The Hindu Business Line : Cost management in the most complex organisation: the government

Real change to the framework for comptrollership, financial management and accountability and its implementation will not happen without concerted political will being shown by political leaders.

Mr Richard Monk, Chairman, CMA Canada

The largest and the most complex organisation in Canada is the Government of Canada, says Mr Richard Monk, Chairman, CMA (Certified Management Accountants) Canada. “It makes over $200 billion in expenditures annually, manages a workforce of some 4,50,000 people, and provides some 1,600 different programs and services across Canada and around the globe.”

Such sheer size and complexity create significant challenges to comptrollership, financial management and accountability, he adds, during the course of a recent e-mail interaction with Business Line.

CMA has ‘more than 37,000 CMAs and 10,000 CMA students,’ as www.cma-canada.org informs. And as the new chief of the body, when Mr Monk spoke of his priorities in the latest issue of www.managementmag.com , first came the aligning of ‘major governance initiatives,’ and second, continuing ‘to cultivate relationships with international associations with similar values and services to those of CMA Canada.’

He said: “We are forging strategic alliances with professional associations such as the American Institute of Certified Public Accountants, and the Chartered Institute of Management Accountants and the Chartered Institute of Public Finance and Accountancy in the UK. Our goal this year is to enhance and solidify these relationships. We will play a lead role in this regard in order to raise the global profile of both CMA Canada and the strategic management profession.”

India doesn’t seem to find a mention in the November 2007 piece of the institution’s magazine. However, Mr Monk will be talking at the forthcoming ‘Global Summit’ of the ICWAI (Institute of Cost and Works Accountants of India) on the theme of repositioning the CMA as a business strategist and performance management expert in the government.

Excerpts from the interview:

What according to you are the significant takeaways for India from the Canadian experience in cost management?

Although it is difficult to condense the lessons learned from decades of experience with government comptrollership, financial management, and accountability measures, I suggest that the following two are amongst the most important:

Sound principles of management accountability and transparency: We have a history in Canada of responding to embarrassing scandals and reports of misspent public funds by immediately ordering a new set of rules and regulations to plug whatever gaps were exposed by the scandal.

Unfortunately, these new rules and regulations can overlap with existing rules and lead to a very complex web of accountability measures within the Government of Canada.

One important lesson learned is that it is preferable to use sound principles of management accountability and transparency instead of detailed, transaction-level rules

Political will: Real change to the framework for comptrollership, financial management and accountability and its implementation will not happen without concerted political will being shown by political leaders. In Canada, important changes have come as a result of the political will demonstrated by Prime Ministers.

You spoke of government being the most complex and large organisation — a fact in most countries. What have been the other key challenges in comptrollership, financial management and accountability for the Canadian Government?

Primary responsibility for budgetary and financial controls is largely decentralised to the deputy heads of government departments and agencies. As a result, the implementation of central policies, such as the policy on internal audit, is not necessarily uniform.

Twice each year, the Auditor General of Canada reports to Parliament, citing several cases where, despite a strong financial management and accountability policy framework and the dedication of well-trained public servants, rules are not followed, expenditures exceed budgets, and mistakes are made.

Another significant challenge facing the Government of Canada is the recruitment and retention of comptrollers, financial managers, and internal auditors. According to the Comptroller General of Canada, approximately 16 per cent of the government’s financial officers, or some 600 people, will be eligible to retire from the public service by 2009. The government must compete with the private sector for these trained specialists who will no doubt be in high demand.

Does the government actively promote the professional costing body, CMA? How?

The federal government does not actively promote our organisation, but the Treasury Board Secretariat of Canada does include CMA Canada in its Overview of Requirements for Accreditation as a Professional Accountant in Canada, and CMAs are recognised in the government’s Guidelines on Expected Qualifications for Chief Audit Executives as possessing the necessary qualifications.

Also, CMA Canada has worked to build a strong, professional relationship with the Government of Canada. We work closely with the Office of the Comptroller General of Canada and we participate regularly in consultations organised by the government, including on budgetary and accountability matters.

Does CMA Canada offer professional development programs on costing skills and knowledge to improve decision-making and eliminate waste in the Canadian government?

With the cooperation and support of the Comptroller General of Canada, in 2006 we introduced the CMA/CPFA Dual Designation for federal government employees. Participants receive comprehensive public sector financial management and strategic leadership training leading to a dual public finance and professional accounting designation as a Certified Management Accountant and Chartered Public Finance Accountant.

Can you give us a background on the cost management work done for waste elimination in Canadian Government? Key drivers, and progress achieved in measurable terms over the timeline.

Canada has a long history of initiatives aimed at cost management and eliminating waste in government spending. The Comptroller of Treasury was created in 1931 to centralise financial administration, maintain financial controls and verify invoices. Two decades later, in 1951, the cornerstone of the Government of Canada’s legal framework for financial management and public service accountability — the Financial Administration Act — was passed by Parliament. Among other things, it describes how spending may be approved, expenditures made, revenues obtained, and funds borrowed by the government.

