Fiscal responsibility statement as a
tool for efficient and effective
financial management and control
Ivana Jakir-Bajo, Ministry of
Finance, Croatia
INTRODUCTION
• Fiscal Responsibility Act (FRA) came into force on
January 1 2011
• FRA set forth the rules aimed at
• limiting government spending
• strengthening responsibility for a legal, earmarked and purposeful
spending of budget resources
• and reinforcing the system of controls and supervision for the
purpose of ensuring fiscal responsibility.
• By this Act, the Council Directive 2011/85/EU of 8
November 2011, on requirements for budgetary
frameworks of the Member States (OJ L 306, 23.11.2011.)
was transferred into the Croatian legal system
3
INTRODUCTION
• OBJECTIVE: to ensure and maintain fiscal responsibility,
transparency and medium- and long-term sustainability of
public finance
achieved through the establishment and strengthening
fiscal rules
rules aimed at ensuring
fiscal
discipline&responsibility
fiscal
responsibility
statement
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FISCAL RESPONSIBILITY
STRENGHTENING RULES
•
•
Draft laws, orders, bylaws and other
regulation
adopted
or
proposed
to
Parliament by Government may not be
adopted or drafted without the opinion of the
Ministry of Finance on their fiscal impact
In executing the state budget the Ministry of
Finance may audit the legal compliance and
appropriateness of the expenditure funds
from the national budget and budgets of end
beneficiaries
Anticipation
and control of
future
expenditures
Strengthening
system
monitoring
and control
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FISCAL RESPONSIBILITY STATEMENT
- LINK BETWEEN BUDGET ACT AND
PIFC ACT
• Fiscal Responsibility Act ties provisions of the Budget Act
and provisions of the Public Internal Financial Control Act
• A statement of the heads verifying
• legal, earmarked and purposeful spending of funds - as requested
by the Budget Act
• efficient and effective functioning of the financial management and
control system within the framework of funds defined by the budget
or the financial plan - as requested by the Public Internal Financial
Control Act
6
FISCAL RESPONSIBILITY STATEMENT
• Annual statement by which the heads of the
entities using the budgetary and extra budgetary
funds are confirming that, while performing the
work, they have:
• ensured legal, earmarked and purposeful use of funds,
and
• an efficient and effective functioning of the financial
management and control system
7
FISCAL RESPONSIBILITY STATEMENT –
APPLICATION
• Up to 2014 - applicable to the state budget and local and
regional self-government units’ budgets, budgetary and
extra-budgetary users of the state budget and of the local
and regional self-government budgets as identified in the
Budget and extra-budgetary user Register
• From February 2014 - applicable also to the companies
owned by the Republic of Croatia or by one or more local
and/or regional governments, as well as other legal
entitles founded by the Republic of Croatia or by one or
more local and/or regional governments, as identified in
the Register of Companies and Other Legal Persons
Obliged to Issue a Fiscal Responsibility Statement
8
REASONS FOR BRODENING THE SCOPE
OF APPLICATION
• As Croatia became the EU member there are new possibilities
for using the resources from the EU funds
• the abovementioned companies and other legal persons are
the biggest potential users of these funds
• considering the obligations that have to be fulfilled before and
during the use of the EU funds, potential users of these funds
are requested to have an established and transparent financial
management and control system
• Growing liabilities – as the local government units are
transferring their own commitments to their companies
• Statistical reasons – part of those entities are classified to the
general government sector according to ESA methodology
FISCAL RESPONSIBILTY STATEMENT
GIVING PROCESS
• Decree on the Fiscal Responsibility Statement
and the Fiscal Rules Application
Production and Submission consists of
Report
• layout and the contents of the Fiscal Responsibility Statement
• procedure
and deadlines for the Statement production and
submission
• the manner and deadlines for reporting the Ministry of Finance on
irregularities identified on the basis of reviews of statements’
contents
BASIS FOR FISCAL RESPONSIBILITY
STATEMENT
• The Statement is made on the basis of the
• Fiscal Responsibility Questionnaire
