Control Systems: A Key Factor in the Achievement …...Control Systems : A Key Factor in the Achievement of Central Government Accounting Reform Symposium September 18 and 19, 2008

Control Systems : A Key Factor in the Achievement of Central Government Accounting ReformSymposium

September 18 and 19, 2008

Control Systems: A Key Factor in the Achievement of Central Government Accounting Reform

INTERNATIONAL COOPERATION MISSION



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CONTENTS

OPENING 2

DAY 1 – STATES’ ACCOUNTING REFORM AS A DRIVING FORCE FOR GOOD GOVERNANCE IN EUROPE 3

I Accounting reform and performance 4

II State accounting reform process: feedback from experience by a panel of countries 7

III Improvement in the quality of public accounts: feedback from experience by a panel of countries 10

Synopsis of the day’s work and discussions 14

DAY 2 – ASSESSING THE QUALITY OF PUBLIC ACCOUNTS 16

I Reporting on work during the workshops 17

II Accounting reform and the role of internal audit: feedback from experience 19


IV Reporting on work during the workshops 24

V Roundtable: outlook for accounting reforms and control systems in Europe 27

SYNOPSIS AND CLOSE OF THE SYMPOSIUM 31

OPENING

DAY 1 – STATES’ ACCOUNTING REFORM AS A DRIVING FORCE FOR GOOD GOVERNANCE IN EUROPE

I Accounting reform and performance 4

II State accounting reform process: feedback from experience by a panel of countries 7


Synopsis of the day’s work and discussions 14

I Reporting on work during the workshops 17

II Accounting reform and the role of internal audit: feedback from experience 19


IV Reporting on work during the workshops 24

V Roundtable: outlook for accounting reforms and control systems in Europe 27

SYNOPSIS AND CLOSE OF THE SYMPOSIUM



OPENING

The representative from the French Budget Ministry was delighted that virtually all of the European Union States and candidate countries were present, along with the European Commission, at the seminar orga-nised within the framework of the French Presidency.

Accounting reforms, through the progress they can provide in terms of information, contribute to impro-ving public decisions and therefore public life. How? By making more complete, comprehensive and ex-haustive information available to decision-makers and the parliament, with accrual accounting providing a more accurate vision of the State’s capital position, its assets and its liabilities. By enabling a more forward-looking approach, accrual accounting also helps im-prove public action.

The implementation of accounting reforms is often complex, requiring genuine support combined with a long-term focus. Indeed, looking beyond its technical aspects, the deployment of accrual accounting calls for a management of the reform which could be des-cribed as a pathway, bringing all of the stakeholders together.

These two days are going to make it possible to pool feedback from experiences in EU countries in terms of conducting accounting reforms. They are also going

to make it possible to combine the experience and viewpoints of administrative managers, academics and practitioners. Comparing them will open up the debate and encourage exchanges, in line with the objectives for each stakeholder to be able to fi nd ideas or encouragement on subjects that may well be technical, but subjects on which public management performance is heavily dependent.

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DAY 1

STATES’ ACCOUNTING REFORM AS A LEVER OF GOOD GOVERNANCE IN EUROPE

Session chairperson: Danièle Lajoumard, General Inspector of Finance, France

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1. Benefi ts and diffi culties with the introduction of accrual accounting in the public sector?

> Evelyne Lande, Academic, IAE de Poitiers, CIGAR network - France

As an introduction, Evelyne Lande reminded participants that there is the possibility for a very wide range of accounting systems between the two extremes of cash accounting and accrual accounting. Such as for exam-ple, the modifi ed cash accounting system that records a few assets and monetary liabilities, but is still founded on collections and disbursements in terms of recording operations. Or even the modifi ed accrual accounting system that is also characterised by a partial presen-tation of the State’s real estate, but sets out to record operations based on the trigger event.

Accrual accounting introduces a capital vision. It links expenses and incomes to the year, based on a trig-ger event, and also presents assets and liabilities. There are therefore two levels of complexity when we move from cash basis to accrual accounting. We must fi rst move from a presentation of expenditures and receipts on the one hand to an heritage vision of a State’s position on the other. Moreover, operations must be recorded not based on receipts and disbur-sements, but on the trigger event for the operation; which implies defi ning what the trigger event is that is going to have to be taken as a reference.

Should and can accrual accounting become the global reference around the world? Evelyne Lande fi rst of all noted that the benefi ts of accrual accounting are very often highlighted. It enables a better tracking of expenditure, facilitates the measuring of costs for properties and services, and incorporates the concept of intergenerational equity. However, very little is said about the constraints involved and therefore the pre-requisites required to change over to accrual accoun-ting. She stressed that by concealing the concept of prerequisites, all the diffi culties of introducing accrual accounting are concealed. And yet these diffi culties with putting it in place represent one of the main fac-tors behind the differences between the accounting systems that exist within the various States. Lastly, all the benefi ts of accrual accounting also have a cost and may only be realised under certain conditions.

Indeed, a certain number of conditions must be ful-fi lled in order to introduce accrual accounting. Evelyne

Lande fi rst of all indicated that the economic and poli-tical environment must be favourable, whether or not it is marked by major fi nancial constraints, a fi nancial scandal or international pressures. There must also be genuine motivation, which will be refl ected in a political decision.

Furthermore, putting an accrual accounting system in place calls for a cultural reform in terms of public management. Looking beyond the purely technical aspects of the reform, it is also necessary to ask ques-tions regarding the utility and the actual aim of the accounting information. It is also necessary to analyse the impacts of the change on the organisation and redefi ne the positions and missions of the agents. Evelyne Lande more specifi cally highlighted the im-portance of training.

In practice, Evelyne Lande indicated that the fi rst stage, in other words the review looking into the sys-tem’s philosophy and therefore the purpose that we want to give the fi nancial reporting is often left out. In addition, the issue of the impacts on the organisation, notably through the accounting information and control systems (internal and external), is generally not addressed on a global basis. This gives rise to suc-cessive adjustments. However, all efforts are focused on the key technical and human aspects. While this ap-proach is understandable, since the number of people to be trained up is very high, it relegates the reform’s actual objective – which is to enable a new approach for public management – to the background.

In conclusion, Evelyne Lande highlighted the need for a gradual changeover from cash basis to accrual accounting, as well as the need to have, before even considering such a changeover, a strong and sound cash accounting system.

2. Parallel analysis between private and public entities – convergences and divergences of conceptual frameworks

> Jean-Paul Milot, Head of the Accounting Standards Mission within the Budget Directorate - France

Jean-Paul Milot emphasized that business accounting and public accounting were, initially, very different. They were not aimed at the same objectives. Traders wanted above all to know whether their commercial

I- ACCOUNTING REFORM AND PERFORMANCE

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operations were enabling them to become richer, while for the princes, the priority was to ensure that the sums collected were being well used in the way that they had defi ned.

Accounting for traders has seen major changes, notably due to the emergence of companies. Conversely, al-though it has naturally been improved in terms of its control techniques, public accounting has kept the same conceptual model for a long time.

Applying accrual accounting for the State involves measuring its earnings, in other words measuring an increase or a reduction in the State’s wealth. What sense can this make, in view of its objectives, which are clearly different from those of businesses?

Implementing an accrual accounting system at State level requires a certain number of specifi c features to be taken into consideration. Jean-Paul Milot noted that the majority of its rights and obligations are not the same as for businesses. They are specifi c, since they do not result from contracts entered into with third parties, but the sovereignty of the State. Indeed, the State may, due to its ability to raise taxes and capitalise on the public domain, make commitments without any counterparty. Is it possible to provide a reliable valuation of these assets and liabilities? In most cases, Jean-Paul Milot believes not since one of the State’s main characteristics is that it supplies non-trade services, and yet the standards require a reliable valuation of assets or liabilities in order to be able to recognise them. The accounting standards applicable for businesses have therefore had to be adapted or even new standards created in order to factor in the specifi c features of the State.

The balance sheet presented in connection with a State’s accrual accounting is not comparable with a business balance sheet. It does not incorporate all of the assets and liabilities and, for those that have been recorded, it does not introduce any very strong connecting link between these two categories. For its part, the income statement highlights sovereign reve-nues and the way in which it fi nances expenses.

With certain limits, relating to the assets and liabilities taken into account, accrual accounting makes it possi-ble to measure the costs more effectively. However, it does not make it possible to compare a policy based on the provision of services produced by the government and a policy using monetary transfers (payment of transfers to third parties). For Jean-Paul Milot, this represents one of its main limits.

