125 commemorative supplement
HISTORY IN THE MAKING: 125 YEARS OF EVOLUTION IAN BALL CALLS FOR BETTER GOVERNMENT ACCOUNTING AN EXTRAORDINARY YEAR, BY CIPFA’S PRESIDENTS STEVE FREER SEES INTO THE INSTITUTE’S FUTURE
PF125.001.indd 1
1/12/10 11:44:01
As CIPFA celebrates 125 years as the professional body for people in public finance, Civica is proud to be an official sponsor. Civica provides specialist systems and outsourcing services to the public sector to improve service delivery and efficiency.
To find out how visit: www.civica.co.uk
CIPFA125.002.indd 14
22/11/10 12:42:46
CIPFA Anniversary
Contents Changing times This commemorative Public Finance supplement explores 125 years of the Chartered Institute of Public Finance and Accountancy. As well as providing a fascinating look into the institute’s rich past, it considers our present day dilemmas and points to a challenging but positive future for the public financial management profession. My task is to reflect on the continuing value of the institute – to its members, employers and the public. In doing so, I’d like to refer to the words of Maurice Stonefrost, our distinguished past president and former secretary. In 1985, the institute’s centenary year, he wrote: ‘The 100 years of the institute’s life have coincided with the most dramatic social and scientific change to the lifestyle of both individuals and societies in our history.’ The past 25 years have overtaken that 100 years in terms of pace of change in many aspects. Globalisation has transformed our society. Thanks to computers and the internet, we all now live in a rapidly changing and interconnected world. Many of the changes brought about by these developments are hugely advantageous. But rapid change also presents difficulties and inevitably poses the risk of some members of society being left behind. In turn, that creates new and constantly evolving challenges for governments and public services. But some things remain the same. To quote Maurice again: ‘Throughout all this, our working domain – the public sector – has been both the main instrument of change and of shelter from the effect of change.’ His words resonate as we enter this next period of change and austerity. I know that CIPFA members and students will dedicate their support to the public services as these new challenges are confronted. This is our opportunity to continue the great and proud traditions of the institute and, through our contribution, to demonstrate its continuing relevance and importance.
4
Jaki Meekings Davis CIPFA President
10 COVER ILLUSTRATION: MARTA CERDÀ ALIMBAU
EDITOR Mike Thatcher CHIEF SUB-EDITOR Anne Lawton DESIGN EDITOR John Bowling PICTURE RESEARCHER Sam Kestevan
CIPFA 125
PF125.003.indd 1
125 AND COUNTING When it comes to CIPFA’s history, it really is a case of ‘the more things change, the more they stay the same’. The institute was formed in a time of great public sector upheaval, and with local government battling the centre for greater autonomy. David Williams reports GLOBAL WARNING The guest speaker at CIPFA’s anniversary dinner in Manchester is unimpressed with the reluctance of governments across the world to modernise their accounting systems. Ian
Ball says it’s time to move from cash to an accrual-based system and adopt international standards
13
A YEAR OF LIVING DANGEROUSLY Jaki Meekings Davis and Roger Latham on being president of the institute at such a turbulent time for the public finances
14
TOMORROW’S WORLD CIPFA chief executive Steve Freer sees a major and challenging role ahead for the institute and its members as the era of austerity begins JANUARY 2011 3
1/12/10 12:08:17
125
and
CIPFA is celebrating its 125th anniversary at a time of great public sector upheaval – but that’s nothing new for the institute and its members. David Williams looks back at a history of challenges
T
he small group of municipal treasurers who met for the first time 125 years ago might bear little resemblance to the institute we now know as CIPFA. But many of the organisation’s defining values and concerns have been written into its DNA right from the beginning. The institute formed at a time of profound public sector upheaval, as a series of laws passed during the 1880s and 1890s established local government as the major provider of public services and utilities. As a result, the institute’s members found themselves – not for the last time – at the centre of a great push-pull battle
with central government over councils’ remit and financial autonomy. When George Swainson – the formidable, occasionally thunderous, first president of the Corporate Treasurers and Accountants Institute – addressed the inaugural meeting in Manchester, the issues on his mind were public sector debt and centrally imposed financial restrictions on local government. Both debates continue to this day. Many current CIPFA members would probably also identify with Swainson’s struggles to convince a suspicious Westminster of local councils’ financial competence. The records of that meeting, on
