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Fiscal Reporting and Performance Management – A Conceptual Framework

Fiscal Reporting and Performance Management – A Conceptual Framework. Japan IMF Sub Acc. Ian Ball Chairman, CIPFA International. Outline. Session objective Context Key changes The conceptual framework Implementation and marketing Current status. Session Objective.

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Fiscal Reporting and Performance Management – A Conceptual Framework

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  1. Fiscal Reporting and Performance Management – A Conceptual Framework Japan IMF Sub Acc Ian Ball Chairman, CIPFA International

  2. Outline • Session objective • Context • Key changes • The conceptual framework • Implementation and marketing • Current status

  3. Session Objective • To present a conceptual framework that enables high quality fiscal and performance management

  4. Why it is important…

  5. Countries with Sovereign Restructuring between 1990-2005 (Agreement Date) Source: Cruces J and Trebesch C, Sovereign Defaults: The Price of Haircuts (Preliminary Paper) December 2010

  6. Context – 1980s New Zealand • Objective was better performance from all parts of the economy • Constitutional arrangements made for ease of action • No written constitution • No states • No Upper House of Parliament • “First past the post” electoral system

  7. Context Financial management and reporting reform in the wider contexts of: • Microeconomic reform • Public sector management reform • State-Owned Enterprise Act 1986 • State Sector Act 1988 • Public Finance Act 1989 • Fiscal Responsibility Act 1994

  8. Key Changes • Permanent tenure for departmental heads replaced with fixed term contracts • Chief executives with annual performance agreements • Use of performance agreements and performance related pay within departments

  9. Key Changes • Very substantial decision-making authority granted to chief executives • Public Service Manual abolished, Treasury Instructions emasculated • No central services

  10. Key Changes • Departments responsible for own accounting systems • Output focus reflected in performance and “purchase” agreements, budgets, appropriations, & reporting • Capital charge introduced

  11. Key Changes • Accounting & appropriations moved to an accrual basis (1989 - 1991) • Financial statements & budgets progressively moved to an accrual basis (1989 - 1994)

  12. Key Changes • Financial reporting in accordance with GAAP • GAAP determined by Accounting Standards Review Board • Audit required for financial and service delivery statements

  13. CONCEPTUAL FRAMEWORK Performance Accountability Integration

  14. Performance Defined • “Owner” / “purchaser” distinction • Inputs / outputs / outcomes • “Crown” / department distinction

  15. PERFORMANCE DECISION INCENTIVES PERFORMANCE SPECIFICATION AUTHORITY ON BEHAVIOR INFORMATION Accountability Framework MINISTER CHIEF EXECUTIVE

  16. Budgeting Monitoring/ • Capital Reporting • Operating Operations / Budget Implementation Integrated Management Cycle Strategic Planning

  17. “Purchase” Framework Input Output Outcome Social Benefit Revenue Cost

  18. What Are Outcomes? • Outcomes – impacts on the community (e.g., level of crime, standard of living or health status of the population)

  19. Outcomes Can be Measurable, Specifiable For example: • Quantity • Quality • Timeliness • Location • Population group (e.g. socio-economic status, children)

  20. Outcomes - An Outcome Hierarchy Example: • Biodiversity • Preservation of endangered species • Preservation of endangered birds • Preservation of Yellow-breasted Bunting

  21. What are Outputs? • Outputs – goods and services produced by an organization

  22. Output Dimensions • Quality • Quantity • Timeframe • Location • Cost

  23. OUTCOMES INTERVENTIONS Mix of actions to achieve desired outcomes Outputs Regulations Transfers Taxation Ownership

  24. INPUTS OUTPUTS OUTCOMES Direct costs • Personnel • Travel • Stores Indirect costs • Overheads Reduction in road deaths Speed of transport Pollution Driver training Road traffic research Vehicle inspections

  25. Transport Efficiency Travel Comfort Road Trauma Outcome1 2 3 Output1 2 3 Education Speed Enforcement Research

  26. “Ownership” • Objectives and scope of business • Strategy – especially products/outputs • Financial performance • Capital maintenance • Risks

  27. Financial performance indicators • Revenues • Surpluses/deficits • Cash flow performance • Debt level • Capital expenditure (new projects) • Cost of maintenance/replacement of assets

  28. Non-Financial Performance • Productivity • Legal compliance • Overall service delivery performance

  29. Capability - Financial Financial Capability: • Net worth • Asset and liability measures • Net debt • Contingent liabilities

  30. Capability – Non-financial Non-financial Capability: • Human capital • Physical assets • IT • Intellectual property • Others?

  31. Capability - Additional Dimensions • Reputation • Organisational culture • Staff morale • Political confidence • Ethics and integrity • Stakeholder relationship management • ‘Market’ (operating environment) expertise • Form of organisation / structure • Modes of production e.g. processes and systems, contracting out?

  32. Managing Risk • Key personnel • Fire or natural disaster • Business/systems failure • Financial • Political • Policy • Legal/litigation • Others?

  33. “Ownership” and “Purchase” • Measured quite differently • Financial statements key to ownership performance • Service performance statements for purchase performance • May be traded off against one another • Purchase performance normally has greater political significance

  34. “Crown”/Department Distinction Managing items on behalf of the Crown • Assets (DOC) • Liabilities (DMO) • Revenue (IRD) • Expenses (DSW)

  35. “Crown”/Department Distinction • Based on controllability • Reflected in output specifications • Reflected in balance sheet

  36. PERFORMANCE DECISION INCENTIVES PERFORMANCE SPECIFICATION AUTHORITY ON BEHAVIOR INFORMATION Accountability Framework MINISTER CHIEF EXECUTIVE

  37. Performance Specification Documents - Departments • Departmental Forecast Report • Corporate/Strategic Plan • CE Performance Agreement • Purchase Agreement

  38. Performance Specification Documents - Government • Statement on Long-term Fiscal Position • Fiscal Strategy Report • Economic and Fiscal Update • Budget Policy Statement • Budget • Forecast Financial Statements • Estimates of Appropriation • Investment Statement

  39. Decision-making Authority • Human resources • Purchasing • Capital expenditure • Accommodation • Financial management • systems • information

  40. Incentives • Personal • term contracts • performance pay • Departmental • purchase agreement • budget and appropriations • capital charge

  41. Reporting • Financial performance • Service performance

  42. Departmental Reporting • Statement of Responsibility • Statement of Accounting Policy • Operating Statement • Statement of Financial Position • Statement of Cash Flows • Statement of Contingent Liabilities • Statement of ServicePerformance

  43. Reporting by the Government • Financial statements • Annual • Monthly • Snapshot of the Financial Statements

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