Gympie Regional Council - Financial Management …...Regional Council (GRC) requested CPA Australia to conduct a financial maturity assessment of the organisation. This was regarded

FINANCIAL MANAGEMENT REVIEW - REPORT GYMPIE REGIONAL COUNCIL

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CONTENTS Executive summary ......................................................................................................................................... 3 1. Background .............................................................................................................................................. 5

1.1 Scope ..................................................................................................................................................... 5 1.2 The CIPFA Financial Management (FM) Model .................................................................................... 5 1.3 Best Practice matrix ............................................................................................................................... 5

2. Review Results ........................................................................................................................................ 7 2.1 Document Review .................................................................................................................................. 7 2.2 Interviews ............................................................................................................................................... 7 2.3 Surveys .................................................................................................................................................. 7 2.4 Overall best practice scores .................................................................................................................. 8

3. Comparison to Other Organisations ........................................................................................................ 9 4. Detailed scoring and assessments ........................................................................................................ 11

4.1 Leadership Dimension ......................................................................................................................... 11 4.2 People Management Dimension ......................................................................................................... 15 4.3 Process Management Dimension ........................................................................................................ 18 4.4 Stakeholder Management Dimension ................................................................................................. 22

5. High Level Recommendations ............................................................................................................... 24 5.1 Leadership ........................................................................................................................................... 24 5.2 People .................................................................................................................................................. 25 5.3 Process ................................................................................................................................................ 26 5.4 Stakeholders ........................................................................................................................................ 26 Limitations .................................................................................................................................................. 27 Third Party Reliance .................................................................................................................................. 27

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EXECUTIVE SUMMARY Finance is the lifeblood of every organisation; how financial information is used and managed is a central issue for key decision makers and leaders. Contemporary financial management is no longer about accounting for expenditure and demonstrating probity, and places finance in a wider organisational context actively supporting the delivery of the organisation’s strategic objectives.

Better practice financial management involves financial accountabilities being diffused and enacted throughout the organisation with financially literate budget holders, supported by finance professionals offering challenge, interpretation, and advice.

In an endeavour to implement a more strategic Financial and Risk Management approach, Gympie Regional Council (GRC) requested CPA Australia to conduct a financial maturity assessment of the organisation. This was regarded by stakeholders across the organisation as a positive step. The basis of the review is the UK Chartered Institute of Public Finance and Accountancy (CIPFA) Financial Management model; a globally recognised framework for assessing the fundamentals of best practice financial management within a public-sector organisation. It recognises that using money well leads to more and better front-line services.

The matrix below summarises the evaluation of GRC financial management arrangements with scores against the maturity levels and management dimensions of the CIPFA FM Model. Overall, GRC scored 1.7 out of a possible 4. This compares to an average score of 2.2 for 97 other public sector agencies (including local councils) that have been independently assessed:

Management Dimensions Maturity Levels Leadership People Process Stakeholders Delivering Accountability 2.0 2.0 2.6 3.0 Supporting Performance 1.5 1.3 1.3 1.0 Enabling Transformation 1.5 1.0 1.0 2.5

Financial management effectiveness is to a large extent a reflection of organisational culture and norms. Consistent with themes arising in the 2018 GRC staff survey, this review highlighted significant opportunities to improve GRC’s prevailing ‘legacy culture’, noting a broad-based reticence to accept accountability for performance, with a lack of visible consequences for decisions/actions.

These behavioural attributes impede GRC’s financial effectiveness in a public sector resource environment where there is an expectation to do more with less. However, an accountability culture alone is not sufficient to enable an organisation to drive performance and to develop its transformational capacity.

It is evident that finance capability in GRC has been perceived as of secondary importance; this needs to change. In this regard, several fundamental issues contribute to a broad sense of unease across the organisation about the financial capacity and performance of GRC, particularly in the context of an ongoing funding deficit.

These issues include the poor financial literacy of many managers; a vacuum in senior financial leadership; low confidence in the reliability of financial systems information, budgeting and reporting; the absence of performance KPI’s; lack of a financial sustainability strategy; a stretched, transactional Finance function; and an Executive team that is widely perceived as not being unified nor fully functional.

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With efficiency dividends incorporated into current year budgets under review and possible Covid-19 related fee/rate relief impacting income, the pressure on current and subsequent financial operating results is expected to be significant. This amplifies the need to undertake immediate action on several fronts. With that in mind, several important steps to address these issues are suggested in priority order including to:

Priority 1

• Finance Leadership: acknowledge the importance of financial management by appointing an experienced Chief Finance Officer (CFO) with expertise in guiding organisational change as an equal member of the Senior Executive team.

• Budgeting: to better support transparency and accountability, implement a contemporary and rigorous budgeting methodology by mandating a ‘Bottom-up Budgeting’ process across the organisation, with Finance supporting its implementation.

• Service Levels: Consistent with other councils, create a ‘Service Level Catalogue’ analysing and documenting GRC activities, service level targets and costs. Integrate with a ‘Bottom-up Budgeting’ methodology and define measures for corporate overhead allocation.

