Defence

Chief Finance Officer

Establishing a framework for best practice

The Secretary's vision for the Defence finance domain is 'For Defence to be recognised by Government as highly competent, professional and business-like financial managers within the next five years'. Why has the Secretary set this vision for the Finance domain? The answer is simple: financial management is core business for everyone in Defence. Mike Gibson explains.

Over the past two years there has been a constant theme in communications from the Secretary of Defence, Ric Smith. This theme relates to the need to ingrain a 'culture of economy' within Defence. In many ways, his vision for the finance domain has evolved from the culture of economy theme.

A culture of economy is the key to becoming business-like in that we need to ensure we spend our resources where they are needed most and eliminate waste, reduce overheads and improve productivity We must get the best return (capability) for our shareholders (the Parliament and Australian taxpayers) for the money they invest. That is, we must be driven in a similar manner to the private sector when it comes to financial management of the organisation. However, being business-like is just the first element of the vision.

We also need to be seen as highly competent and professional. If we take all three elements of the vision together, then it is all about equipping our staff with the tools, knowledge, skills and culture needed to establish a best practice financial management environment in Defence.

In dollar terms we are one of the biggest organisations in the country and so the Government and the community rightly have high expectations that Defence's financial management will accord with best practice. Unfortunately we have not been able to meet those expectations over the past few years.

In many ways, our recent financial management capability could be seen as our Achilles heel. There are numerous examples of poor management that can be highlighted, including unsatisfactory record keeping and inadequate stocktaking. These management deficiencies are then compounded through the opportunity cost associated with the diversion of staff and other resources to fix them.

We need to be able to take just as much pride in our financial management performance as we do in our operational performance. To achieve this we need to take both a tactical and strategic approach to building the best practice financial management environment in Defence.

The sixteen current remediation plans are key to the tactical approach that Defence is adopting. These plans are focused on resolving known deficiencies in current financial management business processes, procedures and controls.

Strategically the Defence Financial Controls Framework Project and the planned upgrades to the Enterprise Resource Planning Systems (Roman, PMKeyS and SDSS), under JP 2080 and JP 2077, are contributing to the development of the future financial management environment.

So what is the best practice financial management environment?

The financial management environment being established will be made up of a number of components all of which must be in place for it to be complete to operate both efficiently and effectively. Key components include:

• Well-defined accountabilities
  Financial management accountabilities need to be agreed and well understood throughout the organisation—for example, in the devolved financial management model that operates in Defence, what are the roles for the CFO and the Groups?
• Clear and accessible financial management directives and instructions
  With key financial management processes, staff should be able to easily access the details of the process and the associated procedures to be followed to ensure that the job is done right, the first time. Linkages will also be provided to the overarching policy for each of the key processes.
• Robust controls
  A robust set of preventative and detective controls across all functional areas of the business will be developed. These controls will ensure the integrity of the financial data used to develop the Financial Statements.
• A comprehensive compliance regime
  A compliance-monitoring regime will be established that provides assurance to the CFO that the directives, instruction and controls are operating efficiently and effectively, and that management oversight is effective in rectifying shortfalls.
• A self-assessment capability
  A self-assessment regime will be instituted to ensure that Defence takes responsibility for the financial management of its business by looking for and rectifying process and control failures before auditors discover them.
• Financial management culture
  The creation of a financial management culture across Defence where staff demonstrate the application of the Defence Values in their day-to-day financial management activities is essential.
• Competent staff
  Defence must have the capability to grow and develop finance professionals through the provision of integrated core financial training to finance specialists and financial awareness training to non-specialist staff that is tailored to Defence's business requirements. Outcomes-based certification of staff involved in the key financial processes will be achieved through assessment against defined performance criteria that focus on the knowledge and experience requirements for each of the key processes.
• Effective ERP systems
  Enterprise Resource Planning (ERP) systems (Roman, SDSS, and PMKeyS) that support the day-to-day management of the business and incorporate the necessary automated system controls to ensure the integrity of data on which business decisions will be based.

The financial management environment we deserve will not be achieved unless we all work together with this common vision and apply the necessary dedication and cooperation of our staff.

The Chief Finance Officer (CFO) has tasked the Financial Controls Framework Project to take an overall coordination role to drive the development the financial management environment. There is much work to be done, and it will require patience and perseverance to achieve this goal.

[ top of page ]