financial inspection in the public sector svilena simeonova 1
TRANSCRIPT
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Financial Inspection in the Public SectorSvilena Simeonova
1. Overview of the main features of the Financial Inspection function
2. Different views and models of Financial Inspection in the EU Member States
3. Common ground and differences between Financial Inspection, External Audit and Internal Audit
4. How to keep Financial Inspection compatible with modern PIC?
5. Development of Financial Inspection in Bulgaria
6. Relationship between Financial Inspection, External Audit and Internal Audit - good practices and challenges
7. Looking ahead
CONTENTS
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Centralized independent institution: external to the inspected entity
Usually carries out compliance control for legality
Ex post activity
The main goals are to detect, investigate and penalize the responsible persons and institutions
Mainly operates on the basis of complaints or signal from the public, requests from public institutions
1. OVERVIEW OF THE MAIN FEATURES OF THE FINANCIAL INSPECTION FUNCTION
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Financial Inspection (FI) exists in about half of the EU Member States.
In the majority of the 13 newest Member States – Bulgaria, Croatia, Hungary, Poland, Romania, Slovak Republic
FI is established separately from Internal Audit. FI is deemed necessary until decentralized internal control and internal audit becomes fully embedded in administrative culture. FI usually reports to the Minister of Finance.
As well as in Belgium, France, Greece, Italy, Portugal and Spain Financial Inspection is an important part of the control system and employs many staff. Where the supreme audit institution is organized as a Court of Accounts with judicial powers, Financial Inspection also has to report any detected irregularities to that Court.
2. DIFFERENT VIEWS AND MODELS OF FINANCIAL INSPECTION IN THE EU MEMBER STATES
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2. DIFFERENT VIEWS AND MODELS OF FINANCIAL INSPECTION IN THE EU MEMBER STATES
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Specific characteristics Member StatesNo central Financial Inspection function Denmark,
Finland, Sweden, Estonia, Latvia, Lithuania, Austria, Germany and UK
Financial Inspection and Internal Audit exist – but IA is clearly separated
The majority of the 13 newest members of the EU
Financial Inspection and Internal Audit are under one roof in one central institution, or the central unit for coordination of Internal Audit is a part of the Financial Inspection body
Belgium, France, Spain, Portugal
FI does not impose sanctions. That is a duty of the SAI – of the Court type
France, Italy, Portugal and Spain
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3. COMMON GROUND AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND NATIONAL AUDIT OFFICE (1)
SIMILARITIES:
From outside (External)
Ex post activities
Covers all public sector
Sanctioning power (where exists)
Mandate to fight fraud and corruption
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DIFFERENCES FINANCIAL INSPECTION NATIONAL AUDIT OFFICE
Position in the state structures and reporting line
Subordinated to the Minister of Finance.Reports to the Minister of Finance and to the Government
Reports to the Parliament and to the public
Initiation of the activity
Acts on complaints and requests from citizens and other institutions
Works according to the Annual plan and requests from the Parliament
Aims and scope of work
Focus on legality Legality, but also Efficiency, Effectiveness and Economy. Also verification of the financial statements of the budget organizations
3. COMMON GROUND AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND NATIONAL AUDIT OFFICE (2)
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DIFFERENCES FINANCIAL INSPECTION NATIONAL AUDIT OFFICE
Approach Investigations of particular cases of irregularities, legal violations, fraud and corruption - inspection
Analysis of implementation of the government policy as intended
Types of checks
Inspection: legality check Financial, compliance and performance audits
Consequences of the activities
Imposing sanctions, referring cases of fraud to the prosecutor's office, giving mandatory instructions
Recommendations for improvementUsually not (with exceptions) sanctions
3. COMMON GROUND AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND NATIONAL AUDIT OFFICE (3)
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3. COMMON GROUND AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND INTERNAL AUDIT(4)
SIMILARITIES:
Generally ex post checks
Independence
Full access to information
Competence to give recommendations as a result of engagement performed
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DIFFERENCES: FINANCIAL INSPECTION INTERNAL AUDIT
Position and reporting Outside of the organization Reports to the Minister of Finance and the Government
Inside of the organizationReport to the Head of the organization and to Audit Committee
Initiation/basis for the activities
