Best-practice financial management_ Crowe Horwath

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					What is best practice financial management for local government?
Martin Thompson


11 October 2012
Session overview




Audit | Tax | Advisory | Wealth Management   ‹#›
Session overview
§ What is financial management




Audit | Tax | Advisory | Wealth Management   ‹#›
Session overview
§ What is financial management

§ Snapshot of where the @#$! Are we at with financial management.




Audit | Tax | Advisory | Wealth Management                          ‹#›
Session overview
§ What is financial management

§ Snapshot of where the @#$! Are we at with financial management.

§ Better practice financial management is not…..




Audit | Tax | Advisory | Wealth Management                          ‹#›
Session overview
§ What is financial management

§ Snapshot of where the @#$! Are we at with financial management.

§ Better practice financial management is not…..

§ Tips to moving towards better practice financial management.




Audit | Tax | Advisory | Wealth Management                          ‹#›
                                             The former government's estimate
                                             that the myki smartcard ticketing
                                             system could be running by 2007
                                             was wrong and based on a lack of
                                             understanding, a Victorian inquiry
                                             has heard.
                                             Labor awarded the $500 million
                                             contract to build and operate myki to
                                             Kamco in July 2005.
                                             The system was supposed to be
                                             operating by March 2007 but is still
                                             in the transition phase, while the
                                             budget has blown out to $1.35 billion
Audit | Tax | Advisory | Wealth Management
                                             (the AGE)                               ‹#›
What is financial management?
§ The planning, directing, controlling, and monitoring of the financial resources of
  Council


                                              Planning




                              Monitoring                   Directing




                                             Controlling




Audit | Tax | Advisory | Wealth Management                                             ‹#›
Where is local government at with financial management




Audit | Tax | Advisory | Wealth Management               ‹#›
Where is local government at with financial management




Audit | Tax | Advisory | Wealth Management               ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.




Audit | Tax | Advisory | Wealth Management               ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
   § What % of ‘blow outs’ are caused by poor budget processes?




Audit | Tax | Advisory | Wealth Management                        ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.




Audit | Tax | Advisory | Wealth Management                         ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.
    § How often do we leave key financial management responsibilities to other areas of Council – Major
       Projects?




Audit | Tax | Advisory | Wealth Management                                                           ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.
    § How often do we leave key financial management responsibilities to other areas of Council – Major
       Projects?

§ Controlling – manage the little things well, sometimes let the bigger things slip.




Audit | Tax | Advisory | Wealth Management                                                           ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.
    § How often do we leave key financial management responsibilities to other areas of Council – Major
       Projects?

§ Controlling – manage the little things well, sometimes let the bigger things slip.
    § Do we always provide oversight to the areas where things can go wrong?




Audit | Tax | Advisory | Wealth Management                                                           ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.
    § How often do we leave key financial management responsibilities to other areas of Council – Major
       Projects?

§ Controlling – manage the little things well, sometimes let the bigger things slip.
    § Do we always provide oversight to the areas where things can go wrong?

§ Monitoring - Systems are a limitation.




Audit | Tax | Advisory | Wealth Management                                                           ‹#›
Where is local government at with financial management
§ Planning - Budget processes are often ‘best guess’.
    § What % of ‘blow outs’ are caused by poor budget processes?

§ Directing – Key officers not always involved in delivery.
    § How often do we leave key financial management responsibilities to other areas of Council – Major
       Projects?

§ Controlling – manage the little things well, sometimes let the bigger things slip.
    § Do we always provide oversight to the areas where things can go wrong?

§ Monitoring - Systems are a limitation.
    § Woolworths can complete the weekly analysis of its sales in three hours. How well can councils
       collate information for review?




