By Ian Carruthers | 1 June 2012
As public sector organisations face mounting cuts, CIPFA emphasises the critical roles of both chief financial officers and their finance teams
With the public sector in the foothills of unprecedented spending cuts and significant changes to local government finance around the corner, chief financial officers are needed more than ever to help their organisations navigate the challenges.
CIPFA issued its definitive statement on the role of the CFO in public service organisations in 2009.
The first principle in this is that the CFO ‘is a key member of the leadership team, helping it to develop and implement strategy and to resource and deliver the organisation’s strategic objectives sustainably and in the public interest’.
It added: ‘The CFO should be professionally qualified, report directly to the chief executive and be a member of the leadership team, with a status at least equivalent to other members.’
The statement requires that if different organisational arrangements are adopted, the reasons should be published in the authority’s annual governance report, along with an explanation of how these will have the same effect.
So what has been done to ensure this principle is implemented in practice?
In central government, the CIPFA statement is part of the government commitment to improve financial management announced in the Treasury’s Managing taxpayers’ money wisely, published in January 2011. This document underpins the Finance Transformation Programme being led at ministerial level.
In local government, CIPFA has introduced a formal requirement for local authorities to report on compliance with the statement in the annual governance statement from 2011/12 onwards.
In 2010/2011 the ‘comply or explain’ requirement was voluntary and approximately half of local authorities explicitly met the requirement that year, the Audit Commission reported.
In addition, some authorities that had complied with the CFO principle itself that year had interpreted the guidance as requiring disclosure only if they were not complying fully.
This should not be an issue for 2011/12, as the reporting requirement is mandatory and is included in the Code of Practice on Local Authority Accounting.
The Audit Commission will collect data on levels of compliance with both the new disclosure requirement, and with Principle 1 of the role of the CFO statement through auditor returns on the 2011/12 audits.
The centrality of the CFO role and the importance of the ‘comply or explain’ requirement have been reinforced by the formal Accounting Officer Accountability System Statement for Local Government issued by the Department for Communities and Local Government in March.
This explains how DCLG permanent secretary Sir Bob Kerslake as accounting officer meets his responsibilities in relation to local government. It quotes the first three principles from the statement as well as reiterating the legal status of the ‘comply or explain’ requirement.
In other sectors, police & crime commissioners, chief constables and NHS clinical commissioning groups are also required to appoint CFOs.
Although these developments are encouraging, CIPFA is continuing to reinforce the message. Its recently launched discussion paper, Emerging stronger: shaping the finance function to meet new and future challenges, emphasises that top-performing organisations require top-performing finance functions.
The paper identifies four main areas in which finance must contribute strongly: leading innovation, adding value, managing risk and cutting costs. This in turn focuses thinking on four critical roles: innovator, business partner, steward and provider/commissioner.
Emerging stronger asks finance leaders to consider the contribution their teams already make to delivering their organisations’ objectives efficiently and effectively.
It also provides ideas to help them address the main challenges in developing a finance function that is outward looking and fit for the future, and almost inevitably smaller.
The consultation is still open and we welcome all comments. Our aim is to ensure that CFOs and finance departments bring all of their skills to bear and emerge stronger from this unprecedented period of change.
Ian Carruthers is CIPFA’s director of policy and technical. Responses to the Emerging stronger discussion paper should be sent to Manj Kalar at [email protected].
This article first appeared in the June edition of Public Finance