• Financial Sustainability: Develop a Financial Sustainability Strategy to map the achievement of Council’s corporate plan objectives in the medium to longer term and that adopts (i) state defined finance performance ratios as a contextual guide to inform decision making and (ii) establish boundaries for capital and operational expenditure planning

Priority 2

• Performance Indicators: Develop an organisational financial performance dashboard. Cascade performance and budget KPIs from strategic plans into business operating plans and individual performance metrics. Publish comparative Business Unit performance progress and report to Council.

• Finance Systems: Recognising the link between organisational performance and financial effectiveness, establish a finance system ‘root and branch’ review project to diagnose roadblocks and inefficiencies with a view to defining a finance systems investment/improvement program.

Priority 3

• Financial Literacy: Complete an inventory of finance competency across existing decision-making positions and deploy an organisation wide finance literacy development program.

• Finance Competency: Implement an organisational finance competency framework to define the mandatory finance competencies necessary for decision-making roles. Integrate this into GRC’s existing capability framework.

• Finance Service Delivery: within the context of the corporate finance function, engage further professional finance capability and implement a business partner service model to support business unit leadership. Consider whether corporate procurement and asset management services are best aligned within the finance function. Explore a finance mentor program with other councils to promote capability building.

It is acknowledged that the ‘mood in the middle’ of the organisation is where long-term consistent emphasis on embracing an accountability and performance culture will be a key to success; uplifting finance competency and literacy will play a pivotal part therein.

The Chief Executive Officer sponsored this review in the knowledge that recommendations for significant change to organisational financial capability and management were possible. This report represents an opportunity for a major recalibration of GRC’s ‘corporate DNA’ to better support ongoing success.

The issues, scoring and high-level recommendations are expanded upon in sections 4 and 5 below.

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1. BACKGROUND 1.1 SCOPE Gympie Regional Council (GRC) covers an area of 6,898 square kilometres with a population of 48,464. GRC employs 515 staff and manages a $135.8M budget. In an endeavour to implement a more strategic Financial and Risk Management approach, GRC is seeking an independent assessment of the maturity of its Financial and Risk Management practices.

The basis of the review is the CIPFA FM Best Practice model. The model is used to (i) establish a financial management baseline, (ii) enable a comparison with other public-sector organisations, and (iii) prioritise financial management improvement opportunities.

1.2 THE CIPFA FINANCIAL MANAGEMENT (FM) MODEL The CIPFA FM Model is a globally recognised framework for assessing the fundamentals of best practice financial management within a public-sector organisation. The FM Model uses a scoring system to provide a measure of financial management performance including the identification of strengths, weaknesses, and areas for improvement. Importantly the model assesses the whole organisation’s attitude to financial management, not just the performance of the finance team. The assessment is based on a mix of information obtained through survey, interview, and document review.

The FM model is based on 30 statements of best practice. Each of these statements is supported by a series of questions that both explain the scope of the statement and help evaluate the extent to which the statement applies to the organisation. This assessment is scored on a scale from 0-4 to aid aggregation and comparison. Hundreds of public sector organisations around the world have applied the FM model either through self-assessments or via fully independent arm’s length reviews.

The model recognises that using money well leads to more and better front-line services and that effective financial management in the contemporary public sector requires financial responsibilities to be more widely diffused throughout the whole of the organisation.

1.3 BEST PRACTICE MATRIX The CIPFA Model is structured around 3 styles of financial management:

• Delivering Accountability – an emphasis on stewardship control, probity, meeting regulatory requirements and accountability.

• Supporting Performance – responsive to customers, efficient and effective, and with a commitment to improving performance.

• Enabling Transformation – strategic and customer-led, future orientated, proactive in managing change and risk, outcome focused and receptive to new ideas.

The styles are intended to be progressive and it is expected that all 3 styles will be present in an organisation exhibiting best practice financial management characteristics. For example, accountability alone is not sufficient to enable an organisation to drive performance and to develop its transformational capacity and, conversely, performance or transformation programmes that are not founded in a robust approach to controlling and accounting for resources are unlikely to succeed.

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The Model is also organised by 4 management dimensions. These cover both ‘hard edged’ attributes that can be costed / measured, as well as ‘softer’ features such as communication, motivation, behaviour and cultural change. These dimensions include:

• Leadership – focuses upon strategic direction and business management, and the impact on financial management of the organisation’s vision and involvement of the organisation’s decision makers and senior managers.

• People – includes both the competencies and the engagement of staff. This aspect generally faces inward to the organisation.

• Processes – examines the organisation’s ability to design, manage, control and improve its financial processes to support its policy and strategy.

• Stakeholders – deals with the relationships between the organisation and those with an interest in its financial health, whether government, treasury, auditors, taxpayers, suppliers, customers or partners. It also deals with customer relationships within the organisation, between finance services and its internal users.

The Best Practice matrix in this report is displayed with a possible best score of 4 in the usual traffic light palette to ease interpretation. A score between 3 and 4 is coloured green, between 2 and 3 as yellow and below 2 is red.

The Best Practice matrix aggregates assessments for individual statements of best practice in the FM Model and summarises CPA Australia’s assessment of GRC’s financial and risk management arrangements. We have also provided a comparison of GRC to the average scores of 97 public sector agencies that have conducted an independent CIPFA FM review, and of this group, 20 local council organisations (primarily in the UK).

