MRSC In Focus › Finance Advisor December 2011

MRSC has joined with Tracey Dunlap, Director of Finance & Administration at the City of Kirkland, Mike Bailey, Finance Director, City of Redmond, Glenn Olson, Deputy County Administrator, Clark County, and Angie Sanchez, Principal, FCS GROUP, to bring you the "Finance Advisor" column. The "Finance Advisor" will feature a new article each month with timely local government finance information and advice you can use.*

Using GFOA's New Financial Management Assessment Tool to Improve Performance

December 2011

by Mike Bailey, Finance Director, City of Redmond

Introduction to the Assessment Tool

GFOA has developed a new financial management self-assessment tool, called the “FM Model”. It invites users to test their own financial management practices against public sector financial management best practices. FM Model contains over 50 “Good Practice Statements,” which are fundamental statements of how a government organization should operate its finances. Each Good Practice Statement is supported by a series of detailed evaluation questions – it is at this level that the self-assessment takes place.

In addition to covering the traditional subdivisions of financial management (e.g., budgeting, accounting, debt, etc.), the Good Practice Statements are divided into three styles of financial management and four dimensions. The three progressive styles are: 1) “securing stewardship,” which emphasizes control, probity, meeting regulatory requirements and accountability; 2) “supporting performance,” which is about responsiveness to the public, efficiency and effectiveness, and commitment to improving performance; and 3) “enabling transformation,” which puts a focus on being strategic and citizen-centered, future orientated, proactive in managing change and risk, outcome focused and receptive to new ideas. Securing stewardship is the bedrock, while supporting performance and, ultimately, enabling transformation are necessary for governments to provide the greatest value to their constituents. Governments can use the FM Model to chart a path of growth through these styles.

The four dimensions cover a blend of “hard” attributes – things that we can measure – as well as softer features that are necessary for financial management to be effective. The four dimensions are:

Leadership, which focuses on strategic direction and business management, and the impact on financial management of the vision and involvement of the organization's Board members and senior managers. The tone set from the top will be critical.
People, which includes both the competencies and the engagement of staff. This aspect generally faces inward to the organization.
Processes, which examines the organization's ability to design, manage, control and improve its financial processes to support its policy and strategy.
Stakeholders, which deals with the relationships between the organization and those with an interest in its financial health, whether government, auditors, taxpayers, suppliers, citizens, or partners. It also deals with customer relationships inside the organization, between finance services and operating departments that they support.

Together, the styles and dimensions form a multi-dimensional perspective on financial management, as depicted in Exhibit 1. As the table shows, the Good Practice Statements and their associated evaluation questions support each point of intersection between the styles and dimensions. Participants rate the extent to which the government conforms with the Good Practice Statements and evaluation questions, the results of which are tallied into a profile. This allows a finance office to determine the extent to which they embody any of these attributes and, importantly, to chart a path if improvement that best matches what the government expects and needs from the finance function.

	Leadership	People	Process	Stakeholderss
Securing Stewardship	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions
Supporting Performance	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions
Enabling Transformation	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions	Good Practice Statements & Questions

Finally, the FM Model is intended to be a collaborative tool. Finance staff work together with internal and maybe even external stakeholders to conduct the evaluation. A collaborative approach will provide a more accurate picture of where the finance department is along the styles and dimensions and helps engage stakeholders in understanding what the finance office does today and where it might go in the future.

The next sections provide a short history of the development of the FM Model, the implications of the model for financial leadership, and the experience of Metro government in Portland, Oregon with using the FM Model.

A Brief History of GFOA's Self-Assessment Project

The GFOA identified a need for its members to evaluate their financial management practices in the context of a national standard. While such approaches as an accreditation program were considered, the conclusion was to develop a self-evaluation tool based on the GFOA's strong legacy of best practices, research and consulting work. The FM Model is such a tool.

In seeking to develop such a model, the GFOA first did a scan to determine if this approach was in place elsewhere. This search led GFOA to “CIPFA” - the Chartered Institute of Public Finance and Accountancy. CIPFA is very much like the GFOA within the United Kingdom. CIPFA originally developed the FM Model. The CIPFA FM Model has been in existence for a number of years and is used by about one-fifth of governments in the UK. GFOA, therefore, formed an agreement with CIPFA to bring the FM Model to North America and integrate it with GFOA's library of Best Practices.

