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					Public finances:
 Challenges for professionals
Ian Carruthers
Policy and Technical Director
CIPFA
                                cipfa.org.uk




  Session overview

 Public finance pressures
 Approaching the cuts
 Organisational ownership
 Role of finance and the CFO
               Percentage of national income




          30
               35
                        40
                                  45
                                           50
                                                                                     55
1948-49


1953-54


1958-59


1963-64


1968-69


1973-74


1978-79


1983-84


1988-89
                                                                                              The Rebalancing Challenge




1993-94
                                                                                              Public Finance Pressures (1):




1998-99
                                               Current receipts




2003-04
                                                                  Total Managed Expenditure




2008-09


2013-14
                                                                                                                              cipfa.org.uk
                                                                                          cipfa.org.uk




    Public Finance Pressures (2):
    GDP projections revised
                               GDP % change on previous year

           4

           3

           2

           1

           0
% change                                                          March 2010 Budget
           -1
                                                                  June 2010 OBR pre budget report
           -2                                                     June 2010 OBR post budget

           -3

           -4

           -5
                9-10   10-11   11-12      12-13   13-14   14-15
                                Financial year
                                                                   cipfa.org.uk




    Public Finance Pressures (3):
    Emergency Budget measures
   Public sector net debt as percentage of GDP to be falling at
    a fixed date of 2015-16
   Additional consolidation of £40 billion per year by 2014-15
   No further reductions in capital spending beyond those
    already announced
   £11 billion of welfare reform savings
   Two year freeze in public sector pay, except for those
    earning less than £21,000 a year
   £8 billion per year from net tax increases
   80% of the addition consolidation measures through
    spending reductions
                                                             cipfa.org.uk




   Public Finance Pressures (4):
   2010 Budgets: Overall picture
 Total consolidation of £113 billion per year by 2014-15
 £128 billion per year by 2015-16
 77% of the total consolidation through spending
  reductions
 Structural current deficit will be eliminated by 2014-15
 Projected surplus of 0.8% of GDP in 2015-16
 Public sector net debt will peak at 70.3% of GDP in
  2013-14
 Declining to 67.4% of GDP in 2015-16
                                                                                             cipfa.org.uk




 Public Finance Pressures (5):
 Borrowing forecasts
                                       Public Sector net borrowing


      170

      150

      130
                                                                      March 2010 Budget
      110
£bn
                                                                      June 2010 OBR pre
       90                                                             budget report
                                                                      June 2010 OBR budget
       70
                                                                      forcast
       50

       30
            0'8-09   09-10   10-11   11-12    12-13   13-14   14-15
                                 Financial year
                                         cipfa.org.uk




  Public Finance Pressures (6):
  Key risks

 Double dip?

 Inflation forces interest rate rise?

 The strength of the Coalition?
                     cipfa.org.uk




After the Downturn
                            cipfa.org.uk




Forecasting Spending Cuts
                                              cipfa.org.uk




   Approaching the cuts (1):
   Overview
 DELs cut in real terms by 14% by 2014-15
 NHS and DFID budgets protected
 Unprotected DEL cuts 25% on average

BUT
 Education and Defence cuts limited to 10%
 Other DEL cuts average 33%
 AME savings might reduce scale of cuts
                                                      cipfa.org.uk




   Approaching the cuts (2):
   Spending Review
 Departments provided 2 cuts scenarios by end July
   ― 25%
   ― 40%
 £6.2 billion efficiency savings in 2010-11
 Review of all previous Government spending
  decisions
 £1.5 billion EYF-funded commitment cancelled
 Spending Review announcement 20 October
                                                      cipfa.org.uk




     Approaching the cuts (3):
     Key actions
1.  Lean and systems thinking
2.  Sharing of people and assets
3.  Improving procurement effectiveness
4.  Shared service provision
5.  Restructuring and de-layering
6.  Zero and priority-based budgeting techniques
7.  Implement good financial management across the
    organisation
8. Effective use of benchmarking
9. Reducing non-essential services
10. Improving asset utilisation and reducing energy
    consumption
                                                                                     cipfa.org.uk




