Public Internal Control in the European Union

Robert Gielisse, CIA, CGAPEuropean CommissionPrincipal Advisor , DG BUDGIn 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 2004EU 15Diversity

EU 10 + 2 PIFC

2004EU 25

CC 2 + PCC:CCS -> PIFC

2007

EU 27

EU 15Diversity

CC 10 + 2:

Centralised Control System -> PIFC

2009

Kick start of PIC

(Potential) CC: CCS -> PIFC

EU 15Diversity

EU 10PIFC

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 modelNordic 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 modelLatin 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 modelHybrid 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 onCOSO 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 ControlPIFC – Public Internal Financial Controlan 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 ControlPIC – Public Internal Controlis 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

Source: European Commission, DG Budget

Layer 1

Financial Management and Control systems

Layer 2

Internal Audit

Layer 5

National Parliament

Layer 4

State Audit Office

Layer 3

Centralised Budget Inspection

(Complaint- driven function to investigate cases of fraud and serious irregularity)

Entity - wide Gov’t - wide National

CHU and Audit Committee

PIFC Council

15. PIFC - 5 layers of defence for public money

These 5 layers are complementary:

FMC: decentralised ex-ante and ex-post under managerial responsibilityIA: 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 ICParliament: 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 set-up 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

Compendium (2nd edition 2014)• http://ec.europa.eu/budget/pic/compendium/

index_en.cfm • http://ec.europa.eu/budget/pic/lib/book/

compendium/HTML/index.html

2014 PIC conference• http://ec.europa.eu/budget/pic/conference/

index_en.cfm

Contact • Robert.Gielisse@ec.europa.eu

24. Developments 2014

Robert Gielisse, CIA, CGAPPrincipal Advisor, DG BUDGIn charge of PIC and PIFC

Thank you!

Questions?