The banking union aims to restore confidence in the banking sector by ensuring that banks are subject to consistent prudential requirements, write Sarah Lane and Mark Kennedy. The crisis that struck the European banking sector in 2009 prompted a variety of national approaches and responses. Such variety highlighted the weaknesses and interdependencies not only in individual banks and their national supervisory approaches, but inherent in the system that prevailed in Europe. The response of the European Commission (EC), European Central Bank (ECB) and member states was to create a banking union. The concept dates back to 2012 but the banking union is now becoming a reality through the ongoing implementation of the single rule book, the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) and the European Deposit Insurance Scheme (EDIS). There is, of course, an element of uncertainty attached to the framework. No one can predict if confidence in the banking sector will be restored and whether cross-border spill-overs and contagion risk have in fact been reduced as intended. Against this backdrop, credit institutions and their boards must adapt their strategies to cope with a changed regulatory approach from both Europe and the national competent authorities (NCAs), accounting for the impact on operational risk and the risk appetite of each individual bank. Single rule book As the backbone of the banking union, the single rule book lays down the capital requirements for banks (Capital Requirements Directive IV and Capital Requirements Regulation); ensures better protection for depositors (the Deposit Guarantee Scheme); and regulates the prevention and management of bank failures (the Bank Recovery and Resolution Directive). These legal acts are at various stages of completion. The date of application of Capital Requirements Directive IV was 1 January 2014, with full implementation in line with the original EC proposal scheduled for 1 January 2019. The Deposit Guarantee Scheme was to be transposed by 3 July 2015, which 10 member states have done (not including Ireland). The implementation of the Bank Recovery and Resolution Directive, meanwhile, requires banks to document the means to wind financial institutions down in an orderly way. 16 member states have so far communicated to the EC full transposition measures, including Ireland in December 2015. A common methodology for ongoing assessment Since its implementation in November 2014, the SSM is responsible for the prudential supervision of all credit institutions (roughly 1,200 in all, according to the ECB) in participating member states and comprises the ECB and the NCAs. The SSM has developed a common methodology for the ongoing assessment of credit institutions’ risks, their governance arrangements and their capital and liquidity position including details of the Supervisory Review and Evaluation Process (SREP). The SSM strives to take adequate SREP decisions using a wide range of information from several sources. These include the credit institutions’ regular reports; Internal Capital Adequacy Assessment Processes (ICAAP) and Internal Liquidity Adequacy Assessment Processes (ILAAP); the institutions’ risk appetite; supervisory quantifications used to verify and challenge the credit institutions’ estimates; risk assessment outcomes including risk level and control assessments; the outcome of stress tests; and the supervisor’s overall risk priorities. The Central Bank of Ireland’s Chief Economist, Gabriel Fagan, summarised the situation for Irish credit institutions in December 2015 at the second Sunday Business Post property summit: “With respect to new lending, the Central Bank and the SSM have a clear focus on the appropriateness of banks’ risk appetite with respect to new lending, and would review and challenge limits and metrics on a regular basis for appropriateness and monitoring purposes”. Following implementation of the SSM, the focus moved to SRM which gives control of the management of the bank resolution to the Single Resolution Board (SRB) through use of the Single Resolution Fund (SRF). The SRM came into force on 1 January 2016, as agreed by the Inter-Governmental Agreement (IGA), to provide maximum legal certainty. The IGA was signed in May 2014 by representatives of all member states except Sweden and the United Kingdom. The signatories issued a declaration signalling that they would strive to complete the ratification process by such a time that would allow the SRM to be fully operational by 1 January 2016. The SRF will be progressively built up to a target level of €55 billion by 2024, and member states must provide an appropriate bridge financing mechanism until the SRF is built up. Work is ongoing in this regard. European deposit insurance scheme A common EDIS, as proposed in November 2015, is currently being debated in the European Parliament. It is intended to strengthen the banking union by improving bank depositor protection; reinforcing financial stability; and further reducing the link between banks and their sovereigns. The proposal is one of a number of steps set out in the Five Presidents’ Report entitled ‘Completing Europe’s Economic and Monetary Union’, which was published on 1 July 2015. The EC’s EDIS proposal begins with a re-insurance approach, which would last for three years until 2020 after which it would become a progressively mutualised system known as “co-insurance”. By gradually increasing the share of risk that EDIS assumes to 