PIC Conference

The Hague, 15 16 May 2014

TheWiderPublicFinancialManagementContext
inModernizingInternalControls
Jack Diamond

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An EU Approach

Internal control and audit should

match the PFM system

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Conference
2014

BUT are all EU PFM systems at the same stage of

development?
Can view PFM development in stages:
Stage 1: Enforce basic financial compliance
Characterized by traditional input controlled budget
Stage 2: Ensure aggregate fiscal discipline over the medium
term
Characterized by medium term budget frameworks
Stage 3: Attain policy objectives in efficient/effective way
Characterized by performance budgeting/management
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An EU approach

Figure 1. Development Path

of PFM Systems

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An EU approach

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Conference
2014

Some important points from

Figure.1.:

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2014

The most advanced PFM systems meet all three PFM

requirementsthey build on each other
Concept of control evolves with PFM developments
There is a normal sequence in this development, which if
not followed could prove counterproductive
Improving internal control/audit is essential to improving
PFM and vice versa
Should be recognized that not all EU countries are at the
advanced performance stage of PFM development

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Messages of the Conference

Papers:

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2014

Paper One highlights the requirements for a performance management

system:

Define the outputs/outcomes of performance

Deriving suitable measures of performance

Ensure a good program design to connect inputs to performance

Set targets for performance measures (SMART)

Create an accountability framework

A system of rewards/penalties to enforce performance

.all difficult, and

Paper Two offers a model (Plan-Do-Check-Act) to give guidelines how to
introduce such a system
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BUT to be successful needs some

preconditions in place

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2014

First are a number of technical requirements:

IT usually needs to be up-graded
Accounting needs to be improved (moving to

accruals)

Extension and modification of existing legislation

and regulations

All these requirements place more demands on

internal control and audit processes
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Also there are required

institutional changes

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There is a need to adjust institutional arrangements for PFM to

move from centralized to devolved decision-making
already seen in EU autonomous government agencies
BUT raises specific accountability and control issues:
The role of contracts (difficult to construct and enforce
e.g. PPPs)
Choice of institutional arrangement to deliver services
(private/public sector/joint/level of govt./other national
government?)

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An EU approach

So what can be learned from

this wider perspective?

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Conference
2014

Modernizing internal control should not lead PFM reform but

should follow
The move to modern internal control systems requires
fundamental changes to the PFM system
These changes are difficult to implement singly and even
more complex collectively
Before these fundamental changes can take place certain
technical and institutional preconditions should exist
Putting in these preconditions takes time and is not easy,
but should not be skipped
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