five-Year
Plan.
4. Financial Statements
The application of generally accepted accounting principles and
procedures.
- In New Zealand, departments, Crown entities and state-owned
enterprises are required by law to apply Generally Accepted Accounting
Principles (GAAP) and procedures, including accrual accounting. The
government presents consolidated accounts on a full GAAP basis.
The issues remaining relate to the meaning and quality of public sector
balance sheet information, in such areas as the valuation of heritage and
infrastructural assets, and recognition of certain public sector liabilities
(welfare, pensions, etc.).
- In the United States, in 1990, the Federal Accounting Standards Advisory
Board (FASAB) was established to recommend accounting standards and
principles to its principals. Based on FASAB recommendations, the OMB has
now issued the basic set of federal accounting standards. In addition, the CFOs
Act, as amended, mandates that the 24 agencies subject to the Act
prepare and have audited annual financial statements.
5. Annual Management Representation
Management can demonstrate their annual performance by making assertions
(sometimes called management representations) about the state of affairs within
their area of responsibility. For example, a deputy head who says that the
responsibilities mentioned have been met would be making a management
representation about financial management. To increase the confidence with which
such statements are made, they should be backed up by established information
and control systems, internal audits, program evaluation, special studies, and
the like.
- In New Zealand, the annual reports of government departments and
Crown entities must, by statute, contain a Statement of Responsibility
signed by the chief executive and chief financial officer.
- There are numerous occasions in the United States when management can
represent its views. The CFO's Financial Management Status Report and
Five-Year Plan, the FMFIA report, and the new Accountability Report pilots
all allow management to reflect its view of overall performance. In
addition, inspector general (IG) semi-annual reporting to Congress includes
an opportunity for each agency to issue its own management report to
Congress providing management's point of view on key issues that have been
surfaced by the IGs.
The Government Performance and Results Act (GPRA) requires that
agencies develop Strategic Plans and annual Performance Plans, and report on
actual performance. Special attention is being paid in the FY 1998 budget
formulation process to strategic planning and the development of agency
program performance measures. These measures will provide the agency head and
others with information on how well agency programs perform.
- Eight U.S. Cabinet-level agencies are pilot-testing an Accountability
Report that is a performance-related financial management report which
includes measures of program performance, the agency's financial statement,
and the status of controls that safeguard resources and ensure the integrity
of agency programs and administrative activities.
6. Revenue Management
Recent initiatives in the policies and practices of managing a
department's revenue from services, sale of assets and/or other sources.
A. Accounts receivable management including limits on credit, use of
offsets of payables and receivables, seizure of assets to settle accounts,
etc.
- Tax Refund Offset: In the United States, the General Services
Administration (GSA), has entered into an agreement with the Internal
Revenue Service (IRS) which allows the agency to submit an electronic list
of delinquent debtors to the IRS for matching against taxpayer refund
files. Where a match is found, refunds are applied to the debt instead of
being returned to the taxpayer. Using this method, the agency has
collected debts that it was unsuccessful in collecting in any other
manner.
- The Credit Alert Interactive Voice Response System (CAIVRS) in the
United States is an on-line access database of delinquent debtors. CAIVRS
helps prevent the federal government from making loans to individuals who
are delinquent on federal debt. If the applicant is delinquent, further
credit is not approved until the debt is repaid or other arrangements are
made with the credit agency. In 1995, there were 2.4 million
inquiries into the system and 32,000 matches.
- The Debt Collection Improvement Act of 1996 in the United
States allows for an electronic offset of payment to an individual or
organization when that individual or organization has an outstanding
delinquent debt to the government.
B. Cash flow management, e.g. the use of EDI to simplify and speed
payments.
- In the United States, the market for EDI and EDI-related technologies is
expanding each month. Based on this momentum, it is inevitable that
electronic message formatting and transmission will soon be the preferred
way of conducting business in the U.S. The goal is to streamline, improve,
and lower the cost of federal procurement and finance-related activities
by making new payment tools available government-wide within five years.
The following are some examples of this practice:
- Pre-authorized Debit (PAD): GSA has recently begun offering debtors the
option of paying by PAD. To the extent that debtors choose this method of
payment, collection is assured because the amount due is automatically
deducted from the debtor's account. Also, costs of paperwork are minimized
by using electronic transfer of funds.
- The Paperless Information Exchange (PIX) Payment System allows GSA to
receive electronic invoices from a vendor, pay the invoice through the
automated clearing house (ACH), charge the correct account, and notify the
office that their bill has been paid, all without manual data entry.
Reconciliation is handled on an exceptional basis.
