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Simplifying Internal & External Financial Reporting at all PS levels David Spearritt Director, ORION Consulting Network Pty Ltd.

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Presentation on theme: "Simplifying Internal & External Financial Reporting at all PS levels David Spearritt Director, ORION Consulting Network Pty Ltd."— Presentation transcript:

1 Simplifying Internal & External Financial Reporting at all PS levels David Spearritt Director, ORION Consulting Network Pty Ltd

2 Outline  The real purpose of financial reporting  Beyond financial reporting  Trends in reporting methods, styles  Checklist of issues to consider when developing reports  How to find out what report readers need/want  Why less is more?

3 Purpose of Reporting?  Statutory requirement?  Good practice?  It’s my job?

4 The Real Reason Financial information is Information for decision making

5 Decision Making  Who are the decision makers?  What decisions do they need to take?  What does success/failure mean?

6 Internal Reporting  Widespread dissatisfaction with internal reporting  Financial management & knowledge management  A key feedback systems for organisational learning & improvement  Needs to link to organisational objectives  Shift towards holistic reporting eg KPI’s/BSC  Eg. Balanced scorecard/ KPI’s/ QBL

7 External Reporting

8 Relevant MDA Practices  Management Discussion & Analysis (MDA)  Australian MDA driven by Corporate concise reporting option  Widely utilised by listed companies.  Optional  Shareholders can elect to receive full AR, concise or none at all.  Now a key part of Public Sector Reporting  Still only half the equation financial)

9 Public Sector Specifics

10 Public v Private Sectors Organisational objectives  Private Sector  Financial returns on financial investments  Only Govt Businesses have similar objectives  Public Sector  Community Returns on Taxes  Some variations  Risk / Return relationship differs

11 Basis of financial reporting Private Sector Financial Return Financial Investment Public Sector Social Returns Taxes or Revenue or Social Returns Community Investment

12 PS Reporting Dilemma  Financial results are only part of the equation  What was done with the money is just as important  Eg. – value for money. Commitments achieved etc.  This is why PS budgets are more important than financial results

13 Examples  Investors need to know whether to invest or sell in a company  Managers need to know whether to cut back costs, kick butt etc  What about public sector?  Choose to pay taxes????  Who to vote for?  Accountability for taxes spent??

14 Accountability Definitions  Pooled funds – taxes spent for purpose raised  Line item controls  Program budgeting  MFO/ Output budgeting  Inputs -> Outputs matrix

15 Private/Public Sector Difference  Private Sector  All of the return on investment equation is in the financial statements  Focus on financial returns and risks  Public Sector  Financial results are only part of the ROI equation  Need to match with services/achievements

16 Risk/ Return Relationships

17 Framework  Organisations need to monitor and report on:  Operating capacity  Financial risks  long term solvency  liquidity  Achievement of community objectives

18 Sector Reporting Focus Financial / Community Returns Returns Internal Business Unit Government Corporation Private Sector Company  Financial Performance  Service Performance  Financial Performance,  Fin Risk,  CSO’s  Financial Performance,  Fin Risk  Share Returns/PE Budget Funded Department Statutory Authority Whole of Govt/ Local Govt/ NFP  Community objectives,  Budget compliance  Contribution to Op capacity  Community objectives  Fin Risk  Op capacity/ Performance  Fin Risk (Debt)  Works & Services  Operating capacity  Tax/Rate levels Lower Risk --------------------------------  Higher Risk Copyright – David Spearritt

19 Beyond Financial Reporting

20 Financial Reporting Bugbear  Clients never happy, but don’t know what they want!!  Need to understand their business drivers and report on that  Internal consulting  Simplified, non-numeric reporting  Trial and error

21 Internal Reporting  Management –limited ability to assimilate information  Reports must support decision making  Accurate, timely, reliable,  Include analysis and insights on implications  Forward looking (forecasts, etc)  Reports must support decision making (Cont)  Language of reader (non-numeric, graphs, ratios, charts, explanations and analysis)  Short reports by exception/ pertinent issues  Peer comparisons/benchmarking

22 Best Practice Fin Reports  Short – not the full ledger  Language of reader (non-numeric)  Graphs, ratios, explanations  Exceptions – decisions required  On-line – drill down  “Accounting is information for decision-making” (What Decision?)  Blend with non-financial info (community returns)

23 Public sector organisational management cycle

24 Financial Management Cycle

25 Local Government Issues Achieve community objectives  Delivery of Promised Outcomes  Value for Money Manage financial risks  Budget setting & monitoring  Integrity of Finances (sustainable revenue)  Borrowings  Capacity to Manage “Shocks” (Reserves)  Forward Financial Planning

26 Local Government Issues (cont) Enhance operational capacity  Paying Bills on Time  Managing Infrastructure  Adequate provision for depreciation  Systems, processes, controls, audit Competencies/innovation and learning  Innovation(other income streams -enterprise)  External funding contributions  Employing capable finance Staff  Understanding financial management

27 How to find out what report readers need/want

28 Reporting Survey  Accrual accounting widely accepted,  But overly complex and too compliance dominated  Managers are feeling the pressures of  cost increases  revenue pressures  increasing community expectations  need to manage their existing assets  Executives spend small proportion of time reviewing financial reports  average 1 hour per week  mainly trying to identify any issues for concern  Reporting needs:  short,  simple to understand  timely

29 Report Reader Preferences  Shorter reports (5-10 pages);  Simpler variance reports  by exception  major timing issues  highlight problems for review  (not “seek and ye shall find”)  More use of trend and other graphs;  Links between expenditure & services/works performed  Matching revenue / expenditure items  Simpler terminology and additional training  Online enquiries with drill-down capability  Reduced statutory requirements  Improved internal reporting  Customised reports to individual readers  not same standard report.

30 Why less is more

31 Less gives more  Focus on decisions to be addressed  Highlights areas of concerns  Makes best use of management time

32 Key themes  From - Compliance-based external reporting applied to internal reporting  To - Good internal reporting leads to good external reporting  Shift from compliance external reporting to assessing value for money  Shift from ‘selling’ the organisation to balanced reporting

33 Key Themes (cont)  Reporting = communication, not numbers  Simplification = making it simpler for readers of financial information to make informed decisions  Simplification, not = simplifying requirements for report preparers  More is required, not less, in terms of reporting and value adding advice

34 Checklist  Identify business drivers  Identify each managers decision framework  Identify tolerances  Identify relevant non-financial data to join  Ensure chart of accounts has necessary info  Negotiate exception report framework  Styles to suit readers  Trial & error

35 More Information  Website including this paper: (also includes SFR report for LGAQ)  To contact David Spearritt 1300 767 466

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