3. Accounting reform and performance

> Somir Ali, Accountancy Adviser, Financial Reporting Policy Offi ce – British Treasury (UK)

Accrual accounting has existed for many years in the UK. The government used to use it for nationalised businesses. A certain number of public bodies that are not part of ministries have also applied these princi-ples since the 80s. Lastly, the Executive Agencies have been working with accrual accounting since 1988.

A team tasked to develop the application of accrual accounting to cover the rest of public administration was set up in 1993. In the end, the reform that led to what is known as resource accounting and budgeting was implemented in 2001 for central government.

In the 80s, it appeared that the information available within the cash accounting system was not suffi cient. Somir Ali highlighted the fact that accrual accounting offers greater transparency. It makes it possible to measure the performance, the total cost of operations and, in this way, evaluate the effectiveness of mana-gement. It provides a fairer vision for stakeholders and more specifi cally Parliament on the use made of taxes and duties.

Nevertheless, putting accrual accounting in place involves a certain number of diffi culties, particularly as regards the identifi cation of assets and liabilities and the issue of their valuation. Somir Ali indicated that the Ministry of Defence in this way took four years to carry out this exercise. He also pointed out that it is diffi cult to fi nd people within the government with the expertise required, not only for carrying out the diagnosis, but also for defi ning the procedures that are best suited to all types of transactions. Another diffi culty concerns the information systems, which must be able to trace the data as of the initiation of transactions and no longer only at the stage when they are concluded. In this respect, Somir Ali remarked that the government had an information system before the changeover to accrual accounting; this has had to be adapted to the requirements of the new accounting system, but the high cost of this adaptation had not been anticipated.

Looking to evaluate the accounting reform in the UK, Somir Ali acknowledged that all the needs of users have not been suffi ciently taken into consideration, and that very few directives from the Treasury have guided them. Furthermore, the budgetary impact of certain proposals, as well as the IT and staff training

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costs, linked to the changeover to accrual accounting, have not always been planned ahead for. One of the diffi culties that the UK came up against was having suffi ciently qualifi ed staff in all the ministries for suc-cessfully completing the reform.

According to him, the changeover to accrual accoun-ting represents a major job, the scale of which was clearly underestimated by the Treasury Ministry. In this way, it needed a real commitment by the main players concerned to succeed. Nevertheless, the advantages of accrual accounting can clearly be seen; thanks to better information for the supervisors, which can take better decisions, fi nancial management is improved and it is now possible to evaluate ministries’ performances.

The next steps are expected to see the application of international fi nancial reporting standards as of 2009 or 2010, as well as the production of a conso-lidated balance sheet for all public administration by the same date.

Debate with the fl oor

How and why should we change over to IFRS, which are initially intended for the private sector?

Somir Ali explained that generally accepted accoun-ting principles in the UK (UK GAAP) are similar to IFRS and, as a result, the objective of the reform announced for 2009-2010 is to adapt this system in view of the public sector’s specifi c features, based on IFRS but with certain adaptations taken from generally accep-ted accounting principles (UK GAAP). A consultative council made up of academics, accounting specialists and senior decision makers within the government has been set up by the British Treasury with a view to achieving this. The manual for the transposition of IFRS is now ready; in most of the areas, the public sector’s specifi c features have been dealt with through adaptations.

What method is used for the valuation of heritage assets?

Somir Ali admitted that this is a debate that has not found a perfect solution so far. However, he specifi ed that a lot of work has recently been carried out in the UK on this subject and that the British Accounting Standards Board has recently published an opinion on this matter. He explained that heritage assets are valued and recognised at their market value when it is available. Failing that, they are mentioned in the fi nancial statements without any indication of their value. This mention improves the information for the Parliament and ministries. However, he acknowledged that this system is not entirely satisfactory and that further changes are still needed.

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II - THE PROCESS OF STATE ACCOUNTING REFORM: FEEDBACK FROM EXPERIENCE BY A PANEL OF COUNTRIES

Danièle Lajoumard indicated that a comparative study of accounting systems has been carried out within the European Union. This showed that 27% of countries had full cash basis, 3% modifi ed cash basis, 21% modifi ed accrual accounting and 21% full accrual ac-counting. The situation in other States is less clearly defi ned.

Many countries currently with a cash basis system, whether or not it is modifi ed, are looking to change over to accrual accounting. Sweden has already im-plemented the reform. The UK has also done this on a partial basis. For its part, France took this move in 2006, followed by Slovakia in 2008. Many projects are currently underway, with deadlines for implementa-tion that are more or less close together, in Belgium, Hungary, Lithuania, Czech Republic, FYROM and Aus-tria. Italy, Portugal, the Netherlands and Malta are also planning to embark on this process.

Certain countries have implemented an accounting reform for a certain number of pilot ministries, while others have rolled it out across the board.

1. Experience of the Slovakian Republic

> Katerina Kaszasova, Director General of the State Reporting Section

To begin, Katarina Kaszasova introduced accrual ac-counting within its historical context. In this respect, she indicated that the Slovakian Republic benefi ted from very strong support from the World Bank for implementing its institutional reforms from 1998 to 2006. A certain number of these reforms concerned public fi nances, notably with a view to further strengthe-ning the country’s institutional capabilities in terms of drawing up budgets (through the introduction of multi-year budgets for programmes), managing expenditure and the fi nancial management of governmental ope-rations. Within the framework of these reforms, the information provided by cash basis rapidly appeared to fall short of what was required. The decision was therefore taken to put an accrual accounting system in place

Several working groups were set up in order to make recommendations and draw up new accounting stan-dards. Katarina Kaszasova explained that the Slovakian Republic opted for the IPSAS standards - or at least their principles, insofar as there is not any Slovakian translation of IPSAS and these do not cover all the categories of transactions - for two essential reasons: their convergence with the SEC 95 national economic accounting standards defi ned by Eurostat and their convergence with the reporting standards used by private entities in Slovakia.

These have been applied for the fi rst time in 2008. In the near future, the Slovakian Republic should be able to produce consolidated accounts, including for local authorities. In this respect, Katarina Kaszasova speci-fi ed that in Slovakia – unlike what exists in France – there is not one single accounting and reporting information system run by the Treasury; each public entity uses its own system.

Major efforts have been made to train up the accounting offi cers and enable them to acquire the skills required. This concerns more than 10,000 people over 10 years. The modules have been built in part through par-tnerships with academics. To accompany the reform, Katarina Kaszasova indicated that an online assistance system (helpdesk) was also put in place by the Ministry of Finance in order to answer the questions of agents from the various ministries by telephone or email. A team of experts from the Ministry of Finance handles the most complex issues. She believes that they may naturally be improved, while the fi rst results and the conditions for carrying out the fi rst provisional close of accounts at June 30, 2008 are satisfactory. However, various improvements seem necessary from her point of view, notably in terms of external audits of the consolidated fi nancial statements. In this respect, Katarina Kaszasova considers that even if the audit systems in place are strong and sound, it is not certain that the Supreme Audit Institution, whose control approach at this stage is focused primarily on budgetary aspects, will remain the most appropriate authority for auditing the consolidated public accounts.

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2. Experience of Sweden

> Anne-Marie Ögren, Senior Adviser from the De-partment of Accounting Principles and Internal Audit Department, Swedish Financial Management Authority.

> Margareta Söderhult, Senior Adviser from the Cen-tral Government Accounting Department, Swedish Financial Management Authority.

Anne-Marie Ögren explained that Sweden has decided to put accrual accounting in place in order to more effectively take into consideration the effi ciency and effectiveness of public management, improve infor-mation on the State’s assets and track changes in its holdings. Indeed, accrual accounting highlights the receipts, costs and capital, and not just the cash position. In addition, it improves the information on assets held by the State. Lastly, it represents the cor-nerstone of the results-based management approach put in place in Sweden in the 90s.

The existence of similar methods to the private sector within the public sector offers a number of advantages, notably concerning the recruitment and training of staff.

The introduction of a complete accrual accounting model in 1993 is part of a more far-reaching reform of public management, including the budgetary reform for governmental bodies, performance measurement for the resources used, greater fl exibility for manage-ment, as well as a greater sense of responsibility for public players. Budgetary allocations can be planned over several years and their use planned ahead for, depending on requirements.

