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What is best practice financial management for local government? Martin Thompson 11 October 2012

What is best practice financial management for local government? Martin Thompson 11 October 2012. Session overview. Session overview. What is financial management. Session overview. What is financial management Snapshot of where the @#$! Are we at with financial management.

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What is best practice financial management for local government? Martin Thompson 11 October 2012

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  1. What is best practice financial management for local government? Martin Thompson 11 October 2012

  2. Session overview

  3. Session overview • What is financial management

  4. Session overview • What is financial management • Snapshot of where the @#$! Are we at with financial management.

  5. Session overview • What is financial management • Snapshot of where the @#$! Are we at with financial management. • Better practice financial management is not…..

  6. Session overview • What is financial management • Snapshot of where the @#$! Are we at with financial management. • Better practice financial management is not….. • Tips to moving towards better practice financial management.

  7. The former government's estimate that the myki smartcard ticketing system could be running by 2007 was wrong and based on a lack of understanding, a Victorian inquiry has heard. Labor awarded the $500 million contract to build and operate myki to Kamco in July 2005. The system was supposed to be operating by March 2007 but is still in the transition phase, while the budget has blown out to $1.35 billion (the AGE)

  8. What is financial management? • The planning, directing, controlling, and monitoring of the financial resources of Council

  9. Where is local government at with financial management

  10. Where is local government at with financial management

  11. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’.

  12. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes?

  13. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery.

  14. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery. • How often do we leave key financial management responsibilities to other areas of Council – Major Projects?

  15. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery. • How often do we leave key financial management responsibilities to other areas of Council – Major Projects? • Controlling – manage the little things well, sometimes let the bigger things slip.

  16. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery. • How often do we leave key financial management responsibilities to other areas of Council – Major Projects? • Controlling – manage the little things well, sometimes let the bigger things slip. • Do we always provide oversight to the areas where things can go wrong?

  17. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery. • How often do we leave key financial management responsibilities to other areas of Council – Major Projects? • Controlling – manage the little things well, sometimes let the bigger things slip. • Do we always provide oversight to the areas where things can go wrong? • Monitoring - Systems are a limitation.

  18. Where is local government at with financial management • Planning - Budget processes are often ‘best guess’. • What % of ‘blow outs’ are caused by poor budget processes? • Directing – Key officers not always involved in delivery. • How often do we leave key financial management responsibilities to other areas of Council – Major Projects? • Controlling – manage the little things well, sometimes let the bigger things slip. • Do we always provide oversight to the areas where things can go wrong? • Monitoring - Systems are a limitation. • Woolworths can complete the weekly analysis of its sales in three hours. How well can councils collate information for review?

  19. Are we more scorekeepers than players?

  20. Best practice financial management • What it is not:

  21. Best practice financial management • What it is not: • The process of recording financial transactions

  22. Best practice financial management • What it is not: • The process of recording financial transactions • The execution of control activities (i.e. reconciliations)

  23. Best practice financial management • What it is not: • The process of recording financial transactions • The execution of control activities (i.e. reconciliations) • The preparation of financial reports and statements

  24. Best practice financial management • What it is not: • The process of recording financial transactions • The execution of control activities (i.e. reconciliations) • The preparation of financial reports and statements • The preparation of reports to Council

  25. Best practice financial management • What it is not: • The process of recording financial transactions • The execution of control activities (i.e. reconciliations) • The preparation of financial reports and statements • The preparation of reports to Council • Attendance at meetings

  26. Tips for better practice financial management

  27. Be actively involved in the budget setting process • Total costs/revenues and other resources required? • Accurate volume/quantity requirements? • Phasing – reasonableness of timelines? You can only get three things wrong in a budget • The costs or revenues required • The volume of inputs required or outputs generated • The timing of the activity

  28. Be clear on your assumptions • Know your assumptions. • Make sure they are realistic. • Measure performance against these. The quickest way to blow up financial performance is to get your assumptions wrong at the outset, the second quickest is to not recognize when they have changed.

  29. Involve those who have ‘expert’ knowledge • Financial management is a team sport. • Need to involve in all aspects • Budget • Performance monitoring • Completion The financial manager is a captain-coach, playing a role on the field as well as directing others

  30. Share the budget and other financial targets • Knowledge is power (and accountability) • This is not a one off, achieved via email. • Need to be constantly communicating and re-communicating (key messages). • All parties need to ‘buy in’ to the financial management process. The financial manager needs to sell the importance of budgets and targets to all parties involved.

  31. Take (and allocate) SMART responsibility • Clear performance measures in place at the outset. • Best practice financial management requires a strong accountability framework. Be SMART with your performance measures • Specific • Measureable • Achievable • Relevant • Timely

  32. Measure performance and take corrective action • Financial Management is an ongoing process. • Need to prepare timely performance reports that highlight deviations from plan. • Corrective action must be taken promptly. In the world of financial management good things do not come to those who wait! – The approach of the US Navy is not one to be recommended.

  33. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995.

  34. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision.

  35. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision.

  36. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision. • US Ship: This is the Captain of a US Navy Ship. I say again, divert your course.

  37. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision. • US Ship: This is the Captain of a US Navy Ship. I say again, divert your course. • CND reply: No. I say again, you divert YOUR course!

  38. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision. • US Ship: This is the Captain of a US Navy Ship. I say again, divert your course. • CND reply: No. I say again, you divert YOUR course! • US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!!

  39. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision. • US Ship: This is the Captain of a US Navy Ship. I say again, divert your course. • CND reply: No. I say again, you divert YOUR course! • US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!! • CND reply: This is a lighthouse. Your call.

  40. The US Navy’s Approach • This is the transcript of an actual radio conversation between a US naval ship and Canadian authorities off the coast of Newfoundland in October 1995. The Radio conversation was released by the Chief of Naval Operations on Oct. 10, 1995. • US Ship: Please divert your course 0.5 degrees to the south to avoid a collision. • CND reply: Recommend you divert your course 15 degrees to the South to avoid a collision. • US Ship: This is the Captain of a US Navy Ship. I say again, divert your course. • CND reply: No. I say again, you divert YOUR course! • US Ship: THIS IS THE AIRCRAFT CARRIER USS CORAL SEA, WE ARE A LARGE WARSHIP OF THE US NAVY. DIVERT YOUR COURSE NOW!! • CND reply: This is a lighthouse. Your call. • Amusing as this is, a bit of internet research identifies it to be an urban myth, however it does reinforce the potential consequences of not responding to changes in our environment.

  41. Focus on the things that matter • A little overwhelming? • Always remember that we need to focus our efforts on the things that matter and the things we (as a team) can control.

  42. In Summary

  43. In Summary

  44. In Summary

  45. In Summary

  46. In Summary Focus on what matters

  47. In Summary Focus on what matters Focus on what you control

  48. Final thought Courage is what it takes to stand up and speak. Courage is also what it takes to sit down and listen.~ Winston Churchill ~

  49. Thank you

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