New Zealand and Australia remain OECD outliers with decentralised FMIS strategies

Modernising public financial systems: insights from the 2024 OECD FMIS report

In 2024, the OECD released a detailed report on the state of Financial Management Information Systems (FMIS) across member countries. The report highlights prevailing trends, challenges, and technological shifts shaping the evolution of public finance management. It underscores a clear momentum towards integrated, centralised FMIS models, with just four OECD countries—New Zealand, Australia, the United States, and Ireland—maintaining decentralised systems. Notably, both the US and Ireland are actively reconsidering their positions, leaving New Zealand and Australia increasingly isolated in their approach.

This article reviews the OECD's findings and explores why the remaining outliers, particularly New Zealand, may need to align more closely with global trends. It examines technological choices, drivers of reform, and barriers to modernisation that are influencing how governments manage public finances in a digitally enabled era.

Shifting trends in public finance management

The OECD report outlines a growing trend among member nations towards centralised and integrated FMIS platforms. These systems are designed to enhance data accuracy, improve transparency, and enable real-time decision-making. Among the 30 surveyed countries, the vast majority have either adopted or are transitioning to such models.

The reasons for this shift are clear: integrated FMIS systems offer streamlined workflows, better financial oversight, and more reliable data for policy and budgetary decisions. Moreover, centralised models typically enable more effective use of emerging technologies such as cloud computing, robotic process automation (RPA), and business intelligence tools.

New Zealand and Australia remain exceptions. Australia's complexity is somewhat justified by its federal structure, with financial systems needing to accommodate both Commonwealth and state-level variations. New Zealand, however, is an anomaly. With a population of just five million and a relatively compact public service, its continued commitment to a decentralised FMIS model appears increasingly unjustified and out of step with OECD norms.

Technological choices: COTS vs bespoke systems

Governments face two primary choices when selecting FMIS platforms: commercial off-the-shelf (COTS) systems or bespoke (custom-built) solutions. Each option carries distinct advantages and drawbacks.

COTS systems offer proven reliability and standardised processes. However, they often require costly customisation to align with specific government procedures. Licensing fees and vendor dependency also present long-term financial considerations. Despite these issues, COTS systems remain the dominant choice among OECD countries due to their robustness and quicker implementation timelines.

Bespoke solutions allow for precise alignment with national financial processes, offering greater adaptability to policy shifts. Yet, these systems demand significant in-house expertise, detailed process specifications, and careful project management. As a result, they often entail higher initial costs and longer development cycles.

Cloud computing, meanwhile, has emerged as a game-changer. With seven OECD countries already employing cloud-based FMIS and 17 more considering adoption, the benefits are evident: scalability, resilience, and real-time access. Concerns about data security, vendor lock-in, and sovereignty remain, but many governments are mitigating these risks through policy frameworks and strategic partnerships with cloud providers.

Why outliers must re-evaluate their FMIS models

The case for reform in countries like New Zealand and Australia is increasingly compelling. Several factors underscore the urgency:

1. Technological lag: Outdated FMIS platforms are less efficient, harder to maintain, and incompatible with newer technologies. These limitations hinder innovation and slow down public service delivery.

2. Rising costs: Legacy systems incur high maintenance costs and lack vendor support. The absence of modern features also necessitates costly workarounds and manual interventions.

3. Cybersecurity risks: Older platforms are more vulnerable to cyber threats and often lack critical security updates. In a digital-first era, this is a significant exposure.

4. Data challenges: Fragmented systems struggle with data consistency, quality, and governance. Without central oversight, integrating financial data across departments becomes problematic, limiting the ability to make informed decisions.

5. Workforce limitations: Maintaining bespoke or decentralised systems demands specialised IT expertise, which is increasingly difficult to attract and retain in the public sector. Centralised models allow for consolidation of skills and more strategic workforce planning.

6. International alignment: With major players like Ireland and the US reconsidering decentralisation, New Zealand and Australia risk falling behind in global standards. The US, for instance, is leveraging the Department of Government Efficiency (DOGE) and its digital agency to push for modernisation. Ireland is also exploring a move to centralisation to gain greater control and efficiency.

Embracing future technologies

The OECD report identifies several cutting-edge technologies that are transforming FMIS systems:

• Business intelligence tools: Widely adopted for enhanced data analysis and visualisation, these tools support better financial planning and accountability.

• Robotic process automation (RPA): Increasingly used to automate repetitive tasks, RPA improves accuracy and frees up human resources for higher-value work.

• Artificial intelligence (AI): Although cautiously adopted, AI holds promise for anomaly detection, predictive analytics, and process optimisation.

• Blockchain: While not yet mainstream, governments are exploring its potential for grant tracking and secure financial transactions.

These technologies are more effectively deployed in environments where systems are integrated and centrally governed. Fragmented FMIS models create barriers to innovation and reduce the return on investment in new digital tools.

Conclusion

The 2024 OECD report paints a clear picture: modern, centralised FMIS platforms are becoming the standard across developed nations. They enable better data governance, greater operational efficiency, and stronger financial control. As global trends shift, countries clinging to decentralised models risk being left behind.

For New Zealand, in particular, the rationale for decentralisation is increasingly untenable. With no federal system to justify fragmentation and a relatively small public sector, centralisation offers a path to simplification and improved performance. Australia, while facing greater structural complexity, should also revisit its approach in light of technological and fiscal pressures.

As the pace of digital transformation accelerates, aligning with OECD best practices will not only improve financial management but also enhance trust in public institutions. The time for reform is now.

Reference

Financial Management Information Systems in OECD Countries - 24th Annual Meeting of the Working Party on Financial Management and Reporting 7-8 March 2024. https://one.oecd.org/document/GOV/SBO(2024)3/en/pdf