Anne-Marie Ögren highlighted the fact that the focus is now on performance. Accrual accounting enables a better allocation of resources in line with the objectives.In order to have an exhaustive accounting system for costs, Sweden set up a system as of 1993 for internal loans used to fi nance acquisitions of tangible fi xed assets such as buildings and computer purchases so that all of the State’s bodies carry all of the expendi-ture concerning them.

Anne-Marie Ögren’s assessment of Sweden’s 14 years experience with accrual accounting is mixed. While its deployment throughout the government has gone

ahead smoothly, she believes that the fi nancial sta-tements do not receive all the attention they deserve from Parliament, which is more focused on budgetary reporting, which is still monitored on a cash accoun-ting basis. However, this situation is likely to change since in autumn 2008, Sweden will for the fi rst time be adopting an accrual budget. Only transfers, invest-ments, infrastructures and interest on debt will not be subject to this general system for accrual budgeting.

Margareta Söderhult indicated that full consolidated accounting is also carried out. This incorporates the fi nancial statements and performance reports of public agencies, as well as the Central Bank, pension funds, etc. Sweden uses the FRANGO system to consolidate the fi nancial statements produced by its 250 indepen-dent agencies.

It is necessary to have a very strong level of discipline and a stringent modus operandi for the escalation and aggregation of data, based more specifi cally on a mandatory payment code scheme, in order to achieve a close of accounts and a complete consolidation of public accounts.

3. Experience of Estonia

> Kaur Siruli, Head of the Financial Control Department, Ministry of Finance

Kaur Siruli indicated that setting up accrual accounting represents a new experience. He highlighted the fact that this system, set up in Estonia in 2004, enables better transparency over the use of resources. Na-turally, its implementation has been accompanied by various diffi culties. However, signifi cant progress has been achieved.

For the moment, Estonia is maintaining a dual system, since the budget is monitored on a cash accounting basis. Reviews are currently being carried out with a view to changing over to an accrual budget, also factoring in performance. However, while the concept has been adopted, no schedule has been defi ned for its implementation at this stage, insofar as no political decisions have been taken concerning this change. However, this would be desirable in order to plan spending more effectively and better assess compliance with objectives, and its rollout would require a change of internal control and audit systems.

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4. Expérience of France

> Nathalie Morin, Head of the State Accounts Offi ce ent within the Public Financial General Directorate (DGFiP), French Ministry for Budget, Public Accounts and Civil Service

France has been able to implement its public fi nan-ce reform since it has been backed by an extremely strong political commitment. Coming from the parlia-ment, it was covered by a consensus within all parties. Its implementation has been followed very closely.

Nathalie Morin indicated that the reform, whose objec-tive was to modernise public management, has been a global reform. It has taken place in several stages. As far as budgetary aspects are concerned, the ob-jective was to move from a means-based budget to a programme budget, with objectives and results indi-cators and managers given a better sense of respon-sibility. In addition, particular efforts have been made on analysing performance and effi ciency, as currently shown by the general review of public policies.

Within this context, the accounting reform had to contribute to the effi ciency and transparency of public action, by adding heritage and forward-looking infor-mation to the traditional data. Furthermore, the system needed to become a steering tool for decision-makers and administrators. Nathalie Morin indicated that two main initiatives have been carried out, on the intro-duction of accrual accounting and on accounting qua-lity. Indeed, the State has the same obligations as businesses in terms of the reliable, fair and accurate nature of the accounts. The State’s accounts are certi-fi ed by the national audit offi ce (Cour des Comptes).

The schedule has been extremely committed. The French “Loi organique” law came fully into force on January 1, 2006, without any transition period. Howe-ver, there are still various challenges to be met. In this way, Nathalie Morin noted that the information system is not yet suitable for accrual accounting.

Nathalie Morin acknowledged that France had a cer-tain number of assets, including the existence of a network of public accounting offi cers who were alrea-dy trained up to accrual accounting. The pre-exis-tence of a common accounting system shared by all

government authorities, and of an governmental accounts centralisation system have made the transition to accrual accounting easier.

The reform was led by the Directorate General for Public Accounting – which has since then become the Public Financial General Directorate (DGFiP). On ac-count of the project’s scale and short deadlines, its implementation has been gradual. In this way, only the signifi cant elements were retained in the opening balance sheet drawn up in 2006.

Nathalie Morin highlighted the fact that the approach has been participative in order to promote the neces-sary change in mentalities. The objective was to get the administrators to clearly understand the purpose of the reform and its benefi ts.

A pragmatic approach has been applied with the application of the standards, which sometimes did not match up with the needs. A few modifi cations have therefore been made since they were drawn up in 2004.

Today, the State’s fi nancial and patrimonial position is better known, even if Nathalie Morin acknowledged that a certain number of specifi c cases are raising questions, such as military assets or intangible assets. The State’s accounts have been certifi ed as of the fi rst year, with 13 reservations. A work plan has been put in place in order to gradually resolve them.

The objective to improve public governance has been achieved. The reform has introduced more effi cient and effective management through transversal pro-cesses. The risks and stakes have been put at the heart of the matter. In this way, the means can be allocated more effectively.

On the whole, Nathalie Morin believes that the reform’s results have been very positive. However, without a suitable information system, the workload is still very high. The new tool is expected to be available in 2009 and 2010. Furthermore, a few conceptual subjects still need to be resolved. In addition, training efforts are required in order to enable a genuine appropriation of the fi nancial statements and avoid errors with their interpretation. The cultural changes are underway, but still far from being completed.

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III - THE IMPROVEMENT OF PUBLIC ACCOUNTS QUALITY – EXCHANGE OF SOME MEMBER STATES EXPERIENCES

THE INTERNAL CONTROL APPROACH

Danièle Lajoumard reminded participants that internal control involves ensuring the quality of the implemen-tation of budgetary, accounting or any other procedures that have been defi ned beforehand. It makes it possible to check that they are correctly resulting in the pers-pectives expected.

1. Experience of Germany

> Jörg Christiansen, Deputy Head of Section – Project group «Modernisation of the budgeting and accounting system», Federal Ministry of Finance

The federal-level internal control system is based on the following three aspects: internal audit, the central harmonisation unit and the fi nancial management and control system. The central harmonisation unit is overseen by the Federal Ministry of Finance, but the Federal Interior Ministry and the Federal audit offi ce also play a major role in it. Several internal audit and control systems have been put in place in Germany. They exist at all levels throughout the federal govern-ment.

Jörg Christiansen noted that all the countries have adopted specifi c approaches when it comes to internal audit. In Germany, the situation is not clear-cut insofar as the ministries have a strong level of respon-sibility in terms of internal audit (decentralisation), but the strategies for ex-ante and ex-post audits are set by the Federal Ministry of Finance and the Federal Interior Ministry (centralisation). He reminded parti-cipants that in the past, offi ces working with the mi-nistries and the Federal audit offi ce were responsible for the pre-audit side. This system has been abolished and replaced with a change to the national audit of-fi ce’s functions alongside the development of internal units.

The ministries are now fully responsible for their budget, as well as internal audit and control. Each pu-blic manager is responsible for maintaining a suitable control and management system for performing the planning, accounting, control, archiving and tracking tasks. Previously focused primarily on compliance, internal audits are increasingly focused on performance. The national audit offi ce now supervises internal audit

itself and sets the additional professional audit stan-dards.

Jörg Christiansen specifi ed that external audit and internal audit are involved throughout the budgetary cycle and carry out controls on both an ex-ante and an ex-post basis.

The quality approach for public accounts in Germany is based on a highly standardised frame of reference for internal control, as well as an integrated techno-logical tool (SAP), coordinated between the various levels of the federal government (central and decentra-lised). All the data pass through the central budgetary system. Particular importance has been attached to the construction of this technical infrastructure. In-deed, this is essential in order to guarantee a genuine quality of information.

2. Experience of Slovenia

> Natasa Prah, Head of the Budgetary Supervision Offi ce (BSO), Ministry of Finance

Natasa Prah indicated that Slovenia’s legal framework provides for a declaration to be made on internal controls. The head of each expenditure centre (minis-ter, mayor, director, etc.) is responsible for drawing it up. This was initially due to be rolled out as of 2000, but few elements had been provided in terms of its content. Since then, a full methodology and format have been defi ned by a working group made up of internal auditors and representatives from the various expenditure centres, grouped together on the BSO’s initiative. The new procedure was tested for the fi rst time in 2005. 177 expenditure centres produced a declaration on internal control, which needed to be reviewed by reconciling them against the fi nancial statements. The procedure has been compulsory since 2007.

