Review of Financial Management

Background

Effective financial management is essential for securing value for money in the use of resources. The States face low projected growth in revenue and a substantial projected budget gap. Good financial management will allow the necessary retrenchment to be secured in a planned way, contributing to the corporate objectives of the States, facilitating reform and with the minimum impact on services.

Scope

This review considers the effectiveness of:

• the current framework for allocation of resources by the legislature to the executive, including through the Medium Term Financial Plan (MTFP) and annual budgetary processes
• the current framework of accountability by the executive to the legislature for the use of resources allocated
• financial governance and leadership within the States; and
• financial planning within the States, including the processes for preparation of the MTFP and annual budget.

Conclusions

Significant improvement is required in the arrangements for accountability for resources and for financial planning:

• there is too much focus on departmental responsibility at the expense of collective strategic leadership
• the current system for the allocation of resources lacks transparency and has led to behaviours which are not always in the best interests of good financial management; and
• the current system of financial planning is not fit for purpose and acts as a barrier to reform.

Most of all a change in culture is need. The States face significant budgetary pressures and need better financial management to respond to these in a considered way.