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  • James Judge

Bean counter or being counted? challenges facing public sector CFOs



What does it take to be an effective CFO in the public sector? And what can finance professionals do to have more strategic impact? Mandarin associate publisher James Judge talks to some CFOs (on and off the record) to get the answers on challenges facing public sector CFOs

In most government agencies, the strategic objectives of the organisation are set out in the corporate plan. The role of finance is to help the executive as a whole make informed decisions about how to reach those objectives and monitor how resource allocations are performing. The approach and mindset of a CFO is critical in meeting these responsibilities — especially in moving from a reactive mindset to a more strategic one.

Living on appropriations, the minimum a public sector CFO should do is to budget resources to the allocation and when something changes, react to that change. It is here that valuable lessons can be learnt from the private sector, where a CFO needs to focus their attention on how to realise efficiencies to maximise shareholder value or respond to competitors. In this paradigm, a CFO needs to be making recommendation as to where money should be invested up front to realise gains, not merely react to events.

For those agencies where the impacts of services delivered are less obvious (in terms of measuring outcomes) it may be a bit more difficult to evaluate improvements or efficiencies, but CFOs can and should play a role in not only counting results — but also in making results happen.

Is it fair to compare government to business?

Governments are in the business of income redistribution. If this seems a strong claim, consider the amount of revenue collected by government that is paid back to the community by way of subsidies and transfer payments.

Despite the absence of a profit motive for most agencies, it’s practical in some ways to compare them to private sector organisations. There may be no imperative to return realised efficiencies as dividends, but genuine improvements can result in adding tremendous value to the public — whether that’s by way of better health or education outcomes, or more efficient payment or collection systems.

Agencies also hire employees. Better decisions around resourcing can make tangible, positive differences to the lives of the two million Australians who now work in government.

Working with other executives

While many senior executives in government have a policy background, for agencies that have an operational focus, structure can present another real challenge for CFOs. A comparison with the private sector is again useful. In the private sector a CEO is usually surrounded by the CIO, COO, CFO and HRD, who tend to have an equal say in critical decisions impacting on the organisation. In many public sector agencies, the COO sits over the corporate function, not the actual business, and a CFO won’t necessarily have the same influence as they are afforded in the private sector.

Unfortunately finance is often treated by other senior public servants in the same way human resources can be treated. Both are often asked to explain what the rules are. In an approach to finance that is truly strategic, the question asked is ‘how can we do things differently to get the outcome?’ — or perhaps ‘how can we do things differently to get a better outcome?’ The policy-heavy background of most senior executives in government means they don’t always understand how the finance team can play a role in crafting creative business solutions. In areas like procurement, finance professionals can have a positive role in not only evaluating purchases, but looking at the costs and benefits accrued across life-cycle. One CFO I spoke to suggested that IT tend to run their own procurement processes and were prone to be captivated by the polished sales pitch for the next bright shiny thing.

Even a decision to move people from one part of an organisation to another has implications where finance can add value. A more strategic approach here asks CFOs to not only think about money, but the entire resources of an agency, including people and technology. A truly adept CFO will thus consider how they can foster collaboration, working with IT and HR to plan and implement decisions.

It’s not enough to observe the formal reporting relationships of an organisation. Irrespective of hierarchies, good CFOs need to be agitators — making business cases, championing efficiencies and suggesting improvements.

The role of technology

With advances in data analytics, a lot of financial accounting can now be done with accounting packages, potentially freeing up finance teams from more routine tasks. This means an increased emphasis can be directed to what the figures really mean. Lynton Norris, formerly director of budget management and funding for the Victorian Health Department and now CEO of the National Health Funding Body (an agency that administers approximately $ 1 billion in payments to hospitals each week) points out that: “…there is now so much information to hand that at least half the role of a CFO should be devoted to interpreting and analysing the data, forming insights, and using these to advise on strategy and drive effective outcomes.”

Improvements in technology and AI will also mean transactional and compliance functions will need fewer staff. This has ramifications for the skill sets of financial professionals moving forward. While the need to read a balance sheet or a profit and loss statement will never vanish, problem solving skills, negotiating prowess and great communications skills will become increasingly important. Finance professionals of the future will need to understand what the metrics show, craft options to improve upon them, argue the case for change with their peers, rally and motivate their staff and then  effectively communicate decisions throughout their agency.

Building the team

One senior executive I spoke to commented that when he first moved into government, he was shocked at the number of unqualified people working in finance. This may be changing over time but at all levels and across jurisdictions it’s reported that there isn’t the formalised attention to continued professional development in the same way that is done in large, private sector organisations.

Although most agencies offer both external and internal training opportunities, finance executives may need to think creatively to ensure that learning is achieved for their staff through on the job opportunities. In NSW, considerable work has been done through the establishment of a service-wide community of practice which has now been operating for some years. This events-based group is focused on engaging, retaining and developing finance professionals (not just accounting roles) across state government and is sponsored by both the CPA and the CA.

Many senior finance professionals working in government report that they are treated as public servants who happen to have a particular qualification, not a collection of finance professionals who choose to work for government (which is how government CFOs overwhelmingly see themselves). In this respect, accountants face the same sort of challenges that other groups of professionals, like lawyers and engineers, encounter in the public sector.

Doing less with less

A challenge raised by many CFOs is ‘how do we do less with less’? This phraseology may seem perplexing for those who aren’t working in finance, but is explained well by Austrade CFO Robert O’Meara.

“People can see and understand the need to do new things, but not so much how can we stop doing existing things that are no longer really necessary or are low priority activities.” A generally risk averse culture in government means that there are a lot of controls and checks — established ways of operating that present barriers to better ways of doing things. Some of these are essential, but many represent an accretion of practices built up over time that are no longer helpful or necessary.

The Belcher Review made recommendations for the Commonwealth regarding duplication and other inefficiencies, but there is still a lot of work to be done to implement or build on these in individual agencies. Those working in state government will have their own set of similar challenges. At whatever level of government, CFOs need to challenge a risk aversion mindset and create a culture where staff aren’t solely focusing on ‘what do I have to deliver today’?

Thinking critically about what can be outsourced is another option. A question such as whether it’s optimal to have finance staff chasing sundry debtors could result in a decision to find someone externally who specialises in that, put some robust KPIs around it and get some better management reporting around that process.

Looking to the future

A lot of very qualified millennials coming out of university expect to be rapidly promoted to more senior positions. With 41 years in government John Roach, the CFO for NSW Health, makes the point that above and beyond qualifications, to succeed at senior levels, you need to have the awareness and understanding that everything you do will have an impact on staff and multiple stakeholders.

The need for CFOs to be on the front foot will increasingly be important. In areas where there are high levels of community expectation (as is often the case with government) you don’t want to be facing surprises. Working in hospitals for instance, John relates that “…it’s not enough to be ‘one step’ behind the director of clinical operations, you need to be ‘in step’ with them.”

The introduction of more co-ordinated discussion in recent years between finance professionals, both within and across agencies, is something that is highly valued. Whole of government solutions can make a lot of sense, as can inter-jurisdictional lessons. For those thinking of moving into a government CFO role, the position can be very rewarding — but all the CFOs I spoke to warned not to expect many breaks as the workload is constant. Because a great CFO should have a profound knowledge of the business, for those planning on going for a CFO role, it’s probably worth considering some roles outside of finance.

Despite the challenges of the future and the changes being wrought by technology, it’s certain that some things in government won’t change. The best analysis and strategies put together by a CFO or an executive team will, from time to time, be subject to ministerial whims.

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