All the heads of the expenditure centres must eva-luate, based on a self-assessment questionnaire and with a score from 1 to 5, all the aspects linked to inter-nal control. The INTOSAI and COSO frame of referen-ces for internal control are used for drawing up the self-assessment questionnaire. In their valuations, the expenditure centre managers must also factor in the conclusions expressed by the other control bodies

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(internal audit, budgetary inspectorate, audit offi ce). The declarations on internal controls may be subject to a compliance audit, which give them some signifi -cance.

Natasa Prah considers that the procedure for decla-rations on internal controls includes many positive aspects, notably in relation to the Supreme Audit Institution. For her own department, it represents an extremely useful source of information and analysis on the level of implementation for internal control in expenditure centres throughout the country. She hi-ghlighted the fact that the budgetary supervision offi -ce ensures that these declarations are contributing to a good understanding and growing awareness of the importance of internal audits and control, as well as risk management, in the public sector. Unfortunately, these are still insuffi cient, notably among certain high civil servants who are still unaware of their responsi-bilities in terms of internal control.

However, she acknowledged that setting up such a declaration is better suited to the internal control environment today compared with in 2000; in other words, this procedure requires a certain level of ma-turity in terms of its environment.

3. Experience of France

> Alain Caumeil, Head of the Accounting Doctrine and Internal Control Mission within the DGFiP, French Ministry for Budget, Public Accounts and Civil Service

Why put an internal control system in place as part of an accounting reform? Alain Caumeil reminded par-ticipants that the changeover from cash accounting to accrual accounting entails many changes (new accounting basis, new processes, increased role of managers in accounting process, ...). To achieve the objective for the quality of the accounts, it is essential for them to be effectively managed and controlled, by strengthening internal control. Of course, French government authorities in France already had an in-ternal control system. However, it was insuffi cient and therefore needed to be strengthened.

Who are the players within the internal control sys-tem? Public accounting offi cers play a key role within the system, in accordance with the law, which goes beyond simply recording transactions. From now on, they must more specifi cally ensure the accuracy of accounting records. On a broader basis, they are

responsible for compliance with accounting procedu-res. To face up to their new responsibilities, the DGFIP represents a central harmonisation unit in terms of accounting and internal control standardisation. In-deed, accounting standardisation is overseen by the public accounting standards board and the DGFIP; the standardisation of procedures in line with an ac-counting internal control objective is the responsibi-lity of the DGFIP. Public accountants, in partnership with the ministerial administrators, are also able to request audits in order to support the departments that are behind the fi nancial and accounting opera-tions with the strengthening of their internal control system, if necessary.

How does the internal control system work? Alain Caumeil highlighted the fact that the internal control standardisation approach is not authoritarian. It is not based on prescripts but incentives and the provi-sion of a frame of reference and an expertise. Since in the end, it is the line ministries that are responsible for their internal control system, their risk mana-gement, their organisation and their means. In this way, the DGFIP approach is based on a partnership with the administrators from the line ministries, within the framework of a service offering that includes training, provision of a toolbox, assistance in the implementation and evaluation by audits.

In order to act effectively, Alain Caumeil highlighted the need to clearly identify the risks. Analysis must be carried out throughout the processes – 74 processes have been identifi ed in the State’s fi nancial activity –, without any compartmentalisation of the various players. A mapping approach has been put in place, making it possible to defi ne priorities for action (broken down into action plans). Various levers may be used, such as the organisation of tasks, documentation (proce-dures) and traceability (of transactions). They are part of a continuous improvement loop.

Evaluation represents a key element for the inter-nal control system. It is performed by the fi rst level players, who carry out a diagnosis of the organisation and of the processes. When required by the situation, a second level of control oversight the fi rst level of risks management. In addition, regular and indepen-dent internal audits are conducted in order to provide improvements. Each year, a report making it possible to measure the progress made on accounting internal control is submitted to Parliament, in support of the State’s fi scal accounts. Nevertheless, Alain Caumeil acknowledged there are still risky areas and the goal is to mitigate them in a continuous improvement.

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What may be the legal consequences of such declara-tions on internal controls for their signatories if they prove to be false or a fraud is discovered?

Natasa Prah indicated that this declaration does not have any real consequences insofar as it is not really a statement of assurance. Moreover, there are several reasons for this. First of all, the internal con-trol environment is not suffi ciently developed at this stage to consider direct responsibility, and the senior civil servants are faced with constraints in terms of powers and resources over which they do not have total control. In fact, this represents only a fi rst step in a process that would involve drawing up a genuine statement of assurance.

Are there any audit committees within the German budgetary organisations and, if so, what are their main missions?

Jörg Christiansen identifi ed three key players in the internal audit process: fi rst of all the Federal audit offi ce, then the budgetary managers for each ministry and lastly the Federal Ministry of Finance, which has a key role in the budgetary process. However, Jörg Christiansen indicated that there are not strictly spea-king any audit committees, but that internal audit is based on a system for reporting to the various minis-tries concerned and not the Parliament. The internal audit reports are also centralised by the Federal audit offi ce.

ACCOUNTING QUALITY PLAYERS

4. Experience of France – Ministry of Justice

> Dominique Lottin, Deputy Secretary General> Gérard Hordé, Ministerial Accountant and Budgetary

Controller

The experience of the Ministry of Justice is, according to Gérard Hordé, one of the most conclusive. And yet it was also one of the most diffi cult due to the specifi c features of this legal institution.

Gérard Hordé highlighted the fact that the Ministry of Justice successfully set up an accounting internal control system that was suited to its specifi c charac-teristics. It also successfully sought support. In this way, it regularly makes use of the range of services offered by the DGFiP.

Dominique Lottin considers that the accounting and budgetary reform represents an opportunity to make the management more dynamic in order to have better forecasting for expenditure and improve the perfor-mance of the various departments. The complexity of the approach is not due to the Ministry of Justice’s structuring, but rather the complexity of the procedu-res. More specifi cally, judges have total and absolute freedom for prescribing expert evidence. Abandoning the concept of estimated appropriations (no cap on expenditure) in favour of restricted appropriations, in other words a cap on spending set in advance, led to major concerns. Certain magistrates were afraid that this change would limit the judge’s powers to investi-gate and look for the truth. Training efforts have been necessary in order to get them to accept that this would not be the case at all. Today, Dominique Lottin considers that the message has been put across, including with the various partners. Indeed, while ma-gistrates must continue to have total freedom, this does not mean that magistrates must not also take an interest in the management of the costs of justice and the costs of this management.

Estimated appropriations represented around 20% of the Ministry’s expenditure. The mechanisms for their implementation were highly complex. Although there were controls in place, they were not necessarily exhaustive and thorough. In addition, certain aspects were totally left out, such as expenditure initiation, the recognition of expenses due and accrued at the end of the year or the analysis of the cost of services invoiced by the Justice’s providers. The reform made it possible to address these cost issues, naturally from

12



tice’s fi nancial departments and the representative from the Ministry of Finance (CBCM) on many aspects, both budgetary and accounting, such as the accoun-ting valuation of prisons as specifi c fi xed assets or the growing use of public-private partnerships (PPP) in this area. Justice/Finance partnership audits have been carried out on accounting and fi nancial risks, proven or potential (preventive audit). In this area, there are plans for the Ministry of Justice to have its own internal audit structure capable of carrying out accounting and fi nancial audits. In addition, accoun-ting and fi nancial audit training is planned for 12 ins-pectors from the general inspectorate of judicial departments before the end of the year.

The system put in place covers all of the Ministry of Justice’s central expenditures. It has made it possible to achieve signifi cant progress in terms of accounting quality and effi ciency. As of the fi rst fi scal year, pay-ment lead-times were halved. The extension of this approach at local level now represents the major chal-lenge. It is gradually being rolled out, notably supported by the accounting offi cers. Dominique Lottin indicated that the approach to reorganise the expenditure chain with a view to guaranteeing a better accounting qua-lity and performance for the Justice’s departments is not over yet. Reviews are continuing to be carried out on this subject based on testing (e.g. shared service centres and invoicing services), which may be extended or even rolled out across the board in connection with the general review of public policies.

the cost-effi ciency angle, but also quite simply the cost alongside the reality of the service provided, and has made it possible to discover unacceptable invoi-cing.

