Fragmentation of public service major barrier to cross-agency savings - Treasury

BUSINESS DESK: Fragmentation of New Zealand public services is the greatest hurdle for the state sector to achieve major back office savings, according to the Treasury.

Deputy chief executive Andrew Kibblewhite said the government has the potential to save as much as $250 million a year by integrating administrative and support functions to front-line services, and the autonomy of individual departments has eroded overall efficiency. That rises as high as an annual $450 million if big efficiencies can be made.

“Fragmentation is a systemic obstacle to efficiency that can be overcome with cross-agency collaboration,” Kibblewhite said. It has “long been regarded as a strength with agencies able to adapt and which can be more innovative.”

The Treasury’s second annual administrative & support services benchmarking report shows a moderate improvement in the public sector’s back office efficiencies could trim a quarter of a billion dollars from the overall bill, a figure Kibblewhite says is an achievable target.

“That $250 million figure is achievable and I think it will be in time,” he said.

The report again fingered the cost of information and communications technology services as the area for the biggest improvement, with $130.2 million of efficiency savings able to be realised, followed by a potential $44.5 million of savings in human resources, $34 million in property, $31.8 million in corporate and executive services and $10.7 million in finance departments.

In commentary on ICT, Stuart Wakefield, government chief information officer at the Department of Internal Affairs, said the ICT strategy group is leading work on aggregating demand for procurement from third parties, and using economies of scale across government for shared services.

While it will likely see some initial costs from capital expenditure, the changes will help improve efficiency and cut costs by simplifying ICT across all of government, he said.

The 31 agencies covered in the benchmark report spent $1.72 billion on support and administrative services in the 2010/11 financial year, some $20.4 million lower in real terms than the year before.

Kibblewhite said the Treasury is leading the way in reining in back office functions, and has set up a Central Agency Shared Services unit with the Department of Prime Minister and Cabinet and the State Services Commission.

The department reassessed its back office expenditure when last year’s report highlighted its spending on human resources, something the Treasury wasn’t aware was as big a cost as it was.

That will lead to a 15 percent reduction in spending over three years, and reduce headcount across those agencies by a fifth.

Invigorating a culture of greater financial rigour in the public sector has been a major goal of the National-led administration since it won office in 2008, and Treasury Secretary Gabriel Makhlouf last week urged state service executives to lead the change.

Finance Minister Bill English said the report showed there is “ample room for future savings” and he expects more cuts in back-office spending in the coming year.