Transcript In-Year Budget Control and Management


In-Year Budget Control and
Management
Andrew Graham
Queens University
School of Policy Studies
MPA 827 2015
2
Structure
 Today: lecture, first part
 Cash Management Class Exercise
 Tomorrow: Reprise and more material
 Group work on final assignment.
3
Reprise
 Focus on internal management of budgets in-year
– management accounting
 Basis for adapting approved budget to changing
circumstances
 Cash 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
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
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.
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
Definition
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.
Budget Cash Management is not a way to re-open the budget
decisions but to adapt to changing circumstances.
8
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
9
Key Part of the Job
 Responsibility of all responsibility centre
managers
 Knowing how to do it is important
 Uses tools of control, risk management,
forecasting, good financial reporting and analysis
10
Managing the Budget Reflects on 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
shifitng.
 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
11
Managing the Budget Reflects on Performance
 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
12
Actual Cash Remains a Concern
 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.
 Some argue that the main concern is how cash is used
during the period and not matching revenue and
expense which is of a higher priority in the private
sector – this remains a preoccupation of many players
in the scene: managers, clients, oversight groups and
legislators
13
Importance of in-Year Budget Management
 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.
14
Compliance
Adaptability
15
What could possibly go wrong?
 Errors in reporting – accounting systems can be
wrong
 Incomplete information
 Budget plan proved to be inaccurate
 Actual events did not conform to plan
 Unanticipated surges in demand or loss of revenue
 Catastrophic events
16
The Objectives of Effective In-Year 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.
17
The Big Three 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?
18
Qualities of the Financial Performance Review Process
 Focus on a few critical aspects of performance
 Look forward as well as back
 Explain and react to key risk considerations
 Explain and react to key capacity considerations
Source: Reporting Principles, Canadian Comprehensive Audit
Foundation, 2003
19
Qualities of the Financial Performance Review Process
 Explain other factors critical to performance
 Integrate financial and non-financial information
 Provide comparative information
 Present credible information, fairly interpreted
 Disclose the basis of reporting
20
In some countries, this is the law
The accounting officer in New Zealand must submit to the relevant
treasury and executive authority within 15 days of the end of each month,
information on:
· the actual revenue and expenditure for that month, in the format
determined by the national Treasury
· projections of anticipated expenditure and revenue for the
remainder of the current financial year in the format determined by
the national Treasury
· information on conditional grants received and actual spending
against them
· information on all transfers
· any material variances and a summary of actions to ensure that the
projected expenditure and
revenue remain within the budget.
21
Movement towards government-level
Interim Financial Reports
22
23
Operational Cash Forecasting Goes Beyond
Financial Statements
 Knowing about cash movements to date based on
financial reports is not enough

Encumbrances and anticipated risk or costs
changes are not reflected
 Cash forecasting and financial reporting moves
into the realm of bringing content, knowledge
and numbers together
24
From Cash Flow to Cash Forecasting: Financial
Statements
 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.

25
From Cash Flow to Cash Forecasting: Financial
Statements
 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
26
From Cash Flow to Cash Forecasting: Financial
Statements
 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
27
The In-Year Budget Management Mix
Financial
Data
Risk
Comparisons
Reliable Cash
Management
Projections
Commitments
Forecasts
28
From Cash Flow to Cash Forecasting: 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
29
Some other basic questions that good financial
analysis can help answer
 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?
30
Some other basic questions that good financial
analysis can help answer
 What is the significance of these shifts?
 Is there a need for extra-ordinary action?
Supplementary funding? 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?
31
Elements of an In-Year Budget Management 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
32
Elements of a Cash Management 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.
33
Roles and Responsibilities

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
34
Roles and Responsibilities
 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.
The In-Year Budget Management Cycle
Assess Budget
Implications
for Next Year
Budget
Appropriated
Cash
Requirements
Hold
Backs/Reserves/
Adjustments
Adjusted
Budget Plan
for Year
Adjusted
Budget
Senior
Management
Direction:
Reallocation
Budget Plan for
Year
Senior
Management
Reporting and
Review
Reporting
Results: Actual vs
Plan: Financial
and Operations
Management
Discussion
and Analysis
Variance
Reports and
Analysis
35
36
Expenditure Plans of Organization: Budget, Program
 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
37
Impediments to establishing a base 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
38
Impediments to establishing a base 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
39
Allotment
Salaries
Benefits [1]
Overtime Salary Dollars
Operating and Maintenance
Original Budget - April 1
217,600,000
43,520,000
4,085,000
64,766,850
Grants and Contributions[2]
5,600,000
Capital Expenditures [3]
7,500,000
Total
Average FTE Costing
343,071,850
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.
40
Expenditure Plans of Organization: Budget, Program
 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.
41
Allotment
FTE
DMO
Policy
Operations
Inspection
CIO
CFO
Total
150
150
1200
1100
300
300
3200
10,200,000
10,200,000
81,600,000
74,800,000
20,400,000
20,400,000
217,600,000
2,040,000
2,040,000
16,320,000
14,960,000
4,080,000
4,080,000
43,520,000
0
250,000
1,000,000
2,335,000
500,000
0
4085000
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
2,000,000
3,600,000
0
0
0
0
5600000
500,000
300,000
2,000,000
2,000,000
2,500,000
200,000
7,500,000
17,740,000
18,390,000
120,920,000
Salaries
Allowances
Overtime
Capital
Total
118,095,000
38,480,000
29,446,850
[1] Allowances
are automatically
distributed 343,071,850
in the same way.
42
Expenditure Plans of Organization: Budget, Program
 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
43
To Get to an 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.
44
LINE ITEM
SALARIES
BUDGET
This fiscal year
CHANGES
ADJUSTED
BUDGET
This fiscal year
3,500,000
750,000*
4,250,000
OVERTIME
500,000
(100,000)**
400,000
TRAINING
250,000
75,000¹
325,000
4,250,000
725,000
4,975,000
TOTAL STAFF
COST
*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.
45
Developing a Cash Flow Plan for the Responsibility
Centre
 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!
46
Developing a Cash Flow Plan for the Responsibility
Centre
 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.
47
Developing a Cash Flow Plan for the Responsibility
Centre
 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.
48
Developing a Cash Flow Plan for the Responsibility
Centre
 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
49
Factors to take into account in building a cash flow
plan
 Previous patterns of inflow in past year, 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.
50
Factors to take into account in building a cash flow
plan
 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.
51
Expenditure Plans of
Organization: budget,
program
Manager’s
Expenditure
Plan
Financial Performance
Reports
52
The Financial Analysis Process
 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
53
Analyzing Expenditures
 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.
54
Analyzing Expenditures
 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?
55
Analyzing Expenditures
 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.
56
Analyzing Expenditures
 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.
57
Analyzing Expenditures
 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
58
Looking for Problem Areas and Identifying Variances: The uses
of historical 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
59
Focus on Trend Information and Explaining It
“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
60
An Example of the Use of Historical Data
All Overtime Hours Used by Month by Fiscal Year
All Overtime Hours Used
60,000
45,000
2001/02
2000/01
30,000
1999/00
15,000
1998/99
1997/98
APR
MAY
JUN
JUL
AUG
SEP
OCT
Month
NOV
DEC
JAN
FEB
MAR
1996/97
1995/96
61
Sometime historical data in non-monetary
Table 3: Shelter Admissions
Admissions
40
35
30
25
20
15
10
5
0
2002
2003
2004
J
F
M
A
M
J
J
Month
A
S
O
N
D
62
Analyzing Encumbrances and Commitments




