For the public good: CMA Michael McLaughlin brings clarity of purpose and astute financial management to air transport and public performance reporting.

Accountability and security have been two of the central watchwords in Canadian public discourse for the past two years. Market scandals and terrorism have demanded that we reconsider how companies report financial results and how we secure our airports and borders--a major reconsideration of how we travel and do business that will affect the Canadian market considerably. Though the two issues seem unrelated, they have converged in the career of CMA Michael McLaughlin, vice-president and CFO of the Canadian Air Transport Security Authority (CATSA) and interim executive director of the think-tank CCAF-FCVI. As he explained to CMA Management, managing these issues serves the public, and McLaughlin has made a career out of serving the public good ever since he left university.

Layered logistics

Changes in airport security practices began after the Air India crash of 1985. It was at that point that airlines had to match baggage with passengers, and started screening passengers more carefully. But even so, as McLaughlin notes, "as you went across Canada, there was an unevenness of security measures being put in place. While the airlines took security seriously, it wasn't their primary business."

CATSA was created in response to the events of September 11, 2001. The tragedy had highlighted a number of desired enhancements in Canada's own security systems, and to protect Canada's interests at home and south of the border, it was expedient that these enhancements be made.

CATSA was launched April 1, 2002, to provide security for passenger travel in Canada, to the U.S. and to international destinations. It serves 89 airports in Canada, where it is responsible for pre-board screening of all passengers and luggage--tasks formally in the hands of the airlines. It is also charged with the security of all restricted areas of the airport, by screening non-passengers entering restricted areas, and creating a pass system for these non-passengers.

"We take the onion approach to security," notes McLaughlin. "The first line of defense is the perimeter of the airport, controlled by the airport authority. The carrier, then, is the first to see passengers, asking them if they packed their own bags. We then get the bags and have equipment with which you can see the interior of suitcases, and that can detect whether there are any explosive devices. There is also a swab that we run over the carry-on bags that will detect explosives and whether the passenger has been handling any explosives recently."

Passengers' photo ID is checked against their ticket, to be sure that the names match up, and the passengers and their carry-on luggage are also checked for any prohibited items prior to entering secure areas of the airport. On certain flights there are air marshals--RCMP officers to take care of any potential disruption.

It sounds like a straightforward process, but it involves a lot of employees: 130 people in CATSA headquarters in Ottawa, 15 regional managers, and about 3,500 screeners in the airports. The latter are contract employees.

McLaughlin's arrival at CATSA HQ is a recent one. Based on his successful career in management over the past 25 years, he was asked to meet the president of the organization. "I came for the interview just prior to the war in Iraq, and the issue of the economic security of the country was very much on my mind," he says. "I believe in bringing good cost accounting and good financial and public reporting practices to this organization, so that the people in operations--people who are true specialists in airport security--are able to focus on the job at band. I'm here to make sure Canadians are getting value for money from CATSA. The bottom line is that if CATSA doesn't exist, there is no air travel to the U.S. It's that simple. So it's imperative that it works."

Serving Canadians

CATSA has certainly picked a professional who understands strategic business management. McLaughlin has seen it from every angle of the public service.

He got his first taste of public service while still completing his math degree in university. At that time, he took a summer job with the Department of Industry, Trade and Commerce, doing an economic analysis of imports and exports.

"This was at a time when computers were not what they are today, in the late '60s," he remembers. "I was doing trend analysis on out-of-date material and inadequate equipment by today's standards."

But whatever the limitations of the job, it gave him a taste for public policy. "It really became a question of being interested in how Canadians got the services they should out of the public sector," he says. "It worked very differently back then. In those days, government would introduce a program and managers would then devise the best delivery model they could for the greatest part of the population. But there wasn't always thought put into what the overall capital and operating costs would be and the long term implications of such programs. I found it very intriguing."

After graduating, McLaughlin entered government service in Veterans Affairs. Within a couple of years, he found himself at Canada Post, where he was eventually promoted to manager of Corporate Planning. "I went there thinking that it was an organization that is, in some ways, business oriented, and an evolving organization, changing to suit the times," he says. "I was in systems research and development then, at the time they were introducing mail mechanization and the postal code--not that long ago. And I worked with the organization to the point when it was on the verge of becoming a crown corporation."

