Internal Control in Poland. Monika Kos Lima, 30 March 2016

Transcription

1 Internal Control in Poland Monika Kos Lima, 30 March 2016

2 Plan of the presentation Poland in numbers Factors of reforms Reference models Legal basic and definition Implementation and reporting Role of the CHU Challenges and benefits

3 Poland in numbers

4 Poland in numbers Central Europe Country, since 2004 European Union Member State Total area: 312,7 thousand kilometres square Population: 38,5 million people Poland Government Budget for 2016: State budget revenue 313,8 billion PLN State budget expenditure 368,5 billion PLN One of the safer country in the world to live (Global Peace Index for 2014)

5 Poland in numbers Public administration: 19 ministries Central offices: agencies, funds, inspectorates, institutes, etc. 16 administration regions: 16 regional government offices 16 local government offices (self-government); almost 3000 municipalities Total 60,000 public sector entities

6 Factors of reforms

7 Background of the public management reform in the EU Countries Factors for the reform: accessions to the EU of 2004, 2007 and 2013 need for administrative reforms recognition of need to manage risk reduce budget deficit following the financial crisis tax payers claiming value for money

8 Managerial accountability direction across the EU Focus on compliance with rules and legal and/or administrative provisions (input oriented) Focus on the achievement of organisational objectives and efficient, economic and effective use of public money (output oriented)

9 Public Internal (Financial) Control European approach FMC PIFC IA CHU Public Internal Financial Control (PIFC) Financial Management and Control (FMC) Internal Audit (IA) Central Harmonisation Unit (CHU)

10 PIC - European framework for Internal Control in the Public Sector

11 COSO ERM model WHAT? GOVERNANCE COMPONENTS & ACTIVITIES WHO?

12 Public Internal Control Entire control system within the public finance sector and all institutions involved in controlling public funds (Treasury, SAI, etc)

13 Interconnection - 5 layers of defence Entity - wide Gov t - wide National Layer 1 Layer 2 Layer 3 Layer 4 Layer 5 Management Control system Internal Audit Centralised Budget Inspection State Audit Office National Parliament (Complaintdriven function to investigate cases of fraud and serious irregularity) Audit Committee/ Council CHU Source: based on European Commission, DG Budget

14 Legal basis and definition

15 Legal basis Key regulations included in the Public Finance Act were introduced in The PFA was updated 3 times (2005, 2006 and 2009) current came into force in January 2010 Standards issued by the Minister of Finance for the public finance sector

16 Key actors The Polish CHU in the MoF for IC and IA Decentralised IC system (all entities) Audit Committees (ministries) Decentralised IA Service (selected)

17 Key roles Head of public entity ensures functioning of an adequate, efficient and effective management control in the organisation The minister, a commune foreman, a mayor, a chairman of the management board of the local government unit - ensures functioning of an adequate, efficient and effective management control in the supervised organisations Audit Committees (established in all ministries) - provide consulting services to the minister in the scope of ensuring adequate, efficient and effective management control Internal audit assurance provider and consultant Minister of Finance (CHU) develops and disseminates the law regulations, standards and guidelines, assess the system in practice and takes improvement actions. 17

18 In Poland Internal Control = Management Control Internal Control in the Polish law is defined as Management Control (MC). Decentralised managerial accountability for stewardship of the organisation. MC is understood as general model of management binding in the public sector.

19 Definition

20 The MC objectives are to ensure in particular: risk management compliance with the provisions of law and internal procedures efficiency and effectivenes s of operation efficiency and effectivenes s of information flow observance and promotion of rules of ethical conduct protection of resources credibility of reports

21 What is (not) MC Management and control system based on international standards to make public organizations better managed, more transparent and accountable. MC is not additional bureaucracy, but motivation to check what is already in place, how it works and what should be improve. MC is continual improvement of the organisation.

22 Main characteristics of MC: the process integrated with the activity of the organisation, effected by people on all levels of the organisation, supports achieving objectives, provides reasonable assurance.

