Public Sector Accounting
A Delicate Balance
Municipal performance indicators attempt to find the ideal symmetry between financial and quality of service measurements.
FROM: JAN-FEB 2003 ISSUE | BY JEFF BUCKSTEIN
Unlike private sector accounting, which is heavily oriented toward the bottom line, accounting in the public sector walks the fine line between efficiency and effectiveness. Seeking a balance between financial and quality of service measures can often prove quite complex.
"If you focus too much on efficiency, you can [negatively] impact your customer service and effectiveness. If you do the opposite and focus just on customer service and effectiveness, you can sacrifice efficiency," says Lorne Turner, senior financial adviser to the chief administrative officer at the City of Toronto.
In response to this challenge, several municipalities have instituted varying degrees of formal and informal performance indicators to help them measure not only the bottom line cost of services they are delivering to taxpayers, but also the services' efficiency and effectiveness in order to determine whether or not such services are meeting their underlying social goals.
Municipal Initiative
Winnipeg is one such city. It has adopted a system of municipal performance measures, even though the province of Manitoba has not yet implemented a formal set of standards for its municipalities. Winnipeg began developing the Organizational Performance Management and Reporting (OPMR) program in 1997, says chief administrative officer Gail Stephens, FCGA, who was city auditor at the time.
"Basically, the audit department brought in individuals from all of the departments to talk about what they provided in terms of services. It was the first time people from the various departments sat down and talked about common programs and services in terms of the clients they served," she recalls.
The statistics gathered under the OPMR program involve 36 key service areas, the measures for which will link to a 20-year plan called Plan Winnipeg. (A first performance report for the year 2002 is expected during the first quarter of 2003.) Some of the major service areas involve measures concerning crime prevention, parks and open spaces, assessment and taxation, garbage collection and water. Within those areas, things like client satisfaction, cost efficiency and effectiveness of services are evaluated. To take crime prevention as an example, these measures would evaluate details such as calls for service, call responses and the number of crimes investigated.
Provincial Direction
While the City of Winnipeg developed a performance measurement plan without provincial direction, the province of Ontario has the most comprehensive set of standard measurements in the country. These were unveiled in October 2000 in its Municipal Performance Measurement Program (MPMP). The MPMP made it mandatory, beginning in June 2001, for all local governments to provide taxpayers with access to current information regarding both the quality and cost of services in their communities.
Municipal performance measures were devised for nine core municipal service areas:
- Garbage (measuring factors such as operating costs for waste collection and disposal, operating costs for recycling, and complaints concerning garbage collection and recycling);
- Sewage (including operating costs for collection, treatment and disposal, a measurement of sewer-main backups and untreated sewage released);
- Water (such as operating costs for water treatment, water leaks and boil-water advisories);
- Transportation (such as operating costs for paved and unpaved roads, operating costs for winter control of roadways, and conventional transit ridership per capita);
- Fire (including operating costs for fire services and fire loss);
- Police (including operating costs for police services and cases cleared);
- Local Government (with measures covering operating costs for municipal administration and council members);
- Land-Use Planning (measuring the percentage of new lots created and agricultural land retained in an agricultural designation); and
- Social Services (including the percentage of people participating in welfare-to-work activities and receiving social assistance).
Cambridge, a city of about 110,000 in southwestern Ontario, has published a comprehensive set of MPMP statistics on its Web site (www.city.cambridge.on.ca). Two of the city's efficiency measurements revealed, for instance, that the cost of fire services in 2001 was reduced to $1.95 per $1,000 assessment, compared to $2.06 per $1,000 assessment the year earlier. At the same time, the cost for paved roads increased in 2001 to $1,998.77 per kilometre, from $1,967.73 per kilometre in 2000 because of additional road maintenance. One of Cambridge's effectiveness measures, the adequacy of roadways, showed that the proportion of paved-lane kilometres rated as "good," meaning there is minimal surface roughness and no maintenance is required, slightly increased to 85.54 per cent in 2001, from 84.59 per cent the previous year.
The city plans to use these figures to develop a consistent model with which to measure its internal performance over time vis-à-vis both the way services are delivered and the associated costs of delivering them. "Although the [MPMP] program will not necessarily allow us to compare ourselves to other municipalities, because everyone has different service levels and ways of delivering those, it will allow us to see if there's any best practices others are using that may benefit the residents of Cambridge," says Steve Fairweather, the city's director of financial services.
Program's Purpose
So why are Ontario and other provinces introducing programs for municipal performance indicators in the first place?
