Controllership:

Addressing Financial Management

Challenges and Transformation Opportunities

Financial Management Institute

February 25, 2009

Presented by: Murray Lindo, Director, Financial Management and Control Branch
Ministry of Finance, Ontario Government

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Todays Discussion

Outline the key public sector financial management issues,

especially during a global economic slow-down.

Describe the leadership role that the controllership function and

the financial community must play in supporting the decision-
makers through this challenging time.

Provide some thoughts on how the financial function may need

to transform to support the emerging economic and public sector
environment.

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Key Messages

An effective controllership function is forward looking, acting as the

businesss head lights: scanning the environment, anticipating issues and
seeking effective resolutions.

Controllership must be involved in the front-end of the decision-making

process helping to assess options and thereby contribute to successful
implementation.

Controllership function must balance a professional understanding with

practical skills in advanced management accounting, risk management,
process and structure cost control, and revenue management.

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 Section 1:

What is Controllership and

Why is it Challenging?

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What is (Financial) Controllership?

Controllership is:

ethical behaviour;
conscious managing of risks;
clear lines of accountability;
stewardship of resources; and,
reporting and evaluation of results against stated objectives.

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Why Controllership is important?

Accountability to the public

Stability and transparency
Ensures compliance against stated standards
Enables efficient and effective use of public resources
Defines roles and responsibilities
Enables performance measurement against agreed expectations
Fulfills legal obligations and mandate

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Why is Controllership Challenging?

Equal Footing: financial/controllership analysis not always on an equal footing

to policy, operational and communication considerations, in the decision-making
process.

Management Perceptions: controllership seen by management as end state

technical process rather being critical to transparency and accountability.

Credible Information: ability to produce timely, reliable, usable and accurate

financial and risk information to decision-makers.

Communication: providing clear and accessible financial/controllership

information to line-management

Capacity: revitalizing financial capacity by attracting, retaining and developing

financial/controllership talent.

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Key Principles in the Controllerships Evolution

Supporting the evolution of the Controllership function are four key

principles:

Credibility a trusted business advisor, providing accurate, timely and reliable

financial information and advice;

Competence combine business knowledge with financial expertise to optimize

value added;

Commitment a shared commitment to the goals of financial management and

effective program service and delivery; and

Communication open communication across government, with external

professional organizations and counterparts in other jurisdictions.

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 Section 2:

Think globally, act locally

Controllerships Transformation
in Challenging Economic Times

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Key Challenges

New Economic Challenges

Borderless global economic recession, where governments have a role supporting families,
jobs and industry.

Financial market uncertainty and impact of the economic environment on government

revenues and expenses.

Existing Structural Challenges

An aging population increasing demands for healthcare and income security.

The need to address the infrastructure deficit through sustainable capital investments.

Current Financial Management Challenge

Governments must balance the need to respond to these immediate economic challenges
without compromising its responsibilities for addressing the longer-term objectives.

Increased complexity of transactions and external reporting requirements (PSAB, IFRS).

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Todays Operating Environment

Greater public expectations for seamless, quality and value-for-money services.

Focus on results and financial sustainability in health care, education and social
services.

Governments evolving oversight role, where increasingly Broader Public Service

(BPS) partners deliver front-line services.

Increased intergovernmental cooperation and collaboration between federal/

provincial/ municipal governments.

Advent of new technologies enabling integrated business and financial solutions.

Increasing demand to elevate financial management function in supporting programs,

managing risk and leveraging strategic outcomes.

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Controllership must exercise Financial Leadership

During economic downturns, the role of the public sector financial

community is even more critical.

Our role is to provide government decision-makers with the best financial

information possible, so that they can make well informed decisions amongst
the competing public policy demands.

To be successful in this role, in supporting financial decision-making, we

must:
establish a robust financial management framework;
emphasize value for money and fiscal accountability;
balance immediate fiscal impacts with longer-term stewardship;
ensure appropriate controls are in place and functioning;
apply financial risk management principles; and
ensure transparency in financial reporting through public disclosure .

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Controllerships role in financial management

The controller/controllership function plays a key financial management role

in making the governments business objectives achievable.

