Public sector FDs - In the public eye.

Modernisation of public sector financial management has been profound but not painless. Michelle Perry reports.

'If we aren't delivering what ministers and the public expect, we aren't going to remain relevant and we aren't going to retain confidence.

In the modern world, the civil service has no automatic entitlement to monopoly on either policy advice or public service provision,' says Sir Gus O'Donnell, cabinet office secretary.

This statement delivered passionately at the beginning of this year as part of a root and branch overhaul of the transparency, accountability and power structure of government departments and agencies is important on many levels for financial professionals in both the public and private sectors.

Indeed the traditional stereotypes of public and private sector workers are slowly disappearing with a blurring of the lines between the types as increasingly private and public sector staff work more closely together to deliver public works.


One of the cornerstones of reform has been to elevate the importance of financial management in central government. For most observers, and particularly those with a financial background, this will be seen as a step long overdue. Many will be aghast to discover that financial management hasn't been a top priority before now.

But on the whole most financial professionals will back the initiative for highlighting the importance of financial discipline, albeit a little tardy. But some are beginning to question whether these reforms in central government are impacting negatively on finance professionals at local government level.

An initial review of financial management in central government began under Sir Andrew Likierman, head of the government accountancy service and managing director of the financial management, reporting and audit directorate from 1993 to 2004. He oversaw the switch from the traditional cash-based accounting to resource accounting, more akin to private sector accounting treatment.

Two years ago the initiative to modernise government accounting and financial management stepped up a gear with the appointment of Mary Keegan from the private sector to take over from Likierman. Keegan, formerly chairman of the Accounting Standards Board, is continuing the work in a bid to fulfil the pledge made by prime minister Tony Blair and chancellor Gordon Brown in 2004 to have professionally qualified accountants - either via external appointment or internal training and promotion - as department FD in place by the end of 2006.

Since Keegan's appointment there has been a wave of poaching from the private sector, including the appointment of Barbara Moorhouse to the Department of Constitutional Affairs, Mark Clarke as director of finance at the Department of Trade and Industry, and most recently Husarda Nouss, as head of the newly-named Department for Communities and Local Government (DCLG), formerly the Office of the Deputy Prime Minister - Creating Sustainable Communities.

The drive to recruit or train internal candidates with top class finance skills has been fast and furious. Few, inside or outside government, have had cause for complaint over the way reform is taking shape and bringing government and its departments up to date with more modern ways of managing finances, ensuring accountability and transparency at least to match private sector organisations if not surpass them.

One example of progress is in the time it takes to close year-end accounts for presentation before parliament. Under Keegan, the Treasury closed its year-end accounts within three months for the first time last year.

It was the first government department to do so. The Inland Revenue, before it merged with Customs and Excise, took around nine months on average to close its year-end accounts.

Companies are required by law to close their accounts within three months.

As part of the Company Law Reform, an initiative launched under New Labour in 1997, a change in the law is being debated on whether the timeframe should be reduced.

Change of course isn't limited to central government - local government finances have also been affected to a great extent too.

Bringing democracy

Bryan Robinson, director of finance at West Sussex County Council, praises the changes and their impact on local government. 'Individual members now have greater executive powers, which places greater responsibility.

It has shifted the balance to give a more democratic approach to local government.'

Robinson adds that reform at central government has brought a clearer corporate direction where previously there were silos between departments.

'There are stronger links and fewer barriers. The focus is on delivery to the community rather than just delivering a service.'

But the CIPFA-trained accountant in local government since the 1970s disputes the changes are so much about accounting and finance directors' responsibility at local government. By law, local government has always required a professionally qualified accountant to be on the board. Still he acknowledges that a 'growing service agenda brings pressure'.

As for the Gershon review, which has led to efficiency assessments, Robinson says the 'formalisation of efficiency reviews is new but reviews aren't new'. 'Value for money has always been high on this county council's agenda for the 16 years that I have been here,' he says.

Change that has swept across central government is, however, taking longer to reach other sectors of local government, say experts.

