1. In-Year Budget Control and Management
Andrew Graham
Queens University
School of Policy Studies
2017

2. Structure
Today: Overview of In-Year Budget Control
Tomorrow: Class Exercise and Distribute Final Assignment
Friday: Discussion of Final Assignment and Class Time to Review

3. Reprise Focus on management of budgets in-year – Management Accounting
Basis for adapting approved budget to changing circumstances for control purposes
A key management skill
In Year Budget Management Exercise: A scenario of a financial situation will be presented and you will be asked to brief your boss, the Deputy Minister as well as your colleagues on the Senior Management Committee

4. Cash Management = In-Year Budget Management
Definitions
Cash, budget, treasury and liquidity can get confused at this point
No one term exists for the management of in-year budgets
This is not about managing bank accounts to ensure adequate cash is on hand: that is a liquidity management function – commonly called cash management
This is not about the effective use of cash at hand in terms of short-term investments: that is a treasury function
Goal: managing the budget at hand effectively.
Cash Management = In-Year Budget Management

5. Why Budget and Forecast?
Budgets and Forecasts
A budget is a formally approved plan for the operation for a specific period.
An approved budget becomes the benchmark to test your actual results
A forecast is a projection of activity based upon the latest information.

6. Why Budget and Forecast?
Budgets and Forecasts
Measure actuals and forecasts against the budget throughout the planning process.
Analyze anticipated versus actual results – variance.
Predict future performance and anticipate changes.
Assist in monitoring control of current performance.
Provide early warning of deviations from plans. Take actions needed.

7. Forecasting is: What is Forecasting?
the change in the future financial expectation from the original budget usually as result of new information.
a process of estimation to predict our financial results by using current and historical information.
performed monthly to incorporate changes in expectations such as delayed hiring or purchase of materials.

8. Purpose of Forecasting
A tool that provides information to help make prudent business decisions and to understand the financial results and health of an organization. Helps to identify unexpected issues or new information so that decisions for corrective action can be made. Helps to identify potential opportunities and risks.

9. Responsibilities of the Budget Owner
Budget Owners are:
Individuals who are authorized to approve and incur expenses under a Department delegation matrix or project assignment.
Responsible for the effective and efficient allocation and use of financial resources within their departments or project.
Responsible for preparing the budgets and forecasts for their respective departments within the specified timelines.
Responsible for explaining any differences (variances) between their actual and expected results with the help of their finance partner

10. In-year budget management is the system which compares actual expenditures against unit spending plans for a given financial year, identifies risks and variances and enables the adjustment of resource allocations to reflect changed circumstances in the that year.
Also called IN-Year Monitoring. An early warning system.
Budget Cash Management is not a way to re-open the budget decisions but to adapt to changing circumstances.

11. Effective in-year budget management creates opportunity for managers to:
Ensure that they remain within budget
Alert senior management to shifts in demand for services or other cost drivers
Maximize the use of their funds so that they are fully expended for their stated purpose and opportunities to meet emerging needs are met
Reallocate within a current year so meet unanticipated needs
A means of assessing departmental, unit and individual performance

12. It’s Your Job……. Responsibility of all responsibility centre managers
Key way to achieve results you plan to achieve
Knowing how to do it is important
Uses tools of control, risk management, forecasting, good financial reporting and analysis

13. It Reflects on Your Performance…..
Out of control budgets suggest bad management or failure to adapt to changing circumstances.
Money unspent in a persistent or perverse way suggests failure to deliver full program or program shifting.
An organization’s ability to collectively manage its current resources most effectively reflects its overall capacity to work as a team or unit toward a set of coherent goals

14. Different Cultures Different Approaches
The degree of flexibility and decentralization in an organization will have an impact on how cash is managed in terms of
how it can and cannot be redistributed,
the degree of reporting and
the scope and role of central corporate offices within the organization
What do flexibility and decentralization mean in this context?

15. In-Year is About Funds Available not Accruals
In the public sector, even with accrual accounting, there remains a high measure of accountability for explaining what is happening to voted funds within one year.
Financial reporting requires this annualized approach.
How the available budget is used remains a preoccupation of many players in the scene: managers, clients, oversight groups and legislators

16. The Search for Flexibility
Organizations are always looking for spare capacity and this is one way of finding it in the short term.
It does not replace permanent reallocations, program evaluation or policy making that shifts resources in a formal way, i.e. legislatively or through other policy instruments.
Budgets can be complex landscapes.

