P.O. is cited as example of poor management

Press, 19 June 1986, Page 23

P.O. is cited as example of poor management

A leading adviser in the restructuring of the public sector yesterday cited the Post Office as an example of poor financial and resource management. Mr David Shand, head of the Financial Management Support Service, attributed poor service, poor profitability, high charges, and low productivity to the Post Office.

Giving an address at the Christchurch Town Hall, organised by the Canterbury Chamber of Commerce, Mr Shand selected the Post Office and the Railways as bad examples among the departments which will become corporations by April 1 of next year. Corporatisation was not an answer to the problem, and there were problems with corporatisation in monopolies.

"We have only to look at Air New Zealand as it was to see a corporatisation which had high charges, poor profitability, low productivity and poor industrial relations.”

The Government’s view was that the problems arose from present unclear roles, conflicting objectives, burdensome controls, lack of commercial freedom, and inadequate structures, said Mr Shand. He has taken leave from his position as chief director of the Victorian Auditor-Gen-eral's Office in Melbourne, to take up a two-year contract with the New Zealand Government.

He emphasised that some Government departments in New Zealand had relatively sophisticated corporate planning, budgeting or report pro-

cesses for good resource management. They would compare favourably with those in any private sector organisation. Some recent changes had reduced the amount of financial controls over departments. For example, bulk financial allocations allowed some discretion to vary expenditure within an over-all limit.

Revolving funds in a number of semi-trading areas, such as the Government Printing Office and the Government Computer Service, allowed departments to spend their own receipts on defined activities. Greater freedom for departments to develop their own management information systems, and withdrawal of a significant number of Treasury instructions, were other measures.

However, drawing on a 1984 Treasury study, Mr Shand said inadequate asset management was a problem in many departments: these were not fully aware Of the amount of resources or assets (such as land and buildings) which they held. “Indeed, they are not even required to report the level of their assets, or the cost of using them (as represented by a depreciation charge) in any financial statements. Further, there is no requirement or incentive for them to minimise their asset holdings.”

Cash flow management was often poor, with little incentive for departments to collect revenue fully, as it went to the consolidated account.

Departments did not pay for some of the services they consumed, and thus had little

incentive to economise in the use of these resources.

“This will largely disappear with charging for office accommodation and other services from now on, coupled with freedom to choose their source of supply rather than have to buy from a Government source.”

Departmental heads were not required to prepare or certify financial statements. The only information the public and Parliament obtained on department financial operations was Treasury statements.

“The present cash-based appropriation system means that they show only cash receipts and outlays, and provide no information on costs of operations, and assets and liabilities.” There was little incentive for managers to be efficient or underspend, as they would be cut back in funds the next year.

Some of these problems had been dealt with by the freeing up of financial controls, but departments remained heavily restricted by detailed staffing controls imposed by the State Services Commission.

“Departmental managers have limited ability to reassign staff, or to decide how much they are paid. Altering organisational structures requires so much paper work and delay that many departmental managers just do not try. The result is that at, say, district office level, labour is regarded almost as a free good.” Significant freeing up of the Public Service labour market was essential for good resource management, Mr

Shand said. He suggested that budgeting should be directed to purposes and objectives of programmes rather than in being “just an exercise in deciding how much departments are to be allowed to spend.” Departments could be required to report fully on resource management through performance indicators and more informative financial statements in their annual reports. The activity of the AuditorGeneral in reviewing value-for-money issues in departments, could be expanded. A formal system of rewards of sanctions could be applied to all financial managers. Mr Shand said this would be very difficult to implement in practice, however he described how a system worked in the Victorian Auditor-General’s Department Each year, Mr Shand and his superior rank Mr Shand’s performance on a scale, on which a discretionary portion of his salary will be based. Similarly, the performances of three subordinates of Mr Shand are assessed. The motivational aspect, rather than the income fluctuation, was the main benefit, Mr Shand said. He said there was no evidence that across-the-board arbitrary cuts in departmental spending improved resource management.

“We should also remember that keeping within a budget figures is not necessarily the same thing as efficient and effective operations.”