In-Year Budget Control and Management Andrew Graham Queens University School of Policy Studies MPA 827 2015
In-Year Budget Control and Management
Andrew GrahamQueens UniversitySchool of Policy StudiesMPA 827 2015
Structure
Today: lecture, first part
Cash Management Class Exercise
Tomorrow: Reprise and more material
Group work on final assignment.
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RepriseReprise
Focus on internal management of budgets in-year – management accounting
Basis for adapting approved budget to changing circumstances
Cash Management Exercise: a scenario of a financial situation will be presented and you will be asked to brief your boss, the Deputy Minister as well as your colleagues on the senior management committee
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DefinitionsDefinitions
Cash, budget, treasury and liquidity can get confused at this point
No one term exists for the management of in-year budgets
This is not about managing bank accounts to ensure adequate cash is on hand: that is a liquidity management function – commonly called cash management
This is not about the effective use of cash at hand in terms of short-term investments: that is a treasury function
Goal: managing the budget at hand effectively.
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Cash Management = In-Year Budget ManagementCash Management = In-Year Budget Management
Why Budget and Forecast?
Budgets and Forecasts
A budget is a formally approved plan for the operation for a specific period.
An approved budget becomes the benchmark to test your actual results
A forecast is a projection of activity based upon the latest information.
Why Budget and Forecast?
Budgets and Forecasts
Measure actuals and forecasts against the budget throughout the planning process.
Analyze anticipated versus actual results – variance.
Predict future performance and anticipate changes.
Assist in monitoring control of current performance.
Provide early warning of deviations from plans. Take actions needed.
DefinitionDefinition
In-year budget management is the system which compares actual expenditures against unit spending plans for a given financial year, identifies risks and variances and enables the
adjustment of resource allocations to reflect changed circumstances in the that year.
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Budget Cash Management is not a way to re-open the budget decisions but to adapt to changing circumstances.
Budget Cash Management is not a way to re-open the budget decisions but to adapt to changing circumstances.
Effective in-year budget management creates opportunity for managers to:
Ensure that they remain within budget Alert senior management to shifts in demand for
services or other cost drivers Maximize the use of their funds so that they are
fully expended for their stated purpose and opportunities to meet emerging needs are met
Reallocate within a current year so meet unanticipated needs
A means of assessing departmental, unit and individual performance
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Key Part of the JobKey Part of the Job
Responsibility of all responsibility centre managers
Knowing how to do it is important
Uses tools of control, risk management, forecasting, good financial reporting and analysis
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Managing the Budget Reflects on Managing the Budget Reflects on PerformancePerformance
Out of control budgets suggest bad management or failure to adapt to changing circumstances.
Money unspent in a persistent or perverse way suggests failure to deliver full program or program shifitng.
An organization’s ability to collectively manage its current resources most effectively reflects its overall capacity to work as a team or unit toward a set of coherent goals
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Managing the Budget Reflects on Managing the Budget Reflects on PerformancePerformance
The degree of flexibility and decentralization in an organization will have an impact on how cash is managed in terms of how it can and cannot be redistributed, the degree of reporting and the scope and role of central corporate
offices within the organization
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Actual Cash Remains a ConcernActual Cash Remains a Concern
In the public sector, even with accrual accounting, there remains a high measure of accountability for explaining what is happening to voted funds within one year.
Financial reporting requires this annualized approach.
Some argue that the main concern is how cash is used during the period and not matching revenue and expense which is of a higher priority in the private sector – this remains a preoccupation of many players in the scene: managers, clients, oversight groups and legislators
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Importance of in-Year Budget Importance of in-Year Budget ManagementManagement
Organizations are always looking for spare capacity and this is one way of finding it in the short term.
It does not replace permanent reallocations, program evaluation or policy making that shifts resources in a formal way, i.e. legislatively or through other policy instruments.
Budgets can be complex landscapes.
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Compliance Adaptability
What could possibly go wrong?