December 8, 1885, show that those present noted the ‘injustice’ that public finance accountancy had not been accorded equal status to private practice. It was an early assertion that the public sector should never be considered second best in either esteem or in professional standards. The institute’s story in the years following is a mix of occasionally faltering progress and defining evolutionary steps. It was formally incorporated in 1901 as the Institute of Municipal Treasurers and Accountants, and was now able to set examinations. Here was the beginning of an institute that not only supported those already
The CIPFA timeline >>> ILLUSTRATION: GREG MEESON/HITANDRUNMEDIA
1885 John Elliott, borough accountant of Rochdale, writes to treasurers and accountants in local authorities across England and Wales, suggesting they form an association. The Corporate Treasurers and Accountants Institute holds its inaugural meeting at Manchester Town Hall on December 8. George Swainson of Bolton is elected president. 1886 The first annual general
4 JANUARY 2011
PF125.004_009.indd Sec1:4
George Swainson: elected president at first meeting
CIPFA 125
1/12/10 12:15:50
CIPFA Anniversary
counting ... established in the job, but actively shaped its sector by recruiting students and moulding them into skilled professionals. In 1903, one of IMTA’s first graduates offered to coach some of the following year’s intake, beginning a tradition of volunteering that continues to this day, and which was highlighted at the institute centenary in 1985 by then president Philip Sellers. Today, he says: ‘Volunteering has always been a differentiator between IMTA/CIPFA and virtually every other professional institution. I just hope that, despite current difficulties, we will still provide more volunteers than any other comparable institution. People run examinations, they coach people, they run courses and conferences, they go to regional meetings – it really has been a terrific part of our culture.’ The Financial Circular, a predecessor of Public Finance, was launched in 1896. Regional branches followed: the first was
meeting is attended by 21 members and two associates. 1896 The Financial Circular – the first forerunner to Public Finance – is launched, with the aim of keeping members abreast of developments in the municipal finance world. The publication initially takes an eight-page monthly format. 1897 Swainson establishes the organisation’s first regional branch, for Lancashire and Cheshire.
CIPFA 125
PF125.004_009.indd Sec1:5
In the 1890s, the institute’s members found themselves at the centre of a great push-pull battle with central government over councils’ remit and financial autonomy established in high dudgeon by Swainson in 1897 following a clash with the institute’s council. IMTA then expanded into Scotland. In 1903, Scottish city treasurers snubbed an invitation to join but, three years later, 22 had joined up and formed their own branch. It took some years before the institute began wielding influence on a national level. In 1897, the council declined an invitation to submit evidence to a royal commission on local taxation. But by the
1901 The institute is incorporated as the Institute of Municipal Treasurers and Accountants. 1902 IMTA records its first overseas members, working in Australia and South Africa. 1903 IMTA holds its first entry-level examination at Caxton Hall in London and Leeds Town Hall. 1905 The first students sit the institute’s advanced-level ‘final examination’.
Financial Circular: kept members informed in the late 1890s
early years of the twentieth century, the institute was regularly giving evidence to select committees and departmental inquiries. By 1932, when IMTA established its first home in Buckingham Place, Westminster, it was a sign that, after 50 years, the institute considered itself a permanent fixture, worthy of a place at the centre of UK public life.
C
lement Attlee’s postwar Labour government is remembered for constructing a nationalised system of benefits, services and utilities. But its reforms stripped responsibility and autonomy from local government – and therefore from the institute’s membership. It took two decades for the full consequences of that to play out for IMTA. When Nye Bevan, then health and housing minister, spoke at the IMTA conference in 1947, he sensed such
1906 Twenty-two Scottish accountants join the institute and immediately found the Scottish branch of IMTA. 1919 First women admitted to membership. 1926 IMTA appoints its first paid secretary: Arthur Collins. 1931 IMTA sets up its research department. 1933 The institute moves into its first permanent residence at 1 Buckingham Place in
JANUARY 2011 5
1/12/10 12:15:57
Happy Birthday CIPFA
Congratulations to our colleagues at CIPFA on their 125th anniversary. We’re delighted to be part of the celebrations. Zurich Municipal is a trading name of Zurich Insurance plc, a public limited company incorporated in Ireland Registration No. 13460. Registered Office: Zurich House, Ballsbridge Park. Dublin 4, Ireland. UK Branch registered in England and Wales, Registration No. BR7985. UK Branch Head Office: The Zurich Centre, 3000 Parkway, Whiteley, Fareham, Hampshire PO15 7JZ. Authorised by the Irish Financial Regulator and subject to limited regulation by the Financial Services Authority. Details about the extent of our regulation by the Financial Services Authority are available from us on request, FSA registration number 203093. These details can be checked on the FSA’s register by visiting their website www.fsa.gov.uk/pages/register or by contacting them on 0845 606 1234.
