1. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Working Group for Chapter 32 – Financial control Bilateral screening: Chapter 32 PRESENTATION OF MONTENEGRO Brussels, 19 June 2013

2. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PUBLIC INTERNAL FINANCIAL CONTROL - PIFC Ana Krsmanović Assistant Minister Ministry of Finance ana.krsmanovic@mif.gov.me

3. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control CONTENT OF THE PRESENTATION Strategic documents and legislative framework Overview of the current state o Financial management and control o Internal audit o Central Harmonization Unit Plans for further development

4. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32: Financial control STRATEGIC DOCUMENTS Strategy for the Development of the public internal financial control in Montenegro (December 2007) Strategy of further development of the public internal financial control (PIFC) in Montenegro for the period 2013-2017 (June 2012) Strategy for Public Administration Reform in Montenegro 2011-2016 Strategy for Fight Against Corruption and Organized Crime 2010-2014 Draft Plan on Reorganization of Public Sector – to be adopted in June 2013

5. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control LEGISLATIVE FRAMEWORK CORE LEGISLATION Law on Public Internal Financial Control System (Official Gazette, No. 73/08,20/11 and 30/12) Budget Law (Official Gazette, No. 40/1,...30/12) RELEVANT LEGISLATION The Law on Public Administration (Official Gazette, No.38/03,22/08 and 42/11) The Law on Civil Servants and State Employees (Official Gazette, No. 39/11, 50/11 and 66/12) Public Procurement Law (Official Gazette, No. 42/11)

6. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION FOR FMC (PIFC LAW) Rulebook on the manner and procedure for establishment and implementation of public financial management and control (Official Gazette, No. 37/10); Rulebook on the methodology for reviewing the quality of financial management and control in the public sector; Instructions on the content of the report and the reporting method of the financial management and control system (Official Gazette, No. 55/12); Manual for Financial Management and Control (July 2011) Guidelines for the development of internal rules and procedures for FMC Guidelines for the development of internal policies and procedures for establishing, implementing and developing the financial management and control, the Action Plan for the implementation of the activities (July 2011)

7. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION RELEVANT FOR FMC Secondary legislation for the State Treasury and Budget Directions on State Treasury Operations (Official Gazette, No. 80/08 and 16/13) Rulebook on the manner of preparation and presentation of financial statements of the budget, state funds and local governments, Official Gazette, No. br. 32/10 and 16/13) Decisions about the design and content of the program budget (Official Gazette, No. 32/10 and 16/13) Secondary legislation in the area of the organization of public administration Decree on Criteria for Internal Organization and Systematization of Tasks in State Administration (Official Gazette, No. 07/13) Decree on Organization and Manner of Work of State Administration (Official Gazette, No. 05/12, 25/12, 61/12 and 20/13) Rules of Procedure of the Government of Montenegro (Official Gazette, No. 03/2012)

8. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION FOR IA Decree on the Establishment of internal audit in the public sector(Official Gazette, No. 50/12) Decree on titles of internal auditors - March 2009 (Official Gazette, No.23/09) Rulebook on the internal method and procedure - May 2009 (Official Gazette, No. 32/09) Rulebook on the curriculum and manner of conducting the examination for authorized internal auditors in the public sector –December 2011 (Official Gazette, No.63/11) Internal audit manual (third edition) Rulebook on the methodology for reviewing the quality of internal auditors in the public sector (Official Gazette, No.11/13) Instructions on the content of the report and reporting method for the internal audit work (Official Gazette, No.55/12)

9. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control OVERVIEW OF THE CURRENT STATE OF PLAY Financial management and control Internal audit Central Harmonization Unit

10. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL IMPLEMENTATION OF FMC Appointment of persons responsible for the establishment of FMC in each institution Action plans Internal procedures Analysis of the financial management and control in the public sector in Montenegro Initial activities in risk management

11. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control 20082013 FMC managers082 (68+14) Action plan029 (27+2) Book of procedures042 (37+5) FINANCIAL MANAGEMENT AND CONTROL

12. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL FMC AND BUDGET CYCLE BUDGET PLANNING -Carried out in line with macroeconomic and fiscal policies and decisions on the design and content of the program budget -Emphasis on controls with established limits -Program planning, but without established limits -Minister responsible for legality of spending, Budget Law does not emphasize responsibility for economic, efficient and effective management -PIFC law requires a wider responsibility BUDGET EXECUTION -Single treasury system at the central level -Single treasury system at the local level -Commitments, it is necessary to strengthen the analytical record of outstanding obligations -Own revenues -part in the Treasury system, and some of its own funds

13. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL FMC AND BUDGET CYCLE ACCOUNTING AND REPORTING Unique accounts classification Prescribed financial reporting Reporting of arrears quarterly Reporting on own income on a monthly basis Annual work reports - without connection with the budget funds Internal reports – if needed within spending units

14. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL MANAGERIAL ACCOUNTABILITY Law on PIFC, Law on Budget Law on State Administration DELEGATION OF AUTHORITY AND SEGREGATION OF DUTIES IN THE CASE OF FINANCIAL CONTROLS: - Approving officer - Validation officer - Authorizing officer (Assistant Minister for State Treasury)

15. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL THE DRAFT LAW ON BUDGET AND FISCAL RESPONSIBILITY Key changes: - Medium-term planning - Emphasis on the managerial accountability - Introduction of budget inspection - Introduction of fiscal rules

16. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL THE DRAFT LAW ON BUDGET AND FISCAL RESPONSIBILITY FINANCIAL INSPECTION Objective – Control of lawfulness of budget spending as well as control whether spending is in accordance to the annual Budget Law Inspection findings sent to the Minister of Finance, head of authority and SAI Control process and procedure for conducting control will be regulated by the Governmental decree

17. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32: Financial control FINANCIAL MANAGEMENT AND CONTROL

18. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT Establishment - PIFC Law: Organizing a separate organizational internal audit unit, within the entity which is directly responsible to the head of the entity; Performing the internal audit by the internal audit unit of another entity, based on agreement, with the prior approval of the Ministry of Finance. Decree on establishment of internal audit in the public sector 15 at central level- 12 in ministries and 3 funds and 15 at local level

19. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT Establishment of IA units

20. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT Number of internal auditors

21. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT CENTRAL LEVEL 26 internal audit unit established by Rulebook (including 15 obliged by Law) In 30 entities Internal audit shall be performed by internal audit of another entity 31 auditors allocated in 23 internal audit units, as follows: - 17 units with 1 auditor - 4 units with 2 auditors - 2 units with 3 auditors Coverage: 95% of the central budget LOCAL LEVEL 13 internal audit units established by decision on organization of local self - government 17 auditors allocated in 8 internal audit units, as follows: -3 units with 1 auditor -2 units with 2 auditors -2 units with 3 auditors -1 unit with 4 auditors

22. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT INDEPENDENCE OF INTERNAL AUDIT PIFC Law, Article 20, prescribes that internal audit unit shall be organizationally and functionally separated of other organizational units of the entity Internal Audit Units established at the highest organizational level, directly responsible to the head of the entity Internal Audit Charters Independent planning and performing of audit Reporting directly to the head of the entity

23. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT COOPERATION WITH THE STATE AUDIT INSTITUTION (SAI) Prescribed by Internal Audit Manual Closely defined by Internal Audit Charter Internal Audit reports are being submitted to SAI, during performing of external audit Findings and recommendations of SAI are being taken into consideration in process of strategic and annual planning in performing of individual audits

24. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT TRAINING CHU with IPA 2009 Project assistance “Strengthening the management and control systems for EU financial assistance “ organized following trainings: Basic training for internal audit Practical training for performing individual audit in 5 pilot - institutions Basic training for preparation of strategic and annual plan of internal audit Practical training for preparation and development strategic and annual draft plan in 5 pilot- institutions CHU in cooperation with HRMA organized and delivered series of one day trainings to newly appointed internal auditors at central and local level about role and importance of internal audit

25. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control INTERNAL AUDIT CERTIFICATION  National certification - 7 auditors have been awarded with the Certificate of Chartered Internal Auditor in Public Sector (next exams - July 2013)  International Certification by CIPFA Programme for 40 internal auditors in public sector (programme started in October 2012.) – Training and exams (4 modules) conducted.

26. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control CENTRAL HARMONIZATION UNIT Organizational scheme CHU Assistant Minister FMC Unit Systematized 3 (2 filled) IA Unit Systematized 4 (3 filled)

27. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control CENTRAL HARMONIZATION UNIT COMPETENCES Preparation of laws and sub-laws regulation, methodology and work standard in the area of financial management and controls and internal audit Training program performing for certification of internal auditors Training Programme performing for FMC and Internal Audit Coordination of establishment and development of FMC and internal audit; Keeping registers : internal audit units, internal audit Charters, authorized internal auditors and FMC managers ; Review on quality of FMC and internal audit in entities; Cooperation with professional bodies and institutions in the area of FMC and internal audit. Preparation of annual consolidated report on internal financial controls system

28. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control CENTRAL HARMONIZATION UNIT COOPERATION DG Budget IA units FMC managers Stat Audit Institution Treasury Sector and Sector for Budget Union of Municipalities IPA Bodies Human Resources Management Authority Municipalities Ministry of Interior Institute of Internal Auditors of Montenegro NGO Sector – Institute Alternativa CHU of Slovenia and CHU Croatia Ministry of Finance of the Netherlands

29. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control CENTRAL HARMONIZATION UNIT MONITORING AND REPORTING Pursuant to the Article 38 of the PIFC Law it is prescribed that the CHU performs review of quality on FMC and IA in Public Sector entities Methodology for the review of the quality of FMC and IA is prescribed by the MoF Rulebooks Reviewing of the quality of FMC and IA is based on submitted quarterly and annual reports of public sector entities Preparation and submitting of annual consolidated report on FMC to the Government of Montenegro with the proposal of conclusions Follow up of the implementation of conclusions Monitoring of Action Plan (2013-2014) for the implementation of Strategy for further development of internal financial control system in public sector of Montenegro

30. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL Short to medium term plans Further development of the framework for FMC within bilateral cooperation with the MoF of Croatia Analysis of the accounting system in the public sector, accounting capabilities in institutions, as well as proposals for the improvement of accounting and capacity building in this area. Connecting FMC/PIFC and budget system more closely (Budget and Fiscal Responsibility Law in the procedure) Review of FMC quality by CHU in selected pilot institutions Strengthening of the cooperation with the stakeholders

31. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL Short to medium term plans Improving mechanisms of managerial accountability and clearer delegation of responsibility and authority Improving financial reporting Workshops at the local level in order to raise awareness about the importance of the PIFC Strengthening capacities of the Parliament Committee for Economy, Finance and Budget Update of the Action plan for PIFC Strategy

32. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL Long- term plans Strengthening of the managerial accountability Introduction of the strategic planning Development of Key Performance Indicators Establishment of continuous FMC training programs in cooperation with the Human Resource Management Authority

33. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT INTERNAL AUDIT Recruitment of internal auditors in IA Units at central and local level Coordination of further establishment of internal audit in public sector entities at central and local level Strengthening of the competences of internal auditors for performing more complex audits Training of auditors for performing audits of EU funds - MoF of Netherlands

34. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT INTERNAL AUDIT Establishment of the sustainable system for the training and certification of internal auditors Organization of workshops with the aim of presenting the Methodology for quality review of internal audit Reviewing quality of internal audit work from CHU in selected pilot institutions Updating Internal Audit Manual in the area of EU funds Organization of regular meetings with internal auditors Networking of internal auditors

35. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT CHU Strengthening capacities of the CHU employees Updating the Action Plan for implementation of Strategy for further development of the internal financial control in public sector for period 2013- 2017 (Deadline: IV quarter 2013) Strengthening cooperation with the Sector for Budget and Treasury Sector in the implementation of PIFC in the core processes Strengthening cooperation with the SAI through regular meetings and mutual trainings

36. M O N T E N E G R O Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32: Financial control PLANS FOR FURTHER DEVELOPMENT CHU Cooperation with the Ministry of Interior in the area of State Administration Reform with aim to maintain and further develop established structure for PIFC implementation Strengthening of the cooperation with the IPA bodies Cooperation with the Institute of Internal Auditors of Montenegro Strengthening of the regional cooperation

37. Thank you for your attention! QUESTIONS