By Ian Carruthers | 12 November 2014
Is your organisation efficient, economic, effective and equitable? There is one code to help perfect them all
There has been significant work done on the role of good governance in successful private sector organisations. But this is less true of the public sector and some of what does exist has become dated. Yet the impact of poor governance in the public sector – particularly weak financial management – on the sovereign debt crisis is widely recognised.
The International Federation of Accountants and CIPFA have jointly developed an international framework for good governance, taking account of features specific to the public sector.
To fulfill its wide range of functions, the public sector must satisfy complex political, economic, social, and environmental objectives. This subjects it to different constraints and incentives from the private sector, all of which affect its governance arrangements.
Public sector stakeholders are interested in issues such as whether planned outputs have been delivered and outcomes achieved and whether this has been done in an efficient, economic, effective and equitable manner.
Although most public sector codes focus on delivering good practice at organisational level, the fundamentals of governance remain the same for an individual entity and the funding/service delivery system of which it is a part. The International framework: good governance in the public sector [2014] aims to be relevant not only for an individual entity, but also for the whole system – sub-national, national or international.
This is consistent with the philosophy described in CIPFA’s report Public financial management: a whole system approach [2010], which outlines how constituent parts, such as external assurance and scrutiny, financial reporting and audit standards, contribute to the integrity of the whole system.
The framework places sustainable economic, societal and environmental outcomes as a key focus of governance processes and structures. It emphasises the importance of considering the longer term and links between governance and public financial management. The framework also highlights the need for integration in both reporting and thinking about performance, reflecting the International integrated reporting framework (International Integrated Reporting Council, 2013).
Governance comprises the arrangements put in place to ensure that intended outcomes for stakeholders are defined and achieved. To deliver good governance in the public sector, governing bodies and workers must try to achieve these objectives while acting in the public interest. It requires:
⦁ Behaving with integrity, demonstrating strong commitment to ethical values, and respecting the rule of law.
⦁ Ensuring openness and comprehensive stakeholder engagement. In addition to the overarching requirements above, achieving good governance in the public sector also requires effective arrangements for:
⦁ Defining outcomes in terms of sustainable economic, social and environmental benefits.
⦁ Determining the interventions necessary to optimise the achievement of intended outcomes.
⦁ Developing the entity’s capacity, including the capability of its leadership and individuals within it.
⦁ Managing risks and performance through robust internal control and strong public financial management.
⦁ Implementing good practice in transparency, reporting and audit to deliver effective accountability.
The framework recognises that many different governance structures exist and does not seek to replace national or sector codes. Instead, it is intended to be a reference for those who develop and set national codes for the public sector. Where codes and guidance do not exist, it will provide a shared understanding of what constitutes good governance and a powerful stimulus for positive action.
The real challenge for the public sector is in implementing codes and guidance, as it is often the application that fails in practice. The supplement to the International framework underpins each principle with examples, evaluation questions and references to other sources of information. For example, it highlights Transparency International’s work in developing international principles for whistleblower legislation.
Effective governance encourages better and long-term decision making, as well as the efficient use of resources. It strengthens accountability for the stewardship of those resources. Good governance is characterised by robust scrutiny, which places important pressures on improving public sector performance and tackling corruption.
The purpose of the International framework is to provide a benchmark for everyone concerned with the public sector not only to understand and apply the principles of good governance, but also to assess the strengths and weaknesses of current governance and seek to improve practice.
This article appears in the Winter 2014 issue of Public Finance International magazine
