Police funding has risen by £4.8 billion and 77 percent (39 per cent in real terms) since 1997. However, the days where forces have enjoyed such levels of funding are over.
Chief Constables and senior management recognize that the annual cycle of looking for efficiencies year-on-year is not sustainable and will not address the cash shortfall in years to come.
Facing slower funding growth and real cash deficits in their budgets, the Police Service must adopt innovative strategies which generate the productivity and efficiency gains needed to deliver high-quality policing to the public.
The step-change in performance required to meet this challenge will only be achieved if the police service fully embraces effective resource management and makes efficient and productive use of its technology, partnerships, and people.
The finance function has an essential role in addressing these challenges and supporting the Forces’ objectives economically and efficiently.
Police Forces tend to nurture a divisional and departmental culture rather than a corporate one, with individual procurement activities that do not exploit economies of scale. This is the result of over a decade of devolving functions from the center to the.divisions.
To reduce costs, improve efficiency and mitigate against the threat of “top-down” mandatory, centrally-driven initiatives, Police Forces need to set up a corporate back office and induce behavioral change. This change must involve compliance with a corporate culture rather than a series of silos running through the organization.
Developing a Best in Class Finance Function
Traditionally finance functions within Police Forces have focused on transactional processing with only limited support for management information and business decision support. However, with a renewed focus on efficiencies, there is now a pressing need for finance departments to transform to add greater value to the force but with minimal costs.
1) Aligning to Force Strategy
As Police Forces need finance to function, finance and operations must be closely aligned. This collaboration can be compelling and help deliver significant improvements to a Force, but to achieve this model, there are many barriers to overcome. Finance Directors must look at whether their Force is ready for this collaboration, but more importantly, they must consider whether the Force itself can survive without it.
Finance requires a clear vision that centers around its role as a balanced business partner. However, to achieve this vision, a huge effort is required from the bottom up to understand the significant complexity in underlying systems and processes and devise a way forward to work for that particular organization.
The success of any change management program is dependent on its execution. Change is difficult and costly to execute correctly, and often, Police Forces lack the relevant experience to achieve such change. Although finance directors are required to hold appropriate professional qualifications (as opposed to being former police officers, as was the case a few years ago), many have progressed within the Public Sector with limited opportunities for learning from and interaction with best-in-class methodologies. In addition, cultural issues around self-preservation can present barriers to change.
Whilst it is relatively easy to get the message of finance transformation across, securing commitment to embark on bold change can be tough. Business cases often lack the quality required to drive through change, and even where they are of exceptional quality, senior police officers often lack the commercial awareness to trust them.
2) Supporting Force Decisions
Many Finance Directors are keen to develop their finance functions. The challenge they face is convincing the rest of the Force that the finance function can add value – by devoting more time and effort to financial analysis and providing senior management with the tools to understand the financial implications of major strategic decisions.
Maintaining Financial Controls and Managing Risk
Sarbanes Oxley, International Financial Reporting Standards (IFRS), Basel II, and Individual Capital Assessments (ICA) have all put financial controls and reporting under the spotlight in the private sector. This, in turn, is increasing the spotlight on financial controls in the public sector.
A ‘Best in Class’ Police Force finance function will have the minimum controls to meet the regulatory requirements and evaluate how the legislation and regulations that the finance function must comply with can be leveraged to provide value to the organization. Providing strategic information that will enable the force to meet its objectives is key for a leading finance function.
3) Value to the Force
Over the last decade or so, the drive for development has moved decision-making to the Divisions and has led to an increase in costs in the finance function. However, through utilizing several initiatives in a transformation program, a Force can leverage up to 40% of savings on the cost of finance and improve the responsiveness of finance teams and the quality of financial information. These initiatives include:
By centralizing the finance function, a Police Force can create centers of excellence where industry best practices can be developed and shared. This will re-empower the department, creating greater independence and objectivity in assessing projects and performance and leading to more consistent management information and a higher degree of control. A Police Force can also develop a business partner group to act as strategic liaisons to departments and divisions. The business partners would, for example, advise on how the departmental and divisional commanders can meet the budget in future months instead of merely advising that the budget has been missed for the previous month.
With the mundane number crunching being performed in a shared service center, finance professionals will find they now have time to act as business partners to divisions and departments and focus on the strategic issues.
The cultural impact on the departments and divisional commanders should not be underestimated. Commanders will be concerned that:
o Their budgets will be centralized
o Workloads would increase
o There will be limited access to finance individuals
o There will not be on-site support
However, if the centralized shared service center is designed appropriately, none of the above should apply. In fact, from centralization under a best practice model, leaders should accrue the following benefits:
o Strategic advice provided by business partners
o Increased flexibility
o Improved management information
o Faster transactions
o Reduced number of unresolved queries
o Greater clarity on service and cost of provision
o Forum for finance to be strategically aligned to the needs of the Force
A Force that moves from a de-centralized to a centralized system should ensure that the finance function does not lose touch with the Chief Constable and Divisional Commanders. Forces need to have a robust business case for finance transformation combined with a governance structure that spans operational, tactical, and strategic requirements. There is a risk that the potential benefits of implementing such a change may not be realized if the program is not carefully managed. Investment is needed to create a successful centralized finance function. Typically the future potential benefits of greater visibility and control, consistent processes, standardized management information, economies of scale, long-term cost savings, and an empowered group of proud finance professionals should outweigh those initial costs.
The finance functions can be completely outsourced or partially outsourced to third parties to reduce the commercial, operational, and capability risks. This will provide guaranteed cost benefits and may provide the opportunity to leverage relationships with vendors that provide best practice processes.
Typically for Police Forces, the focus on development has developed a silo-based culture with disparate processes. As a result, significant opportunities exist for standardization and simplification of processes that provide scalability, reduce manual effort, and deliver business benefits. For example, a force can typically accrue a 40% reduction in the number of processes from simply rationalizing processes. An example of this is using electronic bank statements instead of using the manual bank statement for bank reconciliation and accounts receivable processes. This would save considerable effort involved in analyzing the data, moving the data onto different spreadsheets, and inputting the data into the financial systems.
Organizations that possess a silo operating model tend to have significant inefficiencies and duplication in their processes, such as HR and Payroll. This is largely due to the teams involved meeting their own goals but not aligning to the corporate objectives of an organization. For example, police Forces have several independent teams reliant on one another for data, with finance in departments, divisions, and headquarters sending and receiving information from each other and the rest of the Force. The silo model leads to ineffective data being received by the teams that have to carry out additional work to obtain the required information.
Whilst the argument for development has been well made in the context of moving decision-making closer to operational service delivery, the added cost in terms of resources, duplication, and misaligned processes has rarely featured in the debate. However, in the current financial climate, these costs need to be recognized.