• available information
• results of work of internal and external audit and
• own judgment
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STATEMENT FORMS
FISCAL RESPONSIBILTY STATEMENT
GIVING PROCESS
• The Statement can be given even if weaknesses and
irregularities have been identified if the weaknesses and
irregularities bear no influence
• on legal, earmarked and purposeful spending of funds and on an
efficient and
• effective functioning of the financial management and control
system within the framework of funds defined by the budget or the
financial plan
13
STATEMENT FORMS – IF WEAKNESSES
OR ISSUES WERE FOUND
STATEMENT ANNEXES
• Annexed to the Statement are:
• a completed Questionnaire;
• a Weaknesses and Irregularities Removal Plan;
• a Report on the removed weaknesses and irregularities detected in
the previous year;
• an Opinion of internal auditors on the financial management and
control system for the areas audited a year earlier
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FISCAL RESPONSIBILITY
QUESTIONNAIRE
• Questionnaire is covering questions from the areas of
• planning,
• execution,
• public procurement,
• accounting and
• reporting
• Based on the questions contained in the Questionnaire,
one is preforming a self-assessment of the system
operation and is able to verify the legal, earmarked and
purposeful spending of funds and the efficiency and
effectiveness of the financial management and control
system
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FISCAL RESPONSIBILITY
QUESTIONNAIRE
• Questions contained in the Questionnaire are based on
the relevant legal framework
• Budget Act
• Public Procurement Law
Checking the obligations from existing laws as well
as procedures that are explaining the basic
principles stated in the Budget act and by which one
can see is financial management and control system
effective and efficient
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FISCAL RESPONSIBILITY
QUESTIONNAIRE
• The manner of testing is specified in order to assess of the
•
•
•
•
extent to which the relevant legal framework has been
complied with
Testing can be carried out throughout a budget year
Replies can be affirmative, partially affirmative or negative
If the question is inapplicable, the answer to the question is:
“Not applicable (N/A)”
For the filling of the Questionnaire a template is used that is
included in Annex 2 of the Decree
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FISCAL RESPONSIBILITY QUESTIONNAIRE
PLANNING THE BUDGET/FINANCIAL PLAN
A strategic plan produced and published on
websites (to be answered by the ministries and
other state administration bodies at first
organisational classification level)
1.
Heads of local and regional self-government units
have forwarded the proposed budget and the
projections to the representative body for
11. adoption within the legally prescribed deadline
The adopted budget was published in the official
journal of the local and regional self-government
12. units
Together with the next year’s local and regional
self-government units’ budgets, i.e. the financial
plants of budget and extra-budgetary users,
projections for the following two budgetary years
13. have also been provided
link to a website
copy of or reference to the
relevant letter
official journal issue number and
publication date
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FISCAL RESPONSIBILITY QUESTIONNAIRE
BUDGET/FINANCIAL PLAN EXECUTION
16.
23.
24.
24.1.
The procedure for assuming the commitments has been clearly defined and is copy of or reference to a written
available to all organisational units/administrative departments
procedure
Funds disbursement grounded upon credible documentation
no less than five randomly selected
disbursements for each expense type
Monitoring and control exercised over earmarked disbursement of donations, aid, sample of 5 per cent from the overall
subsidies and other transfers to end beneficiary and their utilisation
transfer population and at least 5 per
cent of total transfer value
Copies of or references to contracts underlying the disbursements are available
copies of or references to the contracts
On-the-spot checks on a sample basis conducted with final beneficiaries
copy of or reference to minutes of the
check conducted
A final beneficiary’s spending/project implementation report at hand
copy of or reference to the report
24.2.
24.3.
25.
25.1.
25.2.
25.3.
25.4.
25.5.
25.6.
25.7.
