CFO fundamentals in a time of crisis

The Covid-19 pandemic has presented local government with an unprecedented challenge. Nathan Elvery argues the crisis makes the role of chief financial officer more important than ever.

These are unprecedented times, to say the least. It was recently reported that 100 local authorities have no reserves to support the current challenges. One in five will experience cashflow difficulties in the next three months. No sh*t sherlock! [sic].

The role of the chief finance officer (CFO) is now more crucial than ever. Emerging successfully from the current crisis will need to bring out the best in each and every s151 officer.

But we should remain grounded at the current time, and revisit the principles which fundamentally support the CFO role.

1. The CFO is a key member of the Leadership Team, helping it to develop and implement strategy and to resource and deliver the organisation’s strategic objectives sustainably and in the public interest.*

This is a time where the CFO needs to act as a leader for the finance team—who will be under tremendous strain—but also for the organisation which will need a CFO’s deeper understanding of the organisation through the “financial lens”.

A CFO’s financial insight, and that of their team, should help to identify the areas where short-term financial action can be taken to reduce expenditure. Additional governance may be desirable but, ultimately, these arrangements must be fit for purpose and take on board the consequences of such decisions. Consider, therefore, sharing this responsibility with a service director/executive.

Where s151 officers hold additional responsibilities within their remit they should consider how they balance with their CFO duties to help focus their time and attention. They should consider the financial opportunities they can contribute to from the perspective of their wider role. When they lead, others are likely to follow their good example.

Rainy days

A CFO will always have a Plan B,C, etc. These are the “rainy-day” options a leadership team needs to be made aware of now. This will build confidence that there are solutions available and will contribute to the construction of action plans. From this action plan can emerge the appropriate governance structures, including the reporting arrangements for monitoring progress. Those that existed before Covid-19 are less likely to still be robust.

The guidance regarding S114 notices has recently changed and there will be an expectation on CFOs to establish the relationships needed to engage in this change. Are relationships established with the LGA, CIPFA, MHCLG and an external auditor? Internally, is there a relationship with the monitoring officer, chief executive and all relevant politicians, both executive and non-executive?

Guiding stakeholders through a CFO’s professional thinking and opinion early on will be essential. Building and nurturing these relationships is a prerequisite to a good outcome. Constructing the case for MHCLG, where appropriate, should be a shared experience via existing treasurer networks.

2. The CFO must be actively involved in, and able to bring influence to bear on all material business decisions to ensure immediate and longer term implications, opportunities and risks are fully considered, and alignment with the organisation’s financial strategy.*

Undoubtedly, decisions need to be taken at pace. There is a risk they become too complex in the current environment. A CFO can help guide the organisation through the principle of ‘Wednesbury’ by helping to base decisions on matters that should be taken into account and not on those that shouldn’t.

Plan

The key characteristics of decision-making must clearly remain in place but a CFO should be reviewing financial strategy. The need to consider this for the short, medium and long-term is an imperative. That should not mean the principles on which it is based are compromised, but the plan and actions to get there will require fundamental challenge and review. In so doing, CFOs can reposition the medium term financial strategy to support the wider organisation’s ambition, goals, and objectives. This will support engagement of the relevant stakeholders.

A CFO should support the executive in prioritising the decisions which need to be taken. They should consider which are clear priorities and which can be postponed or delayed? There are only 24 hours in the day, so the focus should be on decisions that have the biggest impact.

Innovate

The temptation maybe to limit expenditure but a CFO should be seen, where appropriate, to support decisions that will accelerate transformation improvements and savings. The need to demonstrate a strong desire to innovate is a key personal skill for modern finance chiefs.

The use of data, forecasting and financial modelling will underpin the robustness of any financial plan and strategy. CFOs should assess the skills and people they need to support them. Many professionals beyond the finance team will have these skills so CFOs should consider whether they need to be freed up to provide support in the short term.

The reporting of progress must take place as close to “real time” as possible. CFOs should consider building best case/worst case/probable case scenarios into financial performance reports as this will test the key assumptions behind year-end projections.

3. The CFO must lead the promotion and delivery by the whole organisation of good financial management so that public money is safeguarded at all times and used appropriately, economically, efficiently and effectively.*

Achieving this principle does not necessarily lead to more bureaucracy. Striking the right balance between the information and governance essential to this aim, and that which is not, will help the organisation focus on its priorities. The CFO’s judgement will be essential to this success.

CFOs should have at their disposal tools and resources to ensure a robust framework of financial controls and procedures for managing financial risks as well as procedures enabling authorities to budget and manage within their resources. They should consider how internal audit, risk management and external audit resources are deployed to maximise impact, benefit your organisation and address any issues from the annual governance statement. 

* The Role of the Chief Financial Officer in Local Government, CIPFA.

Nathan Elvery is a former s151 officer and fomer president of the Society of London Treasurers and the Association of Local Authority Treasurers.