Financial Management Accountability in Departments and Agencies

March 8, 1991

Table of Contents

• Foreword
• The Deputy's Financial Management Accountability
• Rationale For Accountability
• Financial Management Responsibilities
• The Financial Management Accountability Framework
  • Management
  • Information and Advice
  • Control
  • Accountability
  • Organization and Processes
• Approach To Financial Management Accountability
• Conclusion

Foreword

Public Service 2000 renewal efforts and Increased Ministerial Authority and Accountability (IMAA) initiatives give increased authority for program delivery to deputy ministers. Hand in hand with this new authority goes the responsibility for deputies to account for the manner in which they handle the resources at their disposal. Authority and accountability are two sides of the same coin.

We recognize that financial management is only one part of the integrated function of management, but in a government environment it is a particularly important one. Taxpayers are counting on us to get it right.

Financial management is not the exclusive domain of the senior financial officers and their subordinates. It is everyone's business. Everybody who is involved in the provision of government services has a financial management responsibility and a duty to account for it.

This booklet is not a "how-to" manual: details of sound financial management practices can be found elsewhere. What it presents are ideas and principles that can help Public Service managers assess whether they are in fact fully discharging their increased financial management responsibilities. In addition, the suggestions found here should help prepare deputies and their subordinates to face those to whom they are accountable - their minister, a parliamentary committee, their clients, or a central agency - with confidence.

J.A. Macdonald
Comptroller General of Canada

The Deputy's Financial Management Accountability

Although deputy heads are ultimately accountable for whatever goes on in their organizations, they obviously have to delegate much of their authority to others. These others also rely on work done by their subordinates, and so on. Everyone in the chain needs a way of being assured that everything is being done as it should be within the programs or services for which he or she is responsible.

The financial management responsibilities for deputy heads can be stated quite simply. Deputies need to be confident that:

• their managers deliver programs giving due consideration to obtaining the best possible value from public resources;
• their managers make decisions in light of timely, relevant and reliable financial information, analysis and advice;
• cost-effective controls, suitable to the government environment, are in place to safeguard assets and to ensure probity;
• their managers understand and report appropriately on their financial accountability; and
• the financial management organization, systems and processes meet the department's contemporary needs.

Deputy heads should expect their senior managers to provide them with assurance that these five conditions are met. To allow deputies and their managers to report confidently on their stewardship to organizations outside the department or agency, they could require these assurances to be supported by evidence or independent review. If assurance cannot be provided on some points, a statement of what is being done to improve the situation could be requested.

By obtaining assurance on these five points, deputy heads will have fulfilled their prime financial management responsibilities and will be in a position to demonstrate their accountability for them.

Rationale For Accountability

All managers in the Government of Canada are trustees of public resources. As they deliver federal programs and services, they have a responsibility to ensure that they do so with probity (acting as one ought), prudence (the careful and responsible management of public resources), and concern for effectiveness, efficiency and economy (value for money). Financial management is an integral element of all management, not the concern of a few specialists, though financial specialists do have an important role.

Recent government-wide initiatives are intended to devolve more authority and responsibility to managers and introduce a more trusting and less restrictive management style. With few exceptions, departments and agencies no longer require prior Treasury Board approval to act in matters of financial management. Deputy heads are being vested with greater authority than previously. In turn, they will be expected to provide assurances that they have fully discharged their responsibilities.

It is expected that this more open style of management will grow throughout the entire structure of the Government of Canada, and that deputy heads will devolve more authority to line managers, especially with respect to decisions that affect service to the public. With the benefits of modern technology much of the information needed for decision-making and control that formerly could only be found at headquarters or in a central agency can now be available to front-line managers. But just as with deputy heads, managers will be expected to account for their financial management performance. Only if they do so will senior management be in a position to discharge its own accountability responsibilities.

Under the Financial Administration Act and government policy, deputy heads are responsible for financial management in their departments and agencies. It is essential, therefore, that they be aware of any weaknesses in existing systems. If current arrangements are faulty, or if financial support services are inadequate, they need to know. In such circumstances, they also need to know that appropriate remedial action is being taken.

What all this means is that managers, more than ever before, must have a clear understanding of their financial management responsibilities and be able to demonstrate accountability for their performance in this regard.

It also means that a regular, systematic review of financial management practices and supporting systems and services should be incorporated as an on-going part of management control activities. The framework suggested in this booklet will be useful to managers in fulfilling these responsibilities.

