The head of education at the Chartered Institute of Public Finance and Accountancy, Adrian Pulham, tells Joshua Chambers that finance skills are more important than ever in government – and that they must be improved.
On a foggy day in Whitehall, Adrian Pulham (pictured above) is clear: the sovereign debt crisis has demonstrated that finance skills are vital in the public sector. The director of education and training at the Chartered Institute of Public Finance and Accountancy (CIPFA) thinks that the big deficits in public sector finances must provide the catalyst to “improve accounting standards and get the right people doing the financial management”.
Pulham’s organisation is a body for public sector government finance professionals, and certifies qualifications. Currently, the organisation is working with sister bodies overseas to coordinate an international push for better finance skills in government. “Our mission at the moment is to bring together organisations around the world, whether they are academic institutions, other accountancy bodies, accountancy firms from the private sector, or whoever shares our concern that it is now a global imperative for governments and the public sector to sort out their finances,” he says.
The UK
In Britain, Pulham says that much has already been done to improve finance skills in government, at least at the most senior levels. “When Tony Blair was prime minister and Gordon Brown was chancellor, it came to Brown’s attention that a significant number of finance directors in central government departments weren’t professionally qualified,” he recalls. “In the traditional British civil service way, they were excellent policy people but they didn’t necessarily have a finance or accountancy qualification.”
This heralded a professionalisation agenda designed to ensure that all central government finance directors have professional qualifications – an agenda that ended a couple of years ago when the Ministry of Defence, the last without a qualified finance director, fell into line. “Over that period of time, we’ve trained more than 100 central government finance directors,” Pulham says.
However, Cabinet Office minister Francis Maude wants the government to go further, giving finance directors have a louder voice. Speaking at Civil Service Live earlier this year, he said that professional and commercial streams “need to be given more clout and status.” He argued that the civil service is split by class, with professional streams playing second fiddle to policy experts. “It remains the case that departmental permanent secretaries are overwhelmingly drawn from the ranks of policy officials,” he said. “Nowhere else would this be the case. In no other big budget environment would you expect there never to be a top executive drawn from the finance or commercial stream. Nowhere else would strategy and policy consistently trump operational delivery in the competition for the top slots.”
Equal status
Currently, there are only two permanent secretaries with finance qualifications: Mark Lowcock of the Department for International Development, and new head of the civil service Sir Bob Kerslake of the Department for Communities and Local Government. Ultimately, Maude wants to see equal numbers of policy experts and people from professional streams in permanent secretary roles.
Quick to spot an opportunity for product placement, Pulham points out that Lowcock studied part-time on a CIPFA course while working at DfID. But his organisation agrees with Maude that more must be done to promote finance skills in government. “Often, the finance director in an organisation is the last person to be asked about whether a project is a good idea or not,” he says. “The board will decide: ‘We want to do this,’ and then they ask the finance director: ‘How can we do this?’ We disagree with that approach: we believe that public financial management should be a part of the decision-making process from the very start.”
Further, Pulham argues that “with a finance director involved at the top table from the very beginning, not only are better decisions made about investment, but it enables a lot of the questions that would arise later to be dealt with straight off.”
At local level, there is a statutory requirement for finance directors to be consulted, he says, but this doesn’t always occur within central government. Including finance officers in decision-making early is imperative “because of the understanding finance directors will have of the [financial] health of the organisation they work in: they’ll be able to talk not only about what is possible now, but what the impact of taking spending decisions at this point in time will be on the freedom to operate in years to come. A serious capital decision taken this year will constrain the ability to take decisions further down the track, so they’ll be able to help the prioritisation of spending in a very significant way,” he argues.
Longer-term financial management has been made easier by the introduction of fixed-term parliaments, he says. However, economic cycles still fluctuate, and Pulham says that finance professionals’ ability to interpret historical data and make predictions about their organisations’ financial futures provides another good reason for involving them in policy decision-making: “They can analyse the trend; they can say when the economy was last behaving in a similar fashion, and note the likely impact on expenditure this time around.”
Lower down the delivery chain
CIPFA wants finance skills to be promoted throughout the civil service, not just in the senior ranks. Pulham notes that the former head of the government finance profession, Dame Mary Keegan, the finance director of the Ministry of Defence, Jon Thompson, and the current head of the government finance profession, Richard Douglas, have all “been very keen to see that not only are the very top-level finance professionals fully qualified, but that everybody with responsibility for budgets throughout government has that experience and proper training as well.” Earlier this year, the government outlined plans for a Finance Transformation Programme to ensure that finance skills are prioritised at all levels of government. How this will be achieved is still a work in progress.
Will it be expensive to train so many more people? Pulham thinks the investment will soon pay off. “If you think about the sums of public money that financial managers are responsible for, an investment in those people, who are likely in the public sector to spend 20 or 30 years in those roles, is relatively inexpensive.”
Of course, as government outsources more public service delivery, many people managing the finances of service delivery bodies will have qualifications and experience tailored to life in the private sector. Public sector finance professionals have broader considerations to take into account, he explains, and public and private sector accounts are displayed in different formats.