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2. REVIEW RESULTS The Financial management review was conducted over the period March and April 2020. It was based around three sources of information being (i) a document review (ii) interviews with Councillors, management, staff and external stakeholders, and (iii) an online survey of employees.

2.1 DOCUMENT REVIEW This is an integral aspect of completing the overall evidential position of the assessment and includes key organisational documents. It serves two main purposes; to enable the access to all documentation that is relevant to Financial Management and to confirm factual information relating to the best practice statements and supporting questions e.g. whether or not a specific policy was in existence. This is integrated with the assessment of information arising from Direct Interviews and the Survey.

Public sector organisations in Australia generally operate within a mature governance and regulatory environment and in GRC ’s case there were no significant governance / policy issues noted.

2.2 INTERVIEWS There are typically two types of interview undertaken including (i) Initial fact-finding interviews to cover specialist areas and statements not included within the electronic survey. Examples could include Procurement and Internal Audit, and (ii) a sample of survey group members and senior management and/or Councillors and external stakeholders. This provides further depth on information in relation to the statements covered by the electronic survey.

Interviews are also used to supplement the Document Review process as well as substantiating the data generated from the electronic survey. Where inconsistencies arise between evidential areas, direct interviews allow for key lines of enquiry to be established that will aim to secure the most accurate picture of strengths and weaknesses. There were 33 interviews completed as part of the review.

2.3 SURVEYS The confidential online survey process is key component of the CIPFA FM Model. Contributors complete a survey and submit their results over a prescribed period of time. In addition to scoring the statements, contributors record observations and commentary which provide valuable insight as well as substantiating their scoring. The survey is structured into organisational groups such that relevant questions are directed to appropriate decision-making levels.

For GRC these were Operational Finance, Corporate Strategic Finance, Service Directors, Operational Budget Holders/Managers and Stakeholders / Councillors, External Audit. The survey is used to test best practice statements against the actual prevailing conditions and practice within the organisation. The completion rate was excellent at 98% - 51 of the 52 invited respondents completed the survey.

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2.4 OVERALL BEST PRACTICE SCORES Using the matrix, the key development areas from the review can be summarised across the three financial management styles and four management dimensions. The matrix below summarises CPA Australia’s evaluation of GRC Financial and Risk management arrangements against the best practice in CIPFA’s FM Model.

The best practice matrix scores for GRC are:

GRC Management Dimensions

Financial Management Styles

Leadership People Process Stakeholders

Delivering Accountability

2.0 2.0 2.6 3.0

Supporting Performance

1.5 1.3 1.3 1.0

Enabling Transformation

1.5 1.0 1.0 2.5

The best practice matrix scores for other organisations are:

Others Management Dimensions

Financial Management Styles


Delivering Accountability

2.7 2.2 2.7 3.1

Supporting Performance

2.2 1.9 2.1 1.9

Enabling Transformation

2.1 1.7 1.6 2.4

The scores reflect that in comparison to others, GRC’s financial management capability is somewhat lower, particularly as the maturity level and sophistication of financial capability increases. A more detailed comparison to other organisations and the UK local government sector is outlined in section 3 below.

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3. COMPARISON TO OTHER PUBLIC SECTOR AGENCIES From a broader performance perspective, the table below outlines (i) GRC ’s financial management maturity scores against the average of 97 other public sector organisations that have completed an ‘arm’s length’ CIPFA FM Best Practice review, and (ii) the scores of the best performing 20% of organisations with a view to indicating the performance gap potential for GRC.

Overall Score Across All Dimensions and Levels:

GRC All Organisations Best Performers 5 3 Average scores from 97 independently assessed public sector organisations

4 Average of best performing 20% of organisations 5 The best performing Australian public sector agency scored 3.2

1.7 2.2 2.8

Financial

Management

Styles

Management Dimensions GRC

Financial Mgt Style

Score


GRC All Org.3

Average Best 4

Perf GRC All Org.3

Average Best 4

Perf GRC All Org.3

Average Best 4

Perf GRC All Org.3

Average Best 4

Perf

Delivering Accountability 2.0 2.7 3.2 2.0 2.2 2.7 2.6 2.7 3.0 3.0 3.1 3.3 2.4

Supporting Performance 1.5 2.2 2.9 1.3 1.9 2.7 1.3 2.1 2.6 1.0 1.9 2.8 1.3

Enabling Transformation 1.5 2.1 2.7 1.0 1.7 2.3 1.0 1.6 2.4 2.5 2.4 3.0 1.5

Management Dimension Score 1.7 2.3 2.9 1.8 1.9 2.6 1.6 2.1 2.7 2.2 2.5 3.1

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From a Local Government sector perspective, the table below outlines the average score for 20 independently assessed local government councils* in the United Kingdom and Australia – the overall average being 2.3 compared to GRC’s 1.7:

The GRC average is 1.7 with a comparative single Australian local council score of 2.2:

* These councils include:

Aberdeen City Council

Anglesey County Council

Basildon Borough Council

Birmingham City Council

Blaenau Gwent BCC

Bridgend County Borough Council

City of Lincoln Council

City of London Corporation

East Dunbartonshire Council

Harrow Council

Highland Council

Inverclyde Council

Powys Borough County Council

Stockport Homes Ltd

Stockport Metropolitan Council

Stockport SSK Ltd

Tower Hamlets

Vale of Glamorgan BCC

Westminster City Council

City of Melbourne

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4. DETAILED SCORING AND ASSESSMENTS

In this section of the report, we show scores for management dimensions and the best practice statements. The overall assessment scores (out of 4) are included in the table adjacent to each best practice statement together with the applicable all organisation average and best performers score.