17. Delivery on Plans and Law Adaptability to Changing Conditions
A Matter of Balance
Delivery on Plans and Law
Adaptability to Changing Conditions
Striking the balance involves legal, operational and trust issues.

18. What could possibly go wrong?
Errors in reporting – accounting systems can be wrong
Incomplete information
Budget plan proved to be inaccurate

19. What could possibly go wrong?
Actual events did not conform to plan
Unanticipated surges in demand or loss of revenue
Catastrophic events
Poor management decisions

20. What You Want to Get from Good Budget Management
To have funds to pay the bills, i.e., sufficient liquidity
To use budgeted resources for their program purposes and not leave needed funds unspent
To keep within the appropriated or authorized budget
To have the organizational and resource capacity to react to changes in plan
To reallocate available funds to meet emerging, short-term priorities.

21. Three Basic Questions What has happened so far?
What do we think will happen to our plan for the rest of the year?
What (if any) actions do we need to take to achieve our agreed plan?
Three Basic Questions

22. What Does a Manager Actually Do to Manage the Budget?
Receives regular reports on budget spent and the likely outturn
Understanding in-year pressures and actions proposed
Finding internal reallocations or seeking reallocations from another source.
Adjusting workflow and expenditures to adapt.

23. What Does a Manager Actually Do to Manage the Budget?
Ensuring appropriate information is provided to the relevant scrutiny committees to support their work.
Paying particular attention to bids for capital funding and monitoring progress – these frequently slip from the initial timetable and you should know why
Reviewing how services can be made more efficient.

24. What to do to make a financial information useful….
Focus on a few critical aspects of performance – do not get lost in unnecessary detail
Look forward as well as back – past performance, knowledge of the business processes and plans enable this
Explain and react to key risk considerations – evidence compared to plans
Explain and react to key capacity considerations – personnel, physical plant, environmenatl conditions, etc.
Source: Reporting Principles, Canadian Comprehensive Audit Foundation, 2003

25. What to do to make a financial information useful….
Explain other factors critical to performance – events, changing conditions, error
Integrate financial and non-financial information – key role of program manager
Provide comparative information – year-to-year, unit-to-unit, plan-to-actual
Present credible information, fairly interpreted
Disclose the basis of reporting

26. Movement towards government-level Interim Financial Reports

28. Beyond Financial Statement
Knowing about cash movements to date based on financial reports is not enough
Encumbrances and anticipated risk or cost changes are not reflected
Cash forecasting and financial reporting moves into the realm of bringing content, knowledge and numbers together

29. Conditions for Success
Financial analysis uses the financial statements and other sources of information to:
help managers and outsiders understand an organization's financial condition,
make decisions about the organization, and
compare an organization's financial performance to its peers, its past and its plans.

30. Conditions for Success
There must be confidence in the retrospective information to then add in the value of management forecasting, commitments and risks
Analysis of just financial statements rarely gives a final answer
Rather, it indicates where further analysis is needed

31. Conditions for Success
Good organization management, regardless of the size of the organization, demands that the organization regularly review its financial situation
Financial Statements/Cash Forecasts/ Financial Report/Review of Performance Reports are different names for such a process

32. Reliable Cash Management
The Mix
Reliable Cash Management
Financial Data
Risk
Commitments
Forecasts
Projections
Comparisons

33. Beyond Financial Statements
The cash management process is not a purely financial function. In fact it will fail if it is.
Managers’input at the beginning, middle and end is essential
Most financial information is submitted to the manager for decision
Means moving some decisions up the ladder, overseeing other financial managers, aggregating data to the level of the entity

34. Basic Questions
Is the organization on budget?
Will there be over-runs, will there be surpluses?
Have the budget assumptions changed?
Is resource use matched to objectives?
How is the organization or its units performing relative to previous years, to each other and to plan?
Are significant shifts being detected in this data?

35. More Questions
What is the significance of these shifts?
Is there a need for extra-ordinary action?
Supplementary funding? I
Internal reallocation?
Emergency funding?
How are managers performing?
What opportunities exist to solve problems internally or to meet unplanned demands that are nonetheless important for the organization?

