‘What is missing in Whitehall is strong financial leadership at a macroeconomic level’

The call for the efficient and effective use of taxpayers’ money is a familiar one, yet all too often governments are failing to back up their policies and decision-making processes with solid performance measures.

They are fond of proclaiming the amount of money they have spent on public services, but this input-based approach is flawed. It would be better to focus on how value is achieved by measuring the impact of their policies in terms of outputs and outcomes.

This angle will be familiar to those of you who have followed my thoughts on integrated reporting (IR). Although IR’s main focus is investors, the model can be flexed in the public sector to recognise alternative funding providers and desired outcomes.

In this context it’s essential that key decision-makers have a deep understanding of how value, in the shape of outputs, can be measured over time.

Having reliable costing information that identifies the financial flows in government departments is a building block for this process.

Such a grasp of how the costs incurred drive value-adding outcomes is crucial at any time, but even more so in this era of resource constraints and spending cuts.

CIMA has been working with the UK’s Institute for Government on a blueprint for reform that will lead to better decision-making and more efficient government.

Our most recent report on this subject, “Financial leadership for government”, highlights the lack of development of strategic financial roles in central government.

The research underlines my long-held opinion that what is missing in Whitehall – and in many other seats of government – is strong financial leadership at a macroeconomic level.

Lord Browne, the government’s “lead non-executive”, recently called for a more businesslike approach to government – a view that I firmly support.

Governments need to be able to show taxpayers exactly what they are getting for their money

In effect, it’s about demonstrating their return on investment.

The resulting focus on costs, outcomes and value creation will inform policymakers and enable ministers to base their decisions on reliable evidence rather than gut feeling.

Policy should be shaped on what can be delivered, and at what cost. Longer-term strategies based on solid management information, and with strong performance objectives, will ensure a strong focus on value for money, enabling departments to control expenditure while retaining public services and investing for the future.

In order to achieve these outcomes, the emerging strategic focus of finance teams is paramount. In the private sector the CFO is increasingly seen as an organisational leader, rather than the head of a team.

This development needs to be matched more closely in the public sector. The finance function in the public sector has a vital role to play by increasing its emphasis on supporting decision-making and performance management, providing insight through the identification and analysis of financial and non-financial data.

Management accountants are adept at translating facts and figures into relevant, timely and actionable information.

The profession has an obvious role in leading this transformation. Strong and clear political oversight is also needed to drive it forward.

Change must be demanded from the top – and senior leaders must be seen to be accountable for outcomes. In order to drive efficiency and focus on real priorities, rather than being sidetracked by populist policies, they must focus relentlessly on performance management.

This culture must permeate through the entire structure. Such an approach would consistently improve the transparency and accountability in government, leading to greater public reassurance in an era where change is the new normal.

CIMA’s “Financial leadership for government” report can be found at www.cimaglobal.com/leadership

Illustration: Jörn Kaspuhl/Dutch Uncle

15/07/2013

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