Audit | Tax | Advisory | Wealth Management                                                             ‹#›
          Are we more scorekeepers than players?
Audit | Tax | Advisory | Wealth Management         ‹#›
Best practice financial management
§ What it is not:




Audit | Tax | Advisory | Wealth Management   ‹#›
Best practice financial management
§ What it is not:
    § The process of recording financial transactions




Audit | Tax | Advisory | Wealth Management              ‹#›
Best practice financial management
§ What it is not:
    § The process of recording financial transactions

    § The execution of control activities (i.e. reconciliations)




Audit | Tax | Advisory | Wealth Management                         ‹#›
Best practice financial management
§ What it is not:
    § The process of recording financial transactions

    § The execution of control activities (i.e. reconciliations)

    § The preparation of financial reports and statements




Audit | Tax | Advisory | Wealth Management                         ‹#›
Best practice financial management
§ What it is not:
    § The process of recording financial transactions

    § The execution of control activities (i.e. reconciliations)

    § The preparation of financial reports and statements

    § The preparation of reports to Council




Audit | Tax | Advisory | Wealth Management                         ‹#›
Best practice financial management
§ What it is not:
    § The process of recording financial transactions

    § The execution of control activities (i.e. reconciliations)

    § The preparation of financial reports and statements

    § The preparation of reports to Council

    § Attendance at meetings




Audit | Tax | Advisory | Wealth Management                         ‹#›
Tips for better practice financial management
                                                                  Active
                                                              involvement in
                                                                the budget



                                Focus on the                                                    Clear
                             things that matter                                              assumptions




                           Measure
                                                                                                  Involve those with
                       performance and
                                                                                                     the ‘expert’
                        take corrective
                                                                                                     knowledge
                             action




                                               Take (and
                                                                               Share the budget
                                                allocate)
                                                                                 and targets
                                             responsibility

Audit | Tax | Advisory | Wealth Management                                                                             ‹#›
Be actively involved in the budget setting process
§ Total costs/revenues and other resources required?

§ Accurate volume/quantity requirements?

§ Phasing – reasonableness of timelines?




                                    You can only get three things wrong in a budget
                                    § The costs or revenues required
                                    § The volume of inputs required or outputs generated
                                    § The timing of the activity




Audit | Tax | Advisory | Wealth Management                                                 ‹#›
Be clear on your assumptions
§ Know your assumptions.

§ Make sure they are realistic.

§ Measure performance against these.




                           The quickest way to blow up financial performance is to get your
                           assumptions wrong at the outset, the second quickest is to not
                           recognize when they have changed.




Audit | Tax | Advisory | Wealth Management                                              ‹#›
Involve those who have ‘expert’ knowledge
§ Financial management is a team sport.

§ Need to involve in all aspects
    § Budget

    § Performance monitoring

    § Completion




                                      The financial manager is a captain-coach, playing a role
                                      on the field as well as directing others




Audit | Tax | Advisory | Wealth Management                                                  ‹#›
Share the budget and other financial targets
§ Knowledge is power (and accountability)

§ This is not a one off, achieved via email.

§ Need to be constantly communicating and re-communicating (key messages).

§ All parties need to ‘buy in’ to the financial management process.




                                      The financial manager needs to sell the importance of
                                      budgets and targets to all parties involved.



Audit | Tax | Advisory | Wealth Management                                                    ‹#›
Take (and allocate) SMART responsibility
§ Clear performance measures in place at the outset.

§ Best practice financial management requires a strong accountability framework.



                                Be SMART with your performance measures
                                §   Specific
                                §   Measureable
                                §   Achievable
                                §   Relevant
                                §   Timely




Audit | Tax | Advisory | Wealth Management                                     ‹#›
Measure performance and take corrective action
§ Financial Management is an ongoing process.

§ Need to prepare timely performance reports that highlight deviations from plan.

§ Corrective action must be taken promptly.



                                      In the world of financial management good things do not
                                      come to those who wait! – The approach of the US Navy
                                      is not one to be recommended.




Audit | Tax | Advisory | Wealth Management                                                 ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.




Audit | Tax | Advisory | Wealth Management                                       ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.




Audit | Tax | Advisory | Wealth Management                                                  ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.