                                 Approaching the cuts (4)
                                 Potential impact of key actions
                                                                          Size of
Potential x-organisation scope




                                                                           circle
                                              1                          denotes
                                      6                              4   potential
                                                                         £ saving
                                          7            3

                                              2                  5
                                                   8
                                          9
                                                           10

                                  1              2               3        4
                                              Speed of return (years)
                                cipfa.org.uk




Organisational ownership (1):
Delivering the Plan
                                                       cipfa.org.uk




   Organisational ownership (2):
   What needs to happen now? - I
1 We need leadership
2 We need a plan
3 We need early action
4 We need transparency and equity
5 We need to be clear about political and managerial
  accountability
6 We need to get people engaged
                                                      cipfa.org.uk




    Organisational ownership (3):
    What needs to happen now? - II
7   We need to protect people not services or
    organisations
8   We need a big team effort
9   We need to manage risk
10 We need essential change not change for change’s
   sake
11 We need to simplify, not complicate
12 We need long term fiscal discipline
                                cipfa.org.uk




Organisational ownership (4):
Leading in Hard Times
                                                        cipfa.org.uk




    Organisational ownership (5):
    A different style of leadership
1   Engage and Communicate
2   Know where your costs are now
3   Understand where value lies
4   Understand funding scenarios
5   Identity options for change
6   Build a vision of how you will look
7   Create a balanced portfolio of change projects
8   Implement effective financial and risk management
9   Build the capability to change
10 Ensure that governance is fit for purpose
                                               cipfa.org.uk




  Organisational ownership (6):
  Coalition Programme for Government



‘….create strong financial discipline at all
  levels of Government and place an
  obligation on public servants to
  manage taxpayers’ money wisely.’
                                                                 cipfa.org.uk




    Organisational ownership (7):
    Spending Review framework
●   Strengthen and re-position role of departmental CFO as
    enabler of informed decision making at Board level…..
●   …mandating CFO approval of new investments and
    consultation on material business decisions;
●   …aligned, long-term strategy for financial management
    across central government…..
●   …ensure FDs and their teams have the skills and
    experience to drive it;
●   Increase the quality, transparency and accountability of
    financial information, through publishing HMT COINS
    database, Clear Line of Sight project, and publishing WGA.
                                                             cipfa.org.uk




   CFOs:
   Increasing personal challenges
• Technical excellence taken as read
• Flatter structures - competition with other professional
  groups
• ‘FD’ role downgraded?
• Broader skill requirements
   — leadership
   — strategy
• How do you acquire these?
• Where do you get support from / how do you develop
  when you get there?
                                                   cipfa.org.uk




  CIPFA Statement on CFO Role:
  Approach
• High level - across all public services
• Fit with existing sectoral requirements and
  guidance, but
    — need to update existing 2003 Local
      Government statement
    — Aim to influence guidance in other sectors
      and internationally
• ‘Substance over form’ approach
• 5 ‘principles’
• Supporting ‘requirements’ against 3 dimensions
cipfa.org.uk
                                                                       cipfa.org.uk




   Principle 1
   The CFO in a public service organisation is a key member of the
   Leadership Team, helping it to develop and implement strategy and
   to resource and deliver the organisation’s strategic objectives
   sustainably and in the public interest.


● Key member of the Leadership Team
● Developing and implementing organisational
  strategy
● Helping resource and deliver organisational
  objectives
● Delivering the organisation’s strategic objectives
  sustainably and in the public interest.
                                                                              cipfa.org.uk




CFOs Survey:
Reporting line

 The Chief Executive                                             85.5




    The Resource
                             6.5
Director or equivalent




                Other        8



                         0         20   40             60   80          100
                                             Percent
                                                               cipfa.org.uk




CFOs 2008 Survey:
Seat on ‘Board’?