In the 1970s, several important steps were taken, largely due to a report by the Auditor General (AG) of Canada in 1976, concluding that the government was close to losing effective control of the public purse. In response, a Royal Commission on Financial Management and Accountability was launched (the Lambert Commission), the Office of the Comptroller General was created, and the Auditor General Act was amended to allow the AG to audit matters of economy and efficiency and to measure effectiveness of spending.

As a result of a massive accumulation of debt and high annual deficits, the Government of Canada announced Program Review in 1994 to confirm the relevance and affordability of government programs and the appropriateness of program delivery mechanisms. Program Review cut deeply into program budgets and reduced the size and capacity of the federal public service through the 1990s.

In December 2003 the new government of Prime Minister Martin came into office with a series of initiatives aimed at strengthening comptrollership, putting stronger financial controls in place, and reviewing all government expenditures.

Expenditure review reallocated billions of dollars in spending from lower to higher priorities. A new policy on internal audit was initiated.

The government of Prime Minister Harper, elected in January 2006, came to office with a commitment to government accountability and expenditure control. Several initiatives begun by its predecessor government, including the internal audit policy and expenditure review/reallocation, were kept in place and continue to be in effect.

In addition, other initiatives are under way, including:

Financial Management Framework Review: The goal is to replace detailed, transaction-level rules with sound principles of management accountability and transparency. The new policy framework will streamline the government’s financial management policies — reducing approximately 150 existing policies and guidance documents to five core policies and about 30 related directives.

Audit Departmental Financial Statements: The Auditor General of Canada has been asked to audit departments’ annual financial statements. The current plan is to have, by fiscal year 2008-09, the financial statements of the 22 largest federal departments audited which, together with the currently-audited Canada Revenue Agency, represent about 90 per cent of the federal government’s spending.

What cost management tools are being deployed in the Canadian Government to enhance comptrollership, financial management and accountability? To what extent is IT (information technology) used for the purpose?

The Government of Canada deploys many tools to enhance comptrollership, financial management and accountability in government. Information technology is used to assist in the deployment of tools such as the following:

The Federal Accountability Act was passed by Parliament in 2006. Among other things, it strengthened the role of the Ethics Commissioner, significantly toughened rules regarding lobbying, created a new Parliamentary Budgetary Authority to support MPs’ understanding of economic and fiscal issues, broadened the powers of the Auditor General, and designated deputy ministers as the accounting officers for their departments.

The Financial Administration Act describes how spending may be approved, expenditures made, revenues obtained, and funds borrowed by the government.

The Auditor General plays a central role in holding governments to account. The office performs three types of audits: i) performance audits (formerly known as value-for-money audits); ii) financial audits; and iii) special examinations of Crown corporations.

Treasury Board of Cabinet has authority over all matters relating to administrative policy, financial management, expenditure plans, programs of departments, personnel management, and other matters relating to the prudent and effective use of public resources.

Accountable Government: A Guide for Ministers sets out the fundamental principles of responsible government, with ministerial responsibility at its core, and also provides practical guidance to Ministers for the conduct of their official duties.

Deputy Ministers are also Accounting Officers, to be accountable before Parliamentary Committees for, among other things, measures taken to maintain effective systems of internal control in their department.

Public servants must abide by the Values and Ethics Code. This Code guides public servants in their professional activities and serves to maintain and enhance public confidence in the integrity of the Public Service.

The Policy on Internal Audit requires independent audit committees to be established within government departments as well as the appointment of Chief Audit Executives to report directly to the Deputy Minister. By April 1, 2009, all departmental audit committees must have a majority of external members.

Any examples of CMAs in government, and about how they apply their cost management skills?

CMA Canada is proud of the important contributions of CMAs to the Government of Canada’s initiatives on comptrollership, financial management and accountability. From time-to-time we publish profiles of senior public servants who hold the CMA designation in our magazine, CMA Management Magazine.

Bio: Mr Monk, the current Chair of CMA Canada’s National Board of Directors, is a senior business executive with experience in both public sector and private sector organisations. He is the managing director of Welch Consulting Group, the consulting affiliate of Welch LLP, a professional services firm located in Ottawa Canada, providing consulting and advisory services to organisations in the government, not-for-profit, association and small and medium-size enterprise (SME) sectors.

In 2000, Mr Monk was awarded the Fellow of the Society of Management Accountants of Canada (FCMA) designation, as honorary recognition of his contribution to the management accounting profession, CMA Canada and the community. A graduate of the Directors College at the DeGroote School of Business, McMaster University where he received a Chartered Director designation, he is also a Certified Fraud Examiners.

D. MURALI

http://AccoutSpeak.blogspot.com

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