CIPFA Financial Management Model V3

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cipfa.org.uk

CIPFA Financial Management Model V3

Latest Developments



Stuart W Fair
LLB, CPFA, FCCA, JP.

Senior Consultant

CIPFA Consultancy

11 November 2010



cipfa.org.uk


The Power of the FM Model



Drivers behind changes to the FM Model



CIPFA FM Model V3


The Changes



Specific Issues



Functionality



Summary


Structure

cipfa.org.uk

The Power of the FM Model


cipfa.org.uk

History


Developed from 2004



Tested throughout UK Public Sector



Created by a range of senior practitioners at
CEO/FD level



Version 2 launched in 2007



Version 3 to be launched January 2010

cipfa.org.uk

Power of the FM Model


Based on acknowledged good practice



Spans entire spectrum of FM



FM Strategy/Audit/Financial Reporting/Stakeholder
confidence



Wider than Finance Service



Improvement on FM can be easily tracked



Complements the NAO Maturity Model




cipfa.org.uk

Structure of the Model


38 Statements capturing the characteristics
of good financial management



A score is determined for each statement



Each statement has supporting questions



The questions assist in the scoring process



cipfa.org.uk

Users of the FM Model


Central Government Departments


Local Authorities


Health Bodies


Wales Audit Office


Charitable Organisations


Companies and other Delivery Bodies


Government Finance Officers of America


Abu Dhabi Accountability Authority

cipfa.org.uk

V3


FM Model Central Government Lite



Full FM Model for world wide application



FM Model Lite developed for Central Government



FM Lite is a sub set of full model shaped for most
relevant Statements and Questions



Core Statements plus added statements specific to
the attributes of the organisation relative to
complexity/delivery
-
policy/functionality context






cipfa.org.uk

Drivers behind the changes



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Drivers behind the Changes


Emerging Financial Landscape




Development issues




Customer experience




Context


Third Iteration






cipfa.org.uk

Emerging Financial Landscape


Unparalleled CSR cost reduction requirements


Relentless focus on priorities:
-



Significant Cost Reduction/Further Savings;



Both within
and between

organisations;



New and creative solutions
-

change and innovation
must go hand in hand with robust stewardship.




cipfa.org.uk

Emerging Financial Landscape


Beyond budget management


managers focus on
managing their costs rather than budget


Finance core to project/programme management and
risk aware rather than risk averse


Ensuring financial control without inhibiting the pace
of change


Efficiency techniques and mechanisms
-

lean
processing, professional procurement, shared service;


Greater requirement for finance staff to demonstrate
commercial skills




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Sharing Practice: Financial Management
Capacity and Capability


Are Central Government Departments
focused on the financial management skills
and competencies needed to operate
effectively in the new environment?

cipfa.org.uk

Development Issues



cipfa.org.uk

Users of the FM Model


Central Government


HM Treasury


Cabinet Office


DEFRA


Home Office


Ministry of Justice


Department for Works and Pensions


Department for Children, Schools and Families


Department for International Development


Department for Communities and Local Government


Foreign and Commonwealth Office


UK Trade & Investment


Export Credits Guarantee


Crown Prosecution Service


8


NDPBs/Executive Agencies



Central Government users including:
-

cipfa.org.uk

Common Findings


Central Government


Stewardship/Governance generally strong



Supporting Performance Patchy at best



Transformational FM barely evident despite
IT/Shared Services Investment



People Management Dimension the
weakest/Leadership the strongest


cipfa.org.uk

High Level Development Areas

1.

Value for Money Challenge and Culture

2.

Ownership of Financial Management

3.

Financial Management Competences

4.

Finance Function Service Standards & Performance Mgt.

5.

Positioning of Finance


Adding Value

6.

Linkage
-
Operational Performance and Financial Planning

7.

Forecasting


Re forecasting

8.

Financial management Information


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Customer Experience


Issues raised on :
-



Scope of Statements


applicability/relevancy



Terminology



Electronic Survey functionality



Reporting of Results




cipfa.org.uk

Context


Third Iteration since 2004


Principles of good FM unchanged but emphasis on:
-



Risk management through change;



Transactional efficiency and productivity;



Collaborative working; and



Commercial acumen of finance staff.




cipfa.org.uk

Version 3
-

The Changes


cipfa.org.uk

Version 3
-

The Changes



38 Statements of Good Practice



Includes 3 New Statements



Enhanced precision on Statements and Questions



Stronger/Sharper evidence required




cipfa.org.uk

The Matrix of Good Practice

Financial
Management
Styles
Leadership
People
Processes
Stakeholders
Securing
Stewardship
L1 - L2
P1 - P2
PR1 - PR11
S1 - S2
Supporting
Performance
L3 - L6
P3 - P4
PR12 - PR16
S3 - S4
Enabling
Transformation
L7
P5 - P6
PR17 - PR19
S5 - S6
Management Dimensions
cipfa.org.uk