100%, EDIS will fully insure national deposit guarantee schemes by 2024. This is the same year when the SRF and the requirements of the Deposit Guarantee Scheme Directive will be fully phased in. A European Deposit Insurance Fund would be created from the outset, financed directly by bank contributions; adjusted for risk; and managed by the existing Single Resolution Board (SRB). The EDIS proposals are being opposed by some countries, however – most notably by the German Finance Minister, Wolfgang Schäuble, who believes it does not have sufficient legal basis. Elements of uncertainty There is undoubtedly an element of uncertainty in the new framework as no one can predict how the SRB will handle an individual bank in crisis or the outcome of the ongoing EDIS debate. Some view European control of resolution as reducing the likelihood of a bailout for an individual credit institution and therefore, reducing the institution’s credit rating as the relative risk of the investment increases. However, ratings agencies also believe that increased regulation – through increased capital requirements – has improved banks’ financial statements, which may counteract the reduction in rating brought about by the SRM. In this changing environment, it is important that banks incorporate the increasing regulatory requirements into not only their overall strategy, but also their risk management processes while maintaining a focus on sustainable business. Operational risk, as well as sustainable profitability, will drive supervisory engagement this year as stated by Cyril Roux, the Central Bank of Ireland’s Deputy Governor of Financial Regulation, at the recent Banking and Payments Federation’s banking union conference.“Business model viability and sustainable profitability assessments will drive much of the supervisory engagement in the coming period as well as operational risk issues like IT and cyber risk,” he said. Conclusion The banking union aims to restore confidence in the banking sector by ensuring that banks are subject to consistent prudential requirements based not on location, but on business model, risk profile and governance arrangements. After the implementation of the single rulebook and SSM, and with the advent of SRM and EDIS, credit institutions are adapting to the full application of regulatory reform, which has resulted in a different style of supervisory approach from the Central Bank of Ireland. 2016 will be a challenging year for banks. It is important, however, to recognise that the boards and management teams that incorporate the changed supervisory landscape into not only their regulatory risk and operational processes, but into their strategic considerations also, will emerge as the strongest players in the new market. Sarah Lane ACA is Director of Regulatory Assurance at Mazars. Mark Kennedy FCA is Managing Partner at Mazars.

It is possible to successfully transform a finance function in 18-24 months and achieve cost savings of up to 40%, write Amy Ball and Garrett Cronin. During the sharpest recession in recent history, many finance leaders were forced to deliver a broader range of services with fewer resources as companies scaled back in light of declining revenues. The ever-changing economic conditions therefore forced finance functions to be more agile, and highlighted the need for professionals to take a proactive approach to developing strategies that would help their firms survive and thrive amid future challenges. In the immediate aftermath of the financial crisis, some organisations were better placed than others to adapt to the challenging economic conditions. Indeed, leading finance functions came into their own during this period and finance leaders repositioned their teams as business partners – advising and challenging their executive teams as they navigated the changing landscape. Such finance leaders leveraged technology to automate transactional activity and restructured the finance function’s operating model to take advantage of centralised shared service teams and centres of excellence. Brave decisions were made on investment in enterprise resource planning (ERP) systems and financial planning and analysis (FP&A) tools, while increased focus was placed on producing consistent real-time data. These strategies created additional capacity within finance teams to work on strategic activities and drive efficiencies throughout the organisation. These organisations, which adapted well to recessionary times, are now well-placed to capitalise on the ongoing economic recovery. Real-time analytics PwC’s recently-published benchmark study, entitled Breaking Away: How Leading Finance Functions are Redefining Excellence, focuses on the factors that distinguish frontrunners across all aspects of finance activity including business insight, efficiency and control. Analysis of the study’s data, which was obtained from over 5,600 finance teams and 400 organisations globally, shows how the best-performing finance functions have ditched the traditional focus on book-keeping and information-gathering. They instead produce real-time analytics and management information, which is used by other parts of the business to inform their activities. The study also reveals that finance professionals now spend 50% of their time on analysis as opposed to data gathering, up from 36% just three years ago. In top quartile companies, they spend an average 60% of their time on analysis. The changes signify a demand for a new type of