Financial Management and Control Arrangements in Practice

Monika Kos, Ministry of Finance, the Republic of Poland

Scope of the presentationScope of the presentation

what is FMC?

Financial Management and Control (FMC) Financial Management and Control (FMC) – conceptual meaning– conceptual meaning

2 2 levelslevels of Internal Control of Internal Control

What is FMC?What is FMC?

Financial Management and Control is a comprehensive system of decentralised internal control put in place by and under the responsibility responsibility of heads of public budget entitiesof heads of public budget entities to provide reasonable assurance that budget and other resources will be used in a regular, ethical, regular, ethical, economical, effective and efficienteconomical, effective and efficient manner towards the achievement of objectivesachievement of objectives.

What is What is new about new about FMC? FMC?

What is FMC about? What is FMC about?

Key roles and responsibilities

KKey actors in establishing FMCey actors in establishing FMC

Elements of the FMC Elements of the FMC

Managerial accountabilityManagerial accountability

Managerial accountabilityManagerial accountability• Managers of all levels public finance sector

entities must be accountable for the activities accountable for the activities they carry out in operationaloperational policies,policies, including financial management and control financial management and control policiespolicies.

• The manager is responsible for achieving for achieving objectivesobjectives within budget, on time, efficiently and effectively.

Requirements for Managerial AccountabilityRequirements for Managerial Accountability

Key actors in establishing and maintaining Key actors in establishing and maintaining FMC on the entity levelFMC on the entity level

The head of entity is responsible forThe head of entity is responsible for ensuringensuring::

Managerial accountability covers:Managerial accountability covers:

The impact of FMC on role of finance officerThe impact of FMC on role of finance officer

The role of the finance officer will be to The role of the finance officer will be to support the manager support the manager and to signal the manager if resources are not being used efficiently and effectively.

The finance officer becomes a top level top level financial adviser financial adviser to management – at all levels.

The tasks of the finance officerThe tasks of the finance officerThe finance officer becomes responsible for:•Providing the manager (at whatever level) with the financial information he/she requires to enable the manager to achieve efficiency and effectiveness;•Ensuring that the internal financial control standards are properly met throughout the organisation;•Developing strategic financial plans for the organisation;•Liaising with the MoF over budget preparation/financial reporting;•Ensuring that managers pay full attention to management risks related with budget spending process.

RRole of internal auditole of internal audit

FMC and COSO modelFMC and COSO modelFMC is founded upon five interrelated components of internal controls (COSO):

The Polish experience

The Polish experience – key regulation

Key regulations included in the Public Finance Act were introduced in 2002.

The PFA was updated 3 times (2005, 2006 and 2009) -the last came into force in January 2010

The Polish exThe Polish experienceperience – the structure – the structure

Audit Committies(ministries)

FMC in PolandFMC in Poland

The FMC is called Management Control, which comprises a general set of activities undertaken activities undertaken in order to ensure the implementation of in order to ensure the implementation of objectives objectives and tasks in an:•effective, effective, •economical,economical,•and timely manner,and timely manner,•compliant with the provisions of lawcompliant with the provisions of law.

The FMC The FMC objectives objectives areare to ensure in particular: to ensure in particular:

2 interrelated levels of FMC in Poland2 interrelated levels of FMC in Poland

New responsibilitiesNew responsibilities

Development and publishing on the website:

Annual activity plan Annual activity plan - by the end of November each year

Report on the plan execution Report on the plan execution and Statement on Statement on the condition of management control the condition of management control - by the end of April each year

The Minister in charge of the branch – mandatory;Supervised entities – up to the minister’s decision; Local government – up to decision of the head of entity or supervisory body.

CooperationCooperation

Challenges and benefits

Challenges on the strategic level:FMC should be a part of public administration reform, FMC should be a part of public administration reform, including public finance management reform;

Legal means Legal means that are needed to implement FMC should be should be properly coordinated properly coordinated with all other relevant laws.

Development of FMC is not only a role of the CHU and the Development of FMC is not only a role of the CHU and the Ministry of FinanceMinistry of Finance; there should be close cooperation with other institutions involved in public reform process.

The law is just a first not the final step in the reformThe law is just a first not the final step in the reform, there should be a strategy for its implementation and maintaining.

Challenges on the coordination levelVision:Vision: Vision about the FMC and its good communication is required.

Control: Control: Understanding that the FMC is not a new type of control activities but a management system, involving all levels of management and staff.

Monitoring by CHUMonitoring by CHU: : Not to focus on the existence of bureaucratic processes but promote a new management style based on planning, risk management and measuring achievements of objectives.

Timetable: Timetable: Assuring time and support to the head of entities for building new approach within entity.

Challenges on the operational level:

Raising management awareness and professionalism by:Raising management awareness and professionalism by:•providing seminars, conferences and training;•introducing pilots programmes;•sharing good practice examples.

Creating management tools:Creating management tools:•standards, guidelines, methodology;•professional internal audit service;•tools for self-assessment, etc.

The sound FMC should help public entities to:The sound FMC should help public entities to:::

Conclusion:Developing FMC is thus an iterative process that involves continually improving performance and continually improving performance and governancegovernance, rather than introducing a new, extra system.

The existing management system shall be structured, formalised and improved in accordance with identified needs and cost considerations.

Internationally-recognised or national standards and frameworks offer common points of reference within common points of reference within trends in modern managementtrends in modern management and provide a comprehensive, structured approach to internal control.

questions