23 Key MC elements: principles procedures organization attitudes resources

24 Managerial accountability Managers of all levels public finance sector entities are taking responsibility for the performance of the organisation and system, and being accountable for its results.

25 Managerial accountability Important questions Did the organisation: follow the rules? achieve its objectives? meet expectations? provide information on its activities and achievements? face consequences for its actions?

26 Requirements for managerial accountability Authority for head of public entity to make decisions Managerial structure within the organisation and delegation of authority to individual managers Objectives set for each level of management, agreed resources, timescales, accountability arrangements, boundaries of the manager s responsibilities Good quality information Action taken when there is management failure

27 MA implementation and reporting

28 MC levels 1st level of the manage ment control 1st level of the manage ment control The head of the entity The Minister The Mayor The commune foreman The head of the entity 2nd level of the manage ment control

29 MC elements Management control standards Public Finance Act Obligatory for all entities Obligatory for appointed entities internal environment objectives and risk management control mechanisms Annual action plan Report on the execution of the action plan information and communication monitoring and evaluation Statement on the condition of the management control 29

30 MC - annual action plan Indicators of the level of achievement of the objective Planned values of indicators Objectives Reference to the strategic documents Tasks aimed at achievement of the objectives 30

31 Statement on MC conditions The statement is divided into three sections: Section one is the statement itself evaluation of the condition of the management control (levels A, B, C) Section two shall contain reservations in regard to the functioning of the management control Section three provides description of activities undertaken to enhance the management control The statement refers to the year preceding the year of submission of the statement The minister in charge of the branch may oblige the head of entity in the branch to submit a statement on the condition of management control covering the entity he/she is in charge of 31

32 Code of Ethics Anticorruption policy HR policies and practices Organisational structure MC in practice, examples Annual activity plan (indicators) Performance budgeting Risk mamagement Objectives & risk mgnt Approvals, reviews, Securing assets Segregation of duties Information Technology controls Ongoing supervision Management control statement Self-assessment Internal audit Report on annual activity plan execution Control & peer review Management Control STANDARDS STANDARDS IMPLEMENTATION Public Information Bulletin e-office Intranet meetings

33 Internal audit where it is? In Poland there are three types of public finance sector entities covered by internal audit: 1. entities specified directly in the PFA (for example the Chancellery of the Prime Minister, Chancellery of the President, ministries, central agencies, tax and customs chambers, etc.); 2. entities where the amount of incomes or costs declared in the financial plan exceeds PLN (included local government units); 3. the entities in which carrying out internal audit is optional (up to decision of the head of entity). 33

34 Structure of IA units Obligation of internal audit function against the PFA According to the threshold regulation According to decision of head of public organization (minister or Prime Minister) Total number of PFSO Number of PFSO, including: government sector Self-government sector self-government organizational units ND ND ND Based on information collected by the CHU in 2012

35 Internal audit key roles Providing assurance - independent and systematic assessment of the adequacy of existing systems and recommend improvements if necessary; Supporting the head of entity in achieving the objectives and tasks Independent consulting activities.

36 Internal audit since 2010 Internal audit shall be carried out by: or internal auditor employed in the entity external contractor (qualified as internal auditor). 36

37 Audit Committee - objectives Audit Committees were established in 2010 in all ministries. The objective of the Audit Committee is to advice the minister in charge of the branch in the scope of ensuring adequate, efficient and effective management control and efficient internal audit 37

38 Audit Committee key challenges How to support the minister to improve management system in the ministry and supervised entities? How to support improvement of internal audit quality in the ministry and supervised entities? 38

39 Audit Committee - tasks indicating material risks indicating material weaknesses in management control and proposing measures to improve it setting priorities for annual and strategic internal audit plans reviewing material internal audit results and monitoring the implementation thereof monitoring the effectiveness of the internal audit, including reviewing results of internal and external evaluations of the internal audit activity approving termination of employment and changing the pay and work conditions of the heads of internal audit teams 39