All necessary checks performed during goods delivery/service rendering/works check on a sample of 5 per cent from the
execution
overall procurement population and at
least 5 per cent of total procurement
value
Goods delivered/services rendered/works executed as contracted
enclose relevant proof
Goods delivered/services rendered/works executed within the contracted deadlines
enclose relevant proof
Goods delivered/services rendered/works executed observing the contracted enclose relevant proof
quantity and quality requirements
Goods delivered/services rendered/works executed at locations stipulated in the enclose relevant proof
contract
Goods delivered/services rendered/works executed as per contract description
enclose relevant proof
Goods delivered/services rendered/works executed in accordance with the design, enclose relevant proof
analyses, models and contract samples
Goods installed and in use
enclose relevant proof
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FISCAL RESPONSIBILITY QUESTIONNAIRE
PUBLIC PROCUREMENT provide proof using a 5 per cent sample of contracts/notices/
public procurement contracts executed
28.
29.
30.
31.
32.
Security instruments and contractual penalties provided for in the copies of or
contracts entered into
reference to
contract
For all public procurement files with an estimated value in excess publication date
of HRK 70,000.00, public procurement procedures have been
carried out in pursuance of the Public Procurement Act
Relevant notices published in pursuance with the Public publication date
Procurement Act for public procurement procedures conducted
via the Electronic Public Procurement Classifieds
The works execution contracts entered into contain instruments copies of or
securing quality of works and removal of deficiencies within the reference to
warranty period
contracts
Public procurement plan adopted in keeping with the Public copy of or
Procurement Act
reference to the
plan
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FISCAL RESPONSIBILITY QUESTIONNAIRE
ACCOUNTING
40.
41.
42.
43.
44.
45.
Expenses recorded in the General Ledger on an accrual basis and in a reporting sample of up to 1 per cent of all
period to which they refer irrespective of the payment execution
documents on the basis of which
business transactions have been
recorded (incoming invoices,
computing, requisition forms, etc.)
and a maximum of 100
Requisition forms have been validly completed to present who initiated a sample of up to 1 per cent of all
procurement, who approved the procurement, types of goods/services/works to be requisition forms and a maximum of
procured, with an itemised specification of the unit value, quantity, unit price and 100
total price
The signed contracts with suppliers/service providers/works performers provide a sample of up to 5 per cent of all
detailed determination of the type of goods/services/works to be procured
contracts and a minimum of 5 per
cent of total contracts value
The receipt forms, shipping forms and other relevant documents signed by the copies of or references to
storage clerk or other person in charge of goods receipt and suppliers clearly documents on a sample of up to 5
show that quantities, condition and quality of the received goods have been per cent of all documents
established upon goods acceptance
There are reports on service delivery, i.e. other type of a written authorisation or copy of or reference to the report or
documentation verifying service delivery
other documentation on a sample of
up to 1 per cent of services rendered
and a maximum of 100
There are interim and final computing balance on the executed work in copies of or references to the
accordance with the defined works approval procedure, approved by a person or a approved interim or final balances
body in charge of work supervision and approval
on a sample of 5 per cent of all
contracts
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FISCAL RESPONSIBILITY QUESTIONNAIRE
50.
51.
52.
53.
54.
55.
56.
57.
58.
Verification of the existence of a signature, stamp or other mark that may confirm
the approval of the invoice for recording
On the basis of a check of substance of invoices and documentation for services
rendered, works executed or goods procured, budget classification identifiers have
been assigned to invoices for GL recording purposes (to be answered by reporting
entities subject to budget accounting application)
Analytical records and general ledger reconciliation control performed (to be
answered by reporting entities subject to budget accounting application)
Revenue recorded in the general ledger at a point of their availability and
measurability (to be answered by reporting entities subject to budget accounting
application)
For non-financial asset donations, the general ledger records revenues and
expenses by estimated asset value, whereas non-financial asset transfers
between budget and budget users recorded through the change in asset volume
(to be answered by reporting entities subject to budget accounting application)
The head of budget/budget user has put an Inventory Commission in place.
