Magazine article Public Finance

Reasons to Be Fearful

Magazine article Public Finance

Reasons to Be Fearful

Article excerpt

With local government budgets being cut by an average of 7.1 % for the next four years, and reductions in education, police and social care spending, public service organisations face major difficulties. Effective management of risk will be essential if these organisations are to achieve their objectives and operate successfully in the current economic climate.

To meet the level of spending cuts required, it seems inevitable that some service provision will be reduced or withdrawn altogether - and the voluntary sector cannot be relied on to meet the shortfall, particularly if its grant funding is cut. This situation is likely to have the greatest impact on the most vulnerable in society. It could also increase the risk of antisocial behaviour, vandalism and crime - an outcome that would hit at the worst possible time for police and other blue light services.

Eighty per cent of police funding goes on staffing. So a reduction in officer numbers is likely to raise public concern about 'less bobbies on the beat', and the significant loss of experience across forces. Each of the many challenges that individual police forces face will need to be balanced against the threats, harms and risks to the public across a range of situations.

Public services also face the threat of industrial unrest, in addition to the organisational challenges of staff reduction and restructuring. Some organisations will be considering outsourcing specific functions, a practice that brings its own risks in terms of workforce redeployment and contract management. Working in partnership with other organisations to reduce costs and share services also raises governance and performance risk issues.

In particular, the fire and rescue service is likely to encounter issues of reputational risk associated with staff and service reduction. The service risks losing public confidence and trust through possible strike action which, coupled with potential station closures, is likely to result in negative press coverage. Changes in pension arrangements could also have a knockon effect on operational personnel which, as with the police service, might result in a skills and knowledge gap at officer and senior manager level. This would leave organisations without the expertise needed to make significant strategic decisions and implement revised operational plans.

Public sector organisations might also face an increased risk of fraud and economic crime. During changes to organisational structures, there is a strong possibility that control systems will break down, putting the authority at risk. It is well documented that, in times of change and dissatisfaction, instances of fraud and financial irregularity rise. This is particularly true when staff are disgruntled, which is invariably the case when major restructuring or redundancies occur.

As a recent Audit Commission report on strategic financial management in councils has emphasised, risk management is a vital component of an organisation's response to all these kinds of issues. The dangers facing public sector organisations in the light of the Comprehensive Spending Review mean that now, more than ever, they need to draw on their existing expertise in managing risk if they are to deal effectively with the difficult decisions that lie ahead.

Organisations need to have a clear vision of what they want to achieve, what their organisation will look like in a few years' time, and how it will provide its services. The adoption of a sound risk management approach can give councils an effective tool to help identify the threats and the actions they should take to mitigate them - all vital measures in what are likely to be very challenging and stressful times. …

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