Public Internal Financial Control (PIFC)

[atseacliff]

Many colleagues will be familiar with the PIFC however for those who are not - a quick overview and links for further reading. Starting from its initial concern relating to the EU funds management and control, the PIFC concept was applied in EU Accession countries and is increasingly being developed in a number of Neighbourhood States.

There are three basic components for the definition of PIFC. The three pillars of managerial accountability-based PIFC are composed of:

 Financial management and control systems and procedures
 Internal audit
 Central harmonisation functions

For developing countries the PIFC countries offers an integrated approach; linking managerial accountability, internal control and a modern internal audit function. As so often it is tempting to rush into the development of the legislative and institutional base. However a culture of top down management reinforced supported by hard-hitting control agencies are the norm in many former communist states. It would therefore be naive to assume that these reforms are anything other than a long term endeavour. Donor agencies need to understand this and avoid a piecemeal approach which focuses only on internal audit reforms - without for example building in improvements in financial control systems and incentives for managers who take more accountability for service delivery and resource management (see my previous post).  I have recently seen more thoughtful approaches which have devoted considerable time and effort on developing clarity over policy and managerial acceptance before considering a large scale technical assistance project. Perhaps a case for having modest expectations and building up slowly over time??

In my experience countries often commit themselves to the PIFC concept with a poor understanding of the practical implications; or at least without fully thinking through the linkages to broader PFM reforms. However PIFC has the potential to align the interests of public sector managers, economists, accountants and auditors! 

If this stimulated interest the attached link to the EC is a good starting point.

Welcome to the world of PIFC - European Commission

http://ec.europa.eu/budget/library/documents/overviews_others/brochure_pifc_en.pdf

Robert de Koning's book on the subject is also worth getting hold of - link attached

http://www.pifc.eu/

[Richard Maggs]

By far the biggest problem with PIFC is the unrealistic implementation plans. It is worth recollecting the timeframes for PFM reforms in the UK, France and elsewhere. Even relatively small changes in the UK e.g. the introduction of Whole of Government accounts took 4-5 years to complete. Donor desire for bite sized projects 2-3 years is one if the problems but a consistent front from practitioners would help here. 

[atseacliff]

There were plenty of incentive for the EU Accession States....less so for the current wave of PIFC aspirants. While the PIFC model has its attractions in terms of providing a coherent holistic approach to PFM reform we do need more evidence of the benefits (and indeed limitations) to transition economies. If any one has any empirical evidence or concrete success stories please do share.   

[STONE]

Despite the warning that this is an old topic I think it is still worth replying.

Richard Maggs might well be right about the unrealistic implementation plans but in my experience the fundamental problem is in the terminology. In many countries and government cultures its a real struggle trying to understand how internal audit, financial management control, inspection and external audit interact.  PIFC is about as meaningful as MTEF.  I know that Albania has really struggled with PIFC concepts.  They may be getting through it now, but the biggest problem was understanding the interaction.

[STONE]

oh yes, forgot to say.  Kartlos tried to launch a discussion on internal audit in the georgian country board - Google translate is a wonderful thing.

[koninro]

Funny, I only got notice of this site thru googling "PIFC". Never heard of it before, could have been informed though.

The genesis of the concept of PFC should be understood in its historical context. In the late nineties, the EC was confronted with 10 national applications for EU Membership. These countries all belonged to the ex-soviet style economies and were all known to be subject to high levels of fraud and corruption. It was then that the EC decided that support should be given to help these countries re-engineering their internal control systems or of what was left of it after the demise of the Soviet-empire. The EC did not have a policy in this respect, because this policy area is not one of its responsibilities. Member States do as they like, at least as far as national income and expenditure is concerned.

Furthermore, candidate countries asked the Commission to come up with a clear lead in showing the way forwards as these countries without exception were the victim of quickly changing consultants that promoted solutions that were found only in their countries of origin without any holistic approach as to the elements to develop. Hence the start of the PIFC concept. Basically, I would agree that developing and implementing PIFC takes a much longer time than the time horizon needed for completing the accession negotiations; cultural changes do not occur in the tameframe of say 6-8 years. The great advantage of the PIFC concept as developed by the EC in the late nineties should be seen as opening the eyes of the people concerned in national administrations towards the existence of international standards, good practice and discussions about the topics we share.

Many mistakes have been made, also in the "prescription" of the concept of PIFC for candidate countries and european neighborhood countries, but one should perhaps also consider how the public internal control situation would have been developed in the new Member States without the presence of a holistic model. After all, PIFC is about introducing internationally accepted standards to which the new Member States and other governments had the right to access...

Many efforts have been made in this field, many consultants and twinning partners have earned their money through PIFC-related projects, the short term nature of these projects have not particularly contributed to long term development, but at least one can say that all this support, especially in the later years has brought about  discussion on an international level and all the countries concerned have their counterparts (most of the time the Central Harmonisation Units established under the "rules" of PIFC) participating. What is needed now is an international network of CHUs with similar institutions in the older Member States in the EU, so that problems or issues can be shared in a proper internal control or internal audit forum. This would help the CHU's get better support for their policies back home, where they are often being considered as a nuisance, but not as a key to better transparency...

By the way, my book on PIFC has been translated into Russian, Serbo-Croation and Romanian. The texts are freely available on the website of PEMPAL.

Robert de Koning

[atseacliff]

Robert

Great to have your contribution to the Board.  Elsewhere on the Board I have extolled the benefits of well organized peer to peer learning and agree that this has provided a helpful forum for practitioners to share challenges and problems. You'll note elsewhere that practitioners struggle with the terminology and are frankly sceptical of the impact of these reforms. It would be useful to step back and get a better understanding of the real impact of PIFC on early adopters as well as the challenges they have faced in linking these concepts into broader functional reforms. If independent evaluations of this type have been undertaken it would be helpful if these could be shared. 

I do highly recommend your book - am I correct in understanding that the English version isn't available as a free text on the PEMPAL website?