Errors in reporting – accounting systems can be wrong
Incomplete information
Budget plan proved to be inaccurate
Actual events did not conform to plan
Unanticipated surges in demand or loss of revenue
Catastrophic events
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The Objectives of Effective In-Year Budget The Objectives of Effective In-Year Budget ManagementManagement
To have funds to pay the bills, i.e., sufficient liquidity
To use budgeted resources for their program purposes and not leave needed funds unspent
To keep within the appropriated or authorized budget
To have the organizational and resource capacity to react to changes in plan
To reallocate available funds to meet emerging, short-term priorities.
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The Big Three Questions
What has happened so far? What do we think will
happen to our plan for the rest of the year?
What (if any) actions do we need to take to achieve our agreed plan?
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Qualities of the Financial Performance Review Qualities of the Financial Performance Review ProcessProcess
Focus on a few critical aspects of performance
Look forward as well as back
Explain and react to key risk considerations
Explain and react to key capacity considerations
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Source: Reporting Principles, Canadian Comprehensive Audit Foundation, 2003
Qualities of the Financial Performance Review Qualities of the Financial Performance Review ProcessProcess
Explain other factors critical to performance
Integrate financial and non-financial information
Provide comparative information
Present credible information, fairly interpreted
Disclose the basis of reporting
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In some countries, this is the lawIn some countries, this is the law
The accounting officer in New Zealand must submit to the relevant treasury and executive authority within 15 days of the end of each month, information on:
· the actual revenue and expenditure for that month, in the format determined by the national Treasury· projections of anticipated expenditure and revenue for the remainder of the current financial year in the format determined by the national Treasury· information on conditional grants received and actual spending against them· information on all transfers· any material variances and a summary of actions to ensure that the projected expenditure andrevenue remain within the budget.
Movement towards government-level Interim Financial Reports
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Operational Cash Forecasting Goes Beyond Operational Cash Forecasting Goes Beyond Financial StatementsFinancial Statements
Knowing about cash movements to date based on financial reports is not enough
Encumbrances and anticipated risk or costs changes are not reflected
Cash forecasting and financial reporting moves into the realm of bringing content, knowledge and numbers together
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From Cash Flow to Cash Forecasting: From Cash Flow to Cash Forecasting: Financial StatementsFinancial Statements
Financial analysis uses the financial statements and other sources of information to: help managers and outsiders
understand an organization's financial condition,
make decisions about the organization, and
compare an organization's financial performance to its peers.
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From Cash Flow to Cash Forecasting: From Cash Flow to Cash Forecasting: Financial StatementsFinancial Statements
There must be confidence in the retrospective information to then add in the value of management forecasting, commitments and risks
Analysis of just financial statements rarely gives a final answer
Rather, it indicates where further analysis is needed
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From Cash Flow to Cash Forecasting: From Cash Flow to Cash Forecasting: Financial StatementsFinancial Statements
Good organization management, regardless of the size of the organization, demands that the organization regularly review its financial situation
Financial Statements/Cash Forecasts/ Financial Report/Review of Performance Reports are different names for such a process
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The In-Year Budget Management MixThe In-Year Budget Management Mix27
From Cash Flow to Cash Forecasting: From Cash Flow to Cash Forecasting: Financial StatementsFinancial Statements
The cash management process is not a purely financial function. In fact it will fail if it is.
Managers’ input at the beginning, middle and end is essential
Most financial information is submitted to the manager for decision
Means moving some decisions up the ladder, overseeing other financial managers, aggregating data to the level of the entity
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Some other basic questions that good Some other basic questions that good financial analysis can help answerfinancial analysis can help answer
Is the organization on budget?
Will there be over-runs, will there be surpluses?
Have the budget assumptions changed?
Is resource use matched to objectives?
How is the organization or its units performing relative to previous years, to each other and to plan?
Are significant shifts being detected in this data?
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Some other basic questions that good Some other basic questions that good financial analysis can help answerfinancial analysis can help answer
What is the significance of these shifts?
Is there a need for extra-ordinary action? Supplementary funding? Internal reallocation? Emergency funding?
How are managers performing?
What opportunities exist to solve problems internally or to meet unplanned demands that are nonetheless important for the organization?
