The finance function of the future

9 Oct 13
Rob Whiteman

A modern finance function has to be an innovator, business partner, steward, provider and commissioner. But it’s particularly vital that chief finance officers, working with chief executives, set a culture based on medium-term and not short-term horizons

Having completed my first week as chief executive of CIPFA, my thoughts have returned to the basic truths I learnt as a trainee that have acted as the cornerstone of my career both as a director of finance and in three chief executive roles before this one.

We all have people who give us profound advice when we are starting out and who shape our professional judgement. For me as a trainee, a highly experienced chief finance officer made a lasting impression with his straightforward belief in medium-term financial planning that ran through his approach like the proverbial stick of rock. This was many years ago, and since then the widespread use of medium-term financial planning has really developed; but at the time when many organisations had more short-term horizons, my boss’s belief in sound financial strategy was less common.

So he left me in no doubt that the sooner budget holders knew their final agreed budgets for the next financial year and beyond the better. His advice was that every summer the rolling five-year financial strategy: reported the previous year's close of accounts; reviewed current year budget performance and provisions; and set indicative cash limits for the next three years including hard budget decisions for the next year. He advised it was better not to wait for the government settlement before setting hard budgets, as a good organisation determines its destiny whilst taking that into account.

Actually, this is apposite still for chief executives and CFOs. Given the need for harsh savings in some parts of the public sector, flat cash in others and demand pressures in most, the arithmetic truth is that distribution and settlement are at the margins of total expenditure.

Coming into my new role at CIPFA, with many challenges and options ahead for public services, we are determined to ensure that a high-class and modern finance function is at the heart of organisational capability and transformation; with a collective responsibility in all organisations, from board members through chief executives and executive teams to operational management and individual members of staff, to have the awareness and competencies to manage finances and performance and to strive for improvement and optimising resources.

Good financial management is vital to the success of all organisations. It underpins sound decision making, drives accountability, improves understanding and enables businesses of all kinds to manage their risks. Financial management covers the range of processes from strategic advice on resource allocation to routine activities.

That is why it’s critical the CFO is a key member of any leadership team at an appropriately senior level, holding others to account, advising on and implementing strategic resource decisions, and critically keeping an eye on and upholding the public interest and long-term sustainability of the organisation. Of course, local circumstances sometimes mean that CFOs often have other responsibilities for resource functions, leading service transformation programmes and even managing mainstream services; but at the heart of the job is ensuring both a sound and imaginative use of resources.

So what is the direction for the finance role? The finance function of the future must seek to be:

•    an innovator – exploring ways in which we can get more from the public purse;
•    a business partner – helping influence strategy and business outcomes and collaborating with other leaders in the organisation to deliver their policies;
•    a steward – safeguarding increasingly scarce resources, maintaining good governance and giving reliable account;
•    and, finally, a provider and commissioner – maintaining robust financial operations and processes, providing technical expertise from within and by commissioning outside.

When speaking to public sector leaders in the run up to taking on the CIPFA role I’ve been struck by how important these four dynamics have become for organisations that are looking to reinvent themselves and not just sit out this period of austerity in the hope that plentiful resources will simply come back – they won’t, at least not in our professional lifetimes.

As the economy recovers, interest rates will ultimately rise so increasing the cost of the national debt. Overall, the UK is over-leveraged as an economy with high levels of personal, on top of government, debt that will make it difficult for future governments to raise taxation. This, coupled with demographic demand pressures, means that effective resource management is a key competency for existing and future public service leaders.

I feel strongly on this. Whilst the effects of fiscal constraint have never been greater on public bodies, the job of the CEO and CFO working together – whether health, central government or councils – is to set a culture that sees the horizon of spending decisions in the medium term. Organisations with a clear strategy and longer view can reform their resource base. And high performance organisations tell me their strategy has the confidence to set provisions for growth and investment, even in these turbulent times.

In other words, the financial strategy sets the envelope for later decisions rather than being an aggregation of piecemeal decisions. This, of course, can be difficult if there is no immediate political support for such an approach; but a key output that is needed from officials' advice is to act and plan in this way. For CIPFA this means that our prime directive is to promote good public financial management and governance.

The government would say that its reforms have been designed to create organisations that can determine their own strategy, whether academies, police and crime commissioners, clinical commissioning groups, trusts or councils, free of the Comprehensive Performance Assessment.

In the coming weeks and months I look forward to enabling the public finance professionals and corporate leaders to articulate the issues, successes and risks of reform. Never has there been a more important time for the accountancy profession to be at the heart of service delivery. As a ‘can do’ profession, we must nonetheless caution if an optimism bias in policy making risks poor value for money.

As I get my bearings in this new role, I am busily working on the areas of public financial management and governance in which CIPFA must provoke thinking and give advice, not least whether there is evidence that autonomous bodies have enough real freedom to set financial strategy in line with stated policy aims. I’d welcome your thoughts on this too.

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