The reform required a certain number of elements to be taken into consideration. Indeed, 80% of expenditure is carried out on a decentralised level. In addition, the number of deeds handled is particularly high, notably due to court costs (2.5 million deeds each year). Fur-thermore, there was total discontinuity in terms of the expenditure chain, a lack of traceability for this cate-gory of expenditure within the information systems and therefore auditability. Lastly, Dominique Lottin re-minded participants that accounting quality was not on the face of it one of the priorities for magistrates and heads of departments within the Ministry of Justice. Furthermore, the high number of deeds, with a very low unit cost (less than 150 euros per deed), made it diffi cult to set up a stringent system for expendi-ture. A specifi c organisation, built around the General Secretariat and a system of technical references and designed to incorporate the entire control chain, was therefore set up in order to incorporate these specifi c features. All of the Ministry’s commitments in terms of risk management have been set out in the ministerial action plan and means of action defi ned with a view to resolving them.

The Ministry of Justice makes very wide use of the services offered by the DGFiP. The approach is based on a genuine partnership between the Ministry of Jus-

13



Danièle Lajoumard noted the existence of a movement for the general implementation of accrual accounting within the European Union. Operational systems, co-vering a more or less wide scope (accounting reform limited to the central State, including agencies, even regional authorities) are already in place in several countries. A very large number of projects are also being prepared.

The accounting change appears to be linked to broader concerns. It is intended to introduce more performance into public management and compare the means implemented and the results achieved. By its very nature, cash accounting cannot provide this information.

Accounting reform is generally combined with budgetary reform. The scope of the latter also varies depending on the State. In general, the aim is to change over from a resources budget to a programme budget - or to global budgets for each agency for the States that have this type of organisation - which leads to a need to measure results and a multiyear budget. In a certain way, we can see that the multiyear approach follows on from, on a budgetary level, accrual accoun-ting, which tends to divide periods (fi scal year) up within one whole without any break. Lastly, we can also see freer use of the resources deployed to meet the objectives set and, as a result, a reform of budgetary controls focused more on results.

In general, the accounting reform is linked to the bud-getary reform and one leads to the other.

Danièle Lajoumard also noted that certain countries are looking to put a budget in place on an accrual ac-counting basis, or at least a presentation of the budget on an accrual accounting basis for information, given that the budget voted on would remain in cash. This is notably the case for the UK, which already applies this dual presentation, as well as Sweden, which is planning to put an accrual accounting budget in place as of 2009, and Estonia, which is considering this option.

However, Danièle Lajoumard highlighted the fact that setting up an accrual accounting system requires a favourable environment. Political impetus, or at least backing, is also essential. In addition, the accounting reform must be steered on a technical level by a cen-

tral structure, in order to maintain the consistency of all the changes and developments. It must be ac-companied by a genuine mobilisation of the various government bodies and operators.

A certain number of technical conditions must also be fulfi lled. The fi rst of them concerns the need to adapt or adopt accounting standards. In this area, certain countries take IFRS as their reference (UK), while others use IPSAS (Slovakian Republic) or a combina-tion of different standard systems (France). To defi ne these standards, the general method applied involves using a standardisation committee, responsible for carrying out the adaptations required or any other process making it possible to defi ne the accounting standards applicable. The other technical conditions concern the need to have skills - through training if necessary - and adapt IT tools for the accrual accoun-ting mechanisms.

The main technical diffi culties resulting from the im-plementation of accrual accounting are linked to the balance sheet. For assets, they fi rst of all concern the issue of their valuation, and for liabilities the issue of their disclosure, mentioned either on or off the balance sheet. They also concern the analysis of new elements, which were not handled up until now under cash accounting, such as the recognition of public-private partnerships or social liabilities.

Furthermore, accrual accounting goes hand in hand with a new requirement for accounting quality, since the reliability of the information is essential in order to make public management more effi cient and effec-tive. Danièle Lajoumard highlighted the fact that on the one hand it requires internal control mechanisms to be put in place through a review on the processes, the procedures and the central role of information systems, and on the other hand, the implementa-tion of an iterative evaluation system through inter-nal audit, enabling continuous quality improvements. The objectifi cation procedures for accounting quality are based on an internal control declaration sys-tem (Slovenia) focused on both internal and external players (Supreme Audit Institution, Parliament, citi-zens).

Accounting reform lies at the heart of a movement to modernise public management, since, over and above the technical exercise itself, it represents an

SYNOPSIS OF THE DAY’S WORK AND DISCUSSIONS

14



exceptional information and forward-planning tool made available to the public authorities. Important information such as the management of future debts, which were not visible under cash accounting, be-come visible for public decision-makers with accrual accounting.

The European Union has included the subjects looked at during this seminar in the scope for its review, nota-bly on the internal control and internal audit sections.

However, the events during this seminar and the contributions of participating countries have provided valuable insight into the general growing awareness within EU countries of the key role that accounting must play as an information tool.

15



DAY 2

THE ASSESSMENT OF PUBLIC ACCOUNTS QUALITY

Session chairman:

Bernard Limal, Representative of the General Director of Public Finance for Ile de France

16



Workshop 1 - The scope and Rhythm of accounting reform

> Reporter: Monica Garcia, Ministry of the Economy and Finance (Spain)

The review of the reforms carried out in various coun-tries makes it possible to identify both similarities and specifi c features. In most cases, the political commit-ment to developing public accounting, bringing it closer to the regulations applicable for the private sector, has proven to be very strong.

In a certain number of countries, the reporter noted that the reforms are still underway. They are often covering accounting and budgetary aspects.

Certain states, such as Spain, have implemented a reform that applies for the whole government. In other countries, like Hungary, the change has focused on only a few ministries, at least during a pilot phase.

Depending on the States, there may be a single ac-counting system (and fi scal accounts for the State). This is the case for France and Romania. On the other hand, Spain and Germany are moving towards a consolidation at central government level.

The reporter highlighted the fact that the reform’s implementation often takes several years. On the whole, fi ve or six years seem to be necessary between the preparation and the deployment.

Workshop 2 - Public Accounting Organisation

> Reporter: René Barberye, Inspector General for Finance, Adviser within the ADETEF1 (France)

The reporter highlighted the fact that all the countries have put a specifi c organisation in place. Naturally, this situation makes it complicated to draw up a sum-mary. Nevertheless, he believes that a few points are worth highlighting.

Which players are involved in the accounting process? Politicians and members of parliament are not strictly speaking part of it. However, they often play a role in providing impetus with the reform’s launch; they are also key players in the defi nition of requirements for information. However, the ministries and their decen-

tralised or independent entities (agencies) are directly involved in the approach, as are the accountants, the central banks (notably in countries that do not have a public treasury) and the European Union through the requirements for ESA 95.

As far as of the organisation of the accounting function is concerned, we can see three trends: the centralised system in which the public treasury representative performs the accounting function; the decentralised system in which each ministry has an accountant who is an integral part of the ministerial hierarchy; and the agency system.

However, in any case, the global consolidation is handled by the fi nance ministries. Depending on the country, it is sometimes preceded by an intermediate consolidation at ministry or agency level. The accoun-ting offi cers are generally in charge of payments, but unlike in France, they are not generally responsible for the quality of the accounts. Neither is manage-ment control included within their remit; it is exclusi-vely the administrator’s responsibility.

In general, services with shared skills, which can be defi ned as a service platform in which people are grouped together in order to benefi t from economies of scale, appear to be interesting, for paying for expen-ditures for instance. However, it seems too early to put them in place on a scale covering several ministries.

Workshop 3 - Conceptual Accounting Framework and Authoritative Accounting Literature

> Reporter: Andreas Antoniades, Ministry of Finance (Cyprus)

The majority of countries already use accrual ac-counting or intend to do so. To draw up their fi nancial statements, the majority of countries refer to IPSAS and IFRS. Nevertheless, they are maintaining a cash accounting system – total or partial – for budgets, which must be approved by Parliament. In general, they have put in place or plan to implement a me-dium-term budgetary planning approach, as well as a performance-based budget, focused on income rather than inputs.