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Elements of an In-Year Budget Management Elements of an In-Year Budget Management SystemSystem
An appropriated budget
Build in changes and modifications to the approved budget to create an adjusted budget
Cash flow projections over the budget period: the in-year cash flow or expenditure plan
A system of measuring actual financial performance in relation to the projected plan
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Elements of a Cash Management SystemElements of a Cash Management System
A system of monitoring performance, identification of variances and reporting results at the appropriate level
The capacity for management discussion and analysis of the results and variances
A governance mechanisms that would review the results, assess variances and their analysis, determine adjustments needed and make decisions needed to affect those
adjustments.
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Roles and Responsibilities Roles and Responsibilities
Senior management must set budgets and program direction
Line managers must manage the resources they are given to carry out programs
Financial advisors must provide information for decision making to budget setters as well as advice line managers about their budgets
Financial advisors must also provide information and analysis to identify variances, offer comparisons and further analysis of budget perform and make recommendations to line managers and senior managers
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Roles and Responsibilities Roles and Responsibilities
Financial advisors must prepare reports for senior mangers to make decisions
Line managers must respond to variances against plans with explanations, solutions and alternatives
Senior managers must determine what actions to take based on these two sets of inputs.
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Budget Appropriated
AdjustedBudget
Budget Plan for Year
Cash Requirements
Hold Backs/Reserves/
Adjustments
Reporting Results: Actual
vs Plan: Financial and Operations
Variance Reports and
Analysis
Management Discussion
and Analysis
Senior Management
Reporting and Review
Senior Management
Direction: Reallocation
Adjusted Budget Plan for Year
Assess Budget
Implications for Next Year
The In-Year Budget Management CycleThe In-Year Budget Management Cycle
Expenditure Plans of Organization: Budget, Expenditure Plans of Organization: Budget, ProgramProgram
All financial reporting and in-year decisions begin with a budget allocation to a responsibility centre
Difficult to hold a manager accountable if she/he does not know his/her budget
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Impediments to establishing a base Impediments to establishing a base budgetbudget
Uncertainty in the financial position
Failure of legislative authority to approve appropriations
Failure of the department/ministry to distribute the budget to responsibility centres
Program change announcements made without budget adjustments
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Impediments to establishing a base Impediments to establishing a base budgetbudget
Senior managers withhold authorities pending further changes
Dependency on external funding sources, e.g. intergovernmental transfers
Multiple sources of program funding within the organization but not within the responsibility centre, e.g. centrally held funds
Creation of reserves, hold-backs and only provisional budgeting
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[1] Grants and Contributions are a Special Fund and cannot be reallocated to other budgets.[2] Capital Expenditures are a Special Fund and cannot be reallocated with permission from Management Board using a formal submission process. However, some non-recurring salary costs for project management and implementation can be built into the capital budget.
Allotment Original Budget - April 1
Salaries 217,600,000
Benefits [1] 43,520,000
Overtime Salary Dollars 4,085,000
Operating and Maintenance 64,766,850
Grants and Contributions[2] 5,600,000
Capital Expenditures [3] 7,500,000
Total 343,071,850
Average FTE Costing 68,000
Total Number of Approved FTEs [4] 3200
Expenditure Plans of Organization: Budget, Expenditure Plans of Organization: Budget, ProgramProgram
Budgets for responsibility centers are the result of the budgetary process that is then modified within the organization as funds are distributed
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Reviewing what is a Reviewing what is a responsibility centre in an responsibility centre in an
organization: chief defining organization: chief defining characteristics.characteristics.
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[1] Allowances are automatically distributed in the same way.
Allotment DMO Policy Operations Inspection CIO CFO Total
FTE 150 150 1200 1100 300 300 3200
Salaries 10,200,000 10,200,000 81,600,000 74,800,000 20,400,000 20,400,000 217,600,000
Allowances 2,040,000 2,040,000 16,320,000 14,960,000 4,080,000 4,080,000 43,520,000
Overtime 0 250,000 1,000,000 2,335,000 500,000 0 4085000
O & M 3,000,000 2,000,000 20,000,000 24,000,000 11,000,000 4,766,850 64,766,850
Gs & Cs 2,000,000 3,600,000 0 0 0 0 5600000
Capital 500,000 300,000 2,000,000 2,000,000 2,500,000 200,000 7,500,000
Total 17,740,000 18,390,000 120,920,000 118,095,000 38,480,000 29,446,850 343,071,850
Expenditure Plans of Organization: Budget, Expenditure Plans of Organization: Budget, ProgramProgram
Subject to adjustments and clarifications: In-year program adjustments External charges, e.g. central services Reserves and partial distributions by senior
management
Objective is to arrive at the Adjusted Budget of the responsibility centre
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To Get to an Adjusted BudgetTo Get to an Adjusted Budget
Take original budget
Apply changes: increases, decreases, etc
Allocate to units and total.