finance professional, one that is able to navigate the new business landscape and interact or partner more meaningfully with other parts of the business. Furthermore, the need for soft skills is reflected in the study. Some 44% of respondents cite collaboration as a priority, while 53% say improvements in communication processes are most important. Targeted investment Technological advances mean that the role of the human is changing quite radically, as automated processes are now carried out using artificial intelligence. In modern business, insight is driven by internal data, which usually supplied by the finance department but increasingly sourced using automated means. This data is then supported by data from specialised external sources. While data-gathering is an important part of the process, the best finance professionals now produce actionable information, rather than merely circulating numbers that are likely to be out-of-date upon release. The digital revolution also means that finance technology is becoming more advanced, cheaper to acquire, and increasingly interactive. Data fragmentation still creates difficulty for many businesses. However, the PwC study indicates that targeted investment in digital technologies has resulted in not only cleaner and more accurate real-time data, it has also delivered value in terms of customer satisfaction and speed of innovation. Leading organisations can now understand the drivers of performance and are identifying business opportunities that would not have been visible previously. For example, you will likely know a tablet-carrying CFO who can drill through profit and loss (P&L) data and access key performance indicators (KPIs) on the move, while creating snapshots covering the performance of the entire business using data visualisation tools. Such capabilities enable agile decision-making and allow the CFO and finance team to play a critical role in driving the business. Economies of scale As fewer people are needed to run finance departments, the cost of the average finance function as a percentage of revenue has fallen since 2011 by over 10%. However, a combination of automation, shared services, and increased efficiency means that the cost of finance is now a full 40% lower in the best-performing organisations. Due to economies of scale, the cost of finance as a percentage of revenue in companies with revenues of over €9 billion is less than half that of companies with revenues of under €900 million. However, operating in multiple countries creates a degree of complexity that is expensive for finance departments. The median cost of an average performing finance department in a business operating in more than 10 countries, for example, is more than 2.5 times the cost of operating a finance department in a single country business. Top quartile finance functions, on the other hand, are better able to deal with this complexity and achieve an average cost saving of 30% for international finance operations in 10 countries or more. There are also significant differences between industries. Complexity and regulation mean that the finance function remains the most costly division within financial services, accounting for 1.32% of revenues for the average organisation. At the other end of the scale, high-volume low-margin businesses can run a lean finance function with the cost of the average finance function in the retail industry accounting for just 0.34% of revenues. Others such as industrial manufacturers (1.18%), technology companies (1.11%), and utilities (0.83%) tend to lie between these extremes. Embrace change to drive performance While the cost per fulltime equivalent headcount (FTE) in finance is increasing, especially among top quartile finance functions in business insight areas, companies are making progress in efficiency. As a result, fewer overall FTEs are required. In short, top people cost more but they deliver more and are ultimately worth more. The best performers harness technology and processes, for example delivering budgets in 80 days compared to an average of 95. Taking three months to close a budget is unsustainable when decision-makers are used to near-real-time data and analytics. For transactional processes, such as those in the areas of billing and management reporting, more than 40% of time is wasted or spent on activities that could be automated. Efficiency is not always about technology, however. Capacity increases of 15-25% can be achieved within finance functions through process change and excellence in managing teams. Leaders must therefore be willing to embrace wholesale changes in the way finance works and how it interacts with other parts of the business. Conclusion The pace of change is accelerating and competition in every market is tougher than ever. It is clear that leading finance functions are not just more efficient than their peers, they now look very different to the majority. It is possible to successfully transform a finance function in 18-24 months and keep up with the pace of change. For finance professionals, being part of one of these front-running teams offers more interesting challenges and more influence with the business. The enduring challenge for finance leaders, however, is to navigate the business through change and recognise the opportunities that change can bring. Amy Ball, is Director of Financial Effectiveness in Advisory Consulting at PwC. Garrett Cronin is Partner, Consulting and Financial Effectiveness at PwC.