- The Pay allows agencies to electronically pay utility bills, and will
soon enable them to make other recurring payments. The agency uses a
commercial network, the ePay network, to sign up vendors and maintain vendor
registration. Agencies electronically submit payment instructions and
payment-related information such as the invoice number to the vendor, who
settles and reconciles through the ePay network.
- The Department of Treasury uses the commercially available Federal
Financial System (FFS) accounting system to track and control the managers'
spending in 7 of its 12 bureaus. FFS also automatically calculates and
posts interest. Treasury also uses the Report Management System (RMS) to
report on program financial activity. RMS is updated daily and made
available to managers, accountants, program offices and budget personnel.
Treasury uses its automated clearing house (ACH) system, which is a form of
direct payment to vendors' bank accounts, as well as electronic data
interchange (EDI). Future use of EDI methodology will include expansion of
collections activities and issuance of refunds to the public.
C. Charging of interest on overdue accounts.
- The United States Federal Claims Collection Act of 1966, as
amended, provides authority for agency heads to charge interest on
outstanding debts owed to the federal government, to assess charges to
cover the costs of processing and handling delinquent claims, and to
assess penalties. Specific agency examples follow.
- In August 1994, Rural Development implemented the Pre-authorized
Debit System (PAD) to accommodate the collection and application of payments
received for community and business program loans. PAD employs an agreement
between the borrower and Rural Development authorizing a direct automated
clearing house (ACH) debit against the borrower's bank account for the amount
of the loan payment on the payment due date. The ACH debit is initiated and
recorded by the Rural Development finance office. PAD reduces late payments
and delinquencies and eliminates borrower intervention in the payment process.
A future initiative is to implement PAD for electronic and telephone
borrowers.
- Rural Development uses the Internal Revenue Service refund and salary
offset programs to collect delinquent loan debt. As of April 1996 for offset
year 1996, Rural Development has collected over $2.2 million. Since the
inception of the offset program in 1997, Rural Development has collected over
$36 million in delinquent debt.
- Rural Development has initiated a project to implement a lockbox system
with a private sector bank for electronic and telephone borrowers. This system
will employ customer-initiated payments using an ACH system to generate
electronic funds transfer from borrowers' financial institutions for next-day
credit to the agency. The bank will furnish the Rural Development finance
office with monthly collection data on tape in a format which can be updated
to borrower files. Future phases include requirements for the bank to perform
edits on borrowed identification numbers; validate payment amounts to amounts
billed; and convert borrowers to PAD.
7. Expenditure Management
A. Cash management techniques, e.g. use of predetermined recurring
payment to avoid interest charges on late payments.
- In the United States the primary goal is to pay bills on time and to
collect debts on time. The U.S. cash management policy is "zero
float." In order to eliminate float, the United States is using
modern techniques, such as electronic funds transfer, EDI, EBT, credit
cards for collections and payment cards for travel, fleet management and
small purchases. The U.S. also has the ability to do offset without
inconveniencing the payor or the payee. The following are some specific
examples:
- The Fixed Contract Payment System provides for automatic payment of
fixed amounts at regular intervals without submission of an invoice or
receiving report. Finance processes payment automatically, without the
submission of an invoice or receiving report, 30 days from the last day
of services. The amount paid will be the monthly amount as authorized in the
original contract less any deductions. Based on contract expiration dates,
contracts are automatically removed from the fixed [contract] payment system
in the month prior to expiration. Finance requests a final receiving report
in the usual manner in order to ensure all requirements for contract
close-out have been met. Finance does not make final payment until it
receives the final receiving report or like authorization from the
contracting officer.
- The International Merchant Purchase Authorization Card (IMPAC) is a
commercially issued purchase card for federal purchases. The IMPAC card
allows for streamlined acquisition of goods and services under $2,500, thus
eliminating the need for petty cash purchase orders.
- The prime vendor program is an alternative payment method for daily
purchases. After shipping the daily order to the department, the vendor
sends an electronic bill to the department's credit card financial
institution. The financial institution pays the vendor and bills the
department through the department's credit card transaction processing
software for overnight reimbursement.
- Electronic benefits transfer (EBT) uses debit cards to deliver cash and
in-kind government-funded benefits such as food stamps, welfare and social
security to individuals. The goal is to implement user-friendly EBT
nationwide for state and federal programs on a one-card system by 1999.
Eight states currently operate EBT statewide.
- The Department of Treasury employs a service called "Quick
Pay," where invoices under a certain dollar amount are paid prior to
certification of receipt of goods and services. A statistical sampling of
these invoices is subsequently tested to ensure proper payment. It is the
Department's policy to take all discounts for early payments whenever
possible.
B. Obtaining of supplier discounts for early payment.
- In the United States, the GSA's Office of Finance, in an ongoing effort
to improve cash flow, has developed a home page on the Internet where
vendors are provided with a list of the TOP TEN EASY WAYS TO BE PAID
QUICKER BY GOVERNMENT (GSA). In addition to encouraging vendors to sign up
for electronic funds transfers, the list suggests that vendors offer
cost-effective discounts for early payment.
