0. Ministry of Finance, Ontario Government
Controllership: Addressing Financial Management Challenges and Transformation Opportunities Financial Management Institute
February 25, 2009
Presented by: Murray Lindo, Director, Financial Management and Control Branch
Ministry of Finance, Ontario Government

1. Today’s Discussion
Outline the key public sector financial management issues, especially during a global economic slow-down.
Describe the leadership role that the controllership function and the financial community must play in supporting the decision-makers through this challenging time.
Provide some thoughts on how the financial function may need to transform to support the emerging economic and public sector environment. 1

2. Key Messages
An effective controllership function is forward looking, acting as the business’s “head lights”: scanning the environment, anticipating issues and seeking effective resolutions.
Controllership must be involved in the front-end of the decision-making process helping to assess options and thereby contribute to successful implementation.
Controllership function must balance a professional understanding with practical skills in advanced management accounting, risk management, process and structure cost control, and revenue management.

3. What is Controllership and Why is it Challenging?
Section 1:
What is Controllership and
Why is it Challenging?

4. What is (Financial) Controllership?
Controllership is:
ethical behaviour;
conscious managing of risks;
clear lines of accountability;
stewardship of resources; and,
reporting and evaluation of results against stated objectives.

5. Why Controllership is important?
Accountability to the public
Stability and transparency
Ensures compliance against stated standards
Enables efficient and effective use of public resources
Defines roles and responsibilities
Enables performance measurement against agreed expectations
Fulfills legal obligations and mandate
Controllership provides to the accountability guarantees to the owners’ of the organization whether they are shareholders (in a public company) or citizens (public sector organization).
Controllership enables the clear definition roles and responsibilities enable us identify who is accountable for what and to whom?
Being able demonstrate effective controllership with compliance provides decision-makers (and the public) confidence public sector is obtaining value-for-money in the delivery of vital public services.
It allows for corrective actions and enforcement remedies when there is a failure to deliver on commitments
Robust controllership permits alignment of the priorities, goals and strategies needed to achieve state objectives within budget.

6. Why is Controllership Challenging?
Equal Footing: financial/controllership analysis not always on an equal footing to policy, operational and communication considerations, in the decision-making process.
Management Perceptions: controllership seen by management as “end state” technical process rather being critical to transparency and accountability.
Credible Information: ability to produce timely, reliable, usable and accurate financial and risk information to decision-makers.
Communication: providing clear and accessible financial/controllership information to line-management
Capacity: revitalizing financial capacity by attracting, retaining and developing financial/controllership talent.

7. Key Principles in the Controllership’s Evolution
Supporting the evolution of the Controllership function are four key principles:
Credibility – a trusted business advisor, providing accurate, timely and reliable financial information and advice;
Competence – combine business knowledge with financial expertise to optimize value added;
Commitment – a shared commitment to the goals of financial management and effective program service and delivery; and
Communication – open communication across government, with external professional organizations and counterparts in other jurisdictions.
Credibility
The financial community exists to provide financial advice to support decision-makers, so that they can make informed business decisions on the direction and sustainability of public services.
To be credible we must be trusted. Being trusted advisors depends on us giving objective, timely and accurate information that reflect complete analysis of the financial risks and long-term implications.
Competence
The right decisions depends on having the right people, with the right expertise to provide the strategic advice we need.
To be competent we must both the knowledge and business experience, and the financial expertise aligned to the needs of decision-makers.
Continuous building these competencies, to support these functions, will be our shared challenge, in the years ahead.
Commitment
The financial community is a team. Every team member counts. It is our hard work and professionalism that decisions makers rely.
Our continued success depends upon shared commitment to improve the lives of people of Ontario through the effective stewardship of their tax-payers dollars.
Communication
The last principle is communication. To be successful with must maintain open and effective communications with line-management and decision-makers.
We must listen and understand their concerns and provide advice that is clear and understandable.
But communications is more than dealing with our clients it is about building the connections across our community so that we can support each other.

8. Section 2: “Think globally, act locally”
Controllership’s Transformation
in Challenging Economic Times

9. Key Challenges New Economic Challenges Existing Structural Challenges
Borderless global economic recession, where governments have a role supporting families, jobs and industry.
Financial market uncertainty and impact of the economic environment on government revenues and expenses.
Existing Structural Challenges
An aging population increasing demands for healthcare and income security.
The need to address the infrastructure deficit through sustainable capital investments.
Current Financial Management Challenge
Governments must balance the need to respond to these immediate economic challenges without compromising its responsibilities for addressing the longer-term objectives.
Increased complexity of transactions and external reporting requirements (PSAB, IFRS).