He/she defined inventory taking date, relevant deadlines and the supply of reports
with inventory lists enclosed
The Inventory Commission has published the inventory of overall assets and
liabilities, produced an inventory list based report and submitted it to the Head
Books and accounting documents kept in keeping with the deadlines set in the
Budget Accounting and Chart-of-Accounts Rulebook (to be answered by reporting
entities subject to budget accounting application)
The accounting records put in place enabled monitoring of spending by sources of
financing and programmes (projects/activities)
sample of up to 1 per cent of all
invoices and a maximum of 100
sample of up to 1 per cent of all
invoices and a maximum of 100
proof of conducting the control at
least once a month
sample of up to 1 per cent of all
payments and a maximum of 100
sample of up to 5 per cent of all
donations and a minimum of 5 per
cent of total donation value
copy of or reference to the inventory
taking decision
copy of or reference to the report
relevant proof
the section of analytical records by
sources of financing and
programmes (projects/activities)
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FISCAL RESPONSIBILITY QUESTIONNAIRE
REPORTING
61.
Deadlines and manner of submission as defined by the Budget
Accounting Financial Reporting Rulebook adhered to for financial
reports submission (to be answered by reporting entities subject
to budget accounting application)
During the submission of the semi-annual and annual reports on
the execution of local and regional self-government units’ budgets,
deadlines and the provisions on the report content as defined in
the Budget Act have been observed (to be answered by local and
regional self-government units)
copies of or references to
reference pages in financial
reports
issue of an official journal and
date of report publication
64.
Annual local and regional self-government units’ budget execution copy of or reference to the
report delivered to the Ministry of Finance and the State Audit relevant letter
Office within 15 days after the representative body has adopted it
(to be answered by local and regional self-government units)
65.
66.
Municipal head/mayor or county prefect has reported the copy of or reference to the
representative body on reallocations within the deadline defined in relevant letter
the budget execution decision (to be answered by local and
regional self-government units)
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THE WEAKNESSES AND
IRREGULARITIES REMOVAL PLAN
• Consists of the weaknesses and irregularities removal
plans for each of the Questionnaire areas in which
weaknesses and irregularities were detected
• Contains
• a description of weaknesses and irregularities detected during the
course of completing the Questionnaire
• an action plan with a list of activities to be taken to address the
weaknesses and irregularities
• the expected weaknesses and irregularities removal date and
• data on persons responsible for the removal of weaknesses and
irregularities.
• Template provided in the Decree
25
THE WEAKNESSES AND IRREGULARITIES REMOVAL PLAN
26
REPORT ON THE REMOVED WEAKNESSES AND
IRREGULARITIES DETECTED IN THE PREVIOUS
YEAR
• A report stating
• whether or not the activities spelled out in the
Weaknesses and Irregularities Removal Plan have
been carried out
• provides explanation for the unimplemented or partially
implemented activities
• sets a revised expected date for the weaknesses and
irregularities removal
• Template provided in the Decree
27
REPORT ON THE REMOVED WEAKNESSES AND
IRREGULARITIES DETECTED IN THE PREVIOUS
YEAR
28
INTERNAL AUDITORS’ OPINION ON THE
FINANCIAL MANAGEMENT AND CONTROL
SYSTEM
• An opinion of internal auditors which states
• internal auditors’ opinion as to the functioning of the financial management
and control system for the areas audited
• data on internal audits performed during the previous year and
• data on internal audit recommendations made in earlier periods and
implemented during the course of the preceding year
• An
opinion of internal auditors concerning the financial
management and control system is based upon evidence
collected during the course of internal audit performance in the
preceding year and recommendations follow-up, including
internal audit recommendations made in earlier periods and
implemented during the course of the preceding year
• Template provided in the Decree
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OBLIGATION OF GIVING THE FISCAL
RESPONSIBILITY STATEMENT
• The Head has a possibility of requiring the persons in
charge of internal organisational units to give Statements
on the basis of a completed Questionnaire, the available
information and own judgment from their respective scopes
of competence
• Greater responsibility and awareness for allocated
recources
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SUBMISSION PROCEDURE AND DEADLINES
Reporting Entity
Deadline
Heads of the state budget and extra- February 28
budgetary users
To whom is the Fiscal
responsibility statement
submitted?