- Virtually all recurring payments of the National Aeronautics and Space
Administration (NASA) in the United States are processed electronically,
and payment centres are encouraged to maximize electronic payment for all
vendors. With the implementation of the Electronic Certification System by
all payment centres, NASA has been able to reduce the lead time required
for release of payment authorizations to Treasury by two days. NASA's
recent streamlining initiatives have been grouped into two basic
categories: best practices and restructuring initiatives. The best
practices initiatives involve changes such as streamlining travel
reimbursement by statistically sampling rather than testing all voucher
documentation and replacing imprest funds with bank cards and electronic
fund transfers. Both efforts are in the process of implementation. The
restructuring initiatives involve changes such as consolidating travel and
payroll processing at single sites.
- In the United States, the Rural Development Finance Office has initiated
a project to implement digital signature electronic invoicing for certain
project cost payments. Currently, invoices for these costs are mailed to
the U.S. Department of Agriculture's National Finance Centre in New
Orleans for data conversion and payment. Electronic invoicing will provide
Rural Development field offices with fund control and electronic
submission capability and enable them to certify invoices for payment and
perform on-line edits of the invoicing information.
8. Financial Benchmarking
A. The establishment of performance measurement criteria for budgeting
purposes and the development of benchmarks for comparing actual results.
- In New Zealand, a significant amount of information is collected
and published on the quality, quantity and cost of government outputs.
Some departments benchmark their performance against other departments.
Some attempts have been made to develop benchmark ratios and indicators
for comparison of inputs and processes but as government outputs tend to
be unique intra-nationally there has been little done on outputs.
- In the United States, the Environmental Protection Agency has developed
two sets of performance measures to gauge the performance of critical
accounting and financial management functions. The first set of measures
focuses on key accounting and financial management responsibilities. These
measures encompass the areas of accounts receivable, payments to
commercial vendors and grantees, cash reconciliations and cost recovery
operations. The second set of measures focuses on broader fiscal resources
management areas such as contracts, grants, property, funds management and
program financial management. The agency is currently pilot-testing these
measures.
B. The use of performance indicators for comparison of programs within
the department, between departments, or with the private sector or other
national governments.
- The Social Security Administration (SSA) in the United States has a wide
range of performance measures used in formulating and executing budgets
and allocating costs between trust and general fund programs. In order to
estimate resources requirements and execute statutory responsibility to
allocate costs, SSA routinely has tracked workloads (receipts, processed,
pendings), work years, productivity and unit costs. SSA developed formulas
to measure performance, determined abilities of measurement systems to
compute that performance, collected information from customers and
stakeholders regarding service delivery preferences and developed a
revised business plan based upon the feedback received. Some outcome
measures also are used (e.g. payment accuracy). An SSA accountability
report includes performance measures that focus on the extent to which
programs are achieving their intended outcomes; the adequacy of program
financing; the efficiency of operations; and progress in achieving agency
goals.
- The Joint Commission for the Accreditation of Health Care Organizations
(JCAHO) grid scores Veterans Health Administration (VHA) hospitals in the
United States and reviews most health care institutions in the country
using standard criteria that assess the structures, work processes, and
selected outcomes in medical facilities. This review of organizational
quality allows for comparison with other public sector facilities, as well
as those in the private sector, because the Commission's criteria are a
standard used by both types of facilities.
9. Information Technology
Modern techniques to capture data and produce meaningful information in a
useable format for management and staff of a department.
A. Ensuring that the organization is being served by efficient,
effective and economical accounting and financial management information
systems.
- In 1996, the President of the United States signed the Information
Technology Management Reform Act (ITMRA), which established agency
chief information officers (CIOs) and required the OMB director to
develop, as part of the budget process, a process for analysing, tracking
and evaluating the risks and results of all major capital investments made
by an executive agency for information systems. Furthermore, the ITMRA
builds on the CFOs Act requirements for integrated accounting
systems by requiring the agency head to work with the CIO and CFO to
ensure that agency systems effectively provide financial or program
performance data for the agency's financial statements.
- U.S. Custom Service duties, taxes and fees are collected and accounted
for by an automated system. The system tracks, controls, and processes all
commercial goods imported into the country, and is widely recognized as
one of the world's most sophisticated and integrated large-scale business
systems. Through EDI and risk assessment techniques, the system cuts costs
and reduces paperwork requirements for Customs and importers.
