Integration of FMC tools and techniques into the budget system

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PIFC – CROATIAN EXPERIENCE,
DIFFICULTIES AND LESSONS LEARNED
Danijela Stepić, PIFC consultant,
former director of CHU MoF Croatia
PIFC - CROATIAN EXPERIENCE

Introduction

Difficulties and how we addressed them

Lessons learned
PIFC - CROATIAN EXPERIENCE





PIFC started in 2004 and it is stil on-going process
First we started with IA, then FMC activites started in 2007
Negotiation process with EC – Chapter 32 Financial control
opened 26 June 2007/provisionally closed 27 July 2010
Monitoring mission of EC DG Budget – in the period of
negotiation twice a year, later once a year
We had support from DG Budget, EU projects/consultants,
SIGMA…, but made significant efforts and have been an
active partner in developing PIFC
PIFC - CROATIAN EXPERIENCE
Precondition for PIFC development


Strategic documents prepared and implemented
Legal framework established


Administrative capacity building


laws, bylaws, rulebooks, instructions, manuals, guidelines
trainings, seminars, education of public officials)
Approach: PIFC development integrated with other reform
procesess such as:




Budget System Reform
Public Administration Reform
Development of the system for EU funds management
Anticorruption initiatives
FMC development – difficulties
In the beginings of FMC development in 2007….
1.
2.
3.
FMC was seen as something that is an “add-on” to the
existing system of management in public sector
There were no clear links between FMC developments and
budget system developments
Detailed analysis of the current state of FMC were not
conducted and therefore it was not easy to determine the
priorities and concrete measures for the former situation
FMC development – difficulties
In the beginings of FMC development in 2007….
4.
5.
FMC in the “legal provisions” had all preconditions, but practical
implementation had difficulties
Practical implementation of FMC at the beginning was focused on the
processes
(description of processes, defining the objectives of the processes, identifying risk in the
processes…. FMC almost became like the preparation for the book of processes)
6.
The whole picture of FMC development was not clear enough, as was the
meaning of “value for money” and “managerial accountability” in practice
FMC difficulties – how we addressed them

It was recognised that FMC developments require developments of the
budget system
from input based budgeting to output based budgeting

Budget reforms started 2008 and created the preconditions for FMC
development
Strategy for improvement and modernization of processes in State Treasury
(2007 - 2011)
new Budget Act (2008)

FMC development from 2009 has been completely put on the support of
budget reforms
Strategy for PIFC (2009 – 2011)
Fiscal Responsibility Act 2010
FMC difficulties – how we addressed them
Integration of FMC tools and techniques into the budget system
1.
Strategic planning (mission, vision, objectives) introduced into the budget cycle
(ministries and counties obliged to prepare strategic plans, to link strategic objectives with budget
resources via programmes, strategic plans of the ministries and countries include second level budget
users from their competance)
2.
3.
Objectives and performance indicators introduced into programme
budgeting
Risk management introduced into strategic planning and annual
planning of activities
FMC difficulties – how we addressed them
Integration of FMC tools and techniques into the budget system
4.
Decision of the ministers/mayors about responsibilities of managers for
achieving objectives and budget resources
(mechanism for practical implementation of managerial accountablity managers – assistant ministers,
head of sector are responsible to the minister for achieving strategic objectives and managing of
budget resources )
5.
Internal procedures for managing liabilities, revenues, assets management
6. Self assessment questionaire about functioning FMC in the planning of
budget, executing of budget, accounting, procurement, reporting - basis
for Fiscal Responsibility Statemenent that ministers/county prefects/
mayors/ is signing
FMC difficulties – how we addressed them
Integration of FMC tools and techniques into the budget system
7.
Plan for FMC development that budget users prepare every year
consists of:
- measures oriented to solve identified weakness through self-assessment questionnaires, Statement of
Fiscal Responsibility, SAO findings, Internal Audit Findings
- measures for further development
8. The first level budget users (ministries, counties, cities) are obliged to
coordinate the activities for FMC with the second level budget users
(preparation of strategic plans, consolidation of budget, consolidation of financial reports,
risk management…., monitor the level of FMC developments, weaknesess, measures taken for
improvements etc.)
FMC difficulties – how we addressed them
All the previous mentioned activities were needed to show that FMC
is not “add-on” to the existing system of management, rather than
existing system of management should be improved by integration of
FMC tools and techniques into them
Budget reforms were needed to create preconditions for FMC
developments through all of its components
Developments in budgetary system helped us to perceive more easily
the overall picture for FMC development ….
Development in budgetary system and FMC introduced
a systematic approach to management
Up to the organization
How do we achieve it ?
Strategic plan
Implementation of
planning documents,
programs, projects
Working procedures
Mission
Programs
BUSINESS
PROCESSES
Vision
General
Objectives
Special
objectives
Projects
Plans
Functional
activities
(finances, human
resources,
procurement, IT,
assets)
elements from the previous slide should be placed in
context of organizational structure at budget users
(who does what? what powers does s/he have? Whom does s/he
report to? How successful s/he is in executing the assigned tasks ?...)
MINISTER/COUNTY PREFECT/MAYOR/
DIRECTORATE
DIRECTORATE
A
B
Services
Services
DIRECTORATE
C
Finance
Directorate
Services
Services
2nd and 3rd level budget users
Agencies
Centres
Health
Institutions
Cultural
Institutions
Educational
Institutions
PIFC
Fiscal Responsibility
Internal audit
FMC difficulties – how we addressed them
FMC cannot be successfully implemented just through guidelines, instructions
only coming from the CHU !
It must be integrated also into legislation/quidelines/instructions that are coming
from other actors of key reforms in public sector (in case of Croatia - State
Treasury, Ministry of Administration, Ministry of Regional Development and EU
funds)
This is how we are changing the preconception of FMC as something that is
“added-on” instead of an integrative part of the management function
for example : we are developing risk management as integrative part of planning
and decision making process
FMC difficulties – how we addressed them
example: Risk management implementation
CHU is promoting risk management developments, giving overview of direction of
development, explaining the crucial steps that should be taken, organising seminars and
workshops for managers,
Cooperation with the State Treasury and Ministry of Administration helped us to
integrate risk management process into day-to-day activities where this process belongs
– planning and decision making
FMC in Croatia – Lessons learned
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FMC development requires budget system development
FMC is not an „add-on” to existing management systems.
There is the need to change current ways of managing budget
resources and to improve them through implementation of
FMC
Detailed analyses of the current state of financial management
and control are necessary for determining priorities and
concrete measures for improvement
Establishment of IA – Croatian
experience
We have changed the criteria for establishment IA function 4 times
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2004 - every budget organisation was obliged to establish IA
2005 - Ministries, counties, large cities, BO with 4 mil EUR
or 100 employees were obliged to establish IA units
2008 – Ministries, counties, large cities, BO with 4 mil EUR
and 50 employees were obliged establish IA units
2013 - NEW CRITERIA
Establishment of IA – difficulties

