Enhancing Financial Management: Fiscal Responsibility for Effective Control

1. Fiscal responsibility statement as a tool for efficient and effective financial management and control Ivana Jakir-Bajo, Ministry of Finance, Croatia

2. 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 forbudgetary frameworks of the Member States (OJ L 306, 23.11.2011.) was transferredinto the Croatian legal system

3. INTRODUCTION achievedthrough the establishment and strengthening fiscal rules fiscalresponsibility statement rules aimed at ensuring fiscal discipline&responsibility OBJECTIVE: to ensure and maintain fiscal responsibility, transparency and medium- and long-term sustainability of public finance

4. 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

5. FISCAL RESPONSIBILITY STATEMENT- LINK BETWEEN BUDGET ACT AND PIFC ACT • Fiscal Responsibility Act tiesprovisionsof the Budget Act and provisions of the Public Internal Financial Control Act • A statement of the headsverifying • 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 headsof the entities using the budgetary and extra budgetaryfundsare confirming that, while performing the work, they have: • ensured legal, earmarked and purposeful use of funds, and • anefficient and effectivefunctioning of the financial management and control system

7. FISCAL RESPONSIBILITY STATEMENT – APPLICATION Up to 2014 - applicableto 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 entitlesfounded 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 becamethe EU memberthere 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 • consideringthe 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 • Growingliabilities – as the local government units aretransferring their own commitments to theircompanies • Statistical reasons – part of those entities are classified to the general governmentsector according to ESA methodology

9. FISCAL RESPONSIBILTY STATEMENT GIVING PROCESS • Decree on the Fiscal Responsibility Statement and the Fiscal Rules Application Report Production and Submission consists of • 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

10. 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

11. STATEMENT FORMS

12. 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

14. 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

15. 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

16. FISCAL RESPONSIBILITY QUESTIONNAIRE Checkingtheobligations 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 • Questions contained in the Questionnaire are based on the relevant legal framework • BudgetAct • PublicProcurementLaw

17. FISCAL RESPONSIBILITY QUESTIONNAIRE The manner of testing is specified in order to assessof 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

18. FISCAL RESPONSIBILITY QUESTIONNAIRE

19. FISCAL RESPONSIBILITY QUESTIONNAIRE

20. FISCAL RESPONSIBILITY QUESTIONNAIRE

21. FISCAL RESPONSIBILITY QUESTIONNAIRE

22. FISCAL RESPONSIBILITY QUESTIONNAIRE

23. FISCAL RESPONSIBILITY QUESTIONNAIRE

24. 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 dateand • 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 • Areportstating • whether or not the activities spelled out in the Weaknesses and Irregularities Removal Plan have been carried out • provides explanationfor the unimplemented or partially implemented activities • sets a revised expected date for the weaknesses and irregularities removal • Template provided in theDecree

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

29. 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

31. 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 …) ESSENCECHECKS: competent ministries and local and regional self-government units during the course of a budget year must check the Statement and the Questionnaireusing 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: • offeringresignation to a body that made his/her appointment • Inefficient system – hardly any resignation arisen from FRA breaches

35. ACCOUNTABILITY FOR BREACHES OF FRA The misdemeanour proceedings are conducted by budgetary oversight inspectors • 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

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

38. Questions ????