Balance Sheet Management

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Balance Sheet Management

  1. 1. Balance Sheet Management Reviewing & Implementing Best Practice * Joanna Watson PricewaterhouseCoopers LLP 
  2. 2. CIPFA in the Midlands Session overview Balance Sheet Management 3 April 2007 • Introduction • What is Balance Sheet Management (BSM)? • Why is BSM important for public sector bodies? • Framework for assessing good practice • Applying the good practice framework • Any questions PricewaterhouseCoopers LLP 2
  3. 3. CIPFA in the Midlands What is Balance Sheet Management? Balance Sheet Management 3 April 2007 Definition per the CIPFA / PwC framework: The active assessment and management of all the organisational, operational and financial activities and transactions that determine or influence balance sheet values to promote effective stewardship of public money and value for money in use of resources PricewaterhouseCoopers LLP 3
  4. 4. CIPFA in the Midlands Why is BSM important for the public sector? Balance Sheet Management 3 April 2007 • Materiality: balance sheet items usually highly material – both financially and operationally • Balance Sheet considerations are important elements of Use of Resources assessments (or equivalent) • Potential opportunities for efficiency savings • Current financial analysis may be overly focused on income & expenditure • Risk of error or unexpected losses / write-offs • Balance Sheet impacts can arise from a wide range of operational activities PricewaterhouseCoopers LLP 4
  5. 5. CIPFA in the Midlands Framework for Assessing Good Practice Balance Sheet Management 3 April 2007 Responsibilities & accountabilities Accounting systems Decision-making & processes hierarchies Evaluation of accounting Assurance over Governance, Accounting & policies discharge of stewardship Risk & External responsibilities Controls Reporting Day to day management Financial Translating data to Operational Management & management information of assets & liabilities Management Decision Making Links between operational BSM as part of overall activities and impact on the financial management Balance Sheet Planning, budgeting & Assets required to internal reporting support service delivery PricewaterhouseCoopers LLP 5
  6. 6. CIPFA in the Midlands Good Practice Balance Sheet Management Balance Sheet Management 3 April 2007 1. Know Your Balance Sheet 2. Assess Your Practices • Materiality of values • Are current practices effective? • Impact on service delivery • Are potential BSM impacts routinely considered? • Past experience • When was the last time you • Degree of external scrutiny formally assessed your approach? • Degree of subjectivity • Is BSM on your Board’s radar? PricewaterhouseCoopers LLP 6
  7. 7. CIPFA in the Midlands 1. Understanding your Balance Sheet Balance Sheet Management 3 April 2007 Balance Sheet analysis matrix – Analysis of XXX Public Sector Body Recent Materiality Criticality of Past External Judgement: Other Balance sheet component balances1 (£m) area to experience (eg scrutiny: area area where Balance sheet Impact on (Enter values operational history of of political/ specific values operating not RAG) delivery (eg material public expertise is costs assets used error/fraud/ sensitivity?2 required?3 for delivery- poor critical areas) performance) 1. Tangible Assets 1,447 2. Intangible Assets 0 3. Investments 1.3 4. Stocks 0.5 5. Debtors 174.1 6. Cash & Bank 0.1 7. Creditors 655.3 8. Provisions 364 9. Reserves 76 10. Net book entries 526 Illustrative Example Highly Material / Significant Medium Materiality / Low Materiality / Area of Focus Significance Significance PricewaterhouseCoopers LLP 7