To adapt the CIPFA model to North America, GFOA staff first reviewed the model against GFOA's library of Best Practices and publications. The revised model was then examined by a task force of GFOA members, comprising practitioners who have served on GFOA's standing committees, as instructors in GFOA trainings, and/or have been writers for GFOA publications. The task force performed a second review and then field tested the model in their own organizations.

The resulting CIPFA-GFOA FM Model for North America is designed as a resource for the whole organization. Boards of public bodies, finance professionals and business managers can together apply the new FM Model to develop a financial management approach fit for their business goals and service aspirations. It can help to create a profile of the strengths and weaknesses of financial management, its predominant style in the organization, and how far this is aligned to supporting the organization's strategic goals. It can help give the Board assurance about financial management practice in their organization. The model allows staff to test existing arrangements against the best practices described in the model and to identify improvements, encouraging change, and specifying standards for financial management performance. It also can be used as the basis for broader engagement with the customers and stakeholders of the financial management function, it can help bolster the profile of the finance officer as a leader in the organization. The next section describes how the FM model enhances financial leadership.

The FM Model and Financial Leadership

In this era of very tight budgets but increasing scrutiny of how public funds are spent, a tool that assesses and demonstrates the use of best practice seems very timely. Using money well means more and better front-line services: this is the business of every manager in the public service. Good financial management is how managers cope with the perennial challenge of limited resources in an environment of expanding demands and expectations, and with their obligation to spend the taxpayer's resources carefully. It is also about how managers in the public services put money to work to improve services that, across the public sector, impact the lives of citizens.

Additionally, many finance officers today want to push beyond the securing stewardship role. The opportunity for finance officers to help transform their organizations has taken on a new urgency as a consequence of the recent economic calamity. The FM Model enables continuous improvement as the finance officer uses the expansive tool to focus and track improvement efforts. Using the results to ratchet up performance and then revisiting that same area at a later time to take performance up even another notch is an opportunity to use the model for continuous improvement.

Engaging others in these efforts helps to illustrate the rationale between what you are asking of them and the best practice target you are working toward. Others you might consider engaging can include:

Your customers. Typically these are other units within the government that look to you for financial management services. The ease of access to these services and the quality in which they address your customer's needs can be addressed in the context of the model.
Your stakeholders. These can be interested citizens, board members or other managers. Demonstrating your efforts toward improvement can enhance your credibility within the organization and further enhance your role as the “trusted advisor” that finance officers play.
The community. While having a “community” participate in a review of financial management practices may not be realistic, you may want to consider a public forum for the project itself, seeking volunteers to participate or assist with the evaluation and informing the local media of the project. (The vulnerability to this level of scrutiny should be taken into account however you may find that there is a high appreciation for your efforts toward improvement).

The next section describes the experiences of Portland Metro in using the FM Model, including the approach they took to engaging stakeholders and moving toward a broader, shared understanding of the role and direction of the finance function.

Metro's Experience with the FM Model

Metro is the regional government for the Portland, Oregon, metropolitan area, unique as a regional government because of its home rule charter and elected officials. With a budget of about $431 million, Metro currently employs 750 full time and 750 part time staff. Its 28 represented jurisdictions include three counties and 25 cities with a total population of approximately 1.5 million. Metro is a relatively young agency, with responsibilities that have grown steadily over the years. Founded in 1970 as a planning agency, Metro first expanded to perform regional solid waste and transportation planning, management of the Oregon Zoo and management of an urban growth boundary intended to reduce urban sprawl. In the 1980s Metro acquired responsibility for “wholesale” regional solid waste operations that included managing a landfill and transfer station. The voter-approved Oregon Convention Center opened in 1990 and Metro took on management responsibility for several performing arts venues as well. In the 1990s Metro built a solid waste transfer station and assumed responsibility for an exposition center and the Multnomah County parks system, including pioneer cemeteries and a golf course. Metro voters also approved two substantial bond measures to purchase open spaces for future generations' use and to open several new regional parks.

At the time these functions came to Metro, no central policies and operating procedures existed. Each function came with its own set of policies and procedures, creating silos of financial operations and leading to duplication and inconsistent policies. Over the last several years Metro has undertaken an initiative to break down these silos. Metro began by developing broad policies to guide its operations, such as a credit policy, an investment policy, and capital asset management policies. Each policy was adopted by Metro's governing body. Next, as each function came with a separate accounting Fund, Metro consolidated those funds without legal restrictions into a consolidated General Fund, helping to breakdown former affiliations. Metro then changed its management structure to combine like functions into “centers.” Metro learned a vital lesson in combining departments: Metro still lacked documented, consistent, agency-wide operational policies, as well as a central record of what already existed.

