The Business Case for Professionalisation



The Business Case for Professionalisation of Public Financial Management

Introduction

Professionalisation of Public Financial Management (PFM) has an important and unique role to play in PFM reform[1]. However experience shows that achieving it requires the commitment of significant resources over an extended period of time. Any decision to design and implement a programme of professionalisation of PFM should therefore be based on a well reasoned business case and on a robust business model that reflects the circumstances of the country concerned.

The business case for professionalisation of PFM should reflect the circumstances of the country concerned. However a number of the arguments in favour of professionalisation, and the risks associated with it, are relatively generic. CIPFA has therefore made these available in a “template” format, for use, with adaptation as necessary, to meet the circumstances of each particular country.

A well reasoned business case ought to provide the fundamental justification for undertaking the work of professionalisation. That justification is made in terms of the benefits that will derive from it. The business case is an essential first step in securing the commitment of key decision makers and influencers to a programme of professionalisation. Its production requires the involvement of a number of key role players in a country; it is therefore a potentially very powerful force for generating consensus on the need for professionalisation and what it is intended to achieve.

This document is written with the needs of the following key stakeholders in mind:

• Government in the country, one of the principal beneficiaries of professionalisation.

• The local Professional Accountancy Organisation (PAO) considering the professionalisation of PFM for the first time in the country[2].

• The local education and training bodies that will support the education and training aspects of professionalisation and who may have a role to play in providing wider products and services to the PFM community.

• Donors, who may be expected to provide the investment that will be required, ideally as an integrated part of a wider programme of PFM reform in the country

The business case for professionalisation must therefore embrace the gains to be made by all these stakeholders.

The Business Case contained in this document is written on the basis that it will be produced at an early stage in the consideration of professionalisation in a country. With the Business Model, guidance on which is available separately from the CIPFA Web site, it is intended to present decision makers with the information they will need to make a “go/no go” decision to proceed to professionalisation. This decision is best made on the basis of a “readiness assessment”. This describes:

• the key characteristics of the environment in which professionalisation of PFM is to take place;

• the feasibility of introducing professionalisation, whether it can be done in the particular circumstances of the country concerned;

• the suitability of professionalisation, the extent to which it “solves the problem” of the lack of professionalisation in the country;

• the resources that will be required to implement a programme of professionalisation, financial and non-financial; and

• a plan to deploy those resources.

Taken in its entirely the readiness assessment supports a judgement about the acceptability of professionalisation, that is to say whether the balance of costs and benefits are acceptable to the key stakeholders. Where necessary the production of the Business Case may be combined with the readiness assessment.

Stakeholders involved in the decision to proceed with a programme of professionalisation may find a need for a number of pieces of background and contextual information, including what is meant by “professionalisation” and the distinctive contribution that key role players can make. CIPFA has therefore made available for download from its Web site this background and contextual information in an accessible format. This may be freely used, with adaptation as necessary, by staff in countries involved in deciding whether and how to proceed with professionalisation.

CIPFA’s intention is to allow the material contained in this document, modified to reflect local circumstances, to be used as the business case document in the country concerned. Whilst it therefore includes generic material, for example a statement of some generic specific risks that may be expected to be identified during this early stage of a professionalisation project, it encourages the reader to consider the extent to which these risks apply to their own environment and to identify other risks specific to their circumstances that are not described here. The pro forma business case document provided here also provides a structure within which some key information related to current and future resources may be presented, analysed and commented on.

The business case for professionalisation of PFM

Reasons for professionalisation

There is widespread agreement about the need for improvement in the standard of public financial management in [Country and reference to relevant local initiatives and programmes]. For this improvement to take place a number of conditions need to exist. Policy makers and decision makers in government need to be convinced of the importance of improving standards, and committed to ensuring that improvement takes place. Improvement also requires developing sustainable capacity in the country to design and implement the reforms. It is in this second role that professionalisation, and PAOs, have a particular and distinctive part to play.