36. The System
An appropriated budget
Build in changes and modifications to the approved budget to create an adjusted budget
Cash flow projections over the budget period: the in-year cash flow or expenditure plan
A system of measuring actual financial performance in relation to the projected plan

37. The System
A system of monitoring performance, identification of variances and reporting results at the appropriate level
The capacity for management discussion and analysis of the results and variances
A governance mechanisms that would
review the results,
assess variances and their analysis,
determine adjustments needed and
make decisions needed to affect those adjustments.

38. Senior management must set budgets and program direction
The System - Roles
Senior management must set budgets and program direction
Line managers must manage the resources they are given to carry out programs
Financial advisors must provide information for decision making to budget setters as well as advice line managers about their budgets
Financial advisors must also provide information and analysis to identify variances, offer comparisons and further analysis of budget perform and make recommendations to line managers and senior managers

39. The System - Roles
Financial advisors must prepare reports for senior mangers to make decisions
Line managers must respond to variances against plans with explanations, solutions and alternatives
Senior managers must determine what actions to take based on these two sets of inputs.

40. The In-Year Budget Management Cycle
Assess Budget Implications for Next Year
Cash Requirements
Budget Appropriated
Hold Backs/Reserves/ Adjustments
Adjusted Budget Plan for Year
Adjusted
Budget
The In-Year Budget Management Cycle
Senior Management Direction: Reallocation
Budget Plan for Year
Reporting Results: Actual vs Plan: Financial and Operations
Senior Management Reporting and Review
Management Discussion and Analysis
Variance Reports and Analysis

41. Start with a Budget
All financial reporting and in-year decisions begin with a budget allocation to a responsibility centre
Difficult to hold a manager accountable if she/he does not know his/her budget

42. The Budget
Uncertainty in the financial position
Failure of legislative authority to approve appropriations
Failure of the department/ministry to distribute the budget to responsibility centres
Program change announcements made without budget adjustments

43. The Budget
Senior managers withhold authorities pending further changes
Dependency on external funding sources, e.g. intergovernmental transfers
Multiple sources of program funding within the organization but not within the responsibility centre, e.g. centrally held funds
Creation of reserves, hold-backs and only provisional budgeting

44. Allotment Original Budget - April 1 Salaries 217,600,000 Benefits [1]
43,520,000
Overtime Salary Dollars
4,085,000
Operating and Maintenance
64,766,850
Grants and Contributions[2]
5,600,000
Capital Expenditures [3]
7,500,000
Total
343,071,850
Average FTE Costing
68,000
Total Number of Approved FTEs [4]
3200
[1] Grants and Contributions are a Special Fund and cannot be reallocated to other budgets.
[2] Capital Expenditures are a Special Fund and cannot be reallocated with permission from Management Board using a formal submission process. However, some non-recurring salary costs for project management and implementation can be built into the capital budget.

45. Responsibility Centres – Where Budgets Land
Budgets for responsibility centers are the result of the budgetary process that is then modified within the organization as funds are distributed
Reviewing what is a responsibility centre in an organization: chief defining characteristics.

46. Allotment
DMO
Policy
Operations
Inspection
CIO
CFO
Total
FTE
150
1200
1100
300
3200
Salaries
10,200,000
81,600,000
74,800,000
20,400,000
217,600,000
Allowances
2,040,000
16,320,000
14,960,000
4,080,000
43,520,000
Overtime
250,000
1,000,000
2,335,000
500,000
O & M
3,000,000
2,000,000
20,000,000
24,000,000
11,000,000
4,766,850
64,766,850
Gs & Cs
3,600,000
Capital
300,000
2,500,000
200,000
7,500,000
17,740,000
18,390,000
120,920,000
118,095,000
38,480,000
29,446,850
343,071,850
[1] Allowances are automatically distributed in the same way.

