Reforming Public Internal Control: Lessons (Not) Learned Raymond Hill, CGAP European Commission

1. Reforming Public Internal Control: Lessons (Not) Learned Raymond Hill, CGAP European Commission DG Budget

2. Content • European Commission's long tradition of coaching PIC development • Challenges in reforming PIC • Lessons not learned • Conditions for successful reforms

3. 2009 PIC Conference in Brussels • Purpose: To review and learn lessons from the implementation of PIC in the recently-joined EU Member States • Delegates provided positive feedback on: • Comprehensiveness of the PIC reform model • Our coaching on the sequencing of reform steps • Our guidance on the competency requirements of key staff in the PIC environment

4. Many challenges to PIC implementation were identified • Absence of hard law: only reliance on non-binding international standards • Various good practices: no definition of best practice • Long time needed for reforms • Political pressure for fast visible results • Short term nature of technical assistance • Reforms were sometimes pushed too fast by the donor community: outstripping national absorption capacity • Management traditions and resistance

5. Managerial Traditions and Resistance • Sometimes the top manager tries to control every detail • Lack of understanding of Managerial Accountability • Sometimes there is no manager! • Unclear delegation procedures do not allow to identify the task manager • Managers have a fear of transparency • Transparency is often only seen as highlighting negative aspects: however it can also serve to highlight good performance • Better internal control is not the same as more controls

6. PIC Reform – Lessons (not) learned • Policy before Prescription • A revised legal framework is not a reform • A hasty legal transplant leads to problems at implementation • Plan ahead for sufficient resources • Avoid excessive segmentation – keep an eye on the big picture • Internal Control should match the PFM system

7. Lesson 1: Policy before Prescription • A government approved Reform Policy should set the direction for Internal Control reforms • Pilot Projects are an effective way to test a new approach • Pilot Projects should come before legal prescription • There is no point in adopting a law and then testing its application through Pilot Projects!

8. Lesson 2: A revised legal framework is not a Reform • As well as a solid legal foundation, fundamental public sector reform requires a long term change management strategy for modernising administrative culture • Change management strategy includes: • Visible political leadership • Reasoning for the change • Milestones: champions and role models • Feedback and a learning perspective • Encourage civil society interest in public governance

9. Lesson 3: A hasty legal transplant leads to problems at implementation • Law-making takes time • New laws require wide consultation of stakeholders • New laws should be developed in line with the national administrative culture and national cost/benefit analysis. National ownership is required. • Non democratic law-making can move quickly but it will often break down at implementation

10. Lesson 4: Plan ahead for sufficient resources • Reforms take time. Allow for plenty. • Need for skilled, motivated and empowered staff at central level • Need for sustainable training facilities • Seek agreement for medium/long term Technical Assistance support

11. Lesson 5: Excessive segmentation – Not seeing the big picture • Excessive segmentation can produce hyper-focussed approaches that ignore systemic problems and fail to add up to an integrated effective whole. • Co-ordination and sequencing of all related PIC reforms (especially Public Administration reform, Budgeting and Accounting reform) is required – at strategic level.

12. Lesson 6: Internal Control should match the PFM system There are 3 basic stages of Public Financial Management development: Stage 1: Enforce basic financial compliance Characterized by traditional input controlled budget Stage 2: Ensure fiscal stability over the medium term Characterized by medium term budget frameworks Stage 3: Attain policy objectives in efficient/effective way Characterized by “performance budgeting/management”

13. Development path of PFM systems

14. PIC Reform: Conditions for success • Ownership: • Political commitment: politicians lead, technicians follow • Top managers accept that reform is necessary • Ensuring change in administrative culture: • Understanding that law-making and adherence to legal rules is not enough but that there is a need for managerial accountability and real delegation • Sufficient resources: • An adequately resourced and skilled Central Harmonisation Unit to drive the change and face stakeholder expectations

15. PIC Reform: Conditions for Success (cont) • An integrated approach: • PIC is not a stand-alone, technical fix but part of the overall public Finance Management and Public Administration reforms • A comprehensive reform is better than piecemeal changes • Long-term project management • Ongoing and sustainable training for all