Complaints and requests from citizens and other institutions
Risk-based annual plan
Aims Detecting violations and corrective actions
Assessing Internal Control system and recommending improvements Assurance and consulting function
Scope Mostly financial transactions and procedures: legality
All activities and aspects of the Internal Control System; legality and performance
3. COMMON GROUND AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND INTERNAL AUDIT (5)
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DIFFERENCES: FINANCIAL INSPECTION INTERNAL AUDIT
Perspective Focused on individuals, conclusions on legal compliance
Focused on the system
Direction of the results To the past - to find the facts towards financial and budgetary discipline
To the future - to help management to improve the system
Responsibilities in dedicating and investigating fraud and corruption
Detection, investigation, sanctioning Prevention, detection of indicators
Methodological ground No generally accepted standards International standards of the IIA
3. COMMON GROUNDS AND DIFFERENCES BETWEEN FINANCIAL INSPECTION AND INTERNAL AUDIT (6)
4. FINANCIAL INSPECTION AND PIC CONCEPT
Main pillars of the PIC model
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• Strengthening decentralized managerial accountability and internal control
• Establishment of independent Internal Audit within public sector organizations – different practices
• Establishment of Central Harmonization Unit(s) for Internal control and Internal Audit
• Financial Inspection (as fraud and corruption investigation function) in the most of the EU countries exists as central separate entity (institution) or together under the same head with Internal Control or Internal Audit coordination function
Cuts across the managerial accountability of budget holders
Administrative burden on the entity under inspection/audit
Possible difference of conclusions and opinions on the subject matter
Additional resource cost to the public sector
Possible overlapping and duplication of tasks
Lack of mutual respect and mistrust based on lack of understanding of the roles and poor communication
4. FINANCIAL INSPECTION AND PIC CONCEPT (2)
Challenges where centralized and separated Financial Inspection exists
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In the case of separate functions and institutions it is important to ensure:
GOOD COMUNICATION AND COOPERATION BY:
A clear mandate for each function and institution
Coordinating work programs and findings
Regular meetings and joint trainings
Systematic exchange of information
4. FINANCIAL INSPECTION AND THE PIC CONCEPT (3)
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Until 2000 - State Financial Control under the Minister of Finance
Main characteristics:
• 1200 staff in central and local level;
• one and only institution for control and inspection (the NAO has been established in 1995, Internal Audit does not exist);
• close relations with the prosecution office;
• type of control – ex post inspection;
• rights to investigate and impose administrative and financial sanctions;
• sweeping powers over the central and local administration and the enterprises.
5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA
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After 2000 – reforms in two stages:
2000 – 2006 :• PIFC Policy Paper
• New legislation
• Introduction of PIFC concept (and COSO elements) and introduction of Internal Audit function – centralized
• Institutional changes – Public Internal Control Agency (as a model similar to French and Spanish system)
• Internal Audit function is mixed with imposing sanctions(fines) for law violation
5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA(2)The system through the time
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2006 – to present day• Three new laws in force – Financial Management and Control in
the Public Sector Act, Internal Audit in the Public Sector Act, State Financial Inspection Act
• Segregation of Internal Audit and Financial Inspection
• Decentralization of the Internal Audit function (Internal Control and Internal Audit goes close to the Anglo-Saxon model)
• Establishment of Central Harmonization Units for Internal Control and Internal Audit in the Ministry of Finance
• Development of national standards, based on the IIA Standards
• Training and certification system for internal auditors
5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (3)The system through the time
Establishment of State Financial Inspection Agency Legal framework - State Financial Inspection Act, Regulation for
implementation of the law, Regulation for the structure of the Agency; Status – Agency subordinated to the Minister of Finance; Administrative capacity – 190 inspectors and administrative staff
(for comparison -National Audit Office - 520 auditors and administrative staff, Internal auditors in the public sector - 440 in the 173 organizations);
Scope of inspected entities – budget organizations – ministries; agencies; municipalities; state and municipal enterprises; other;
