SPEAK TO any finance director and that person is likely to tell you that the biggest concern, the thing that keeps FDs awake at night, is cash, or balance sheet protection. So the thought of suddenly finding a £20m hole in their company’s finances is the stuff of nightmares for most.
For Costas Ioannou, the discovery that his annual budget was to be slashed by 20% over the next four years was not a nightmare; it was a reality. As FD of the City of London Police, Ioannou is on the front line, facing the severe austerity measures trimming the country’s gaping public spending deficit.
Ioannou knows more about the tightening of belts than most. The announcement by home secretary Theresa May in February that police budgets are to be cut by a fifth by 2014-15 caused outcry among the rank and file, who were unhappy with the implications for police numbers, pay, pensions arrangements and restructuring.
As the FD responsible for cutting £20m from the spending of the force that takes the lead in policing economic crime and counter-terrorism – during what is likely to be its busiest period in decades with the recent royal wedding and the forthcoming Olympic Games – Ioannou would be forgiven for waking in cold sweats. But on meeting him in his office in the City, he is very matter-of-fact about the challenge his team faces.
“In real terms, we were more or less a £100m organisation in 2010/11. It’s as simple as going to a £80m organisation by 2014/15,” he tells Financial Director.
Setting aside the latest cuts that were announced by May, Ioannou says that he had to trim £3m from the force’s spending last year: £2m from its counter-terrorism budget and £1m from a Home Office policing grant.
“Obviously, it meant that we had to try to mitigate a £3m in-year deficit as much as possible. You have got the challenge there to try to find savings,” he says.
According to Ioannou, he assesses the force’s budget using a risk-based approach that examines each individual budget on what risk it addresses and what priority it addresses. If it does not address a risk or priority, it goes at the bottom of the pile.
“Actually, next year is one of the few instances where we know today what money we have available, and we can draw a line and say this is what we can deliver,” he says. “We have a good regime around having set risk register where we revise and assess our risks continually.”
With annual spending split between 80% on salaries and 20% on non-pay costs, it is obvious that the savings will have to come from salaries. Ioannou adds that he has had efficiency targets from government looking at issues excluding salaries over the past five years, “so in a way we were already lean around our non-pay expenditure”.
One of the strategies being considered is identifying where there might be any duplication of effort within the department: centralising the departments and centralising activity. He says the first stage is about mapping all the processes and activities throughout the force. The efficiencies will then be found within departments, which will bring expenditure and people together to concentrate on doing the same activity.
“It is about looking at efficiencies within the departments and how we can deliver the same service with less. We are looking at the front office and the back office. It is about how police officers do their job – day in, day out. It is about how we support those police officers in the different functions,” he says.
Ioannou says his objective is to go through this transformation and find the required efficiency savings, while maintaining the ability to deliver the four key priorities of the force: economic crime, counter-terrorism, providing value for money and managing the needs of the community.
His community is a little bit different from other forces. While the City only has a relatively small resident population of around 10,000, it has a working population of about 350,000 five days a week. During the 2012 Games, the population of the City is expected to treble to about 1.1m people every day. Managing such increased volumes, while maintaining a business-as-usual approach on a limited budget, will be no easy feat.
However, Ioannou is confident he can manage the budget, restructure the force, and find efficiencies without damaging front line services.
“We have bought ourselves a little bit of time because we have had good financial management over the past five years. We have reserves which we can utilise in the next couple of years to take us through the Olympics and this transformation stage and see where we are in 2015,” he says.
Aside from the headline-grabbing priorities of counter-terrorism and economic crime, Ioannou says his job is to make sure that the force provides value for money, as it is in any private business, albeit to the taxpayer rather than the customer.
How does finance quantify value for money in a public body? Ioannou concedes it is not as straightforward as a profit-making organisation that works off a profit and loss statement. He says it can be measured through benchmarking.
“We look at the different forces and how budgets are spent. Then we try to benchmark what each force is doing, how much they are spending, how many offices they have, how many sergeants, how many managers and superintendents delivering the different objectives,” he says. “Obviously, I look at performance indicators such as detection rates and police response times.”
It is also about having a rigorous audit process showing how his team is performing in financial management, what the procurement process is, and whether he has made the right choices in terms of collaboration.
“We work with other forces to bring resources together and be more effective and efficient. It is not only about collaboration with other forces; it is about collaborating with our police authorities: in our case, it is the Corporation of London. There are a number of areas where we work together. That makes us more efficient and effective,” he says.
01. Early riser or work late?
I can’t really pick one: I find myself coming is early at times and other days I start late. I find myself working late regardless what time I started in the morning.
02. Training preferences. On the job or formal education and training?
Definitely on the job. Formal education is a must, but training on the job delivers an aspect which is not captured by any book or lecturer.
03. What’s your management style?
I always encourage my staff to take on responsibility and initiative and put their own mark on the department’s workload and decisions. I have a very close relationship with my team and that enables me to give my input to their work and decisions.
04. Does delegation come easy?
Delegation does not come easy to me, but it is part of adopting a management style to develop the people around me and manage my workload.
05. Who do you rely on most?
I rely immensely on my wife and children to put up with me.
06. Business venues – boardroom or restaurant?
It has to be the boardroom. I would not be able to get a lot done at a restaurant, although I find that good business relationships can be made and enhanced by meeting colleagues and business associates from time to time outside the office.
07. What technology would you never be without?
That will be my iPhone. Not that I could live without the laptop in my living room.
08. Are you an FD forever?
Never say forever! I would do anything that feels right at a given time. Why limit my life choices to FD?
09. What keeps you awake at night?
What can I say – I am a worrier; many thoughts keep me awake. I try not to think about work when I leave the office but I slip up all the time.
10. Your critical advice to would-be FDs?
Old-school number-crunching accountants need not apply. Business acumen very important. FDs, take some more time out to study and speak to your business and learn more about every other aspect of the business and industry you are in. This knowledge will develop your understanding of the figures you are working with and help you take decisions from a business point of view, not only from accounting-finance perspective.