“Procure To Pay” in the Canadian Public Sector

Jennifer Kroeker-HallSince 2011, Mr. Jamie Tibbetts serves as the Assistant Deputy Minister and Chief Financial Officer of Health Canada where he has been leadinga wholesale transformation of Health Canada’s finance function.  For example, HC has implemented SAP workflow, has fully automated its “Procure to Pay” processes and has eliminated “Wet-Ink” signatures. Transformation of the financial management advisory (FMA) functions, as well as the asset management and procurement function of the Department have also been implemented. Mr. Tibbetts has been a CFO in the Government of Canada since 2005. In 2010, Mr. Tibbetts took on the one year role of Director General of Devolution and Territorial Relations with Aboriginal Affairs and Northern Development Canada, where his responsibilities included the design and implementation of the new Northern retail food subsidy program (Nutrition North Canada), and advancing transfer of responsibilities to territorial governments in Canada’s North.
 
Mr. Tibbetts brings with him a substantial and diversified array of financial and executive experience in five federal departments, where he has utilized partnerships and collaboration efforts to improve federal government operations using various change management approaches such as BPM – Business Process Management. Mr. Tibbetts is an alumni of Saint Mary’s University in Halifax, Nova Scotia and is the recipient of the 2013- 2014 Governor General of Canada Public Service Award of Excellence. He also received the 2013-2014 Chartered Professional Accountants (CPA) of Canada awards of Excellence in Public Sector Financial Management Innovation.


Health Canada’s “Procure to Pay” initiative showcases a major transformative innovation within the financial services operation of the Canadian Health Portfolio. This ground-breaking project was a CAPAM 2014 International Innovations Awards semi-finalist for the category Innovative Use of Technology in the Public Service.
 
BACKGROUND AND CONTEXT
 
Not unlike its peers around the world, the Government of Canada challenged its public service to deliver sizable savings in response to fiscal challenges resulting from a global economic downturn. In contribution to the government’s deficit reduction action plan, Health Canada (HC) and the Public Health Agency of Canada (PHAC) committed to decreasing its annual budget by approximately 10% annually. To support the department in reaching this target, the Chief Financial Officer Branch (CFOB) of HC pledged to do its part to achieve savings in the order of $3 million annually, including the elimination of 30 permanent positions. The principal vehicle for delivering on these commitments was the implementation of a new initiative: Procure to Pay (P2P), which accounted for $2 million of annual reduction.
 
Financial administration has its roots in the era of yesteryear, where detail-oriented staff filled forms with numbers and codes, matched requisitions with invoices, stored documents for audit trail purposes, and monitored budgets. Traditionally, this was labour-intensive work, prone to paper burden, inefficiency and inconsistent processes. Advances in technology over recent decades have improved this scenario incrementally, in keeping with risk-adverse tendencies of the finance community and a preference for “wet-ink” processing. A true breakthrough was slow in coming. HC re-examined its back-office, noting that the “low-hanging fruit” was long gone, as was the capacity to “trim at the edges”. Instead, an opportunity was identified to implement a major transformation that was long overdue and unprecedented among peers. Its vision was vetted through a due diligence process conducted by a competent third party. HC ended a long period of administrative stagnation by implementing electronic approvals and authentication, workflow and email routing with P2P in its financial system (SAP). P2P offered (and delivered) hard savings, a great return on investment, an opportunity to expand its migration to portfolio- shared services, plus an exciting opportunity to innovate.
 
Implementing P2P involved a close partnership between two major departments (HC and PHAC). Both organisations provided unqualified senior-level commitment and support, which resulted in the project receiving the necessary financial priority within the departmental investment planning process. A steering committee of senior executives, including the Chief Financial Officers (CFOs) from HC and PHAC, was created to oversee the project. In addition, a dedicated project team with expertise in P2P automation, SAP and information technology, under the direction of a full-time HC project manager, was also created.
 
The CFOs assumed leadership of the project and co-chaired the project steering committee. HC’s CFO (the initiative lead champion) held cross-country discussions with regional senior financial officers and employees affected by the changes. Regular meetings at various executive levels of management between the two organisations were held to resolve issues quickly and to keep the project on track.

The project team kept regional offices and branches informed of their progress and consulted them throughout the project implementation. In addition, it provided training to over 3,000 staff (cost centre managers and administrative, finance and procurement communities), all with a minimal amount of travel by using web-based training. Through the guiding principle of “relentless standardization,” the project team ensured that identical service offerings and standard business processes were available regardless of location – something that had previously been unattainable.
 