47. Adjusted Budget Subject to adjustments and clarifications:
In-year program adjustments
External charges, e.g. central services
Reserves and partial distributions by senior management
Objective is to arrive at the Adjusted Budget of the responsibility centre – this gives the actual base of funds available

48. Adjusted Budget
Take original budget
Apply changes: increases, decreases, etc
Allocate to units and total.
An adjusted budget is not a projection: it reflects decisions and changes subsequent to the original budget
Important to clarify exactly what the budget manager has to work with at the start
Budgets can also be adjusted throughout the year as part of the cash management process, as new funds become available (or are removed) or to reflect policy changes.

49. LINE ITEM
BUDGET
This fiscal year
CHANGES
ADJUSTED BUDGET
SALARIES
3,500,000
750,000*
4,250,000
OVERTIME
500,000
(100,000)**
400,000
TRAINING
250,000
75,000¹
325,000
TOTAL STAFF COST
725,000
4,975,000
*Salary adjustments from collective bargaining = 400,000 plus 350,000 from DM’s special youth employment funds
** Departmental target to reduce overtime – your share is 100K
¹Special central agency funding – one year only – for technology training.

50. Do Not Just Divide by 12! Cash Flow Plan
In-year cash management requires a sense of how funds will flow or be expended
Eliminate non-cash accruals
Do Not Just Divide by 12!

51. Cash Flow Plan
Generally managers are expected to prepare cash flow plans based on:
Historical data
Their program plans – the implementation side
Know commitments
Addressing risks
Not all funds flow at once – some costs are distributed over the fiscal year, some are spent at one time, some are held in reserve
Often capital is on a different cash flow cycle and not included.

52. Cash Flow Plan
Such flows are predictable within limitations. e.g. salary dollars
Some are less predictable in terms of planning, e.g. overtime, but such unpredictability can be mitigated using historical data
Cash flows can be limited by managerial discretion:
Spending authority limits,
Internal budget restrictions,
External restrictions, e.g., salary dollars for salary only
Tolerance boundaries.

53. Informal reserves and hold-backs Reporting frequency Degree of detail
Cash Flow Plan
Some items are spent all at once, e.g. transfers or major capital purchases.
Are there any other rules of the game set in place by the organization:
Informal reserves and hold-backs
Reporting frequency
Degree of detail
Contingency funds – formal and informal
Budget conditions
Limitations on managerial flexibility
End result: Managers Expenditure Plan

54. Cash Flow Plan – Factors to Consider
Previous patterns of cash flow in and out, e.g. for an NGO: donations tend to peak during major fund-raising events with regularity, major government funding tends to flow two times a year provided the grants is approved in advance
Anticipation of any changes that might cause such a flow to alter, e.g. the organization decides that it will change its fund-raising campaign to a different type and a different time, a major donor adjusts some criteria and is reviewing its procedures which may create delays.
Commitments and how firm they are.

55. Cash Flow Plan – Factors to Consider
Timing of the maturity of investments or endowments in various funds;.
Awareness of the timing of cash requirements to match them up with inflows, e.g. major capital expenses are anticipated for the summer, thereby necessitating a cash outflow demand surge in late summer; this will not help anticipate inflows, but will inform and condition the risks and urgencies around the first two elements.

56. Manager’s Expenditure Plan
Expenditure Plans of Organization: budget, program
Manager’s
Expenditure
Plan
Financial Performance Reports

57. The Analysis Phase
Whenever possible gets comparative data:
- for the organization over time,
- for the organization's peers, and
- for benchmarking organizations (if they exist).
Organize the information and complete the analysis.
Will compare financial performance to the Manager’s Expenditures Plan – often input into organizational financial system

58. The Analysis Phase
Estimating the timing of expenditures is critical for cash flow purposes
Dividing the budgeted amount by 12 months is not a good strategy
As the fiscal year progresses, analyze projected spending amounts.

59. The Analysis Phase
Use the projected budget as a basis for the cash flow
Make sure all reductions or increases are accounted for in the cash projection
For example, if spending freezes have been enacted, have the anticipated savings been accounted for in the cash flow projection?

60. The Analysis Phase
Analyze expenditure patterns
Salaries and benefits are usually the largest expenditures
Getting the timing right is key to managing cash flow
Are there months that have additional payments, costs or less demand?
Review the timing of other payments.