Issues


Procurement


national (Green Report) and local


Treasury Management


Icelandic Bank crisis


Remuneration strategy


severance, pension
liabilities


Collaboration
-

VfM/cost reduction/pooling/shared
services


Affordability
-

Investment/Disinvestment


Savings/Efficiencies/Value for Money


Integration on Financial Strategies





cipfa.org.uk

Leadership


Added Focus


Review on activity/actual spend, balance sheet,
forecasting


Strategy including Affordability/VfM/Risk Transfer


Plans reflecting efficiency targets


Key external cost drivers


Strategic planning
-

affordability testing/cost and
benefit


Long term


strategic risk, resilience and financial
standing





cipfa.org.uk

People


Added Focus


Financial competency requirement



Finance Function performance standards and
monitoring



Structure supporting Business Partnering



Interpersonal skills from Finance Staff



Help managers to anticipate problems/devise
solutions



Individual and collective responsibility re VfM





cipfa.org.uk

Processes


Added Focus


Risk Management at all levels


Risk appetite



Internal Audit risk based planning



Transactional



Financial Reporting


IFRS Compliance



VfM


systematic opportunity for cost reduction



Budget Management and Ownership




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Budget Management


PR9


No surprises and leads to responsive action:
-



Does the organisation provide clear documentation, support
and guidance, so that
Managers

who are budget holders
understand their responsibilities and own their budgets?



Do
Finance staff

evaluate budget variances in terms of overall
impact and risk for the organisation’s financial position and
standing?



cipfa.org.uk

Stakeholder


Added Focus



Transparency on spending


identification/responsibility



Financial conduct
-

comment



Service Performance


data quality validation



External Ratings/Judgements/Reputation





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Specific Issues


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Impacts of Employee Remuneration


L6


People
-

biggest cost/component re cost reduction



Sustainability of Pensions


current and future
liabilities



Strategic workforce planning



Absenteeism and Sickness



Pay progression


future payroll







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Treasury Management


PR5


Treasury Risks


risk exposure control



Liquidity


medium and long term



Counterparty and interest rate risks


optimal risk
management



Borrowing and maturity arrangements



Challenging Treasury Management advisors








cipfa.org.uk

Balance Sheet Management


Sound and current platform for management action



Period Movements reported at highest levels



Asset valuations updated to reflect values and lives



Impairment/Acquisition/Disposals/Depreciation/IFRS
compliant



Accurate Asset/Liabilities market values e.g. on
Investments/Borrowings exposure



Debtor


profile on status/age/legal process etc








cipfa.org.uk

Collaborative Working PR11/16/18


Complete picture on formal delivery


risk/rewards



Evaluation of Financial Performance



Reporting responsibilities and obligations



Monitoring financial standing of key partners



Linking Partners’ financials with MTFP



Imbalance in strengths between Partners



Sharing of Assets/Pooling









cipfa.org.uk

Procurement



Procurement capacity and skilling



Consistency on purchasing under formal contract



Framework contracts, joint procurement or consortia



Exploit economies of scale



VfM from competition/supply chain mgt/



E
-
procurement


e
-
tendering/purchase to pay



Optimal strategies


lease, buy or make










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Medium Term Financial Management


MTFP to include scenarios, risks and sensitivity
analysis



To reflect joint planning with partners and other
stakeholders



Long Term affordability



Invest to Save/Disinvestment








cipfa.org.uk

Functionality


cipfa.org.uk

Functionality



Electronic Survey Completion



Electronic Survey Monitoring



Reporting Capability



Key Terminology changes
-

Central Government
‘language’







cipfa.org.uk

Functionality Enhancements



Contributor will only see relevant “culled”
statements/questions



Lead person can track survey completion by
contributor



Formatted Reporting of results for analysis



Terminology friendly









cipfa.org.uk

Summary




Need for strong Financial Management has never
been greater



CIPFA FM Version 3
-

adapted for emerging financial
landscape and latest good practice



V3 Central Government Lite to be launched in early
2011



Enhanced FM Model can help organisations to address
the

seismic shift in expectations of Financial
Management






cipfa.org.uk



Questions

Stuart W Fair
LLB, CPFA, FCCA, JP.

Senior Consultant

CIPFA Consultancy

No 1 Croydon

12
-
16 Addiscombe Road

Croydon


CR0 0XT

Phone:01259 763592

Mobile:07919 558440

email :stuart.fair@cipfa.org.uk

web :www.cipfa.org.uk/commercial