     By right                                          88%



By invitation             9%



          No         3%


                0%             20%   40%   60%   80%         100%
                                                                                              cipfa.org.uk




   CFOs 2008 Survey:
   Additional areas of responsibility
    Procurement                                                                   70%

     Information
                                                                51%
     Technology

Property/Estates                                        41%


Risk Management                                                             62%


Human Resources                           22%


   Administration                               29%


          Other                                               48%


           None          3%


                    0%        10%   20%     30%       40%     50%     60%     70%       80%
                                                     cipfa.org.uk




  CFOs 2008 Survey:
  ‘Other’ areas of responsibility
 Internal audit
 ‘Specialist’ functions (pensions, insurance etc)
 Facilities management
 Contract management
 Commercial / business activities
 Corporate / strategic planning
 Performance management, efficiency
                                                                          cipfa.org.uk




   Principle 2
   The CFO in a public service organisation must be actively involved
   in, and able to bring influence to bear on, all material business
   decisions to ensure immediate and longer term implications,
   opportunities and risks are fully considered, and alignment with the
   organisation’s overall financial strategy

● Responsibility for financial strategy
● Influencing decision making
● Financial information for decision makers
                                                                         cipfa.org.uk




CFOs Survey:
CFO influence on decisions with financial implications


    Always                                             66.2




    Mostly                  29.4




 Sometimes       4.4




    Rarely   0



             0         20          40             60          80   100
                                        Percent
                                                                                                                   cipfa.org.uk




          CFO Survey: Responsibilities

 Contribute to the effective leadership of organisation                                                     96.8


        Contribute to effective corporate management                                                               98.9


         Support effective governance of organisation                                                         97.9


              Leading/promoting change programmes                             87.6


Leading development/monitoring of a MTFS and annual
                                                                                                                    99.8
                budgeting process

            Ensuring MTFS reflects joint planning with
                                                                                          90.3
                   partners/other stakeholders

                                                          80   82   84   86   88     90      92   94   96    98    100
                                                                                   Percent
                                                                      cipfa.org.uk




  Principle 3
   The CFO in a public service organisation must lead the promotion
   and delivery by the whole organisation of good financial
   management so that public money is safeguarded at all times and
   used appropriately, economically, efficiently and effectively


● Promotion and delivery of good financial
  management
● Value for money
● Safeguarding public money
● Assurance and scrutiny
                                                                      cipfa.org.uk




CFO Survey:
Changes in Financial Management
 Improved greatly                         42.3



 Improved slightly                               51



Stayed the same           4.4



Weakened slightly        2.1



Weakened greatly     0.2


                     0          20   40               60   80   100
                                          Percent
                                                                                                                                    cipfa.org.uk




               CFO Survey:
               FM Improvement initiatives
                Increasing investment in the finance function                       25


Increasing investment in FM training for non-finance managers                                                   60


                                          Implementing WGA           4


                         Implementing new financial systems                        22


                     Introducing tougher performance targets                                          44.9


                         Introducing organisational incentives                                                            72


                              Introducing personal incentives                                31.5


                                                                 0       10   20        30      40     50      60    70        80   90   100
                                                                                                     Percent
                                                                                                            cipfa.org.uk




      CFO Survey:
      Cases of weakened financial management
         Lack of appropriately developed staff           6.7


                        Budgetary constraints                                                  33.3


         Problems arising from re-organisation                                                 33.3


  Problems arising from government initiatives                      13.3


                             Project overload                                                          40


                       Withdrawal of funding                        13.3


   Financial crisis/recession/economic impacts                                                 33.3


Reduced status of senior finance professionals                                         26.7


                     Lack of strong leadership                      13.3


                                        Other                                          26.7

                                                 0   5         10   15     20     25      30   35     40      45
                                                                            Percent
                                                                                                          cipfa.org.uk