For each management style (delivering accountability, supporting performance and enabling transformation), the overall findings are presented with recommendation included in section 5.

4.1 LEADERSHIP DIMENSION The Leadership Dimension focuses upon strategic direction and business management, and the impact on financial management of the organisations vision and involvement of the organisation’s decision makers and senior managers. The CIPFA FM model assesses the extent to which organisations perform to these Best Practice statements. There are 6 best practice statements that build on capability as we progress through the three financial maturity levels.

Leadership GRC All Organisations Best Performing

Delivering Accountability 2.0 2.7 3.2

Supporting Performance 1.5 2.2 2.9

Enabling Transformation 1.5 2.1 2.7

4.1.1 DELIVERING ACCOUNTABILITY The best practice statements that make up this element are:

• Financial capability is regarded as integral to supporting the delivery of the organisation’s objectives. The CFO is an active member of the council, is at the heart of corporate strategy/business decision making and leads a highly visible, influential, and supportive finance team.

• The organisation has an effective framework of financial accountability that is clearly understood and applied throughout, from the council through executive and non-executive directors to front line service managers.

• Within an annual budget setting process the organisation’s leadership sets income requirements including tax and allocates resources to different activities in order to achieve its objectives. The organisation monitors the organisation’s financial and activity performance in delivering planned outcomes.

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The overall findings:

Gap to better performance Recommendation • Widespread commentary from Executive to frontline staff that while

acknowledging accountability is an espoused GRC value, it is not reflected in behaviours, processes, and visible consequences. A regular comment from participants was that there is no accountability nor consequences for decision making at GRC. In exploring accountability in several group interviews, it was disappointing to note that a common response was derision and laughter.

Bottom-up Budgeting and Service Levels

KPI’s and Performance

Dashboard

• There is a senior Finance leadership gap at GRC. There has been a vacancy in the CFO position for almost 12 months and the Executive team does not include a senior Finance advocate. When the previous CFO was in place, he did not have a position on the Executive team, signalling to the organisation that Finance was of secondary importance. The corporate finance function would be more effective with additional experienced professional resources.

Finance Leadership

Finance Services

• Budgeting at GRC was described by participant’s as an exercise of frustration and disjointedness. The annual budgeting process is a separate to Council’s operational planning process, and also individual development plans.

• Budgets can be approved with no supporting operational plan initiatives, and operational plan initiatives can be approved without a supporting budget. Contemporary ‘Bottom-up Budget’ practices common at other Councils are not generally applied at GRC.

• There is no Service Level Catalogue developed for GRC which articulates the cost and extent of service offered by Council which would integrate with budgets and support a more visibly Accountable culture.

Bottom-up Budgeting and Service levels

• The current 2017-22 GRC Corporate Plan adopted by Council uses language that does not support an accountability culture e.g. every Corporate Plan action leads with the phrase: ‘Subject to available resources’.

Financial Sustainability and Strategy

• There is no apparent willingness to provide a financial strategy to guide the future year forecasts and assist in populating the long term financial model, no framework for corporate overhead allocation or internal trading leading to a lack of consistency in the way GRC treats services across the directorates.


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4.1.2 SUPPORTING PERFORMANCE

The best practice statements that make up this element are:

• The organisation has a developed financial strategy to underpin medium-and longer-term financial health. The organisation integrates its business and financial planning so that it aligns resources to meet current and future outcome focussed business objectives and priorities.

• The organisation develops and uses financial/leadership expertise in its strategic decision-making and its performance management based on an appraisal of the financial environment and cost drivers.


Gap to better performance Recommendation • GRC has not formalised a Strategic Financial/Sustainability Plan

defining a context within which decisions are informed. A draft Finance Sustainability Strategy was tabled at an Executive Committee in November 2019 and possibly discussed at a Council workshop however it was not enacted.


• Financial Leadership is a significant capability gap at GRC both organisationally and at the Executive Committee level. Historically, the CFO role has not had a ‘seat at the table’ and has not been an Executive team member, signalling Finance capability as not of equal importance.

Finance Leadership

• Relevant comments from contributors included:

The long term financial model is an afterthought at budget time as evidenced by the 2019/20 annual budget adopted in June 2019 – operational deficits for the first five years, no cash balances after Yr2 and sustainability ratios that were outside the target ranges for the majority of the 10 years.

There is a lack of financial strategy to underpin medium- and longer-term financial health. The organisation does not seem to integrate its business and financial planning so that it aligns resources to meet current and future outcome focused business objectives and priorities.


• In completing the online survey only 9 per cent of people agreed that GRC develops and uses financial / leadership expertise in its strategic decision-making and performance management.