An adjusted budget is not a projection: it reflects decisions and changes subsequent to the original budget
Important to clarify exactly what the budget manager has to work with at the start
Budgets can also be adjusted throughout the year as part of the cash management process, as new funds become available (or are removed) or to reflect policy changes.
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LINE ITEM BUDGET
This fiscal year
CHANGES ADJUSTED BUDGET
This fiscal year
SALARIES 3,500,000 750,000* 4,250,000OVERTIME 500,000 (100,000)** 400,000TRAINING 250,000 75,000¹ 325,000TOTAL STAFF COST
4,250,000 725,000 4,975,000
*Salary adjustments from collective bargaining = 400,000 plus 350,000 from DM’s special youth employment funds
** Departmental target to reduce overtime – your share is 100K
¹Special central agency funding – one year only – for technology training.
Developing a Cash Flow Plan for the Developing a Cash Flow Plan for the Responsibility CentreResponsibility Centre
In-year cash management requires a sense of how funds will flow or be expended
Eliminate non-cash accruals
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Do Not Just Divide by 12!Do Not Just Divide by 12!
Developing a Cash Flow Plan for the Developing a Cash Flow Plan for the Responsibility CentreResponsibility Centre
Generally managers are expected to prepare cash flow plans based on: Historical data Their program plans – the implementation
side Know commitments Addressing risks
Not all funds flow at once – some costs are distributed over the fiscal year, some are spent at one time, some are held in reserve
Often capital is on a different cash flow cycle and not included.
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Developing a Cash Flow Plan for the Developing a Cash Flow Plan for the Responsibility CentreResponsibility Centre
Such flows are predictable within limitations. e.g. salary dollars
Some are less predictable in terms of planning, e.g. overtime, but such unpredictability can be mitigated using historical data
Cash flows can be limited by managerial discretion: Spending authority limits, Internal budget restrictions, External restrictions, e.g., salary dollars for salary
only Tolerance boundaries.
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Developing a Cash Flow Plan for the Developing a Cash Flow Plan for the Responsibility CentreResponsibility Centre
Some items are spent all at once, e.g. transfers or major capital purchases.
Are there any other rules of the game set in place by the organization: Informal reserves and hold-backs Reporting frequency Degree of detail Contingency funds – formal and informal Budget conditions Limitations on managerial flexibility
End result: Managers Expenditure Plan
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Factors to take into account in building a Factors to take into account in building a cash flow plancash flow plan
Previous patterns of inflow in past year, e.g. for an NGO: donations tend to peak during major fund-raising events with regularity, major government funding tends to flow two times a year provided the grants is approved in advance
Anticipation of any changes that might cause such a flow to alter, e.g. the organization decides that it will change its fund-raising campaign to a different type and a different time, a major donor adjusts some criteria and is reviewing its procedures which may create delays.
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Factors to take into account in building a Factors to take into account in building a cash flow plancash flow plan
Timing of the maturity of investments or endowments in various funds;.
Awareness of the timing of cash requirements to match them up with inflows, e.g. major capital expenses are anticipated for the summer, thereby necessitating a cash outflow demand surge in late summer; this will not help anticipate inflows, but will inform and condition the risks and urgencies around the first two elements.
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Expenditure Plans of Organization: budget, program
Financial Performance Reports
Manager’s Expenditure
Plan
The Financial Analysis ProcessThe Financial Analysis Process
Whenever possible gets comparative data: - for the organization over time, - for the organization's peers, and - for benchmarking organizations (if they
exist).
Organize the information and complete the analysis.
Will compare financial performance to the Manager’s Expenditures Plan – often input into organizational financial system
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Analyzing ExpendituresAnalyzing Expenditures
Estimating the timing of expenditures is critical for cash flow purposes
Dividing the budgeted amount by 12 months is not a good strategy
As the fiscal year progresses, analyze projected spending amounts.
