Challenges and Opportunities in Implementing PIFC Model: A Financial Management Overview

1. Challenges & Opportunities in implementing the PIFC model in the context of centralized controls A refresher on the main models of Financial Management SOCHI 30-31 OctoberRichard Maggs

2. What I will cover • An overview of developments in the public sector that have impacted Public Financial Management (PFM) • The two main financial management models • How audit is evolving and can be used to best effect in budgetary control • The notion of accountability

3. Main PFM Developments Changing Service delivery modes Convergence in financial management models More active civil society • More focus on financial management issues by international community • More use of arms length organisations • Privatisation of public services • More private public sector partnerships Main Developments Increased media awareness Greater focus on risk management Technology Move from cash to accruals accounting • Speed of delivery • Internet promotes transparency and accountability

4. Financial management models • Reflect three key factors: • Historical development • Legal development • Administrative development • In effect, the two grand models of financial management are simply a reflection of historical empires. The British and the French. • However no one country is completely similar to any other in terms of the management of public finances

5. Two different models of budgetary control • Anglophone Model • Budgets are provided to Line Ministers who make decisions on allocations within their Departments. Ministers are accountable to Parliament for the way funds have been spent. • Francophone Model • Budgets are provided to budgetholders within Ministries who are accountable to the MoF for the legality and compliance of budget expenditure. • Budget request • Budget request • Budget request • Budget request • Ministry of Finance • Ministry of Finance • Minister • Minister • Budget • Holders • Budget • Holders • Accountability • Accountability • Accountability Budgets Budgets Budgets • Budget • allocation • Budget • allocation • Budgetallocation Budgets Budgets

6. Anglophone Model • With direct budget responsibility IA provides assurance to Minister in line with accountability • Audit Assurance • Internal audit • Budget request • Budget request • Ministry of Finance • Minister • Budget • Holders • Accountability • Accountability Budgets Budgets • Budget • allocation • Budget • allocation Budgets

7. Francophone Model • With no direct budget responsibility IA assurance to Minister does not align with financial accountability • Audit • Internal audit Assurance • Budget request • Budget request • Ministry of Finance • Minister • Budget • Holders • Accountability Budgets • Budgetallocation Budgets

8. Convergence of approaches • There has been a general coming together of the two main models of financial control • A key driver has been the accession criteria for EU membership which promoted PIFC • Another factor was the spectacular failure of financial control in the European Commission itself when it operated under the francophone model

9. Key Messages • There is pressure on all governments to change - • The public finance arena is dynamic and is constantly evolving • Past success is not a guarantee of future existence • There is a greater focus on the way the public sector uses all its resources particularly its assets and the change in accounting is a fundamental driver of change elsewhere • Financial management structures must be “fit for purpose for the country concerned” • There is no single right way to organise a country’s financial management process but there must be a coherent concept underpinning the structure chosen

10. How audit is evolving • From compliance and basic financial audit covering checks of rules and procedures, legality and correctness of expenditure • To sophisticated financial audit following the move to accruals based accounting using International Public Sector Accounting Standards • Performance auditsnow a key role of most auditors focusing on economy, efficiency to effectiveness • Reduced confidentiality and increased transparency as many internal audits are now publicly available

11. Roles & Responsibilities – key players Setting the budget and holding people to account for how it is spent Parliament Determining the accounting and internal control standards Ministry of Finance / CHU Providing assurance to Departments on internal controls Internal Audit Conducting ex-post audit of the financial statements and Performance Audits Supreme Audit Institution Prosecutions in cases of fraud, corruption or mismanagement The legal system

12. The notion of accountability • A word that does not exist in some languages • It is not about reporting… • or a synonym for transparency • It reflects a process which result in consequences for officials the way public money is spent. • Accountability exists when: • There is a clear line of responsibility and authority for policy implementation • It is felt by people who are accountable • When ministers are sent to prison for their mismanagementof resources

13. Using audit to best effect - 1 • Audit can help with. • Validation (of performance indicators, budget out-turn, etc) • Assurance (of financial statements, the effectiveness of internal control, etc) • Performance audits (economy, efficiency, effectiveness, etc) • Risk assessment (identifying areas of high risk, poor or to much control, potential frauds, etc) • Good auditors can be effective business partners • Eyes and ears of budget setters • Providing data and information for effective budgetary challenge of requests for additional resources • Showing where resources have been poorly spend • Help budget hold managers accountable

14. Using audit to best effect – 2 • To be effective audit needs: • Authority and independence • Adequate resources (both number and quality of staff and non-staff budgets for travel and IT support) • To adopt and apply of best practice standards • Access to information and people • Effective and timely reports (well written with strong evidence, a focus on the important issues and clear recommendations for action) • Audit also needs clients who are: • Prepared to listen and open to constructive criticism • Can see beyond the negative • Willing and able to take action to address key issues

15. Thankyou