Controllership adds to the financial management discipline by providing

assurance of compliance with financial reporting and controls.

However, the controllership functions value is fully realized by supporting

decision-makers with financial analyses that identifies:
links between costs and performance;
opportunities to reduce direct and indirect costs; and
opportunities to increase delivery efficiency in meeting public policy goals.

Realizing this contribution can only happen when we fully apply advanced
management accounting, risk management, effective costing and revenue
management.

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 Financial Management Transformation*

Operator
Operator Steward
Steward Strategist
Strategist Catalyst
Catalyst

Controllership: Results Planning: Decision Support: Leader:

Focused on the prudent Ensuring effective Focused on performance Support decision-makers
use of resources by budgeting, forecasting management and and identify opportunities
standardizing, and planning systems in supporting effective for service delivery
consolidating and place. investment decisions transformation
automating processes.
Asset/Capital Ensure value-for-money Creates partnerships to
Procedural policies. Management. drive innovation and
Policies that strengthen
service delivery efficiency
Establishing financial data Establish policy performance by promoting
integrity, timeliness and framework positive behaviours. Finance integrated with
accuracy policy and operational
Risk management and Effective BPS
considerations
effective controls management
Enterprise risk management
Robust Cost/Benefit
analysis
* Four Faces Framework discussed in Deloitte study Mastering finance in government:
Effective horizontal
Transforming the government enterprise through better financial management management

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Required Financial Management Elements
Management Decision Support
Financial evaluation expertise
Business risk management expertise
Capital investment analysis expertise
Financial performance management
expertise
Business Planning, Fiscal Planning and
Budgeting
Strategic business planning expertise
Risk-based Fiscal planning expertise
Capital planning expertise
Integrated capital, operating and cash-flow
budgeting expertise
In-year fiscal management expertise
Accounting, Appropriations and
Financial Reporting
Accounting policy application and control
expertise
Appropriation compliance and control
expertise
Costing and pricing expertise
Financial reporting expertise
Financial information analysis and integrity
assurance expertise
Risk Management, Accountability and
Control
Program risk management and control
expertise
Project risk management and control
expertise
Asset and Liability risk management and
control expertise
Transfer Payment, Agency and Trust risk
management and control expertise.
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Financial Competencies needed
Competencies

Business Knowledge

Effective Costing, Planning & Evaluation

Risk Management

Standards Compliance
Value-
Strategic
Valued-added
Advice Focus
for-
Effective Communication Money
Performance Management

Forecasting, Planning and Budgeting

Accounting/ Financial Knowledge

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How is the OPS Responding to this challenge

Integrated Planning: a reconstituted Treasury Board Office integrates fiscal planning,

controllership and audit leadership enabling government to be better equipped to deal with
the competing demands.

Financial Management: review of the appropriate financial management functions to

assist ministries in providing decision support to line-ministry decision-makers.

Policy Framework: revitalize and streamline financial policy framework to clarify and
strengthen roles, responsibilities and accountabilities.

Transfer Payment Accountability: continue efforts to reduce administrative duplication

for TP recipient partners while ensure improved accountability.

Asset Management: capitalization of minor Tangible Capital Assets so that ministries can
more effectively plan, account and budget for their portfolio of investments.

Capacity: revitalize OPS financial capacity through attraction (financial internships and
foreign-trained professional programs), training on core competencies and retention, so
that Ontario can build the financial leadership of the future.

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Section 2: Questions

What do you think needs to happen for the

controller/controllership function to assume a more advisory
decision support role?

In your role as controller, what strategies can you employ to

strengthen the controllership function's links with line-
management decisions?

What incentives can we develop to support the transformation of

the controllership function?

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Section 3:

Case Studies

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Case Study 1: Government support for the Auto Sector

Challenge: Balancing socio-economic imperative to save manufacturing jobs against the public
policy and accountability requirements.

Objective: Provide ailing automobile companies a credit bridge through difficult times.