              CFOs 2008 Survey:
              FM skill development responsibilities

                         Board                                                               82%




                  Finance staff                                                                          94%




Professional training decisions                               35%




             Non-finance staff                                                                     87%




                         None          2%


                                  0%        10%   20%   30%    40%   50%   60%   70%   80%         90%    100%
                                                                     cipfa.org.uk




   Principle 4

   The CFO in a public service organisation must lead and direct a
   finance function that is resourced to be fit for purpose



● Meeting the finance needs of the business
● Appropriately developed finance skills
                                                                                                                               cipfa.org.uk




       CFO Survey:
       Organisation of finance function
                                               Centralised                                                              82.1


                            Decentralised to departments                      16.1


                         Group (ie internal) shared service             8.5


   Shared service with other public bodies in same sector                10.1


Shared service with other public bodies in different sector       1.4


 Shared service with others including commercial partner          1.4


                      Outsourced to a commercial partner          3.2


                                                     Other         4.8


                                                              0         10    20     30   40     50      60   70   80     90     100
                                                                                               Percent
                                                                           cipfa.org.uk




CFO Survey:
Shared Finance Director

 Shared same sector            3.5



     Shared different
                             0.5
         sector


Likely to be shared in
                               4.2
      near future



          Not shared                                               91.8



                         0           20   40             60   80     100
                                               Percent
                                                                     cipfa.org.uk




  Principle 5

   The CFO in a public service organisation must be professionally
   qualified and suitably experienced



● Demonstrating professional and interpersonal skills
● Applying business and professional experience
                                                                                   cipfa.org.uk




CFO Survey: Length of time as
most senior finance person
Less than one year           7.4




       2 - 5 years                                                          47.1




      6 - 10 years                              23.7




More than 10 years                            21.8



                     0   5     10   15   20     25      30   35   40   45     50
                                              Percent
                                                                      cipfa.org.uk




        CFO Survey: Finance related
        professional qualifications held
                                                             Other CCAB
                                                             ICAEW
    CIPFA                                  64.1              ACCA
                                                             CIMA
                                                             ICAS
                                                             ICAI
Other CCAB             38.5

                                                             Other
                                                             Undergraduate
                                                               degree
     Other        20                                         AAT
                                                             Other
                                                             Postgraduate
             0   20    40             60          80   100
                                                               degree
                            Percent                          IRRV
                                                             IIA
                                                     cipfa.org.uk




   Follow-up interview results

• Common themes despite range of sectors and roles
  (politicians, CEOs, CFOs)
• Reinforced / emphasised key survey findings:
   —   Key member of top team
   —   Provide leadership
   —   Think strategically
   —   Delegate more technical matters
   —   Need for broader experience
   —   Importance of ‘softer’ skills
                                                                                                cipfa.org.uk




            CFOs 2008 Survey:
            Leadership / other training in last year

Professional meetings or seminars                                                         81%

                   Action learning                 21%

                        Coaching                         26%

                        Mentoring                18%

      Vocational/practical courses                                                66%

                        Self-study                                   45%

                            None          4%

                                     0%    10%   20%     30%   40%    50%   60%   70%   80%     90%
                                                              cipfa.org.uk




    How CIPFA can help

●   New Warwick/ CIPFA Postgraduate Diploma in Leadership
    in Finance aimed at qualified accountants
●   PDPFL Cohort 6 starts in January 2011
●   CFO leadership academies
●   Open Programme of courses (80+ topics)
     — Finance for Finance
     — Finance for Non Finance
     — Governance , Audit & Risk
     — Performance Improvement
     — Leadership
•   Bespoke support helping to meet your specific needs and
    requirements
•   Opportunities for networking, sharing and learning
                                            cipfa.org.uk




‘In times of change, learners inherit the
earth, whilst the learned find themselves
beautifully equipped to deal with a world
that no longer exists’

Eric Hoffer

				
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