10. Today’s Operating Environment
Greater public expectations for seamless, quality and value-for-money services.
Focus on results and financial sustainability in health care, education and social services.
Government’s evolving “oversight” role, where increasingly Broader Public Service (BPS) partners deliver front-line services.
Increased intergovernmental cooperation and collaboration between federal/ provincial/ municipal governments.
Advent of new technologies enabling integrated business and financial solutions.
Increasing demand to elevate financial management function in supporting programs, managing risk and leveraging strategic outcomes.

11. Controllership must exercise Financial Leadership
During economic downturns, the role of the public sector financial community is even more critical.
Our role is to provide government decision-makers with the best financial information possible, so that they can make well informed decisions amongst the competing public policy demands.
To be successful in this role, in supporting financial decision-making, we must:
establish a robust financial management framework;
emphasize value for money and fiscal accountability;
balance immediate fiscal impacts with longer-term stewardship;
ensure appropriate controls are in place and functioning;
apply financial risk management principles; and
ensure transparency in financial reporting through public disclosure.
As I mentioned in my presentation, a global economic slow-down means that financial leadership will be at the forefront of many public policy decisions.
Our role is to provide government decision-makers with the best financial and risk information possible.
In a rapidly change economic climate this can be difficult but it vital if will are support well informed decisions amongst competing public policy demands.
Although, many of the ramifications of economic and market volatility have yet to play themselves out, our role remains:
To support financial decision-making by:
using a robust financial management framework;
emphasize value for money and fiscal accountability;
balance immediate fiscal impacts with longer-term stewardship;
apply financial risk management principles; and
ensure transparency in financial reporting through public disclosure.
Only by using these different lenses can we to assess the competing demands and provide government decision-makers timely, reliable and accurate risk and financial information. 11

12. Controllership’s role in financial management
The controller/controllership function plays a key financial management role in making the government’s business objectives achievable.
Controllership adds to the financial management discipline by providing assurance of compliance with financial reporting and controls.
However, the controllership function’s “value” is fully realized by supporting decision-makers with financial analyses that identifies:
links between costs and performance;
opportunities to reduce direct and indirect costs; and
opportunities to increase delivery efficiency in meeting public policy goals.
Realizing this contribution can only happen when we fully apply advanced management accounting, risk management, effective costing and revenue management. 12

13. Financial Management Transformation*
Trusted Advisor
Analysis
Controls
Catalyst
Strategist
Steward
Operator
Controllership:
Focused on the prudent use of resources by standardizing, consolidating and automating processes.
Procedural policies.
Establishing financial data integrity, timeliness and accuracy
Results Planning:
Ensuring effective budgeting, forecasting and planning systems in place.
Asset/Capital Management.
Establish policy framework
Risk management and effective controls
Decision Support:
Focused on performance management and supporting effective investment decisions
Ensure value-for-money
Policies that strengthen performance by promoting positive behaviours.
Effective BPS management
Robust Cost/Benefit analysis
Leader:
Support decision-makers and identify opportunities for service delivery transformation
Creates partnerships to drive innovation and service delivery efficiency
Finance integrated with policy and operational considerations
Enterprise risk management
Effective horizontal management
The Transformation of the Financial Function (Deloittes model)
While effective stewardship and operations remains “our base”, the financial function must evolve to support line-management in making strategic decisions.
To do this we must provide quality and strategic advice based on objective, timely, reliable and accurate information. Technology and data quality will play their part, but it is our ability to craft this information into a language decision-makers can understandable and use, that will be vital.
This is not to understate the need for transparent transactions and effective processes. But we must build on this expertise by helping policy, program and operations managers make the best decisions by supporting them with value-added, risked-based financial advice.
Lastly, we must ensure that all decisions we support are viewed through the lens of value-for-money, transparency and accountability. Whether we are analyzing investments decisions, building costing and pricing models or supporting the budget process: our bottom line is the achievement of public policy goals within a responsible financial framework.
To recap, our value and the value we bring to the table is in the quality of the advice we give and trust we build by our ability to provide usable comprehensive financial advice to decision-makers.
* Four Faces Framework discussed in Deloitte study “Mastering finance in government: Transforming the government enterprise through better financial management”

14. Required Financial Management Elements
Management Decision Support
Financial evaluation expertise
Business risk management expertise
Capital investment analysis expertise
Financial performance management expertise
Business Planning, Fiscal Planning and Budgeting
Strategic business planning expertise
Risk-based Fiscal planning expertise
Capital planning expertise
Integrated capital, operating and cash-flow budgeting expertise
In-year fiscal management expertise
Accounting, Appropriations and Financial Reporting
Accounting policy application and control expertise
Appropriation compliance and control expertise
Costing and pricing expertise
Financial reporting expertise
Financial information analysis and integrity assurance expertise
Risk Management, Accountability and Control
Program risk management and control expertise
Project risk management and control expertise
Asset and Liability risk management and control expertise
Transfer Payment, Agency and Trust risk management and control expertise.
Having the expertise means aligning competencies with the key financial functions, including:
Decision Support: advice to management and executives decision makers;
Business and Financial Planning: including budgeting, capital planning, in-year fiscal management and performance reporting.
Accounting and Financial Reporting: which comprises accounting and appropriations control, and costing and pricing of outputs; and
Risk Management and Control: including contract and project risk management, internal control risk and assurance, and finally asset and liability risk management.

