ACFO President comments on FI shortage (Ottawa Citizen)

PS faces money manager crisis
Former mandarin blames recruitment, training failures for shortage
Kathryn May
Ottawa Citizen

The federal government’s shortage of people with the right kind of financial expertise poses a significant problem for the public service in tighter economic times, experts warn.

Charles-Antoine St-Jean, who, until a year ago, was Canada’s comptroller-general, said the government has struggled for years with a shortage of accounting and financial professionals.

He worries that that shortage could undermine the government’s ability to get a handle on its true costs as it heads into economic uncertainty.

That shortage becomes critical if departments are forced to make spending choices as government revenues decline.

“The government doesn’t have enough people now or in the good times, so when the times get tough, the gap will be bigger. Tough times need even stronger talent and better information to make the right decisions and they don’t have enough of them. When resources are scarce, they must be well-used,” said Mr. St-Jean, who led a string of financial management reforms before returning to private practice.

The shortage comes after years of failing to recruit or train enough qualified financial officers to handle the complexities of managing money in government. Until two years ago, the government didn’t even require formal training for its financial officers — even the chief financial officer — as chartered accountants, certified general accountants or certified management accountants. It’s now a must for all CFOs by 2009-2010.

“It should be 100 per cent. They should be in all departments,” said Mr. St-Jean. “The largest departments are all $1-billion business and need to be managed by people with professional designations. It sends an important message,” he said.

Senior bureaucrats also worry about the dearth of financial expertise, especially now that the Harper government made deputy ministers “accounting officers” who are personally on the hook for the financial management of their departments. A 2006 survey of senior bureaucrats by the Public Policy Forum found the majority didn’t feel “financially literate” enough for their jobs.

But Canada is not alone. A recent Deloitte Touche study of 28 countries found only one third of government leaders believe they have the financial expertise to handle economic crisis and other looming policy issues, from health care to pensions.

They say they don’t have timely, reliable and accurate data to make decisions and their program managers don’t understand the total costs of the programs they run or the results they achieve. Governments have plenty of “stewards” and “operators” who can keep the books and departments running, but what they need are “strategists” and “catalysts” who provide the analysis, insight and business cases to weigh policy options, said Andy Potter, an associate partner at Deloitte and Touche.

“Better financial management is the prerequisite of good government,” he said.

Parliamentary Budget Officer Kevin Page drove home the same message in his recent report on the cost of the Afghanistan war. His study exposed how departments were operating with incomplete data, poor information and archaic accounting systems, which obscured the true costs of the war and other major projects.

This kind of information becomes critical during an economic slowdown when tax revenues slow and every program dollar counts. Bureaucrats say they are braced for aggressive “strategic reviews” to find spending cuts in programs and operations that could be “reallocated” or shifted to shore up the economy and put more money in the hands of consumers and business.

“With Enron and other financial meltdowns came the heightened awareness of how important accounting systems and accurate information is to decision-making. Without that, the government will be making cuts in the dark,” said Ian Lee, who heads the MBA program at Carleton University’s Sprott School of Business.

“Government needs the true costs of programs to make tradeoffs in policy choices. How can you buy a car if you don’t know the price, mileage and financing costs to compare and make informed judgments?”

The government now has about 3,800 financial officers in government and nearly all have a business degree or a professional designation, said Milt Isaacs, president of the Association of Canadian Financial Officers.

Mr. St-Jean estimates the government needs another 1,000, especially when departments are losing about 15 per cent of experienced officers a year in retirements.

But Mr. Isaacs says the government should nearly double the existing workforce of financial officers who are so overworked they can only get the basics of the job done. He argues the bigger problem is that departments are filled with several thousand people who are doing the work of financial officers even though they don’t meet the requirements of the job.

The government has never been able to attract the MBA golden boys and girls who flocked to the big salaries and glamour lifestyles of investment bankers on Wall Street and Bay Street. An accredited accountant or MBA could also make significantly more money at a company than in government, where salaries start at $60,000 and top at $104,000. The need to be bilingual is another turnoff.

The high-fliers in finance and business aren’t interested in working in the archaic accounting systems used by government. The government still uses a mixed bag of cash and accrual accounting. The Public Accounts and budget use accrual accounting, but the government uses cash accounting when asking Parliament for money to spend.

This means departments are still managing their operations on a cash basis rather than using the accrual accounting used by every other company in the country. Schools don’t even teach outdated cash accounting anymore.

The government will also be out of step when the rest of country moves to International Reporting Standards in 2011 to replace Canada’s generally accepted accounting principles for all publicly traded companies, financial institutions and securities dealers.

“We have a new generation of accountants coming out of university trained for the 21st century and they are asked to work with accounting standards of the 20th century. This is a big gap. If you want to attract people and be an employer of choice then you have to show leadership on this,” said Mr. St-Jean.

The ticket to the top jobs in government is policy experience, not finance. In the private sector, the CFO is the second most-powerful executive, but they fall much lower in the bureaucratic pecking order. Mr. Isaacs say this culture has to change. Financial officers are considered a “necessary evil” in government and often excluded from the senior management’s inner circle.

But Mr. Lee says the global credit crisis that has cost thousands of Wall Street jobs could be a boon for governments looking to hire MBA and other finance graduates. He said Carleton is even looking at tailoring a MBA finance program for bureaucrats.

The big gamble for governments is that policy decisions based on poor information could fuel the distrust of government that is now plaguing the banks and financial markets, said Mr. Isaacs.

“If government doesn’t address this issue, it is going to bite them on the butt and it will hurt the economy and Canadians. We are running the same risks as the banks faced and cost of fixing it is a lot less than not doing anything. It’s a silent cancer. … If people lose confidence in the ability of government to manage, then they won’t invest and we can watch our dollar fall, interest rates go up. People will feel the impact”