There has been a significant increase in the demand for forensic accountants in recent years. In this article, Prof Niamh Brennan explains the breadth of skills and services a forensic accountant can bring to the table. A review of the newspapers reveals that forensic accountants have been kept busy over recent years thanks to high-profile bankruptcies, rogue bankers, corrupt politicians and other more regular cases of fraud. Former Taoiseach, Mr Charles Haughey, gave forensic accountants currency when he referenced his forensic accountant, Mr Des Peelo, as follows: “I’d say [the true figure was] considerably less. I cannot say… [by how much] because, as I say, these figures are so complex and extend over such a long period of time that in pursuance of my duty to the Tribunal, I engaged the services of a very expert forensic accountant to help the Tribunal in unravelling these figures.” This extract formed part of the evidence of Charles J. Haughey, which was given to the Moriarty Tribunal on 25 September 2000. The term has also been used to describe Irish rugby coach, Joe Schmidt’s strategic “forensic accounting” game plan and it has provided enough material for the creation of the seminal legal text, Forensic Accounting, which I co-authored with fellow chartered accountant and senior counsel, John Hennessy, in 2001. What is forensic accounting? Forensic accounting is the use of accounting expertise to assist a court. “Forensic” denotes anything to do with a court of law and forensic accounting is increasingly recognised as a separate and important discipline at the intersection of law and accountancy. A relatively new role within accounting, forensic accountants build on a unique blend of accounting and investigative skills. They are, in fact, financial detectives, dissecting financial statements, looking behind rather than merely at the numbers. Their expertise lies in working with sensitive financial evidence, lawyers, law enforcement agencies and the court system.  Integrating accounting, auditing and financial investigation and their application in litigation and dispute resolution, forensic accounting is a highly specialised area of practice that combines accounting and legal disciplines. The work of forensic accountants Forensic accounting is a complex and broad area. It is deployed in resolving a variety of civil and criminal cases including those involving financial fraud, the calculation of damages in personal injury and commercial disputes, matrimonial litigation, employment disputes, taxation cases, business valuations, and corporate crime. Unravelling complex transactions, opening up money trails, countering money laundering, exposing corrupt financial transactions, combating fraud, quantifying past losses, assessing future damages, dividing matrimonial and partnership property – all these are becoming bread-and-butter issues in proceedings heard in courts and tribunals. Each of these areas of forensic accounting has its own unique features and deserves an article on its own. Investigative accounting Forensic accountants become involved in a range of investigations spanning many industries. Investigative accounting usually involves the application of accounting principles and rules to basic financial data with a view to testing the validity of assertions based on accounting information, or verifying the accuracy and completeness of financial statements. The level of investigation depends on the availability and quality of books and records. Investigative accounting is used in connection with allegations or suspicions of fraud that could potentially lead to civil, criminal or disciplinary proceedings. The focus of fraud investigations is on accounting issues but the role of the forensic accountant can extend to a more general investigation, including evidence-gathering. Investigative accounting can also extend to forensic audit, which involves examining an assertion to determine whether it is supported adequately by underlying evidence – usually of an accounting nature. Investigative accounting is often associated with criminal investigations and here, the primary concern is to develop evidence around motive, opportunity and benefit. A typical criminal investigative accounting assignment involves: Reviewing the facts; Scrutinising documents and records in both written and electronic formats; Reconstructing a clear and detailed picture of what happened; Coordinating other experts including, for example, private investigators, forensic document examiners or consulting engineers; Suggesting possible courses of action; and Assisting with the protection and recovery of assets, which might include civil action or criminal prosecution. Forensic investigations into criminal offences can involve assisting An Garda Síochána, the Criminal Assets Bureau, the Director of Public Prosecutions, or other organisations such as the Law Society. A forensic accountant’s report is prepared with the objective of presenting relevant and reliable evidence, together with a considered opinion, in a professional and concise manner. Business investigations can involve forensic intelligence-gathering, funds tracing, asset identification and recovery, and due diligence reviews. Employee fraud investigations often involve procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator. These investigations often entail interviews with personnel who had access to missing records, funds or other assets and a detailed review of the documentary evidence. Litigation support Forensic accounting is often thought of in relation to fraud, but the discipline is much wider. Litigation support involves forensic accountants as part of a team providing specialist advice in legal disputes, or where a claim for financial compensation is at issue. Assistance of an accounting