15. Financial Competencies needed
Business Knowledge
Effective Costing, Planning & Evaluation
Risk Management
Standards Compliance
Effective Communication
Performance Management
Forecasting, Planning and Budgeting
Accounting/ Financial Knowledge
Strategic
Focus
Value-
for-
Money
Valued-added
Advice 15

16. How is the OPS Responding to this challenge
Integrated Planning: a reconstituted Treasury Board Office integrates fiscal planning, controllership and audit leadership enabling government to be better equipped to deal with the competing demands.
Financial Management: review of the appropriate financial management functions to assist ministries in providing decision support to line-ministry decision-makers.
Policy Framework: revitalize and streamline financial policy framework to clarify and strengthen roles, responsibilities and accountabilities.
Transfer Payment Accountability: continue efforts to reduce administrative duplication for TP recipient partners while ensure improved accountability.
Asset Management: capitalization of minor Tangible Capital Assets so that ministries can more effectively plan, account and budget for their portfolio of investments.
Capacity: revitalize OPS financial capacity through attraction (financial internships and foreign-trained professional programs), training on core competencies and retention, so that Ontario can build the financial leadership of the future.

17. Section 2: Questions
What do you think needs to happen for the controller/controllership function to assume a more advisory “decision support” role?
In your role as controller, what strategies can you employ to strengthen the controllership function's links with line-management decisions?
What incentives can we develop to support the transformation of the controllership function?

18. Section 3:
Case Studies

19. Case Study 1: Government support for the Auto Sector
Challenge: Balancing socio-economic imperative to save manufacturing jobs against the public policy and accountability requirements.
Objective: Provide ailing automobile companies a credit bridge through difficult times.
Key Issues:
Supporting the auto sector is multi-jurisdictional issue. Loan agreements cannot be made in vacuum and must take into account all aspects of the various governments’ initiatives.
Managing the risk of longer-term investments in an industry with weak consumer demand and volatile stock markets.
Ensuring public money is spent appropriately and contributes to wider public policy goals, such as more environmentally friendly cars.
Making sure public loans are repaid and that government exposure is based on the associated risks.

20. Case Study 2: Vancouver Olympics Capital Projects
Challenge: City of Vancouver has taken full financial control of the 2010 Olympics athletes village $1 billion project.
Objective: Balancing increasing costs against a drop-dead deadline, without encumbering the city with substantial debt.
Key Issues:
Short-term “showcase” event against a substantial public debt at a time of falling revenues.
Original Alternative Financing and Procurement (AFP) agreement was supposed to transfer the “risks” of construction and financing to the developer. With evaporation of “market” credit the construction company has been unable to make payments. Since September, 2008 the city has covered construction costs through a $100 million loan to the developer.
The city’s takeover could help cut the interest rate from as much as 11.5 per cent to as little as five per cent.
Risk that assuming the liability could downgrade of the city’s triple “A” credit rating which could make it harder to borrow other funds until the athletes’ village loan is paid off.
The take-over of financial responsibility for the project means that the city now has the entire “village” as an asset (and project liabilities), not just the land it sits on.
The costs of the $1 billion project, which will house 1,100 athletes during the Games before being converted to private housing, breaks down into $193 million for land, $750 million for construction and $125 million for cost overruns.
The city still owns the title to the land and the project’s current lender, Fortress, has paid out $317 million on the initial construction loan.
But the company stopped payment in September and the city has been covering construction cost since then through a $100-million loan to the developer.

21. Case Study 3: Alternative Financing Arrangements
Challenge: Ontario has an infrastructure deficit estimated at more than $100 billion.
Objective: Alternative Financing and Procurement (AFP) represents an opportunity to leverage private-sector project management expertise and financing to help bridge the infrastructural deficit.
Key Issues:
Public policy considerations in the government’s construction, management and ownership of assets.
The higher private-sector financing rates must be balanced against construction risks (i.e. cost overruns) transferred to the private partners.
Long-term AFPs that include design, build and asset management components, require performance criteria to ensure value-for-money throughout the asset’s life-cycle.
The openness and transparency of the alternative financing process are critical to ensure the highest return on investments and public accountability.
Differing financing rates methodologies impact the recognised value of the assets. Using a project costing model will increase financing costs, while a internal discounted rate will decrease financing costs and change the asset’s value.
To date more than 45 major infrastructure projects have been assigned, mostly in the health and justice sectors.
Ontario’s infrastructure “gap” has grown due to an aging infrastructure and the technological, demographic and social demands of a growing, globalized economy.
Public and business expects government to provide a modern infrastructure while remaining accountable and fiscally prudent.
Increasingly, AFPs are moving beyond design and build arrangements to include the operations and management of the assets. In all cases, the province retains ownership of the assets.
AFP is becoming a reality in Ontario and other Canadian provincial jurisdictions (Alberta and British Columbia).