One of the central roles of a PAO is to ensure that prospective members of the body acquire the knowledge, skills and values they need to become members of the profession, and that members maintain and develop that knowledge, those skills and those values throughout their professional careers. The PAO will also ensure that its members maintain appropriate professional and ethical standards, and that they act in the public interest rather than in their own or some other sectional interest. The PAO may include in its mandate the provision of training more widely, to, for example, managers and others with financial responsibilities working in government. In a well designed scheme of professionalisation, and as is more fully described below, the PAO is uniquely positioned to ensure the development of professional skills that has, in the past, acted as a constraint on PFM reform.

The PAO should be independent of any vested interest. This helps to ensure that it acts solely in the public interest, and that the standards that it adopts are not compromised by undue influence to support a particular practice or policy position.

Professionalisation is important because of the contribution it is uniquely placed to make to improving the quality of PFM in [Country].

• Members of professions are generally bound to act in the best interest of those to whom they provide their services, and are forbidden by their professional codes from acting in their own interest or in that of any stakeholder group other than the public. In the case of the PFM profession, the client group is the public interest. The existence of a PFM profession therefore directly serves the public interest.

• Entry to the profession is by examination. This gives assurance of the quality of new entrants, particularly where the PAO itself is a member of the global organization for PAOs, IFAC[3].

• The existence of a Qualifications Framework and a formal Qualification means that students aspiring to membership of the PAO will be educated and trained to an appropriate standard. This in turn ought to give confidence to stakeholders of the quality of the achievement of those students who meet the requirements of the QF and who are admitted to membership.

• A properly designed and developed QF will require students to acquire skills that require the exercise of complex judgement. This is a key characteristic of the professional QF that distinguishes it from other forms of training e.g. short courses.

• The scheme of IPD ensures that the conceptual knowledge acquired and skills developed in the classroom or other form of learning are supplemented by the acquisition of the practical skills and competencies that are necessary to assure the quality of new members entering the profession.

• The scheme of CPD means that members of the profession are required to ensure that their knowledge and skills remain up to date in a changing environment. This is another contribution to assuring the quality of the services provided by those members, and therefore a further source of confidence in that for stakeholders.

• The PAO represents a mechanism for the regulation of accredited members of the profession in the country concerned. It is therefore a means by which stakeholders may be assured of the quality of the services provided by those members.

• The existence of a scheme of ethics and discipline forms the basis for members of the profession to understand what is required of them in terms of standards of technical knowledge and skills, and ethical behaviour. Where members fail to reach those standards the existence of a disciplinary scheme should give stakeholders confidence that such individuals will be detected and dealt with appropriately.

• A PAO with appropriate capacity should be sustainable. This means that the body can plan with confidence for the future, and can acquire the resources it needs to carry out its work and pursue its mission.

In addition to these conditions relating to assuring the quality of PFM in [Country] the PAO and its members represent a nucleus for the development and provision of services to the PFM community more widely, and for the development of expertise in PFM in [Country].

Alternatives to professionalisation

In [Country] there have been many attempts to improve the quality of the PFM system by methods other than professionalisation. Most commonly this has been done through short course training. This is training that is of relatively limited duration, ranging from one or a few days to, on rare occasions, a few weeks. It is designed to convey knowledge to or develop specific skills in those who attend, and has often been related to some current or impending organisational change such as [insert relevant country examples]. However short course training of this nature is quite different from the education and training provided under a scheme of professionalisation, and ought not to be regarded as a substitute for it. This section of the Business Case explains why this is so.

When looking at what distinguishes short-term, ad-hoc training from training offered under a scheme of professionalisation the most important element may be the concept of comprehensive education for well-rounded PFM professionals. This contrasts with the main purpose of short term training, which is to provide additional education in one area or in relation to one particular skill set.

A properly designed scheme of PFM professional education and training can only be developed by, or with substantial inputs from, a reputable PAO. The areas of skills and knowledge contained in the scheme will therefore be those that the PAO knows to be essential for the education and training of PFM staff working in government and in the pubic sector more widely. Short course training needs are, by definition, much more restricted in their scope, and they may have only indirect relevance to PFM in the country concerned.