nature is provided in both existing and contemplated litigation. Evaluations may be done in preparation for settlement negotiations, mediation, arbitration, and trials – both civil and criminal. Forensic accountants examine the books and records of individuals and companies in litigation situations to assist lawyers in developing and preparing their case. Forensic accountants usually deal with issues related to the quantification and analysis of economic (i.e. monetary or financial) damages. A typical litigation-support assignment would be to calculate the financial loss resulting from a breach of contract. Losses of revenues and profits may have to be measured and valuations of business property or ownership interests may need to be carried out. Forensic accountants also provide input in areas where legal liability is influenced by matters within their field of expertise, such as the application of accounting standards in assessing whether financial statements have been properly prepared. The role of the forensic accountant in litigation support is broader than is often assumed. The view that forensic accountants only have a role when a case goes to trial is widely held, but inaccurate. In fact, most cases do not go to trial. The quality and effectiveness of pre-trial activities is a significant source of opportunity (or danger) for the parties. Forensic accountants can act for plaintiffs or defendants in civil proceedings and for the prosecuting authorities or defendants in criminal cases. Forensic accountants can also assist plaintiffs in preparing a claim or, alternatively, materially reduce a claim when acting for defendants. Expert forensic accountants can advise plaintiffs or defendants from an early stage on the financial aspects of the action. There is little point in reaching the door of the court, with perhaps significant liability for costs, if the value of the case is relatively modest and the case could have been settled sooner. Whether a dispute is settled by negotiation or through the courts, there will almost always be a benefit from authoritative and persuasive evidence based on financial and investigative skills. The accountant’s duty to the court If a case comes to court, forensic accountants are expert witnesses in the case. They owe their duty to the court, not to the party in the proceedings who instructed them. The expert witness’s job is to assist the court (not their client) in arriving at the truth by providing a skilled and expert assessment of matters requiring a specialist appreciation of the particular problem at issue. Thus, forensic accountant expert witnesses conduct evaluations, examinations, and inquiries before reporting the results of their findings in an unbiased, objective and professional manner. This objectivity and independence is a key element of the input of forensic accountants. Conclusion With the establishment of the Office of the Director of Corporate Enforcement (ODCE) in 2001 and more proactive raising of business standards in Ireland, there has been a significant increase in the demand for the services of forensic accountants. The ODCE regularly issues tenders for forensic accounting services and related IT forensic technology services. For example, with assistance from expert forensic accountants, it is becoming harder for rogue directors to hide behind the ‘corporate veil’ and personally profit from companies at the expense of employees, investors, and small businesses who usually have little opportunity to recover their losses. Codification of Irish company law into a single piece of legislation in the form of the Companies Act 2014 is likely to increase that impetus. Chartered Accountants Ireland provides the only professional qualification in these islands on forensic accounting in the form of the Diploma in Forensic Accounting, which the Institute launched in 2008. Prof Niamh Brennan is the Michael MacCormac Professor of Management at University College Dublin.

In light of some recent controversies in the not-for-profit sector, John O’Callaghan considers the challenge facing auditors. Trust in Ireland’s not-for-profit sector has taken something of a hit in recent times with a number of high-profile organisations feeling the brunt of public disquiet and acrimony. Issues around corporate governance and accountability have, invariably, been at the heart of these controversies; concerns that will always be ‘hot button’ topics in a sector where funding comes from personal donations and individual membership fees. An evolving regulatory framework, shaped largely by the Charities Act 2009 and the Companies Act 2014, has brought some long-overdue certainty to governance within the sector. However, for all the talk of emerging best practice, charitable and membership bodies continue to be over-represented in terms of corporate lapses, with no guarantee that more of the same can be avoided in the future. Not-for-profit covers a wide spectrum of activities and includes organisations with deep roots in Irish society, from charities and educational bodies to trade unions and member organisations. The knock-on effects of controversy in any individual organisation can be hugely significant – charities can experience significant fall-offs in donations, reducing their capacity to deliver on their goals, while member organisations can find their effectiveness diminished as their credibility is tarnished. Concerns and responsibilities As finance invariably plays a central role in governance controversies, it behoves accountants to take a considered look at the controls, reporting mechanisms and risk management systems operating within the sector and to ask if there is anything the profession could do differently to mitigate public concerns. Worth reiterating is the fact that few, if any, recent