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Analyzing ExpendituresAnalyzing Expenditures
Use the projected budget as a basis for the cash flow
Make sure all reductions or increases are accounted for in the cash projection
For example, if spending freezes have been enacted, have the anticipated savings been accounted for in the cash flow projection?
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Analyzing ExpendituresAnalyzing Expenditures
Analyze expenditure patterns
Salaries and benefits are usually the largest expenditures
Getting the timing right is key to managing cash flow
Are there months that have additional payments, costs or less demand?
Review the timing of other payments.
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Analyzing ExpendituresAnalyzing Expenditures
How are materials and supplies purchased? Just-in-time purchasing throughout the year? Ordered in bulk at various points during the fiscal year?
Don’t forget about the impact of restricted funds. These can require significant cash outlays at the start of the fiscal year
Having an annual purchasing cutoff date helps when closing the books But it also can create a big stack of bills that have to be paid at the same time.
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Analyzing ExpendituresAnalyzing Expenditures
As cash flexibility decreases, priorities will need to be set in order to determine what gets paid first.
Salaries and benefits have specific statutory timelines for payment
That leaves vendor payments for providing flexibility. Maximizing the use of the billing cycle will become important. In extreme cases, vendors may need to be asked to accept a delay in payments – depends on contractual obligations.
Prepare a contingency plan for cash shortages
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Looking for Problem Areas and Identifying Variances: Looking for Problem Areas and Identifying Variances: The uses of historical dataThe uses of historical data
Why it is important?
Developing comparisons year to year
Understanding what has changed and what remains the same
Developing useful variance reporting based on historical data
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Focus on Trend Information and Explaining It
“Overall, the value of new construction in the City for the first three months of the year is 28% more than the same time period last year. The overall increase is due to the new RCMP E-Division Headquarters building.” – City of Surry Quarterly Financial Report, May, 2011
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All Overtime Hours Used by Month by Fiscal Year
-
15,000
30,000
45,000
60,000
APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR
Month
All
Ove
rtim
e H
ours
Use
d
2001/02
2000/01
1999/00
1998/99
1997/98
1996/97
1995/96
An Example of the Use of Historical DataAn Example of the Use of Historical Data
Sometime historical data in non-Sometime historical data in non-monetarymonetary
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Table 3: Shelter Admissions
05
10152025303540
J F M A M J J A S O N D
Month
Ad
mis
sio
ns
2002
2003
2004
Analyzing Encumbrances and CommitmentsAnalyzing Encumbrances and Commitments
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Key tool in governments to ensure that budgets do not go over approved limits
“Financial commitments are obligations to outside organizations or individuals that become liabilities if and when terms of exiting contracts, agreement or legislation are met.” – CICA
Will generally not be in your financial reports, but rather in your forward spending plans
For cash forecasting, commitments may not be formal entries but rather managerial statements of intention that certain funds will be fully spent for their intended purpose even though they do not appear as either formal commitments in a cash balance sheet or liabilities in an accrual based balance sheet
Analyzing Encumbrances and CommitmentsAnalyzing Encumbrances and Commitments
Positive uses: inform management of actual flexibility and spending plans
Negative use: protect funds
Danger of unspent funds at the end of the year
Committed amounts reduce the balance available for expenditure in the remaining portion of the year and must be brought into the calculation of any projection.
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Developing a Spending Plan/ForecastDeveloping a Spending Plan/Forecast
Level of detail should reflect need for information, risk, materiality and timeliness, e.g. once a month, once quarterly
Managers should be able to project cash flows over the year
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Developing a Spending Plan/ForecastDeveloping a Spending Plan/Forecast
Dividing by 12 hardly useful or generally not realistic – forecast should reflect the ebbs and flows of expenditure patterns
Block or grant expenditures tends to be all at once
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Quality of Forecasting and Quality of Forecasting and DataData
Key to provide financial information derived from current information, known changes and trends and announcement
Comparison of data from current year to prior years always useful
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Translating and Interpreting DataTranslating and Interpreting Data
Usefulness of different perspectives Budget managers Financial advisor Organizational head Corporate financial advisor
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Translating and Interpreting DataTranslating and Interpreting Data
Role of the challenge function
Reporting that makes data relevant to managers and to decision makers: management’s discussion and analysis (MD&As)
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Compare and Contrast
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Management Discussion and AnalysisManagement Discussion and Analysis
Should provide basis for discussion and decision making
Language should be business-oriented and not excessively detailed
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Management Discussion and AnalysisManagement Discussion and Analysis
Objective and easily readable analysis of financial activities based on currently know facts, decisions or conditions
Projections are an essential part of cash forecasting, but should be fact based whenever possible
Otherwise projections should be subject to a variety of opinions to test the hypotheses they contain
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Questions the Management Report must Questions the Management Report must answer…..answer…..