PHOTO: ALAMY
CIPFA Anniversary
resentment and suspicion from the audience that he felt moved to address the tension directly. ‘I have not come here as an irritant,’ he insisted, ‘I stand before you as an emollient.’ Over the postwar period, IMTA made itself increasingly indispensable to the pared-down local government sector. The organisation began publishing data on local fire services, health and welfare. A 1955 report on standardising local authority accounts made it easier for authorities to compare financial data, helping to cement the institute’s importance to the sector. A regular study on local housing was endorsed by the government in 1957. IMTA received a further boost in 1959 when housing and local government minister Henry Brooke requested that his departmental staff be allowed to become members. Topping it all, the institute was granted
Force for change: Maurice Stonefrost is recognised as one of the defining figures in CIPFA’s history
its royal charter in 1959. It came 60 years after its first application to the Privy Council, which – after repeated applications – finally accepted that the institute’s work was of sufficient quality and beneficial enough to the public interest to justify the award. The institute adapted to the new age gradually. Membership grew throughout the 1950s and 1960s, but did not reflect the newly constituted public sector, remaining rooted in local government. Although IMTA began offering optional exam papers in health, gas and electricity in 1951, it made few inroads into the NHS, the nationalised industries or the civil service before the 1970s. Then Maurice Stonefrost stepped in – and changed the character of the institute for good. Now recognised as one of the defining figures in CIPFA’s history, Stonefrost was appointed secretary of IMTA in 1964. Two fundamental reforms illustrate his vision for the institute. The first is its training and examination programme. By the time Stonefrost’s reforms were complete, the institute was no longer producing narrow accountants – its graduates were financial managers, with an inbuilt awareness of public service, administration and decision-making. The second was a change of name: IMTA became the Chartered Institute of Public Finance and Accountancy in 1973, the year Stonefrost left, after the granting of a supplemental charter. Out went narrow municipalism. In its place: public finance, in the broadest sense.
M
argaret Thatcher’s Conservative government brought about the biggest change in the relationship between local and central government since the Attlee reforms. The freedom and remit of councils were again stripped back: borrowing powers were reduced, while new measures such as compulsory competitive tendering and rate-capping were brought in. The message was that the public sector was inherently inefficient and that councils in particular needed to be forced to improve. Many Labour-controlled councils made a battleground of local government, and CIPFA members often found themselves at the centre of the argument. Gren Folwell, city treasurer at Sheffield City Council between 1982 and 1986, was one of many who found himself walking a tightrope. In 1985 the authority, led by David Blunkett, was among a number that refused to set a budget in protest against threats to cap its tax rises. Folwell had to reconcile two conflicting duties: one to serve the democratically elected councillors and another to local tax payers, who could have been hit with centrally imposed penalties if the council had acted illegally. To the fury of Left-wing councillors, he would appear in the local media telling residents the council would eventually have to set a tax, and advising them to set money aside to pay it. But, he adds: ‘Despite all the pressures, never once did Blunkett countermand a financial recommendation I made. What the
<<< The CIPFA timeline >>> Westminster, which decades later was used in the hit TV series The Prisoner. 1935 The Financial Circular is relaunched as Local Government Finance. 1959 IMTA is granted its royal charter – some 60 years after its first application to the Privy Council. 1964 Maurice Stonefrost becomes IMTA secretary. 1970 Efforts to integrate IMTA with the other UK accountancy
CIPFA 125
PF125.004_009.indd Sec1:7
institutes fail after five years of negotiations. 1973 IMTA is reconstituted as the Chartered Institute of Public
First HQ: and home to The Prisoner
Finance and Accountancy to reflect the organisation’s increasing interest in the whole public sector. Stonefrost departs to become finance chief and eventually director-general of the Greater London Council. The post of director is established and Eric Wood is appointed. 1973 CIPFA sets up its statistical information service, publishing a range of technical and comparative information for councils to use.
1974 Public Finance and Accountancy is launched, its title and subject matter in step with CIPFA’s broadening focus. The magazine will appoint Philip Windsor as its first professional journalist editor in 1978. 1976 CIPFA’s education and training arrangements are adopted by British Railways and the National Bus Company, indicating the institute’s growing influence in the wider public sector.