controversies have related to outright fraud or misappropriation. Most have, instead, centred on what are seen to be excessive remuneration packages or the allocation of charitable donations towards pension and pay, as opposed to the charity’s goals, alongside public disquiet on a lack of transparency in this regard. In their role as auditors, accountants are given the responsibility of assessing an organisation’s risk management, governance and internal control structures. Holding such a privileged position, it is reasonable to ask just what they could do in terms of addressing these controversies and/or how they could challenge organisations to reform before any such controversy erupts. Where controversy flares over the salaries of senior staff or a lack of transparency around its disclosure, is it reasonable to respond that this is a question for executive boards rather than auditors? There is no simple or straightforward answer to this. As a starting point, however, we would do well to remember just how poorly the ‘it wasn’t in the audit remit’ argument was received in the aftermath of the financial collapse of 2008 and the battering the profession’s reputation took as a result. Reputational risk cuts both ways and the public has shown itself to be particularly unforgiving to what it perceives as the failings of watchdogs.  Culture of improvement The starting point of any positive response should instead be to recognise that the role of audit is to evaluate risk from a number of perspectives. Any audit process in the not-for-profit sector should also begin by recognising that an organisation funded through the money of other people has a particular responsibility to show that this income is being used wisely. An audit strategy should, therefore, delineate the range of trust and reputational risks that a not-for-profit body faces, in addition to the normal organisational ones. How a charity remunerates its employees, ensures the transparency of its finances, and mitigates against fraud and corruption, for example, are likely to be intrinsic to its reputation and, therefore, its future viability. The auditor cannot hope to provide answers to all these questions, but they can set out to identify where weaknesses exist and invite adequate responses to them. In this regard, their role can also be seen in terms of championing and supporting a culture of improvement and inculcating best practice within the organisation. The relationship with the executive board and audit committee will be pivotal to an auditor’s success in this regard. An effective auditor should set themselves the goal of challenging board assumptions, and raising concerns with the board and audit committee about the management of risk in the organisation. FRS102: the sector’s Reporting benchmark The Statement of Recommended Practice, Accounting and Reporting by Charities (SORP) was first introduced in the UK in 2005. Charities SORP (FRS102) accommodates the recent FRS 102 standard and should be considered the benchmark for any not-for-profit body in Ireland in terms of accounting and reporting requirements. SORP (FRS102) has a number of requirements that, if adopted, would help address many of questions that have concerned the public in recent years. It provides for greater clarity on what is an absolute disclosure requirement and what is considered to be a ‘good to have’. It also brings reporting in the sector closer to that of corporate level, with broader risk disclosures and greater focus on fairness and balance in the trustee’s report. Charities SORP (FRS102) also recommends the disclosure of executive pay scales within particular bands – a development that, if implemented across the Irish not-for-profit sector, would go a long way to meeting some longstanding demands for transparency. Challenge and opportunity In 2015, BDO hosted an invite-only in-camera lunch with CEOs from some of Ireland’s leading not-for-profit organisations. Reputational risk and the emerging culture of change within the sector were natural discussion points. However, the event also served to illustrate the fact that, while there is certainly far greater awareness around what best practice looks like and a willingness at board level to engage with it, there was far less confidence that the kind of structural change that should follow within organisations was actually taking place. For auditors, this must be seen as a concern but also an opportunity to show leadership. In the context of recent controversies, the positive is that guidance around best practice is being sought and embraced at board level. Auditors can provide this support while recognising that the proof of the pudding will be seen in the level of clarity and transparency that is provided in terms of actual financial disclosure. The time and space given to an organisation’s finances within its annual report, for example, can be seen as indicative of the true tempo of change within an organisation and a sign, indeed, of whether an auditor should have ongoing concerns. Charitable bodies and membership organisations can experience significant and long-lasting damage to their reputations when their credibility is undermined. The role of an auditor in assessing whether internal controls are fit for purpose has, arguably, never been more important. Knowledge and experience of the sector lie at the heart of an auditor’s ability to effectively diagnose where risks and challenges lie, and to assess whether an organisation is pursuing a corrective course. An auditor cannot provide all the answers but unless they are asking the right questions, their presence in a not-for-profit organisation may be doing it, and their own reputation, more harm than good. John O’Callaghan is Partner and Head of Not-For-Profit Sector team at BDO Ireland.

