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July 14, 2008

Survey finds public finance management lacking

Almost half of public finance officials worldwide believe their organisations lack adequate financial management capabilities, according to a recent study by Deloitte.

More than 200 government organisations from 28 countries who responded to the survey identified four particular areas where financial management often fails to serve the larger government enterprise.

Sixty-nine percent cited a lack of up-to-date information as either a moderate or significant barrier to improving the organisation’s performance. Poor information on costs was a concern to 63 percent of respondents, who said programme managers do not understand the total cost of their services.

An incomplete understanding of the relationship between investments and outcomes affected more than half of those surveyed.

Inadequate risk management was also a concern – only 27 percent of those surveyed described their organisation’s capabilities in that area as having moved beyond a basic level. More than half reported their organisation’s ability to audit its own financial accounts fell at or below an accepted baseline for the finance field industry benchmark. According to Deloitte, this deficiency increases the risks of error and fraud, and can mask the financial health of an organisation.

However, Caroline Mawhood, president of the UK-based Chartered Institute of Public Finance and Accountancy (CIPFA), told The Accountant the UK public sector is “further up the ladder” than the global average reported in the Deloitte study.

CIPFA conducted a similar study in the UK earlier this year, in which 50 percent of respondents said financial management in the public sector had improved significantly and a further 40 percent said it had improved a little in recent years.

The Deloitte study also revealed that government finance officials must overcome a number of significant, but attainable, hurdles to reach a maturity level that would justify their place at the executive-decision making table.

The study’s author, Deloitte public sector global research director William Eggers, said there was a surprising degree of consensus across countries on how government finance needs to be improved, but also significant gaps between that vision and current reality.

“For guidance they can look to trailblazing public sector finance organisations,” Eggers said. “These organisations have acquired a whole new set of strategic capabilities, helping government agencies determine both what they should do and how they should do it.”

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