Key tool in governments to ensure that budgets do not go
over approved limits
“Financial commitments are obligations to outside
organizations or individuals that become liabilities if and
when terms of exiting contracts, agreement or legislation
are met.” – CICA
Will generally not be in your financial reports, but rather
in your forward spending plans
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
63
Analyzing 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.
64
Developing a Spending Plan/Forecast
 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
65
Developing a Spending Plan/Forecast
 Dividing by 12 hardly useful or generally not
realistic – forecast should reflect the ebbs and
flows of expenditure patterns
 Block or grant expenditures tends to be all at once
66
Quality of Forecasting and Data
 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
67
Translating and Interpreting Data
 Usefulness of different perspectives
 Budget managers
 Financial advisor
 Organizational head
 Corporate financial advisor
68
Translating and Interpreting Data
 Role of the challenge function
 Reporting that makes data relevant to managers
and to decision makers: management’s
discussion and analysis (MD&As)
69
Compare and Contrast
70
Management Discussion and Analysis
 Should provide basis for discussion and decision
making
 Language should be business-oriented and not
excessively detailed
71
Management Discussion and Analysis
 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
72
Questions the Management Report must answer…..
 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?
73
Questions the Management Report must answer…..

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?
74
Reporting and Discussing Risk in Cash Management
 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
75
Reporting and Discussing Risk in Cash Management
 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,
76
Risk of over-expending is sometimes graphic and
clear……….
STAFFING: BUDGET VERSUS ACTUAL
250
240
230
220
PLAN
210
ACTUAL
200
190
180
JUNE
OCT
DEC
MARCH
YEAR
END
77
Understanding and Communicating Cash
Flow Patterns
78
Cash Forecast Report
 Can take many forms: briefing notes, PowerPoint
presentation, charts, graphs
 Should have some predictability in format and
language
79
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
80
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.
81
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
82
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
83
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
84
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.
85
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
Salaries
Operating
Grants
Original Budget
2,000,000
3,500,000
1,000,000
Adjusted Budget
2,225,000
3,000,000
1,000,000
Planned
Expenditures to
date
1,250,000
1,500,000
750,000
Actual
Expenditures
1,110,000
1,800,000
600,000
140,000
(300,000)
150,000
Variance from
Plan
86
87
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
Salaries
Operating
88
Grants
Original Budget
2,000,000
3,500,000
1,000,000
Adjusted Budget
2,225,000
3,000,000
1,000,000
Planned
Expenditures to
date
1,250,000
1,500,000
750,000
Actual
Expenditures
1,110,000
1,800,000
600,000
140,000
(300,000)
150,000
200,000
150,000
2,150,000
3,200,000
900,000
75,000
(200,000)
100,000
Variance from
Plan
Commitments
Projected
Expenditures Year
End
Projected
Variance at Year
End
89
Sure Signs that 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 interagency cooperation.
90
Sure Signs that there will be trouble
 Failure to maintain reserves.
 Insufficient consideration of long-term collective
bargaining agreement and human resource policy
effects.
 Flawed multiyear projections.
 Inaccurate revenue and expenditure estimations.
91
Sure Signs that 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.
92
Some Solutions for Serious Cash Management
Problems
Panic!
93
Some Serious Solutions for Serious Cash
Management Problems

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
94
Some Serious Solutions for Serious Cash
Management Problems
 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
95
Setting the Rules for Distribution and Redistribution of
Surpluses, Carry-Forwards etc

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
96
Setting the Rules for Distribution and Redistribution of
Surpluses, Carry-Forwards etc
 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 reward bad behaviour.
97
Setting the Rules for Distribution and Redistribution of
Surpluses, Carry-Forwards etc
 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
98
Fin
Ende
Koniec
Final
Lopussa
Sionunda