Five years is a long time, but the challenges that we face in the area of financial management are still enormous, notwithstanding our significant remediation efforts.
You might recall my acute sense of personal disappointment at being the first chief executive in the government to be unable to form an opinion on his own organisation's accounts. I don't underestimate the gravity of the task we face in turning this around.
While the odour of qualified accounts and intense public scrutiny should be sufficient to inspire action, there are more fundamental imperatives at work here. Put simply, the efficiency with which Defence manages its resources and controls its business processes has a direct impact on our nation's Defence capability and military effectiveness. Further improvements in the way we manage our people, resources, property, information and material will allow Defence to respond better to contingencies as directed by Government.
So, turning our management performance around and matching our operational successes with excellence in management is a huge challenge. Key to success will be our capacity to lift the skills of our people to meet contemporary management standards as well as accrual and other new accounting requirements.
How do we turn these aspirations into reality?
In the finance domain, I have asked Ken Moore, the Chief Finance Officer, to take the lead in transforming the financial environment in Defence. The CFO, on behalf of Defence, has established a Defence Financial Controls Framework Project under his direct control to draw together, in a structured and integrated fashion, all of the components necessary to build a best practice financial management environment for Defence. The framework will provide all staff with a common understanding of the 'what, why, when and how' of financial management in Defence.
I would like to stress the importance that I place in this project. It is not just another remediation project. It will be the main vehicle to transform the financial management environment in Defence over the next five years. The outcomes of the various remediation projects will be inputs to this project, but it stands apart as a key enabler to improve the way we do business.
We will need to manage this change carefully, ensure that we communicate the reasons for and benefits of the change for staff and for Defence in general, and support people through the change process.
What will it actually involve? At its core the framework will provide users with access to a comprehensive and integrated library of all the policies, processes and procedures necessary to manage all aspects of our financial business. Many of the policies already exist and there are a number that are currently under development. But they are generally difficult to access, vary in format and are quite dispersed in their location. Within the new framework, all policies will be made readily available to users with clearly defined linkages to both associated processes and procedures.
Documenting and standardising key financial processes across the portfolio will improve the integrity of our financial data and reported financial information, improve the efficiency of resource management, and reduce training costs associated with the high staff turnover rates experienced in the finance domain.
The framework will contain only the minimum number of standardised processes necessary to achieve the required outcomes - it will not be about centralisation for its own sake.
The framework will also include procedural level documents to support the defined processes. At this procedural level, standardisation will be determined on a case by case basis. It may not make sense to standardise some procedures due to the vast variations in the nature of the business of each of the Groups. It will also be important to allow flexibility to encourage innovation.
Standardisation of financial reporting between Groups and between the Groups and the CFO is also a key element of the framework. It is expected that this will improve data integrity and lead to improved transparency and traceability in the financial reporting activities of Defence.
To avoid continuing adverse external audit findings, Defence also needs to implement a structured internal review program to look for and rectify problems in its business operations before they are discovered and documented by the external auditors. This program is essential to the proposed controls framework. It will be implemented within each Group, and across Groups, to confirm compliance with the framework and identify any shortfalls as part of a culture of ongoing improvement.
From a users' perspective the most visible and obvious part of the framework will be the new interface through which the framework is accessed. The interface will be web-based to facilitate access across the portfolio on the Defence Restricted Network. All documents contained within the framework will be placed under configuration control to ensure that users are guaranteed to be viewing the latest versions. The primary requirements for the interface are that it is intuitive and simple to navigate: users will find the information they require within two or three mouse clicks. The policy, process and procedural information will be available as both complete documents and in specific subject matter sections.
Business skilling across the finance domain will be re-engineered as part of the framework. Having documented our business processes this presents us with the opportunity to transition from a straight training to a broader skilling focus. Having documented processes, allows us to skill for an outcome in the context of our business rather than provide narrowly focused training on a particular element of a process. More broadly, leaders and managers at all levels in Defence will need to pay much closer attention to their capabilities and personal development needs in the area of financial management.
A comprehensive financial controls framework is necessary but in itself insufficient to achieve the vision. Having competent staff to transact and manage within the framework is also essential.
To achieve this it is proposed to develop a Financial Certification Framework that identifies the necessary combination of qualifications, training and experience required for each function. Certification will be applied to staff undertaking key transactional and management roles across the portfolio in the first instance.
In short, what we are launched upon is a major change management program. To lead this program, a Defence Financial Controls Framework project team has been established in the CFO Group, under the leadership of Mike Gibson, Assistant Secretary Financial Controls Framework Project. I would envisage the project team being in place for at least three years. It will be essential that senior Defence leaders get behind this project, irrespective of the perceived distance between your business unit and the core of the Defence finance domain.
This is, as I have said, a real change management program. The adoption of a comprehensive financial framework for Defence will require significant cultural and behavioural change for all staff working in the finance domain, and for Defence people more widely.
What is the end-state? Put simply, a fully accepted, embedded and comprehensive Defence Financial Controls Framework that is transacted and managed by competent staff who follow standardised processes across the portfolio and achieve high quality, repeatable outcomes accepted by external auditors.
If Defence can achieve this, we will have gone a long way towards earning a reputation as highly competent, professional and business-like financial managers.
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