ICAEW claims government CFO is urgently needed

FAILINGS in universal credit and infrastructure highlight the urgent need for a CFO in government, claims the ICAEW.

Problems will continue until one person is chosen to oversee the government policy and ensure the financial implications are considered in line with strategy, according to its latest report, A CFO at the cabinet table?.

While many would argue that the chancellor himself is the government’s CFO, the institute considers this to be a political appointment rather than a permanent post. If a role was created, the chancellor would continue to set financial policy and the budgetary framework, but a group CFO would be a civil servant, leading the development and implementation of strategies.

The search for economic growth means that the requirement for financial skills is a growing priority. A PwC report, Above the parapet, published in 2012, saw the firm claim that “the role and leadership of the finance function in government and the public sector is of critical importance”:

“Finance is increasingly in the spotlight and has a leading role to play. The scale of challenge for finance has never been greater. The need for a high-quality professional finance capability, to enable government and the public sector to deliver its programme and do its day job effectively, is recognised widely.”

In response to concerns about a lack of financial expertise, the government in recent years has recruited non-executive directors with finance backgrounds to various department roles. For example, Martin Stewart (DECC) was previously CFO at BskyB and EMI, Iain Ferguson (DEFRA) was group FD at Laing O’Rourke, and Richard Keys (DFID) was chief accountant at PwC for 37 years.

Other finance experts include: Graham Williams (MoD) who has more than 30 years’ experience at PwC, Ed Smith (DoT) who has more than 30 years’ experience at Coopers & Lybrand and later PwC, Ian Barlow (HMRC) who spent 37 years at KPMG, and Peter Sands (DoH) who was previously group FD at Standard Chartered.

However, these are just a fraction of the 60 NED positions in government at the moment, and non-executives are largely ignored and their skills fail to be utilised, fears the ICAEW.

What is now needed within government is an understanding and acceptance of the fact that strong financial disciplines and a strong finance function should be a growing, important and integral part of the process for managing public finances and meeting the key targets, it argues.

Change is the tradition
A CFO would be able to improve the quality of the HM Treasury’s own management accounting and financial capability processes. This role would allow HM Treasury to perform a ‘group finance’ role, setting standards, monitoring, challenging and holding departments to account, as well as providing strategic advice to government and strategic direction to individual departments.

The ICAEW proposals are threefold: Turn HM Treasury into a modern and proactive finance ministry, create a CFO role to report to cabinet, and empower departmental finance directors.

The CFO in this scenario would be responsible for the network of departmental finance directors, holding a permanent and independent role. The ideal candidate would have significant global experience in finance, leadership and business, with the status to exercise financial leadership across government departments and influence the Cabinet’s decisions.

Comparatively global businesses cannot function without a CFO to work alongside the CEO. Major decisions would not be made without the advice of the CFO. However, as boardroom experts Board Intelligence point out, CFOs are only as good as their financial information.

“Whoever is tasked with the financial stewardship of major government projects – whether it’s a minister, the Treasury or indeed a newly anointed government CFO – will only be as effective as the information that is shared with them,” says Board Intelligence MD Jennifer Sundberg. “Too often, it seems that the people with the responsibility are in the dark until a programme is so far off track that it’s hard to do much about it.”

The ICAEW has penned a mock job description in which it specifies that the potential candidate should be a cross between Gordon Gekko (from the film Wall Street) and Mother Teresa.

Proactive finance

An extract of ICAEW CEO Michael Izza’s blog on a government CFO:

“The problems with universal credit are, sadly, neither unexpected nor unusual. Governments of all colours have struggled to procure and manage big new projects, particularly where a major IT system is involved. In other big organisations, the person running the business (the chief executive) and the person running the finances (the chief financial officer or CFO) are in constant communication about major projects and decisions. This needs to happen in Whitehall.

“To tackle some of the problems identified by the NAO and Sir John [Armitt], we need to turn HM Treasury into a proactive group finance function. We need a group CFO to lead the charge on financial discipline across government. And finance directors in every department need to be given more profile and power to step in when public money is being badly managed.”