Adding Insight to Finance: Using Analytics to Improve Public Sector Financial Management
Dennis, Vincent, The Journal of Government Financial Management
Public Sector Finance: Issues and Challenges
Information drives options. In this era of the "new fiscal normal" - extending indefinitely if not permanently into the future - the old ways of making decisions no longer work. Using historical trend extrapolations or "gut instincts" do not serve the pace, scale or scope of challenges confronting the public sector. Borrowing from (or adopting alongside) the private sector, federal, state and local agencies increasingly recognize that greater access to information leads to better decision-making and, ultimately, the improvement of citizen services and government performance. On a given budgetary or revenue dollar-for-dollar basis, the demonstrated return of finance analytics-supported decisions can outperform the current alternatives. Consider these examples:
- A state revenue department leverages its finance analytics program to model the implications of foreclosures on revenue collection receipts. This foresight enables leadership to "stay in front of the wave" by adjusting program expenditures and exposures based on realistic revenue forecasts, a measure unavailable under its previous mid-month reconciliation/reporting approach.
- A federal Medicare and Medicaid services agency employs finance analytics to streamline recovery of improper payments. This capability ultimately allows the agency to isolate internal control and process weaknesses and substantially reduce improper payments. After converting unstructured and discordant data to an enterprise standard, this organization is then able to evaluate its program portfolio against revised strategic objectives, reallocating investment funds from lower performing or misaligned activities.
- A state revenue department introduces a finance analytics initiative to unlock data from isolated program silos to support performance management, increase transparency and accountability, and amend a "one-sizefits-all" tax collection program. This department now provides real-time information on state expenditures (including American Recovery and Reinvestment Act of 2009 funds), tracks collection activity through key performance indicators and orchestrates its enforcement program on a risk-value basis. This has resulted in substantial return on limited revenue collection investments.
Finance analytics today should properly be considered another milestone achievement of the Chief Financial Officers Act of 1990 as well as Governmental Accounting Standards Board (GASB) Statement 34 and changes associated with them. These changes include the widespread adoption of common budget-accounting structures and standards, integrated financial management systems, disciplined processes and controls, and more uniform program and financial reporting. Many public agencies are pivoting from a financial accounting posture to an arguably more useful cost accounting one that better enables them to manage their resources. This exhausting attention to improving the timeliness, accuracy and completeness of financial and program data borne of the early 1990s statutes and regulations now positions public agencies to accelerate the conversion of program and financial inputs into decision-assisting management information through finance analytics initiatives.
Distilling management information from program data is not a trivial undertaking - it requires a mature understanding of the operational, regulatory and demographic environment and a firm command of the agency's services portfolio. To this must be married a responsive information technology infrastructure. However, the potential benefits are quantifiably immense. Mainstreaming analytics into their fiscal resource allocation and execution processes - finance analytics in its broadest definition - enables public organizations to better support timely consideration of program options. The compounding return is triggered when agencies realize that an organic analytics capability can open unprecedented opportunities to fundamentally transform how they approach their charter. …