Financial management and control of public agencies High-level Forum on the Governance of Public Agencies and Authorities Bratislava- 23 November 2001 François-Roger Cazala Principal administrator SIGMA
A presentation based on a survey carried out in the framework of the SIGMA Programme SIGMA papers No. 32 (September 2002)
5 country reports : a representative sample of Western experience France, Netherlands, Portugal, United Kingdom, Sweden
Creation of agencies to improve financial management and control of public bodies Insulating decisions from politics Clear identification of responsibilities Better accountability schemes Increasing economy and efficiency Introducing new management schemes (e.g.accrual accounting, internal audit)
Typical financial risks identified Illegal allocation of public money or misuse of public assets Debt risks Corrupt practices Circumvention of financial and administrative rules by parent ministries or other parties Insufficient consolidation of agencies accounts in government financial reports (reporting risk) Weak or absent accountability arrangements
Financial management and control framework of public agencies : Suggested approaches General Issues Choosing and classifying agency models Legal status Budget review and control Specific Issues Real property assets Agency revenue policy Cash programmes administered on behalf of Government Earmarked contributions Accounting, reporting and auditing
Choosing and classifying agency models NOT importing a foreign model but first analysing the specific objectives, risks and management incentives that are most important in the country s context Classifying the various possible models of semiautonomous agencies in accordance with national priorities and concerns (e.g. degree of decisionmaking or financial autonomy) Choosing the appropriate degree of autonomy for a new agency should include an assessment of the associated financial risk
Legal status A key common distinction : agencies established under company law vs. other agencies Distinction should pertain to the type of activities entrusted to the agency
Budget review and control (agencies functioning under market conditions) Government normally plays the same role as a shareholder as defined in company law or equivalent Special features to cover risks for public finance investment selection control on overall wage costs segregated business plan and reporting for public duties carried out by the agency application of public procurement law
Budget review and control (agencies dependant on State budget support) Budget formulation process should in general follow the normal review standards applied to the traditional budget review and directly involve the finance ministry Special attention should be paid to the oversight of staffing and personnel costs Transactions preferably performed within the State treasury system Central ex ante control procedures when existing should be gradually replaced by management control practices under guidance of the finance ministry
Real property assets Risks : alienation or inadequate maintenance of national patrimony elements Suggested control arrangement : supervision of the agency use of real property assets to ensure strict confinement to the agency mandate Borrowing Risks : creating public debt beyond limits set up by Government or Parliament Suggested control arrangements : agency borrowing to be subject to government oversight, proportionate to the degree of responsibility assumed by the State, including prior approval by the finance ministry as appropriate
Agency revenue policy Risk : agency outputs priced at unnecessary high levels, prices not determined by market discipline, non-transparent price-setting Suggested control arrangements : agency revenue policy subject to government s review in the context of annual budget or equivalent procedure, full cost recovery as basis for price-setting
Cash programmes administered on behalf of government Risk : using programmes resources to cover agency running costs Suggested control arrangements : separate accounting for cash programmes and for operating budget Earmarked contributions Risk : lack of definition or monitoring of earmarked contributions Suggested control arrangements : earmarked contributions accompanied by written conditions regulated by the Finance Ministry, donor s monitoring and audit arrangements in place
Accounting, reporting and auditing Commercial-type agencies should conform to the highest private sector standards. Higher standards could be needed to safeguard the principles of transparency in public finance Other agencies are encouraged to progressively adopt internationally accepted standards for accounting and reporting All public agencies should fall into the remit of the country s Supreme Audit Institution, the type of audit performed depending on the nature and status of the agency
Conclusions Financial autonomy of agencies does not mean full independence Increased managerial responsibility implies increased accountability systems and procedures both for agencies and parent public bodies Need to balance autonomous management (to ensure efficiency) and central government supervision (to safeguard basic public finance concerns) An innovative development in the framework of EU-accession : the accreditation of public agencies