Bean-counters to strategists: why CFOs need more power

By Harley Dennett

Monday March 2, 2015

Grant Hehir
Grant Hehir

New South Wales auditor-general Grant Hehir has called for public sector chief financial officers to work smarter, step out of their corporate silos and contribute more business insight to agencies’ primary functions.

In the NSW Audit Office’s Volume One 2015 Report to Parliament released late last month, Hehir warned opportunities to support government’s efficiency priorities were not being seized by those with the skills to contribute:

 “The 2014 audits identified issues in the area of governance and gaps in performance information and reporting across the sector, which suggest chief financial officers should have a stronger role and be more involved in matters that go beyond financial efficiency.”

The state’s multi-year Financial Management Transformation overhaul by NSW Treasury aims to move CFOs from low-impact scorekeepers towards being so-called “disciplined operators” with the focus remaining on financial input. Hehir said that doesn’t aim high enough:

“Where a CFO embeds strong internal controls and leads an effective and skilled finance function they will have more time to focus on strategy and risk management. This move into the business insight space will maximise performance and add value. This is not to say there are not CFOs already providing business insights, but more needs to be done to encourage CFOs to become ‘value integrators’.”

Scott Hartley from accounting firm Grant Thornton and Kerry Mayne from CPA Australia conducted a survey of 51 Australian and New Zealand public sector CFOs last year on the role they play in driving change. The snapshot found 42% of CFOs were not members of their agency’s executive team, leaving open the question how they could contribute to key decisions.

Hartley and Mayne said financial rigour and strategic insight must be linked, which means viewing CFOs as more than just the financial expert in the room:

“CFOs we surveyed stressed that for them, having a seat at the executive table is not about status. Rather it’s about having a voice; a chance to communicate financial acumen and insight to help generate efficiencies and avert poor decision-making.”

Spreadsheet keeper to change strategist

Not all CFOs are ready to join the inner executive just yet.

Hartley and Mayne’s report, which was also based on workshops with 40 CFOs, found many were stuck on a treadmill of transactions, compliance and producing financial statements, with little opportunity to provide business analysis and strategic advice. Lumbering CFOs with additional corporate responsibilities — technology, procurement, human resources, building management, et al — was also highlighted as an impediment.

However, as one CFO respondent said, in some ways their traditional duties are getting less taxing:

“The processes have become so much more automated, which has freed up a lot of the time of the CFO that can now be used more on the strategic side of the finances. As technology advances this will become even greater.”

Skills training is vital for those who will transition from scorekeeper to strategic advisor, Hartley and Mayne said. Agencies could do more to encourage their CFOs by rebalancing their professional development to include operational-based skills such as transactions, procurement, business case development, relationship management and performance assessments.

The most important non-traditional skill CFOs need in the current environment is change management skills, the report found. Almost half of those surveyed were addressing current fiscal challenges through reengineering business processes, but were frustrated by operational silos and cultural resistance to change.

Filling the talent gaps

Many agencies are also struggling with financial officer workforce capability. Some reported not having taken on a new financial officer in more than two years. But CFOs who could acquire staff offered these solutions to Hartley and Mayne:

  • A local council encourages its finance staff to sit with all departments for one day under a hot desk arrangement. This gives the finance team a deeper understanding of the roles, deliverables and challenges their colleagues face, and a greater understanding of council functions.
  • A state government entity sets aside a day every quarter for the finance team to develop and implement process improvement ideas. The team was instructed to focus directly on process improvement and to leave their day-to-day activities. It was a valuable process where the agency identified and implemented several process enhancements after the sessions.
  • A federal agency sought to improve the reporting between financial accounting and performance reporting. The ongoing dialogue facilitates information and knowledge sharing and promotes a “no surprises” environment.

Hartley and Mayne provide a capability checklist:

  1. Make sure tools, systems and applications are seamless and efficient to support the quality, accuracy and timeliness of CFO and the finance teams’ functions and reporting to the executive leadership.
  2. Be a catalyst for change. Lead by example — explore opportunities to develop outside traditional CFO roles, expand professional relationships and networks.
  3. Create an agency finance capability statement that sets the tone for a standard and culture for finance team performance.
  4. Establish a workforce strategy that promotes agility and responsiveness that relates to the cyclical nature of the public service.
  5. Establish a public sector community of practice to provide a shared knowledge platform. The think tank session used in this research has demonstrated value.
  6. Increase the time spent with business leads to build partnerships that deliver benefits aligned to agency and government priorities.

Future efficiencies would come only through greater agency collaboration, the CFOs reported. Already that is being seen though examples like the Commonwealth’s Shared Service Centre, which sits apart from both the Department of Education and Department of Employment CFOs, yet both report on its activities and assets. Hartley and Mayne said strong leadership (or sponsorship) is key to being a catalyst for change:

“This kind of collaboration does not necessarily mean shared services. There are many other models available, such as bilateral service agreements. Indeed, even shared services can take many forms, such as distributed centres of excellence or centralised service, whether single or multifunction.

“New models of operating will require CFOs to flex their management style. For example, the CFO, or someone with many of the same responsibilities, may find themselves located with the finance team in a shared service centre rather than within the department(s) they serve. Equally, the reverse may be true. The CFO may be located in the department but the majority of the finance team may be in a separate standalone entity. CFOs will need to navigate the subtle changes that these structures impose. How does a provider or customer relationship change the organisational dynamic?”

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The neutral Australian
The neutral Australian
7 years ago

Hard to disagree with the sentiment, but having CFOs and their finance staff engaging in strategy and other fluffing about is not going to make any difference to every day financial performance. The reality is most Australian public service agencies and departments have enjoyed budget increases for the past 20 odd years. As a consequence there is little budget discipline and moreover many agencies and departments lack the skills in planning, costing and management to extract the most value in the context of contracting out.

The way forward is for a straightforward approach to financial management that holds line managers accountable for their financial performance. Anything less is a waste of time and public money. By making senior and middle management actually responsible for their budgets they can’t find excuses, nor can they hope to outsource their responsibilities to the finance staff.

Faced with such responsibilities, officials will either smarten up, or they can find something else to do. Get this right, and good financial strategy will follow.

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