With a signifiant number of Chartered Accountants working in the public sector, the Public Sector Committee has ambitious plans for 2016 and beyond, writes David Thomson. When introducing the 2016 Budget last October, the Minister for Public Expenditure, Brendan Howlin, set the expenditure forecast outturn for both current and capital expenditure at €54.9 billion. Public expenditure this year in Northern Ireland is around £16 billion. Taken together, that is considerable expenditure across the island and it is vital that it is managed in the best possible manner. The public sector influences the lives of every citizen and has an important impact on the economy. The general public expects high-quality public services and a good return for the taxes they pay. Good financial management in the public service is therefore critical. The public sector, both in the Republic of Ireland and Northern Ireland, is undergoing significant reform and there are ambitious plans for the respective reform programmes to continue. Financial management must be a key part of these programmes. It is in the public’s interest that spending decisions are made on the basis of proper data and in an efficient and effective manner. Accountants can play a pivotal role in ensuring this happens but in the past, unfortunately, finance professionals have not been included in spending decisions. Northern Ireland has already introduced significant improvements in public sector budgeting and accounting with all government departments and public bodies producing accruals-based accounts. All departments are also required to have a qualified accountant on the management board. The Institute is very supportive of such initiatives to improve financial management and is keen to promote best practice in this area, with particular emphasis on the introduction of accruals accounting throughout the public sector in the Republic of Ireland. This would be a seminal event for government accounting and planning should start now. Supporting our members The public sector is a broad category encompassing members working in various sectors including the civil service, health, education, semi-state organisations and public utilities in both the Republic of Ireland and Northern Ireland. The Institute’s 2014 member survey indicated that 7% of our membership works in the public sector, including the civil service and semi-state bodies. In Northern Ireland, that percentage is much higher. A number of Chartered Accountants have reached senior positions throughout the public sector in recent years, reflecting the expertise and experience we bring to the table. One of our members, Graham Doyle, was recently appointed to the position of Secretary General in the Department of Transport Tourism and Sport, the first time an accountant has held such a position in the Republic of Ireland. The Institute must work to support the varied requirements of our public sector members and be the voice of professional accountancy practice in the public sector, promoting best practice and providing tailored resources and support. The Institute’s recently-published Strategy 2020 identified three key themes in this regard:   Attracting the brightest and best to become Chartered Accountants; Being relevant to members; and Being the authoritative public voice of the profession. Each of these themes are as relevant to the public sector as other parts of the economy. As we enter the implementation phase of the plan, the Institute’s support of its members in the public sector is seen as being of particular importance in the years ahead. In his address at last year’s annual general meeting, President Tony Nicholl identified members working in the public sector as one of the priorities for his year in office. Council considered a paper on the public sector at its November meeting and Council was unanimous in its desire to support public sector members. That paper set out a number of initiatives, which we intend to implement in the coming years. Continuing the committee’s good work I had the privilege of taking over as Chairman of the Public Sector Committee this summer. The committee has been very successful in arranging events in the past and I congratulate my predecessors on the work they have done in raising the profile of the public sector. That work continues and, in the last six months, we organised a number of seminars dealing with topics such as audit committees, current regulations and risk management. We also hosted the Minister for Health, Leo Varadkar TD, who gave a major speech on the health sector in Chartered Accountants House last November. In addition, the Ulster Society has a very active public sector group that focuses on particular issues facing members in Northern Ireland. As both a Chartered Accountant and a recently-retired senior civil servant, I hope I can utilise my expertise to assist public sector members across the island. I am also very keen to see members in the public sector take a more active role and, in particular, join the Public Sector Committee and help broaden its scope. In the coming months, we will also publish a series of articles in Accountancy Ireland to introduce you to members in the public sector and address current issues. David Thomson is a Council member and Chair of the Institute’s Public Sector Committee.

David Van Dessel and James Conboy-Fischer consider the three strengths of business leaders that can hinder a company’s survival. Financial crises can hit at any time, so quick reaction is vital. In 1990, the Irish government introduced emergency business rescue legislation called ‘examinership’ in response to a specific financial crisis in a large beef processing company. This rapid government reaction was successful in saving that company and many others since, but it has failed to save the vast majority of Irish companies encountering insolvency issues. In 2015, corporate insolvencies totalled 1,049. The positive news is that this represents a 10% decrease on 2014. The more disappointing news is that of these cases, just 19 examiners were appointed. This level of examinership take-up is consistent with prior years. In Ireland, currently 98% of roughly 1,000 companies undergoing a formal insolvency process each year enter liquidation (72%) or receivership (26%). I have always wondered why there has been such a low take-up of examinership, particularly when one considers that the outcome of a failed examinership is either liquidation or receivership, which is the current starting point for 98% of Irish corporate failures. By contrast, statistics show that one in three business failures in the US are a restructure while our UK neighbours are at one in six. This is in sharp contrast to our dismal one in 50. Why are