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May 18, 2011

Addressing Challenges in Public Financial Management Reforms in the PEM-PAL Network - January 2011 Plenary Meeting on Managerial Accountability and Budget Execution

Posted by Tomislav Micetic, CAE, CPIA, Head of Internal Audit Service, Ministry of Finance – Republic of Croatia, and Chair of Internal Audit Community of Practice PEM PAL tmicetic@mfin.hr

The PEM PAL (Public Expenditure Management Peer Assisted Learning) network (ww.pempal.org) aims to support reforms in public expenditure and financial management in 21 countries in Central Asia and Central and Eastern Europe by promoting capacity building and exchange of information. PEM PAL is organized around three Communities of Practice (CoPs), for budgeting, treasury, and internal audit, bringing together a number of high-level practitioners. They meet regularly to share experiences among themselves and seek practical solutions for the most pressing issues related to reform implementation. PEM PAL is often cited internationally as a showcase for peer learning, given its innovative approach.

On 26-28 January 2011, around 200 representatives of the Europe and Central Asia (ECA) Region participated in the PEM PAL 2nd Plenary Meeting in Zagreb, Croatia. The topic of the meeting was "Managerial Accountability in Budget Execution". Since the financial crisis, sound management of public finances has been more than ever in the spotlight, and "Managerial Accountability in Budget Execution", in particular, is a highly relevant subject for the countries in the PEM PAL region. After the OECD, this region has suffered the most from the financial crisis. Consensus on the topic chosen was also reached following a long preparation between all three COPs and the topic also fulfilled the objective of strengthening Cross-COP cooperation.

This 2nd Plenary Meeting was hosted by the Ministry of Finance of Croatia and sponsored by a number of key Governments and donors, including the World Bank, the Croatian Ministry of Finance, the Ministry of Finance of the Russian Federation, SIGMA/OECD, InWent, SECO and the Center of Excellence in Finance acting as a PEM PAL Secretariat. Experts in Public Financial Management (PFM) presented reform cases from the Netherlands, Croatia, United Kingdom, Slovenia and South Africa. The presentations were followed by discussions among practitioners of government budget, treasury and internal audit units working within 21 countries of the ECA region. Furthermore, participants discussed reform steps and their potential implementation in their respective countries with the experts and among themselves.

Many countries in the ECA region still have the authorizing authority held at the highest level (eg the Minister) and there is no delegation of power to the line managers within organizations. Thus the benefits of any PFM reforms can be significantly reduced in these countries if accompanying managerial accountability reforms are also not implemented. Improvements in budget execution arrangements depend very heavily upon the quality of the management responsible for the organization and delivery of public services, and upon management’s accountability for the exercise of its responsibilities. The quality of management and the accountability arrangements can also be significantly affected by the budget formulation policies adopted by the Ministry of Finance, the control and accounting policies adopted by the Treasury and by the contribution internal audit makes to assist managers in delivering public services.

Some of the conclusions drawn from the meeting and included in the meeting’s Communiqué were:

• Managerial accountability requires a clear assignment of delegation of tasks, responsibilities and authority to managers of spending units. To facilitate such reforms it is acknowledged that:
a. Appropriate legislation should be developed to allow Ministers or Heads of Organizations to delegate activities to different levels of public administration, whilst retaining overall responsibility.
b. Budget planning and execution should be delegated to managers, who themselves should be given authority and flexibility to decide on how to allocate resources (within specified limits) to achieve results. However, key control points on total spending, personnel spending, and capital spending should remain, in addition to any other specific limits adopted by a country’s cabinet or parliament.
c. Budget execution rules and/or regulations should allow for more discretion if approved standards of reporting, control and performance have been established. While budget rules are necessary in some cases (especially to improve strategic use of resources), they should not limit managerial accountability.
d. Under managerial accountability, spending unit managers are held accountable for financial and non-financial performance. Performance information should be developed and based on management and citizen needs. Improved budget reporting formats and templates will lead to higher quality decision making but they should also take into account the various needs and expectations of different audiences (e.g., line ministry, MoF, Parliament, citizens).

• With respect to the internal audit function, it was agreed that such a function should be introduced in those countries that do not currently have it yet and that an appropriate follow up of internal audit recommendations needs to be taken into consideration by the Management. If properly organized, internal audit enhances the capability of managers to be accountable. Further, it is an important function which can be used to assist managers in effectively undertaking their responsibilities. 

The participants agreed that the findings of the Communiqué will guide their future work within their respective countries.

In summary, the 2nd PEM PAL Plenary meeting resulted in several concrete outputs for the benefit of all participants/practitioners in all countries in the region:

• Ahead of the 2011 PEM PAL Plenary meeting, brief notes and presentations for CoP specific discussions were developed, including examples of best practices.

• A Zagreb Communiqué was drafted and adopted by all the members of the conference. This document summarized all the observations and recommendations of each CoP session and the joint facilitated discussions. It was sent to the Ministers of Finance of the attending participants and was also directed to all stakeholders in charge of and supporting the reform processes in the PEM PAL member countries. 

The results of the conference’s evaluation showed that most of the participants (81,3%) felt that the duration of the plenary was about right. More than half (58%) considered themselves as active participants. Croatia, Montenegro, Albania, Russia, Bosnia and Herzegovina were five most contacted countries between the sessions. Participants were of the view that the plenary was relevant and important for their daily work (4,1/5) and at the appropriate level (4,0/5). Many participants confirmed (3,9/5) that they learned from the experience of other participants, although they observed that the level of prior expertise on the plenary topics differed among the participants. The plenary met or exceeded expectations for 93% participants; 97% plan to brief their colleagues on the event. All (100%) respondents felt that it would be useful for them or their colleagues to attend future PEM PAL meetings.

All the details on the conference can found by clicking on: http://www.pempal.org/event/read/28 

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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