Reforming Public Internal Control: Lessons (Not) Learned

Raymond Hill, CGAPEuropean CommissionDG Budget

Content

• European Commission's long tradition of coaching PIC development

• Challenges in reforming PIC

• Lessons not learned

• Conditions for successful reforms

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2009 PIC Conference in Brussels

• Purpose: To review and learn lessons from the implementation of PIC in the recently-joined EU Member States

• Delegates provided positive feedback on:

– Comprehensiveness of the PIC reform model– Our coaching on the sequencing of reform steps– Our guidance on the competency requirements of key staff in the PIC

environment

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Many challenges to PIC implementation were identified

• Absence of hard law: only reliance on non-binding international standards– Various good practices: no definition of best practice

• Long time needed for reforms– Political pressure for fast visible results– Short term nature of technical assistance

• Reforms were sometimes pushed too fast by the donor community: outstripping national absorption capacity

• Management traditions and resistance

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Managerial Traditions and Resistance

• Sometimes the top manager tries to control every detail– Lack of understanding of Managerial Accountability

• Sometimes there is no manager!– Unclear delegation procedures do not allow to identify the task manager

• Managers have a fear of transparency

– Transparency is often only seen as highlighting negative aspects: however it can also serve to highlight good performance

• Better internal control is not the same as more controls

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PIC Reform – Lessons (not) learned

1. Policy before Prescription

2. A revised legal framework is not a reform

3. A hasty legal transplant leads to problems at implementation

4. Plan ahead for sufficient resources

5. Avoid excessive segmentation – keep an eye on the big picture

6. Internal Control should match the PFM system

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Lesson 1: Policy before Prescription

• A government approved Reform Policy should set the direction for Internal Control reforms

• Pilot Projects are an effective way to test a new approach

• Pilot Projects should come before legal prescription– There is no point in adopting a law and then testing its application

through Pilot Projects!

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Lesson 2: A revised legal framework is not a Reform

• As well as a solid legal foundation, fundamental public sector reform requires a long term change management strategy for modernising administrative culture

• Change management strategy includes:

– Visible political leadership– Reasoning for the change– Milestones: champions and role models– Feedback and a learning perspective– Encourage civil society interest in public governance

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Lesson 3: A hasty legal transplant leads to problems at implementation

• Law-making takes time

• New laws require wide consultation of stakeholders

• New laws should be developed in line with the national administrative culture and national cost/benefit analysis. National ownership is required.

• Non democratic law-making can move quickly but it will often break down at implementation

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Lesson 4: Plan ahead for sufficient resources

• Reforms take time. Allow for plenty.

• Need for skilled, motivated and empowered staff at central level

• Need for sustainable training facilities

• Seek agreement for medium/long term Technical Assistance support

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Lesson 5: Excessive segmentation – Not seeing the big picture

• Excessive segmentation can produce hyper-focussed approaches that ignore systemic problems and fail to add up to an integrated effective whole.

• Co-ordination and sequencing of all related PIC reforms (especially Public Administration reform, Budgeting and Accounting reform) is required – at strategic level.

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Lesson 6: Internal Control should match the PFM system

There are 3 basic stages of Public Financial Management development:

Stage 1: Enforce basic financial complianceCharacterized by traditional input controlled budget

Stage 2: Ensure fiscal stability over the medium termCharacterized by medium term budget frameworks

Stage 3: Attain policy objectives in efficient/effective wayCharacterized by “performance budgeting/management”

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Development path of PFM systems

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PIC Reform: Conditions for success

• Ownership:

– Political commitment: politicians lead, technicians follow– Top managers accept that reform is necessary

• Ensuring change in administrative culture:

– Understanding that law-making and adherence to legal rules is not enough but that there is a need for managerial accountability and real delegation

• Sufficient resources:

– An adequately resourced and skilled Central Harmonisation Unit to drive the change and face stakeholder expectations

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PIC Reform: Conditions for Success (cont)

• An integrated approach:

– PIC is not a stand-alone, technical fix but part of the overall public Finance Management and Public Administration reforms

– A comprehensive reform is better than piecemeal changes– Long-term project management

• Ongoing and sustainable training for all

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