With the latest data showing the UK’s public finances floundering, strong financial management of the public purse remains a highly topical and economically critical issue.

How information can be reported to improve financial management decisions across central government is the focus of a new good practice guide from the National Audit Office (NAO), developed with input from ICAEW’s public sector team.

Using real-time financial and non-financial information to respond to unexpected events allows government organisations to make informed decisions about budgeting and resource allocation. This helps ensure public services provide good value for money, the NAO guide explains.

However, compiling and presenting useful information is challenging. Leaders need to consider whether their previous reporting methods are still fit for purpose, the guide warns.

Sub-optimal outcomes

Disparate legacy systems and lack of investment in hardware and skills have led to sub-optimal outcomes, made worse by constant financial restraint. Workarounds are inefficient and costly, the guide adds.

Meanwhile, the risk-averse nature of governments stalls investments in costly system upgrades. Although AI could transform public financial management, for example by triangulating data from Companies House, HMRC and DWP to enhance fraud detection, hurdles in data sharing within government will likely restrict its effective use.

The guide is the fifth in a series of financial management guides from the NAO for finance leaders in government departments and other public bodies. It outlines the best way to report information for better financial management decisions, covering the purpose of reporting, setting standards for quality data, and advice on modernising reporting systems and processes.

Using scarce resources effectively

Henning Diederichs, Senior Technical Manager in ICAEW’s Public Sector team, says good public financial management is vital to ensure scarce resources are used as effectively as possible. That includes timely reporting to ensure spending programmes are adequately monitored against their intended objectives and outcomes.

“Strong internal and external reporting is part of good governance and will lead to better decision making and accountability. This is becoming increasingly important to enable decision makers to respond to unexpected events.

“Good reporting relies on good data. Meanwhile, having good data and reporting infrastructure will also allow governments to make use of existing and emerging technology such as enhanced impact and dependency analysis using data analytics and AI.”

Cultural barriers

Jack Bower, Technical Manager, Public sector audit and assurance at ICAEW, said the cultural barriers that exist between finance and non-finance staff, also focused on in the guide, are a particular sticking point for public sector financial reporting.

“This rears its head by non-finance staff not understanding the purpose of certain reporting requirements or not understanding financial information and why it is important. This is not ideal when you are wanting to empower staff to make correct decisions and ensure that accountability lies at the appropriate areas of the organisation, for instance, budget holders.”

From an auditing perspective, this can make it difficult to obtain certain information from non-finance staff where they did not understand the purpose of an audit. “I’ve also seen non-finance staff being responsible for financial data and making financial decisions that they didn’t understand, which leads to accounting and audit errors,” Bower adds.

ICAEW’s vision for public financial management

Given ICAEW’s input into the NAO guide, it is no surprise that it reiterates the Institute’s vision for strong public finance management. In particular, it highlights the importance of good reporting to build trust, ensure accountability and allow for better decision making by providing a clear view of where public money is spent.

Diederichs says the most important advice from this guide is to understand the purpose of reporting and ensure a clear link to strategic and operational priorities. Finance teams should also make sure the data is easily understood and provides the information that is needed.

“Too often reporting is convoluted,” Diederichs says. “Good governance is key – define ownership of data for various functions across the organisation, thus making responsibilities and accountabilities clearly understood.”

To use the guide effectively, Diederichs urges public sector organisations to start with the basics. Review the output and effectiveness of current reporting systems, including what reports are generated, why and for whom. Then consider what good would look like and perform a gap analysis. Identify constraints to achieving this preferred status. Identify steps for making changes and start with low-hanging fruit by tweaking existing systems and processes.