Financial Management Institute Forum

May 30, 2005
Address by the Auditor General of British Columbia
Wayne Strelioff, FCA

On the road to linking resources, strategies and results, in a credible manner

Welcome

Good morning to all of you. For those who come here from the other side of the mountains, welcome to beautiful British Columbia.

Key message

I think the public – and their elected representatives – need to know that the business of government will be well managed and transparent regardless of the policy direction chosen by the governing party.

This way public debate on the performance of government can focus on policy choices and results not on mismanagement and confusion.

In my view, BC is putting in place many of the building blocks required to make this happen.

The key priority and challenge will be to focus effort, build capacity and gain experience on linking resources, strategies and results more clearly.

Well run organizations do this and demonstrate that they do this by their management practices and their performance.

Well run organizations earn public confidence, trust and respect. I think governments can and should do the same.

Outline

This morning, I will explain to you why I think linking resources, strategies and results is so important, I will describe several key building blocks being put in place in BC, and I will finish by setting out the challenges on the road ahead.

Then, I will answer your questions, or listen to your concerns and advice.

Topic 1 - Linking resources, strategies and results is important

Resources are the human, financial and physical capital we invest to make things happen – to achieve results in terms of a higher standard of living for all Canadian citizens.

Strategies bring to life the policies choices of the governing party. Governments do this by setting program priorities, aligning resources, and putting in place sound management practices.

Results represent the value created through our efforts. They are the outputs and outcomes that benefit all Canadians.

In my view, well run organizations link resources, strategies and results clearly.

Such linkages enable sound planning – when making and explaining choices:

On the results to be achieved;
On the policies, programs and services to be put in place; and
On the resources – human, financial and physical - to be allocated.

Sound planning provides the required direction for managers to manage – to align efforts, to set performance indicators and targets, to measure and monitor performance, and to adjust.

Linking resources, strategies and results is also requisite to managing risks and explaining performance.

To manage risks effectively we need to know what success looks like – in terms of the results to be achieved, and what it takes to get there – in terms of the resources and strategies being put in place.

This knowledge informs us on what to look out for along the way – the risks we need to manage carefully.

Meaningful performance reporting explains how we link resources and strategies to achieve results. And, explains what changes we are making to perform better and thus creating greater value for citizens.

Topic 2 - Building blocks being put in place in BC

During my five years as BC’s Auditor General, several important building blocks have been put in place that are required for the business of government to be well managed and transparent.

Many people serving in their capacity as legislators, as central agency officials and as public sector managers have stepped forward to contribute – each in their own way.

Legislators

Through laws, BC legislators have demanded more timely and relevant planning information that provides the framework for linking resources, strategies and results clearly. For example,

the annual budget is to be presented in February,
on the same day, each organization is to table its service plan,
and all planning information is to include the results expected to be achieved in terms of measurable objectives, relevant indicators and stretch targets.

Through laws, BC legislators have required a timely accounting of actual results in annual service plan reports. Most are now tabled no later than three months after the year end.

And, financial plans and reports are to based on generally accepted accounting principles. Such an accounting is bringing to life the integration and consolidation of the overall financial plans and results of the SUCH sector – school boards, universities, colleges and health authorities.

For the first time, BC will have a robust framework of sound financial accounting information particularly with respect to the financial resources allocated to such programs as health and education including the cost of the infrastructure put in place to support these programs.

We have the same robust accounting framework for reporting both plans and results.

Legislators have also endorsed for use by government a set of eight performance reporting principles to form the basis for how service plans and annual service plan reports are written and assessed.

Those principles state that in its annual performance report, an organization should:

Explain the public purpose served
Link goals and results
Focus on the few, critical aspects of performance
Relate results to risk and capacity
Link resources, strategies and results
Provide comparative information
Present credible information, fairly interpreted
Disclose the basis for key reporting judgment

In the handout at the back of the room, these principles are explained.

These principles are now in use within the BC public sector. They are consistent with those developed by the CCAF and those now being worked on by The Canadian Institute of Chartered Accountants.

Each year, my office examines the extent to which organizations are bringing these principles to life.

In BC, legislators have raised the bar significantly and progress is taking place.

With the recent election of a new group of legislators, the stage is set for a more robust and informed scrutiny of the performance of government. I look forward to this.

Government officials

Officials within central agencies and individual public sector organizations are also stepping forward to contribute.

For several years, the government’s overall budget has been tabled in February.

Service plans for ministries, Crown agencies and Crown corporations are tabled on the same day.

A significant accomplishment is now becoming routine.

The 2004-05 budget and the 05-06 budget were based on the financial framework envisioned by the application of generally accepted accounting principles.

Near the end of June, I will report whether the government’s summary financial statements hold true to GAAP.

I think BC’s comptroller general and his colleagues have done a terrific job of leading the way within our provincial public sector.

Also, many organizations have made progress in implementing the performance reporting principles within their performance plans and reports, including the requirement to link resources, strategies and results.

Later this month, I will report publicly on my fourth annual assessment of the quality of public performance reporting in BC.

Although there is much room for improvement, progress is being made.

One of the key improvements I will be looking for in the future relates the extent to which the plans and results of individual government organizations set out how they are contributing to the government’s overall goals and objectives.

This morning, I also want to bring to your attention two particularly significant examples of important public performance reports.

The first is what the BC government refers to as a ‘value for money’ disclosure report.

The second is the annual performance report of BC’s Workers’ Compensation Board.

Partnerships BC, a Crown corporation, publishes a value-for-money disclosure report for each public-private partnership project it completes.

