Defence

Chief Finance Officer

Dollars and sense

Ken Moore, Acting Chief Finance Officer

The Secretary announced in March this year that Ken Moore would act in the Chief Finance Officer (CFO) position, pending a national recruitment campaign for the position.

The new CFO has enjoyed a long and successful career in Defence, most recently as Head of National Operations in the Corporate Services and Infrastructure Group. In that role Ken was closely involved in the implementation of CSIG's wide-ranging Business Improvement Project (BIP) reforms. Prior to that Ken held positions in Resource Planning for Major Capital Equipment, Financial Policy and Planning and Business Strategy.

Ken holds a Bachelor of Arts (Majoring in Economics with options in Accounting) and is a Fellow of the Australian Institute of Company Directors and a Fellow of the Society of Certified Practicing Accountants.

Ken talks to Defence magazine about his expectations and plans for his time in the role of Chief Finance Officer.

What do you see as the role of the CFO in an organisation as large and diverse as Defence?

This job, in many respects, is the same as a CFO in any government agency - to ensure the organisation has sufficient funds to meet its objectives. In our terms, that is to meet the Defence outcomes expected of us by Government.

But the twist for us is that we're so large. We account for about 70 percent of the Government's non-financial balance sheet.

This presents Defence with a whole different set of challenges because of the nature of our asset and liability base, which is full of specialised military equipment and inventory that we mainly hold 'just in case, rather than just in time'.

There are challenges in accounting for all our assets and ensuring that we have an accurate picture of where they are and that we manage and account for them properly.

Jan McCahey, a partner at PricewaterhouseCoopers, has recently been quoted as saying, "We might often like certainty, but it's actually OK to live without it, too. There aren't really things called accounting emergencies. People don't drop dead just because they don't get the answer." What is your view of this?

I don't know if they would drop dead because they don't get the right accounting answer, but the whole point of Defence is to develop and deliver ADF capability - when and where the Government requires it. Financial resources being properly managed is a key ingredient in the capability equation.

Having said that there may be some areas of audit qualification where we eventually say to the auditors "We can't deliver the certainty you want so we will just have to wear the scar forever."

Last year the Secretary and the ANAO were unable to form an opinion on Defence's Financial Statements. What is happening right now to rectify this situation?

We've devised a series of audit remediation plans that address the 95 audit findings that we've accrued over a number of years through the annual audit process.

We've got a high degree of engagement and commitment right across Defence to address the findings. The Secretary has established a high level Financial Statements Project Board, which he chairs and includes the Service Chiefs, myself and key Group Heads.

It meets monthly and has been driving audit remediation plans development, assigning responsibility for fixing the audit findings to responsible officers, and holding those responsible officers accountable for meeting milestones.

What is the timetable for resolving these issues? We believe that it's going to take us at least three years to get back to a clean audit finding, but there are things that we will be doing in the shorter term. We're hoping to resolve a range of findings for 2004-05 and get back to an 'except for' opinion for that year.

We have already taken 14 findings back to the auditors and told them we think they are ready for closure and we will continue to do that. But this is a gradual journey.

Some of the audit findings require systems fixes to implement security and controls within our major corporate systems - ROMAN, PMKeys and SDSS. We will also need to acquire additional functionality, which takes time because some of that cannot be delivered under the current versions.

Another major undertaking is putting processes and standard operating procedures in place across the organisation. We are looking at rolling out best practice in Defence but, for example, when you're talking about 1.7 million inventory line items, it is a large and complex undertaking.

There are things we can do in the short term and we'll drive that hard, but it's just the nature of the beast that some things will take us up to three years.

How important is it to have a good relationship with external agencies such as the ANAO and DoFA, and how do you maintain this relationship?

The relationships with ANAO and DoFA are absolutely vital. We have good relationships with both and we meet weekly with them. It's an open and frank relationship.

The demerger of the DMO, which we have to achieve by 1 July 2005, is a good example of how we engage with these organisations. We approach Finance and ANAO up front and say, 'This is the way Defence and DMO have decided to split the two organisations. This is what we've done. This is the way we're going to account for it. Do you agree? If you don't, come talk about what the common solution should be.'

With issues such as Defence having to comply with the new international financial reporting standards, we have some real challenges. So we have engaged with both Finance and ANAO regarding our problems - from Secretary level down - and we are in regular contact with the Secretary of Finance and the new Auditor General.

We want ANAO and Finance to be part of the solution and to work constructively with us on how we can, to the best of our ability, get over the line with our financial statements and in complying with the new international standards.

What is your vision for Defence's financial management and information systems?

The CFO is the enterprise business process owner for the finance domain, so my job is partly to identify what financial information requirements the organisation has. I need to get together with other domain owners to ensure that we have a collective view of the information we need from those corporate systems. Then as they are upgraded over the next few years, we need to specify overall business information requirements to the people who develop and implement these systems.

From a CFO group perspective, we've always struggled to get the right information to make good financial management decisions because we have lacked a system that brings together what we are going to do in the next year's budget and what we actually achieved. ROMAN is very good for statutory accounting and processing accounts for payment, but it did lack a decent budget front end. Over the last year or two the CFO group has worked with other Defence groups to improve the front-end and after a lot of effort we are getting there.

Even so, the problem we have with a lot of financial information is that it only looks backwards. What we are lusting after is a robust costing system that makes forward projections. We are currently developing a force element product costing tool we call FEPC, so we will be able tell decision-makers 'well if you do this, this is how much it is going to cost you' - in other words, give them options.

Once we get FEPC in place, which pulls data from corporate systems like ROMAN, PMKeys and SDSS, we should be able to get far more accurate historical accounting cost information but crucially, we will also have this cost modelling tool to better answer the 'what if?' questions.

When people reflect back on 2005, how would you like your time as CFO to be remembered?

How I made a difference here.

I think I can do that by implementing some basic building blocks to ensure that the organisation is focused on the major financial issues. I think there have been some basic corporate governance issues that needed addressing within the CFO group, between the CFO group and other groups in Defence, and with the ANAO and Finance. I think I can do that given my long experience in Defence.

I also want to get the right mix of responsibility and accountability within the CFO. There are a lot people trying very hard and working extremely long hours in our organisation. I want to work with George Veitch and Di Fielding and use our experience in Defence to sort out where CFO's efforts can be best applied for the rest of 2005 and beyond.

In this context, we have already established a major project office under Mike Gibson to put a new financial controls framework in place over the next three years. We are also beefing up our efforts on financial training. So we need the basic building blocks in place and key staff focussed on key tasks.

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