Who holds the financial reins?

The Academies Financial Handbook issued by the Education Funding Agency (EFA) puts the spotlight on, amongst other things, the need for a finance officer to ensure resources are properly accounted for and managed in an academy. The Handbook notes that the EFA requires academies to appoint a ‘principal finance officer’ (meaning a finance director, business manager, chief financial officer or equivalent) to lead the finance function and that their key responsibilities will include preparing the annual accounts; preparing and monitoring the budget and providing technical advice, though these duties do not need to be discharged personally.
At the same time, an academy must have an accounting officer, who will normally be the principal or chief executive, who will be personally responsible to the board and through it to the Secretary of State for ensuring financial regularity and propriety, as well as value for money. It makes sense, therefore to have effective arrangements in place to ensure the success of the chief financial officer role, both in terms of the person carrying out the role, and having the governance structures in place that will enable the person to perform their role well.

Holding the financial reins
The chief financial officer (CFO) occupies a critical position in any organisation, holding the financial reins of the business and ensuring that resources are used wisely to secure positive results. While the global financial crisis and economic downturn have made these tasks even more challenging, they have also underlined the fundamental importance of the role.

Achieving value for money and good financial stewardship are key components for CFOs in all public service organisations.
There are different structures in place across the academy sector reflecting the diverse nature and size of the institutions making up the sector. Many academies have business managers as well as accountants. But who is, or should be, the person in the CFO role in an academy and where should the role fit within the overall governance structure?             

CIPFA’s Academies, Colleges and Universities Panel is currently looking at these issues and is working on a guide which describes the responsibilities and skills required of the CFO in academies. It builds on CIPFA’s Statement on the Role of The Chief Financial Officer in Public Services which was published in 2009, interpreting the principles and roles set out in that document for academies.

The route to success
In the first instance is it essential that academies have someone clearly designated in the chief financial officer role, whether this is termed a school business manager or finance director or other title. This person must have a direct reporting line to the principal or head teacher (the ‘accounting officer’). A key responsibility of the chief financial officer is to intervene in spending plans to maintain the balance of resources so that the academy remains a going concern. To do this the chief financial officer must have direct access to the principal.

A further essential aspect which contributes to the chief financial officer being able to perform his or her duties effectively is that he/she should be a member of the ‘leadership team’ with a status equivalent to the other team members.
In academies the concept of ‘leadership team’ may include the governing body, the senior management team and major committees of the institution. The centre of the institution’s decision making process, for most institutions, is the senior management team.

The chief financial officer has an important role in supporting and advising the governing body on all financial matters. They must therefore have access to all governors – individually and collectively – and vice versa – and establish a good professional working relationship with them founded on mutual trust and respect. The chief financial officer will also need to work particularly closely with some individual governors – for example the chairs of finance and audit committees.
Linked to the above, the chief financial officer must be actively involved in, and able bring influence to bear on, all material decisions. Being a member of the senior management team is one crucial element of this. The chief financial officer must be able to advise the ‘leadership team’ directly, in order to enable it to discharge its responsibilities in relation to the institution’s financial health and long term viability. Where the committee system is a major vehicle for decision making, it is important that the chief financial officer is available to support governors and officers with appropriate financial advice at meetings of the major resource committees including finance and planning and resources committee, as well as the audit committee and the governing body.
The chief financial officer must therefore be a persuasive and confident communicator with the status and credibility to challenge others, and influence material business decisions. The chief financial officer also has an important role in ensuring necessary financial information and advice is provided to the ‘leadership team’ and decision makers at all levels across the institution.

The heart of decision making
Placing the chief financial officer at the heart of the institution’s decision making structure is one way to help ensure the effectiveness of the role but the individual themselves must also exhibit particular skills and qualities. They should be able to provide clear, authoritative and impartial professional advice and objective financial analysis and interpretation of complex situations. It is also advantageous for the chief financial officer to be able to network effectively within the institution to ensure awareness of all material business decisions to which their input may be necessary.
Good financial management is fundamental to establishing confidence in public services and good relationships with the taxpayer and other funders. The ‘leadership‘ of any organisation needs to make clear that financial management is core to achieving its strategic aims, and to demonstrating that public money is used well. The new academies sector has had its share of scandals and has been criticised for poor value for money, lack of transparency and poor judgement. It is the chief financial officer who must take the lead in establishing a strong framework for implementing and maintaining good financial management across an institution. There may be occasions when the interaction between the chief financial officer and accounting officer prove tense. However, the chief financial officer must always ensure that financial regulations and procedures are complied with.

Financial literacy
The chief financial officer must also actively promote financial literacy throughout the institution, so that the ‘leadership team’ and managers can discharge their financial management responsibilities, alongside their wider responsibilities in relation to risk and performance management.
To bring about effective financial management and to perform other key roles outlined earlier, the CFO must lead and direct a finance function that meets the needs of the business and is appropriately resourced. They have a particular responsibility for learning and development amongst finance staff in order to ensure that both current and likely future finance skill needs are addressed. This will include identifying the competencies needed by the finance function, including specialist skills, and ensuring it can access the skills and experience to exercise stewardship of public finances.
The Education Funding Agency requires that an academy trust’s finance staff must be appropriately qualified and/or experienced. CIPFA believes that an academy will benefit greatly from ensuring that its chief financial officer is a member of an accountancy body recognised by the International Federation of Accountants (IFAC). A professional qualification can help a chief financial officer gain the confidence of the institution’s finance team, academic staff, other colleagues, and the external parties who deal with an institution.
However, a chief financial officer needs to demonstrate a skill set beyond a professional qualification. This means that, to be effective, chief financial officers should not only have a background of technical expertise but also display strong leadership and inter-personal skills.

A person of influence
A chief financial officer is in a position of leadership and influence within an institution. An evident commitment to personal development and learning is an important quality to model as the head of the finance function in the institution.

CIPFA’s guide to the role of the CFO in academies will be of interest to head teachers, principals, members of governing bodies, senior management colleagues and finance practitioners who are new to the sector, as well as to CFOs themselves and to those aspiring to this demanding, exciting and crucial role. We are aiming to circulate this guide free of charge to academies from September 2013.

Further information