Part 5: Responsibility for financial management

Reviewing financial management in central government.

In this Part, we discuss the role of public sector entities in supporting, co-ordinating, and aligning the financial management system throughout government.

Roles and responsibilities

Supporting the Government's decentralised structure requires an integrated financial management system in which many parts of central government must understand and prioritise the four practices of financial management in a coherent and aligned way.

The roles and responsibilities for financial management and financial performance in public sector entities are clear. The Public Finance Act 1989 states that the chief executive of a government department is responsible for the financial management and financial performance of the department. The State Sector Act 1988 made chief executives accountable to their Ministers for, among other things, financial management and the financial performance of their departments.

At the central agency level, the Treasury administers the Public Finance Act, has delegated regulatory powers, and can instruct chief executives to provide regular financial and performance information to Ministers, including the Minister of Finance. The Treasury is leading a review of the Public Finance Act aimed at improving the financial flexibility and long-term financial stewardship of government.

The State Services Commission administers the State Sector Act and appoints and employs the departmental chief executives, which includes assessing their performance regularly. The Commission is reviewing the State Sector Act with the aim of, among other things, broadening the powers of the Commissioner to a more strategic level focusing on agency, sector, and system-wide performance.

Despite the clarity of their individual roles, many chief executives and CFOs said they want clearer and more active leadership of financial management throughout government.

The Treasury, as the principal economic and financial adviser to the Government, is responsible for managing the financial affairs of the Crown and has a natural lead role and responsibility in promoting and sustaining a strong and consistent financial management system throughout government.

The role of the Treasury

The Treasury's strategic documents set out a wide range of functions and operating styles to support the financial management system, while working within it (see Figure 12).4

Figure 12
The Treasury's role and operating approach

The Treasury's role The Treasury's operating approach
Monitoring and managing the financial affairs of the Government.

Providing economic and fiscal policy advice.

The main agency supporting ministers to balance priorities through the Budget process.

Providing insight into how effective and efficient government entities are, and their actions.

Ensuring that the State sector has robust institutions and incentives.

Ensuring better-quality regulation.

Improving the managing of risk throughout the Crown's balance sheet and providing robust advice on improving the performance of Crown assets.

Ensuring that incentives are in place to drive performance in public entities.

Focusing on the sectors where the government spends most, to ensure that it is consistent with long-term fiscal strategy.

Integrating and improving budget frameworks and tools.

Designing budget and financial management systems that create incentives for continuous improvements and support the Government's fiscal strategy.
A Navigator – shaping debates and being looked to by the Government, public and private sectors, and the wider community to help New Zealand navigate through challenging times, creating and maximising opportunities;

An Expert – providing expert commentary and advice on economic, fiscal, public sector management and regulatory issues, as well as using and integrating the expertise of others;

A Problem-Solver – working collaboratively with stakeholders and other government organisations to deliver innovative solutions to problems; and

An Exemplar – leading with exemplary performance and exhibiting a culture of continually striving to improve in everything we do.

How the above are put into practice has implications for the priority of financial management within agencies and how well financial management functions as a system throughout the whole of government.

The Treasury should continue to prioritise its stewardship and leadership of financial management and on reconfiguring its role as the CFO of government.

The Chartered Institute of Public Finance and Accountancy states that "The CFO occupies a critical position in any organisation, holding the financial reins of the business and ensuring that resources are used wisely to secure positive results."5

To become the CFO of government, the Treasury needs to have:

  • clarity about its role;
  • systems and processes to carry out and manage this role;
  • knowledge about agency, sector and whole of government performance; and
  • capability and capacity to inform, advise, review, and intervene to improve financial management.

4: Taken from the Treasury's 2010–2015 Statement of Intent, the Treasury's 2010/11 Annual Report, and Gabriel Makhlouf's "Welcome to the website of the Treasury".

5: CIPFA (2010), The role of the chief financial officer.

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