40 Audit Committee AC does not overlap an internal audit unit activity. AC does not carry out internal audit engagements. Advisory services delivering by the AC are not consulting services delivering by internal audit. AC advices are related to management control system and internal audit activity in the whole branch administered by the minister (including all entities supervised by the minister). The AC may suggest internal audit units to take particular actions. The AC strengthens the internal audit function. Internal audit unit supports AC. The AC usually bases on results of internal audit work. 40

41 Role of the CHU and activities taken

42 Central Harmonization Unit in Poland CHU PFSO

43 Key objectives of CHU

44 Key tasks of CHU Legislation and methodology concerning internal control (management control) and internal audit Establishing internal audit function, its promotion and protection Delivering internal auditors trainings and certification process Dissemination of law provisions and standards Assessment, monitoring and reporting on management control and internal audit in the public sector Cooperation and network, identification and promotion of good practice examples

45 Role of the CHU - maturity levels Improvement Strengthening Establishing

46 Main challenges Key actions Setting up MC (IC) and IA Awareness and accountability of the heads of public sector entities Understanding of internal audit role and responsibilities Building up certified/qualified cadre of internal auditors Platform for cooperation between internal and external audit/ internal audit and internal inspection Political influence (instability) Basic law regulations FMC & IA Standards and IA Manual Establishing IA function Seminars for heads of entities Trainings and national certification system for internal auditors Promotion and protection of internal audit function Assessments of FMC and IA (CHU on the spot) Analysis of information and reporting Common terminology for internal and external auditors 46

47 Main challenges Key actions Strengthening MC (IC) and IA FMC treated only as financial matters New definitions and IIA Standards Risk management approach Independence of IA Not sufficient number of certified internal auditors Risk management Manual Self-assessment guidelines (for IA and FMC) Trainings and pilots Many one-post (or part time) IA units IA profession opened for other certificates Quality and usefulness of results of IA work Political influence (instability) Outsourcing or own IAU in small public entities IA assessments (CHU) Analysis of information and reporting Coordinated internal audit 47

48 Cooperation The Treasury Services The Supreme Audit Office The Chancellery of the Prime Minister CHU Internal Auditors Associations The Ministry of Administrati on Independent experts

49 Main external assessors of MC SAI Chancellery of the Prime Minister CHU

50 Challenges and benefits of IC

51 Challenges on the strategic level: IC should be a part of public administration reform, including public finance management reform; Introduction of the legal provisions on IC should be properly coordinated with all other relevant laws. Development of IC is not only a role of the CHU and the Ministry 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 reform, there should be a strategy for its implementation and maintaining.

52 Challenges on the coordination level Vision: Vision about the IC and its good communication is required. Control: Understanding that the IC is not a new type of control activities but a management system, involving all levels of management and staff. Monitoring 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: Assuring time and support to the head of entities for building new approach within entity.

53 Challenges on the operational level: Raising management awareness and professionalism by: providing seminars, conferences and training; introducing pilots programmes; sharing good practice examples. Creating management tools: standards, guidelines, methodology; professional internal audit service; tools for self-assessment, etc.

54 The sound IC should help public entities to: ensure optimum utilisation of resources, guide operations to achieve objectives, improve quality of the service and products, minimise deviations and risks of irregularities, establish responsibility and facilitate delegations, motivate employees, facilitate coordination and information flow between departments, increase efficiency, increase trust and improve image of the public sector.

55 Conclusion Implementation of PIA system is a circle Building up; IA cadre, Heads of PFSOs awareness Assessment/ verification Development Strategy/ CHU/ Legal act Implementation in the PFSOs Peer reviews/ evaluations by CHU EU Experts/ exchange of know how International best practices Regulations/ standards Seminars/ workshops Study visits

56 Conclusion: Developing IC is thus an iterative process that involves continually improving performance and governance, 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 trends in modern management and provide a comprehensive, structured approach to internal control.

57 Sources The presentation was based on: 1) the Polish regulations and experience 2) PIC framework developed by DG Budget 3) COSO model 4) international exchange of practice during events organised by: DG Budget PEMPAL Internal Audit Community of Practice and many other projects and initiatives.

58 QUESTIONS

59 Monika Kos 59