61. The Analysis Phase
How are materials and supplies purchased? Just-in-time purchasing throughout the year? Ordered in bulk at various points during the fiscal year?
Don’t forget about the impact of restricted funds. These can require significant cash outlays at the start of the fiscal year
Having an annual purchasing cutoff date helps when closing the books But it also can create a big stack of bills that have to be paid at the same time.

62. The Analysis Phase
As cash flexibility decreases, priorities will need to be set in order to determine what gets paid first.
Salaries and benefits have specific statutory timelines for payment
That leaves vendor payments for providing flexibility. Maximizing the use of the billing cycle will become important. In extreme cases, vendors may need to be asked to accept a delay in payments – depends on contractual obligations.
Prepare a contingency plan for cash shortages

63. Historic Data
Why it is important?
Developing comparisons year to year
Understanding what has changed and what remains the same
Developing useful variance reporting based on historical data

64. “Overall, the value of new construction in the City for the first three months of the year is 28% more than the same time period last year. The overall increase is due to the new RCMP E-Division Headquarters building.” – City of Surry Quarterly Financial Report, May, 2011

66. York Catholic District School Board
YEAR END FINANCIAL REPORT
Note: Excludes General School Budget balance carry-forwards to isolate true Board Working Fund Surplus

67. Variance to be Recouped?
Trend Analysis
We are here
Variance to be Recouped?

68. Vertical analysis: historical base

69. Non-Financial Data

70. Encumbrance: amount for which there is a legal obligation to spend in the future.
Commitment: amount expected to spend, but for which there is no legal obligation to pay.

71. Encumbrances and Commitments
Key tool in governments to ensure that budgets do not go over approved limits
Will generally not be in your financial reports, but rather in your forward spending plans.
Many organizations require them to be reported, but not in the financial statements.
For cash forecasting, commitments may not be formal entries but rather managerial statements of intention that certain funds will be fully spent for their intended purpose even though they do not appear as either formal commitments in a cash balance sheet or liabilities in an accrual based balance sheet
Definition of encumbrance: A contingent liability, contract, purchase order, payroll commitment, tax payable, or legal penalty that is chargeable to an account. It ceases to be an encumbrance when paid-out or when the actual liability amount is determined and recorded as an expense
Define commitment: Earmarking or setting-aside of funds in response to a purchase requisition. These funds remain committed (encumbered) until the purchased good or service is paid-for after its receipt, thereby converting the encumbrance into an expenditure. .

72. Encumbrances and Commitments
Positive uses: inform management of actual flexibility and spending plans
Negative use: protect funds
Danger of unspent funds at the end of the year
Committed amounts reduce the balance available for expenditure in the remaining portion of the year and must be brought into the calculation of any projection.

73. Develop a Plan
Level of detail should reflect need for information, risk, materiality and timeliness, e.g. once a month, once quarterly
Managers should be able to project cash flows over the year

74. Develop a Plan
Need to lay out how your budget is going to be spent over the year.
This should include gaps and anticipated changes in staffing or demands for service, based on seasonal or programmatic elements
Dividing by 12 is easy way out or can reflect a very stable environment– forecast should reflect the ebbs and flows of expenditure patterns
Block or grant expenditures tends to be all at once

75. Develop a Plan
Key to provide financial information derived from current information, known changes and trends and announcement
Comparison of data from current year to prior years always useful

76. Compare and Contrast

77. Projecting Based on Actual: Example
Here is what we know: The Operations Branch with an approved salary budget of $81,600,000 at mid year in the fiscal year is reporting increasing salary pressures.
Actuals indicate that it has spent 60% of its total budget when only half way through the year. This is a leap from previous year of 45%, which at mid year is a safe cushion

78. Projecting Based on Actual
Straight Line Projection
Unreal: divide by 4 and get to budget, and ignore your recent past

79. Projecting Based on Actual

80. Management Discussion & Analysis (MDA)
This is where “I can explain that.” comes in.
Manager must make sense of variances, numbers and projections in terms of:
Explaining how she got into this situation
What needs to be done to rectify the situation
What she is going to do.
Should provide basis for discussion and decision making
Language should be business-oriented and not excessively detailed

81. Management Discussion & Analysis (MDA)
Objective and easily readable analysis of financial activities based on currently know facts, decisions or conditions
Projections are an essential part of cash forecasting, but should be fact based whenever possible
Otherwise projections should be subject to a variety of opinions to test the hypotheses they contain

82. Management Discussion & Analysis (MDA) – Questions to Ask
Are we going to be within our budget allotments?
Are we operating according to our budget plan?
How does our performance compare with relevant historical data?
Does this performance mean that more funds may be necessary or that some funds may become surplus in this area and available for reallocation?
What are the variances and why have they occurred?