we so reluctant to use the examinership option? Possible reasons range from the overall cost and difficulties in raising necessary investment funds, to difficulties faced in an examinership with significant secured debts. Alongside these issues, there is the ‘human factor’ and the pivotal importance of the type of leader at the helm when a financial crisis unfolds. To investigate this concept further, I reached out to James Conboy-Fischer – a well-known business psychologist and author. We analysed an internationally-recognised library of competencies of successful executives, which was developed at the world-renowned Centre for Creative Leadership. Our objective was to identify executive competencies that enhance a company’s chance of survival in financial crisis and pinpoint executive competencies that might hinder a company director’s endeavours to save their business amid financial crisis. We identified three key competencies, which normally would be strengths in an SME but in a crisis, could be serious weaknesses. 1. Dealing with ambiguity This is regarded as a positive trait in business leaders, whereby the leader is comfortable with the uncertainty inherent in running a business. They are used to juggling cash flows – the delicate balance between debtors and creditors – and they deal with this ambiguity day in, day out. They know that the future of their business depends on their leadership and they take that pressure on willingly. Over time, the ambiguity becomes normal. Leaders can become overly comfortable in dealing with ambiguity, however. When a financial crisis develops, they may fail to see the early warning signs. They may persist too long in seeing the issues as ‘normal’ and may react too late, failing to seek outside professional advice in sufficient time to save the company. This is the ‘dead man walking’ syndrome as, by the time help is sought, it is too late to use examinership to avoid going into liquidation. Many fine business leaders have exhausted every single penny of their own personal financial resources and sacrificed salaries to continue paying staff until there is literally nothing left. Only then do they seek outside assistance. In short, timely action regarding examinership could save some very worthwhile businesses. 2. Standing alone When running a business, leaders must be able to stand alone, think independently and make tough calls. The better they are at standing alone, while of course keeping the team with them, the more likely they will be to lead the business into a bright future. This ability can be a hindrance in times of trouble, however, as business leaders tend to be more than able to stand alone in difficult times also. It is something they are accustomed to so, when financial troubles arrive, they are slow to seek advice. This reduces their chance of survival when help is finally sought and often, it’s a case of too little too late. There are myriad possible reasons for this – so-called blind spots, fear of failure or weakness, seeing any capitulation as a betrayal of those around them, or sheer paralysis from incessant and unrelenting pressure when it’s no longer possible to see the wood for the trees. 3. Perseverance The running of a business requires great perseverance. Leaders cannot give up, no matter how tough it gets. Perseverance is also related to stubbornness, however. This can ultimately become a dangerous strategy when a company’s future is on a financial knife-edge. Persevering with the same business lines and services, and simply driving sales to overcome cash shortages may not be a good long-term strategy. Businesses need to evolve over time, otherwise they will become extinct. Perseverance, at its extremes, is an enemy of evolution and needs to be managed. Business leaders therefore need creative destruction, recognition of emerging technologies and trends, assessment of how to use current cash cows to carry them to the new ways of doing business. Read any business book today and you will see chapters on how to adapt and survive in the face of unrelenting change. In financial services, for example, ‘disintermediation of the customer’ is revolutionising the sector while in the news, music and publishing sectors, traditional newspapers, CDs and books are rapidly being replaced by social media, Facebook, Amazon, Google, Twitter and others. All businesses are being affected by these storms of change to some degree. There are three ways to look at these competencies: as a weakness; as a strength or skill; and as an overused skill. The purpose of this article is to flag the danger of overuse when common sense dictates a different approach. In other words, “When the only tool you have is a hammer, everything can start to look like a nail”. The answer is to seek balance and try many things, while keeping what works. So, how would this look? Well, there are six competency factors altogether: strategic skills; operating skills; courage; energy and drive; organisational positioning skills; and personal and interpersonal skills. The three competencies we referred to earlier are part of the following factors:   Dealing with ambiguity is part of the strategic skills factor. It sits within a cluster relating to creating the new and different along with creativity, innovation management, perspective and strategic agility; Standing alone falls under the courage factor. It sits within a cluster that looks at dealing with trouble. It also includes command skills, conflict management, confronting direct reports and managerial courage; and Perseverance is part of the energy and drive factor, which is concerned with focusing on the bottom line. It sits within a cluster alongside action orientation and drive for results. With support and coaching, leaders can learn to deploy additional competencies either alongside, or indeed instead of, the three that may normally be strengths, but can be weaknesses. This can help in avoiding the pitfall of doing the same thing repeatedly while hoping for a different result. This approach would ultimately result in examinership being used more frequently. If examinership fails, after all, the SME still has the option of liquidation or receivership. The ultimate goal is fewer cases where SME leaders blindly overuse certain strengths, leading to ultimate business failure. This is a very interesting dynamic with regard to executive leadership abilities and skills, intimately related to the surprising statistics around how few Irish SMEs seek to avail of examinership. All these leadership skills are eminently coachable and can be developed. David Van Dessel is a Partner in Deloitte’s Restructuring and Forensic department. James Conboy-Fischer is Managing Director of Psychological Consultancy Services Ltd.