Financial Management Responsibilities

While respecting overall government policy, each department and agency must determine for itself what particular organization and processes are most suitable for its own financial management purposes. Responsibilities should be assigned accordingly and may vary from organization to organization. The overall objective is to ensure that the five previously mentioned responsibilities are fulfilled.

It is the responsibility of the senior financial officer to devise the appropriate financial management organization and processes for the department or agency. Although he or she may rely on the Office of the Comptroller General (OCG) for advice and support in this connection, it is not the role of the Office to prescribe how this responsibility should be discharged. However, the OCG offers the following framework as a suggestion of what it might encompass. Senior financial officers may want to adopt it for their department or agency.

The suggested framework is a set of expectations that should be met if the five responsibilities for deputy heads are to be satisfied. In effect, it is an elaboration of the points on which deputies require assurance.

The Financial Management Accountability Framework

The following overall expectations could be used to assess the adequacy and performance of financial management and supporting services:

Management

• Program delivery and major project decisions routinely take into account financial management considerations.
• All long- and short-term plans and proposed initiatives include an appropriate analysis of financial implications.
• Objective reviews are made of the funding and financial management implications of all plans and proposed initiatives.
• Assets, liabilities, revenues and expenditures are managed to optimize cash flows and minimize capital costs.

Information and Advice

• Timely and reliable advice is available to managers at all levels to support their financial management responsibilities.
• Relevant and reliable financial management reports support the decision-making, accountability and control needs of departmental managers.
• Timely, accurate and consistent information is available to managers for financial management.
• Financial information is an integral part of program management information systems.
• Parliamentary and central agency information requirements are consistently met.

Control

• All legislation, regulations and executive orders applicable to financial management are complied with, and spending limits are observed.
• Taking materiality, sensitivity and risk into account, there is an adequate system of internal control over assets, liabilities, revenues and expenditures.
• The organization's program structure is supported by a complete and reliable set of accounting records which meets departmental and government-wide requirements.

Accountability

• Managers at all levels are aware of their financial management responsibilities and have the training and resources to fulfill them.
• Adequate and reliable means of monitoring and assessing financial management performance is in place.
• Proper attention is given to audits, reviews, studies and other means of monitoring and assessing financial management performance.

Organization and Processes

• Cost-effective dependable services and systems are provided at all levels to support sound financial management
• The responsibility for the financial management organization, systems and processes is clearly assigned and communicated throughout the organization.

Approach To Financial Management Accountability

The key to assessing financial management is to have in place a comprehensive set of objectives and expectations. The framework just described constitutes such a framework and can be used to provide assurances to the deputy head about the adequacy and performance of financial management practices, systems and services.

The approach used to gather information and provide assurances on expectations set out in this framework should have the following characteristics:

Departmental focus - performed by the department and aimed at departmental financial management practices, systems and services.

Meaningful to the deputy head - the assurance statements, and reports on remedial actions taken, should be at a level of detail that is meaningful to the deputy head and senior management.

Trust and understanding - based to a significant degree on self-assessments in keeping with enhanced accountability.

Common framework - using the financial management accountability framework, which establishes a common set of objectives and expectations, allows for overall consistency across departments and agencies.

Uniquely adapted - the application of the framework and the specific accountability expectations should be tailored to the organization's specific requirements: the nature of its programs, and the priorities, needs and preferences of its management.

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.

Conclusion

If initiatives such as Public Service 2000 are to succeed, managers will have to find ways of showing that the increased trust placed in them is warranted. Just how they do that has to be determined by each organization, working within the opportunities and constraints of its specific objectives, responsibilities, capabilities and environment.

This guide suggests one way in which managers may demonstrate their accountability in the field of financial management. We recognize that this is only one aspect of their responsibilities, but it is an essential one.

The approach we suggest is for managers to make assertions (sometimes called management representations) about the state of affairs within their area of responsibility. For example, a deputy head who says that the five responsibilities mentioned above 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, surveys, program evaluation, special studies, and the like.

It may well be that making representations will find widespread acceptance as a way for Public Service managers to demonstrate their accountability. It has substantial potential and should be considered seriously.

For some organizations, there may well be other, equally effective, ways of demonstrating accountability, but whatever route deputy heads take they should carefully assess the needs of their own organizations to determine how best to take advantage of the opportunities that the government's recent initiatives afford them.

The Office of the Comptroller General offers its advice and assistance in this regard. Call us. We welcome your enquiries and comments.