JANUARY 2011 7
1/12/10 11:58:37
much better than other institutes because we knew our market better.’ The Thatcher era brought about modernisation of another kind, too. Margaret Pratt, who became CIPFA’s first woman president in 1998, points out the social changes in the public services, with more women and ethnic minority employees forging successful careers. CIPFA reflected that shift, says Pratt, becoming more meritocratic, opening up its council to non-local government workers and encouraging women to progress. ‘It had been a treasurers’ club – there was an awful lot of Buggin’s turn that you don’t get now,’ Pratt says. In the 12 years since her presidency, five more women have been added to the roll. councillors were looking for was strong, straight financial advice.’ Another hugely difficult issue for CIPFA at the time was the community charge – or poll tax – the replacement for domestic rates that led to riots on the streets. Noel Hepworth, CIPFA director from 1979 to 1996, says the issue for the institute was not whether the tax was fair or good for local government but to stay focused on its own long-term reputation – in the knowledge that it would outlast any minister or political row. ‘Professional detachment is the key to professional success,’ he says. ‘Power changes in a democracy like nobody’s business – you must find ways of earning and maintaining that respect, irrespective of political circumstances.’ New opportunities presented themselves. The Audit Commission –
Charge on the public: the poll tax led to riots on the streets and put CIPFA members in the line of fire
which on its introduction appeared to be yet another centralist assault on local competence – turned out to be a strong partner for CIPFA, sponsoring its trainees and appointing Hepworth to its first board. The 1980s also gave CIPFA the chance to grow – its turnover increased tenfold between the late 1970s and mid-1990s, and the institute moved into more spacious accommodation in Robert Street, where it remains to this day. Hepworth says the institute was effectively capitalising on Thatcher’s reforms. It set up ventures such as CIPFA Services Ltd and CIPFA Computer Services Ltd – which became Capita after a management buyout in 1987 – to sell services to the public sector. ‘We made quick decisions,’ Hepworth says. ‘We didn’t muck around. We did
T
he unprecedented, sustained investment in public services over the past decade has been a mixed blessing for CIPFA. Although the New Labour era was a time of plenty in terms of public sector recruitment, Steve Freer – who has been chief executive since 2000 – says the fat years were not always easy for finance heads. ‘Pouring money in at the rate at which they did almost inevitably sent some of the wrong signals in relation to financial control,’ he says. ‘It created an atmosphere in which some organisations felt money wasn’t a problem.’ As the focus shifted to service reform and targets such as hospital waiting times, it became harder for messages about good financial management to be heard. What did give CIPFA members new
<<< The CIPFA timeline >>> 1979 Noel Hepworth takes over as director. 1981 CIPFA begins to expand its commercial activities through its subsidiary, CIPFA Services Ltd. 1983 The Audit Commission begins work on local government. The National Audit Office is also formed for central government, replacing the Exchequer & Audit Department. 1984 CIPFA moves to larger premises in Robert Street, designed
8 JANUARY 2011
PF125.004_009.indd Sec1:8
Noel Hepworth: at CIPFA’s helm from 1979 to 1996
by famous architects John and Robert Adam, and former home of Peter Pan author JM Barrie. 1985 The institute celebrates its centenary. Stonefrost (1984/85) and Philip Sellers (1985/86) serve as centenary presidents. 1985 A taskforce led by Stonefrost and including future CIPFA president Gren Folwell is sent in to investigate Liverpool City Council, whose finances had been ravaged by the Militant Labour administration.
Home of inspiration: JM Barrie wrote Peter Pan while living in Robert Street
CIPFA 125
1/12/10 11:58:41
CIPFA Anniversary
That was then: Public Finance’s predecessor covered CIPFA’s centenary
opportunities – particularly after 2005, when funds began to tighten again – was the chance to help drive the ‘improvement’ agenda in public services. ‘Some stepped up to that challenge more effortlessly than others,’ says Freer. ‘But CIPFA accountants are at their best when they’re working on the strategic agenda, trying to galvanise the whole organisation, and improve its performance.’
1987 CIPFA Computer Services Ltd, established in 1984, is sold off in a management buyout, and becomes Capita. 1996 David Adams becomes first chief executive. 1998 The institute appoints its first female president: Margaret Pratt. 2000 Steve Freer becomes chief executive. 2003 CIPFA publishes the Prudential Code.
CIPFA 125
PF125.004_009.indd Sec1:9
Margaret Pratt: first woman president
Davis is optimistic about the years ahead. ‘Place-based budgeting and other initiatives to join up public services put CIPFA expertise centre-stage,’ she says. ‘CIPFA has staff and members who understand how the sector fits together – the gains will be at the interface between services, and that’s where the institute can help get us out of this difficult mess. ‘Financial management and financial control are going to be in fashion like never before.’ She concludes that whatever happens in the sector in terms of staffing numbers or placement opportunities for new graduates, ‘what is overridingly important is the quality of the people we produce, and the skills they bring to the table. ‘Ultimately, that’s the advertisement for the institute – that’s our shop window.’
2005 Institute launches CIPFA Financial Management Model. 2005 Another attempted merger, between CIPFA and the Institute of Chartered Accountants in England and Wales, fails. Although the proposals were backed by CIPFA members, they failed by just 1% to gain the support of the required two-thirds of ICAEW members. 2010 CIPFA returns to Manchester to celebrate its 125th anniversary.
