How to achieve best practice financial management

As public sector organisations either voluntarily or are forced by regulators to objectively assess internal financial risk management processes, the Chartered Institute of Public Finance and Accountancy (CIPFA) Financial Management Model is gaining attention.

Relatively new to Australia, the best practice model has been applied in hundreds of UK public sector organisations since the GFC, when as David Mallard FCPA, Financial Management Best Practice Consultant at CPA Australia says: “There were various burning platforms that caused organisations to really rethink what they’re doing.”

In essence, the model was born from an urgent need to not only be more effective, but do more with less.

“The model is a practical, hands-on and simple approach to something that is not simple,” Mallard says.

CPA Australia has partnered with CIPFA to provide public sector organisations in Australia, New Zealand, Asia and the South Pacific with the internationally recognised framework and measurement tool.

“Generally, everyone wants to achieve financial best practice,” Mallard says. But how does the tool work and what can it deliver?

Richard Callender-Reid, Corporate Learning Solutions Consultant at CPA Australia, outlines the three levels of maturity for best practice financial management: delivering accountability, supporting performance and enabling transformation.

“We typically find that delivering accountability is fine in terms of day-to-day operations, but government and other public sector organisations can fall down in supporting performance and enabling transformation,” Callender-Reid says.

“We’re able to present a plan that highlights to senior stakeholders what is being done well, what can be improved and [also] how to be world class.”

Notably, his research shows many public sector CFOs are not active participants in the decision-making process and/or executive leadership team.

“They might be people who manage the finance function or have a say in the budget, but they are not involved in making strategic decisions that finance should be part of.”

In other words, they lack a “seat at the table”.

Strategic enabler for continuous improvement

This is where the model can become a strategic enabler. Through anonymous online scoring and face-to-face interviews, key personnel are able to talk openly about the services they provide, the up-skilling they think is necessary, and potential improvements to process, infrastructure and more.

Phu Nguyen, CFO at the City of Melbourne, is a strong advocate for the model.

“From a grassroots perspective, it gave us a starting point from which to benchmark our capabilities and have conversations about how to improve going forward,” he says.

“In terms of continuous improvement, the focus was on compliance, policy and processes. I was keen to transition finance into a business partnership model, and that meant understanding our current capabilities and the opportunities for capability uplift.”

Nguyen says the entire process took about eight weeks, much of which was taken up by obtaining a broad range of views including from a member of the audit committee and Council’s Chair of Finance and Governance portfolio.

“It was useful to engage disparate views,” he says, “and from a risk management perspective, it validated perceptions and opportunities previously held. Being evidence-based [the process] provided clarity on where to focus.”

Pointedly, Nguyen says it is important that when going through the benchmarking process, as a leader you might not always hear what you want to.

Confidentiality issues

“But I take an alternative view,” adds Nguyen.

“It’s crazy if leaders risk-avail [by avoiding] open dialogue about what’s going well and opportunities for improvement. From a personal branding point of view, [doing otherwise] can show a lot of courage and transparency, as well as a genuine desire to do better.”

Nguyen admits that confidentiality is integral to the CIPFA process, but adds: “Sure, we can talk about short falls in people capabilities being identified, but that also presents an opportunity for us to improve and upskill our workforce.

“There are two things around confidentiality: the first is you want people to have confidence so they can speak openly and freely – so from that point of view confidentiality is incredibly important – but in terms of the final result and what it reveals, I have less reservations because if you’re going to ask people to participate and acknowledging that they will see the contribution of their feedback upfront, that gives people a level of buy-in to the process where they know their views will actually be heard.

“It also goes to the integrity of the process and when you talk about branding, that credibility is very important. Greater credibility to the process always results in more open and willing participants.”

Mallard summarises: “The model operates as a point-in-time assessment and calibrates it to your aspirations for the finance service function within the organisation. Essentially, it’s a dashboard against which you can consistently steer, continuously check and monitor, improve and then reset to maintain best practice.

“Every organisation is unique: some might use it as a Big Bang to turn the whole place around, others might take years. It really depends on your appetite for change.”

In the current economic climate and with increasingly startling revelations from the Financial Services Royal Commission, it’s probably fair to say that the general public’s appetite for significant change is not diminishing.

Learn more about the CIPFA Best Practice Public Sector Financial Management model.