Large number of small budget organisations obliged to set up IA unit

Problem to establish IA units with the adequate number of internal auditors
due to lack of budget and human resources

Subordinated budget organisations established their own IA unit but with a
small number of internal auditors (mostly one IA)

Scattered internal audit resorces, small IA units, and still a number of BOs,
mostly from second level obliged to establish their own IA function
WE HAD TO FIND A WAY FOR THE RATIONAL ESTABLISHMENT OF IA
FUNCTION !
IA difficulties – how we addressed them
2013 - a new Rulebook for IA has been prepared with new criteria

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IA units from ministries, counties, big cities cover second level BO
(subordinated BO )
Second level BO can establish IA unit if necessary because of size, importance
of transaction, etc ( for example agencies dealing with EU funds)
Common internal audit units – for the hospitals, universities, municipalities
Establishment of IA function by appointment of one internal auditor is limited
to small number of BO who report directly to Parlament
Establishment of IA by agreement – for municipalities
IA in Croatia – lessons learned
Possibilities for developing internal audit depend on the level of the
development of financial management, especially relating to:


way of establishing internal audit in interrelated institutions
(budget users of 1st and 2nd level, e.g. ministries and agencies...)

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scope of work of internal audit
acceptance of internal audit by management structure
Management support to IA
It is important to develop a mutal relationship between managers and internal
auditors with active involvement of both sides
Internal audit
•
•
•
•
•
active role in
promoting IA
to provide advice,
rather then critique
competence of IA
focus on the priorities
for BO
System audits
/performance audit
Management
•
•
to understand role and
purpose of IA
to understand differences
between
control /internal
audit/inspection
•
•
accept IA as a
management „tool” for
improvements
implementation of audit
recommendations
PIFC – lessons learned
It is important that the CHU plays a very active coordination role and to
harmonise development of PIFC with other areas such as budget system
and public reforms
CHU in Croatia developed active cooperation with :

State Treasury

Ministry of Administration

Ministry of Regional Development and EU funds and other institutions involved in EU
funds managament

State Audit Office

Budget users (state and local level)

PIFC council
Cooperation is accomplished through : regular meetings, involvement in the
preparation of legal acts, organisation of common trainings etc.
We used support of DG Budget, DEU Zagreb, SIGMA, projects –
recommondations of EC, SIGMA reports, progress reports
reform
holders
EU stand.
and best
practices
Croatian
Parliament
Government of
Croatia
State Audit
Office
Pifc Council
State Treasury
European
Commission
Ministry of Public
Administration
Central
Harmonisation
Unit
International
projects
CRO institutions
involved in EU
funds management
Ministry of Regional
Development and EU
Funds
Central level
ministries,
state offices, extra-budgetary users…
2nd level
agencies,
institutes, centres
Majority
government-owned
companies
Local level
counties cities, municipalities
2nd level
schools, kindergartens, health
institutions…
Majority
government-owned
companies
24
Challenges in front of us…
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PIFC requires continuous development
PIFC tools and techniques require managers in the public sector who will know
how to use these tools and who will play an active role in PIFC implementation
well educated managers in the public sector are crucial precondition for
successful implementation of PIFC
managers need to understand “the substance of the PIFC” rather then “a form
of its implementation”
we have to improve the quality of strategic planning, programme
budgeting, risk management, further development of control
mechanism for acheiving better efficiency and effectiveness in
managing of budget resources
THANK YOU FOR YOUR
ATTENTION!
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