83. Management Discussion & Analysis (MDA) – Questions to Ask
What is the responsibility centre manager going to do about the negative variances?
Are positive variances within a retention range for the local manager or are they available for other needs outside the unit but within the organization?
Do we have the needs and authorities to reallocate these funds?
What does this information tell us about the performance of the manager in this unit?
What does this information tell us about the long-term funding?

84. Risk Again
Need to distinguish between short-term and long-term risk
Risk is a key element in determining to change budget allocations either temporarily or permanently

85. Risk Again
Key risk in cash management is over-expenditure of budget or failure to fully use funds available and needed
Other types of risk to consider:
Inappropriate use of funds
Surges or declines in demand leading to cost over-runs or under-usage
Emerging and unanticipated issues: mad cow, SARS, BP
Financial reports should not originate the organization’s development of risk but should reflect its overall management process,

86. Risk Here: Can the Gap be Made Up?

87. Cash Forecast Report
Can take many forms: briefing notes, PowerPoint presentation, charts, graphs
Should have some predictability in format and language

88. Cash Forecast Report
Some analytical information that is important:
Historical comparisons
The cost of the variance to date, i.e. how much of the actual budget has been spent
The projected variance should nothing change, i.e. the straight line projection
The variance in comparison to similar units in the system

89. Cash Forecast Report
Additional components of the report that set managerial context:
What caused the gap between expectations and results, e.g. fewer retirements or transfers than required?
Workload determinants that changed in actual performance, e.g. inmate population increases and opening of an old unit for an emergency
Inefficiencies that remain, e.g. excessive posts.
Limitations of the budget itself
Actions that could be taken to correct the situation.

90. Cash Forecast Report
Should be a regular submission to the senior management committee of the organization
Should move financial information, various background information, etc into the realm of text, ideas and integration

91. Cash Forecast Report
Generally the role of finance to prepare but not the role of finance to address: operational managers, responsibility centre heads, their bosses are key to this

92. Cash Forecast Report
It cannot cover all data – only relevant information:
Exceptional performance issues
Issues that the senior management wants to keep a close eye on
Highly political or contentious issues
Separate funds
Areas of operational vulnerability or poor performance

93. Questions to ask about variance:
Cash Forecast Report
Questions to ask about variance:
What does the trend look like: is it in the right direction? If so, can we tolerate the slower pace?
Is this isolated to this unit or a general phenomenon?
Did we set realistic targets?
Can we fund the shortfall that we see emerging?
Is this manger delivering and, if not, is this enough to force us to take some action like removing him and finding some else.
Use a standard question‑based approval template to help ensure transfers are adequately
justified and appropriately documented. Matters to address and document before an
internal budget transfer is approved include:
1 Is the transfer permissible under the organisation’s funding structure?
2 Has the reason for the transfer been sufficiently justified, for example, is it due to program
delays?
3 Is the transfer required to implement a specific government decision or a decision made
by the organisation’s executive team?
4 Does the requesting area have sufficient funding to meet its commitments if the transfer
is not approved (including from other program activities contributing to the same budget
outcome)?
5 Is there sufficient unexpended appropriation at the outcome level (not just at the output
or program level) to enable the transfer?
6 Should the funding be re-phased from the area’s forward year appropriation?
7 Have the affected areas adjusted their plans and targets to reflect the impact of the
transfer?
8 Does the requesting area have appropriate financial delegations to spend the funds
transferred?
9 Will the transfer have a net impact on the organisation’s budget balances, either in the
current or future periods?
10 Has the transfer been recommended by an appropriate official?