Some of the challenges encountered throughout the project included:
  • Initially mixed support from the Government of Canada finance community: P2P is based on a business process model developed collaboratively through the Comptroller General of Canada, yet it had never been fully automated in  the core public service. An interdepartmental working group was in the process of furthering this work over time, but it was not advanced sufficiently to permit HC to capitalize on its efforts. As a result, the HC team took some calculated risks in moving forward “ahead of the pack”. Happily, the Team’s tenacious pursuit of P2P was successful on all fronts; the project was well-conceived, well-managed and well-governed. Lessons learned have been duly shared with the aforementioned working group and the contribution of HC to “moving the yardsticks” for the benefit of the financial community has been broadly recognized.
  • Scope Definition: The initial scope for the project required adjustment to include more components as the project progressed. Some of this was attributed to the absence of some of the mostknowledgeable client resources at the outset of the project. This situation was rectified during the project with the addition of more expert client staff during the blueprinting phase of the project.
  • User Acceptance Testing: The procurement subject matter experts (SMEs) scheduled to perform the User Acceptance Testing (UAT) for P2Pwere not knowledgeable in SAP-based procurement transactions.  Procurement staff required basic SAP and SAP Procurement training with a limited amount of time available. It is important to assess the level of knowledge of testers prior to UAT.
  • Change Management/ Training: The change management requirement on the procurement side was quite high, exceeding that required for accounting. Part of the issue was the lack of familiarity by procurement staff of SAP processes. Additional SAP training earlier would have been beneficial.
  • Timing of Implementation: The procurement launch occurred near fiscal year- end 2012-13. This is the busiest time of the yearfor procurement staff. This, coupled with a lack of knowledge about SAP functionality, created serious challenges, which were overcome by reassigning staff and the use of overtime. On the positive side, this situation fully tested the new system as all aspects of procurement activity are encountered during this year-end period.
 
THE INNOVATION
 
HC was literally the first organisation in the public service of Canada to embrace the concept of P2P and to implement it fully and successfully. The nature of this innovation is such that Procure to Pay has revolutionized the transactional environment for procurement and accounting by creating a single, integrated shared services platform serving two major Canadian departments – HC and PHAC (which was subsequently extended to a third partner – Aboriginal Affairs and Northern Development Canada). In short, it has delivered significant improvements in service delivery to clients while achieving substantial gains in efficiency as well as a return on investment of 300%. It represents a re-engineering and automating of the procurement-to-payment process through electronic workflow approvals and the use of e-signatures in a paperless environment.
 
P2P represents end-to-end processing at its best as all processes are now electronic and integrated. Goods and services are acquired and paid for via the corporate financial system (SAP). This means: one-time data capture; a paperless environment; standardization of processes and services across Canada (previously variable among 26 offices); integration with email, together with a user-friendly portal (minimal training required); fewer late payments (and interest charges); and less low- value effort in matching purchase orders and invoices or chasing down documents.
 
The end result was a more streamlined, efficient, technology- based, and standardized accounting and procurement shared service delivery model that levered best practices in the private sector in a modern SAP environment. The implementation plan entailed a phased approach with each phase having specific release components and/or companion activities relating to change management, communications, training, and human resources management.
 
EFFECTIVENESS 

The P2P project was implemented on budget and on schedule. It is fully operational and provides all of the ongoing benefits that had been anticipated during its approval phase. These ongoing benefits include improvements in efficiency, effectiveness, standardization of business processes, and compliance with internal controls as well as an anticipated return on investment of 300% over 5 years. Transaction processing times have been improved because invoices are now sent to only two accounting hubs and are no longer going to over 2,500 cost centre managers as they were prior to P2P. Due to the implementation of automated preventive controls, the requirement for minimum quality assurance review steps prior to payment issuance on low-risk payments was eliminated.
 
The total cost to implement the initiative was just under $2.5 million, which has generated savings of $2.0 million annually starting in 2014−15. HC and PHAC now have two national processing hubs in Ottawa and Winnipeg (reduced from 26) and the staffing complement has been reduced by a net 30 positions (21 in accounting and 9 in procurement). This return on investment is real and continuous.
 
A further measure of sustainable benefits is reflected in the expansion of HC’s platform to support another large federal department --- Aboriginal Affairs and Northern Development Canada started in April 2014, which inevitably has lead that organisation to derive similar savings and benefits as an indirect result of HC’s accomplishments. As well, HC has provided its P2P solution to the Integrated Financial and Materiel System Program office (a horizontal forum supporting interdepartmental solutions), which is looking at leveraging the solution in developing an enterprise SAP solution for the Government of Canada at large.
 