The reporter indicated that several methods are used for factoring in taxation. Under international recom-

I - REPORTING ON WORK DURING THE WORKSHOPS

171 Association pour le Développement des Échanges en Technologies Économiques et Financières (association for the development of economic and fi nancial technology exchanges)



mendations, taxes received should be allocated to the period they concern. However, the actual implemen-tation of this approach is highly complex. Most often, the countries have therefore opted for recognition on the declaration date.

The reporter noted that several countries factor in a valuation of pensions to be paid in the future, in order to have a fairer vision of any losses. However, not all of them incorporate them under liabilities. There are also differences in terms of the recognition of conces-sions and partnerships between the public sector and the private sector.

As far as green or environmental accounting is concer-ned, the reporter acknowledged that this approach is new for most countries and that, to date, only coun-tries implementing an accrual accounting approach have started to address these subjects, from the asset evaluation and emission rights tracking angle for instance.


In some countries, the accounting offi cers are not responsible for the quality of the accounts. Who is? What is the nature of this responsibility? What penal-ties are involved?

In Portugal for instance, responsibility lies with the head of each department concerned, based on a decla-ration. The same is true for the European Commission. Germany applies the double signature principle under which the second signature always comes from a person appointed by the budgetary authority. In the event of any fi nal irregularities, the information is made public.

Even if the value given to them remains symbolic, are all heritage assets recorded on the balance sheet?

In France, the choice was made to recognise histori-cal works at a symbolic value, except for cases when they have been acquired later than January 1, 2006, for which a known and objective acquisition cost is available. In the UK, consultation processes are un-derway with a view to establishing a standard for the global treatment of these specifi c assets. At present, the principle involves recognising these assets when it is possible to allocate a value for them; otherwise, they are mentioned in the notes.

18



1. Experience of the Netherlands

> Peter Verheij, Adviser within the Budgetary Control Policy Unit, Budgetary Affairs Directorate, Ministry of Finance

> Ids Tijsseling, Deputy Head of the Budgetary Con-trol Unit, Budgetary Affairs Directorate, Ministry of Finance

Ids Tijsseling explained that there is an internal audit structure within each ministry, positioned very high up within the hierarchy (with the Secretary General) and therefore considered to be independent. External audit is both in the Ministry of Finance, to co-ordi-nate matters, and within the National Court of Audit , which is independent.

The internal control system is based on three levels: the Directors General, who are responsible for the budget, the budgetary control departments and the internal audit department, which are responsible faced with the ministry’s Secretary General.

The external control system is based on the National Court of Audit, the Ministry of Finance, the Budget Ministry, which co-ordinates budgetary control, and the Parliament, which must naturally authorise the budget and organise the discharge.

Internal audit reviews and gives its opinion on the fi nancial statements, and refers them to the line Mi-nister concerned. It sends a copy of the audit reports to the Ministry of Finance for co-ordination purposes and to the National Court of Audit. It carries out other types of internal audits. In this way, it ensures that the principles of sound management have been applied and also has an advisory role.

The National Court of Audit assesses the performance as well as the quality and reliability of the accounts.

In the 80s, fi nancial control raised a certain number of issues. The decision was therefore taken to decentralise the audit function in order to advise the decentra-lised management. Today, the movement is going in the opposite direction, insofar as there is less need for advice for the management structures on fi nancial control. In this way, a Central Internal Audit Depart-ment has been put in place; at this stage, it is working for four line ministries. However, Ids Tijsseling noted

II - ACCOUNTING REFORM AND THE ROLE OF INTERNAL AUDIT: FEEDBACK FROM EXPERIENCE

that moves to extend its scope are being resisted by a certain number of line ministries.

Another experiment launched in the Netherlands concerns the rationalisation of the control process for co-fi nanced subsidies through the implementation of an approach for Single Information and Single Audit certifi cate (SISA).

2. Expérience of France

> Jacques Ortet, Head of the Audit, Evaluation and Control Unit - Public Finance General Directorate - Ministry for Budget, Public Accounts and Civil Service

Jacques Ortet indicated that audit has evolved with the accounting reform. Previously, it was more of an inspection function . It has been necessary to go even further in order to implement certifi cation and guaran-tee the quality of the accounts. The scope has been expanded considerably – unlike in other countries, it covers all the ministries –, working methods have been reviewed and skills have been strengthened. However, it is important to note that while accounting and fi nancial audit has become particularly important since the rollout of accrual accounting, internal audit also carries out other types of audits (organisational audits, IT audits, etc.).

Before the Constitutional Bylaw of 2001 (LOLF law), there was a separation between authorising offi cers and accountants. The majority of operations were focused on the latter. Accrual accounting has introdu-ced a major change. Indeed, it requires an approach based on transversal processes, which must be audited in full.

Audit is responsible for assessing the quality of the various internal control systems. The aim is to analyse all of the processes before the end of 2008. Naturally, the issues with major stakes are being given priority. Jacques Ortet indicated that the recommendations, shared and accepted by the line ministries manage-ment, are covered in an action plan that has been defi ned through a consultative approach.

The State Audit Offi ce considered that the DGFiP internal audit unit was reliable in terms of its metho-dology and its expertise. In this way, an agreement has been signed making it possible to factor in work carried out by the latter as part of the certifi cation 19



of the accounts, in accordance with the international standards in force.


What is the ideal size for the central audit team?

In France, the sizing of the internal audit unit changes in light of requirements. From three or four people six years ago, the team has now grown to represent around 30 members. It is likely to continue growing. However, it is also important to fi ne-tune the work and focus on major risks and the State Audit Offi ce’s reservations.

In the Netherlands, the decision was taken to re-cen-tralise part of the internal audit activity with a view to pooling the skills and ensuring greater indepen-dence in relation to the various line ministries. The representative from the Netherlands also indicated that auditing the fi nancial statements does not strictly speaking require a permanent audit function within the line ministries. However, for the other types of audit and for management needs, the line ministries want to keep their auditors under their control and are therefore rejecting the centralisation of this function.

Does a method exist for comparing the cost against the result of the controls?

In France, the cost of assignments is systematically assessed. However, there are not any measurements for savings or gains linked to the audits carried out. In the accounting and fi nancial fi eld, this represents an extremely complex exercise. Private businesses are faced with the same diffi culties.

In the Netherlands, benchmarks have been put in place between the ministries.

In the Netherlands, around 800 people are working on auditing. What is the situation in France, incorpo-rating decentralised aspects?

In addition to the centralised internal audit unit, Public Finance General Directorate (PFGD) has several audi-tors in each local offi ce set up at Province level. 400 to 600 people are involved in this approach. However, in light of the mergers of the former General Direc-torate for Public Accounting and the former General Directorate for Tax in only one General Directorate (the PFGD), which are currently underway, reviews are being carried out looking into changes in the audit organisation and needs.

Conditions for evaluating the quality of internal audit by external audit and internal audit/external audit re-lations?

The representative from the French State Audit Offi ce present in the room specifi ed that international audi-ting standard (ISA 610) do provide for internal audit’s work to be taken into consideration by external audit. This standard defi ne the criteria that must be evaluated beforehand by external audit in order to use the internal audit work. In France, this work was launched by the State Audit Offi ce two years ago. The State Audit Offi ce saw that the DGFiP Audit, Evaluation and Control Unit represented the only internal audit department within the State that met all the criteria required by international standards for the factoring in of its work in connection with assignments to certify the State’s accounts. This relationship was made concrete with the signature of a protocol for exchange between the State Audit Offi ce and the DGFiP internal audit department with a view to distributing this culture and these working methods in the State’s other departments.

20



1. Conceptual reminder

> Stéphanie Flizot, Senior Lecturer in Public Law, IPAG, Université Paris-X Nanterre, France

The certifi cation of the accounts is in line with an approach to modernise public-sector standards and accounting systems. More specifi cally, it applies to countries that have changed over from cash-based to accrual-based accounting. It aims to secure the fi nancial information, which is signifi cantly enhanced by the implementation of accrual accounting. Indeed, it represents a written and justifi able opinion, provi-ded by an independent body (State Supreme Audit Institutions) - under its responsibility – on the fi nan-cial statements of the public entity concerned, in view of an accounting frame of reference. It therefore re-presents a standardised exercise that must make it possible to conclude that the latter are consistent and accurate. The certifi cation of the accounts makes it possible to certify the absence of any signifi cant ano-malies and provide reasonable assurance that fi nan-cial statements are lawful, faithful and present a true picture, as well as the capital and fi nancial position of the public entity concerned.