Ready for the challenge: chief executive Steve Freer
Full circle – Manchester Town Hall will host the 125 celebratory dinner
PHOTO: REX AND PHOTOLIBRARY (LEFT)
The unprecedented, sustained investment in public services over the past decade has been a mixed blessing for CIPFA
CIPFA’s products and services took up the improvement theme, encouraging benchmarking across the sector, establishing networks for public service managers to share good practice and expertise, and developing the comprehensive Financial Management Model. As the decade wore on, the institute’s role in driving improvement was reflected by the growing number of members making the transition from local government to top finance and leadership roles in Whitehall. Freer says that the civil service is now ‘peppered’ with former local authority figures. CIPFA might have carved out an increasingly important niche for itself in the public sector – but its relationship to the accountancy profession as a whole has been less certain. Stonefrost led the first attempt to merge the institute with its peer organisations in the 1960s. Subsequent attempts in the 1980s and 1990s also came to nothing. In 2005, an attempt to merge CIPFA with the Institute of Chartered Accountants in England and Wales came tantalisingly close, falling less than 1% short of getting the required backing from ICAEW members. ‘I think it will happen one day,’ says Freer, emphasising that the profession is increasingly global, and that the UK needs a strong, unified voice that can be heard on the international stage. Regardless of whether it does, and despite the looming threats to public sector spending spelt out in the new government’s Comprehensive Spending Review, current president Jaki Meekings
JANUARY 2011 9
1/12/10 11:58:44
Global warning
Governments across the world are ignoring the importance of good accounting. This produces poor financial management and lower quality public services, says Ian Ball
A
international financial system to its limits. In the course of this crisis, many governments intervened dramatically in their economies in various ways: by acquiring assets and liabilities; giving guarantees; adopting other forms of contingent liabilities; or providing a substantial stimulus. The majority of those actions will not be accounted for properly – but neither were significant assets, liabilities, revenues and expenses before the crisis. Some of this might have arisen from negligence – but in many cases it was deliberate. Many public-private arrangements for the construction of public infrastructure, for example, were designed in significant part to limit public sector borrowing requirements, even though these arrangements resulted in substantial liabilities and obligations, conveniently not reported under cash accounting. We have seen the troubles associated with sovereign debt in Greece and elsewhere. Somehow, astonishingly, financial crises involving either financial reporting fraud, unauditable and unreliable financial information, or reporting against low-quality standards by governments do not seem to lead to calls for better accounting. They certainly do in the private sector. Indeed, in the middle of the sovereign debt crisis, major European governments rebuffed the nine countries that wanted the European Union to address one of the most egregious areas of government accounting – pensions. The paradigm shift in thinking about governmental financial reporting has not yet been either internalised or translated into action in many countries. Yet, at its heart, the relationship between governments and accountancy is not about good financial reporting. The
s CIPFA celebrates its 125th anniversary, it is timely to examine the role accountancy plays in the functioning of governments. Given the speed of globalisation, it is appropriate to do this in an international context. Perhaps the most obvious recent change is the shift in the international benchmark for accounting by governments. Just two decades ago, no central government produced financial statements on an accrual basis. Cash was the norm for accounting, budgeting and appropriations. In some countries accrual-based accounting was only in use at sub-national levels of government, or for state-owned enterprises. Today, while cash is still used for budgeting and appropriations in virtually all countries, the accrual basis has been wisely accepted as the benchmark for financial reporting. Many governments have adopted this method. So too have international institutions such as the United Nations and the European Union – but they have gone further and adopted an independently determined set of governmental reporting standards, International Public Sector Accounting Standards. By lashing themselves more tightly to the mast of transparency, they make it harder to change their reporting policies when tempted by the sirens of political convenience. A few courageous governments, such as Switzerland, have done likewise. But most have chosen not to adopt international standards, preferring to either develop their own accrual-based standards or to modify the IPSAS. A very small number, including the UK and New Zealand, have adopted International Financial Reporting Standards, even though these are not developed with the public sector in mind. However, 10 JANUARY 2011
PF125.010_011.indd Sec1:10
New Zealand is reconsidering this approach because of application difficulties arising from the private sector provenance of the standards. This all sounds like, and is, significant progress. But it’s from a distressingly low base. It is more than 40 years since I studied accountancy at Victoria University in New Zealand. My degree included public sector accounting, politics and public administration. I was then, and am still, interested in the relationship between accountancy and government. While I know a lot more about the relationship now than I did then, there is one question in particular that remains unanswered: ‘What will it take before governments around the world take their financial responsibilities seriously?’ This is not to suggest that none do, but I do believe that there is a systematic, pervasive, though possibly not deliberate, ignorance of the critical value of good accounting to governments. There are at least two dimensions to the financial responsibilities of governments. The first relates to financial reporting and the second to financial management. The first dimension is important from an accountability perspective, the second from an efficiency and effectiveness perspective. The world economy is just emerging from a crisis that has tested the
What will it take before governments around the world take their financial responsibilities seriously?
