CIPFA Financial Management Model V3 Latest Developments

1. CIPFA Financial Management Model V3Latest Developments Stuart W Fair LLB, CPFA, FCCA, JP. Senior Consultant CIPFA Consultancy 11 November 2010

2. Structure • The Power of the FM Model • Drivers behind changes to the FM Model • CIPFA FM Model V3 – The Changes • Specific Issues • Functionality • Summary

3. The Power of the FM Model

4. History • Developed from 2004 • Tested throughout UK Public Sector • Created by a range of senior practitioners at CEO/FD level • Version 2 launched in 2007 • Version 3 to be launched January 2010

5. Power of the FM Model • Based on acknowledged good practice • Spans entire spectrum of FM • FM Strategy/Audit/Financial Reporting/Stakeholder confidence • Wider than Finance Service • Improvement on FM can be easily tracked • Complements the NAO Maturity Model

6. Structure of the Model • 38 Statements capturing the characteristics of good financial management • A score is determined for each statement • Each statement has supporting questions • The questions assist in the scoring process

7. Users of the FM Model • Central Government Departments • Local Authorities • Health Bodies • Wales Audit Office • Charitable Organisations • Companies and other Delivery Bodies • Government Finance Officers of America • Abu Dhabi Accountability Authority

8. V3 – FM Model Central Government Lite • Full FM Model for world wide application • FM Model Lite developed for Central Government • FM Lite is a sub set of full model shaped for most relevant Statements and Questions • Core Statements plus added statements specific to the attributes of the organisation relative to complexity/delivery-policy/functionality context

9. Drivers behind the changes

10. Drivers behind the Changes • Emerging Financial Landscape • Development issues • Customer experience • Context – Third Iteration

11. Emerging Financial Landscape Unparalleled CSR cost reduction requirements Relentless focus on priorities:- • Significant Cost Reduction/Further Savings; • Both within and between organisations; • New and creative solutions - change and innovation must go hand in hand with robust stewardship.

12. Emerging Financial Landscape • Beyond budget management – managers focus on managing their costs rather than budget • Finance core to project/programme management and risk aware rather than risk averse • Ensuring financial control without inhibiting the pace of change • Efficiency techniques and mechanisms - lean processing, professional procurement, shared service; • Greater requirement for finance staff to demonstrate commercial skills

13. Sharing Practice: Financial Management Capacity and CapabilityAre Central Government Departments focused on the financial management skills and competencies needed to operate effectively in the new environment?

14. Development Issues

15. Users of the FM Model – Central Government Central Government users including:- • HM Treasury • Cabinet Office • DEFRA • Home Office • Ministry of Justice • Department for Works and Pensions • Department for Children, Schools and Families • Department for International Development • Department for Communities and Local Government • Foreign and Commonwealth Office • UK Trade & Investment • Export Credits Guarantee • Crown Prosecution Service • 8 – NDPBs/Executive Agencies

16. Common Findings – Central Government • Stewardship/Governance generally strong • Supporting Performance Patchy at best • Transformational FM barely evident despite IT/Shared Services Investment • People Management Dimension the weakest/Leadership the strongest

17. High Level Development Areas • Value for Money Challenge and Culture • Ownership of Financial Management • Financial Management Competences • Finance Function Service Standards & Performance Mgt. • Positioning of Finance – Adding Value • Linkage -Operational Performance and Financial Planning • Forecasting – Re forecasting • Financial management Information

18. Customer Experience Issues raised on :- • Scope of Statements – applicability/relevancy • Terminology • Electronic Survey functionality • Reporting of Results

19. Context – Third Iteration since 2004 Principles of good FM unchanged but emphasis on:- • Risk management through change; • Transactional efficiency and productivity; • Collaborative working; and • Commercial acumen of finance staff.

