Palmerston North City Council
Back to financial basics
Making financial information more understandable and accessible has made a $2 million difference to Palmerston North City Council.
It took a newcomer to identify that unachievable budgets and overspending (some $6 million in one year) was because of an unrealistic budget, a new computer system with unreliable outputs, financial confusion, and a lack of financial appreciation by some staff. The situation wasn’t helped by a new financial system that didn’t work properly.
When Chief Executive Officer, Paddy Clifford, first started five years ago, “I spent nights awake in a cold sweat trying to get my head around the financials,” he recalls. “And if I couldn’t make sense of it, who could?”
The financial management sheets were detailed and complex, and included lines for interest, depreciation, and development contributions, which most budget managers had no control over. Funds allocated to vested assets were being spent as real money, and operating expenditure and capital expenditure were being mixed. “There was a general sense of confusion and initially no one could tell me what our financial position was,” says Mr Clifford.
So he went back to basics, filling vacancies with the appointment of a new Chief Financial Officer and accounting team members.
Financial spread sheets are now pared back to identify only the revenue and expenditure that budget managers can control. The language is simplified. For example, vested assets are now referred to as vested liabilities “as they cost us over time and generally cannot be liquidated”. Internal timesheets were stopped in some areas because “departments charging each other is a money-go-round and not generating income from outside”.
An in-house team is now developing a new IT system that can provide daily “dashboard” updates for each individual budget manager’s area of responsibility. The “dashboard” will load on each budget manager's screen every morning. The team has also developed a “gateways” system that is triggered if an individual budget manager looks like overspending. The system signals that up-line clearance is needed.
However, changing financial tools was only part of the process. To fully embed financial acuity in the organisation, staff had to have the skills and knowledge to use the tools well. In 2011, the Corporate Management Team set its own minimum standards of competency for managers in a range of areas, including employment law, financial management, communication principles, and people management. To bring existing staff up to speed, the Council’s HR team monitors and often runs the training modules. New staff are employed against the same standards.
The finance team now meets monthly with all budget managers and their staff to go through areas of income and expenditure. Each month, the senior management team is updated on the organisation’s financial position, and each quarter they focus on forecasts. Councillors are provided with the same uncluttered financial information monthly, and formally consider progress quarterly. Behind all their financial discussions is the concept of shared corporate responsibility. “We are intent on remaining within budget and, if one area looks like it will go over, we all take corporate responsibility to contain this.”
Efficiency means doing more with the same or fewer resources. Effectiveness means delivering expected results for the council and community in this context. Effectiveness and efficiency go hand in hand. And achieving this is more of an art form than a science.
“It is really common sense but sometimes things get overly complicated and turn into a Gordian knot,” says Mr Clifford. “These changes have brought rigour to the organisation. Budget managers now have clear financial information about controllable budgets so they can better manage Council revenue and expenditure, and take corrective action early.”
In the first year of these changes, the Council made a $2 million surplus. Since then, it has operated within more realistic budgets. Customer satisfaction surveys show that “we’re on the right track and rates are seen as good value for money”. Palmerston North City Council has been assigned an AA credit rating by international agency, Standard and Poor’s.
However, the Council’s financial troubles were only a symptom of a bigger issue. “There was a real misalignment between the community, the council, and staff when I started,” says Mr Clifford. “And trust deteriorates when this occurs.” Rebuilding trust “is a slow and hard process as it sucks energy and time but it is absolutely necessary in any organisation”.
Over six to 10 months, a team of staff worked with other staff at all levels, in large and small groups, to come up with a set of organisational values: trust, worth, service, and transformation. “Staff were cynical when we started this process but, as they got involved and it evolved, this changed.”
Staff even put their own “Twist” on the values by taking the first letters and putting an “i” – the individual – in the middle. “The idea for taking personal responsibility for their actions came from staff. We now have photos on the walls of them at work, demonstrating their ‘TWiST’ on things.”
Mr Clifford’s memory of the changes is that “it was a manic period but great”. The only thing he might do differently next time is step in earlier if a staff member is having difficulty accepting change or has difficulty with the organisation's direction. “Leaving this for too long can cause all sorts of problems and really affect the rest of the team,” he says.
For anyone considering such an organisational change, he reiterates that the Chief Executive’s job is to not get distracted by the peripheral. And to remember that going back to basics doesn’t always mean going without.
Based on an interview with Paddy Clifford, Chief Executive Officer, on 18 June 2012.
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