competent ministry
Heads of budgetary and extra-budgetary February 28
users of local and regional self-government
units’ budgets
the municipality head, the
mayor, i.e. the county prefect
of the relevant local and
regional self-government unit
ministers and heads of other state March 31
administration bodies at first organisational
classification level
municipality heads, mayors, i.e. the county March 31
prefects
Ministry of finance
Ministry of finance
Heads of the Reporting Entities reporting with
their Croatian Parliament
directly to the Croatian Parliament
respective annual
performance
reports
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SUBMISSION PROCEDURE AND DEADLINES
Reporting Entity
Deadline
The chief executive of a company owned by March 31
the Republic of Croatia, or the chief
executive of another legal person founded
by the Republic of Croatia
The chief executive of a company owned by March 31
one or more local or regional governments
and the chief executive of another legal
person founded by one or more local or
regional governments
To whom is the Fiscal
responsibility statement
submitted?
competent ministry
the municipality head, the
mayor, i.e. the county prefect
of the relevant local and
regional self-government unit
Various deadlines – emphasising the
responsibility for budget user’s work
although the ministers and heads are still
not giving consolidated Fiscal
responsibility statement
32
CHECKING THE FISCAL RESPONSIBILITY
STATEMENT FOR ITS CONTENTS
• FORMAL CHECKS: competent ministries and local and
regional self-government units are obliged to check
recieved Statements and the Questionnaires of their budget
users for their formal contents (if all of the required
documents are recived, are all of the questions answerd …)
• ESSENCE CHECKS: competent ministries and local and
regional self-government units during the course of a
budget year must check the Statement and the
Questionnaire using a selected sample of questions
included in the Questionnaire (are questions answerd
correctly i.e. did reporting entity „lie” in the process of giving
the Statement)
33
REPORTING AND OVERSIGHT
• The competent ministries and local and regional self-
government units are obliged to immediately and no later
than within seven (7) business days notify the competent
institutions, i.e. the Ministry of Finance of the irregularities
detected on the basis of the conducted checks
• Oversight of enforcement of the Fiscal Resposnibility Act
is conducted by the Ministry of Finance
34
ACCOUNTABILITY FOR BREACHES OF
FRA
• Until 2014 liability for breaches of the provisions of
the Fiscal responsibility act was establised on a
political responsibility:
• offering
resignation
appointment
to
a
body
that
made
his/her
• Inefficient system – hardly any resignation arisen
from FRA breaches
35
ACCOUNTABILITY FOR BREACHES OF
FRA
• in 2014 this system was exchanged with the penalties for a
violation of FRA
• Heads shall carry a monetary fine of HRK 5,000.00 up to
25,000.00:
• if he/she fails to compile and submit Fiscal Responsibility Statement,
• if during verification of the content of the Fiscal Responsibility
Statement, the Ministry of Finance, ministries and local and regional
governments observe that the documentation serving as the basis for
the Fiscal Responsibility Statement is not trustworthy
The misdemeanour proceedings
are conducted by budgetary
oversight inspectors
36
LESSONS LEARNED
• Heads of the budget users (i.e. school principals, day-care
heads …) realised that they are responsible for allocated
funds
• Stronger liaisons between ministries and local and regional
self-government units and their budget users
• Certain laws and bylaws provisions stressed out through
questions from Fiscal responsibility Questioner
• Media coverage (Everyone started to talk about fiscal
responsibility!)
37
FUTURE STEPS
• In 2015 for the first time Fiscal responsibility statement at
the state level was submitted on line – further
development of the web (on line) application
• „Raising the bar” – every year new questions are
introduced due to legal framework changes and setting
the new and/or higher standards
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