A Model for High Performing Finance National Association of State Auditors, Comptrollers, and Treasurers August 2010 Copyright © 2010 Accenture All Rights.

A Model for High Performing FinanceNational Association of State Auditors, Comptrollers, and Treasurers

August 2010

Copyright © 2010 Accenture All Rights Reserved.

Speakers

• Bill Kilmartin, Accenture Director State and Local Government Finance and Administration

• Marty Benison, Massachusetts State Comptroller

• Clark Partridge, Arizona State Comptroller

Copyright © 2010 Accenture All Rights Reserved. 2

Agenda

• Description of the High Performance Finance Model

• Why is it useful?

• How could it be applied?

• Reactions and comments by two State Comptrollers

• Reactions and comments from the audience


Developing A High Performance Finance Model for Government

• Operating Models provide the big picture of what an organization does. – examine the functions and defines the people, process, organizational

structure and technology to fulfil its strategy.

• Governments operate in constantly evolving environments. – In order to continue to shape citizen-centric and efficient services, public sector

organizations need to regularly reassess the suitability of their operating models.

• Accenture understands that there is no ‘one size fits all’ approach for shaping operating models. – Based on a wealth of client experience, we are sharing a model to support

governments in assessing, developing or fine tuning their operating model for the Finance function.


High Performance Finance Model: Three Components


EnablingOperations

Organization change management

CoreOperations

CustomerInteraction

General communication

Management of external parties interactions

Planning and budgeting Overall accounting

Compliance (trust)

Treasury

Asset control

Payroll

Revenue management

Expenses management

General Ledger AccountingPolitical direction and strategic

planning

Budget development and allocation

Budget execution

Outcome planning

Facility and land management (fixed assets)

Cash management

Investment and debt management

Fraud and abuse

Audit

External reportingCost accounting

Closing operations

Management of publicly held enterprises

Inventory management (non-fixed assets)

EnterpriseStrategy Human Resources ProcurementLegal & Regulatory

Acc

ount

ing

Pro

fess

iona

ls

Sof

twar

eP

rov

ider

s

Fin

anci

alIn

stitu

tions

Ser

vic

eP

rov

ider

s

Oth

erO

rgan

izat

ions

External partner Interactions

Efficiency & continuous improvement

Process transformation

IT management

Knowledge Mgmt

Pension management

Governance

Management of cross-agency initiatives

Finance organization management

Productivity and efficiency management

Risk management

Infrastructure management and innovative funding (PFI, PPP…)

Management of civil servants interactions

Management of citizens interactions

Grants management (grantees & grantors)

Intergovernmental accounting

Performance management

Performance management and analytics

Internal controls

People and talent

Planning and budgetingPolitical direction and strategic planning

1 Formulate political vision and objectives1.2 Review and confirm political direction at government level1.3 Review and confirm main policy outcomes1.4 Determine the global budget1.5 Evaluate costs of political choices

1.5.1 Use high level KPIs from standard outcome measures1.6 Prioritise and refine political initiatives1.7 Communicate high level budget direction1.8 Cascade political direction and policy outcome at ministry/agency level1.9 Establish strategic objectives - short, intermediate, and long term1.10 Refine ministry/agency strategy document

2 Prioritise Key Drivers for key outcomes2.1 Identify drivers for main policy outcomes (current and future, financial and non-financial)2.2 Perform driver materiality and volatility, cause and effects analysis

2.2.1 Assess citizen acceptance of the drivers2.2.2 Perform mid-term and long-term analysis of drivers effects2.2.3 Review on a yearly basis the driver analysis

2.3 Establish linkages between non-financial and financial drivers 2.4 Align drivers with political direction and citizens' benefits objectives2.5 Prioritize drivers based on relative sensitivity and manageability 2.6 Communicate drivers to citizens or stakeholders2.7 Create and validate driver models

3 Create Strategic Plan3.1 Review performance of current / previous political initiatives and reforms3.2 Create to-be model3.3 Select and prioritize initiatives and reform

3.3.1 Identify options to influence drivers and agree initiatives3.3.2 Document investment requirements and expected benefits3.3.3 Develop decision making criteria3.3.4 Prioritize initiatives and determine sequencing

3.4 Identify strategic options and model impact3.4.1 Model financial impact3.4.2 Refine to-be model

3.5 Gain agreement of key politicians and stakeholders3.6 Finalize strategic planning documents3.7 Communicate strategic plans3.8 Perform post-implementation review of strategic plans

Mastery Scale

Topics / Process Hierarchy Basic (1) Intermediate (3) Leading (5)

Organization and governance

Distributed pension management accross multiple HR deparments in the agencies. Limited governance and oversight. No professional advice taken.

