The public sector needs to learn from private sector mistakes to avoid costly errors in implementing regulation changes, argues Andy Cooper. He argues the benefits could be considerable for the public purse but thought needs to go into system selection.

Impending IFRS deadlines are piling pressure on public sector finance departments at a time when cost savings and accountability have never been higher on the agenda. The private sector is no stranger to financial regulation: years of implementing changes imposed by either the FSA or the European Commission, or even in some cases the SEC due to US GAAP, have taken their toll on finance directors and IT departments. What we are left with is a knowledge built up through trial and error and a universally acknowledged common denominator: underestimation.

Taking accounting regulations lightly has already been the bane of many businesses, with huge rafts of companies having to adopt emergency measures. This usually involves paying external consultants high charges to meet rapidly approaching deadlines, with mixed results. It’s a lesson that never seems to be learned and now the public sector is falling into the same traps.

Implementing change

Unfortunately the public sector is not learning from private sector mistakes, particularly in terms of planning. Like so many businesses before them, public sector organisations have generally been slow to respond to the demands of IFRS, failing to recognise, for example, the amount of time it takes to collate information on assets, contractors, lease agreements, and so on.

Part of the problem here is that some of this information has to be provided by external consultants, adding another level of management and paperwork that takes time to process. This is just one issue.

A mix of budget control pressures, lack of in-house resources and complicated systems and processes that do not take to change very easily are all helping to fuel fears that public sector organisations will struggle to meet next year’s deadlines.

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For internal public sector accounting staff the problem is not just one of collating information, but building systems and processes that last. When the private sector was faced with Sarbanes-Oxley for example, the running theme was one of seeing compliance as an opportunity to streamline processes, get the house in order and ensure a more fluid system was in place.

Software and processes need updating, but this is complicated given the abundance of legacy, proprietary and inflexible systems in the public sector. There will inevitably be an over-reliance on external consultancies which come at an additional cost, something that is particularly unwelcome in the current economic climate. Even then, time is against the sector. Unwieldy systems are going to take some shifting and the fear (as we have already seen in the private sector) is that a lot of 'sub-systems' will be created using Microsoft Excel, Access and Word. This may enable public sector organisations to achieve their initial deadlines, but it is not the most efficient or cost effective way of handling the changes required. This will lead to increased overall medium- and long-term costs for collating and handling this information.

Long-term results

At a time when efficiency and cost savings are buzz words in the public sector, it is wrong to start adopting measures that will prolong the pain of waste. Alistair Darling’s pre-budget announcement regarding public sector efficiency savings targets piled more pressure on the sector. The aim of £35bn in cost savings to be made by 2011 seems steep, but the problem is not so much the scale of the savings as how to implement necessary changes to make them happen. The public sector will have to spend in order to save, and the first step has to be getting processes in order and ensuring it has a backbone of flexible IT.

IFRS will challenge central government departments, as well as the various NHS Trusts, to find systems and processes that will stand the test of time. Businesses are already coming to terms with the idea that IFRS has a wide-reaching influence on an organisation. It doesn’t just affect reporting; it affects departmental budgets, performance targets and forecasting. In short, it affects the whole organisation, not just the finance department. A common mistake made by the private sector was believing that financial regulations were just for accountants.

Ultimately IFRS is good for the public sector. It is good for the chancellor too. Smooth running public sector bodies with slick processes and on-the-button reporting lead to greater transparency and therefore accountability. Managers will have the ability to identify areas of excessive cost and targets for greater efficiency. It’s a good vision and one that the taxpayer has been screaming out for to reduce waste, but it’s a little utopian. The private sector has already shown how easy it is to fall behind and start taking shortcuts to meet deadlines. If the public sector follows suit, it can wave goodbye to long-term efficiency savings.

Andy Cooper is an IFRS expert at Agresso Software. Agresso [1] offers a fully-integrated suite of ERP applications for services-centric organisations