- EPA uses an off-the-shelf accounting, financial management and budgeting
software package for control over its financial operations. The
off-the-shelf package, while modified slightly to accommodate the agency's
specific needs, enables the agency to avoid the costs and inefficiencies
of software developed and maintained in-house. EPA is part of an
interagency users group for the software, and that users group guides
development of the software to ensure that the vendor meets federal needs
efficiently, effectively and economically. EPA implements upgrades of the
off-the-shelf software at least annually to stay current with evolving
financial requirements.
B. Policy and procedures on the development and implementation of
information technology.
- Clinger-Cohen Act of 1996 (Information Technology
Management Reform Act (ITMRA))
In the United States, the Clinger-Cohen Act fundamentally changes
the way the government plans for and acquires large information technology
(IT) [systems]. Responsibility is placed on agency heads for the success of
their IT systems. The ITMRA streamlines and improves the process that the
government uses to manage its vast portfolio of information technology
investments in several ways: (i) it establishes criteria for agencies to
evaluate IT investment programs, modelled on the best practices of successful
companies; (ii) it builds on successful corporate models by designating a
high-level chief information officer in all Cabinet and major independent
agencies, reporting to the office of the agency head, with primary
responsibility for IT management and carrying out agency functions under the Paperwork
Reduction Act; (iii) it encourages the administration to use
interagency groups to share expertise and technology; and (iv) it
encourages agencies to procure information technology in smaller, incremental
purchases - rather than massive mega-contracts - to better target
the technology to meet agency needs.
OMB has asked agencies to follow the practices set out in OMB
memorandum 97-02. These are:
- the system must support the core mission that needs to be done by the
government;
- no alternative private sector or government party can do the work;
- work processes involved have been simplified to increase chances of
using off-the-shelf software;
- portfolio management and analysis demonstrate that the return on this
investment is equal to or better than other agency IT investments;
- the system is consistent with agency and government IT architectures;
- risk is minimized with fully tested pilots before production, minimized
custom design, clear measures of progress, and buy-in from program
officials - to ensure that clients are buying what they want;
- modular procurement assists agencies in procuring the smallest possible
segments, with no deliverables out more than 18 months; and
- risk is appropriately allocated between vendor and agency through the
increased use of performance-based contracts rather than level of effort
or cost plus.
- Rural Development has prescribed policies and procedures for managing
requests for automation to modify, enhance or develop automated systems. A
Review Council, which consists of senior management, approves the
allocation of information resources consistent with strategic business
goals and objectives. A System Review Board, which consists of financial
and program managers, sets priorities for requests for automation
implementation.
C. The integration of human resources, material management, accounting
and/or other databases.
- The Office of Public and Indian Housing (PIH) within the Department of
Housing and Urban Development (HUD) was part of a project to implement an
integrated financial system to support the department's consolidated
financial control and reporting requirements. The general objective of the
project was to provide an integrated accounting system across the
department that met the central agency requirements. The focus of the
project was to support special statutory accounting requirements for
spending. The system provides direct access to a central integrated
database within a user-friendly windows environment.
- All of the Department of Treasury's 12 bureaus are serviced by a
single payroll processor. The use of a single processor allows for
consistency in the payment of the numerous types of premium payment unique
to these bureaus. And because information in stored in a common database,
information can be shared among the agencies.
- The off-the-shelf software that EPA uses integrates accounting,
financial management and budgeting. In addition, the agency is
implementing a fixed asset module that is part of the off-the-shelf
package, which will integrate property and other asset management within
the core system. EPA has also developed interfaces between the core
financial system and its integrated payroll and personnel system, so that
data flows from the payroll system to the core financial system quickly
and without rekeying. An interface also exists with the grants and
procurement systems.
10. Stewardship Reporting
The Auditor General of Canada refers to "departmental stewardship
reporting" as encompassing the overall management and accountability of the
minister and senior public servants for the entire range of their duties and
obligations. Annual reporting focuses on compliance with spending duties and
obligations. Stewardship reporting, therefore, is far more extensive than
reporting on annual spending. For example, public documents do not provide
substantive information on the magnitude of the program, its strategic targets
and objectives, its plans and the indicators that would help in judging the
program's results, or annual results achieved.
- In the United Kingdom, budget managers are required each year to produce a
Stewardship Report on their management of programme expenditure and
administration expenditure budgets. Heads of command report to the
accounting officers on the key messages of the Stewardship Reports. The
Finance Directorate provides an overarching report, drawing out priorities
for future action.
- In New Zealand, the government planning and reporting framework
attempts to be comprehensive. The government is required to follow certain
principles of responsible fiscal management (set out in the Fiscal
Responsibility Act of 1994) and to report against those principles
regularly. The essential documents in this regime are:
- An Economic and Fiscal Update, which is published with the budget. It is
updated in December and before each general election. The Economic and Fiscal
Update is produced by the secretary of the Treasury rather than the government
of the day.