CIPFA 125
1/12/10 12:02:56
CIPFA Anniversary
PHOTO: DREAMSTIME
more important failure is that of financial management. Ultimately, this is about forgone outcomes in such areas as health, education, public safety and national security. When governments mismanage, citizens pay the price now or later by getting fewer services of a lower quality than they might otherwise receive. And if those services address human and social needs, then the price of poor management is a lower quality of life. Despite the limited progress in financial reporting, the budget and appropriations processes in almost all countries remain on a cash basis. This means that internal management processes are also based on cash. In turn, this denies governments the incentives associated with budget and appropriation limits being assessed against accrual-based measures of financial position and performance. Without these incentives, the prospects of improved financial management are slim. Poor financial management reduces efficiency and effectiveness and leads to greater risk in the management of a government’s financial position. The use of the cash basis means governments are attempting to manage highly complex financial positions with outdated accounting and budgeting technology. The results could be dire. At the time of writing, the European sovereign debt crisis appears to have abated, perhaps temporarily. But in the US, serious risks to the financial system are emerging from the finances of state
CIPFA 125
PF125.010_011.indd Sec1:11
Clear and present danger: New Zealand reports its financial position on a full accrual base – every month
and municipal governments. Many of the factors at play in the US exist in other countries. Whether through deficient accounting standards, off-balance sheet transactions (I am using this term loosely as most national governments do not have a conventionally understood balance sheet) or misreporting, the real financial position of the government is hidden. This enables governments to sustain, for a period, levels of cash outlays and debt that their real financial position cannot support. As the International Monetary Fund suggested recently, it is important to maintain significant ‘fiscal space’. Accounting and budgeting are important mechanisms in constraining the pressures that lead to a crowding of the fiscal space. High-quality and frequent reporting keep the fiscal position in the public eye and make it harder to allow deterioration in balance sheet strength. Without suggesting that good accounting is the only explanatory factor, consider the New Zealand experience. In the past decade, the government strengthened its balance sheet to a position where it had net worth equivalent to almost 60% of gross domestic product (from just over 10% in 1990). While the financial crisis still had an impact, the capacity to absorb the shock was significantly greater. Throughout this period New Zealand reported its financial position monthly, on a full accrual basis, ensuring the fiscal position was subject to regular discussion. No doubt there are reasons why governments do not adopt the best available accounting and financial
management technology. For developed countries, it is hard to find good ones. Accounting policy issues are entirely manageable. We know how to apply accrual accounting and budgeting in large organisations. And if the issue is resources, imagine a large corporate explaining to its regulator that it cannot afford a decent accounting system. So what are the possible solutions to this problem? More accountants at the highest level of government might help (but would be hard to achieve). An academic community willing to be more critical of the inadequate frameworks used in fiscal debate might also help. So too might analysts and credit rating agencies that do not accept the quality of the information presently available to them. And it would certainly help if securities regulators required the same quality of financial information from sovereign debt issuers as they do from listed companies. But it will also, especially, require action by the accounting profession. A very positive step would be for professional accounting institutes to be more outspoken on the need for financial management reform in government. The International Federation of Accountants has been setting International Public Sector Accounting Standards for over a decade. Our intention was to change the paradigm for governmental financial reporting. Increasingly, we have pressed for governments to act in this area. Without such action the international financial system is exposed to significant risk and the global economy to unnecessary waste. In a recent Financial Times article, the economist John Kay said: ‘Put simply, governments cannot be relied on both to set targets and to monitor compliance with these targets.’ Equally importantly, governments should not set their own financial reporting rules. CIPFA’s celebration of its 125th anniversary is a time to look back with satisfaction on the achievements of the past. It is also a time to focus on the challenges of the future. The institute’s distinctive focus on the public sector means it has a unique perspective to bring to these challenges. I look forward to continuing to work closely with CIPFA to drive the profession’s response. Ian Ball, the guest speaker at CIPFA’s 125th anniversary dinner in Manchester on December 8, is the chief executive officer of the International Federation of Accountants JANUARY 2011 11
1/12/10 12:02:56
FLEXIBLE WORKFORCE IMPROVED PRODUCTIVITY Using temporary staff for projects and seasonal peaks is an effective and proven way of reducing costs. Flexible staffing guarantees you have the right person in place, when you need them. In other words, you pay for resource only when it is essential and only for the hours worked. By partnering with Hays Senior Finance, you gain immediate access to the highest calibre of skilled, qualified accountants. These individuals are capable of operating at all levels of your organisation on varied projects – from business transformation and change management to IT systems implementation.
Assurance – All our interims are carefully referenced, have their professional qualifications checked and are pre-screened before being recommended for any roles. Accredited provider – We are accredited to all major frameworks. As the leading recruiter to the public sector, we can actively assist you in managing the pressure to meet deadlines and hit targets. At a time when resources are stretched more than ever, we have flexible and innovative solutions to help you through the changing times ahead. To find out more or to register your vacancy, contact Donna Clarke at donna.clarke@hays.com or call on 0121 236 8982.
The benefits to you Quality of service – We will support you in sourcing temporary staff to ensure you are still able to deliver. Pressure to provide more for less will impact on service delivery, but our ability to find the right staff quickly will help you provide a high quality and continuous service. Expertise – Our consultants have an average tenure of over five years, with experience in interviewing and competency testing quality candidates. This guarantees accurate recommendations as to which candidates are best suited to cover your interim need – saving you unnecessary interviewing time.
