1. Public Financial Management Reform For a world of strong economies
Ross Campbell
Director Public Sector, ICAEW

2. About Me ICAEW Chartered Accountant for over 20 years
15 years of commercial experience in Banking & Corporate Finance
10 years of Public Sector experience – Chief Accountant at UK Ministry of Finance & Ministry of Defence – Director at National Audit Office
Currently Director for the Public Sector at ICAEW, with a mandate to develop the Institute’s presence and footprint in the public sector.
Developed the ICAEW-PWC IPSAS Certificate
Created the ‘Better Government Series’ and ‘Building Blocks’ toolkits.
© ICAEW 2017

3. Public Financial Management Reform
Context – why does it matter?
The importance of building trust
What does good practice look like?
The challenges
Is better financial reporting the answer?
The to-do list…
A role for the accountancy profession

4. Context: why does it matter?
For a strong economy the role of Government is vital:
On average governments spend approx. 50% of global GDP
Governments set the rules and frameworks for national economies
Tax policies influence how the private sector behaves
The behaviour of government and government officials, for example with respect to corruption, enforcing the rule of law, etc….
…shapes the public’s perception and willingness to pay taxes…
…and the confidence of investors in the economy
Without public trust there is no strong economy
The accountancy profession is ultimately about creating trust in numbers
The techniques developed by professional accountants can benefit government
Professional accountants can make all the difference
Reform of the Management of the Public Finances s all about building trust…

5. How effective public financial management builds trust

6. How are we doing on Trust?
Transparency International’s Corruption Perception Index
Suggests that there are some issues about trust in a few places…

7. Context: Professional accountancy skills build trust
Accountancy skills are needed to build trust in the numbers:
To uphold the social contract
To deliver on the legitimate expectations of citizens
Taxation that is fair and…
Ensure effective Public Financial Management
Is spent on legitimate public expenditure
High quality public services
Tackle Fraud & Corruption
Ensure public money is spent for the public good
Create the right climate for investment
An economy that is sustainable in the long run
Provide confidence to investors
Promote stability and growth

8. What does best practice look like?
ICAEW work has included looking at everything from culture, organisation, skills, information, accountability, sustainability and public trust in government.
© ICAEW 2018

9. The indicators of good practice
From our work ICAEW has identified some consistent characteristics of well managed systems of public financial management:
Transparency leading to…
…Accountability for public money…
…leading to continuous improvement
This needs accurate records of Assets and Liabilities
High degree of professionalism in government staff
Strong financial management systems & processes
Good understanding of cause and effect relationships
Accurate forecasting of the cost of delivering policies
All of these need a strong government finance profession…

10. Improving Public Financial Management Best practice: Results and Findings
Different countries have approached public financial management in many different ways:
No one-size fits all
History matters
Financial management culture is very important
The role played by the Finance Ministry is also important
The strength of public audit institutions are another important factor
Some countries have achieved economic success and strong accountability without adopting accruals accounting
Not all countries that have adopted accruals accounting have made dramatic improvements in financial management
In all cases successful countries have a strong accountancy profession!

11. Improving Public Financial Management Conditions for best practice
Initial findings from our work indicates a correlation between strong economic performance and:
High levels of Transparency & Accountability (most important!)
Clear separation of roles and responsibilities
Strength of the financial management culture
Basic accountancy disciplines
Financial professionals embedded at senior levels
Strong & effective oversight (Internal controls, legislature & SAI)
Follow-up and effective action with meaningful consequences
The role played by Finance Ministries both in setting frameworks and expectations of professional standards is vital.

12. Improving Public Financial Management Accountability & Culture
Our findings indicate that accountability is the most important factor in improved financial management
Legislation can help set remits and responsibilities…
Better financial reporting can give improved understanding…
…but on their own, neither are enough , especially if not adhered to
Accountability can only be effective when the practice matches the theory
“The cultural side, the financial discipline, is one important element because you can have very advanced instruments of financial management, but if there is not a culture of austerity and discipline, then they won’t help”
Discipline comes from having professionals working to professional standards

13. Improving Public Financial Management
Some of the challenges to doing it….

14. The challenges facing countries

15. Effective Public Financial Management Some of the challenges
Low levels of effective accountability and oversight
Not possible to ‘follow the money’
Lack of visible consequences for fraud and corruption
Insufficient skills and standards
Standards are not enforced
Professional skills hard to attract and retain
Policy makers either don’t understand or are not interested
Insufficient information
Limited information on whether outcomes were achieved
Little understanding of cause and effect relationships
No or little follow up on whether money was spent as expected
Budget systems can encourage unwanted behaviours
Annual budgets can encourage over-purchasing (use it or lose it)
Short term costs avoided at the expense of long term liabilities
Under-estimating and entryism

16. Improving Public Financial Management The challenges – sound bites
Blurred or unclear roles & responsibilities
“…individuals teams and departments can overlap, creating confusion and additional bureaucracy… reducing our capability”
Over complex internal controls or legislative approach
“We have too many rules, I think we have to ask ourselves how the information is used”
Ineffective scrutiny by legislators
“…they argue in favour or against the budget, but once the budget is voted, really nobody cares about how the money is spent…”

17. Improving PFM: is better financial reporting the answer?
Good public financial management needs complete, accurate and timely numbers, consistently presented – but…
…to build trust comes from professional standards and disciplines
Following the money
Trend analysis & analytical review
Cause & effect relationships
Oversight & feedback to drive improvement
…in a cultural environment where those financial management disciplines are valued and supported
Tone from the top – Policy makers & Finance Ministry
Strong independent institutions to ensure accountability
Being seen to act and taking real action to tackle corruption and fraud

18. Benefits of accruals accounting

19. Improving Public Financial Management The to-do’ list:
Globally we have still to fully embedded modern financial management disciplines in the thinking of policy makers:
Challenge of creating an ‘financial management culture’
Educating policy makers is important
Lack of follow up and consequences
Even where the information exists – its only just starting to be used
Financial systems are often still not well joined up
Keeping a cadre of skilled finance staff needs on-going effort
Need to think carefully about recruitment & retention
Professionalism is the destination
Talent management and development is the route

20. Improving Public Financial Management A role for the accountancy profession?
Skilled finance professionals really matter – but for more than just the accounting – used effectively they can:
Improve overall financial management discipline
Communicate complexity to policy makers in simple terms
Support organisational design to improve accountability and tackle fraud
Help to set the culture & tone of the organisation
Fight corruption through ethical standards & behaviours

21. Improving Public Financial Management What is ICAEW doing?
Building Public Sector financial management capability
Thought leadership and learning products (i.e. IPSAS Certificate)
Support to Finance Ministries, SAIs and other public bodies
Capacity Building team working with national PAOs to build professional capabilities across Africa
Over 24 successful projects in 10 African countries to build capacity since 2007
Leading the development of the profession through Chartered Accountants Worldwide
a family of 11 Chartered Bodies worldwide, including Zambia & South Africa
represents 1.6 million members and students
Supports, develops & promotes the vital role Chartered Accountants play in the development of a strong global economy