Types of activities – ex post inspections, checks for compliance with the laws, focus on assets, expenditures, public procurement procedures;
Variety of Inspection activities: according Annual Plan – only public procurement procedures
5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (4)
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On the requests of the Council of Ministries, Minister of Finance, Prosecution Office and other public institutions
Complaints and signals from the citizens
Responsibility and powers Written mandatory instructions
Recommendations to the competent bodies
Collecting evidence for the Prosecution Office
Administrative (fines) and civil sanctions/penalties (the penalized persons have a right to appeal the sanctions to the court)
Active communications with other institutions
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5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (5)
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5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (6)
437 / 70.6%
86 / 13.9%
72 / 11.6%
21 / 3.4%
3 / 0.5% Requests for financial inspections2013
Signals from citizens and NGOs
Information from NAO and Pub-lic Procurement Agency
Decrees of the Prosecurtor's of-fice
Requests by the CoM or the Min-ister of Finance
Signals from AFCOS - Protection of the European Union Financial Interests Directorate
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5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (7)
138
47
13150
15
115
Distribution of the 478 financial inspections accord-ing to type of the entities 2013
MunicipalitiesState budget spending unitsMunicipal budget spend-ing unitsState or municipal commercial companiesMinistriesOther
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5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (8)
State
commerci
al co
mpanies
Municipal
commerci
al co
mpanies
Others
Municipali
ties
State
budget s
pending units
Ministrie
s
Other m
unicipal
budget s
pending units
0
100
200
300
400
500
600
700
800
900800
471 464 434
18294
39
308 287
389
206138
18 30
Inspected 2 484 public procurement procedures and 1 376 identified violations 2013
Inspected public procurement proceduresPublic procurement procedures in which violations are identified
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5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (9)
Distribution of the identified amount of violations of the budget and finance discipline according the type of
entity 2013
MunicipalitiesMunicipal budget spending unitsState budget spending unitsState commercial companies Municipal commercial com-panies Others
Other facts of the Financial inspection Activities in 2013
Total number of conducted inspections - 478
Number of conducted procedures concerning public procurement – 2484, number of established violations - 1376
Number of other violations of the budget discipline
Number of acts engaging administrative liability – над 2000
Number of acts engaging civil liability – 18
Over 1800 findings sent to other competent authorities, a total of 63 written instructions served
170 reports sent to the prosecution office
5. DEVELOPING OF FINANCIAL INSPECTION IN BULGARIA (10)
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Good relationships are necessary for achieving cost-effective Public Control System as a whole;
The laws stipulate exchange of information; other types of communication are outlined in specific agreements or are informal;
The international standards for Internal and External Audit (IIA and INTOSAI) also set out models for coordination and using the work of the other auditors and assurance providers;
Important part of the communication is a common language and terminology;
Challenges – mistrust and even jealousy, immaturity of the systems, no appropriate methodology, lack of reforms, different opinion on the same cases, administrative burden on the organizations under control.
6. RELATIONSHIPS BETWEEN FINANCIAL INSPECTION, EXTERNAL AUDIT AND INTERNAL AUDIT - GOOD PRACTICES AND CHALLENGES
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Cooperation Agreement• Parties of the agreement 2011• Objectives• Contents• Implementation
Common Activities • Analysis of the State Budget execution 2014
Organization Performance Reporting
6. RELATIONSHIPS BETWEEN FINANCIAL INSPECTION, EXTERNAL AUDIT AND INTERNAL AUDIT - GOOD PRACTICES AND DIFFICULTIES(2)
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Continual improvement of the Public Sector inspection and audit systems; improving the methodology
More clear mandate for each function, written procedures for interaction
Active position of all parties Transparency and publicity of the common activities and the results Building a network for common understanding and language – regular
meetings, trainings Possibility for reliance to one another’s work and findings
Coordinated, cost-effective and useful Audit and Inspection System in the Public Sector
7. CHALLENGES FOR FUTURE IMPROVEMENT
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THANK YOU!!!
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