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May 30, 2019

Improving Financial Management Capacity in Government

Ivorblog
Posted by Ivor Beazley[1]

Governments run large complex operations disbursing more money than most large business enterprises, so it is perhaps surprising that financial management professionals have not had a more prominent role in managing public services. For many years finance professionals were confined to niche areas of government such as tax administration, debt management and audit but this has been changing.

A recent study “Financial Management in Government – Insights on Capacity Building”, published in the OECD Journal on Budgeting, explores the experiences of six countries—France, Korea, the Netherlands, Russia, South Africa and the United Kingdom—in changing human resource management practices to support financial management capacity building. 

The study explains how the increasingly complex demands of government require a step change in skills and capacities.  Drivers of this change include pressure to improve value for money, outsourcing of service delivery through complex and sometimes risky contracts, improving standards of transparency—for example though accrual accounting—and opportunities to improve financial analysis and decision making using new technology. 

A basic building block needed to bring about such a change is to formalise the need for financial management expertise by defining finance competencies and making these a requirement for all relevant positions.  This creates demand that drives changes in recruitment practices, training, and career development. 

Institutions and administrative traditions are important in shaping how this is done.  For example, a distinctive feature of the UK and South African reforms is partnerships with independent professional bodies.  This reflects the strong presence and reputation of professional bodies in these countries. In contrast France, which has very strong state institutions, relies on state sponsored training institutions.  This has the advantage that teaching is provided by civil servants with current knowledge, but has the disadvantage that government bears the costs of operating and maintaining the training facilities. 

Opening specialized recruitment and career paths for finance professionals is one possible way to strengthen capacity.  France offers a notable example, with a specialized finance corps offering long-term career development opportunities. Another approach is to create dedicated pathways for finance professionals to enter the civil service, such as the UK’s “Finance Fast Stream” and “Finance Apprenticeship” scheme aimed at school leavers.  The creation of professions within Government, including Finance and Internal Audit, creates a matrix structure that provides support for career development under the management of a Head of Profession.  In contrast, Korea has stuck firmly to the elite generalist civil service model, while relying on the Korea Institute of Public Finance to provide advice on technical financial management issues.      

Another indirect way to build capacity is through strong relationships between governments and universities and research institutes.  Russia and Korea, for example, both have state sponsored institutes specialising in public finance management research, while both France and the Netherlands maintain strong links to universities.  These provide a readily accessible pool of expertise to work on policy issues, as well as additional career development opportunities.  For countries with more limited resources, forming partnerships with professional bodies and universities may offer an effective alternative. 

Perhaps surprisingly, compensation was not identified as a problem in any of the countries reviewed.  The overall package offered by the civil service seems to be competitive with the private sector, taking account of differences in working hours and job security. 

Based on these experiences, the study proposes seven principles that should be followed by governments seeking to strengthen capacity on a sustainable basis (see Box):

Seven Principles for Developing Financial Management Skills

  1. The government prepares a rationale and strategy for strengthening financial management skills, based on needs analysis and coordinated with any plans to reform PFM or civil service structures and organization.
  2. Technical competencies and qualification requirements are set out in job descriptions for all positions that carry financial management responsibility.
  3. Internal staff selection processes ensure that competent and qualified staff are appointed to positions requiring significant financial management capabilities.
  4. External recruitment processes enable the recruitment of staff who already have specialized financial management skills and experience.
  5. In-service training systems enable staff to acquire and develop financial skills to match the needs of the government.
  6. Career management paths allow finance professionals to develop rewarding careers in public service.
  7. Compensation is adjusted to attract and retain competent financial management professionals.

The study shows that changing HR management practices to strengthen financial management capacity is not easy.  One reason is that it requires collaboration between the ministries responsible for finance and civil service management.  A second reason is that resistance can be expected from civil servants concerned about loss of job opportunities or offering preferential treatment to one group of civil servants at the expense of others. 

 

[1] Senior Public Service Specialist, the World Bank.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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