Iain Hasdell, KPMG partner responsible for local government nationally, says: 'It's definitely true that in the upper echelons of single-tier bodies there are more professional finance directors with influence.'

Hasdell says that FDs in boroughs and other metropolitan areas noticeably have greater accountability put on them by ministers 'in a way that never occurred before'.

But 'it's not the case with the same clarity in district councils, however. There the role of FDs tends to be more traditional. The pace of change tends to be slower,' he adds. Experiences vary across the country.

Robinson says that the push to have professionally-qualified accountants in central government is 'long overdue and a positive move'. He says: 'Some of the issues in NHS funding and deficits wouldn't have been there if the rigorous assessment of finance policy proposals had been implemented as it has traditionally been in local government.'

But he disputes any suggestion that the appointments of directors of finance in central government have diminished the role of the FD in local government. 'There has been no effect at all on local government. It has as strong a grip on finances and ensuring good financial advice is fed into central government as ever.'

Linda McMullen, director of finance at Kent County Council, says that the joined up approach has helped her ability to manage the finances of the council much better.

'Four years ago we were still writing one-year budgets, which was usual in local government. Now we write three to five-year budgets. That has been helped by government's comprehensive spending review. That stability makes it more realistic,' she says.

Another aspect of improved financial management she is pleased with is the speed with which this year she has closed the accounts. 'Traditionally we had been at around seven months. But this year we closed at the end of July.' Their year end is March.

'That's been driven by a change in government policy. We needed that nudge and it's transformed the way we carry out those processes. We've had to become slicker,' McMullen explains.

Indeed progress is such that the council is now able to look at 20-year projections to understand future impacts. But her praise for central government's approach to financial reform is tempered slightly.

More prescription

'One of the things that has become apparent in the last year is government has become more prescriptive. There's more control around what we spend money on with the whole shift of direct school grants, for example. There's a curtailing of freedom around local choice,' she says.

Local discretionary spend has become less, resulting in the FD carrying out orders from above rather than deciding with the council board where money would be better spent, argue some local government FDs.

'It drives us down a particular route. It's quite a difficult regime to work through as it ties us up a lot,' McMullen says.

The government's white paper on local government reform has helped raise some of these issues. McMullen says that unless government realises that there has to be a 'mature partnership between central and local government then we can't work forward'.

'We have 1,000 performance indicators and we have got to shift into a relationship where it's around outcomes, and what makes a difference to people, and not about detailed micro level indicators,' McMullen says.

She has voiced her concerns to Treasury officials and government and feels that they are now listening. 'That message about restrictions and prescriptions is starting to seep through.'

Experiences of an outsider like Tim Bolot, a restructuring specialist who has worked for a number of years with various NHS trusts, backs up McMullen's feelings.

Bolot says: 'The FDs' role is taken up by implementing central government issues rather than in working on local or organic financial issues. There are a lot of templates coming from central government. It takes up a lot of resources and time in reporting. FDs feel constrained.

While in the private sector increasingly the FD is becoming more powerful - today there are more FDs who step up the chief executive role - Bolot says FDs in local government are 'frustrated' and 'demotivated'.

There are other more vociferous critics of the new regime and its effects on local government FDs but for now they prefer to remain anonymous.

Discussion is underway and that's a good start. What the government has to ensure now is that it pays attention to the local government finance directors' concerns, but is also perceived to do so.

If a relentless struggle to fulfil demands from above continues with only small indications of positive change below, directors of finance will become ineffective through ongoing pressure and an inability to function beyond the prescriptions laid down by government.

At worst, the best functioning qualified FDs may leave. If the job simply becomes that of a soldier rather than a sergeant then it will be difficult to replace them with finance directors with strong, analytical skills who are seeking a challenge and responsibility.

Centralising controls could also end up meaning centralising skills meaning local government may cease to offer flexible, tailored solutions to local communities.

Ability to manoeuvre

FDs in local government want joined up thinking from government but they also need the ability to manoeuvre to suit the demands they face locally.

Unless government can find a solution to a more mature working partnership with local councils, the ability to attract the best calibre of finance professional will fall by the wayside.

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