22. From a Controllership Perspective
We need to ensure:
solid financial management information is provided to support an effective balance between the need to stimulate the economy against the stewardship role of asset management for the longer-term;
a strong and transparent decision-making framework is in place that provides value-for-money to taxpayers;
public resources are effectively controlled in accordance with legislative and public sector accountability standards;
a strong understanding and independent assessment of AFP rival bids based on robust and reasonable costing/financing assumptions; and,
transactions are accurately accounted for and represented in the province’s Public Accounts.
Overall, we need to put this in a language that helps the decision makers make informed investment choices.
AFP is a viable option for financing, constructing and managing major infrastructure projects.
AFP represents an opportunity to leverage private-sector project and asset management expertise and innovation.
Ultimately, the decision to pursue an AFP rests on balancing the increased financing costs against more effective project management and value-for-money considerations.
Effective communications to ensure public understanding of AFP financing arrangements.
Clear governance and transparency is necessary throughout to ensure public accountability.

23. Section 4:
Looking Forward

24. Key Requirements for Success
Informed Decisions: Further integration of risk and performance management into the fabric of financial decision-making.
Effective Governance: establishing clear roles and accountabilities, linked to decision-making structure and supported by a robust policy framework.
Financial Leadership: to set priorities, support capacity improvements and provide a strategic financial “voice” at the decision-making table.
Financial transformation: continue to migrate the financial function away from a transaction-rules focus to an “advisory” decision support and oversight role.
Business “ownership” of Finance: progressively, delegate financial management to program managers and other government organizations, while maintaining accountability and oversight.
Measuring Progress: establish clear performance measures, evaluate progress toward achieving the desired goals and taking remedial action when necessary.
Communications: open and transparent communications to allow knowledge of risks, challenges and solutions to flow throughout the organization(s).
Financial Capacity: attract, retain and develop financial capacity that is aligned to future needs.
Financial management is ultimately the responsibility of line-management supported by an expert finance function. As a critical part of financial management Controllership’s role is critical in this transformation.
It is the role of an integrated controllership function to provide strategic financial expertise to help policy, program and operations managers make the best financial decisions and achieve high value-for-money for the services delivered.
Policy and program decisions made without the benefit of sound financial and risk information can lead to outcomes that do not meet stated public policy objectives.
To do this we must provide quality and strategic advice based on objective, timely, reliable and accurate information.
Technology and data quality will play their part, but it is our ability to craft this information into a language decision-makers can understand and use, that will be vital.
Lastly, we must ensure that all decisions we support are viewed through the lens of value-for-money, transparency and accountability.
Whether we are analyzing investments decisions, building costing and pricing models or supporting the budget process: our bottom line is the achievement of public policy goals within a responsible financial framework.

25. Looking Ahead
Controllership closes the financial management “accountability loop”.
Effective controllership provides the front-end financial information to make informed business decisions but also ensures controls are met in the achievement of results.
As the demands of controllership function increase, it is critical to integrate risk management, process and structure cost control, and revenue management into the fabric of decisions.
Ultimately, our success depends upon the professional knowledge we bring to the decision-making table. Only up-to-date, strategic competencies and a robust financial community can ensure we provide value-added expertise needed to achieve public policy goals.
Tough economic times can often lead to a transformation not only in the economy but how government runs its business.
Although demands on government services and expenditure may increase, while revenues remain static, this environment provides both opportunities for innovation and the need to balance trade-offs between immediate challenges and longer-term objectives.
As a result governments will increasingly ask not only are we “doing things right” but are we “doing the right things”.
My advice to a financial professional, therefore, is to think about how you can add value during this transformation.
We must consider how you use your expertise to support innovation solutions in the achievement of public policy and fiscal goals.
We must build-up a strong knowledge of program areas and ministry’s businesses, so that you can contribute to a informed risk and financial analysis.
We must seek out innovative approaches, examine alternative methods of delivery and “best practices” from other jurisdictions and try to understand how these lessons learned can be applied in your organization.
Lastly, we must remember that effective communication just as important as professional competency. As financial advisers we must ensure that the advice we give is understandable and objective to the decision-makers we support.

26. A more complex world…