by Bob Bonwitt

Robert de Koning, Team Leader for PIFC in Unit B3 of the Directorate-General Budget of the European Commission, is very well known amongst those working alongside the EU accession process in the area of public finance, most specifically in the field of the so-called “public internal financial control (PIFC)”. The book that he has just released benefits from his now long and first-hand experience of raising awareness and negotiating this now classical concept in public administration policies with applicant countries to the EU. In many respects this book can be regarded as the “magnum opus” dedicated to this important topic.

Thanks indeed to Robert de Koning (and to others in the European Commission), financial control became a strategic issue in this wave of accession. A new acronym has been created, but more important, the substance behind it has become a classic in the financial area of public administration. We are proud that Sigma was probably the first institution outside the European Commission to recognise it by publishing Robert de Koning’s seminal article in Sigma’s Public Management Forum in 1999

Thus Robert de Koning helped build a doctrine, which found its place amongst the various public administration and accountability models. It progressively filled a need that was not so obvious at the outset, since “financial control” had not been a topic as such in previous EU accession processes. Amongst the evident achievements of this doctrine, in the course of the development process that is thoroughly described in this book, it is possible to mention:

  • The fact that semantic issues have been clarified in order to reach a common understanding of public finance terminology across country administrations of EU Member States, candidate countries, the European Commission and other European bodies, as well as the “donor community” in general.
  • The organisation of networking activities amongst candidate countries with inputs from Member States. In that respect, the importance of the website maintained by DG-Budget as an efficient and transparent way of spreading information throughout the “PIFC community” cannot be stressed enough.
  • The full recognition of the role of external audit. While respecting each institution’s independence and specific role, external audit is promoted as an important actor in any effective financial control system.

Robert de Koning has been an engine for change, instigating various ways of promoting exchange and facilitating development and networking activities as a forum for exchange of ideas and methods in the field of government control for EU funds but also for general control of government state budgets. The only thing missing was a detailed description of the concept.  Robert de Koning’s book meets this need. It is a longitudinal survey of the development of the PIFC concept in time and space.

As the book shows, PIFC is an evolving concept; there are differences and different stresses in its formulation when comparing the current definition of the PIFC concept to its definition nearly ten years ago. It benefits from the experience progressively gained by the administrations of the countries that set up “PIFC model”-inspired systems. The concept of a PIFC policy paper (or strategy, concept paper or white paper – no matter what the name may be) has helped to initiate a thorough reflection and to develop an understanding of issues that should no longer be reserved to a small circle of specialists. Politicians and other public decision-makers are invited to formally recognise the importance of the issue of sound financial management and control and of related audit arrangements.

It may have been a pity that the concept developed in a phase when countries (EU candidate countries) were competing with each other in a very tight accession agenda and in a context of limited absorption capacity. The PIFC concept itself would have probably required, like any other change process in public administration, more time to be smoothly introduced and implemented. More attention should perhaps have been paid to linkages with other public administration reform institutions, plans and policies, as well as to the necessity for the country to find additional, sometimes significant, resources to comply with staff-consuming PIFC components, such as the development of internal audit.

This brings us to a somewhat critical remark concerning the “PIFC model”. Its strengths (clear boundaries and simplicity of enunciation) could also be considered its weaknesses; the PIFC concept is closely related to the budget process and cannot be seen as being isolated from the budget process and from the development of budget reform. The concept stresses “managerial accountability”, but this leads to other organisational matters, such as how the budget is structured and how responsibilities for budget lines are developed and therefore in reality to who is responsible for spending. To be effective, internal audit cannot be isolated from developments in the budget area either, and this is where a broader approach to PIFC could be considered.

It is also true that in the context of accession, candidate countries may have found it difficult to regard PIFC as an issue of a broader dimension than the narrow one of “EU funds management and control”. For example, in a number of countries not only did the development of internal audit take place in priority in the areas where EU money was spent, but also the content of audit plans focused merely on EU funds.

However, thanks to its validity, the concept of PIFC has also been influential for “old” Member States; in a number of countries more and more references are made to the PIFC model, e.g. in the course of the current major public finance reform in France (LOLF). The 2000 reform of the Commission had important implicit features of the PIFC “model”, in particular concerning managerial accountability and financial management and control procedures.

As for a number of new policies on which candidate countries embarked in the accession process, where it was necessary to “close the (negotiating) chapter” and show progress on the way to accession, the introduction of PIFC may raise questions of ownership and sustainability. Compliance may sometimes be confused with excellence. The book shows that the Commission and DG-Budget negotiators in particular were aware of that risk and always insisted on the need to obtain firm political commitment, including in a long-term perspective, and to encourage serious awareness amongst key stakeholders, managers of funds, as well as third parties, such as supreme audit institutions and parliaments. This might not have been enough, however, as the time frame and the capacity for absorption have always been very limited, despite what countries themselves thought. There are now worrying signs that in some countries key components are in jeopardy, either because they are no longer seen as priorities or because their very raison d’être is disputed. This has happened to be the case for some Central Harmonisation Units, which are responsible for PIFC co-ordination in central government and constitute perhaps the most original and innovative feature of the PIFC model.

Another possible point of further discussion is about how detailed a prescribed model of PIFC can be. Since both the set-up of the accession process and the country’s own institutional culture encouraged that approach, applicant countries and other concerned countries have often dealt with PIFC in a purely legal way, if not a very legalistic one. This might seem somewhat paradoxical for a topic that deals more with managerial behaviour than with legal straightjackets. The texts produced often displayed a multitude of detailed prescriptions, which sometimes made their adjustment to practical situations problematic.

In addition, existing material, in particular legal material, has often been subject to replicas abroad, without questioning the merit of transplanting products that had been created in specific national circumstances. This practice may overlook the importance of taking into account the invariants of the institutional context of public administration in a country or of not paying attention to the particular risks a country may display in the transition period.

An important risk consists in the small amount of human resources a country can devote to the issue, which has often hindered, for example, the prescribed development of internal audit. EU accession has put many demands on staffing in public administration, precisely at a time when countries are required to streamline the number of employees in the public sector. Probably a more flexible approach to the development of PIFC is to be recommended for future cases. This flexibility would at least be consistent with, and do justice to, the general principles of risk assessment and management in the design of adequate and cost-efficient control systems, which the PIFC model precisely promotes.

These are some of the considerations that come to mind when reflecting on Robert de Koning’s imposing book. They of course do not draw anything from the remarkable and rapid construction of what most interested parties look at as a model. As its main contributor and promoter himself recognised, the model is nevertheless not a fully fixed thing, and with the spread of PIFC-oriented systems, it will be more and more possible to rely on practice and assessment to improve, refine or simplify, and generally speaking adjust the initial design of PIFC, to better take into account the reality of implementation.

To do that properly, however, a solid reference is always needed. No doubt PIfC: A European Commission initiative to build new structures of public internal control in Applicant and Third party Countries will play that role in the future.

by Mr Bob BONWITT
Director SIGMA, OECD, Paris

March 01, 2007

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