- Estimates of Expenditure (in the budget), which identify the high-level
objective for each main area of expenditure and the amounts to be spent,
together with the performance measures and targets to be achieved.
- Departmental Forecast Reports and Statements of Intent, which provide
supplementary information about general and financial management objectives of
each department or Crown entity.
- The Crown Financial Statements, which provide a consolidated statement of
the financial activities of the Crown for the year.
- Departmental and Crown entity Annual Reports, which report against the
Departmental Forecast Reports and Statements of Intent, and contain some
reporting against the Estimates of Expenditure.
One weakness in the current reporting regime is that the Estimates of
Expenditure, which are the key vehicle for Parliamentary approval and control,
are not directly and comprehensively reported against.
- American federal agencies' financial statements are required to include
stewardship information in the overview of the financial statements.
- For FY 1996, eight agencies in the U.S. will participate in a pilot
program to develop a standard Accountability Report. This report
will include not only the standard financial statements and footnotes, but
also information on the mission goals and performance of the agency.
11. Role as "Conscience" of
Department
Extending the role of the financial officer-comptroller beyond finance to
act as an external objective "conscience" of the department by taking
a formal position on the data, assumptions and projected results in any major
initiative.
- In the United Kingdom, the Finance Directorate undertakes a continual
scrutiny and challenge role as regards financial proposals.
- The United States has suggested the use of "controller" rather
than "comptroller," the point being that the controller, as well
as each agency chief financial officer, acts as a person who regulates,
directs and restrains as well as one who checks agency expenditures and
finances. As such, this senior financial management position acts much like
a mirror for agencies to better see whether their programs are implemented
effectively and efficiently.
- In the United States, a financial review process, which is comprehensive
and open-ended by its nature, enables the financial organization to
participate in practically any initiative or analysis desired.
- It is the responsibility of the chief financial officer in the United
States to educate top management and program officials as to the critical
role financial management plays in the total organization. The key to
achieving this goal is effective communication between the groups.
12. Internal Control
The constant need to upgrade controls in an era of EDI (electronic data
interchange) interrelated databases, networks and other computer-related
developments.
The following examples were provided by the United States:
- Processing electronic data interchange invoices on a line item basis. When
GSA first started accepting EDI invoices in supply operations, it was
concerned about processing electronic invoices without human intervention
and liquidating the correct obligation in addition to disbursing the correct
amount. To achieve these results, it decided to process EDI invoices on a
line item basis in which the obligation, receiving evidence (if required)
and invoices must match the purchase order number, line item national stock
number, quantity and unit price on all three electronic records.
- Expansion of electronic data interchange (EDI) and the collection of
revenue using paperless processing are being implemented through an
automated broker interface and a financial communications network at the
Department of Treasury, U.S. Customs Service. Future use of the system will
include expansion of collections activity and issuance of refunds to the
public.
- The financial management system of Veterans Affairs at the Austin Finance
Centre presently applies credit memos from commercial vendors against open
invoices, to ensure that monies due the Department are promptly collected.
- Security. An access control list is maintained within the system that
identifies the EPA employees authorized to access the small purchases
system. Very tight control is placed on who has access to the access control
tables.
- Data accuracy. At EPA, each purchasing agent reviews the quotations
received for each request for quotation (RFQ). The quotation has to meet the
requirements specified in the RFQ. The purchasing agent can call the vendor
directly to question something in the quotation.
- Front-end, preventive management control reviews are performed both on a
government-wide basis and in specific agencies. Government-wide, the
President's Council on Integrity and Efficiency (the agency inspector
generals) have conducted audits and surveys of major, new electronic systems
before the systems are implemented. This was
done with the electronic benefit transfer system, and most recently, with
the new system to use credit cards for small purchases, travel and fleet
needs.
13. External Auditing
The use of private sector auditors to audit departmental processes and
records for compliance and management purposes.
- In the United Kingdom, a department's accounts are audited by the National
Audit Office (NAO) which produces an annual Management Letter. The NAO also
carries out two or three studies a year of the value for money provided by
selected departmental programs. In most cases, hearings on these studies are
held by the Public Accounts Committee which comprises elected members of
Parliament, at which the accounting officer gives evidence. The principal
finance officer also gives evidence to the appropriate Parliamentary
Departmental Select Committee about his or her department's performance for
the previous financial year, based on the department's annual report.
- In New Zealand, the Audit Office is the auditor of all public sector
organizations but private sector auditors are used by the Audit Office to
conduct the external audit of some government departments and Crown
entities. The provider of audit services to the Audit Office is determined
using a competitive tendering process.