It was here that he was first introduced to the Auditor General's once--"at the sharp end of the stick," as he describes it. This was during James J. Macdonell's term as Auditor General, when the Auditor General Act was introduced, in 1977. That legislation formally broadened the Auditor General's mandate to include reporting on whether government programs are being implemented economically, efficiently, and with adequate means for judging their effectiveness. It was the birth of value-for-money auditing in Canada--a birth that was sometimes received less than enthusiastically.

"As the Manager of Corporate Planning, I had the unique opportunity of sharing my files with the Auditor General's office," McLaughlin says with a smile. "It's an experience you don't soon forget. When we got the AG's report, we were quite annoyed because they didn't seem to understand what we were trying to do. But on reflection and after discussing it, we decided that many of the things they'd written were insightful and helpful to the organization--it helped us move towards crown corporation status."

Cost-benefit control

Shortly after the audit, McLaughlin got a call from the Auditor General's office and was asked to join the other side.

"I told them, 'I don't even know how to spell accountant, so this doesn't make much sense to me,'" he notes. "But they said, no, the value-for-money audits are multi-disciplinary and they needed people with a background in management and strategic planning, so they thought I was a good fit."

After two years with the Auditor General, McLaughlin was asked to become an audit principal, which meant instead of having just particular audit projects in the value-for-money area, he was responsible for supervising the work of accountants actually involved with financial audits. It was then he knew he'd need a hit more education.

"I came to the conclusion that management accounting would have a stronger link to value-for-money auditing than anything being offered from other courses," he says. "I went for the CMA because the curriculum better suited what I was doing." McLaughlin was designated a CMA in 1989.

"I was very interested in the role that managers had of making the link between the cost of doing things and the results being achieved. This was not regularly done in government, so sitting down with people while I was doing these courses and asking them, 'what are you trying to accomplish,' was very satisfying. It presented a perspective that made them consider what programs cost and how you make trade-offs between costs and benefits. In public policy there are very, difficult decisions that need to be made. Some people say, 'we will do it regardless of the cost.' Those are the ones that sink the program."

During the time that Kenneth Dye was Auditor General, McLaughlin was asked to lead the planning and reporting activities of the Office. He was promoted to Assistant Auditor General and in that role he contributed to the issue of public performance reporting. "The AG's Report is an important source of information for Parliamentarians and the public to understand the governments programs," he notes. "No one can tell it like the AG."

In 1997, Auditor General L. Denis Desautels promoted Mclaughlin to Deputy Auditor General, the first CMA to achieve that rank. As Deputy, McLaughlin had responsibility for comptrollership and the financial management of the Office. In addition, he provided oversight for the audits of significant government wide issues associated with comptrollership.

And McLaughlin believes that the public realm still faces challenges in adopting good comptrollership, good sound financial management. "Over time I've observed an increased emphasis in bringing financial considerations to the table when decisions are made," he notes. "But it's still a challenge to find capable financial officers in government. In many cases they developed their financial expertise on the job without formal training, from people with a similar training history. We're trying to change that.

"We need astute managers who, when someone gives them a cost-benefit analysis, understand the assumptions underlying the numbers and integrate them into the decisions made. They can't receive the reports and then go ahead and make the decision based on other factors that ignore the financial implications and affordability issues. We need people who realize the importance of financial stewardship. This is not solely the responsibility of the director of finance. Financial stewardship is the responsibility of all managers."

But McLaughlin understands that bringing this perspective into government is going to be slow and difficult because many people enter government to promote a particular policy, a particular area where the outcome is their key concern. "Social workers can get very frustrated when they have to spend a lot of time filling out forms for finance and never see any benefit coming back. But modern comptrollership is the change that has to be made, and it is being made."

McLaughlin believes that the benefits of modern comptrollership will be seen most strikingly in asset management. Accrual accounting will create a system in which value depreciation is taken into account, so that there can be regular renewals of critical systems.