The areas of knowledge and skills that form the professional education and training scheme are related to each other. Therefore the scheme is integrated, structured, generally progressive and systematic. This means that participants may be confident that the scheme is comprehensive, that it addresses all relevant areas of knowledge and skills that are needed to produce members of staff with the defined competencies, and that the acquisition of knowledge and the development of skills will be progressive and cumulative. Ad hoc training is generally not progressive or integrated. It is not comprehensive in the way that a professional scheme is comprehensive. Indeed, components of ad hoc training courses can be contradictory, since there would rarely be any attempt to cross reference course content to ensure consistency of approach and content.

A scheme of PFM education and training consists of a combination of education that usually takes place in the training room or classroom, and work place based training and experience. The education component essentially provides the knowledge, the conceptual base, on which the practical skills are developed. That knowledge helps to ensure that the skills may be applied in different circumstances, and therefore that the student is able to practice those skills in a wide variety of contexts, and in a changing environment. At the same time the fact that the knowledge component is related to the work place environment in which the skills are to be displayed means that it is directly and clearly relevant to the requirements of the work place. The scheme produces PFM staff who are practitioners in their application of knowledge. Short course training, by way of contrast, is orientated towards the acquisition of knowledge and skills that are very specific to the circumstances at the time. The learning that results is therefore generally less portable than is the case with professional education and training.

A scheme of professional PFM education and training represents a starting point for a programme of life long learning, as formally embedded in the CPD component. Successful graduates will therefore be encouraged and even required to maintain and update their knowledge and skills throughout their career. Short course training contains no such long term commitment.

Well designed short course training will be provided at or very close to the point of need. Whilst professional education and training schemes will be designed broadly to match the training requirements of defined grades of staff throughout the training period, the nature of the education and skills development involved means that the relationship between training provision and training need must be rather less direct.

Professional education and training is designed, in part at least, to equip participants with the skills for professional practice, the capacity to reflect on action so as to engage in a process of continuous learning. According to the originator of this term. Donald Schon[4] reflective practice is one of the defining characteristics of professional practice. Paying critical attention to the practical values and theories that inform everyday actions, by examining practice reflectively and reflexively, leads to developmental insight. It is rare to find reflection on action forming any significant part of short course training.

For all of these reasons, therefore, short course training should not be confused with the provision of schemes of professional PFM education and training. There is a place for short course training in improving skills. However it should not be regarded as in any sense equivalent to or a substitute for a well designed scheme of professional PFM education and training.

Summary of the benefits of professionalisation

Professionalisation of PFM in [Country] will increase the supply of properly educated and trained PFM practitioners in government. These staff will have the skills to

• prepare budgets and other financial statements and documents, including published financial statements in accordance with international standards;

• design PFM systems and sub-systems, including systems of internal financial control;

• advise non-financial managers on the financial implications of decisions;

• give independent assurance of the quality of internal financial control throughout government;

• certify the accuracy and integrity of published financial statements; and

• monitor compliance with agreed budgets and longer term financial plans.

Having staff with these skills will result in better quality decision making, so that resources may be targeted more effectively to achieve policy intentions, and used more efficiently. Professionalisation will improve accountability of government to its stakeholders, by providing accurate and up to date information that has been produced to the highest international standards. It will result in greater inter-governmental comparability of financial data, and therefore allow lenders, including donors, to make judgements about the relative effectiveness and efficiency of resource use.

Creating value

Professionalisation of PFM in a country is mutually beneficial for both service providers and customers because, typically:

• the poor and disadvantaged members of society benefit from government’s increased ability to target development effort that results from professionalising PFM;

• government benefits from the improved quality of PFM that comes from having properly trained professionals doing the work;

• government and other stakeholders also benefit from having an independent body setting accounting, auditing, ethical and professional education standards in the country, particularly where these are based on established international standards;

• prospective members of the local PAO benefit from access to well designed qualifications that offer the potential for increasing employability and long term skills development;

• managers and staff with financial responsibilities working in government gain access to improved skills and therefore the potential to improved job performance and opportunities for promotion;

• local education and training providers gain access to additional markets that allow them to increase their revenues and diversify their offerings;

• citizens, civil society and other stakeholders benefit from the ability to access high quality and reliable information on the performance of government;

• businesses and firms benefit from the greater efficiency and effectiveness of government that results from improved PFM through professionalisation;

• donors benefit from being able to place greater reliance on the accuracy and integrity of information produced by government, and from being able to make greater use of country systems.

