Improving public sector financial management

This guide looks at how to improve public sector financial management from a strategic perspective. It is structured on:

• Key issue
• Problems
• Causes
• Solutions.

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Improving Value for Money

To improve VfM we need to: measure and assess the range of activities or services provided by the agency; identify the areas which are low value/high costs; assess options to increase value or reduce cost; get approval for and implement change.

VfM is highly context sensitive, and many critical factors cannot be easily quantified or monetised.  The process to improve VfM therefore needs to be tailored to the agency and value should be considered through a range of qualitative and quantitative lenses.

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Preparing for a tightening fiscal environment

In a tightening fiscal environment, the Government is likely to look to reduce the size and cost of the public sector. This suggests ways for Public Sector leaders to respond to this challenge which go beyond cost-cutting in the short term. While what will work best for each agency is highly-context sensitive, there are four general approaches:

• Reducing or stopping low value services
• Modifying services
• Realising efficiencies
• Cost-cutting.

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High-Performing Corporate centres

Corporate centres have a critical role in supporting high performance and enhancing financial sustainability through providing customer-focused services, organisational leadership and advisory capability. Key features are:

• Clearly defined role, services and operating
• Effective governance
• Well-structured processes
• Working in partnership.

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Managing a fall in fees or levies

In a crisis such as the COVID-19 pandemic demand for services may drop. If a public sector organisation charges fees or levies for those services, it may find itself short of funds. This guide sets out a high-level framework to help public sector organisations which rely on fees or levies to manage a funding shortfall. It identifies 5 steps to help resolve a funding shortfall resulting from a drop in fee or levy revenue.

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Developing a strategic financial plan

A strategic financial plan (SFP) will set out how your agency will achieve its strategic objectives, deliver its agreed outputs and meet any funding pressures within approved funding levels. It forecasts operating costs and revenues, identifies any funding gaps, develops options to address the funding gaps and seeks agreement from senior management to proposed changes. This guide outlines a seven-step process to develop a strategic financial plan.

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Managing cost increases

Managing cost increases in the public sector is difficult because some of the key levers used in other sectors - increasing revenue and reducing services - are generally not available. This guide provides a high-level framework to help public sector agencies manage cost increases. It is intended to assist agencies to identify a range of options to address their funding issues.

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Public sector finance 101

New Zealand’s state sector financial management system is complicated. This guide will provide you with an overview to understand how the system works and why you may need to input into various processes and to meet various reporting requirements over the year.

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Prioritising expenditure proposals

Most agencies have developed prioritisation matrices to guide decisions on capital proposals, but little has been done for operating proposals. Decisions on new operating proposals therefore tend to be ad hoc, or they are shoe-horned into existing capital expenditure decision processes.

This guide proposes an alternative way to assess both capital and operating proposals. It recognises that the prioritisation process is an art rather than a science, and identifies clear winners, clear losers and a group of “maybes” that sit in the middle.

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Understanding memorandum accounts

All public sector agencies charging fees on a full cost-recovery basis are required to operate memorandum accounts (unless prior approval for alternative arrangements has been obtained from the Treasury).

This guide explains memorandum accounts, how they operate, possible risks and how they can be managed.

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Making appropriations easier to manage

This guide looks at ways to make it easier to manage appropriations and reduce the risks of overspending. It proposes four approaches:

• Use existing mechanisms
• Refine costing and funding processes
• Simplify appropriations
• Review the appropriation structure.

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