Financial futures

29 May 09
JOHN BERRIMAN l Public sector finance directors face competing demands and ever-tighter budgets. They will need to improve leadership skills, address culture change and offer more insight into business performance.

Public sector finance directors face competing demands and ever-tighter budgets. They will need to improve leadership skills, address culture change and offer more insight into business performance.

In an era of ever-tightening public finances, with a pressing need to narrow the government’s fiscal gap, the finance function in the public sector has been thrust into the spotlight. The public sector is no different from any private sector organisation and the need for sound financial management capabilities is increasingly seen as critical to the provision of effective and valued public services.

But finance often does not have a pivotal place at the top table, PricewaterhouseCoopers research suggests. Public sector finance directors believe their boards have a mixed appetite for transparency in financial decisions and performance. This is a concern considering the general drive across the public sector for a culture of greater accountability and transparency.

The research respondents were not generally seeking radical improvements to the finance function in their organisation, with the short-term cost of change contributing to this thinking. We question whether it is acceptable for substantial public sector organisations, some of which are larger than many FTSE 100 companies, to continue to have relatively modest aspirations for finance.

Our findings highlighted the need for strong support from senior decision and policy makers. Two essential leadership steps need to be taken. First, finance directors must address cultural challenges in their departments and provide the necessary leadership to move things forward. Building better links with the broader organisational leadership is vital to achieve that goal. Second, the leaders of public sector organisations also need to welcome finance aboard as a genuine business partner.

Finance itself must lift its aspirations and demonstrate how it can contribute to success by focusing more of its time on providing real insights into business performance. True, there has been undoubted progress in recent years. But only by demonstrating its capability and capacity as a business partner, adding value to the performance of the organisation, will finance gain essential top-level sponsorship.

Finance functions in the public sector face one common and pervasive challenge — balancing the competing demands of efficiency, compliance and control, and insight. None of the research respondents rated their finance functions as highly efficient. It will be a big challenge to turn broadly adequate finance functions into high-performing ones. The widespread and effective implementation of shared services and improved technology is therefore crucial to improve efficiency, generate savings and free finance to focus its time on higher value insight activities.

Half the research respondents believed they had comprehensive compliance and control frameworks in place, a similar proportion to that in the private sector. Respondents estimated that just under half their time was spent on compliance and control and they aimed to reduce this to just under a third in the medium term. Comparable data suggests that top-performing finance functions in the private sector spend between 15% and 20% of their time on compliance and control.

Finance in the public sector handles public money and so compliance and control failures are played out on a public canvas, but building control upon control simply serves to create complexity and increase cost. All organisations have important risks to manage — the key is to manage them effectively rather than eliminate them.

Respondents spent 20% of their time providing insights into business performance and were looking to double this to 40% in the medium term. The comparable time spent today in top-performing private sector functions is between 40% and 45%. Private sector businesses are looking to cut through complexity and take out cost without heightening risk or jeopardising their ability to capitalise on opportunities.

The public sector has similar needs, and respondents said they wanted to improve the capability of their functions. At issue is the speed of change. There is no race between the private and public sectors, but there will continue to be significant external drivers for change as well as competition for talented people, putting increased pressure on the public sector to move faster.

Finance in the public sector is at a crossroads and faces major challenges. The current economic climate means that now more than ever finance must speak up — and be listened to — by permanent secretaries, organisational chief executives, boards, non-executive directors and senior policy makers. However, a place at the top table will only be earned when finance is seen not simply as a scorekeeper but as a business partner, adding value across the public sector.

John Berriman is a senior partner of PricewaterhouseCoopers and head of its government and public sector finance practice

Did you enjoy this article?

AddToAny

Top