Recently, we worked with Partnerships BC on its disclosure report for a public-private partnership agreement related to a major health care project. The capital cost of the project will be more than $350 million. The operating costs will be much more.

The government will pay a private sector partner to build the health care centre and provide ongoing facility services and management over what might end up being 30 years.

We did this work because we think better accountability to the public and their elected representatives takes place when those who manage a significant initiative report directly on their performance and do so in a robust manner. And, we think better accountability leads to better performance.

At the end of the day, we were able to state publicly that, in its value for money disclosure report, Partnerships BC has fairly described the context, decisions, procurement process, and the expected results of the project to the date of the report.

Partnerships BC’s report including our opinion was released in February.

As a result, I think there is greater public confidence that this significant project will be well managed because there is sound information publicly available on what is planned and why including relevant information related to resources, strategies and results.

I think you will find the explanations of risks transferred and not transferred and the public sector comparator particularly valuable.

Our examination criteria were drawn from, and consistent with, BC’s agreed upon principles for performance reporting.

Currently, we are working with Partnerships BC on its value for money disclosure report for a P3 project referred to as the Sea-to-Sky Highway Improvement Project. The government plans to pay a private sector partner to upgrade and maintain the 100 kilometer highway which runs from Vancouver to Whistler.

Also recently, we worked with BC’s Workers’ Compensation Board on its annual performance report. The responsibilities of the Board are significant and complex. The report sets out the Boards’ plans and results.

At the end of day, we are able to state publicly that the Board’s annual report fairly presents, in all significant respects, the performance of the Board for the year ended December 31^st, 2004 in accordance with the BC’s reporting principles. The Board’s report will be published soon.

This was the first time we reached such a conclusion. In my view, the Board’s performance report represents leading practice in BC and in Canada.

Through this type of work, we want to encourage stronger performance reporting because when organizations explain their performance clearly, including linking resources, strategies and results, they are more likely to be well managed and to earn public confidence.

BC’s Workers’ Compensation Board is, I think, on the road to earning public confidence.

Topic 3 - what are the challenges on the road ahead

Although I think we are making significant progress with BC, I do not underestimate the challenges on the road ahead.

Recently, we examined government efforts to implement a results-focused management approach.

I did this to encourage leaders within central government agencies to support efforts that are now underway in many parts of the provincial public sector.

What we found was both encouraging and worrisome.

We did find strong commitment within government ministries for results-focused management. Senior managers told us the approach:

Helps them demonstrate the relevance of what they do – they said using performance measures helps identify the value being created through programs;
They told us a results focus helps to Improve performance – setting challenging targets drives programs to better performance;
They said they now have better information for decision making, they are now better able to monitor whether intended results are being achieved, and they are able to make more informed decisions; and
Finally, senior managers told us that results focused management is leading to greater transparency, accountability and trust because all stakeholders can assess performance with a common understanding of the intended results.

However, we were also told that visible leadership and sustained commitment is lacking from senior executives.

Within BC, senior executive sponsors need to step forward to champion, monitor and coordinate efforts across the provincial public sector and, thus, send the message that results-based management is supported and is here to stay.

Linking resources, strategies and results clearly also contributes to an organization’s ability to manage risks effectively.

The need for clear linkages to inform risk management was particularly evident in two recent examinations.

We examined BC’s programs for protecting and restoring salmon habitat, and for preventing and mitigating potential impacts of salmon aquaculture on wild salmon stock. Depletion to the stock of wild salmon and its genetic diversity is a key risk to sustaining the economy and way of life of many BC communities.

Our examination was carried out with the Auditors General of Canada and of New Brunswick.

We found that government had not stated clearly its intended results for wild salmon management. Program managers did not know whether the government’s objective was to maintain, rebuild or allow depletion of wild salmon stock and genetic diversity.

As a consequence, managers did not have a sound basis for aligning programs and strategies, for allocating resources and for monitoring and reporting performance.

Effective program and risk management is not possible when there is no clear understanding of what success looks like in terms of measurable results.

In such circumstances, public confidence becomes a particularly significant issue as it is now with respect to wild salmon management.

Recently, we also examined the quality of the work environment in the BC public service. When we did the same examination in 2002, we concluded that an unhealthy work environment puts at risk the delivery of quality service and the achievement of results.

This time we found some but not much improvement.

One of our findings was that public sector employees want their executive leaders to more clearly define the results expected to be achieved by their organizations.

Employees know such clarity informs how best to align programs and resources and how to adjust to succeed. They know the value of linking resources, strategies and results clearly.

Finally, one of the most difficult challenges we face in striving to link resources, strategies and results more clearly relates to our elected officials.

Legislators and their advisors know that clarity exposes.

When leaders state clearly the results expected to be achieved, the programs and policies being put in place, and the resources allocated – they are making clear their priorities and how their performance should be assessed.

Although such clarity is essential for effective management, those who disagree with the choices have more room to criticize.

And, if intended results are not achieved, leaders can be more easily criticized.

Clarity exposes.

I ask you to help your leaders – both elected and appointed. They need to know that clarity also can earn respect.

People know choices must be made. They know actual results often vary from intended results.

What they want is clear discussion of policy choices.

People need to know that the business of government will be well managed and transparent regardless of the policy direction chosen by the governing party.

Linking resources, strategies and results is a fundamental ingredient to well managed and transparent government.

I ask you to work with your leaders to help them understand this. I will do the same.

Thank you – now, I welcome your questions, concerns or advice.

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