29 February 2008
If a government department spends more than £40bn a year, should it have a qualified accountant as its finance director?
The answer, perhaps surprisingly, seems to be a matter of dispute between, on the one hand, the Ministry of Defence and, on the other, the Treasury and the National Audit Office.
Sir Peter Gershon's efficiency report for the Treasury four years ago specified that each government department should have a qualified finance director on its board by December 2006.
Yet more than a year after the deadline, several departments have failed to comply – most notably the fourth highest spending department, the MoD.
One other department, the Crown Prosecution Service, has a finance director without an accountancy qualification (but who is more than halfway through an accelerated qualification course).
Four departments – the Department for International Development, the Office of Fair Trading and the energy and water regulators – have qualified finance directors without seats on the board.
Failure to appoint qualified finance directors is potentially a serious issue, the NAO believes. While departments have radically improved the quality of their financial reporting, they still have much further to go, the NAO's report, Managing financial resources to deliver better public services, concludes.
More than 60% of departments fail to meet Treasury targets for the production of in-year financial reports within ten days of period end. And some (unnamed) departments produce very inaccurate spending forecasts, leading to large underspends.
Edward Leigh, chair of the Commons Public Accounts Committee, was withering in his response. 'I have to wonder if financial management is being taken as seriously as it should be when five government bodies have neither a permanent secretary or chief executive with a professional accounting qualification nor a qualified financial director on their board,' he said.
'The big-spending Ministry of Defence is the most prominent example. And, incredibly, only four out of every ten departments always think about how much things are going to cost when coming up with policies.'
The CBI is similarly critical. James Fothergill, head of public procurement, describes the situation as 'unacceptable'. He adds: 'Unless government learns to be more business-like in its approach to managing resources, we will not get effective and efficient public services. Delivering on this must be a top priority.'
A different spin is put forward by the senior civil servants' union, the First Division Association. Its head of operations, Dave Penman, stresses instead, quoting the NAO report, that 'government departments have made “visible progress in improving the management of their financial resources”.'
He adds: 'The civil service has, over the past few years, skilfully delivered more than £20bn of efficiency savings, while maintaining levels of service. The overall number of professional finance directors on departmental boards has increased which, the NAO says, has enhanced the focus on financial performance at senior management level.'
A similar tone is adopted by the Treasury, which points out that there is now 96% compliance with the requirement for qualified finance directors.
In an interview with Public Finance, Dame Mary Keegan, the Treasury's managing director for financial management, reporting and audit, plays down the significance of the MoD's
non-compliance. 'The MoD appointed a new finance director in 2004, who wasn't qualified,' she explains. 'The permanent secretary has said that the next finance director will be professionally qualified. The MoD is just the last in the cycle.'
And, she adds, the MoD's commercial director is professionally qualified and, like Keegan, a former partner at PricewaterhouseCoopers.
The situation is different at the regulatory bodies, whose board focus is less on operational matters and more about industrial oversight, Keegan suggests.
The NAO report was very helpful, she says. 'This is actually a very good collaboration between the finance community [in Whitehall] and the NAO to produce the report.'
Its findings were mostly endorsed by the Treasury and the finance community in Whitehall. 'We have travelled quite a long way since 2003, the last time the NAO did a report on this,' says Keegan.
At that point just 20% of finance directors were professionally qualified, she points out. But, she concedes, 'at any moment in time we won't be at 100% because we have people moving posts'.
Both the NAO report and the Treasury stress that much of the focus must now be on raising the financial skills of all senior staff. Keegan explains: 'We need to make sure that budget-holders can use the management information they are given.'
CIPFA's chief executive Steve Freer chairs the Treasury's Financial Skills Advisory Panel, which has also just reported and which, like the NAO, stressed the need to professionalise financial skills in Whitehall and to extend financial management skills across government departments.
Freer says: 'I think that having a qualified finance director on the board is a fundamentally important piece of the jigsaw puzzle. The key issue is to get the finance director actively involved in the decision-making processes of the organisation. Although not all the important decisions are taken at the board, many of them are.'
He adds: 'Departments need more than qualified finance directors on the board. They need a qualified finance function. We are still in the foothills. There is still an enormous amount of work to do.'
Keegan praises CIPFA's involvement. 'I have worked very closely with Steve Freer on a number of issues,' she says. 'CIPFA and the Treasury ran a conference earlier this month [February] on improving performance and financial management across the wider public sector. We would like to see qualified and experienced finance directors right across the public sector.'
But Keegan has reservations about the NAO's concern that 'departments do not always make best use of non-executive directors'. She responds: 'Whenever I spoke to the non-executives, particularly the financially qualified non-executives, I felt they were being very good in supporting, pushing and encouraging the financial management process in the departments.'
Nigel Johnson, lead public sector audit partner at Deloitte, appears less concerned. 'Some of the non-execs are very good indeed,' he says. 'The challenge is whether they are used as well as they ought to be.'
'Departments need to think more clearly how to use those non-executive skills and how they differentiate between operational and strategic leadership.'
Johnson backs the NAO and Treasury view that departments, in particular, should have qualified finance directors on the board.
He adds: 'Experience is one thing, but experience plus qualifications adds to the credibility of the individual to take things forward.'