There is a unique question arising in local government which does not have a parallel in the NHS nor, as far as we can see, among finance directors of equivalent-sized private sector organisations. That question is whether the finance director should be on the management board.
Private-sector FDs told us that it was unthinkable not to have financial management expertise on the board, and in the NHS, the FD is always on the board.
How does this question arise? In local government, by law an individual must be nominated as having responsibility for proper financial management (called a chief finance officer). That person must be an accountant and has a duty to make a report if he or she thinks the council is about to decide to incur expenditure unlawfully. The council is then prohibited from making payments until it has considered the report.
This power is rarely exercised – because on the vast majority of occasions explanation and persuasion deter councils from incurring expenditure unlawfully – but nonetheless, the power exists.
The statutory ‘chief finance officer’ does not have to be the same person as the FD. Although usually the roles are combined, about 50 out of 400 councils give a strategic financial brief to a board director, while allocating a more narrow financial administration role to the chief finance officer, who is not on the board. This arrangement can work well, providing that the person with the statutory duty is of sufficient calibre to make their voice heard when need be.
However, an increasing number of councils are discussing models in which the board comprises executive directors without specific functional responsibilities but with responsibility for specific programmes of work – such as economic development – which cut across traditional functions.
In one sense, this is a welcome development. Directors in local government have sometimes been guilty of taking too narrow a view of their role, defined by their own professional expertise.
However, effective use and control of public money and the need for clear accountability are such imperatives that, in the Audit Commission’s view, there must be one individual with responsibility for financial strategy and management and he or she must be on the board.
Paul Vevers is director of Audit Support at the Audit Commission.
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