Finance Leadership

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4.1.3 ENABLING TRANSFORMATION


• The organisation’s leadership integrates financial management into its strategies to meet future business needs. Its financial management approach supports the change agenda and a culture of customer focus, innovation, improvement and development.


Gap to better performance Recommendation • This is an aspect of organisational performance that is widely

regarded as under-developed with only 16% of survey respondents agreeing with the questions supporting this statement. Finance capability and influence in the organisational change projects etc. is of secondary importance. Comments on this area include:

The organisation has grown exponentially in some areas based on the budget available in that particular area and not a zero-based approach that reflects the organisation's strategic directions. Given the political environment, changes that need to be made, have not occurred.

It seems financial management is not considered during development of strategies to meet future business needs. This possibly has impacts on change agenda and a culture of customer focus, innovation, improvement and development.

We need further communication around these issues from a strategic level. At a business level, improvements in efficiency in service delivery including changed models of delivery are actively encouraged in a number of areas. I think it would be beneficial to discuss and showcase these more to share learnings within the organisation.


KPI’s and Performance

Dashboard

Finance Leadership

• In answering the question: ‘Is the organisation prepared to stop projects that lose sight of planned benefits?’ – 90% of respondents (including Executive team members) answered No.

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4.2 PEOPLE MANAGEMENT DIMENSION This includes both the competencies and the engagement of staff. This aspect generally faces inward to the organisation.

People GRC All Organisations Best Performing





• The organisation identifies its financial competency needs and puts arrangements in place to meet them.

• The organisation has access to sufficient financial skills to meet its business needs.


Gap to better performance Recommendation • Almost 70% of survey respondents agreed that there is no finance

competency framework at GRC. There is a clear need for GRC to specify and reconcile its finance competencies against current role capability - undertake a gap analysis of existing capability and include finance capability in all relevant role descriptions and performance criteria.

• Financial literacy is regarded as a major problem area with substantial commentary in surveys and interviews highlighting that this gap impedes the effectiveness of organisational decision making and performance monitoring.

• Consider engaging additional professional finance expertise in the Finance function to support a more contemporary and effective business engagement model. Review the creation of ‘shadow finance/ business analyst’ roles recently engaged by some business units external to the Finance function.

Financial Competence

Financial Literacy

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4.2.2 SUPPORTING PERFORMANCE The best practice statements that make up this element are:

• The organisation manages its finance function to ensure efficiency and effectiveness. • Finance staff provide business partner support by interpreting and explaining performance as well as

advising and supporting on key business decisions. • Managers understand they are responsible for delivering services cost effectively and are held

accountable for doing so. Financial literacy is diffused throughout the organisation so that decision takers understand and manage the financial implications of their decisions.


Gap to better performance Recommendation

• A finance partner engagement model is partly deployed however sufficient suitable resources are not in place to support the model across the organisation.

• There is lack of confidence in the accuracy of information produced by existing finance systems. It is problematic to note that the General Ledger system requires a daily review to confirm all accounts and interfaces remain in balance.

• In answering the questions regarding the statement ‘Does the organisation manage its finance function to ensure efficiency and effectiveness? 74% of survey respondents answered No.

• A recent GL re-write project was acknowledged as a large, if belated, investment in back end systems.

• In answering the specific question: ‘Does technology and workflow free finance staff from transaction processing and data manipulation to focus on their skilled professional contribution?,’ 62 per cent of survey respondents disagreed or did not know.

• In relation to the principle of Cost Effectiveness and Accountability, interview and survey feedback consistently highlighted underdeveloped financial literacy, a lack of clear accountability, visible consequences and performance KPI’s as a recurring theme.

• The Finance function does not use customer feedback and/or service metrics to track perceived effectiveness

• Commentary from the survey included:

Not many managers understand they are responsible for delivering services cost effectively and are held accountable for doing so. Financial literacy is insufficiently diffused throughout the organisation.

Very little accountability and an extreme lack of appetite or drive to be performing in a financially responsible manner, and as efficiently as possible.

Finance Engagement

Finance Systems

Finance Business Partners

Finance Literacy

Finance Performance

Metrics

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4.2.3 ENABLING TRANSFORMATION


• The organisation develops and sustains its financial management capacity to help shape and support its transformational programme.



• Stakeholder feedback in interviews and online highlighted a leadership and influence gap in financial capability both for Finance as a function and also for finance as an organisational capability. There is a lower level of capacity and experience in the organisation for enabling transformational change and Finance’s role therein.

• In this regard, 60% of respondents in the survey answered No to the questions exploring the statement.

• To expand on this more specifically: ‘Do finance staff have the status and influence to have a transformational impact on the organisation’s development’? 62 per cent of respondents answered No.

• Developing this capability in the short to medium term will be a critical enabler for GRC financial stability and success.

• Relevant survey commentary included:

There has been a revolving door of occupants in the CFO role at council over the past 5 or more years, which of itself has a destabilising impact on the critical finance function within the organisation.

Finance seem to be left off as stakeholders when they should be consulted a lot more often. Finance staff are also often not listened to and their expertise is questioned or ignored.

Finance staff don't have much of an influence with regards to decision making.

