4. History of Internal Control in the EU

Public Internal Control in the European Union
Robert Gielisse, CIA, CGAP
European Commission
Principal Advisor , DG BUDG
In charge of PIC and PIFC
2. Your presenter
Robert GIELISSE – Dutch National
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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 2004
EU 15
Diversity
Centralised Control
System -> PIFC
2004
EU 25
EU 15
Diversity
CC 10 + 2:
CC 2 + PCC:
CCS -> PIFC
EU 10
PIFC
2007
EU 27
EU 15
Diversity
(Potential) CC:
CCS -> PIFC
EU 10 + 2
PIFC
2009
Kick start of PIC
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 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 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 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 on
 COSO 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 Control
an 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 Control
is 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
Gov’t - wide
Entity - wide
National
Layer 1
Layer 2
Layer 3
Layer 4
Layer 5
Financial
Management
and Control
systems
Internal
Audit
Centralised
Budget
Inspection
State Audit
Office
National
Parliament
CHU and Audit Committee
PIFC Council
Source: European Commission, DG Budget
(Complaintdriven
function to
investigate
cases of
fraud and
serious
irregularity)
15. PIFC - 5 layers of defence for public money
These 5 layers are complementary:
 FMC: decentralised ex-ante and ex-post under
managerial responsibility
 IA: 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 IC
 Parliament: 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 setup 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
24. Developments 2014
Compendium (2nd edition 2014)
•
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http://ec.europa.eu/budget/pic/compendium/in
dex_en.cfm
http://ec.europa.eu/budget/pic/lib/book/compe
ndium/HTML/index.html
2014 PIC conference
•
http://ec.europa.eu/budget/pic/conference/ind
ex_en.cfm
Contact
•
Robert.Gielisse@ec.europa.eu
Thank you!
Questions?
Robert Gielisse, CIA, CGAP
Principal Advisor, DG BUDG
In charge of PIC and PIFC

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