Key Issues:
Supporting the auto sector is multi-jurisdictional issue. Loan agreements cannot be made in
vacuum and must take into account all aspects of the various governments initiatives.
Managing the risk of longer-term investments in an industry with weak consumer demand
and volatile stock markets.
Ensuring public money is spent appropriately and contributes to wider public policy goals,
such as more environmentally friendly cars.
Making sure public loans are repaid and that government exposure is based on the
associated risks.

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Case Study 2: Vancouver Olympics Capital Projects

Challenge: City of Vancouver has taken full financial control of the 2010 Olympics
athletes village $1 billion project.

Objective: Balancing increasing costs against a drop-dead deadline, without

encumbering the city with substantial debt.

Key Issues:
Short-term showcase event against a substantial public debt at a time of falling revenues.
Original Alternative Financing and Procurement (AFP) agreement was supposed to transfer
the risks of construction and financing to the developer. With evaporation of market
credit the construction company has been unable to make payments. Since September, 2008
the city has covered construction costs through a $100 million loan to the developer.
The citys takeover could help cut the interest rate from as much as 11.5 per cent to as little
as five per cent.
Risk that assuming the liability could downgrade of the citys triple A credit rating which
could make it harder to borrow other funds until the athletes village loan is paid off.
The take-over of financial responsibility for the project means that the city now has the
entire village as an asset (and project liabilities), not just the land it sits on.

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Case Study 3: Alternative Financing Arrangements

Challenge: Ontario has an infrastructure deficit estimated at more than $100 billion.

Objective: Alternative Financing and Procurement (AFP) represents an opportunity

to leverage private-sector project management expertise and financing to help bridge
the infrastructural deficit.

Key Issues:
Public policy considerations in the governments construction, management and ownership
of assets.
The higher private-sector financing rates must be balanced against construction risks (i.e.
cost overruns) transferred to the private partners.
Long-term AFPs that include design, build and asset management components, require
performance criteria to ensure value-for-money throughout the assets life-cycle.
The openness and transparency of the alternative financing process are critical to ensure the
highest return on investments and public accountability.
Differing financing rates methodologies impact the recognised value of the assets. Using a
project costing model will increase financing costs, while a internal discounted rate will
decrease financing costs and change the assets value.

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From a Controllership Perspective

We need to ensure:
solid financial management information is provided to support an effective balance between
the need to stimulate the economy against the stewardship role of asset management for the
longer-term;

a strong and transparent decision-making framework is in place that provides value-for-

money to taxpayers;

public resources are effectively controlled in accordance with legislative and public sector
accountability standards;

a strong understanding and independent assessment of AFP rival bids based on robust and
reasonable costing/financing assumptions; and,

transactions are accurately accounted for and represented in the provinces Public Accounts.

Overall, we need to put this in a language that helps the decision makers make
informed investment choices.

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 Section 4:

Looking Forward

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Key Requirements for Success
Informed Decisions: Further integration of risk and performance management into the fabric of financial
decision-making.

Effective Governance: establishing clear roles and accountabilities, linked to decision-making structure and
supported by a robust policy framework.

Financial Leadership: to set priorities, support capacity improvements and provide a strategic financial
voice at the decision-making table.

Financial transformation: continue to migrate the financial function away from a transaction-rules focus to
an advisory decision support and oversight role.

Business ownership of Finance: progressively, delegate financial management to program managers and
other government organizations, while maintaining accountability and oversight.

Measuring Progress: establish clear performance measures, evaluate progress toward achieving the desired
goals and taking remedial action when necessary.

Communications: open and transparent communications to allow knowledge of risks, challenges and
solutions to flow throughout the organization(s).

Financial Capacity: attract, retain and develop financial capacity that is aligned to future needs.

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Looking Ahead
Controllership closes the financial management accountability loop.

Effective controllership provides the front-end financial information to make

informed business decisions but also ensures controls are met in the
achievement of results.

As the demands of controllership function increase, it is critical to integrate

risk management, process and structure cost control, and revenue
management into the fabric of decisions.

Ultimately, our success depends upon the professional knowledge we bring

to the decision-making table. Only up-to-date, strategic competencies and a
robust financial community can ensure we provide value-added expertise
needed to achieve public policy goals.

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A more complex world

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