AUTUMN 2013
FMI
*
IGF JOURNAL
7
• Can read an interpret well presented
financial reports and recognize badly
produced reports,
• Can identify the kind of financial
information he or she may need on a
regular basis – generally built up over
time and with inevitable trial and error–
to do his or her job; and
• Understands the necessary limitations
and process requirements of financial
practice, be it in procurement, in
delegations and in that very important
area of financial probity.
At a practical level, an effective public
manager needs to be able to:
•
Understand the lingo:
Some core
terminology is essential. However,
much of this terminology may have
nuanced meaning in the particular
operating culture of one organization.
•
Understand Costs:
Managers have to
spend time developing an understanding
of cost factors in their operations. They
have to understand the implications
on their costs of changes to policy or
practice. Even a tweak in procedure
can have an impact on virtually any
cost element. A minor policy shift
seldom comes free of cost. A financially
literate manager or policy advisor will
understand this and try to determine
what the cost implications are.
•
Read the Reports:
This is best
translated as being an intelligent user of
financial information, be it costing for
policy design or cash forecasts for the
first quarter of the fiscal year.
•
Get Clarity:
This may mean asking
dumb questions. It may also mean
pushing the point of understanding so
that everyone is actually talking about
the same thing. Financial advisors play a
key role in developing this understanding
and ensuring that there is, in reality, no
such thing as a dumb question.
•
Marry up Numbers on Pages with
What Happens at the Mission End of
the Organization:
A financially literate
manager can see the link – or insist that
it be clearly stated – between what may
be for some just a bunch of numbers and
the policy and operational impact.
What About the Financially Literate
Organization?
There is a simple reality that only seems
to present itself when things go wrong.
You can have all the most financially
literate people working for you but
your organization itself does not act in
a way that is financially literate. I do not
mean corrupt, although that is a possible
outcome of this deficiency. More often,
it translates itself into managers saying:
“Why bother. No one takes this financial
stuff into account at the top. They are all
policy wonks.” Or “Who cares? It’s all
arbitrary and no amount of good control at
our level will make any difference.”
As I noted at the outset, I have heard
too many senior managers bemoan the
quality of financial savvy they see in their
reports without also talking about their
own behaviour. Financial literacy is both
personal and organizational. One depends
on the other. Go back to the “they just don’t
get it.” mentality, which blames others for
failing to appreciate the important of public
finances in policy and operational decisions.
People pay attention to what their bosses
pay attention to. Therefore, an organization
without a culture that respects the financial
side of the public good process – policy and
execution - will never get it. Further, it is
incumbent upon those organizations to set
up elements of their governance that do
the same. The organization must become
financially literate.
Therefore, a financially literate organi
zation is one that:
• Works hard to ensure integrated
approaches to policy and delivery that
take into account costs and related
financial implications;
• Establishes decision-making bodies that
regularly review financial performance;
• Develops means to communicate
financial information widely throughout
the organization;
Financial Literacy Checklist
For the public servant
o
Do I understand the basis for our financial statements: accrual accounting, our external
financial statements, funding sources, financing options?
o
Do I understand what things cost? Can I apply adequate cost sensitivity analysis to possible
changes in costs and predict their outcome?
o
Do I understand how budgets are formulated where I work?
o
Do I receive timely information on my financial performance in-year so that I can make
adjustments and reallocate resources?
o
Do I understand what resources I rely upon to get my job done but do not control?
o
Am I aware of and capable of effectively using our procurement processes?
o
Do I regularly include costs in proposals for change?
o
Am I engaging with my financial advisor and is that person meeting my needs?
o
Are the financial statements I see clear to me? Do they relate to what I do?
o
If I have delegated authority, do I understand how I am to exercise it?
o
Do I know the main operational and financial risks we are facing?
o
Do I understanding key financial concepts such as control, materiality?
o
Do I link my responsibilities to the government’s fiscal situation?
For the public organization
o
Is there an effective integration of the financial functions into the policy, operations and
decision-making activities of the organization?
o
Do we as an organization generally understand the financial impact of the policy and
execution decisions we make or recommend?
o
Are costs well integrated into policy proposals that we consider?
o
Do we provide good financial advice to the Minister/Council/Board?
o
Does the finance function contribute effective expertise and support to these activities?
o
Do we do a good job of full costing of policy ideas?
o
Do we have a good understanding of the costs of our operations and where there are cost
sensitivities?
o
Do we produce high quality financial information?
o
Do we regularly review financial performance?
o
Does our top management demonstrably lead this review process?
o
Is the way we make decisions about budgets, cost proposals and in-year budget variance
clearly understood within the organization?
o
Do we reward good financial management? Is it part of the suite of key performance
indicators for our managers?
o
Do we assess our organizational financial performance?
o
Do we link our financial information with our performance information?
o
Is there a common financial management training package in place for our staff?
WHAT IS FINANCIAL LITERACY FOR THE PUBLIC MANAGER? THE ANSWER IS A TWO-WAY STREET
