Financial Management and Control
Arrangements in Practice
Monika Kos, Ministry of Finance, the Republic of Poland
Scope of the presentation
What is FMC?
Main roles and responsibilities
The Polish example
Challenges and benefits
what is FMC?
Financial Management and Control (FMC)
– conceptual meaning
FMC
IA
CHU
2 levels of Internal Control
Entire control system within
the public finance sector and
all institutions involved in
controlling public funds
(Treasury, SAI, etc)
Approach of Government to
ensure that managers of all
public entities establish,
maintain and monitor their
integral management
processes.
• Centralised
• Decentralised
What is FMC?
Financial Management and Control is a
comprehensive system of decentralised internal
control put in place by and under the responsibility
of heads of public budget entities to provide
reasonable assurance that budget and other
resources will be used in a regular, ethical,
economical, effective and efficient manner towards
the achievement of objectives.
What is new about FMC?
FMC - spending
resources in efficient
and effective way to
achieve objectives
Traditional
financial control
systems compliance with
the budget, laws
and regulations
What is FMC about?
requires a different style of
public administration with
emphasis upon ‘management’
the integration of finance with
management and achieving
objectives
FMC
affects legal and organisational
arrangements
improving the way in which
public money is used - real
meaning of ‘efficiency and
effectiveness’
Key roles
and
responsibilities
Key actors in establishing FMC
The Ministry of Finance:
- The Central Harmonisation Unit;
- The Budget Policy Directorate;
- The Treasury.
The Ministry (or other institution) responsible for public
administration reform
Public finance sector entities:
- Heads of entities
Elements of the FMC
Legal basis
Budget and
basis for
accounting
Setting
objectives
Risk
management
Managerial accountability
Internal and
external audit
Managerial accountability
• Managers of all levels public finance sector
entities must be accountable for the activities
they carry out in operational policies,
including financial management and control
policies.
• The manager is responsible for achieving
objectives within budget, on time, efficiently
and effectively.
Requirements for Managerial Accountability
Authority for head of public entity to make
decisions.
Good quality information.
Managerial structure within the organisation and
delegation of authority to individual managers.
Objectives set for each manager, agreed resources,
timescales, accountability arrangements,
boundaries of the manager’s responsibilities.
Action taken when there is management failure.
Key actors in establishing and maintaining
FMC on the entity level
Public finance sector entity:
- Head of entity
- Operational managers
- Financial officer
- Assurance providers (eg. Internal audit)
The head of entity is responsible for
ensuring:
Establishing and
maintaining
adequate rules for
FMC to carry out the
tasks of:
• planning,
• programming,
• budgeting,
• accounting,
• controlling,
• reporting,
• archiving,
• monitoring.
Managerial accountability covers:
Reporting
The manner in
which the
operations are
being
managed.
Control
activities to be
put in place
and applied.
Ongoing
monitoring of
the
management
system and its
timely
updating.
Financial
effects arising
from such
operations.
Risks
associated
with such
operations.
The impact of FMC on role of finance officer
The role of the finance officer will be to
support the manager and to signal the manager
if resources are not being used efficiently and
effectively.
The finance officer becomes a top level
financial adviser to management – at all levels.
The tasks of the finance officer
The finance officer becomes responsible for:
• Providing the manager (at whatever level) with the financial
information he/she requires to enable the manager to achieve
efficiency and effectiveness;
• Ensuring that the internal financial control standards are
properly met throughout the organisation;
• Developing strategic financial plans for the organisation;
• Liaising with the MoF over budget preparation/financial
reporting;
• Ensuring that managers pay full attention to management risks
related with budget spending process.
Role of internal audit
• Independent and
systematic evaluation
of the adequacy of
existing systems and
recommend
improvements if
necessary;
• Independent consulting
activities.
Supporting the
head of entity in
achieving the
objectives
FMC and COSO model
FMC is founded upon five interrelated components of
internal controls (COSO):
The Polish
experience
The Polish experience – key regulation
Key regulations included in
the Public Finance Act
were introduced in 2002.
The PFA was updated 3 times
(2005, 2006 and 2009)
- the last came into force
in January 2010
The Polish experience – the structure
The Polish CHU in the MoF
for FMC and IA
Decentralised
FMC system
(all entities)
Audit
Committies
(ministries)
Decentralised
IA Service
(selected)
FMC in Poland
The FMC is called Management Control, which
comprises a general set of activities undertaken
in order to ensure the implementation of
objectives and tasks in an:
• effective,
• economical,
• and timely manner,
• compliant with the provisions of law.
The FMC objectives are to ensure in particular:
risk
management.
efficiency and
effectiveness
of
information
flow,
compliance
with the
provisions of
law and
internal
procedures,
efficiency and
effectiveness
of operation,
credibility
of reports,
observance
and
promotion of
rules of
ethical
conduct,
protection
of
resources,
2 interrelated levels of FMC in Poland
• the minister in government administration
branches, a commune foreman, a mayor, a
chairman of the management board of the
secondary level of
management
local government unit
control
primary level of
management
control
• the head of the entity
New responsibilities
Development and publishing on the website:
Annual activity plan - by the end of November each
year
Report on the plan execution and Statement on the
condition of management control - by the end of
April each year
The Minister in charge of the branch – mandatory;
Supervised entities – up to the minister’s decision;
Local government – up to decision of the head of
entity or supervisory body.
Cooperation
The Supreme
Audit Office
The Treasury
Services
The
Chancellery
of the Prime
Minister
The Ministry of
Administration
and
Digitalisation
CHU
Internal
Auditors
Associations
Independent
experts
Challenges
and
benefits
Challenges on the strategic level:
FMC should be a part of public administration reform, including
public finance management reform;
Legal means that are needed to implement FMC should be
properly coordinated with all other relevant laws.
Development of FMC is not only a role of the CHU and the
Ministry of Finance; there should be close cooperation with
other institutions involved in public reform process.
The law is just a first not the final step in the reform, there
should be a strategy for its implementation and maintaining.
Challenges on the coordination level
Vision: Vision about the FMC and its good communication is
required.
Control: Understanding that the FMC is not a new type of
control activities but a management system, involving all
levels of management and staff.
Monitoring by CHU: Not to focus on the existence of
bureaucratic processes but promote a new management
style based on planning, risk management and measuring
achievements of objectives.
Timetable: Assuring time and support to the head of entities
for building new approach within entity.
Challenges on the operational level:
Raising management awareness and professionalism by:
• providing seminars, conferences and training;
• introducing pilots programmes;
• sharing good practice examples.
Creating management tools:
• standards, guidelines, methodology;
• professional internal audit service;
• tools for self-assessment, etc.
The sound FMC should help public entities to:
:
ensure optimum
improve quality of
utilisation of
resources,
minimise deviations
and risks of
irregularities,
facilitate coordination and
information flow
between
departments,
guide operations to
achieve objectives,
the service and
products,
establish
responsibility and
facilitate
delegations,
motivate
employees,
increase efficiency,
increase trust and
improve image of
the public sector.
Conclusion:
Developing FMC is thus an iterative process that involves
continually improving performance and governance,
rather than introducing a new, extra system.
The existing management system shall be structured,
formalised and improved in accordance with identified
needs and cost considerations.
Internationally-recognised or national standards and
frameworks offer common points of reference within
trends in modern management and provide a
comprehensive, structured approach to internal control.
questions