Stéphanie Flizot reminded participants that in the past, the French State Audit Offi ce used to draw up a general statement of compliance. This covered a more restricted scope and ensured that the entries tallied up between the State’s general account and the accounts from the accountants for the various decentralised level subject to the jurisdictional control of the State Audit Offi ce. It did not incorporate all the aspects factored in for the certifi cation, such as the valuation of the asset elements or all aspects of the posting of income and expenses for the year.

Certifi cation therefore differs from the review of the accounts or the statement of compliance that certain countries still apply, as well as from management control, in other words the good use of public resources.

A certain number of countries have implemented certifi cation for their accounts, such as the US, the UK, Canada, Australia or France. The European Court of Auditors carries out certifi cation on a comparable basis as part of the statement of assurance. Stéphanie Flizot specifi ed that the certifi cation exercise is incor-porated into a standardised framework. These stan-dards concern the audit standards implemented by

III - GETTING PREPARED OT COURT OF ACCOUNTS OPINION : EXCHANGE OF SOME MEMBER STATES AND EUROPEAN COMMISSION EXPERIENCES

the certifying authority and the accounting frame of reference used as a reference for drawing up the fi scal accounts. The procedure to defi ne an accounting fra-me of reference applicable for the State varies depen-ding on the country. The Supreme Audit Institutions are more or less closely involved in the defi nition of this frame of reference. In France, it is defi ned by the Public Accounting Standards Committee and is made up of 15 standards, which were set in 2004 and have since been enhanced.

Under international audit standards, the certifi cation of the fi nancial statements leads to the issuing of an opinion, which takes various forms. The certifi cation may be without any reservations or with reservations, some of which may be rated as signifi cant; the certi-fi cation may be objected or lastly, the Supreme Audit Institution may conclude that it is not possible to is-sue an opinion.

The certifi cation will be with reservations if there are still a certain number of signifi cant disagreements between the certifi cation authority and the party being certifi ed concerning the accounting methods, their interpretation or application, or the relevance of the information supplied in the fi nancial statements. When performing its certifi cation, Stéphanie Flizot indicated that the French State Audit Offi ce has is-sued a certain number of reservations, some of which have been qualifi ed as substantial by the Offi ce. Over the years, they will be cleared, in light of the progress made. The objective is also to establish ongoing dialogue between the certifi cation authority and the government body.

However, the certifying authority organisation may declare that it is impossible to certify the accounts, notably due to a lack of suffi cient information enabling it to ensure the conclusiveness of the fi nancial elements submitted for its audit (US).

Stéphanie Flizot highlighted the fact that while cer-tifi cation is a standardised exercise, it is not a blind exercise. Naturally, the certifying authority takes into consideration the specifi c context, the commitments made by the departments and the progress achieved. The quality of relations between the party being certifi ed and the certifying, as well as the quality of the internal control systems and the information systems 21



are crucial when evaluating the reliability of fi nancial information.

2. Experience of the European Commission

> Brian Gray, Deputy Director General, DG Budget and European Commission Chief Accountant

Brian Gray reminded participants that the European Court of Auditors draws up an annual report, which is reviewed by the Council and submitted to the Parlia-ment’s Budgetary Commission. The latter then deci-des on a discharge decision (Statement of Assuran-ce). If the quality of the Commission’s management is not deemed to be satisfactory, the Parliament Bud-getary Commission may reject the discharge decision and the members of the European Commission have to stand down. This case has already been seen, back in 1999.

The Commission has applied accrual accounting for three years now (IPSAS standards). Despite this short experience, the Court of Auditors has issued only a few reservations. Nevertheless, there is still progress to be made in a certain number of areas, and more specifi cally collections and underlying transactions.

The community budget distributes money to many players. It is therefore essential to ensure that pay-ments have been made correctly. The underlying transactions are primarily verifi ed by the Member States or international organisations. The errors detected mainly concern the agricultural policy and structural funds. Nevertheless, Brian Gray indicated that the Commission carries out controls in line with a predefi ned action plan, generating collections on incorrect payments (agriculture, structural funds).

Brian Gray highlighted the fact that the external auditors have been included and informed throughout the accounting reform process and the preparation of the new fi nancial statements.

3. Experience of Latvia

> Gunta Medne, Deputy Treasurer, Ministry of Finance

In Latvia, the Treasury notably oversees the performan-ce of the budget as well as reporting. It is responsible for the preparation of the central government’s fi nan-cial statements. In this way, it planned to implement accrual accounting as of 2002. This has been opera-tional since 2006. These objectives have been able

to be achieved thanks to the deployment of a qua-lity-based management approach and a procedure for quarterly reviews of the accounts.

Gunta Medne specifi ed that the local governments are also required to use the standardised accounting principles based on IPSAS. In addition, they must put accounting policies in place in each one of their units. Their annual reports must be drawn up and presented - with the external auditor’s opinion - to the Treasury.

Accounting and fi nancial audits leading to separate reports are regularly carried out on the State’s central and decentralised budgetary institutions. They are particularly important with a view to the consolidation of the accounts. These reports, accompanied by the internal auditors’ opinion, are submitted by the line ministries to the Treasury. The latter is responsible for consolidating the public fi nancial accounts; within this framework, it may if necessary request additional expla-nation or correction on the reports and the information received. Furthermore, within the Ministry of Finance, an Audit Committee is responsible for reviewing the fi nancial information submitted to the State Audit Offi ce and for supervising the implementation process of the Offi ce reported proposals.

However, the consolidation work is still complex, and the accounting methods have not yet been suffi ciently standardised (case of recognition for real estate), while the type of transactions mean that their mana-gement is complex under accrual accounting (case of tax revenues).

4. Experience of France

> David Litvan, Sub-Director in charge of State Ac-counting, Ministry for Budget, Public Accounts and Civil Service

The accounting reform introduced in 2006 was global insofar as it concerned all of the ministries. From the outset, it was accompanied by an exercise (an obliga-tion, as of the fi rst year, to submit the State’s fi scal accounts for certifi cation; this is entrusted by law to the State Audit Offi ce) to certify the State’s accounts.

For the government, preparing for the certifi cation requires strong steering over the quality of the ac-counts. Extremely important work has been carried out in this area. The internal control and internal audit systems have been very signifi cantly strengthened. The information has been considerably enhanced in the State balance sheet and explanatory notes.

22



The government has rolled out pluriannual action plans making it possible to understand all of the State’s activities. They have been drawn up in line with an issues and risks-based approach. Since the timefra-mes were extremely short, the most signifi cant issues were addressed in priority. Since the accounts for 2006, efforts have also focused on the reservations issued by the State Audit Offi ce.

Preparation for the certifi cation requires ongoing dia-logue between the government and the certifying authority (State Audit Offi ce). The aim is to anticipate any diffi culties, cover risk areas as far upstream as possible, and reach agreements upstream. In France, exchange bodies based on pluriannual action plan follow-up committees and technical committees have been put in place, insofar as possible, since the end of 2004. They meet on a regular basis, and more fre-quently at the time of year-end closing. The govern-ment has chosen to focus on systematic co-operation with the certifying authority. Thanks to this ongoing dialogue, the certifi cation has had a leverage effect on the accounting reform.

Efforts must be maintained in order to continue with the dynamic rollout of the accounting reform and eventually achieve the objective for a certifi cation of the accounts without any reservations. In 2007, there were 12 reservations. The government has made commitments so that they can be gradually addressed.


In connection with the certifi cation process, the French government has focused on transparency and trust in its relations with the State Audit Offi ce? What has been the Audit Offi ce’s attitude and has it got involved in this approach? And how have your relations changed since the start of the process?

David Litvan explained that the action plans are desi-gned to factor in, upstream, the expectations of the certifying authority and more specifi cally its obser-vations and reservations. These represent the input points for the various action plans. Furthermore, the line ministries action plans are presented to it and may, at this time, be subject to dynamic exchanges and adjustments. The interaction from this perspec-tive works perfectly, in the same way as the quality of the dialogue.

Chris Butler specifi ed that over the past year his departments have been working on aligning national

internal audit standards (IIA standards). He indicated that the pre-certifi cation work is not yet mentioned under international internal audit standards. Moreover, the UK is not planning to put it in place, even if rela-tions with the National Audit Offi ce (NAO) are close. In connection with its certifi cation work, the NAO does not demand more internal audit work on accounting and fi nancial aspects. Chris Butler also considers that internal audit is responsible for auditing the basic systems which generate the accounts but not the data as such. He considers that internal audit must not encroach upon the work of external audit and that in any case it does not have the external auditors’ skills to do so.

