1. Ch. 32 - Financial Control PIFC in Iceland 2.2.2011

2. Financial management system EU standards Central Harmonization Unit Internal audit Financial management & control Gap analysis Next steps General contents of presentation

3. Frame budgeting Financial independence of line ministries and agencies Financial management authority Centralized accounting system - Oracle Centralized financial statements Centralized payroll Treasury accounts committee National audit office Financial management & control (FMC)

4. Authorized government expenditure and estimation of income Budget Supplementary budget Execution of the budget Based on regulation No. 1061/2004 for the implementation of the fiscal budget and the accountability for Treasury finances of the A-budget Government financial management

5. Preparation of Budget Financial and operational yearly plans Day to day financial control Monthly cash flow statements Quarterly financial statement Monthly review by ministries State accounts - consolidated Other control Performance management Analysis by National Audit Office Financial Management & Control

6. Key players Parliament Ministry of Finance Line ministries Agencies Financial Management Authority National Audit Office Treasury Accounts Committee Financial management & control (FMC)

7. Approves budget frames Budget committee committee Approves the split of the budget into items and between agencies Passes the Fiscal budget act Passes the supplementary budget act Role of parliament

8. Ministry of Finance

9. Budget execution Performance management Governance practices and reform Development of government accounting practices Public procurement Funding and debt management Public projects and management of assets Long-term treasury commitments and settlement issues Interactions with the private sector Oversees the work of several committees Public Projects Committee Treasury Accounts Committee Performance Management Committee Financial Management Department

10. Objective To support and motivate effective operations of ministries and agencies, within the budget each time Responsibilities for budget execution Ministry of finance has supervision of the execution of the budget Spending ministries have supervision of all affairs within their operation Agencies are responsible for it's operation and all financial obligations Execution of the budget

11. Supervision of the execution of the budget Monitor and coordinate all parties responsible Issue general regulations and guidelines for the execution Prepare and issue a monthly report on fiscal finances Ask formally for explanation from line ministries for predefined overspending Prepare a report of possible weaknesses in the beginning of each year Report the development of expenditure to the Cabinet and the Budget Committee of the Althingi on a quarterly basis Ministry of Finance

12. Inform agencies of the assumptions for the budget Request annual budget plans from agencies for their operation, review and approve/decline based on whether they meet the budget proposal and expected service level Monitor agencies at least on a monthly basis and ask for explanations and instigate actions if agencies are overspending Line ministries

13. Agencies prepare and send to ministries an annual budget plan in line with budget and expected service level Agencies are responsible for monitoring it's operation monthly compared to budget and plans Managers are not authorized to initiate other financial obligations than those included in the budget limit Agencies

14. Financial Management Authority Accounting service State accounting CollectionPayroll Treasury Tech and developm. Dep Director General Director general Admin.

15. Main responsibilities Accounting Service Bureau Year-end for agencies State accounting (for the Central Government) Loan accounting Reporting Service Bureau YTD reporting QTD reporting The Government Annual Report Financial Management Authority

16. Main responsibilities Payroll The state Revenue and Income collection Treasury Service Bureau Contributions to agencies Various payments Operation and development of IT systems Oracle E-Business Suite TBR LIBRA Financial Management Authority

17. Salary Various expenditure Appropriation to Government Agencies Interest Amortisation Loan payments Individual Non profit organizations Companies Transfer payment

18. Financial Management Authority Salaries paid centrally by FMA Agencies using FMA service bureau Invoices paid centrally by FMA after being approved by organization Other agencies PTD budget - salaries Appropriation to government agencies

19. Financial audit of all agencies and other government entities Audits the state accounts yearly Performance auditing Examinations of internal controls IT auditing Monitoring the implementation of the Government Budget Monitoring contracts and grants Monitoring the finances of self-owned organisations (foundations) Monitoring the finances of political parties and political candidates National Audit Office

20. Advisor to the Minister of Finance on the presentation of the budget and state accounts and other things that has basis for the financial control system Has basis in The Government Financial Reporting Act Permanent secretary of the Ministry of Finance General manager of the Financial Management Authority Auditor general General Manager of Statistics Iceland Member appointed by the Central Bank Treasury Accounts Committee