Distributed pension management accross multiple HR departments in the agencies. Independent body for overseeing. Use of specialists advice to guide best practices.

Independent body for overseeing ; single entity responsible for the organization-wide pension management strategy ; use of specialists advice to guide best practices.

Applied guidance and regulation

Locally determined guidance, pension and liability calculation begins at the point of retirement, no assessment of the long-term liabilities, only a cash-based perspective.

Assessment of long term liabilities in addition to the cash-based perspective, but not based on actuarial best practices and full pension life cycle.

Actuarial best practices based on the demographics forecasting, current capital pension funds and expected future payments. Models based on full pension life cycle.

Cost accounting methodology

Pension provisions are not included in cost accounting. Pension provisions are partially included in cost accounting. Current employees costs is not based only on payroll but on pension provisions. Fully loaded costs are considered.

Identification of funding methodologies in order to address the shortfalls

Unforeseen shortfalls are managed on an ad hoc basis. No forward looking strategy.

Strategy recognize the major trends (demographics changes….) and partially normalizes peaks and troughs.

Strategy covers the entire life cycle recognizing demographics changes and normalizes peaks and troughs.

Risk management Unbalanced view of risk management including high risk investments.

High risk investments are avoided but no conservative view of the demographics changes and liabilities.

Investment strategies that take a balanced view on investment risks in order to optimize returns and minimize loss. Conservative view of the demographics changes and liabilities.

Weighted Average Score -->

Mastery ScaleTopics / Process Hierarchy Basic (1) Intermediate (3) Leading (5)

Books presentation Little reflection of breakdown of holdings on the balance sheet and no supplementary information.

Majority of holdings reflected in the balance sheet of but no supplementary information.

Comprehensive view on the balance sheet of all holdings that relies on accepted policies and principles for valuing the impact of current activities with further disclosure as appropriate in the notes of the balance sheet.

Performance reporting

No reporting to committees on financial and non financial outcomes related to investments.

Ad hoc reporting to committees on financial and non financial outcomes related to investments.

Periodic reports to governance commitees on financial and non financial performance and outcomes.

Decision process and portfolio strategy

No transparency behind decision rationale underpinning investment portfolio.

Disclosure of financial rationale behind investment decisions and periodic portfolio review.

Full disclosure of financial and non financial rationale behind investment decisions and periodic portfolio review.

Benefits assessment realization

No recognition of benefits and minimal consultation with specialists or the community.

Formalized advice taking local and centralized advice, use of tools and methodologies to gauge and track financial benefits. No formalized method to assess non financial benefits. No independent body to assess performance.

Formalized advice taking local and centralized advice, use of tools and methodologies to gauge and track financial and non financial benefits, assessment of performance by independent body.

Weighted Average Score -->Topics / Process Hierarchy Basic (1) Intermediate (3) Leading (5)

The organization's mission Civil servants feel that the company's mission is to satisfy the choices of politicians. The organization is active in order to meet the needs and expectations in the short and long term of the political institutions.It follows that the achievement of political objectives become the main yardstick for setting performance targets.Civil servants doesn't know the organization's mission.

Civil servants do not feel part of the definition of the corporate mission, but they know who can influence the results. So they try to use their position to obtain personal benefits. The result is a corrupt vision of the corporate mission, not in line with the administrative and legislative priorities.

Civil servants are aware that the mission and values of the company may evolve from different sources, including extensive public processes, internal discussions and measurable goals set by politicians. They collaborate with relevant decision makers, providing information and advice, providing its expertise to promote positive policies.The result is a well-defined mission, in line with the administrative and legislative priorities. In this mission, the organization is a basis for developing its strategy and, consequently, a set of performance targets and responsibilities. The clarity in defining the mission of the company allows employees, at all levels, to see how their specific contribution becomes integrated into the overall picture.

Reward system The public administration rewards its employees based on seniority. So, for example, incentives are distributed proportionally among all employees without regard to real achievements.

Only in some cases civil servants are able to have the opportunity to highlight their skills. There is a reward system only for the highest level of management.

The public administration rewards the most outstanding contributions of individuals and teams of all levels. So, for example, adopt pay systems based on incentives for higher levels. Other levers can be the opportunities of job enhancement and promotion, to encourage employees who demonstrate their ability to produce excellent results.

Channel communication The organization does not communicate with its employees.There is no communication channel and so the staff feel little commitment to public administration.

The organization uses only the institutional channels of communication, suche as press releases. So only few employees know the company's choices and then there's not a good level of commitment of staff.

The organization communicates to its employees all decisions that affect their daily work and use various channels of communication (press releases, web-based tools, etc.). And so the staff they are very motivated to do well and feel part of.