Audit | Tax | Advisory | Wealth Management                                                          ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

    §   US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.




Audit | Tax | Advisory | Wealth Management                                                          ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

    §   US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

    §   CND reply: No. I say again, you divert YOUR course!




Audit | Tax | Advisory | Wealth Management                                                          ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

    §   US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

    §   CND reply: No. I say again, you divert YOUR course!

    §   US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY.
        DIVERT YOUR COURSE NOW!!




Audit | Tax | Advisory | Wealth Management                                                          ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

    §   US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

    §   CND reply: No. I say again, you divert YOUR course!

    §   US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY.
        DIVERT YOUR COURSE NOW!!

    §   CND reply: This is a lighthouse. Your call.




Audit | Tax | Advisory | Wealth Management                                                          ‹#›
The US Navy’s Approach
§ This is the transcript of an actual radio conversation between a US naval ship and
  Canadian authorities off the coast of Newfoundland in October 1995. The Radio
  conversation was released by the Chief of Naval Operations on Oct. 10, 1995.
    §   US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

    §   CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

    §   US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

    §   CND reply: No. I say again, you divert YOUR course!

    §   US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY.
        DIVERT YOUR COURSE NOW!!

    §   CND reply: This is a lighthouse. Your call.



§ Amusing as this is, a bit of internet research identifies it to be an urban myth, however it
  does reinforce the potential consequences of not responding to changes in our environment.


Audit | Tax | Advisory | Wealth Management                                                          ‹#›
Focus on the things that matter
§ A little overwhelming?

§ Always remember that we need to focus our efforts on the things that matter and
  the things we (as a team) can control.




                          The financial       What     What we
                          management
                            equation         matters   control




Audit | Tax | Advisory | Wealth Management                                     ‹#›
In Summary



                                            Plan –
                                          Visualize
                                         the path to
                                           success




Audit | Tax | Advisory | Wealth Management             ‹#›
In Summary



                                            Plan –




                                                       Steer the
                                                       Direct –
                                                        Course
                                          Visualize
                                         the path to
                                           success




Audit | Tax | Advisory | Wealth Management                         ‹#›
In Summary



                                            Plan –




                                                       Steer the
                                                       Direct –
                                                        Course
                                          Visualize
                                         the path to
                                           success

                                                       together
                                                       everyone
                                                         Keep
                                                       Control –




Audit | Tax | Advisory | Wealth Management                         ‹#›
In Summary




                                            Plan –




                                                            Steer the
                                                            Direct –
                                                             Course
                                          Visualize
                                         the path to
                                           success
                                             Look out for

                                             in the road
                                              the bumps
                                                            together
                                               Monitor –



                                                            everyone
                                                              Keep
                                                            Control –




Audit | Tax | Advisory | Wealth Management                              ‹#›
In Summary




                                            Plan –




                                                            Steer the
                                                            Direct –
                                                             Course
                                          Visualize
                                         the path to
Focus on                                   success
  what
 matters
                                             Look out for

                                             in the road
                                              the bumps
                                                            together
                                               Monitor –



                                                            everyone
                                                              Keep
                                                            Control –




Audit | Tax | Advisory | Wealth Management                              ‹#›
In Summary




                                            Plan –




                                                            Steer the
                                                            Direct –
                                                             Course
                                          Visualize
                                         the path to
Focus on                                   success
  what                                                                  Focus on
 matters                                                                what you
                                             Look out for

                                             in the road
                                                                         control
                                              the bumps
                                                            together
                                               Monitor –



                                                            everyone
                                                              Keep
                                                            Control –




Audit | Tax | Advisory | Wealth Management                                    ‹#›
Final thought

    Courage is what it takes to stand up and speak.
    Courage is also what it takes to sit down and listen.

    ~ Winston Churchill ~




Audit | Tax | Advisory | Wealth Management                  ‹#›
Thank you




Audit | Tax | Advisory | Wealth Management   ‹#›

				
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