Financial management is an essential element of good corporate governance and forms part of the firm foundations of an organisation, underpinning service quality and improvement. It is the basis of accountability to stakeholders for the stewardship and use of resources. It is also about managing performance and achieving an organisation's strategic objectives, as much as about managing money.
Financial management is a key management discipline. It is something that all nonexecutives and managers within an organisation are responsible for, individually and collectively. It is not just the job of the director of finance and his or her staff.
Rising to the challenge
The public sector faces a rapidly changing and increasingly complex operational environment and, given the special accountabilities attached to the stewardship and use of public money, all public bodies need to rise to the challenge of improving financial management. Against this background, the Commission has developed this discussion paper to stimulate debate across public services and among finance professionals about what standards of financial management the public sector should aspire to over the longer term.
It does not attempt to set those standards or to define a benchmark against which public sector bodies can, or should be, judged in the short term, and it is not meant to be comprehensive. This paper is high level in nature and is not intended to be a practical guide to how financial management in the public sector might be improved.
Best practice
In developing this paper, we worked with PricewaterhouseCoopers (PwC), our largest private sector partner, to identify leading edge and best practice examples of different aspects of financial management. These examples were drawn from PwC's knowledge sources, which reflect their learning and extensive experience in providing audit and advisory services across the world.
We want to encourage readers to think about the issues raised in this paper from a different perspective. It is for this reason that we have chosen to highlight case studies drawn from the private sector or overseas. However, we recognise that public sector bodies are subject to different operational constraints from private sector bodies.
Principles of good financial management
We believe that the principles of good financial management are universal, and apply equally across the private, voluntary and public sectors. In that context, what do these case studies drawn from the private sector and different countries have to teach us?
We are not suggesting that the public sector should slavishly adopt private sector practice. We recognise that financial management arrangements within an organisation must primarily be fit for purpose and proportionate, and that the standards highlighted in the case studies may not necessarily be appropriate for, or transferable to, all organisations.
They also cannot be achieved overnight. The process of achieving world class standards of financial management in the public sector will necessarily take the form of a journey with various staging posts along the way. We also recognise that achieving these standards necessarily involves costs, which have to be justified in terms of additional benefit, through the better use of resources and enhanced accountability.