There were several reasons why the Ontario government introduced the MPMP, says Larry Clay, director of the municipal performance and accountability branch for the province's Ministry of Municipal Affairs and Housing. During the mid-1990s, he explains, the provincial auditor had recommended that the province institute a process whereby municipalities could better understand what services they were delivering, as well as the cost of those services.
The need for such measurements was further underscored during the latter part of that decade, as several dramatic changes swept the province. Clay provides three examples, including a realignment of several service delivery activities at the municipal level; amalgamation and restructuring, which reduced the number of Ontario municipalities; and current value assessment, which resulted in significant changes to the way properties are appraised, assessed and taxed.
In addition to the call for increased accountability, measures were also required to provide enhanced municipal service delivery. "You can't really understand how you're doing unless you can measure it," says Clay. One of the aspects of the MPMP program is to help municipalities get a better handle on how well they're delivering services. "Over time, they'll be able to improve upon that," he says.
Another rationale behind establishing the MPMP was to provide a common database for municipalities to determine which were providing services in the most efficient and effective way. The information sharing would enable officials in successful municipalities to assist others who might face similar problems in terms of trying to establish how to best deliver certain services to taxpayers.
Fairweather explains that, unlike in the private sector, the exchange of information is carried out freely in the municipal sector. "If somebody's got something that works well, they're willing to share it with other municipalities," he says.
In practice, however, that doesn't always work so well when a giant city like Toronto enters the picture. Toronto's infrastructure and the costs associated with servicing its 2.5 million residents is difficult, if not impossible, to compare to other provincial cities. Turner points out how, for instance, there are no other municipalities in Ontario with a comparable subway system to Toronto.
Indicators as Guidelines
Size, however, isn't always a determinant of the complexity of a measurement plan. Despite being a much smaller province, Nova Scotia's performance indicator programs are no less detailed. Similar to Ontario's program, Nova Scotia has a series of 41 municipal indicators in place, broken down into categories, including financial, community, governance and performance indicators.
These indicators have been established to prompt investigation and analysis on the part of municipalities, says Bob Houlihan, CGA, municipal adviser for Service Nova Scotia and Municipal Relations in Halifax.
The province has been working on its municipal indicator project for three years, collecting financial statements from municipalities, analyzing the numbers and entering them into a system, then using these statistics to develop indicators. Municipalities can use the statistics, for instance, to determine whether police services would be delivered more cost effectively through a local force or if contracted out to a Royal Canadian Mounted Police (RCMP) detachment, says Houlihan. The province planned to have statistics covering the two fiscal years from 1999-2001 for all 55 provincial municipalities ready for publication by the end of 2002.
Unlike Ontario, however, municipalities in the Maritime province are simply obliged to provide financial information to the province; they're not required to report in a standardized format.
Maria Medioli, performance measurement co-ordinator for the Halifax Regional Municipality, says the Nova Scotia capital is currently implementing its own program called the Performance Measurement Initiative. Although this initiative was informally introduced three years ago, it wasn't until December 2001 that the measures were given their present structure, at least partly because of a lackadaisical response from business units.
"Each business unit was asked to provide some performance measurement data in their business plans, but we found that wasn't happening," says Medioli. "They might list some performance measures, but these were never formally tracked, reported or analyzed, or corrective action taken," she says. The process was formalized and made part of the business plan last year.
Less Formal Plans
Unlike Ontario and Nova Scotia, Alberta has no formal or informal performance indicator plan in place for its municipalities to follow, although the province does support the municipalities' individual efforts to assess their performance. "We strive to help municipalities with their financial management practices and accountability to local residents," says Karen Sigurdson, an Alberta municipal affairs spokesperson in Edmonton.
The province gathers financial and statistical information annually from each municipality and compiles it in a detailed database. It then uses this information to produce financial indicator graphs to help municipalities measure their own performance vis-à-vis other municipalities of a similar size and tax base, explains Sigurdson. Some of the indicators calculated are operating expenditures per capita, tax collection rates, net municipal property taxation, and short- and long-term liquidity.
Even though there is no set provincial plan, Calgary introduced performance measures in 1995, in response to budget cuts by the provincial government. Municipal managers recognized the need to manage operations more closely in light of a reduced revenue stream, says Archie Chumak, a corporate consultant with the city.
Over the past seven years, Calgary has developed three levels of measures, at the program, corporate and community level. Examples of statistics measured at the community level include public safety (crimes per capita), urban form (density of new suburbs), environmental measures (air quality), and an overall quality of life measure, with the results of citizen surveys taken into account. Corporate measures assess the city's overall performance and have three major themes: efficiency (expenditures per capita); effectiveness (overall citizen satisfaction with civic services); and employee wellness (training, accident rates).
