The views are based on the author Ross Campbell's own experiences in the UK government and the shared reflections of many stakeholders from around the world who have had the task of improving and reforming public financial management.
Introduction
Much has been written about the need to improve the quality of financial management in the public sector. There is a widespread perception that government is less effective at financial management when compared to industry – but relatively little of the discussion goes beyond a diagnosis of the problems to discussing effective solutions. This article will examine some of the reasons why governments have not adopted similar financial management practise to business and what might be done to change practices in the public sector.
Some of the differences are a due to combination of cultural issues that set the remit for how finance people participate in the executive management of government departments. Certainly in many states, financial skills and experience are not as prominent in decision making or have the same representation at the top layers of the organisation – eg, on departmental management boards. In many countries there are also the consequences of a legacy of under-investment in financial training, talent and systems combined with lower levels of financial discipline and rigour in public financial management in comparison to businesses of equivalent scale. The disparity is especially stark when government is compared to publicly quoted businesses that are subject to scrutiny by the investment community.
Consequently in considering how to better undertake Public Financial Management in Central Government there are a number of aspects (or pillars) worth considering and comparing to the way in which publicly quoted companies operate:
- Remit – what prominence does finance have in the organisation and what level of permission is it given to participate in executive management strategy formation and decision making? How are strategic financial management skills deployed for the activity of optimising overall financial resources to deliver organisational priorities and how does the organisation assess the effectiveness of this?
- People – to what extent does the organisation have access to people with the necessary financial management, presence, influencing and communications skills who can make an effective and credible contribution to strategy and executive management. If insufficient how can these people be best acquired or developed?
- Systems – to what extent are the financial management systems adequate for managing government departments either as individual entities or as a collective group? Is the financial position of government capable of being understood in a timely way with up to date information? Can cause and effect relationships be derived from financial management information in a way that allows for accurate prediction of outcomes from the deployment of resources?
- Processes - are financial processes operated in an efficient, effective and rigorous way to ensure that all assets and liabilities are captured, appropriated valued and understood? Is risk effectively managed so that government departments, either individually or collectively, can be reasonably sure of their outgoings and maintain contingency plans to cope with a range of outcomes such that there is confidence that policies and plans can be delivered as expected?
In all of these areas there is a perception that the reality falls short of commercial best practice and that, as a consequence it can be concluded governments may not be making optimal use of the resources they raise from the taxpayer. At a time when across the world it is vital to maintain public confidence in government, these shortfalls need addressing.