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The four pillars of public financial management
This article is a longer read containing some more in-depth reflections on the issues facing governments considering reforms to improve public financial management and bring it to closer to commercial best practice.
Much has been written about the need to improve the quality of financial management in the public sector. There is a widespread perception that government is less effective at financial management when compared to industry – but relatively little of the discussion goes beyond a diagnosis of the problems to discussing effective solutions. This article will examine some of the reasons why governments have not adopted similar financial management practise to business and what might be done to change practices in the public sector.
Some of the differences are a due to combination of cultural issues that set the remit for how finance people participate in the executive management of government departments. Certainly in many states, financial skills and experience are not as prominent in decision making or have the same representation at the top layers of the organisation – eg, on departmental management boards. In many countries there are also the consequences of a legacy of under-investment in financial training, talent and systems combined with lower levels of financial discipline and rigour in public financial management in comparison to businesses of equivalent scale. The disparity is especially stark when government is compared to publicly quoted businesses that are subject to scrutiny by the investment community.