Historically, program evaluation has focused primarily on financial results. But the new methodology Calgary uses has expanded this evaluation framework to include an assessment of the amount of service delivered (output), as well as the impact and benefit on its citizens (effectiveness). When looking at whether or not to increase the transit budget, for example, city council and senior administration can study the city's measurements and take into account both efficiency factors, such as unit costs of output per employee, and effectiveness factors, such as the degree to which customers use the service, before making a final decision, Chumak says.
"Our dream is that someday, decision makers are going to look at the performance information and citizen satisfaction ratings with the same level of seriousness as they look at dollar costs," he adds.
The city of Grande Prairie, in northwestern Alberta, also has some performance indicators in place, designed to measure both process (efficiency) and outcome (effectiveness), although the current measures are mainly oriented toward the former, says director of financial services Ken Anderson.
One of Anderson's long-term objectives is to make the performance measures more outcome-oriented. "To me, the outcome measures are more important than the process measures because they measure effectiveness, which goes down to the root cause of why that department is actually there," he says. And measuring outcome should mean allocating resources to the programs that need it most. Given the limited resources available to Grande Prairie (and most Canadian cities), this is a major benefit.
Efficiency and Effectiveness
Unlike the bottom-line profit a private sector company provides to its shareholders, municipalities enjoy a unique relationship with their citizens that cannot simply be measured in dollars and cents. They must also take into account the efficiency and effectiveness of the services delivered in order to properly assess their impact on the public's welfare.
While it is too early to judge the success of the various municipal performance indicator programs in place across Canada (many experts agree that data must be collected for at least three to five years to have a meaningful base of information to draw upon), it's clear many municipalities and provinces have taken major strides to increase the quality and quantity of reporting they provide taxpayers. And many CGAs are using their public sector expertise to play a prominent role in this ongoing effort to develop and monitor these new municipal performance indicators.
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Resident Expert
The Province of Quebec is in the process of establishing standardized municipal performance indicators, in large part due to the efforts of Michel Guindon, MBA, PhD, FCGA, the 2002-03 chair and CEO of CGA-Canada and a professor of accounting at the École des hautes études commerciales of Montreal.
In June 2002, the province passed Bill 106, which included provisions whereby the ministre des Affaires municipales et de la Métropole (the provincial municipal affairs minister) could authorize municipalities to report on their performance beginning in 2003. A number of details still need to be worked out; for example, it has not yet been determined how many indicators will be used. Guindon expects the province to initially settle on 30 to 35 of the more than 100 indicators he has suggested. Also being discussed is whether all municipalities or only those with a population above a certain number — say 10,000 — should be required to report, he says.
Guindon's expertise in the subject was noted in 1997, when he co-wrote a book on performance measurement entitled Performance Indicators (Guérin), along with Estelle Morin, professor of psychology at the University of Montreal and Émilio Boulianne, professor of accounting at Concordia University. That research project was sponsored by l'Ordre des CGA du Québec.
Performance Indicators attracted the attention of the Quebec government, who contacted Guindon the following year about outlining a framework for its municipalities to follow. Recognizing there is a world of difference between a private business and a government entity when it comes to providing both quantitative and qualitative measurements, Guindon made adjustments to his original research, which had been oriented toward the bottom line-focused private sector.
"When I was asked to use that framework for the municipalities, I knew I would need to adapt it," Guindon says. "Municipalities have services such as water, roads, police, fire and libraries, so I recognized there would have to be different indicators for each of those activities."
Guindon wrote two reports for the province. The first report, to develop the framework for municipal performance indicators, was published in November 2000. The provincial government accepted that framework and the municipalities successfully tested it. Then Guindon produced a final report, incorporating the results of those tests, which was published in July 2002. He is now preparing for the third and final phase of implementation, which will involve training participating municipalities throughout most of 2003.
A novel application with these measures is that they incorporate qualitative factors about the workers' climate, rather than simply take quantitative data from the financial statements. Quebec is measuring performance in four different dimensions: sustainability of the organization, economic efficiency, worth of human resources, and legitimacy of the organization in relation to external groups. Once the government has begun to accumulate the data, Guindon estimates it will be necessary to have at least three years — but preferably five — to use as a benchmark. |
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Jeff Buckstein, CGA, is a freelance business writer living in Ottawa.