Significant risks and risk management

Note: The design and implementation of a project of the scale of one for professionalisation of PFM in any country brings with it significant risks that need to be identified and managed. This section of the Business Case describes the most common risks that are likely to be experience; however it is important to ensure that the specific circumstances of each country are taken fully into account. There should therefore be a formal process to identify all of the significant risks that exist in any particular country.

Risk: Lack of top level commitment leads to failure to allocate adequate resources to the professionalisation initiative.

For professionalisation to succeed it is essential that it has the commitment of Ministers and relevant senior government officials, including the Accountant General and the Auditor General. Failure to secure this commitment will undermine the effectiveness of the programme, and may threaten its viability.

Gross Risk assessment: [To be completed by country according to local circumstances. Should consist of an assessment of the probability of the risk arising and of its impact should it materialise. These two factors would commonly be multiplied together to produce a Gross Risk score to indicate the relative severity of the risk in relation to the others identified. This would be taken into account in determining the action required to mitigate the effects of the risk.]

Existing mitigation: [Actions currently being taken to reduce the impact of the risk, if necessary]

Net Risk assessment: [Effect of mitigation measures on probability, impact and therefore Net Risk after current mitigation. This would then form the base data for subsequent monitoring purposes].

Action required: [Description of any actions required to give effect to the mitigating measures. Actions should be assigned to named individuals].

Responsibility: [Identification of the named individual who is responsible for managing this risk].

Risk: Failure to secure sufficient funding for the project leads to inadequate resources being assigned.

Professionalisation of PFM in [Country] will require significant resources, over a period of a number of years. The money to finance the acquisition of these resources, whether obtained from government, donors or any other source, should be committed for the planned duration of the project. Funders should also be encouraged to create a contingency fund, to cater for unexpected requirements or to finance work that proves to have been underestimated. Without the long term commitment of sufficient resources to achieve the project’s objectives there is a risk of waste and failure to achieve the project objectives.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: The project plan does not take proper account of the need to design for sustainability, leading to a plan that is not sustainable in the medium to longer term.

The establishment of a PFM profession in [Country] must be sustainable. To achieve this requires that, in planning and scheduling the work to be done, full consideration be given to the factors that promote sustainability. It also requires that the precise meaning of the term “sustainability” in [Country] be defined. Failure to do this will result in a profession that cannot achieve its mission, and in significant waste of resources. It may also jeopardise any future attempts to achieve professionalisation on a sustainable basis. The design team ought to consider first of all how they can use existing PAOs in [Country] and identify how their capacity to support professionalisation of PFM should be developed. Strengthening such organically created organisations helps to ensure long term sustainability of operations.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: The scope of capacity development required is narrowly defined, resulting in capacity development plans that are insufficient to achieve the project objectives.

Achieving professionalisation of PFM in [Country] will require significant capacity development of individuals, systems and institutions. Most project design teams will identify the technical skills that are currently lacking and that need to be developed. However capacity development will almost certainly be required in other areas, including in core capabilities such as the capability to attract resources and support and the capability to commit and engage. Where the need for these is not identified at the project design stage it may subsequently be difficult for project teams to ascertain the reasons for the problems that will inevitably arise.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: The process of identifying risk and putting in place a risk management plan is not sufficiently involving, leading to lack of ownership of the risks and failure to identify significant risks.

Risk identification and management can often be seen as a technical or administrative task, to be delegated to the project manager and with no buy-in from key stakeholders. In such circumstances significant risks may be missed; risk management becomes routine and regarded as a “box ticking” exercise; and monitoring for changes in the risk environment may be neglected. Where this leads to the occurrence of risk that would otherwise have been properly managed resources can be diverted away from primary project objectives to deal with the situation and additional costs incurred. At an extreme the viability of the project and/or a key institution can be threatened.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: Inadequate project management arrangements are put in place, leading to periodic crises and diversion of resources to deal with these and, at an extreme, failure to achieve the key project objectives.