At the same time, Metro was helping GFOA develop the FM model. It became readily apparent that this tool could be quite useful in documenting current processes and identifying areas of needed improvement. Metro's Finance Team, comprising department finance managers and central budget managers and staff, realized that this model's dimensional nature melds the financial processes with the goals of the agency and needs of stakeholders, pulling together all important aspects of financial management: emphasizing stewardship and performance while providing opportunities for transformation to a higher level: from good financial management to great financial management.

Metro's Chief Financial Officer recognized that the FM Model identifies all significant financial functions, requires documentation of how each function is fulfilled, provides focus for needed improvements and peace of mind for those already operating well. Importantly, the FM Model's detailed list of questions for each Good Practice Statement makes very clear what it means to meet that standard.

Metro realizes that once the assessment is complete, this best practices approach will provide direction and focus to areas that may need improvement. Finally Metro sees it as a tool to document policies and for to consolidate various existing procedures into one agency-wide procedure when appropriate.

Metro took a team approach for the evaluation of Metro's performance under the FM Model; all departments had representatives. In addition, Metro involved staff that have technical knowledge of or who perform the process being evaluated. This began to shape a broad view of the agency's existing processes and procedures and began garnering agreement on what common policies could be developed.

Realizing that the first assessment would be the most time consuming, Metro decided to take a two year approach. During the first year Metro had team members review the statements and grade Metro, providing documentation of their answers. In the second year Metro is completing a review of the grading and finishing the documentation. To date, the process is already identifying areas of success and areas for focused improvement. To date, Metro has experienced the following benefits of the FM Model:

A comprehensive review of financial management
An understanding of existing competencies in those functions
A method to substantiate performance
A tool to discover duplications
An means to focus on areas of needed improvement
An opportunity to compare to best practices

Government Finance Makes It Happen

The FM Model review can result in a broader discussion about the role of the finance function. Even the best business plans, comprehensive plans, or strategic plans cannot improve the community's condition without a solid financial element. The ability of the finance function to support the goals and aspirations of the organization is a critical element to success.

The FM Model is a means to a healthy and engaging interaction within your organization about how the finance function is positioned to assist in accomplishing its goals. Finance officers in public organizations hold a very important position to the success of the organization or lack thereof. The GFOA's FM Model will become an essential means of assisting those responsible for the finance function to assess their performance and make progress towards becoming a high performing unit able to secure stewardship, support organizational performance, and enable organizational transformation.

Tracey Dunlap, P.E. is the Director of Finance & Administration at the City of Kirkland. Prior to joining Kirkland in 2006, she was a principal and shareholder in FCS Group, a regional financial and management consulting firm (14 years). An industrial engineer registered in the state of Washington, she has worked with jurisdictions throughout the Northwest to develop and implement cost recovery and fee strategies, set utility rates, and improve organizational efficiency and effectiveness. Tracey's experience also includes working for a large defense contractor (5 years) and a major financial institution (3 years). She has presented on a wide array of topics for organizations including WFOA, APWA, APA, WABO, and AWC.

Glenn Olson is the Deputy County Administrator for Clark County. He has been in Clark County since 1997, serving in various leadership positions during his tenure there. Previously Mr. Olson served 15 years in the Governors Office of Financial Management overseeing budget forecasts. Mr. Olson chaired the Washington State Public Works Board for Governor Locke. Currently he is the gubernatorial appointee representing local governments on the Select Committee for Pension Policy and on the Law Enforcement Officers and Fire Fighters Plan 2 (LEOFF2) Board, and he is the president of the Washington County Administrators Association.

Angie Sanchez Virnoche is a principal and shareholder at FCS GROUP, a consulting firm specializing in public sector financial, economic and management consulting. Angie has provided financial utility business advisory services to municipalities since 1993 for water, sewer, solid waste, storm water and electric utilities. Her project work includes multi-year financial planning, cost of service studies, conservation based rate design development, capital/infrastructure planning, funding alternatives, cost benefit analysis, and community education and involvement. Angie has presented at numerous conferences and workshops throughout her career on topics related to financial management and rate-setting including WFOA, ERWOW, WAPUD, NWPPA, WOW, AWWA, PWC, WASWD.

*The Articles appearing in the "Finance Advisor" column represent the opinions of the authors and do not necessarily reflect those of the Municipal Research & Services Center.