The UK'S CIPFA FM model: financial management and effectiveness in public service organizations.

• Author: Beauchamp, Sue
• Position: Chartered Institute of Public Finance and Accountancy

High-performing organizations consistently demonstrate strengths in leadership, financial management, and performance management. This article focuses on the contribution of financial management to the public sector's ability to achieve its strategic and operational goals and deliver improvement; it draws on material from a model of good practice developed by The Chartered Institute of Public Finance and Accountancy (1) for use by finance staff and other managers, as a tool for aligning financial management with the organization's particular development path and priorities.

Public service organizations are highly diverse and complex. They make complicated trade-offs among competing demands and interests. They maintain a range of different relationships with a variety of stakeholders, from regulators, service purchasers, service users, and the general public interest. They manage business risks and political risks that can be calibrated quite differently. Their financial objectives vary from profit center to cost center. But their common financial management objectives are likely to include:

* Giving a reliable account of the money they spend and the income they receive.

* Ensuring the organization's conduct demonstrates probity, sound financial administration, stewardship of public resources, and compliance with regulatory standards.

* Ensuring "value for money"--economy, efficiency, effectiveness, and equity--in how funds are used.

* Identifying, evaluating, and managing risk.

* Supporting good decision making and assisting managers and governing structures to assess the financial consequences of policy choices.

* Analyzing service activity costs and trends and using comparisons to bring about performance improvements.

* Enabling the organization to plan for the future and to align its resource allocation with its business objectives.

* Maximizing income sources without being diverted from business priorities.

* Collaborating in change programs, so that the organization can move forward without compromising core financial management values.

The requirements of financial management in modern organizations have expanded beyond controlling expenditure and accounting for transactions to dealing with these complex, dynamic, and sometimes conflicting environments, in a climate of inevitable financial constraint. There is greater stress on cost reduction, risk control, and performance management. Increasing use of technology puts a focus on driving down transaction costs and on streamlining back office processes. Devolved management structures have emphasized front-line empowerment and accountability. Financial management responsibilities are now widely diffused and are not the exclusive interest of the director of finance. All of this demands a high degree of financial literacy from managers throughout the organization.

A MODEL FOR EFFECTIVE FINANCIAL MANAGEMENT

The model described in this article, which was developed by a CIPFA working group, can be used to assess the contribution that financial management makes to a successful public service organization.

The model for good practice is presented as a matrix of statements for public service bodies that perform well in financial management. It invites organizations to test themselves on the effectiveness of their own financial management in supporting their business objectives, and to consider whether the style and contribution of financial management supports or conflicts with their organization's strategic direction.

The model is structured around three styles of financial management:

* Securing stewardship--an emphasis on control, probity, and meeting regulatory requirements.

* Supporting performance--responsive to customers, efficient and effective, and with a commitment to improving performance.

* Enabling transformation--strategic and customer led, future orientated, pro-active in managing change and risk, outcome focused, and receptive to new ideas.

The styles are progressive. The performance style encompasses all the features of stewardship, while all the elements of performance sit within the transformational style. Stewardship is the bedrock. Stewardship ensures that public resources are properly spent, and it is also an essential element in building a relationship of trust and accountability between the public organization and the citizen or service user. However, stewardship alone is not sufficient to enable an organization to drive performance and to develop its transformational capacity. Conversely, transformation or performance programs that are not founded in a robust approach to controlling and accounting for resources are likely to founder. This underscores the importance of the financial management style both reflecting and reciprocally influencing what the public body wants to achieve. If it is seen as a hindrance to progress, preoccupied with issues of control that are peripheral to the organizational agenda, business energy is all too likely to go into subverting and bypassing good practice, rather than drawing on it as a resource.

Ultimately, organizations will aspire to be the kind of adaptive, forward-facing body that the transformation level implies. However, there may be stages in the organizational...