Finance

Commentary

By Fergus Welsh, Chief Financial Officer and Chief Accountant, the Treasury

There is a significant opportunity to change the role of financial management services across government. Figure 33, developed in discussion with various Chief Financial Officer (CFO) groups and based on industry best practice, shows the planned transformation of financial management services.

Figure 33 | Transformation of Government Financial Management Services

In the current state, finance departments are focused on finance operations, including transaction processing and compliance activities. These activities are the bulk of staff effort and cost, and there is insufficient attention to Finance's more strategic role in business partnering, including performance management and business analysis. The end state is 'better finance services for less': while there is increase in high value business partnering activities, there is a net reduction in the cost of the Finance function overall. This cost reduction is achieved through process improvement and standardisation, automation, and leveraging knowledge and scale across government.

The Chief Accountant for the public sector and the CFO Forum are helping agencies improve financial resource management. With the CFO Forum, the Chief Accountant supports agencies to:

• Position the Finance function to play a more strategic role. In addition to delivering on the traditional responsibilities of a Finance function, Finance must play a more strategic role by supporting chief executives and senior leadership teams with advice and management information for decision making. This change requires both establishing effective working relationships with the business and building a broader understanding of how the Finance function can add value, including advising on delivering more efficient and effective frontline and administrative and support (A&S) services.
• Lift financial management capability. As the Finance function becomes increasingly involved in strategic matters and business planning, it needs to respond to the demands of the organisation and its customers. Aligning Finance workforce capability with these more strategic requirements starts with articulating clear expectations for CFOs, Finance staff, and budget holders. Once expectations are clear, development activities can include on-the-job mentoring, short-term secondments, and third party training by providers willing to support improved financial management capability across the sector. Initiatives led or supported by professional bodies such as the New Zealand Institute of Chartered Accountants (NZICA) and CPA Australia will continue to be key inputs to Finance capability.

CFOs are assuming greater leadership roles in their agencies' strategic and business planning processes. CFOs are helping their agencies better understand and manage longer-term financial pressures and issues, including leading the development of four-year budget plans (4YBPs) to show how agencies will manage baseline pressures and service changes. Increased flexibility in financial management arrangements are intended to support 4YBP development. These arrangements support a multi-year perspective and encourage more proactive financial management. For example, the ability to retain under spends should support CFOs in changing incentives and behaviours regarding forecasting and efficiencies, and allowances for front-loading spending should support 'invest-to-save' initiatives.

CFOs are responding to increasing demands for better information for decision making. CFOs are building the financial and non-financial performance information required for performance management, investment appraisal, risk management, and control. Consistent performance information for common functions across agencies can identify leading practice and opportunities for agencies to learn from each other. Some activity is agency specific, but for some common functions across agencies - including administrative and support services, policy, and transactional service delivery to the public - CFOs are participating in cross-agency programmes to establish standard indicators. Anticipating that the pace and breadth of this valuable activity will accelerate, the CFO Forum has established a working group to support CFOs, senior managers, and cross-agency programmes in developing and using management information.

There is a high level of interest in collaborating to identify and act on performance improvement opportunities. A cross-agency initiative is being planned for 2012 by a subset of agencies to:

• identify effectiveness improvement, efficiency improvement, and cost reduction opportunities in the Finance function
• get better value from existing investments in financial management information systems (FMIS) and encourage wise future investments in technology
• improve finance practices and increase the maturity of finance functions.

This agency-led initiative will take a robust, evidence-based approach, utilising local and international knowledge. While its scope will be limited to a subset of agencies and a subset of finance processes initially, solutions will be scalable.

Collaboration can occur at many different levels, from sharing knowledge and best practice through to implementing shared service delivery models for transactional services. Other examples of cross-agency collaborative initiatives include:

• The Department of the Prime Minister and Cabinet, the State Services Commission and the Treasury are implementing shared services for administrative and support services, including Finance. This initiative will minimise risk through building greater resilience and strengthening capability, develop better services and strengthen performance, and improve efficiency.
• The Police and Corrections joint review of their Accounts Payable (AP) functions benchmarked AP performance against best practice, identified opportunities for improvement, and recommended a path forward.

Agencies should use this report to inform their decision making about the best way forward to improve finance function performance. A number of cross-agency initiatives are emerging, and I encourage agencies to consider joining these initiatives, so that together we can leverage the knowledge and scale of the sector in order to improve finance practices, increase the maturity of finance functions, and get better value from investments in technology.