Annex 4.1 & 4.2

Annex 4.
1
Finance Directors
It is government policy that all departments should have professional finance directors
reporting to the permanent secretary with a seat on the departmental board, at a level
equivalent to other board members. It is good practice for all other public sector
organisations to do the same, and to operate to the same standards. This annex sets out the
main duties and responsibilities of finance directors.
The finance function

A4.1.1 The finance director of a public sector organisation should:
 be professionally qualified1;
 have board status equivalent to other board members;
 report directly to the permanent head of the organisation;
 be a member of the senior leadership team, the management board and the
executive committee (and/or equivalent bodies), and of the cross-government
Finance Function.
A4.1.2 This demanding leadership role requires a persuasive and confident communicator
with the stature and credibility to command respect and influence at all levels through the
organisation. Its main features are described in box A4.1A. Many of the day-to-day
responsibilities may in practice be delegated, but the finance director should maintain
oversight and control. In large part these duties consist of ensuring that the financial
aspects of the accounting officer's responsibilities are carried through to the organisation
and its arm's length bodies (ALBs) in depth.
Box A4.1A: the role of the finance director

governance
 financial leadership, both within the organisation and to its ALBS, at both a strategic
and operational level
 ensuring sound and appropriate financial governance and risk management
1
The term professional finance director in this context means both being a qualified member of one of the
five bodies comprising the Consultative Committee of Accounting Bodies (CCAB) in the UK and Ireland,
ie the Chartered Institute of Public Finance and Accountancy, the Institute of Chartered Accountants in
England and Wales, the Institute of Chartered Accountants of Scotland, the Institute of Chartered
Accountants i Ireland, the Association of Chartered Certified Accountants, or having equivalent
professional skills and/or qualifications; and having relevant prior experience of financial management in
either the private or the public sector.
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 leading, motivating and developing the finance function, establishing its full
commercial contribution to the business
 planning and delivering the financial framework agreed with the Treasury or sponsoring
organisation against the defined strategic and operational criteria
 challenging and supporting decision makers, especially on affordability and value for
money, by ensuring policy and operational proposals with a significant financial
implication are signed-off by the finance function
internal controls
 co-ordinating the planning and budgeting processes
 applying discipline in financial management, including managing banking, debt and
cash flow, with appropriate segregation of duties
 preparation of timely and meaningful management information
 ensuring that delegated financial authorities are respected
 selection, planning and oversight of any capital projects
 ensuring efficiency and value for money in the organisation's activities
 provision of information and advice to the Audit Committee
 leading or promoting change programmes both within the organisation and its ALBS
external links
 preparing Estimates, annual accounts and consolidation data for whole of government
accounts
 liaison with the external auditor
 liaison with PAC and the relevant Select Committee(s)
 liaison with cross-government Finance Function
 embedding of functional standards
A4.1.3 finance function should maintain a firm grasp of the organisation's financial
position and performance. Supporting the accounting officer, the finance director should
ensure that there is sufficient expertise in depth, supported by effective systems, to
discharge this responsibility and challenge those responsible for the organisation's
activities to account for their financial performance. It is important that financial
management is taken seriously throughout each public sector organisation.
Financial leadership
A4.1.4 The finance director is responsible for leadership of financial responsibilities
within the organisation and its ALBs. He or she should ensure that the information on
which decisions about the use of resources are based is reliable. Box A4.2B explains
some specific responsibilities of the role.
Box A4.1B: financial management leadership

 providing professional advice and meaningful financial analysis enabling decision
makers to take timely and informed business decisions
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 maintaining a long term financial strategy to underpin the organisation's financial
viability within the agreed framework
 developing and maintaining an effective resource allocation model to optimise outputs
 ensuring financial probity, regularity and value for money
 developing and maintaining appropriate asset management and procurement strategies
 reporting accurate and meaningful financial information about the organisation's
performance to ONS, parliament, the Treasury and the general public
 setting the strategic direction for any commercial activities
 acting as head of profession in the organisation
Internal financial discipline