Finance Leadership

Financial Competence

Financial Literacy

Finance Engagement

Finance Advocacy and Education

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4.3 PROCESS MANAGEMENT DIMENSION This dimension examines the organisation’s ability to design, manage, control and improve its financial processes to support its policy and strategy. There are 15 best practice statements overall for this dimension (although 3 were not used for GRC), spread across the 3 maturity levels. This is typically one of the highest scoring areas of the FM Model across public sector bodies.

Process GRC All Organisations Best Performing





• Budgets are accrual-based and robustly calculated • The organisation operates financial information systems that enable the consistent production of

comprehensive, accrual based, accurate and up to date data that fully meets users’ needs. • The organisation operates and maintains accurate, timely and efficient transactional financial

services (e.g. creditor payments, income collection, payroll, and pensions' administration). • The organisation actively manages budgets, with effective budget monitoring arrangements that

ensure ‘no surprises’ and trigger responsive action. • The organisation maintains processes to ensure that information about key assets and liabilities in its

balance sheet is a sound and current platform for management action. • Management understands and addresses its risk management and internal control governance

responsibilities. • Management is supported by effective assurance arrangements, including internal audit, and audit

and risk committee(s). • The organisation’s financial accounting and reporting are accrual based and comply with

international standards and meet relevant professional and regulatory standards.

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• Risk Management and Internal Audit activities regarded as generally effective.

• Audit and Risk Committee regarded as effective. Charter of the Committee should be amended to require the Committee to review and endorse annual financial statements prior to the statements being presented to the Council for approval.

• Finance systems perceived as difficult, labour intensive, and overly complex, leading to low levels of confidence across the board about Financial reporting, budgeting etc.

• Stakeholder interviews highlighted finance and related systems as problematic reflecting (i) long term under investment and (ii) insufficient recognition of the importance of sound financial processes and rigour in supporting the achievement of organisational objectives.

• Finance function engagement and communication model not fully effective. Acknowledged for working hard and stretched, often not appreciated, some scope to improve with additional professional resources in financial accounting, management accounting.

• In answering the question: ‘Does the organisation prepare its budget in accordance with its corporate objectives, strategies and medium-term financial plan’? only a third of organisational budget holders/managers answered yes.

• The organisation is not required to produce a Medium-Term Financial plan, however better financial management practice would suggest it is appropriate, particularly for an agency like GRC under funding pressure.


A large number of Managers appear to take little interest in setting their budgets, or reviewing the costs associated with providing their services.

Corporate objectives are very general / ambiguous which leaves plenty of room for leaders to argue why budget decisions approvals and rejections have been made.

For years managers have had the same budget allocation with a CPI increase rather than a zero-based approach. This does little towards identifying efficiencies and where priorities need to change.

Recent changes have eliminated the need for some spreadsheets. However, there appears to still be much data manipulation outside of systems, confusing the source of truth. Is it in the system? Is it in the spreadsheet?

Finance Systems


Finance Engagement


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One of the biggest frustrations is budgeting for capital but not the whole of life costs. This is improving but no one is really held accountable if there is a budget overspend.

Council is maturing with Asset Management plans to be developed for the first time. Although processes are in place for asset management, few are followed.

4.3.2 SUPPORTING PERFORMANCE The best practice statements that make up this element for GRC are:

• The organisation systematically pursues opportunities to reduce costs and improve value for money in its operations.

• The organisation systematically pursues opportunities for improved value for money and cost savings through its procurement, commissioning and contract management.


• Recognition of some improvement in procurement practices with significant scope for growth in procurement process and maturity across the organisation.

• Minimal focus on the concept of ‘value for money’ in the organisation. There is approximately a 50/50 split from survey respondents as to whether there is an appropriate focus on VFM, procurement, commissioning and contract management.

• Consider optimal organisational alignment of Procurement management.


Procurement has had a chequered history, with a large turnover of staff, with only one staff member remaining.

Significant progress has been made to embed procurement processes across the organisation, but there is more that can be done and we need to be cautious that process don't become so cumbersome that it prevents the best outcome and value for money for council and community.

Some managers doggedly pursue their objectives, trying to deliver services at minimum cost. Others concentrate on services, regardless of cost and still others aim to spend their budgets, believing that this equates to providing the required services.


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ENABLING TRANSFORMATION The best practice statements that make up this element are:

• The organisation continually re-engineers its financial processes to ensure delivery of agreed outcomes is optimised.

• The organisation’s financial management processes support organisational change.



• Notwithstanding a recent General Ledger rewrite project, Finance systems are generally regarded as poor. Stakeholders interviewed highlighted a chronic under investment in finance and related systems and process effectiveness and efficiency issues.

• Stakeholders also spoke to some lack of confidence in the information/reports provided through the system. Finance team members also discussed their challenges in extracting data, needing to develop interpretive spreadsheets etc from the Finance system.

• It was disconcerting to note that the Finance team need to undertake a daily end of day review to ensure all general ledger accounts remain in balance.


Finance at present only provides a recording of expenditure and some basic oversight. It is not a facilitator of services or change.

This year an attempt was made to introduce Zero Based Budgeting as an end-to-end process that would promote value for money over the whole organisation rather than departmentally segmented transactions, however it was not well received.