As a continuation of our longstanding partnership with CIPFA, this year we are proud to sponsor its 125th anniversary programme.
hays.co.uk/transform-your-business SF-03111-1
CIPFA125.012.indd 14
22/11/10 12:46:00
CIPFA Anniversary
Year
of living dangerously
The changeover of CIPFA president in 2010 matched the change of government and the start of the austerity era, write Jaki Meekings Davis and Roger Latham
PHOTO: PA
2
010 was a year of two halves – literally for the two of us who served as CIPFA presidents. Our half years of office coincided pretty closely with those of the old and new British governments – and our annual conference in June represented a watershed between two eras. The terrible fire at Harrogate’s Majestic Hotel just before the conference began was an ominous symbol of what might be in store for public services. Then, as now, the public finance deficit was never far from our minds. The big controversy was about the timing of spending cuts. Should the government take the aggressive approach, perhaps risking an adverse impact on the economic recovery, or should it take a longer timescale, risking damage to market confidence? The initial plans were laid out in the March Budget by then chancellor Alistair Darling. The objective in broad CIPFA 125
PF125.013.indd Sec2:13
It takes two: the coalition government ushered in a new era in British politics
terms was to halve the deficit over the next Parliament. Post-election, the dilemma remained the same, but the coalition plan was to deal with the whole of the current structural deficit within the lifetime of the Parliament. As CIPFA’s presidential changeover loomed, the new government made two announcements. The first was a £6bn cuts package, which wasn’t particularly strategic but was symbolic and a declaration of intent. The second was the Emergency Budget in June, which showed that the government intended a 20:80 split between increasing taxation and reducing spending. The majority of the additional tax would come from raising VAT and the parameters for the 80% reduction emerged as cuts of between 25% and 40% for most government departments. Health and overseas aid spending were singled out for protection. As the cuts were greater than anything seen in postwar Britain, media attention shifted dramatically to them rather than to the tax decisions. CIPFA and the Society of Local Authority Chief Executives and Senior Managers recognised that this represented the greatest challenge for public sector leaders, including finance professionals, in a generation. In response, the two organisations resolved to continue their series of papers that had begun with the seminal After the downturn. The follow-up publication, Rebalancing the public finances, was published the week before the Comprehensive Spending Review in October and gave practical insights on some of the strategic options available to policy makers. With hindsight, the second half of the year began as it intended to go on. The NHS white paper, abolition of the Audit Commission and establishment of numerous review groups and commissions all provided a steady
build-up to the main act – the CSR. Although the October announcement might not turn out to be quite the modern-day equivalent of when JFK or John Lennon died, many of us will remember where we were when Chancellor George Osborne made his momentous speech. CIPFA provided a great deal of input to the debates in the lead-up to the CSR, based on advice and knowledge gleaned from many members and staff who worked hard to ensure that the effects of likely policy changes were understood. It was a critical opportunity to influence policy makers – and we are conscious that lots of members helped us to rise to that challenge. Thank you. The changes ahead for the public services are daunting but the institute has a long history and experience to draw on. Our development strategy for the next five years – to be launched on our 125th anniversary – is focused on ensuring that we remain as relevant and successful in the new era as in the past. Our forefathers (and they were all men) would probably not be in the least fazed by the changes ahead of us. They created the institute from scratch, were at the forefront of a step change in public services – rebuilt following world wars and the Depression – and still had time to reflect, enjoy the company of like-minded individuals and share experiences. And so it goes on. 2010 will be a year to remember. In time we might see it as an era in which extraordinary events were handled by a mature, fair-minded and knowledgeable institute and CIPFA membership. Roll on 2035 – we hope that we’re still around as past presidents to join in the celebrations. Jaki Meekings Davis and Roger Latham are respectively CIPFA president and immediate past president JANUARY 2011 13
1/12/10 12:05:00
Tomorrow’s world
Steve Freer predicts a vital role for CIPFA members, both at home and internationally, as we enter an age of uncertainty
P
redicting the future is not an easy business at the best of times – and now certainly is not the best of
times. It is difficult to envisage a period of greater uncertainty for the UK public services than that which lies ahead for at least the remainder of this Parliament. Following the chancellor’s Comprehensive Spending Review announcement, we know the path the government hopes to take. But even its most ardent supporters do not expect the journey to be smooth. How will the public react as the cuts become increasingly vivid and real? How successfully will public bodies manage all the changes needed to live within reduced funding settlements? Perhaps most unpredictable of all, how will the economic conditions change? Will we return to growth and relative prosperity or will further dramas, if not crises, lie ahead? Similar difficulties face governments around the world. Welcome to the age of global uncertainty. CIPFA members and students might reasonably feel that they are sitting right in the centre of the storm. The public services are potentially the stage on which some of the most controversial and difficult changes are going to be played out. That clearly creates an opportunity to be principal actors in the drama – 14 JANUARY 2011
PF125.014_015.indd Sec1:14