Are we going to be within our budget allotments?
Are we operating according to our budget plan?
How does our performance compare with relevant historical data?
Does this performance mean that more funds may be necessary or that some funds may become surplus in this area and available for reallocation?
What are the variances and why have they occurred?
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Questions the Management Report must Questions the Management Report must answer…..answer…..
What is the responsibility centre manager going to do about the negative variances?
Are positive variances within a retention range for the local manager or are they available for other needs outside the unit but within the organization?
Do we have the needs and authorities to reallocate these funds?
What does this information tell us about the performance of the manager in this unit?
What does this information tell us about the long-term funding?
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Reporting and Discussing Risk in Cash Reporting and Discussing Risk in Cash ManagementManagement
Need to distinguish between short-term and long-term risk
Risk is a key element in determining to change budget allocations either temporarily or permanently
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Reporting and Discussing Risk in Cash Reporting and Discussing Risk in Cash ManagementManagement
Key risk in cash management is over-expenditure of budget or failure to fully use funds available and needed
Other types of risk to consider: Inappropriate use of funds Surges or declines in demand leading to cost over-
runs or under-usage Emerging and unanticipated issues: mad cow,
SARS, BP
Financial reports should not originate the organization’s development of risk but should reflect its overall management process,
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Risk of over-expending is sometimes graphic Risk of over-expending is sometimes graphic and clear……….and clear……….
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STAFFING: BUDGET VERSUS ACTUAL
180
190
200
210
220
230
240
250
JUNE OCT DEC MARCH YEAREND
PLAN
ACTUAL
Understanding and Communicating Cash Flow Patterns
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Cash Forecast ReportCash Forecast Report
Can take many forms: briefing notes, PowerPoint presentation, charts, graphs
Should have some predictability in format and language
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Cash Forecast ReportCash Forecast Report
Some analytical information that is important: Historical comparisons The cost of the variance to date, i.e. how
much of the actual budget has been spent The projected variance should nothing
change, i.e. the straight line projection The variance in comparison to similar
units in the system
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Cash Forecast ReportCash Forecast Report
Additional components of the report that set managerial context: What caused the gap between expectations
and results, e.g. fewer retirements or transfers than required?
Workload determinants that changed in actual performance, e.g. inmate population increases and opening of an old unit for an emergency
Inefficiencies that remain, e.g. excessive posts.
Limitations of the budget itself Actions that could be taken to correct the
situation.
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Cash Forecast ReportCash Forecast Report
Should be a regular submission to the senior management committee of the organization
Should move financial information, various background information, etc into the realm of text, ideas and integration
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Cash Forecast ReportCash Forecast Report
Generally the role of finance to prepare but not the role of finance to address: operational managers, responsibility centre heads, their bosses are key to this
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Cash Forecast ReportCash Forecast Report
It cannot cover all data – only relevant information: Exceptional performance issues Issues that the senior management wants
to keep a close eye on Highly political or contentious issues Separate funds Areas of operational vulnerability or poor
performance
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Cash Forecast ReportCash Forecast Report
Questions to ask about variance: What does the trend look like: is it in the right
direction? If so, can we tolerate the slower pace?
Is this isolated to this unit or a general phenomenon?
Did we set realistic targets? Can we fund the shortfall that we see
emerging? Is this manger delivering and, if not, is this
enough to force us to take some action like removing him and finding some else.