Professionalisation of PFM is a significant and substantial project for any country. Many of the key role players may have had little or no experience of or expertise in formal project management techniques. Whilst there is no single best way to design and manage a professionalisation project some essential roles, structures and systems should be in place so that the project sponsors can have a reasonable degree of confidence in the likely success of the project.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: Failure to achieve the commitment and engagement of key role players in the work place, including managers and mentors, leads to an ineffective IPD component, resulting in students who are not properly trained.

The education and training component of the Qualifications Framework that underpins a PFM professionalisation programme should require students at least to acquire some specific experience in the work place. This could also mandate the development in the work place of defined competencies. Managers and mentors in the work place have a key role to play in ensuring the effectiveness of work place training and experience programmes. They also have a role to play in ensuring that students are fully integrated into the work place and that the benefits of professionalisation are understood and appreciated by colleagues in the work place. Failure to ensure the commitment of managers and mentors may lead to students who are not properly trained, and to a workforce that sees little or no value in professionalisation of PFM.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Risk: Stakeholders may fail to appreciate the distinction between PFM and accounting and auditing as it applies to the private sector, and therefore fail to support a professionalisation proposal appropriately.

Public Financial Management, accounting and auditing, though related, are all different and distinct disciplines. In the private sector there is a relatively clear distinction maintained between accountants and auditors. Accountants prepare sales and other forms of revenue budgets that are flexible with respect to activity levels achieved, model cost structures that vary according to levels of sales; and appraise proposed investments in terms of the extent to which they are likely to produce adequate returns to shareholders. Auditors in the private sector certify that the published financial statements provide a true and fair view, or equivalent in other terms, so that investors, lenders and other users of these statements may rely on them when making decisions. In the public sector, however, the budget is generally not flexible, since it represents a financial quantification of programmes and plans intended to implement government policy decisions; cost structures tend to contain rather larger fixed cost components; and investments are made with the prospect of producing social benefits rather than financial ones to shareholders. If professionalisation of PFM is seen as the application, in the public sector, of standards and practices designed essentially for the private sector, this may result in an inappropriate design of key components e.g. the Qualifications Framework.

Gross Risk assessment: [As above]

Existing mitigation: [As above]

Net Risk assessment: As above].

Action required: [As above].

Responsibility: [As above].

Resources and timescale

Resources required for initial development and investment

This section of the Business Case identifies the main resources that will be required to implement the professionalisation programme. A distinction is made between resources required for the initial investment, and those required to maintain operations. Funders in particular will wish to see this distinction made, that can later be used as a basis for determining the extent of their investment both in monetary and time terms.

Market size is a significant determinant of resources required. This can be considered in terms of:

• the nature and size of the target training population, the number of students who are to be trained; and

• the size of the market for the products and services to be provided other than the education and training of students. This particular market segment is discussed more extensively in the Business Model.

There is a “step function”, related to market size, that will determine certain aspects of the resources required, including the size of the PFM staff in the local PAO and the teaching staff required to provide tuition to students. This will also depend on the nature of the tuition programme to be offered to students. Higher levels of tutor contact with each student or student group will require the supply of greater volumes of teaching resource.

[Description of country circumstances, with estimates of the target training population, likely academic background of entrants to the programme, the mode of tuition to be offered, estimates of the resources required to provide this tuition, in terms of tutor days per annum, and a preliminary estimate of the nature and size of the wider market for PFM products and services. This should also include estimates of the resource requirements to support the CPD of qualified members of the profession.]

Current capacity is a further significant determinant of resource requirement. Where there is a relatively well developed existing PAO, and a network of training providers offering tuition in PFM related areas, although almost certainly in the private sector, this will represent a valuable existing resource. If, however, the existing PAO is relatively undeveloped, with no significant experience of meeting the needs of the public sector, and there are few active relevant education and training providers, the need to acquire additional resources will be that much greater.