  8. 8. CIPFA in the Midlands 2. Assessing your BSM practices Balance Sheet Management 3 April 2007 Governance, Risk & Controls Accounting & External Reporting 1. Accounting framework understood/applied correctly 1. Organisational culture: importance placed on BSM 2. Accounting systems / processes are fit for purpose 2. BSM embedded in all relevant strategies and plans 3. Complex accounting areas are considered and addressed 3. BSM responsibilities formally assigned 4. Judgemental areas are analysed and reviewed 4. Decision-making framework considers BSM implications 5. Accruals & prepayments calculated on a timely basis 5. Appropriate assurance is provided over all aspects 6. Provisions / contingent liabilities / commitments of BSM treated correctly 6. Risk management activity includes BSM 7. External reporting obligations are satisfied considerations 8. Audit trails and evidence are robustly maintained Operational Management Financial Management & Decision Making 1. Asset management is effective 1. BS factors embedded in planning and budgeting 2. Stock management is effective 2. BS factors embedded in IYM & forecasting 3. Debt management processes are effective 3. Internal reporting reflects balance sheet status/issues 4. Creditor/liability management processes are effective 4. Activity analysis and costing consider balance sheet impacts 5. Treasury management processes are effective 5. Financial decision support includes BS factors 6. Provisions are properly managed PricewaterhouseCoopers LLP 8
  9. 9. CIPFA in the Midlands Assessment of BSM practices Balance Sheet Management 3 April 2007 Governance, Accounting & Risk & External Controls Reporting Operational Management Financial Management & Decision Making PricewaterhouseCoopers LLP 9
  10. 10. CIPFA in the Midlands Interpreting the results Balance Sheet Management 3 April 2007 GRC 4 AER 4 The organisation's Judgemental areas are decision-making underpinned by framework is effective appropriate analysis and and requires appropriate management review consideration of balance sheet implications OM 2 & 3 Stock management is effective in supporting delivery of the FMD 3 organisation's outputs Internal reporting properly reflects balance sheet impacts Debt management and issues processes are effective PricewaterhouseCoopers LLP 10
  11. 11. CIPFA in the Midlands Interpreting the results Balance Sheet Management 3 April 2007 Recent Materiality Criticality of Past External Judgement: Other Balance sheet component balances1 (£m) area to experience (eg scrutiny: area area where Balance sheet Impact on (Enter values operational history of of political/ specific values operating not RAG) delivery (eg material public expertise is costs assets used error/fraud/ sensitivity?2 required?3 for delivery- poor critical areas) performance) 1. Tangible Assets 1,447 2. Intangible Assets 0 3. Investments 1.3 4. Stocks 0.5 5. Debtors 174.1 6. Cash & Bank 0.1 7. Creditors 655.3 8. Provisions 364 9. Reserves 76 10. Net book entries 526 Illustrative Example Highly Material / Significant Medium Materiality / Low Materiality / Area of Focus Significance Significance PricewaterhouseCoopers LLP 11
  12. 12. CIPFA in the Midlands Applying the framework: potential action plan Balance Sheet Management 3 April 2007 1. Purchase copy of Cipfa/PwC BSM Framework (www.cipfa.org.uk/shop) 2. Read your new copy of Cipfa/PwC BSM Framework Recent Materiality Criticality of Past External Judgement: Other Balance sheet component balances 1 (£m) area to experience (eg scrutiny: area area where Central finance team Balance sheet Impact on (Enter values operational history of of political/ specific values operating not RAG) delivery (eg material public expertise is costs assets used error/fraud/ sensitivity? 2 required?3 3. Complete a) BS analysis matrix for delivery- poor critical areas) performance) 1. Tangible Assets 1,447 2. Intangible Assets 0 3. Investments 1.3 4. Stocks 0.5 5. Debtors 174.1 6. Cash & Bank 0.1 Directorate finance teams 7. Creditors 655.3 8. Provisions 364 9. Reserves 76 10. Net book entries 526 Internal auditors b) BSM self-assessment External auditors 4. Identify material or priority areas 5. Assess any performance gaps 6. Implement improvement plan to address material deficiencies 7. Consider communications required to support implementation (eg operational or other non-financial managers, board members etc) PricewaterhouseCoopers LLP 12
  13. 13. CIPFA in the Midlands Any Questions? Balance Sheet Management 3 April 2007 Joanna Watson 01509 604039 joanna.watson@uk.pwc.com www.cipfa.org.uk/shop PricewaterhouseCoopers LLP 13
  14. 14. * © 2004 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.

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