- In the United States, private sector auditors are used by the agency
inspector general to supplement in-house staff, especially on financial
statement audits. Private auditors are also engaged by the recipients of
federal assistance (grantees) to perform annual audits that are submitted to
the federal funding agency.
14. Managing Risk
The application of "risk management" in maximizing program
effectiveness.
- In New Zealand, this is a well-established concept in government
departments. Considerable progress has been made in the last two to three
years on risk analysis.
- In the United Kingdom, risk management is used in information technology
(IT) and projects control.
- In the United States, the Audit Act prescribes audit requirements
for States, local governments, and non-profit organizations that administer
federal awards. The 1996 amendments to the Act require use of a risk-based
approach to selecting major programs (i.e. programs that receive most
audit coverage and focus under single audits). The objective of this
approach is to better align audit resources with federal programs at
greatest risk.
15. Alternative Delivery Mechanisms
The use of special operating agencies, Crown corporations, joint
ventures, privatization, contracting out, etc., as alternative delivery
mechanisms to federal government departmental programs.
- A wide variety of alternative delivery mechanisms are employed in
Australia and New Zealand.
- The United Kingdom has operated a program of market testing and
contracting out under the jurisdiction of a national "Competing for
Quality" initiative. This encompasses a range of efficiency
measures - abolition, privatization, contracting out, market testing,
agency creation, etc.
- In the United States, the Government Management Reform Act of
1994 (GMRA) includes provisions to create franchise fund pilots which would
cross-service agencies for common administrative services such as payroll,
personnel and telecommunications.
- Within DOD, experience demonstrates that competition and outsourcing have
yielded both significant savings and increased effectiveness. On average,
these competitions have reduced annual operating costs by 31 percent.
The consistency of these results highlights the potential benefits to the
department from opening up a significant portion of the operations and
support budget to competition.
- In the United States, EPA has established the structure for a working
capital fund for administrative services. Under the fund, administrative
services will be provided by Agency support offices to program offices on a
fee-for-service basis. In this way, the costs for services will be better
understood by EPA managers and lead to improved customer service.
- In the United States, EPA's Environmental Financial Branch prepared a
report outlining over 80 alternative financing mechanisms for use by
local governments in paying the capital and operating costs of their
environmental systems. Fundamentally, the sources of funds are taxes, fees,
pay as you go, intergovernmental transfers or subsidies, and privatization.
This report expands on the basic options to give many different examples of
both traditional and innovative techniques. It also describes different
institutional arrangements that, for example, help leverage the application
of scarce governmental resources to the financing of environmental systems.
- In September 1995, the Vice-President of the United States unveiled
the next phase of administration efforts to improve the delivery of
government services - Performance-Based Organizations (PBOs). With
PBOs, the customer comes first. The administration will transform some
agency customer service functions into performance-driven, customer-oriented
tasks. The agencies will get considerable flexibility to make personnel,
procurement and financial management decisions and, in return, will be held
accountable for meeting measurable performance goals in delivering services
to the public.
Before the administration designates a PBO, the agency must have a clear
mission with broad support from key "stakeholders," and it must be
able to clearly distinguish between its policy-making, regulatory and service
delivery functions.
In a major change from how the government normally does business, agencies
will hire "chief executives" of the PBOs on a fixed-term contract,
with a clear agreement on performance goals, service delivery and, in some
cases, taxpayer savings. Agencies will pay chief executives at market rates,
with a large chunk of pay tied to performance.
16. Lessons Learned
An example of a major disappointment relating to best practices of
comptrollership.
- In early 1995, the United States National Aeronautics and Space
Administration terminated major, risky, largely in-house systems development
projects because they were not consistent with government reinvention
priorities and related agency downsizing and streamlining initiatives.
- When it purchased off-the-shelf software to replace its accounting system,
the U.S. Environmental Protection Agency believed that, since the software
was being used by other agencies, it would also meet the Agency's own needs
and provide cost savings because the Agency would work with other agencies
when improvements were necessary. The Agency made two mistakes in
implementing the system. First, system plans did not consider EPA's unique
system reporting needs sufficiently. Second, more extensive testing should
have been conducted before moving to the off-the-shelf software, including a
period where both the old and new software were operated simultaneously to
ensure a smooth transition to the new system.
- Australia has experienced several instances where the anticipated benefits
of major computer applications did not live up to expectations.
17. Other Modern Trends
The United States has provided the following examples of modern trends in
comptrollership:
- As part of the Omnibus Appropriation Act, Congress enacted the
administration's proposal to phase in electronic funds transfer (EFT) by
1999 for wage, salary and retirement benefits, vendor payments, expense
reimbursement and benefit payments. Excluded were income tax refunds.
- In February 1996, Treasury signed an agreement to provide electronic
benefits transfer (EBT) services to direct federal recipients in a one-card
environment across eight southern states. By 1999, when all scheduled
programs are implemented nationwide, EBT will deliver over $100 billion
in benefits annually.