94. Cash Forecast Report
Should be a consensual document or at least focused on key decisions that CFO wants to receive or see made
Should be devoid of surprise for all players
Role of the top manager: Deputy or organizational head: steering towards decisions, reconciling differences

95. Planned Expenditures to date 1,250,000 1,500,000 750,000
Salaries
Operating
Grants
Original Budget
2,000,000
3,500,000
1,000,000
Adjusted Budget
2,225,000
3,000,000
Planned Expenditures to date
1,250,000
1,500,000
750,000
Actual Expenditures
1,110,000
1,800,000
600,000
Variance from Plan
140,000
(300,000)
150,000
Let’s assume we are half way through the year. Now, these variances mean something, but not in an of themselves. This is where the manager comes in to do the projections, corrections, commitment to mend her ways, although the risks here seem fairly mitigatable.

96. But this is not enough…….
Need to project to year-end
Need to identify end-of-year overages and underages
Or, have to project to balance the budget
Similar to the internal budget process, an effective forecasting process is based on:
• using the same chart of accounts as budget and actuals reporting to help ensure consistency,
although typically a simplified forecasting model would be employed by summarising and
reducing the number of items comprising the forecast;
• the direct capture of forecasting inputs from operational managers who are closer to operational
activities. In this way, operational managers own and are accountable for their forecasts;
• an integrated calendar which sequences budgeting, reporting and forecasting activities in a
logical fashion; and
• rigorous governance processes and control over data to ensure reliability.

97. Planned Expenditures to date 1,250,000 1,500,000 750,000
Salaries
Operating
Grants
Original Budget
2,000,000
3,500,000
1,000,000
Adjusted Budget
2,225,000
3,000,000
Planned Expenditures to date
1,250,000
1,500,000
750,000
Actual Expenditures
1,110,000
1,800,000
600,000
Variance from Plan
140,000
(300,000)
150,000
Commitments
200,000
Projected Expenditures Year End
2,150,000
3,200,000
900,000
Projected Variance at Year End
75,000
(200,000)
100,000
So, what has happened here. Let’s build one plausible scenario.

98. Sure Signs There will be Trouble
Governance flaws – poor oversight of spending. No managerial review unless there is a problem.
Absence of communication with operational front-end of the organization in budgeting and monitoring..
Lack of cooperation.

99. Sure Signs There will be Trouble
Failure to maintain reserves or contingencies where warranted..
Insufficient consideration of long-term collective bargaining agreement and human resource policy effects.
Flawed multiyear projections.
Inaccurate revenue and expenditure estimations.

100. Sure Signs There will be Trouble
No integration of position control with payroll costing.
Limited access to timely personnel, payroll, and budget control data and reports.
Escalating reliance general fund or reserve encroachment to fund regular programming.
Lack of regular monitoring. . Poor cash flow analysis and reconciliation.
Failure to recognize year-to-year trends.

101. Some Solutions
Panic!

102. Some Solutions
Prepare your story and a plan: read The Cash Management Games People Play
Find ways to slow down spending where there is discretion
Review commitments (both formal and informal) to determine flexibility to shut down or slow down
Reduce staff where this will work quickly and without further costs, e.g. severance
Not filling positions
Slowing down staffing
Delay orders, put them off until the next period or year

103. Some Solutions
Slow down programs/ eliminate services
Beg or borrow from others within the department: avoid mortgaging your future if you can
Seek temporary relief from your boss, the organization as a whole
Seek out contingency funds, if they exist
Examine possible use of non-restricted funds
Seek a change in budget if it can be justified

104. Making the Process Work
Effective financial management has cultural elements: do you punish bad management or reward good?
What happens when people don’t play fair and hoard?
Huge tension between protecting your own resources and making a corporate contribution: affects information flow for senior management
Important to understand how financial and performance information may be used

105. Making the Process Work
Danger of surprise in rules change – unless subject to extraordinary situations
Danger in awarding bad management:
coming to the rescue is one
thing but doing it several years
running simply creates new rules
That rewards bad behaviour.

106. Making the Process Work
Example of reporting surpluses that financial analysis does not disclose: is it kept in the responsibility centre or does the organization have a ‘wish list’ or ‘critical needs list’ that distributes available funds to the list with no hold back in the responsibility centre – impacts human behaviour significantly
Issue of the use of the carry-forward provisions: is that rolled up corporately and used for other purposes or is it retained within the responsibility centre: has an impact on high level flexibilities

107. Fin
Ende
Koniec
Final
Lopussa
Sionunda