"We have crown corporations right now that work on an accrual basis, with GAAP financial statements, making purchases as necessary to keep their computer systems and other assets up to speed," he says. "Then we have government departments that are working on legacy systems that should have been replaced 10 years ago and can't get the money to replace them because the cost has escalated. It is a false economy that should change under modern comptrollership."

Wider scope

The comprehensive audits introduced in 1977 were seen, and continue to be seen, as a great success. Some in the Auditor General's office felt that these audits should be encouraged in the provincial governments as well, so that all senior governments would have this useful tool. This led to the creation of the Canadian Comprehensive Auditing Foundation, or CCAF. The name has changed to CCAF-FCVI, but many of the goals remain the same. And while the Foundation was launched to promote comprehensive auditing, it has become much more.

"After a couple of years, it was clear that the Foundation was about accountability, public reporting and comprehensive audit, and subsequent chairpersons and the first executive director J.P. Boisclair, have pushed these dimensions," McLaughlin notes. "The CCAF was taking a very forward look at management in public performance reporting--reporting in a way that an auditor could come in and say, 'this is a fair representation of the performance of the manager and the department.' At the time that comprehensive audit was introduced there was no such reporting method available, and there still isn't."

CCAF-FCVI has tried to bring together the legislature and the boards of crown corporations with auditors and management to determine what is needed for proper public accountability--what it should look like and the bases for conducting audits in an appropriate manner (see August/September 2003 issue of CMA Management for further information). Such an arrangement gives managers the basis to report in the required manner and gives the legislature or the governors the basis on which to review the reports they're given.

"In many ways all of the players would like to get there, but there are impediments because the reward system that is currently in place discourages this," says McLaughlin. "In a multi-party situation, the opposition wants to be in power, so if the government comes forward and explains what it has done wrong, the opposition will say it did much worse. If they don't report such issues, of course, the Auditor General will call them on it. To some extent this works against open and transparent reporting."

McLaughlin sees the CCAF as the perfect vehicle to get beyond this--to establish reporting methodologies that everyone can agree upon and work within. CCAF's efforts have yielded a textbook--Accountability, Performance Reporting and Comprehensive Audit: An Integrative Perspective--and the recently released Reporting Principles--Taking Public Performance Reporting to a New Level. The latter outlines nine principles on which public performance reporting should be based.

"We've been working with the provincial auditors, the Treasury Board and the chairs of the public accounts committee to get recognition of the value of these reporting principles, and we recently met with the CICA to expose them to our thinking," says McLaughlin. "It's truly a neutral meeting ground for thought leadership and may yet inform reporting standards."

CMA know-how

McLaughlin is now bringing effective reporting principles to CATSA. "There was a lot of assumptions made regarding the cost of equipment required by CATSA when it was first launched--some very heroic, some really generous," he says. "We were given $1.9 billion over five years as the federal budget allocation. These are sophisticated pieces of equipment that we're buying and installing in airports. We have to know what the ongoing costs of maintaining them will be, what the depreciation costs will be. I need to let everyone know--air transport companies, Treasury Board and the finance department--what will be needed to maintain this equipment in good working order. I think the main reason I was brought here is to provide a solid comptrollership program--to make sure that we don't overstate or understate our needs."

McLaughlin is happy with bow his tenure at the organization has started. "We're at the very forefront of security operations," he insists. "We've looked at what countries in Europe are doing, as well as what is done in Israel and the U.S. We're proud of what we've come up with, and hope that it will become seamless with the U.S. system."

As for his own place in these converging worlds of accountability, and security, McLaughlin is quite candid. "I wouldn't be here right now if I wasn't a CMA. I think that CMA training is essential for this role--to understand cost analysis, the challenges of contracting for services for an organization, buying and installing equipment in a fair and competent way. That background really does help.

"The CMA knowledge set is significantly robust that it gives you the launching pad to do great things for the public good." And, for McLaughlin, the public good continues to be the number one priority.

Robert Colman is the editor-in-chief of CMA Management. David Fletcher is the publisher of CMA Management and VP of public affairs for CMA Canada.