A Strategic Approach to Organizing the Finance Function

1. A Strategic Approach to Organizing the Finance Function TSABAA Christina Dorfhuber – Principal, Deloitte Consulting LLP July 1st, 2008

2. Agenda Background of global survey Key findings in the public sector The imperative for finance transformation Understanding finance transformation The four faces of finance Mastering finance in government Taking your organization to the next level – moving to mastery

3. Background of global finance transformation survey More than 200 responses from across the world 31 68 54 13 2 3 2 2 8 4 14 Deloitte Research conducted a global survey to understand the maturity of the finance function in governments across the world. The survey results were supplemented with secondary research and case studies. Source: Deloitte Research Global Study on Finance Transfromation

4. Key findings of the survey Significant gaps exist between current finance capabilities and government needs. Most finance organizations do better in the tactical roles (Steward and Operator) than at the strategic roles (Strategist and Catalyst)--the roles that are the most critical to addressing many of government’s biggest fiscal and operational challenges. The greatest need in government finance today is for a finance function that can offer timely information and advice to government leaders on key operational and strategic decisions. Twenty- four percent of respondents are “Finance Masters” who support the business in making strategic decisions and act as a catalyst for change, built on a foundation of excellence in finance stewardship and operations.

5. Question # 1 • When it comes to finance transformation, which of the following is the most important priority for your organization? • Improve decision-making ability • Improve transparency and integrity of financial information • Reduce transaction processing costs • Reduce administration expenses • Improve asset management • Don’t know/not applicable

6. “$50 million Dallas budget gap may require service cuts” -Pegasus News, May 22, 2008 “Illinois Senate budget officials believe shortfall is closer to $395 million” - Chicago Tribune, May 4 2008 “VA. Budget Shortfall May Mean Layoffs”Kaine Considers Fee Increases, Too - Washington Post September 18, 2007 “California faces a shortfall of more than $17 billion” - Reuters, May 21, 2008 “Predicting a Slowdown in Revenue, New York Officials Prepare for a Tighter Budget” - NY Times, September 18, 2007 “Wis. budget crunch means smaller raises for state employees” - Minneapolis Star Tribune, May 23, 2008 Many Challenges Are Increasingly Affecting Government Budgets

7. Question # 2 • Which of the following barriers most impact overall organizational performance, including financial performance? • Lack of up-to-date information for strategic decision making • Lack of real time information for operations and execution • Lack of process standards, clarity or discipline • Lack of integrated risk management • Don’t know/not applicable

8. Gap #1: Lack of up-to-date information for decision making 66 percent have difficulty getting timely and accurate financial information Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

9. Gap #2: Inadequate information on costs The understanding of costs is missing and systems are not competent enough to prepare cost reports Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

10. Gap #3: Relationship between investments and outcomes is unclear Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

11. Gap #4: Lack of consistent risk management Only 29 percent have strong compliance/risk management capabilities Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

12. Understanding finance’s challenges Leading Edge Strategist Catalyst Threshold Performance Execution Performance Finance Function CFO CFO Focus Focus Triangle Triangle Control Efficiency Operator Steward Stimulate behaviors across the organization to achieve strategic and financial objectives Provide financial leadership in determining strategic business direction and align financial strategies Protect and preserve the assets of the organization Balance capabilities, costs and service levels to fulfill the finance organization’s responsibilities

13. Finance functions today perform better in the tactical roles than in the strategic roles

14. Finance as operator of the finance function • Building an effective finance organization is a precondition for building a world-class finance organization, yet many agencies struggle to advance. Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

15. Finance as strategist supporting the enterprise • Strategist capabilities at baseline level or below for most organizations. • Significant opportunities for improvement across the board. Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

16. Finance as catalyst for change and execution • Leveraging finance across the enterprise as a catalyst is a challenge for nearly all government agencies studied. Strategists/Catalysts, however, are breaking new ground and use this area to drive performance. Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

17. Mastering finance in government - finance masters represent 24% of responders Invalid responses comprise 4%. Most respondents fit into what we classify as “Novices” or “Intermediates.”

18. Path to finance mastery - two stage process Almost no agency in our analysis has been able to master strategist and catalyst capabilities without a foundation in stewardship and operator capabilities

19. Stage 2: Improving the what and how - acquire strategic capabilities ‘Intermediates’ need to bridge these gaps to achieve ‘Finance mastery’ Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

20. Finance masters play a key role evaluating policy alternatives While most ‘Finance Masters’ play a role in strategy development and evaluation, ‘Intermediates’ lag Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

21. Providing greater value for money is another key capability Less than 20 percent ‘Intermediates’ understand the relationship between investment and costs Source: Deloitte Research Study, “Mastering Finance in Government, Transforming the Government Enterprise Through Better Financial Management”

22. Transforming the Finance Function

23. Value Drivers Performance& Decisions Risk & Capital Leading Edge Close,Consolidate& Report Regulation, Controls & Governance Threshold Performance Finance Strategy TransactionProcessing Strategy &Execution Talent &People Systems &Information FinanceOrganization Policy &Process Enablers Becoming a leading finance organization: driving value across the government Finance organizations can use six Value Drivers and four Enablers to improve their operations and better achieve their objectives

24. Organizations working to improve their performance can conduct a self assessment • Steps to Identify Areas for Improvement: • Assess the organization’s capabilities for each of the Four Faces. Use the specific Value Drivers that impact each face to target opportunities for improvement • Strategy & Execution • Regulation, Controls & Governance • Risk & Capital • Performance & Decisions • Transaction Processing • Close, Consolidate & Report • For each of the Value Drivers, consider each Enabler • After assessing each Value Driver and Enabler, prioritize your issues and determine a course of action to transform Finance

25. Transformation efforts can be driven by organization and people • Organization and People • Work to better define the finance operating model, considering finance roles and responsibilities across key stakeholders • Consider opportunities to implement shared services or centralized models • Enhance the skills and training of people working in finance • Begin addressing the recruiting and retention issue now • Examples • Creation of shared services for particular finance functions, such as invoice processing • Establishment of a centrally managed performance management effort • Allocation of trained staff to analytical units focusing on strategist and catalyst activities • Create a dedicated audit organization that develops its business plan through analysis of risk areas

26. Transformation efforts can be driven by process and programs • Process/programs • Find ways to reduce paper transactions • Create processes that reduce the number of handoffs and approvals • Design processes that can use streamlining technologies • Examples • Develop easy-to-use purchasing card guidelines to reduce paperwork intensive transactions • Review coordination of process activities across different organizations and improve coordination • Post-audit a sampling of transactions rather than pre-auditing all transactions

27. Transformation efforts can be driven by technology • Technology • Find ways to use imaging, electronic processing and workflow • Implement integrated technologies • Create integrated technical and business teams • Use electronic forms and standardized technologies • Develop integrated financial, procurement and HR systems • Examples • Implement workflow technologies for invoice processing and other processes • Image documents one time and use the images for processing • Leverage vendor self service technology to push data entry to vendor.

28. Each survey respondent receives a customized benchmarking report. Global finance transformation research and benchmarking project Finance Transformation Report A study based on the FT survey results supplemented by secondary research and case studies from Deloitte offices across the world Benchmark Analysis

29. Questions & Answers

30. This presentation contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means of this presentation, rendering business, financial, investment, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall not be responsible for any loss sustained by any person who relies on this presentation.