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ARCHIVED - Survey of Best Practices of Comptrollership

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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
Franois 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:

  1. reviewing the definition of comptrollership with the Office of the Auditor General and the Treasury Board Secretariat;
  2. developing a comptrollership framework for the questionnaire and evaluation criteria for the survey;
  3. developing a questionnaire for the survey, ensuring that any specific activities and/or area of concern of the project sponsors was included;
  4. 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;
  5. communicating with the designated contact officers to explain the survey terms of reference and to identify research requirements;
  6. obtaining and examining research material, summarizing the findings and confirming with the contact officers;
  7. proposing recommendations; and
  8. 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.

Chapter I Comptrollership Questionnaire Accountability Framework

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.

Chapter II Survey Questionnaire Responses and Findings

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.

C. Other

  • 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:

  1. the system must support the core mission that needs to be done by the government;
  2. no alternative private sector or government party can do the work;
  3. work processes involved have been simplified to increase chances of using off-the-shelf software;
  4. portfolio management and analysis demonstrate that the return on this investment is equal to or better than other agency IT investments;
  5. the system is consistent with agency and government IT architectures;
  6. 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;
  7. modular procurement assists agencies in procuring the smallest possible segments, with no deliverables out more than 18 months; and
  8. 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.
  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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:

  1. Electronic Proposal Forms Submission - An NSF forms server will provide the capability for electronic submission of administrative information related to proposals.
  2. 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.
  3. 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.
  4. Cash Transaction Request - NSF will allow access to a menu-driven cash request system, including automatic e-mail acknowledgement and confirmation.
  5. 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.
  6. 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.

Chapter III Synopsis, Conclusions, Recommendations and Action Plan

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.