1. Public Internal Control in the European Union
Robert Gielisse, CIA, CGAP
European Commission
Principal Advisor , DG BUDG
In charge of PIC and PIFC

2. 2. Your presenter Robert GIELISSE – Dutch National 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. 3. History of Internal Control in the EU
Pre 2004
CC :
Centralised Control System -> PIFC
EU 15
Diversity
2004
EU 25
CC 2 + PCC:
CCS -> PIFC
EU 15
Diversity
EU 10
PIFC
2007
EU 27
(Potential) CC:
CCS -> PIFC
EU 15
Diversity
EU PIFC
2009
Kick start of PIC

4. 4. History of Internal Control in the EU
Public internal control modernised in the past 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. 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. 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. 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. 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. 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. 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. 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. 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. 13. PIFC – European framework for Internal Control in the Public Sector

14. 14. PIFC - 5 layers of defence for public money
Entity - wide
Gov’t - wide
National
Layer 1
Financial Management and Control systems
Layer 2
Internal Audit
Layer 3
Centralised Budget Inspection
(Complaint- driven function to investigate cases of fraud and serious irregularity)
Layer 4
State Audit Office
Layer 5
National Parliament
CHU and Audit Committee
PIFC Council
Source: European Commission, DG Budget

15. 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. 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 set-up more efficient

17. 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. 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. 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. 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. 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. 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. 23. Keeping the Network informed
The PIC Newsletter
An edition after each Working Group meeting

24. 24. Developments 2014 Compendium (2nd edition 2014)
2014 PIC conference
Contact

25. Thank you! Questions? Robert Gielisse, CIA, CGAP
Principal Advisor, DG BUDG
In charge of PIC and PIFC