Effective balance sheet management in the public sector
This article explores improvements in public sector financial management principles since the introduction of accrual accounting principles.
Since the introduction of accrual accounting principles into government during the 1990s financial management in the public sector continues to improve significantly.
CPA Australia has taken a leading role in the public sector, initially through the benchmarking study 'Beyond Bean Counting 2000' which measured the progress of financial management in the public sector. This research highlighted that the balance sheet was an area that most public sector organisations did not understand or manage effectively.
In 2002, CPA Australia undertook further research focusing specifically on the balance sheet and how it was managed in the public sector. The outcome of this research is the publication 'Striking the Balance Effective Balance Sheet Management in the Public Sector'. This publication is an important resource document which will be of immense value to public sector organisations who want to improve their management of the balance sheet.
The aim of the research project was to:
Assess to what extent and how balance sheets are currently managed in the general government sector.
Identify better practice balance sheet management relevant to the sector and recommend how agencies might take a more a purposeful approach to optimising the structure and composition of their balance sheets.
Examine any plans that are currently in place for moving towards better practice in jurisdictions within the public sector in Australia; and
Make recommendations on how to progress towards better practice.
The outcome of the Public Sector Centre of Excellence (PSCOE) research was to publish a document which agencies could use as an aid to better balance sheet management within their agency.
Approach
Under the auspices of a steering committee comprising PSCOE members and key stakeholders, the research project focused on three key components:
1. Whole of government
The Commonwealth and three State Governments were interviewed at the Whole of Government level. Central agency staff were consulted to determine their roles and responsibilities in respect to the Whole of Government and agency balance sheets.
2. Agency review
16 Agencies, mainly in the jurisdictions of the Commonwealth, Victoria and Queensland were interviewed. Information was collected on how the balance sheet was currently managed, any improvements to current management practice and future plans for better management.
In addition a further 180 CFOs in public sector organisations were surveyed on the balance sheet management in their respective agencies.
3. Identification of best practice
Research was conducted to identify better practice IBM Consulting Services conducted the research which included reviewing private sector and overseas public sector organisations as well as a literature search conducted by the University of Queensland Business School.
Better practice
A key component of the research is the section on better practice balance sheet management. The research identifies that there are four keys steps towards better practice:
1. Accountability
It is essential to assign accountability to someone and to hold them accountable through developing and implementing an accountability framework.
2. Planning
As part of its corporate planning process each agency should consider what its balance sheet should look like now and into the future.
3. Monitoring
Agencies should determine what information managers need in order to carry out their responsibilities and implement the processes to achieve this.
4. Using
Each component of the balance sheet needs to be carefully reviewed and its contribution towards the delivery of outputs assessed.
Key components of this section of the research are the provision of better practice examples and the self assessment which allows each agency to determine where it is on the road to better practice balance sheet management.
Successful implementation
Lastly, the research identifies the keys to successfully implement better practice balance sheet management.
Effective stakeholder management. Without the support of the key stakeholders the likelihood of the balance sheet management project being successful is minimal.
Benefits are identified and realised. Not only do they need to be realised but they have to be communicated to the stakeholders so they are aware of them.
Planning and scheduling. A realistic timeframe should be set particularly if new concepts are being introduced.
Utilisation of a skilled team. Team members will need to have a deep understanding of what they are trying to achieve and a strong commitment to its success.
Defined scope. It will not be appropriate to include all parts of the agency and all aspects of the balance sheet. It may be more appropriate to begin with a pilot, eg. cash management.
Risk identification and mitigation. As with all projects a change management program should be developed to ensure its success.
Summary
The balance sheet has been identified as an important financial management document for public sector organisations. 'Striking the Balance Effective Balance Sheet Management in the Public Sector' will be an important tool in assisting agencies in determining where they are on the road to better practice balance sheet management.
The research document is a must have for all public sector organisations and can be purchased through CPA Store.