20. Version 3 - The Changes

21. Version 3 - The Changes • 38 Statements of Good Practice • Includes 3 New Statements • Enhanced precision on Statements and Questions • Stronger/Sharper evidence required

22. The Matrix of Good Practice

23. Issues • Procurement – national (Green Report) and local • Treasury Management – Icelandic Bank crisis • Remuneration strategy – severance, pension liabilities • Collaboration - VfM/cost reduction/pooling/shared services • Affordability - Investment/Disinvestment • Savings/Efficiencies/Value for Money • Integration on Financial Strategies

24. Leadership – Added Focus • Review on activity/actual spend, balance sheet, forecasting • Strategy including Affordability/VfM/Risk Transfer • Plans reflecting efficiency targets • Key external cost drivers • Strategic planning - affordability testing/cost and benefit • Long term – strategic risk, resilience and financial standing

25. People – Added Focus • Financial competency requirement • Finance Function performance standards and monitoring • Structure supporting Business Partnering • Interpersonal skills from Finance Staff • Help managers to anticipate problems/devise solutions • Individual and collective responsibility re VfM

26. Processes – Added Focus • Risk Management at all levels – Risk appetite • Internal Audit risk based planning • Transactional • Financial Reporting – IFRS Compliance • VfM – systematic opportunity for cost reduction • Budget Management and Ownership

27. Budget Management – PR9 No surprises and leads to responsive action:- • Does the organisation provide clear documentation, support and guidance, so that Managers who are budget holders understand their responsibilities and own their budgets? • Do Finance staff evaluate budget variances in terms of overall impact and risk for the organisation’s financial position and standing?

28. Stakeholder – Added Focus • Transparency on spending – identification/responsibility • Financial conduct - comment • Service Performance – data quality validation • External Ratings/Judgements/Reputation

29. Specific Issues

30. Impacts of Employee Remuneration – L6 • People - biggest cost/component re cost reduction • Sustainability of Pensions – current and future liabilities • Strategic workforce planning • Absenteeism and Sickness • Pay progression – future payroll

31. Treasury Management – PR5 • Treasury Risks – risk exposure control • Liquidity – medium and long term • Counterparty and interest rate risks – optimal risk management • Borrowing and maturity arrangements • Challenging Treasury Management advisors

32. Balance Sheet Management • Sound and current platform for management action • Period Movements reported at highest levels • Asset valuations updated to reflect values and lives • Impairment/Acquisition/Disposals/Depreciation/IFRS compliant • Accurate Asset/Liabilities market values e.g. on Investments/Borrowings exposure • Debtor – profile on status/age/legal process etc

33. Collaborative Working PR11/16/18 • Complete picture on formal delivery – risk/rewards • Evaluation of Financial Performance • Reporting responsibilities and obligations • Monitoring financial standing of key partners • Linking Partners’ financials with MTFP • Imbalance in strengths between Partners • Sharing of Assets/Pooling

34. Procurement • Procurement capacity and skilling • Consistency on purchasing under formal contract • Framework contracts, joint procurement or consortia • Exploit economies of scale • VfM from competition/supply chain mgt/ • E-procurement – e-tendering/purchase to pay • Optimal strategies – lease, buy or make

35. Medium Term Financial Management • MTFP to include scenarios, risks and sensitivity analysis • To reflect joint planning with partners and other stakeholders • Long Term affordability • Invest to Save/Disinvestment

36. Functionality

37. Functionality • Electronic Survey Completion • Electronic Survey Monitoring • Reporting Capability • Key Terminology changes - Central Government ‘language’

38. Functionality Enhancements • Contributor will only see relevant “culled” statements/questions • Lead person can track survey completion by contributor • Formatted Reporting of results for analysis • Terminology friendly

39. Summary • Need for strong Financial Management has never been greater • CIPFA FM Version 3 - adapted for emerging financial landscape and latest good practice • V3 Central Government Lite to be launched in early 2011 • Enhanced FM Model can help organisations to address the seismic shift in expectations of Financial Management

40. Questions Stuart W Fair LLB, CPFA, FCCA, JP. Senior Consultant CIPFA Consultancy No 1 Croydon 12-16 Addiscombe Road Croydon CR0 0XT Phone:01259 763592 Mobile:07919 558440 email :stuart.fair@cipfa.org.uk web :www.cipfa.org.uk/commercial