- Two new electronic payment pilots have been designed to assist in the
integration of acquisition and finance for electronic commerce. Prime Pay
allows for easier payment to vendors with whom the federal government has an
ongoing relationship, while the second pilot, ePay, takes advantage of
commercial registration of vendors.
- Franchise fund pilots were formally designated by OMB in May 1996. The
pilots will provide intra- as well as interagency administrative services on
a competitive basis.
- Travel Reinvention Initiatives.
- Eliminate pre-trip obligations of travel and allow GSA offices to issue
orders that best suit their needs - annual, quarterly or
trip-by-trip. Status: An annual blanket travel authorization pilot was
implemented in the Office of the Chief Financial Officer on October 1,
1995.
- Under the Lodgings Plus method of reimbursement, allow a flat 75% meals
and incidental expenses (M&IE) on all partial days for trips of two or
more days. Status: This policy change was implemented on January 1,
1996 for all temporary duty travel (TDY) at GSA.
- Under the Lodgings Plus method of reimbursement, allow a $75 threshold
on receipts for miscellaneous items (does not apply to lodging costs).
Status: This policy change was implemented throughout GSA on
October 5, 1995.
- Exploit planned and existing "preferred" hotel programs that
utilize negotiated lodging discounts and direct billing mechanisms. Direct
billing will also be expanded to rental car companies as well. Status: GSA
implemented direct billing agreements with 19 hotels on July 31,
1995. The number of hotels has been expanded to 26. A pilot on direct
billing for car rental costs will start in the immediate future.
- Have one travel management centre (TMC) contractor.
- FinanceNet is the Internet's worldwide home for public financial
management. FinanceNet seeks to achieve its goals by (1) encouraging
dialogue for the sharing of ideas, best practices and successes through
subscription to a series of 30 public Internet mailing lists and
corresponding netnews newsgroups, and (2) providing an instantly
available electronic library of financial information on gopher, ftp and
World Wide Web Internet servers to empower government financial operations
staff and taxpayers to make more effective decisions. FinanceNet is also the
worldwide electronic "clearing house" for information on the sale
of all manner of public assets from real property and loans to planes,
boats, jewelry, and just about anything that any government (federal, state,
local or international) will be offering for sale to the general public
electronically - truly a "one-stop-shop" for such
information.
- Fastlane is a three-year experimental program utilizing advanced
information technology to explore methods to redesign and streamline the way
the National Science Foundation (NSF) does business with the research,
education and related communities. The program strategy will be to develop
pilot systems which will test the application of advanced information
technology, together with new processes for exchanging information among
proposers, reviewers, university research administrators, NSF staff, and the
systems that support their work. As the program was originally conceived,
many existing paper or telephone interactions will be redesigned to allow
computer access to NSF via a dial-up or Internet connection to Mosaic or
other World Wide Web (WWW) servers. Anyone using standard PC technology will
have "point and click" access to software that will facilitate
most of NSF's business transactions, from completing proposal forms to
inquiring about the status of proposals.
There are currently six pilot applications:
- Electronic Proposal Forms Submission - An NSF forms server will
provide the capability for electronic submission of administrative
information related to proposals.
- Proposal Status Inquiry - The NSF proposal status server will allow
principal investigators and other authorized individuals to receive the
current status of a pending proposal.
- Submission of Final Project Report - An NSF forms server will
provide an electronic version of its final project report, and enable
electronic submission of the form and attachments.
- Cash Transaction Request - NSF will allow access to a menu-driven
cash request system, including automatic e-mail acknowledgement and
confirmation.
- Submission of Review Information - Proposal reviewers will be
provided with access to a menu-driven system allowing reviewers to enter
ratings and review comments or cut and paste from a local word processing
document.
- Announcements of Award Actions - The NSF server will provide a list
of recent awards, including information on the institution, principal
investigator, amount and duration.
- The Office of Cost Analysis built a linear programming (LP) model that
enabled Treasury to determine the most cost-effective set of telephone and
collection call sites and returns processing centres. The Office of Cost
Analysis also built an LP model to determine the most cost-effective set of
foreign offices around the world and assign countries to these offices for
service. The model incorporates geographic information system mapping
software to display results.
- Electronic Reimbursement of Travel (ERT) - EPA and GSA are currently
using the electronic funds transfer system to repay employees' travel
expenses and sending the reimbursed employee an e-mail message when the
funds transfer occurs. This process eliminates the paper cheque and the
possibility of lost or stolen cheques. In addition, ERT payments cost the
government much less to process.
