Devil is in the detail

Sometimes a major change can sneak up on you. And it’s no wonder when that change is buried deep in legislation. The Public Finance Amendment Act 2013 included a number of significant changes. One of these is the responsibility for Chief Executives to provide advice to appropriation Ministers on the efficiency and effectiveness of non-departmental expenditure. That’s a big shift in expectations. It’s a much broader role than a payments function (an investment approach) for non-departmental expenditure that will challenge some departments.

The investment approach is a shorthand way of describing how MSD, for example, is seeking to improve the efficiency and effectiveness of the social sector on the non-departmental appropriations they administer.  The idea is to improve the lives of New Zealanders by applying rigorous and evidence-based investment practices to social services.  Most of the focus is on early intervention to achieve better long-term results for people and help them become more independent.  This in turn can reduce the number of New Zealanders relying on social services and the overall cost to the taxpayer.  Achieving this will be a win-win.

Every department should be able to describe its own investment approach in a way that is appropriate to their context.  This will enable leaders and stakeholders to answer questions such as:

• Where does our department create the most value? And given this, are we investing in the things that really matter?
• Are we as efficient as we could be? If that’s not the case, what services are New Zealanders missing out on?  What’s the opportunity cost – in service terms – of inefficiency?
• How do we ensure our department is financially sustainable and fit for the future?  What changes are needed to deliver on our stewardship responsibilities?
• How does our department’s performance story link costs with outcomes? How will we increase the productivity of our department this year?

Finance needs to be an integral part of developing the investment approach for non-departmental as well as departmental expenditure.  If you have non-departmental expenditure and haven’t considered these new responsibilities, this could be a significant challenge for you.