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Cash Forecast ReportCash Forecast Report
Should be a consensual document or at least focused on key decisions that CFO wants to receive or see made
Should be devoid of surprise for all players
Role of the top manager: Deputy or organizational head: steering towards decisions, reconciling differences
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86Salaries Operating Grants
Original Budget 2,000,000 3,500,000 1,000,000
Adjusted Budget 2,225,000 3,000,000 1,000,000
Planned Expenditures to date
1,250,000 1,500,000 750,000
Actual Expenditures
1,110,000 1,800,000 600,000
Variance from Plan
140,000 (300,000) 150,000
But this is not enough…….
Need to project to year-end
Need to identify end-of-year overages and underages
Or, have to project to balance the budget
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88Salaries Operating Grants
Original Budget 2,000,000 3,500,000 1,000,000
Adjusted Budget 2,225,000 3,000,000 1,000,000
Planned Expenditures to date
1,250,000 1,500,000 750,000
Actual Expenditures
1,110,000 1,800,000 600,000
Variance from Plan
140,000 (300,000) 150,000
Commitments 200,000 150,000
Projected Expenditures Year End
2,150,000 3,200,000 900,000
Projected Variance at Year End
75,000 (200,000) 100,000
Sure Signs that there will be Sure Signs that there will be troubletrouble
Governance flaws – poor oversight of spending. No managerial review unless there is a problem.
Absence of communication with operational front-end of the organization in budgeting and monitoring..
Lack of interagency cooperation.
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Sure Signs that there will be Sure Signs that there will be troubletrouble
Failure to maintain reserves.
Insufficient consideration of long-term collective bargaining agreement and human resource policy effects.
Flawed multiyear projections.
Inaccurate revenue and expenditure estimations.
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Sure Signs that there will be Sure Signs that there will be troubletrouble
No integration of position control with payroll costing.
Limited access to timely personnel, payroll, and budget control data and reports.
Escalating reliance general fund or reserve encroachment to fund regular programming.
Lack of regular monitoring. . Poor cash flow analysis and reconciliation.
Failure to recognize year-to-year trends.
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Some Solutions for Serious Cash Some Solutions for Serious Cash Management ProblemsManagement Problems
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Panic!
Some Serious Solutions for Serious Cash Some Serious Solutions for Serious Cash Management ProblemsManagement Problems
Prepare your story and a plan: read The Cash Management Games People Play
Find ways to slow down spending where there is discretion
Review commitments (both formal and informal) to determine flexibility to shut down or slow down
Reduce staff where this will work quickly and without further costs, e.g. severance
Not filling positions
Slowing down staffing
Delay orders, put them off until the next period or year
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Some Serious Solutions for Serious Cash Some Serious Solutions for Serious Cash Management ProblemsManagement Problems
Slow down programs/ eliminate services
Beg or borrow from others within the department: avoid mortgaging your future if you can
Seek temporary relief from your boss, the organization as a whole
Seek out contingency funds, if they exist
Examine possible use of non-restricted funds
Seek a change in budget if it can be justified
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Setting the Rules for Distribution and Redistribution of Setting the Rules for Distribution and Redistribution of Surpluses, Carry-Forwards etcSurpluses, Carry-Forwards etc
Huge tension between protecting your own resources and making a corporate contribution: affects information flow for senior management
Important to understand how financial and performance information may be used
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Setting the Rules for Distribution and Redistribution of Setting the Rules for Distribution and Redistribution of Surpluses, Carry-Forwards etcSurpluses, Carry-Forwards etc
Danger of surprise in rules change – unless subject to extraordinary situations
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Danger in awarding bad management: coming to the rescue is one
thing but doing it several years running simply creates new rules
That reward bad behaviour.
Setting the Rules for Distribution and Redistribution of Setting the Rules for Distribution and Redistribution of Surpluses, Carry-Forwards etcSurpluses, Carry-Forwards etc
Example of reporting surpluses that financial analysis does not disclose: is it kept in the responsibility centre or does the organization have a ‘wish list’ or ‘critical needs list’ that distributes available funds to the list with no hold back in the responsibility centre – impacts human behaviour significantly
Issue of the use of the carry-forward provisions: is that rolled up corporately and used for other purposes or is it retained within the responsibility centre: has an impact on high level flexibilities
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Ende
Fin
Lopussa
Koniec
Final
Sionunda