Financial Management – the devil is in the detail

The NAO report Managing financial resources to deliver better public services is a very telling document.

By 2010/2011, central government spending is forecast to grow to £678bn a year.

And yet, while the NAO found that departments were more aware of the importance of sound management of financial resources, ensuring staff were sufficiently skilled remained a challenge. The report also highlighted that, in most cases, permanent secretaries are the accounting officer, yet not a single one holds a professional finance qualification.

In 2004, the Treasury stated that all departments should appoint an appropriate person to deal with their finances by December 2006. Despite this, today there are still two departments which do not have a qualified finance director and a further four that do not have their finance director on the board.

What does it take to appoint a finance director? Under normal circumstances, intent and a recruitment process. But not so in the Civil Service, it would seem.

Why has it taken four years? To me, this says a lot about the value placed on sound financial management. Less is placed on achieving it and more on justifying to the PAC why things have not happened.

This also explains why major budget variations occur and why several major departments have had their accounts qualified by the NAO in successive years.

Contrast this with local government, where there is a statutory duty under Section 151 to have a qualified finance officer. Even if that person is not on the executive board, finance will be a part of one of the corporate director's responsibilities. In any event, the council cannot take any decision without a financial report of the implications of the policy under discussion.

My experience of being the chairman of a public company also supports the central role that a finance director has. He or she presents the company's results to the City, to shareholders and to the press. It would be inconceivable for the finance director not to be present and even more so for him or her not be on the board.

Equally, an explanation to shareholders that the company had not been able to balance its accounts, or that they were delayed, would be met by uproar. It would lead to a collapse of the company's share price, headlines in the financial press, a loss of reputation and, most definitely, the loss of the jobs of the senior people involved.

Why should there be any less focus on sound financial management in central government, particularly as here we are dealing with accountability for large sums of public money?