Strong financial management has never been more crucial. This is particularly true in the public sector, where resources are limited, and the efficiency of public services relies on how well public finances are managed. Ensuring that financial decisions are well informed is key to delivering the government’s goals.
The ability to monitor budgets effectively, assess performance and forecast with precision really helps to establish financial sustainability. However, what does effective financial management truly look like?
The fourth guide in our financial management good practice series brings to life the challenges of monitoring and forecasting effectively. It outlines three fundamental principles to help finance leaders navigate the complexities of budget management, financial forecasting and performance monitoring.
1: Promote accountability
Accountability should be at the heart of good financial management. Budget-holders must not only be aware of their responsibilities but also fully commit to ensuring that financial performance is consistently monitored and assessed.
When leadership places a strong emphasis on accountability, it encourages a culture where financial integrity is valued at all levels. Budget-holders should regularly track expenditures, adjust forecasts when necessary and take ownership of financial outcomes. A clear line of responsibility for financial decisions helps avoid errors, promotes transparency and supports public trust in how taxpayer money is being spent.
2: Develop the right skills
Effective financial management is a skill set that requires continuous development and the right mix of technical expertise, strategic foresight and problem-solving abilities.
In addition to technical accounting knowledge, leaders will increasingly need the tools to analyse complex data, make projections and understand the implications of decisions.
By investing in the right training, organisations can ensure that their finance teams have the capability to both monitor performance and forecast with accuracy, empowering leaders to make better decisions.
3: Make the best use of data
Accurate, real-time data is integral to good financial management. This allows for precise performance tracking, fast identification of any discrepancies, plus the ability to adjust forecasts as circustances change.
Robust data systems enable decision-makers to respond rapidly to emerging events, ensuring that public services can adapt to unforeseen challenges or capitalise on opportunities.
The UK government recently announced an AI opportunities action plan, terming artificial intelligence the “defining opportunity of our generation”.
Our guide shows an example from a department where machine learning is being used in tandem with routine forecasting to sense-check assumptions. The aim is a more sophisticated assessment of outturn against budget, which could lead to less variance across the year, resulting in better monitoring and more accurate forecasts.
The future of financial management in the public sector is filled with potential. By promoting accountability, developing the right skills within finance teams, and making the best use of data and technology, leaders can ensure they are well positioned to manage public finances effectively, both today and in the future. These principles aren’t just guidelines but cornerstones of a resilient, sustainable and thriving public sector.
To read the good practice guide on financial management, as well as others in the series, visit nao.org.uk/insights
