11 July 2008
Organisations struggling to provide better services for less money need strong financial management. Progress is encouraging, the CIPFA FDs' survey shows, but there's still more to do
In an increasingly tight fiscal environment, with pressure to produce ever more outputs from the same or fewer resources, few would disagree that good financial management matters. But is financial management improving across the public services, and, if so, how? And what are the priorities for the next few years?
The recent survey of finance directors, conducted for CIPFA by YouGov, provides some answers. The initial results were discussed at the recent CIPFA conference and at a Public Finance round table, and will be reported in the next edition of Spreadsheet.
Half of all the finance directors completing the survey thought that financial management had improved greatly in their organisation over the past three years. This rose to 87% among those working in the third sector. A further 40% of all FDs believed that financial management had improved slightly in their organisation, and only 1% felt it had weakened slightly.
A range of techniques were being used to drive improvements in financial management. The four that were seen as having contributed most significantly were: setting clear performance targets and measurement arrangements (61%); clear delegation of financial management responsibilities to managers (51%); reviewing and updating internal controls (46%); and investing in building financial management skills (42%).
The vast majority of finance directors — 81% — reported that their organisations had a performance management framework in place, while almost half had value-for-money and/or efficiency strategies.
External factors were felt to have had a less significant impact on financial management in public service organisations. Those identified as the most significant were: feedback from users (28%); inspection regimes (25%); advice from auditors (21%); and benchmarking (16%).
Almost 80% of FDs felt that 'ownership' of the organisation's financial strategy extended to the chief executive and the board but only 34% believed it extended throughout their organisation. Just over half of FDs believed they had the greatest responsibility for leading improvements in financial management, with only 20% citing the board, the executive management team, the finance committee or the audit committee.
So while financial management in public service organisations appears to have improved, there is still some way to go. In particular, not everyone is yet convinced that financial management does matter.
What then are the priorities for the future? Although half of the FDs responding believed that 'consolidation' would best characterise their approach to financial management in the next few years, 43% felt that 'transformation' was the best description. There were, however, significant sectoral differences, with 62% of NHS FDs seeing 'transformation' as the most likely state, while 67% of police and fire FDs saw 'consolidation' as the priority.
The three most important technical challenges were seen as: integrating financial and non-financial performance information; improving the use of management information; and improving financial planning and budgeting. Long-term plans were voted as one way of driving improvement by 71% of FDs. Others were: short-term plans (64%) and advice from financial advisers or auditors (45%).
The most important strategic challenges were seen as: creating a 'financial management matters' culture; creating lasting and effective partnerships; and addressing the impact of changing government policies. Interestingly, the CIPFA/YouGov results parallel some of the main findings in a Deloitte survey of 200 international government leaders. Among Deloitte's findings were that: finance functions today perform better in tactical roles than in strategic roles; the path to finance excellence is built first on excellence in finance stewardship and operations; and the next step is to provide more strategic insight.
CIPFA will continue to support finance directors to achieve these improvements. Its Financial Management Panel will build on the increasing uptake of the CIPFA Financial Management Model across the public services. Its publications on budgeting and balance sheet management are also important sources of practical guidance. And the Role of the Public Services Director of Finance panel will be using the survey results to review and develop the range of support services for aspiring FDs as well as those already in post.
So while FDs face a challenging agenda, CIPFA will be working to help them convince everyone that good financial management matters.
Ian Carruthers is the policy and technical director at CIPFA
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