In terms of independent assessments related to this Project, it is significant that the Treasury Board of Canada Secretariat (a central agency) documented HC’s P2P project as a case study for presentation to the Deputy Minister Board of Management as a business process improvement initiative that would be of benefit to other departments considering similar projects. The project has been profiled on the government’s website with case studies highlighting departmental business process improvement initiatives. As well, that Secretariat has nominated this initiative to the OECD international repository of public sector innovations known as the Observatory.
 
The P2P Project Team received two important achievement awards for their work. The first was the 2013-2014 Governor General of Canada Public Service Award of Excellence. The second was the “CPA 2014 Award of Excellence in Financial Management” awarded by the Chartered Professional Accountants of Canada as announced on May 14, 2014: “… (it) celebrates innovative thinking, leadership and exemplary delivery of financial management services that lead to higher productivity and/or cost savings… demonstrated exemplary commitment to innovation and the sound financial management of public funds.”
 
LONG-TERM SIGNIFICANCE

For financial administration – a domain not known for its state- of-the-art proclivities, P2P could be viewed as the proverbial “killer app”. P2P was transformative – it enabled the implementation of a single, integrated shared services platform serving multiple organisations with respect to procurement and invoice payment.
 
P2P has raised the bar in terms of how financial administration is handled in a public sector environment. HC’s success points the way for the rest of the federal financial community to embrace this innovation. In this sense, it has changed forever how the specific challenges of processing thousands of purchase orders and invoices are perceived. P2P has enabled a giant leap forward towards the achievement of the paperless environment that has been touted for some years.
 
It paves the way for previously sceptical or reluctant public sector leaders to push for similar initiatives in their organisations. It enables financial visionaries to identify additional enhancements to enrich further over time the functionality that a P2P-based system offers; the P2P innovation will inevitably enable further innovation spin-offs.
 
Success may well spawn interest in other domains, including Canadian provinces and other countries in the Commonwealth and perhaps beyond (particularly those who have adopted SAP or other large ERP’s as a corporate financial system). Lessons learned and tools developed are readily shareable to those interested in testing the P2P waters.
 
TRANSFERABLE LESSONS LEARNED
 
The key transferable lessons learned relate to:
  • Leadership: Both HC and PHAC providedunconditional senior-level support and commitment to the objectives of the P2P project. Although the HC CFO played the champion role and served as the office of primary interest on the P2P vision and execution of the overall transformation, the CFOs co-managed aspects of the projects and provided the appropriate oversight. HC’s Departmental Audit Committee and the Treasury Board of Canada Secretariat were engaged and kept current on the project as it progressed.
  • Timing: The renewed procurement system was launched near the end of fiscal year 2012‒13, which happened to be the busiest time for the procurement staff. This, coupled with a lack of knowledge about SAP functionality among administrative staff in some regions, created serious challenges for the project team. It is important to consider year-end and peak periods when determining a rollout of this type of initiative.
  • Training: Because of aggressive timelines, HC experienced challenges in developing its initial P2P accounts payable project scope due to the unavailability of some of the most knowledgeable resources at the outset of the project. Likewise, at the testing phase, the procurement subject matter experts scheduled to perform the user acceptance testing for P2P were not knowledgeablein SAP-based procurement transactions. To ensure success in rolling out such an initiative, it is important to assess knowledge level and capacity of the organisation’s staff that will support the project roll-out to ensure they are trained appropriately to “hit the ground running.” A training plan should therefore be developed right from the onset that includes everyone who will either support or use the new system.
  • Transition Management: It is important to consider the people affected by change.Since the P2P project involved staff reductions and office closures, HC implemented a plan to communicate, educate, prepare and enable staff to accept and embrace the changes that affected their jobs. As a result of the commitment and careful management of the workforce adjustment process, all affected employees who elected to remain in the public service of Canada found alternative employment, with costs covered by CFOB.
 
The intended results for P2P were achieved because of strong leadership and adroit people management. Perceived gaps were in the area of timing of the implementation and in knowledge and skills that were overcome with the reassignment of staff, overtime and training.
 
HC/PHAC were the first federal government departments to implement P2P functionality. The Health Portfolio is considered to be a vanguard in this area in terms of best practices, efficiency realizations and improved internal controls. P2P drives business process re-engineering and enables organisational transformation. There is a growing interest, and sense of urgency in a number of departments seeking a P2P solution. Significant benefits accrue to organisations adopting a common P2P solution including an accelerated timeline and reduced cost for development, testing, implementation, training and change management.