4. History of Internal Control in the EU
Public Internal Control in the European Union Robert Gielisse, CIA, CGAP European Commission Principal Advisor , DG BUDG In charge of PIC and PIFC 2. Your presenter Robert GIELISSE – Dutch National CIA, CGAP Principal Adviser, Head of EC PIC/PIFC Task Force Chairperson of EU28 PIC Network and Working Group In EC since 1983, various managerial positions since 1993 Dutch Tax Administration 1978 – 1983 University degrees in Economy and Law 3. History of Internal Control in the EU Pre 2004 EU 15 Diversity CC 10 + 2: Centralised Control System -> PIFC 2004 EU 25 EU 15 Diversity CC 2 + PCC: CCS -> PIFC EU 10 PIFC 2007 EU 27 EU 15 Diversity (Potential) CC: CCS -> PIFC EU 10 + 2 PIFC 2009 Kick start of PIC 4. History of Internal Control in the EU Public internal control modernised in the past 10-15 years all over the EU In some countries started in the 80s but more reforms since 2000 triggered by accessions to the Union of 2004, 2007 and 2013 need for administrative reforms (decentralising central powers) recognition of need to manage risk reduce budget deficit following the financial crisis tax payers claiming value for money 5. Approaches to IC system in the EU Decentralised internal control system (Denmark, Netherlands, Sweden, UK, 13 new Member States). The so-called Nordic model Centralised internal control system (Luxembourg, Spain, Greece, Italy). The so-called Latin model Hybrid model (Belgium, France, Portugal) 6. Approaches to IC system in the EU Nordic model Based on full decentralised managerial accountability and functionally independent internal audit. Manager is accountable for meeting organisational objectives (financial and non-financial) Responsible for setting up internal control to address risks and provide reasonable assurance that objectives are achieved by means of effective, efficient, economical operations; legal and regular transactions; Internal auditor assesses adequacy of IC framework including governance, risk management and control; reports to the management and makes recommendations for improvement. 7. Approaches to IC system in the EU Latin model Centralised control function focusing on ex-ante controls, some sub-functions may be delegated Internal control as a centralised collective responsibility in relation to controlling public funds Specifically designated organisations /financial controllers to control economic and financial compliance No internal audit; financial 'audit ' (transaction based verification) is performed by ex-post financial controllers/inspectors Ex-ante controls performed by centralised services (not within the entity) including SAI 8. Approaches to IC system in the EU Hybrid model Various stages of development towards the Nordic model IC in France is a good example for incorporating 'Nordic' principles in a given national administrative culture Mix of centralised approach with decentralised features E.g. decentralisation of (ex-ante) controls 9. Similarities in the IC environments across the EU 25 out of 28 Member States base their systems on COSO framework (including INTOSAI guidelines for internal control) IPPF oriented standards for Internal audit Either IPPF directly applicable in national law Or national standards 'copy' IPPF 10. Differences in the IC environments across the EU Accountability arrangements vary centralised departmental agencies (independent) bodies Shift from input to output oriented management and budgeting Split between political and executive responsibilities not in all countries Internal audit systems do not cover all parts of the public sector or every part in the same way. Coverage of the central government part varies country by country. 11. Managerial accountability across the EU Management and accountability arrangements vary Focus on the achievement of organisational objectives and efficient, economic and effective use of public money (output oriented) Focus on compliance with rules and legal and/or administrative provisions (input oriented) 12. The European Dimension PIFC – Public Internal Financial Control an Internal Control framework for the public sector that Candidate Countries must adopt to fulfil the conditions/ benchmarks of Chapter 32 'Financial control' of the EU Accession Negotiations PIC – Public Internal Control is a denominator for a panoply of Internal Control systems operated in the public sector of the EU-28 13. PIFC – European framework for Internal Control in the Public Sector 14. PIFC - 5 layers of defence for public money Gov’t - wide Entity - wide National Layer 1 Layer 2 Layer 3 Layer 4 Layer 5 Financial Management and Control systems Internal Audit Centralised Budget Inspection State Audit Office National Parliament CHU and Audit Committee PIFC Council Source: European Commission, DG Budget (Complaintdriven function to investigate cases of fraud and serious irregularity) 15. PIFC - 5 layers of defence for public money These 5 layers are complementary: FMC: decentralised ex-ante and ex-post under managerial responsibility IA: to assess economy, efficiency and effectiveness; to provide reasonable assurance about adequacy of IC environment (FMC) Inspection: to pursue cases of fraud, but not proactive (!) EA: to oversee functioning of IC Parliament: to hold the Executive accountable 16. PIC is a hot topic in the Member States Internal Control is now widely used and integral to all governance systems Stakeholders are demanding better quality results, accountability, and transparency Recent reforms and increasing professionalism demonstrate dynamic character of PIC; IC in different Member States is still in transition Reforms focus on streamlining and making existing setup more efficient 17. Recent developments to IC in the EU Increased attention to objectives and performance management; to risks and governance as a whole; Clearer defined legal mandate for Internal Control Clearer mandates and descriptions of tasks for control and internal audit (and financial inspection) Internal Audit professionalism (certification schemes) Type of engagements (from assurance audit to performance audit and consulting) 18. Developments 2009-2012 2009 Conference on PIFC Structured questionnaire 1st Compendium PIC Conference 2012 outcome Working Group to prepare ‘permanent’ EU 27 Network 19. What EU Commission does in partnership with Member States Initiated Compendium Manages PIC Network Manages PIC working group Co-organises Conferences with Member States Contributes to Discussion Papers Distributes Newsletters 20. PIC network Partnership between the European Commission and Member States to which EC provides coordination and logistical support. Network composed of internal control and internal audit experts from the public sector of every Member State. Platform for sharing experience and good practice when reengineering or otherwise improving public sector governance systems Set up at February 2012 PIC Conference where the 1st ever Compendium on PIC systems in the EU Member States was presented 21. PIC Working Group A PIC Working Group coordinated and chaired by DG BUDG lets Member States dictate the topics for the PIC Conference DG BUDG coordinates and chairs WG meetings and ensures quality control of the outputs Current members: Belgium, Czech Republic, Estonia, France, Hungary, the Netherlands, Portugal, and United Kingdom (Austria, Bulgaria, Poland's mandate ended in May 2014) 22. PIC Working Group The Working Group meetings have already produced 4 discussion papers. The topics were endorsed by all participants at the Conference of the EU-28 PIC Network. They are extensively discussed at Conference workshop Optimising Internal Control through Performance Management Continual organisational improvement by integrating Internal Control into the management cycle Quality assurance for Internal Audit Role of Audit Committees for Internal Audit in the Public Sector 23. Keeping the Network informed The PIC Newsletter An edition after each Working Group meeting http://ec.europa.eu/budget/pic/lib/newsletters/PICNewsNo5.pdf 24. Developments 2014 Compendium (2nd edition 2014) • • http://ec.europa.eu/budget/pic/compendium/in dex_en.cfm http://ec.europa.eu/budget/pic/lib/book/compe ndium/HTML/index.html 2014 PIC conference • http://ec.europa.eu/budget/pic/conference/ind ex_en.cfm Contact • [email protected] Thank you! Questions? Robert Gielisse, CIA, CGAP Principal Advisor, DG BUDG In charge of PIC and PIFC
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