2 nd SIGMA NETWORKING SEMINAR

1. 2nd SIGMA NETWORKING SEMINAR OECD Conference CentreParis 27-28 November 2008

2. Public Internal Financial Control (PIFC) Ritva Heikkinen European Commission DG BUDGET B.4

3. PIFC: the concept • What is PIFC? • A comprehensive concept developed by the EC for re-engineering internal control systems in the public sector in line with international standards • EU accession requirement under Chapter 32 • PIFC = (IC = FMC + IA) + CHU • Why PIFC? • Integral part of good governance: increased accountability and transparency in spending public money (3Es)

4. PIFC development stages 1. Conceptualisation PIFC Policy Paper plus Action Plan 2. Legislation Primary (framework) and secondary laws 3. Administrative Reform CHU(s); Finance Directorates, IA Units 4. Training For managers, financial officers/controllers, auditors

5. PIFC development: challenges (1) • Re-engineering internal control is a long-term project – no short-term political gains • Conceptualisation and legal drafting – too quickly, often by external assistance projects without necessary stakeholder consultations • Often very detailed, prescriptive primary legislation • Resistance to change (managers, inspectors) • Managerial accountability not either well understood or limited due to legal constraints and/or centralised decision-making

6. PIFC development: challenges (2) • Focus predominantly on IA; insufficient focus on FMC • FMC (mis)understood to be a job only for specialists rather than for everybody in the organisation • IA perceived as additional control, i.e. “old inspection with a new name” rather than consulting activity • IA not sufficiently independent • Dependency on technical assistance/ twinning: lack of sustainability after projects end

7. PIFC: Key conditions • Firm long-term political commitment from the outset and appropriate steps (Policy Paper and Action Plan) • General acceptance among public sector managers that reform is necessary • Adequately resourced and skilled Central Harmonisation Unit to drive for the change • IA development only in wider framework of Internal Control (parallel development of FMC) • Benchmarking procedures for measuring progress over time (e.g. peer reviews)

8. PIFC as a leading concept has a track record of success: • An integrated and innovative approach for policy making and central harmonisation • Internal control has become a strategic issue in the accession context • Irreversible and efficient move to modernisation of public administration: increased accountability and transparency • PIFC is the norm in public internal control area for Candidate Countries, Western Balkan and selected ENP countries

9. ‘Outside’ areas that interact with PIFC environment • PIFC is not a ‘stand alone’ approach • Interconnected with • Accounting • National budget cycle: from input to output budget • Fight against fraud (inspection) • External audit • Civil Service Reform

10. EU support on PIFC • Chapter 32 requirements generally define PIFC support in absence of a global PAR/PFM framework • Room for “cross-fertilisation”: Civil service reform, DIS, Public Expenditure Management • Appropriate mix of various instruments (SIGMA, TAIEX, twinning/ technical assistance) required

11. Further information • Welcome to the world of PIFC - Booklet by the European Commission (2006) • http://ec.europa.eu/budget/library/documents/overviews_others/brochure_pifc_en.pdf • FccWebsite maintained by DG Budget • budg-fccweb@ec.europa.eu (for passwords) • PIFC: a European Commission initiative to build new structures of public internal control in applicant and third-party countries- Book by Robert de Koning (2007) • DG Budget, Unit B.4 • budg-mailbox-b04@ec.europa.eu