21. The Government Financial Reporting Act, No. 88/1997 Regulation for the implementation of the fiscal budget and the accountability for Treasury finances of the A-Budget The Government Employees Act, No. 70/1996 The Accounting Act, No. 145/1994 Regulation No. 83/2000 regarding the credit and account transactions of A-budget government agencies Rules and regulations

22. The government accounts Annual accounts The fiscal budget bill The implementation of the fiscal budget Sundry provisions Regulations and entry into force The Government Financial Reporting Act

23. EU - standards Development of the strategy and legal framework Development of methodologies and guidelines Promoting best practice Networking Overseeing systems development Co-ordinating sustainable training facilities Annual assessment and reporting Central Harmonization Unit

24. Development of the strategy and legal framework covered within MoF Development of methodologies and guidelines covered within the MoF, Financial Management Authority and the State Accounts Committee As part of the development of the strategy and methodologies, the MoF aims to adopt best practices and promote them within the financial system MoF oversees system development Sustainable training facilities have not been set-up but the Financial Management Authority has a support unit and holds seminar and training in specific matters Assessment and reporting is done by MoF over the year according to legislation and regulation Gap analysis

25. The formal task of a Centralized Harmonization Unit (CMU) will be the responsibility of the Financial management department of the MoF The role of the CMU will be stated in The Government Financial Reporting Act The State Accounts Committee will support the Financial management department and will give advise on development of rules, laws and regulation if needed Our view and suggestions

26. The FMC system should cover: Various commitments (budget allocations/appropriations, contracts) All tendering and contracting All kind of income, disbursements, management of assets and liabilities Requirements: Control environment Managerial risk analysis and risk management Control activities Information and communication Monitoring Financial management & control (FMC)

27. Current system is up to standards in most areas: Planning Programming Budgeting Controlling Accounting Reporting Archiving Monitoring Needs improving in: Risk analysis and risk management Gap analysis

28. The Government Financial Reporting Act, No. 88/1997 will be reviewed: A review is currently being carried out Update guidelines and rules: Ongoing project and the responsibility of MoF and the State Accounts Committee Set guidelines and rules: Responsibility of MoF and the State Accounts Committee Our view and suggestions

29. EU - standards Functionally independent and objective advice about the robustness of the FMC systems in terms of legality and 3E´s Aims to add value and improve an organisation's operations Helps an organisation to accomplish its objectives Established by top manager Is not responsible for design, implementation and running of FMC system IA has access to all management meetings and their reports, to all staff, to all systems and documentation Internal audit

30. Formal internal audit is not performed in a centralized way in the current system National Audit Office has issued guidelines for agencies in this field Ministries have performed iternal audit informally for their agencies Internal auditor is working within 6 agencies that work according to international guidelines Coordinated rules or guidelines are not in place for the work of internal auditors Part of the task is set in the performance management contracts between directors of agencies and line ministries Individual line ministries have issued guidelines or rules for their agencies in this field Current system needs improving in this field Gap analysis

31. Internal audit Centralized internal audit function Located within the Financial Management Authority The responsibility for specific tasks within agencies is just between this IA function and the manager of the agency Performs internal audit for all agencies that are to small to be able to have special IA functions Coordinates IA for the state and supports internal auditors of the bigger agencies Acts as a “community of internal auditors” Our view and suggestions

32. Internal audit Processes, law and regulation in most part centralized IA needs to review whether agencies are working accordingly but also to analyze if specific processes or regulation are needed for each agency Accounting, financial statements, payroll and payment of invoices centralized within the Financial Management Authority Large number of small agencies Our view and suggestions

33. Review of law and regulation The Government Financial Reporting Act – including CHU and IA Government Act No. 73/1969 Review of guidelines and processes for financial control In process

34. Further gap analysis needed SIGMA assistance not possible TAIEX assistance will be requested Direct contact with DG Budget Public policy paper Work has begun Will be based on current system plus the changes already mentioned Main lines have been discussed by the top management of MoF, Financial Management Authority, the National Audit Office and part of the government Next steps

35. Thank you !