The CFO’s role in fiscal sustainability – Canadian Government Executive

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May 7, 2012

The CFO’s role in fiscal sustainability

In the current economic climate, the finance function role in the public service is under a spotlight. In Canada, as around the world, the public sector faces a daunting challenge: how to obtain fiscal sustainability. While we may not be experiencing this challenge to the same degree as others, Bank of Canada Governor Mark Carney reminds us, “Canada is not an island.”

In the name of fiscal stability, the government has committed to reducing the $80 billion operating budget by $4 billion annually through the Deficit Reduction Action Plan (DRAP).

While some may say that this is a mere five percent and therefore should be relatively simple, one must consider that this reduction comes on top of the completion of the strategic review process, the freeze on operating expenses and various other prior expenditure reduction measures. The public service is thus feeling the cumulative weight of these measures. This presents a challenge, but it also presents an opportunity for the federal government’s finance function.

The finance function has three dimensions: insight, efficiency, and compliance and control. While there will always be more weight placed on compliance and control in the public sector than in the private sector, surveys of the public service indicate that this focus is too high. With the current emphasis on the DRAP, there is a burning platform to shift more attention to the dimension of insight, and in doing so to add more value to the department.

Over the past years, there has been more importance placed on the federal government’s finance function, starting with the creation of the position of Chief Financial Officer. CFOs and their teams have a critical role to play in the DRAP. CFOs’ expertise has been leveraged in developing the various options to be considered as part of the plan. However, successful implementation of plan will require CFOs to take steps to increase their efficiency and implement risk-based lean compliance and control procedures.

In addition to setting out the how and what on cost drivers of a sustainable reduction program, there are also five elements that should be adopted to ensure the program is sustainable:

  1. Articulate a compelling case for change and ensure change capacity is enhanced;
  2. Set targets and timelines;
  3. Conduct citizen-centric cost-cutting reviews to identify opportunities for improvements;
  4. Underpin implementation with strong change and project management; and
  5. Monitor performance and report results.

While the CFO can play a role in the above elements, the most relevant at this point is the last: monitoring performance and reporting results. This provides CFOs with the burning platform to shift the focus to providing insight and thus increases their role as the deputy minister’s strategic partner. In doing so, they will ensure the commitments in the DRAP are met. It will be important to know how these commitments are to be achieved, and to be able to measure them, as commitments under the plan will mean that reference levels will be reduced. If there isn’t adequate monitoring and measurement, pressure on the fiscal framework will ensue.

What is the advice for CFOs? Be the strategic partner to the deputy minister by adopting the following:

  • Be proactive. Put in place a program with mechanisms to monitor and understand the impact of the commitments to the DRAP. Develop a scorecard as part of your DRAP monitoring program.
  • Know the overall department costs. Know your unit costs, know what is happening to your FTEs, know your implementation costs, and be able to produce information that is relevant to the DRAP on a timely basis.
  • Have back-up plans for cost savings. Monitor the program side of the department, keep the short-term and long-term views in sight, leverage other departments, and play a challenge function to other areas of the department in a collaborative fashion.

Further, examine the service delivery model of your finance function to ensure you have the right balance between the three dimensions of insight, efficiency and compliance and control. Again, think about leveraging other departments to achieve this balance. The opportunity has never been better than now for the CFO to truly be the strategic partner.

Roxanne Anderson leads PricewaterhouseCooper’s federal public sector practice in Canada.

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