Rebecca McCaffry: Local authorities must transform to survive

If finance teams are to help confront the current funding challenge they will need to work on new models of service delivery, improve co-ordinated working and increase commercial nous, argues Rebecca McCaffry.

Since the financial crisis in 2008, local government budgets have been cut by 50%, creating significant challenges. On top of having to use smaller budgets more efficiently to serve growing populations, local governments are also expected to continue to maintain or improve public services.

Every pound must work harder, and transformation of processes, services and organisations is crucial to achieving this. To succeed, finance teams need the right skills, technology and organisational knowledge to drive the necessary change.

Local authorities are already rising to the challenge. Research we conducted in 2014 found that 70% of the world’s local government organisations were undergoing, or had undergone, significant organisational transformation.

Despite these advances, a recent report on the financial stability of UK local authorities from the National Audit Office concluded that the financial position of the sector had worsened markedly since 2014, with UK councils having overspent service budgets by £901m in the 2016–17 financial year.

There is a clear need for local governments to build on their efforts to make services more efficient, innovate and reduce costs.

Business partners

For local government finance professionals, this revolution presents both opportunities and challenges.

On the one hand, they can enhance their role as business partners by advising on major transformation initiatives. On the other, they are faced with the challenge of delivering more services to more people, with less central funding, against an often confusing backdrop of organisational and technological change.

Transforming organisations and the services they deliver is essential for long-term sustainability, and in constrained times finance teams must be front and centre to these decisions. So, what are finance professionals doing to advance the transformation agenda?

The key is to develop and embed new models of service delivery, financing and organisational structure. Something we recently explored in a new report by the Chartered Institute of Management Accountants (CIMA) and the Chartered Institute of Public Finance and Accountancy (CIPFA), entitled Transformation: How finance teams are driving local government transformation.

Our view is that finance teams need to go beyond passive reporting, instead using and sharing information, both financial and non-financial, to make better decisions. Strategic use of management information can identify areas where investment can be redirected with minimal service impact, as well as those areas that are in need of greater investment.

Communication between teams is crucial to success. Finance professionals, who have a comprehensive overview of cost and activity, are acting as catalysts to lead and guide timely, well-managed transformation initiatives, rather than risk uncontrolled and reactive change caused by unforeseen financial pressures.

Not only do they play an important role by communicating insights that support better decision-making and drive transformation activity, they also play an important role in measuring, demonstrating and communicating the long-term value and impact of proposed transformation investments.

Talent

One of the main challenges when it comes to transformation is contending with the difficulty of recruiting and retaining finance talent in an increasingly competitive market. Local authorities have a responsibility to plan for and recruit the talent they need both now and in the future. There is also a need for them to recognise the importance of developing sustainable and relevant skills across the finance function, as technology changes and responsibilities evolve.

Ultimately, limited commercial ability and a lack of co-ordinated working within organisations can create barriers to successful transformation initiatives, and finance teams have a vital role to play in overcoming those barriers.

By developing a broad knowledge of operations, the roles of their colleagues and expectations of citizens, finance professionals can ‘translate’ numbers into relevant, understandable and actionable business stories.

Our role has evolved from recording data in a spreadsheet to a wider, cross-functional agenda, looking at an issue from many angles and developing new solutions to support and inspire transformative change.

Rebecca McCaffry, is associate technical director – management accounting, Association of International Certified Professional Accountants.