A4.1.5 The finance director should maintain strong and effective policies to control and
manage use of resources in the organisation's activities. This includes improving the
financial literacy of budget holders in the organisation. Similarly, he or she should ensure
that there are similar disciplines in the organisation's ALBs. These should all draw on
best practice in accounting and respect the Treasury's requirements, including, where
relevant, accounts directions. These responsibilities are described in box A4.1C.
Box A4.1C: Financial control

 enforcing financial compliance across the organisation while guarding against fraud and
delivering continuous improvement in financial control
 applying strong internal controls in all areas of financial management, risk management
and asset control
 establishing budgets, financial targets and performance indicators to help assess
delivery
 reporting performance of both the organisation and its ALBS to the board, the Treasury
and other parties as required
 value management of long term commercial contracts
 ensuring that the organisation's capital projects are chosen after appropriate value for
money analysis and evaluation using the Green Book
A4.1.6 Individual finance director posts will of course have duties specific to their
organisations and contexts in addition to those set out in this annex. But all finance
director posts should seek to operate to these standards as an essential minimum.
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Annex 4.2
Use of models
In modern government modelling is important. It can guide policy development; help
determine implementation plans; and suggest how policies may evolve. Models should be
controlled and understood in their proper context, with effective quality assurance, so that they
can be used to good effect.
Control and governance

A4.2.1 Supported by the board, the accounting officer of a central government
organisation should oversee the use and quality assurance (QA) of models within the
organisation. There should be sufficient feedback for the accounting officer to be able to
track progress and adjust the process.
A4.2.2 Each business critical model should be managed by a senior responsible officer
(SRO) of sufficient seniority and experience, supported by experts and specialists, to
understand the use of the model in context. Project and programme management
techniques can be useful. It is good practice to avoid changing the SRO frequently.
A4.2.3 Each model is limited by the quality of its input data and founding assumptions.
So the results of any model need to be treated with a degree of scepticism. It is vital to
build sufficient governance into each model to help its users understand the value and
weaknesses of its results. The apparent precision of mathematical models should not
mislead uses into putting more weight on them than can be justified. Transparency should
be the norm in the development and use of all models.
Quality assurance
A4.2.4 Whatever the complexity of the model, its governance should include an element
of structured critical challenge to provide a sense check. It can take a number of forms:
for example a steering group, a project board or outside assessment. New or untried
models tend to require more QA than those using recognised techniques.
A4.2.5 In an organisation using a great deal of modelling, it is good practice for the
accounting officer to appoint a QA champion. Effective QA demands dispassionate
scrutiny by people disengaged with the project but with sufficient knowledge and
experience to help steer the model into a successful approach. There may be a case for
ensuring that different models in different parts of the organisation use consistent
approaches.
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A4.2.6 It is always good practice to evaluate the risks associated with any model so that
the ultimate users of the model can appreciate what it can and cannot deliver.
Sophisticated models may demand specialist expertise and leadership but the vital
element of constructive lay oversight should never be skimped. Otherwise there can be a
danger that flaws are overlooked because the experts concentrate on the technical
complexities.
A4.2.7 In managing a model, the SRO should consciously decide how it can provide
good value for money. There is no point, for instance, in data collection to a high degree
of accuracy if the assumptions used in the model cannot be exact. Similarly, there is a
stronger case for investing in a model if it forms a central part of a decision making
process.
A4.2.8 References:
QA of government models: https://www.gov.uk/government/publications/review-of-
quality-assurance-of-government-models
Guidance on long term financial modelling:
https://www.gov.uk/government/publications/gad-services/government-actuarys-
department-services#actuarial-modelling
Following the report by Sir Nicholas Macpherson into the quality assurance of analytical
models that inform government policy, a cross-departmental working group on analytical
quality assurance was established. The Aqua Book (at the following link) is one of their
key products, and provides a good practice guide for those working with analysis and
analytical models. The landing webpage also links to a number of other associated
resources on quality assurance and modelling.
https://www.gov.uk/government/publications/the-aqua-book-guidance-on-producing-
quality-analysis-for-government:
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Annex 4.1 & 4.2

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Annex 4.

The finance function

Box A4.1A: the role of the finance director

Box A4.1B: financial management leadership

Internal financial discipline

Box A4.1C: Financial control

Control and governance

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