[Description of country circumstances: background to PAO, status in relation to membership of IFAC, brief historical development, scope of activity, nature and range of services provided, overview of the body’s Qualifications Framework, summary of governance arrangements, nature and number of relevant local education and training providers, preliminary assessment of strengths and weaknesses of each, high level summary of infrastructure resources of each, staffing complements, initial consideration of intended strategy with respect to “preferred provider” or “market” approach to education and training provision]

The extent to which the country concerned intends to modify an existing QF or develop a new one will affect the resources required. There is probably a quite natural tendency amongst countries to see their PFM systems as being unique, and therefore requiring a unique QF to support the education and training in those systems that is part of any scheme of professionalisation. To an extent this is true: every country is unique in its PFM system, even though there may be many commonalities. However where there is no PFM profession in existence in a country, a key decision to be made at the planning stage is whether those unique elements are so distinctive as to warrant expending scarce resources in amending a more “generic” QF, or whether the same resources (or the money to acquire them) might be more effectively used in other ways. Whatever QF is initially implemented it will certainly change over time. Therefore there will always be an opportunity to fine tune a QF to a country’s needs, and that might be more effectively done once those needs are more clearly understood, as professionalisation takes place.

[Description of the changes likely to be required to the existing QF to make it suitable for PFM, identification of any significant issues that are likely to arise in making these amendments and in extending the existing qualification to encompass PFM students, identification of sources from which to draw statements of specific public sector competencies, other useful resources e.g. the Africa SCDI PFM QF and preliminary assessment of their relevance].

The need to develop courseware is also a significant driver of resource requirement. The QF will set out the learning outcomes and the assessment criteria to be used in the education and training scheme. However, unlike in the private sector, there are, in general terms, very few resources available “off the shelf” for public sector students to use in their studies, or for tuition providers to use in their classes. The development of this courseware will consume a significant volume of resource, as will the development of the assessments that will be required.

[Identification of the nature and extent of new courseware likely to be required, both to support student learning and for use by tutors in the classroom, sources from which it may be acquired].

[Summary of the nature of the key resources that will be required to design and implement a professionalisation programme, including access to external and foreign expertise. This should be in terms of identification only at this stage; quantification of resources will not be possible until the FSA stage]

Resources required for operations

Where professionalisation is being achieved through the extension of the scope of an existing private sector PAO there will be a number of changes required to the governance of the body, to reflect its new mandate and mission. It will be important to give some consideration to these at this early stage, so that the need for the changes required can be taken into account in making the “go/no go” decision and later fed into the readiness assessment.

[Preliminary assessment of the implications for the existing governance structure of the local PAO, in terms of changes to legislation required, new committees to be formed, sources of membership of these new committees, implications for the current management and administrative structure, systems and personnel; assessment of the nature of the resources required by the education and training provider(s) to operate the courses over the planning period]

Development timescales

[Initial high level project plan identifying major phases of activity and their duration in broad terms, with particular consideration given to the impact on current operations].

Link to business model

The achievement of professionalisation of PFM in a country can be described in terms of the business model underpinning it. This makes certain, often implicit, decisions about the nature and extent of the products and services to be provided to the target customer groupings, and the resource flows that will be associated with those products and services. A generic business model for the provision of these products and services is described in the next Part of this document. Its value will lie, of course, in the extent to which it is adapted to reflect the needs and circumstances of any particular country.

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[1] The distinctive contribution that PFM can make to improving PFM is described elsewhere. See, for example, the work done by CIPFA on approaches to professionalisation.

[2] Many of the principles and much of the practice of professionalisation in a country will also apply to regional schemes. However these also have some special characteristics and are best considered separately therefore.

[3] IFAC is the global organization for the accountancy profession. It works with its 164 members and associates in 125 countries and jurisdictions to protect the public interest by encouraging high quality practices by the world's accountants. Through its independent standard-setting boards, IFAC develops international standards on ethics, auditing and assurance, education, and public sector accounting standards. It also issues guidance to support professional accountants in business, small and medium practices, and developing nations.

[4] See The Reflective Practitioner, 1983

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