CIMA urges better performance management in public sector

A thought-provoking new report from the Chartered Institute of Management Accountants (CIMA) argues that public sector managers and policy makers are suffering from inadequate management information, and are not making best use of their finance function.

Public sector performance: A global perspective suggests that central government has too narrow a view of the role of the finance function, confining it to stewardship and reporting, and advocates the adoption of the best available accounting and financial management practices. The public sector also suffers from too many KPIs or targets and poor decision support, which makes it difficult to create a robust culture of evidence-based decision making.

This global report promotes the need for better performance management in the public sector and encourages decision and policy makers to demand the same level of information and support enjoyed by peers in the private sector.

Public sectors differ in different countries, but can still learn from each other. They share common challenges that make performance management more complex, for example the lack of a predominant profit motive to simplify resource allocation; complicated delivery chains; and multiple stakeholders.

The report considers New Zealand’s role as an exemplar of public sector efficiency. In the early 1980s, the country was experiencing stagnant growth and a budget deficit of almost 10% of GDP. After initiating its reforms, the government’s net worth climbed to nearly 60% of GDP.

New Zealand’s experiences are perhaps too dependent on the unique structure of its public sector to be universally applicable, but its initiative to adopt accruals accounting in the public sector led to demonstrable improvements in both external reporting and performance management.

The study also highlights less obvious models worth considering: Vietnam and Singapore, which both have small and efficient public sectors. Singapore’s ‘good, cheap government’ is now the model for China’s public sector reforms.

Louise Ross, Head of Corporate Performance Management at CIMA, said: “Although demand for public sector services is increasing, current financial constraints mean many public bodies must achieve success with fewer resources. Effective performance management is crucial to achieve sustainable and stable public finances, and to gain public confidence that tax revenues are being used effectively.”

“Performance management is key to turning high level vision – in public sector terms, policy – into reality, allowing an organisation to achieve an effective ‘line of sight’ from policy formulation to front line delivery of services.”

“Former UK Deputy Prime Minister John Prescott recently blamed civil servants for not keeping him informed about the progress of his failed FiReControl project, cancelled after six years at a cost of nearly £500 million. Prescott’s comments that he didn’t monitor the project because he wasn’t told that it was going wrong suggest he took very little interest. Better performance management and evidence-based decision making would have forced policy makers to demonstrate the economic rationale of their proposal.”

“Many governments suffer from a shortage of high quality finance professionals, and finance functions that lack strategic influence. It is the role of the finance professional – and especially the management accountant – to provide information to support decision making.”

Ian Ball, Chief Executive of International Federation of Accountants (IFAC), contributed to the report, arguing that there has been a “systematic, pervasive, though possibly not deliberate, ignorance of the critical value and importance of good accounting” in the public sector.

CIMA’s report includes a case study solution to the perpetual public sector challenge of aligning activities to policy objectives, highlighting how management accountants can identify and adapt suitable tools to cope with their organisation’s particular challenges.

The project, devised and led by the finance director of the Royal Botanic Gardens in Edinburgh (RBGE), adapted the balanced scorecard to a public sector context, and created a new type of objective costing to support the organisations strategic performance management system.