hopefully as the good guys rather than the villains. Not surprisingly, the fortunes of the institute are likely to mirror those of our members. In many ways the next few years are bound to be tough. Particularly in the short term, public bodies are likely to shed jobs and to eschew any form of discretionary spending. Unavoidable expenditure might become the only permissible category of spending. But battening down the hatches in this way is more a reaction than a strategy. Pretty quickly public bodies are going to have to get on to the front foot and develop and implement convincing plans for major changes to services and to their organisations. There is a level on which this replays the cocktail of challenges that confronted the sector in the 1980s. Then, as well as reining back spending, public bodies were
One of the biggest risks facing the institute is that we fail to recognise the dramatic scale of the challenges and just how critical a role we must play in their resolution
grappling with significant reforms involving privatisation, competition and a shift of focus to the front line – for example, in local management of schools – and to service users, as in the community care reforms. Today’s reform themes are different (though not that different): efficiency, transparency, accountability, localism, joining up services. However, for CIPFA there is a helpful common denominator. Just as the 1980s threw up an agenda in which we were able to play a critically important role, so current policies play hugely to our strengths. As organisations emerge from the bunker of their initial reaction to the CSR challenges, expect CIPFA and its members to be in significant demand. Our job, however, will be to do much more than simply carry forward a few favoured change themes. Our challenge will be to help the UK and other countries to develop sustainable, affordable public services, which provide great value for taxpayers’ money and the fundamental underpinning for a successful society. That might sound grandiose and to risk overstating CIPFA’s importance. But on the contrary, I think it is absolutely the case. In fact, one of the biggest risks facing the institute is that we fail to recognise the dramatic scale of the challenges ahead and just how critical a role we must play in their resolution.
CIPFA 125
1/12/10 12:06:50
PHOTO: ALAMY
CIPFA Anniversary
We can see this most clearly from our international work. Not surprisingly, CIPFA has a great deal to offer to developing nations and emerging economies that need to establish efficient and effective health and education services to support their economic progress. But we are also in great demand in developed economies too, as governments increasingly recognise the fundamental importance of high-quality public financial management systems. Rather than increase taxes or borrowing, governments want to make existing revenues go further.
CIPFA 125
PF125.014_015.indd Sec1:15
The future’s in our hands: CIPFA members will be in demand in difficult times
Those systems and arrangements can borrow and learn lessons from the private sector – but public financial management is ultimately a separate, specialist discipline that requires its own experts. CIPFA is already making good progress to influence and play a role on this global stage. We are well represented in many of the important forums where the profession grapples with these issues. Indeed ‘well represented’ hardly does justice to the contributions made by some of our outstanding members, such as: Mike Hawthorn, who has just completed a three-year term as chair of
the International Public Sector Accounting Standards Board; Roger Tabor, chair of the International Federation of Accountants’ professional accountants in business committee; Deborah Williams, who, from January 2011, will step up to the chair of IFAC’s professional accountancy organisations development committee; and Caroline Mawhood, chair of the European profession’s public sector committee. One of the measures of CIPFA’s quality and influence is the performance of its members in these vital international roles. Happily, as these examples illustrate, far from merely coping, our representatives consistently excel. Becoming a more international organisation is also about expanding CIPFA’s awareness and understanding. Cornerstones of our knowledge and thinking about public financial management – such as our guidance, Role of the chief finance officer in the public services and our recently published Whole system approach to public financial management – are made stronger and far more credible because they are shaped by broader international experience and perspectives. So back to my crystal ball. What might all of this mean for CIPFA’s future over say, the next couple of decades? The short term, in the UK, will be tough. But over the medium and longer term there will be huge opportunities to play critical roles in designing solutions and shaping a sustainable, affordable future for our public services. Beyond the UK, we have unique credentials to lead thinking about public financial management and to work with partners to implement it on the ground in both developed and developing countries. This is where we have so much more potential still to realise. And centre stage, playing the starring roles in this ongoing drama – still running after 125 years – are CIPFA members and students. Ultimately, the institute’s future is in their hands, which is just as it should be. I for one am confident that they will rise to the challenges. Steve Freer is the chief executive of CIPFA JANUARY 2011 15
1/12/10 12:06:50
Congratulations to CIPFA on its 125th anniversary from The Co-operative Bank The Co-operative Bank wishes CIPFA and its members every success in the future.
To find out more about our specialist Public Sector banking services call
0161 829 5630 co-operativebank.co.uk/corporate
The Co-operative Bank is authorised and regulated by the Financial Services Authority (No. 121885), subscribes to the Lending Code, is a member of the Financial Ombudsman Service and is licensed by the Office of Fair Trading (No. 006110). The Co-operative Bank p.l.c., P.O. Box 101, 1 Balloon Street, Manchester M60 4EP. Registered in England and Wales No. 990937. Co-operative Financial Services Limited, Registered Office: New Century House, Manchester M60 4ES. Registered Number IP29379R. Calls may be monitored or recorded for security and training purposes.
CIPFA125.016.indd 14
22/11/10 12:46:48