Finance Systems

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4.4 STAKEHOLDER MANAGEMENT DIMENSION

This management dimension deals with the relationships between the organisation and those with an interest in its financial health, whether Treasury, auditors, taxpayers, suppliers, customers or partners. It also deals with customer relationships within the organisation, between finance services and its internal users. The CIPFA FM Model combines three stakeholder elements here, including the views of external stakeholders, on value for money, financial integrity, compliance with statutory and regulatory obligations and the ability to influence decisions on resource allocation.

Stakeholders GRC All Organisations Best Performing





• The organisation provides external stakeholders with evidence of the integrity of its financial conduct and performance, and demonstrates fiscal discipline including compliance with statutory/legal/regulatory obligations.



• This aspect of financial practice was the most satisfactory for GRC and performance is broadly in alignment with other public sector organisations.

• External stakeholders acknowledged there could be some improvement the end of year financial statement management process, however it was also recognised that the organisation makes publicly available all required documents.

Finance Engagement

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4.4.2 SUPPORTING PERFORMANCE The best practice statements that make up this element are:

• The organisation demonstrates that it achieves value for money in the use of its resources



• This is an area that many organisations are challenged by. For GRC this statement received a very low score of 1.0 out of 4, reflecting that there is minimal effort at ensuring and demonstrating Value for Money in the use of public funds.


The corporate plan/business plan does not specifically focus on 'best value' planning to deliver improved value for money. The level of review depends largely on directorates.


4.4.3 ENABLING TRANSFORMATION The best practice statements that make up this element are:

• The organisation is responsive to its operating environment, seeking and responding to customer and stakeholder service and spending priorities that impact on its financial management.



• Survey and stakeholder feedback recognised that GRC had been focusing on understanding external stakeholder and community needs. In this regard, 36 per cent of survey respondents agreed and 52 per cent partly agreed with the 6 questions that explored this best practice statement.


Many decisions about how finances are allocated are of a political nature or without consideration of the broader organisational goals and how a particular project fits in. Sometimes financial priorities are determined without the policy or evidence to support the decision.

There have been improvements to Council's approach and level of customer engagement across a number of issues, including budget setting.

None

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5. HIGH LEVEL RECOMMENDATIONS Overall, financial management has been regarded as of secondary importance in GRC with long term under investment in financial systems, financial capability and leadership. There have been mixed results in transforming a legacy culture where Accountability for performance is resisted and consequences are not visible.

Notwithstanding, some real improvements in governance and risk management mechanisms have been implemented and widely acknowledged (e.g. an independent whistleblowing line, improved Procurement and Project Management practices and an active Audit and Risk Committee). The highest scores in the review were achieved in the area of managing external stakeholders and compliance with statutory and regulatory obligations.

Promoting financial leadership, capability and accountability organisation wide, implementing more effective budgeting mechanisms and improving finance systems and reporting will be important in creating a momentum for sustained performance improvement.

In that regard, there are several key actions suggested that influence all the financial management styles described in the CIPFA FM Model and that reference all management dimensions. These recommendations are presented below consistent with the 4 Management Dimensions of the CIPFA FM Model.

In terms of priority and scheduling, GRC may wish to respond to where the greatest gaps exist between its results and those of the better performing organisations with respect to the foundation styles of delivering accountability and supporting performance (see section 4).

5.1 LEADERSHIP 5.1.1 FINANCE LEADERSHIP Acknowledge the importance of financial management by immediately appointing an experienced CFO with expertise in guiding organisational change. It is important that the CFO role be an equal member of the Executive team with direct access to the CEO, Council and Audit & Risk Committee.

Initiate a finance leadership and capability uplift program within the Finance Function in terms of capacity to effectively develop productive customer service-oriented relationships. In this regard, key contemporary finance capability domains include ‘leading self’ and ‘leading others’ – these are equally important as technical and business knowledge and are dependent on well-developed emotional intelligence.

In tandem with this is the clear need for an accountability culture development program. Business unit managers need to be clearly measured and held to account on their financial performance, reflecting the reality that there is a shared responsibility for organisational success and ‘it’s not the Finance team that owns the numbers’.

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5.1.2 FINANCIAL SUSTAINABILITIY AND STRATEGY From the perspective of promoting Financial capability and Accountability as a critical enabler of organisational success, ensure the CFO (once engaged) has a key role in advising on and qualifying organisational strategy development and decision-making processes and accompanying decision making committees / mechanisms.

As a part of this process and considering GRC’s current operating deficit, it would be prudent to develop a Financial Sustainability Plan to map the achievement of Council’s corporate plan objectives in the medium to longer term. This would summarise the financial and non-financial resources and value for money dimensions required with key financial objectives including to maintain:

• existing service levels • operating financial sustainability • a sustainable capital expenditure program, and • to achieve a balanced budget on a cash basis.

While a medium-term Financial Sustainability Plan is not a legislated requirement in Queensland, it is reflective of finance better practice and is an established financial planning obligation in other Australian and UK local government jurisdictions.

5.1.3 FINANCE SERVICES - STRUCTURE As part of an improvement program in accountability and financial leadership, consider the collection of similar organisational service functions into a central Finance Service services unit possibly incorporating corporate procurement and asset management functions.