Weighted Average Score -->

Mastery Scale

“Public Finance on a page”

Capability Assessment Matrix

Process Catalogue

The model is built in excel, with tabs and links for scoring and summarizing.

Public Finance on a Page


EnablingOperations

CoreOperations

Planning and Budgeting

Political and Strategic Planning

Budget Development

Budget Execution

Outcome Planning

Treasury

Cash

Investment and Debt

Continuous Improvement

Productivity and Efficiency

Governance

Cross-Agency Initiatives

Finance Organization

Risk Management

Asset Control

Fixed Assets, Facilities, and Land

Public Enterprises

Non-Fixed Assets and Inventory

Pension

Capital Assets and Innovative Funding

CustomerInteractions

Business Partners EmployeesCitizens

Accounting

Payroll

Revenue

Expenses

General Ledger

Cost Accounting

Closing Operations

Grants Management

Intergovernmental

Performance Management

Performance and Analytics

Compliance and Trust

Fraud and Abuse

Audit

External Reporting

Internal Controls

Organization Change Management

Process Transformation

IT Management

People and Talent

External Partner Interactions

Financial Institutions

Accounting Professionals

Technology and Consultants

General

Description of the Model: Drilldown on Accounting


EnablingOperations

CoreOperations



Budget Development

Budget Execution

Outcome Planning

Treasury

Cash

Investment and Debt



Governance



Risk Management

Asset Control


Public Enterprises


Pension




Accounting

Payroll

Revenue

Expenses

General Ledger

Cost Accounting

Closing Operations

Grants Management

Intergovernmental




Fraud and Abuse

Audit

External Reporting

Internal Controls



IT Management

People and Talent





General

Topics Basic (1) Intermediate (3) Advanced (5) Score Weight

Basis of Accounting

Cash-based accounting only Partial accrual-based accounting and partial cash-based accounting areused. Accrual-based and cash-based accounting are not always reconciled.

Full accrual-based accounting, cash-based accounting can also be used. accrual-based and cash-based accounting must easily be reconciled.

2 10%

GAAP None Other comprehensive basis of accounting

Full GAAP2 30%

Automation Manual accounting entries. Some data may need to be entered several times in different systems.

Accounting entries are largely automated, almost no data needs to be entered several times in different systems

Accounting entries are as automated as possible, no data have to be entered several times in different systems

3 20%

Accuracy Many errors requiring correction in accounting entries due to non-automated processes.

Fewer number of errors requiring correction in accounting entries due to largely automated processes.

No error requiring correction in accounting entries due to fully automated processes.

2 10%

Master Data Accounting master data (ie chart of accounts, code block, journal entry templates, etc) are not harmonized accross the Organization

Accounting master data (chart of accounts, code block, journal entry templates, etc) are partially harmonized across the Organization

Accounting master data (chart of accounts, code block, journal entry templates, etc) are fully harmonized across the Organization

4 20%

Fixed Assets Fixed asset accounting activities fragmented across businesses and/or geographies.

Selected use of shared services for fixed asset processes, journey to shared services underway.

Maximum leverage of shared services. 3 10%

Weighted Average Score 2.7 100%

Description of the Model: Drilldown on General Ledger


Home Process Hierarchy General Ledger

Description of the Model: Drilldown on Compliance and Trust


EnablingOperations

CoreOperations



Budget Development

Budget Execution

Outcome Planning

Treasury

Cash

Investment and Debt



Governance



Risk Management

Asset Control


Public Enterprises


Pension




Accounting

Payroll

Revenue

Expenses

General Ledger

Cost Accounting

Closing Operations

Grants Management

Intergovernmental




Fraud and Abuse

Audit

External Reporting

Internal Controls



IT Management

People and Talent





General

Description of the Model: Drilldown on Internal Controls



Mission The focus is limited to compliance with procedures and availability of financial information. No risk-based approach. Controls over non financial information rarely made.

Internal controls system covers compliance and availability of financial and non-financial information. Risk assessments on ad hoc basis.

Internal controls system encompasses: compliance, availability of financial and non financial information, and effectiveness and efficiency with a risk based approach.

2 10%

Culture Internal controls seen as a set of procedures. The outcomes and benefits are not known, understood, or communicated.

Top management is aware of the necessity for an IC system, but the system is limited to finance and finance people rather than wider data/information systems.

Top management sponsors the internal control system and promotes an internal control culture, which includes communication, training, and target setting. Staff are aware of their roles and responsibilities.

3 10%

Policy Internal controls focus only on accounting processes. Documentation exists, but no defined process for reviewing.

Formulation and documentation of a comprehensive set of internal control policies is underway.

