Deloitte study: Government Finance Departments Struggle to Meet Public Demands
DELOITTE CONSULTANTA S.R.L. - 31 July 2008
Despite significant inroads in government finance capabilities, 48 percent of public officials believe that their organizations lack adequate financial management capabilities. The survey, based on answers from over 200 organizations worldwide, is the largest global initiative aimed at the public sector finance. Lack of information masks the actual financial health of government agencies and increases risk.
Bucharest, July 17 2008 — Forty-eight percent of the public officials from around the world believe that their organizations lack adequate financial management capabilities, according to a new Deloitte study, Mastering Finance in Government: Transforming the Government Enterprise through Better Financial Management, one of the largest global surveys ever conducted of government finance officials. Despite progress in streamlining transactional efficiency over the past decade, significant financial management constraints continue to face governments around the world. “In the past, government finance has often been relegated to back-office compliance activities,” said Greg Pellegrino, Deloitte Touche Tohmatsu, Global Public Sector Industry Leader.
“However, the emergence of lessons learned from the post-Enron financial regulatory movement and other challenges like proliferating legal requirements, scarce resources, human resource outflows, and poor internal control structures are forcing government leaders to move finance to the forefront of their transformation agendas.” Radu Kubinschi, manager EU Grants & Incentives with Deloitte Romania, said Romania is dealing with a similar problem.
“One of the most important challenges Romania had to deal with following EU integration was to improve the management of its financial resources. This challenge was all the more significant as resources grew impressively due to accelerated economic growth and access to non-reimbursable funds from the European Union”. On the other hand, Romania's objective to join eurozone as soon as possible has created the need to improve the function of its entire financing system so as to eventually fulfill all integration criteria. During pre-integration years, the Romanian Government has implemented measures aimed at strengthening the administrative capacity (such as the establishment of the Audit Court, the Fight against Fraud Department - D.L.A.F, the authorities for structural and cohesion funds administration, the improvement of financial control, etc.).
“The results of the European funds absorption (quite modest so far) and the moderate achievements in hitting the targets of financial stability clearly show that urgent measures are needed to improve performance in using public funds - the Romanian budget ones as well as the ones coming from the European Union”, Kubinschi continued. Romania is currently undergoing profound transformations in the financial management field, transformations primarily generated by its new EU member status. “The success of this transformation process will influence the very way Romania can benefit from the opportunities of this new status,” he concluded.
The Deloitte study, which provides an unprecedented look at the world of finance in more than 200 government departments from 28 countries, identifies inadequate risk management as one of a myriad of challenges finance officials face within their organizations. For example, more than half of the officials who participated in the study reported that their organization’s ability to audit its own financial accounts falls at or below an accepted baseline for the finance field industry benchmark.
Just over a quarter of respondents reported their organization as having advanced or leading capabilities in identifying, managing, or reporting financial risks. “Our study showed that only 29 percent of the government finance officials surveyed describe their organization’s capabilities as having moved beyond a baseline level in risk management,” said study author William D. Eggers, Deloitte Global Research Director, Public Sector. “This increases the likelihood of error and can mask the actual financial health of an organization.” Eggers, who led the research effort for Deloitte, says that there is a surprising degree of consensus across countries on how government finance needs to be improved, but also significant gaps between that vision and current reality. “For guidance they can look to trailblazing public sector finance organizations,” says Eggers. “These organizations have acquired a whole new set of strategic capabilities, helping government agencies determine both what they should do and how they should do it.”
Another area of concern in government finance is the lack of current data. Close to 68 percent of officials surveyed cited the lack of current information as either a moderate or significant barrier to improving the performance of their organizations. For example, a majority indicated that they did not have enough information on asset costs to understand the full cost of delivering public services. Most respondents also indicated that they did not have the data they needed to measure the return-on-investment (ROI) from government programs. Recognizing these shortcomings, public officials cite the ability to produce more relevant and up-to-date financial information to support decision-making as their number-one priority for improving financial performance in the next three years.
According to the study, rising entitlement costs, balancing the needs of today’s older citizens with future generations, a heightened focus on outcomes, and demands for increased transparency require a more sophisticated finance function. Sixty-seven percent of the respondents see financial management as a stimulus for bringing change to the organization, and 52 percent feel that the finance organization is the unit best placed to move the organization as a whole to a greater focus on value.
“Government finance experts should provide strategic support to help guide government programs, policies, and procurement decisions,” said Greg Pellegrino. “Just 24 percent of those surveyed are able to function as a strategist; that is, can influence the organization’s overall direction by providing financial leadership, and can act as catalysts to instill a financial mindset across government.”
Significant inroads:
However, there is reason for optimism: In addition to those respondents who were classified as “Finance Masters” by the Deloitte survey, another 27 percent reported making significant inroads in their finance capabilities: On one hand, this 27 percent comply with legislative statutes, report program performance to the public, and they balance capabilities, costs, and service levels to fulfill the organization’s finance responsibilities. On the other hand, they have yet to effectively build capabilities to realize greater value from the finance operation that would help governments make better strategic choices, improve processes, and boost performance. “Government leaders can improve the way programs function by beefing up the finance function within their organizations,” added Pellegrino. “There is evidence that progress is being made, and we have found models around the globe that can be replicated successfully.
There is a huge gap, but there are also governments showing the way to finance mastery.” For a copy of the survey and for photo-ready graphics based on this survey please visit: http://www.deloitte.com/ro/mastering-finance-in-government
*** About Deloitte Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's 165,000 professionals are committed to becoming the standard of excellence.
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