5.2 PEOPLE 5.2.1 FINANCIAL COMPETENCE Develop a finance competency framework for GRC covering budget holders, delegates and other roles across all employment levels. Measure existing capability levels / gaps in the context of required competencies and improve specific organisational capability shortfalls with targeted interventions. Incorporate the results into a formal capability development strategy in conjunction with the HR team for reporting to and monitoring by the Audit and Risk Committee.

5.2.2 FINANCIAL LITERACY In conjunction with 5.2.1, develop and implement finance literacy and finance advocacy programs to increase capability, deepen awareness and promote more effective accountability for financial decision making across the Council. Reference to Queensland State Government finance literacy programs for guidance.

5.2.3 FINANCE ADVOCACY AND EDUCATION Enhance advocacy and engagement across GRC business units – Finance Function leaders deliver regular briefings of results and issues to stakeholders particularly to middle management to promote transparency, engagement and information sharing. There is scope for Finance to play a key advocacy and education role in upskilling finance competency.

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5.3 PROCESS 5.3.1 BOTTOM-UP BUDGETING AND SERVICE LEVELS Implement a mandatory ‘Bottom-Up Budgeting’ methodology as a priority across the board, with the finance function actively assisting with its implementation. Undertake this task in conjunction with a Service Level Catalogue project to analyse and document GRC activities, service level targets and costs leveraging the work previously unadopted work completed by the People and Organisational Development team in 2017.

5.3.2 KPI’S AND PERFORMANCE DASHBOARD Develop an organisational financial performance dashboard. Cascade performance and budget KPI’s from strategic plans into business operating plans and individual performance metrics. Publish comparative Business Unit performance progress to staff members to encourage transparency and report to Council.

5.3.3 FINANCE SYSTEMS The perceived poor quality of Finance Information Systems was a common focus area with review participants. Establish a finance system ‘root and branch’ review project to diagnose roadblocks and inefficiencies with a view to defining a medium to long term finance systems investment / improvement program.

5.4 STAKEHOLDERS 5.4.1 FINANCE ENGAGEMENT Reimagine a Finance function engagement model that places customers at the centre of everything it does, blending technical and regularity excellence with high quality relationship and service delivery. In this regard, over time reset the prevailing culture of the finance team from that of finance experts to expert finance service providers.

Consider the acquisition of additional experienced finance professional expertise in financial / management accounting and business analysis/strategy. In addition, invest in a more effective finance capability professional development program.

5.4.2 FINANCE SERVICES - BUSINESS PARTNERING Define, formalise and better activate finance business partner roles accountable to the central finance function in consultation with GRC’s business units. Several managers acknowledged the effectiveness of the finance partner approach that has been partly implemented in GRC. A broader finance business partner rollout would be best considered within the context of a Finance business engagement model referred to above.

5.4.3 FINANCE PERFORMANCE METRICS Develop a finance service, relationship and performance metric methodology whereby customers play a significant role in assessing the Finance function’s performance, reported to the Executive Committee and Audit and Risk Committee.

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CLOSING LIMITATIONS This report has been prepared at the request of the Gympie Regional Council (GRC). The services provided in connection with this engagement comprise an advisory engagement, which is not subject to assurance or other standards issued by the Australian Auditing and Assurance Standards Council and, consequently, no opinions or conclusions intended to convey assurance have been expressed.

This report has been prepared for general guidance only and does not constitute professional advice. You should not act upon the information contained in this report without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this report, and to the extent permitted by law, CPA Australia, its employees and consultants, accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

Any estimates or projections will only take into account information available to CPA Australia up to the date of this report and so issues may be affected by new information. Events may have occurred since this report was prepared, which may impact on it and its issues. CPA Australia and GRC have indicated within this report the sources of the information provided. We have not sought to independently verify those sources unless otherwise noted within the report. CPA Australia and GRC are under no obligation in any circumstance to update this report, in either oral or written form, for events occurring after the report has been issued in final form. The issues in this report have been formed on the above basis.

THIRD PARTY RELIANCE This report is solely for GRC’s information and is not to be used for any other purpose. CPA Australia, any employee or consultant of CPA Australia do not undertake responsibility arising in any way from reliance placed by third parties on this report. CPA Australia and its employees and consultants shall not be liable for any losses, claims, expenses, actions, demands, damages, liabilities or any other proceedings arising out of any reliance by a third party on the report.

Any redistribution of this report requires the prior written approval of CPA Australia and in any event is to be complete and unaltered version of the report and accompanied only by such other materials as CPA Australia may agree. Responsibility for the security of any electronic distribution of this report remains the responsibility of GRC and CPA Australia accepts no liability if the report is, or has been, altered in any way by any person.

FURTHER INFORMATION CPA Australia has exclusive license to the CPA-CIPFA FM Model in Australia, New Zealand and the Asia-Pacific region. For more information about CPA Australia’ Financial Management model, please visit https://www.cpaaustralia.com.au/training-and-events/corporate-learning-solutions/public-sector-financial-management-model

Or contact [email protected]

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Documents

Gympie Regional Council - Financial Management …...Regional Council (GRC) requested CPA Australia to conduct a financial maturity assessment of the organisation. This was regarded