Comprehensive internal control policies in place. The IC policies are clearly defined and rely on accepted (COSO) standards. Policies (i.e., data protection requirements, security controls, etc) are available and reviewed on an on-going basis.

3 20%

Organization

Interal control activities are decentralized, stand-alone, and sometimes redundant.

An entity is in charge of coordinating the IC initiatives across the organization. This entity formulates and documents the IC system and ensures the control environment is effective without being too burdensom / bureacratic.

The conception, maintenance and monitoring of the IC system is done by a single entity (reports to CFO), relying on liaisons in each department. The IC system involves all levels of personnel. There is a good understanding of the need for the IC system and individual roles and responsibilities are known and understood.

2 10%

Home Process Hierarchy General Ledger

Description of the Model: Drilldown on Internal Controls (continued)



Risk Based No risk criticality is defined. Some control activities are known to be disproportionate relative to the respective organisational risks.

Risk criticality is not clearly defined. Nevertheless, the level and intensity of control procedures is regularly questionned to ensure they are effective and proportionate relative to the organisational risks and business challenges.

Definition of individual process risk criticality enables the organisation to assess the effectiveness of controls and whether they are proportionate to the associated risks and criticality of a given process. 4 20%

Process The scope of internal controls is limited to accounting procedures and reconciliation of accounts. No specific process is in place for detecting defiencies. Consideration of the effectiveness of controls is limited, resulting in multiple controls and inefficient processes or gaps in the control environment.

Internal controls expanded to include management information. Deficiencies are reported on an ad hoc basis. Processes are occasionally reviewed to improve efficiency and relative effectiveness, but on an ad hoc basis.

Internal controls address accounting and management information. Processes are in place to detect weaknesses and report in a culture of transparency. Processes are reviewed periodically by internal audit, External Audit, Management, or due to changes of circumstances. Part of this process includes assessment of which controls add value. Use of tools (i.e., Lean Six Sigma) are used.

3 10%

Reporting Limited reports on accounting activities are produced, but only distributed to accounting managers.

IC reporting is in place, content is mainly financial information and relates mainly to financial processes. Ad hoc information is produced to support decision-making processes.

Clear reporting and communication is in place. Specific reports that reflect goals and material risks inherent in the business are produced. Routine reporting to top management for decision making purposes. Reports and key findings are submitted to the Audit Committee to ensure appropriate action is being taken.

2 10%

Tools Limited or no specialized tools Individual spreadsheets are used. Different versions of internal control processes exist accross the entity. No central repository for tools to track document versions.

Standard process mapping tools ensure a single standard format so that all documents are consistent. Documents are managed by the central entity using an on-line repository and all users who need access to the documentation can do so.

1 10%

Weighted Average Score 2.7 100%

Why is it Useful?

• Stimulate strategic thinking

• Promote cross functional and/or cross boundary awareness and cooperation

• Reveal insights for prioritization, setting the stage for action

• Provide context for educational and transitional processes

• Provide a common language (“lingua franca”) for the Finance community to exchange ideas around leading practices


How Can it be Applied?

• Scope– The entire domain of finance…takes a full day

– Carve out a subset of the domain, i.e. a grouping of business processes…takes a few hours

– Engage the participants appropriate to the scope, i.e. Comptroller, Treasurer, Auditor, Budget Director, Secretary Administration and Finance, Governor Chief of Staff

• Process– In a face to face workshop

– In a series of workshops


How Can it be Applied? (continued)

• Cost for a copy of the model…provided by Accenture at no charge

• Cost for Accenture on site assistance and facilitation for a workshop…provided by Accenture at no charge

• Cost for Accenture off-site assistance and facilitation…provided by Accenture at no charge

• Cost for state participation…State contributes the time for state employees and space to hold the workshop


Reactions

• Marty Benison, Massachusetts State Comptroller

• Clark Partridge, Arizona State Comptroller

• The Audience


Contact Information


Bill Kilmartin

[email protected]

781-367-9476

Pallavi Verma

[email protected]

732-371-8722

Dave Andrews

[email protected]

919-349-2276

Mark Howard

[email protected]

303-517-9534

Matt Cole

[email protected]

614-893-3171

Scot Armstrong

[email protected]

706-206-6988

David Wilson

[email protected]

612-839-3725

Contact Information

• Bill: [email protected] 781-367-9476

• Pallavi: [email protected] 732-371-8722

• Dave: [email protected] 919-349-2276

• Mark: [email protected] 303-517-9534

• Matt: [email protected] 614-893-3171

• Scot: [email protected] 706-206-6988

• David: [email protected] 612-839-3725


A Model for High Performing Finance National Association of State Auditors, Comptrollers, and Treasurers August 2010 Copyright © 2010 Accenture All Rights.

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