Auditing skills differ markedly between the sectors, he notes. “While private sector auditors look at the historical accounts of companies and verify that they’re accurate and give an audit opinion based on that, in the public sector auditors also look at value for money and performance issues, and provide assurance regarding those as well. This is a significant and complex and sophisticated part of public audit.”
Pulham, and CIPFA, back the government’s plan to abolish the Audit Commission because it will standardise public sector audit procedures at central and local levels: the National Audit Office is expected to provide set standards, he says, and private sector auditors assessing public sector accounts will have to work to that framework. “No other country that I’m aware of has separate audit arrangements across the public service between central and other parts of the public sector,” he says. However, there is a risk that after the Audit Commission’s disappearance there will not be sufficient oversight or regulation, he warns, adding that “we don’t quite know how that’s going to pan out yet.”
Risky business
Government is keen that civil servants take more well-judged risks. To achieve this, Pulham explains that finance professionals must first judge the ‘risk appetite’ of their organisation, gauging how willing their organisation is to take risks and how it weighs risks against potential benefits. He comments: “If you work in an entrepreneurial field, your appetite for risk must be extremely high for you to be successful. If you talk to consultants, for example, they will expect to win one contract out of every ten – they have a high risk appetite.” He adds that “managing public money is very different because it’s public money. It isn’t the money of the shareholder making a speculative investment; it is your money, my money, which we’ve earned and have no choice in paying to the government.”
There are, he says, three ways of managing risk. The first is insurance: he points out that the Olympic Delivery Authority has huge insurance policies against the risk of tickets not selling or contractors failing to deliver on time. Second is management mitigation, which involves putting early warning systems in place and retaining an ability to change processes quickly. And third is acceptance, under which organisations accept a small possibility of failure on the basis that the rewards are worth the risk.
Pulham praises the Home Office in particular for its risk management matrix, which CIPFA has adopted. “It’s very clear. We’re accountants – we like numbers – and it provides a numerical analysis, a score for your risk and how you manage that risk,” he says.
A capital idea
Civil servants also need a good understanding of capital streams, Pulham says. “We’re the only professional body that provides that level of training. We’re able to train accountants and say: ‘Which source of cash should we go for and which is the best way to do it?’”
He thinks that PFI remains a good option in some cases. “Take the contracts that were let for the maintenance of the Underground under PFI. They were absolutely appropriate, because when you analyse the net value of the investment over a period of time and set that against different forms of raising public capital, you can show they were the right ones.”
However, Pulham does praise the government for putting PFI debts into the new ‘whole-of-government accounts’, ending the fiction by which these liabilities stayed off the balance sheet. “For a government to be bold enough to publish the whole-of-government accounts, because it does put on the table all those contingent liabilities that were not previously visible to the naked eye, is critical,” he says.
Transparency troubles
Pulham is sceptical about some of the purported benefits of increased financial transparency, however. In particular, he thinks it unlikely that a wave of ‘armchair auditors’ will pore over public accounts.
Recently, he chatted to the chief executive of a London local authority that is – like all councils – being required to publish all items of expenditure over £500. Asked how the public has reacted, the council boss replied that since publication the data has been viewed by four people: the finance director, checking that the IT director had uploaded it; the IT director, checking that it worked; the head of the council, checking for potential political problems; and one member of the public. “It costs tens of thousands of pounds to gather the information, try and get it in some sort of form and put it on the website,” says Pulham. “Is there really a demand out there from armchair auditors?”
Pulham also thinks that information published by local authorities under the transparency agenda is not presented as clearly as it should be: “Accountants and managers are failing if no-one can understand what they’re talking about. Whether it’s the taxpayer or board members, if we’re talking a foreign language, that’s a waste of time.” Pulham thinks accounts should show the context of a spending decision, so that people can better understand the reasons behind expenditure. “We’re not providing enough explanation. We’re not categorising expenditure: it’s frequently just put on various websites by date of expenditure; no information is provided about the purpose of expenditure,” he says (see also Tim Kelsey interview).
For example, Pulham cites newspaper coverage of the Audit Commission hiring out Newmarket racecourse – coverage which followed a speech in which communities secretary Eric Pickles attacked the commission for enjoying “days at the races”.
“Racecourses only have meetings on a few days a year,” Pulham points out. “The rest of the time they rent out their facilities for conferences and meetings – that may well have been a fantastically effective conference and meeting room to book.”
However, resource pressures will most likely prevent information from being presented with the necessary clarity, he says. “It’s very difficult because public bodies are required to make information available with a fairly low threshold of expenditure. This means that there are thousands of items of expenditure that are unfiltered and not described in any way. And [it’s a challenge] to properly describe it when resources are under great strain.”
Resource constraints have forced government to focus on its finances, but Pulham thinks some measures are likely to be more successful than others. Perhaps it’s unsurprising that CIPFA’s head of education should prioritise training over transparency – but while he does think great strides have been taken, Whitehall still has much more to do on both.