- SSA has maintained an integrated, activity-based cost accounting system
since fiscal year 1976 that focuses attention on the cost of doing business
and facilitates operations and reduces costs. SSA's Cost Analysis System
(CAS) serves a variety of purposes, chief among which is to satisfy the
statutory requirement that SSA analyse its costs to ensure that each trust
fund and the general fund bears its appropriate share of administrative
expenses. To accomplish this task, SSA tracks program workloads (receipts,
processed and pendings), work years, utilization and productivity at various
levels. Costs incurred by SSA components are then attributed to workloads,
functions, business activities, programs and ultimately the various trust
and general funds that finance them.
Synopsis
The objective of this assignment was to identify the best practices of
comptrollership as practised by the national governments of Australia,
New Zealand, the United Kingdom and the United States (survey respondents),
in order that the experience derived may be applied to incur savings, simplify
delivery mechanisms and upgrade the quality of financial and operational
information on Canadian programs.
In addition, the scope of the survey was limited to the current best
practices which are operational and exceptional to the national governments of
the survey respondents, are documented in electronic and/or hard copy format
through books, articles, briefing papers, etc., and are accessible to the
public.
The findings of the survey were classified into the following categories:
- Deputy's and Managerial Accountability Framework
- Approach
- Financial Statements and Annual Management Representation
- Revenue and Expenditure Management
- Financial Benchmarking
- Information Technology
- Stewardship and the Role as "Conscience" of a Department
- Internal and External Auditing
- Managing Risk
- Alternative Delivery Mechanisms
- Lessons Learned
- Other Modern Trends
Conclusions, Recommendations and Action Plan
The findings of the survey reveal that significant progress has been made by
Australia, New Zealand, the United Kingdom and the United States in the
application of comptrollership theory and policy to the day-to-day operational
activities of their programs. Examples and case studies of best practices in
comptrollership were identified and referenced to specific departments and/or
agencies by the respondents.
In addition, the survey has initiated a dialogue between the project sponsors
and the governments of Australia, New Zealand, the United Kingdom and the
United States on the issue of comptrollership. Practical initiatives must be
developed to take advantage of this window of opportunity and further this
dialogue.
The following are proposed by Consulting and Audit Canada as significant and
viable recommendations for implementation by the project sponsors.
(1) Documentation
One of the criteria established for the survey questionnaire was for
information and documentation relating to concrete examples of comptrollership.
All countries have indicated a willingness to provide information and
documentation to representatives of the Government of Canada on the specific
applications and/or practices identified in their responses.
Recommendation
It is recommended that the Treasury Board and the other sponsors of the
survey create a project team that would obtain documentation and/or develop case
studies on those areas deemed to be of significant immediate application and
share the results within the Government of Canada. The team could consist of
members of the departments and agencies sponsoring this survey as well as
exchange students from graduate schools of public administration and business
administration.
(2) Directory
The responses to the survey included the names, position titles, and
telephone and fax numbers of many of the respondents.
This data would facilitate the exchange of information and the retrieving of
documentation from the survey participants.
Recommendation
It is recommended that a directory be prepared and issued to the survey
sponsors and participating countries with the name, position title, telephone
and fax numbers, and e-mail addresses of all survey participants (the four
countries responding and the five Canadian sponsors) to facilitate the exchange
of ideas and information in the area of comptrollership.
(3) User Groups
Through the North American Free Trade Agreement (NAFTA), the Immigrant
Investor Program of Citizenship and Immigration and other programs, the
Government of Canada has extensive experience with user groups as a means to
share common policy and operational objectives with central agencies,
departments and other countries such as Mexico, Australia, New Zealand and
the United States. The comptrollership survey has identified a number of
significant areas, such as funds management, performance indicators, risk
management, annual departmental reports and information technology, where it
would be advantageous to compare notes on the current status and proposed
initiatives.
Recommendation
It is recommended that the Treasury Board identify and prioritize areas of
interest from the survey and establish user groups with the responding countries
to facilitate the free exchange of ideas and experience in these areas of mutual
interest.
(4) Statutory Considerations
The United States Information Technology Management Reform Act
(ITMRA) encourages, inter alia, departments and agencies to:
- establish criteria to evaluate IT investment programs, modelled on the
best practices of successful companies;
- build on successful corporate models;
- use interagency groups to share expertise and technology;
- procure information technology in smaller, incremental purchases -
rather than massive mega-contracts - to better target their technology
needs.
Enacting these concepts into law provides all parties concerned with a formal
and statutory basis for encouraging comptrollership in the IT area.
Recommendation
It is recommended that the Treasury Board Secretariat review the legislative
basis for upgrading the quality of comptrollership in the United States,
including (but not limited to) the Information Technology Management Reform
Act, and incorporate these concepts, where deemed applicable, into the
relevant Canadian statutes and regulations.