23



Workshop 4: Accounting Reform and IT system Reform

> Reporter: Iana Paliova, Ministry of Finance (Bulgaria)

Is it possible to undertake a reform without overhau-ling the information systems? The experience of the various countries shows that it is preferable to link the two. However, it is essential to factor in the diffi culty of the process and therefore proceed in stages, clearly evaluating the risks, the most appropriate architec-ture, and the human and fi nancial costs. Big bang style operations are to be avoided; a gradual rollout is preferable.

An analysis of the prerequisites for the accounting reform is essential before launching the construction of the new information system. It is vital to be able to count on a clear political commitment and complete legislation.

The choice of integrated software packages (ERP) offers various advantages, in terms of integration and traceability for budgetary and accounting processes, reliability and consistency of procedures and transac-tions, and the schedule for deployment. In addition, they need less advanced technical skills. However, there are a certain number of disadvantages, notably due to the complexity of their use. In this way, trai-ning costs are relatively high, including over the long term. Furthermore, these software packages create a dependency in relation to external service providers. However, irrespective of the option retained, staff must still be accompanied on the change.

The group has identifi ed a certain number of criteria contributing to the optimisation of the overhauling of information systems. This calls for a good concep-tion of the project, the development of appropriate methodologies for the teams in charge of the pro-ject’s management, providing regular information on progress made with the project, providing the initial and ongoing training required for users, and keeping to the basic ERP system by avoiding increases in the number of additional developments intended to com-ply with users’ requirements.

IV - REPORTING ON WORK DURING THE WORKSHOPS

Workshop 5&6: Internal Control Organisation and Risk Assessment (standards, steering, players, tools)

> Reporter: Guy Cognioul, Ministry of Finance (Luxembourg)

In general, the involvement of fi nance ministries in the organisation of internal control and in risk asses-sment within line ministries is very limited. These two missions come under the line ministry or agencies. However, they play a role in co-ordinating standardi-sation. Through actions to raise awareness, they accompany the change in mindsets in terms of control.

Responsibility for internal control and risk assessment is often entrusted to the highest level of the line ministries or agencies. In certain countries, it is based on a statement on the quality of internal control and risk assessment, which is appended to the annual accounts. These statements are sent either directly to Parliament or to the external control authority (State Audit Offi ce) reporting to Parliament; the head of the government and the minister of fi nance are also informed in parallel.

However, the reporter noted that the organisations put in place vary depending on the country on these different aspects.

Most of the States have implemented a risk prioriti-sation approach, which leads to action plans. These are then monitored. The objective is to get into a continuous improvement loop.

European institutions have played an important role in the strengthening of internal control. The demands set for European funds started off a movement that then spread to cover the management of all national funds. The reporter noted that there is also a strong level of convergence within the group on the concept of inter-nal control and responsibility for public administrators.


As far as the tools are concerned, most of the countries appear to have opted for the same software package.

24



Furthermore, the Commission indicated that a user committee has been set up with its supplier. A cer-tain number of States, including France, are taking part in it. For its part, the Commission believes that it is preferable to choose an existing system on the market rather than developing specifi c systems, since this does not represent the core activity of public ins-titutions.

Workshop 7: Internal Control and Management Control

> Reporter: Alexandru Stefanescu, Ministry of Finance (Romania)

The scope for internal control and management control varies depending on the country. These two aspects are more or less developed depending on the budgetary process (performance budgeting system in place or not) and the accounting system (accrual accounting making it possible to measure the costs) implemented in each country.

For France, these two concepts complement one another, but vary in terms of their defi nition, players and objectives. As such, the system for internal con-trol and management control are clearly separated in France. On the contrary, a majority of the countries within the group consider that these two concepts are inseparable and that they are equally part of internal control or management control (UK, Ireland, Slovenia, Slovakian Republic, Cyprus and Romania). The repre-sentative from Luxembourg indicated that as far as his country is concerned, internal control is focused above all on consistency through fi nancial control and that a broader internal control system is still at the project stage. Management control is relatively unde-veloped. The only projects underway concern certain line ministries (Interior and Agriculture) and within them, the management of community funds.

The objective for internal control is risk management, legal and regulatory compliance and optimum use of resources. It aims to guarantee the security and quality of the procedures, as well as to prevent per-sonnel, compliance and fi nancial risks. Management control is focused more on measuring performance and effi ciency with a view to measuring costs. For this, it uses a certain number of measurement indica-tors. Despite a difference in their aims, the reporter highlighted the fact that the two approaches comple-ment one another: management control requires an internal control system to function. Be that as it may, the two approaches seem essential to the operations of a modern organisation.

The reporter noted that there seems to be a relative consensus on the fact that risk management (objective for internal control) and performance management (principal purpose of management control) is the direct responsibility of the administrators and not any ex-ternal player. However, while internal control concerns all staff, management control comes more under an entity’s leaders, insofar as it is focused above all on results.

The reporter also noted that the trigger event that facilitated the implementation of internal control and management control varies within the group. For the UK and Ireland, it concerns the obligation for public administrators to report and the government’s com-mitment to justifying the effective use of public funds to the public. The trigger event in France concerns more legal aspects through the LOLF law, which intro-duces a results-based budgeting system (performance) and accrual accounting system (need to strengthen internal control). For Cyprus, Romania, the Slovakian Republic and Slovenia, the trigger event has been the chapter of negotiations for acquis communautaire on public fi nancial management, incorporating internal control and management control.

Workshop 8: Accounting Reform and Audit

> Reporter: George Meskos, Ministry of Finance (Greece)

The changeover from inspection to internal audit requires new skills and new working methods. In addition, it is essential to implement ongoing training programmes and ensure that the means, including human resources, are suffi cient. The audit must be compliant with international standards and must be independent. It must not be possible for anyone to interfere in the internal audit’s work.

External auditors assess the quality of the internal audit. This forces the latter to achieve a certain level of professionalism. Compliance with the professional auditing and certifi cation standards of internal audi-tors represents the best guarantee for the quality of the internal audit.

The IT system must be reformed at the same time as the accounting framework. While the tools cannot do everything, they do make it possible to achieve results more quickly, as shown by the example of Italy. Inte-grated IT systems facilitate the work for the auditors, whether they are internal or external. 25



During a changeover phase from cash accounting to accrual accounting and if this also concerns all public entities, the number of auditors needed increases; new skills are also necessary. As such, the politicians must be aware of the need to free up suffi cient re-sources to create genuine groups of auditors that are capable of working in the State’s different entities.


The chairman of the session, based on the fi ndings from the questionnaire that the seminar’s participants answered, pointed out that in the European Union, consistency and compliance audits are the most de-veloped, ahead of performance audits and fi nancial audits. The number of i IT system audits is still low, in light of the methodology and the capabilities they involve.

In the UK, major work has been carried out to im-prove information security. The administrators have been directly involved in the management and con-trol of their information system. The IT system audit must be considered from a specialisation perspective (niche expertise on specifi c products - SAP, Oracle), outsourcing of the information system to the private sector or provision of an information system by a line ministry or department acting as a service provider for the other ministries. In these last cases, who controls whom and what?

However, in general, the skills still not suffi cient to carry out full audits. These gaps should be fi lled, with at least part of the know-how kept within the govern-ment.

An internal audit unit specialised in IT systems has been set up within the Dutch Ministry of Finance. This unit works for all the ministries. However, it is diffi cult to keep this type of expertise in the public sector, in light of the wages on offer in the private sector.

Does internal audit in EU countries cover fraud or is this risk covered by another player?

In Romania for instance, the subject is handled by a specialised institution. However, no specifi c me-chanisms have been put in place in Greece. A study carried out in the Netherlands has shown that the incidents linked to fraud within the government were limited. Nevertheless, a specifi c network has been created to handle fraud from an audit and legal pers-pective. The future challenge for the coming years will be to train up a team of experts on this type of investigation.

The representative from Italy pointed out that the new members within the European Union were forced to modernise their control systems during the phase for negotiations for them to join, unlike the States that have been members for longer. Ideally, these latter states should also carry out this approach. This would represent the only way of moving towards genuine and generalised control over public fi nances within the European Union.

The representative from the European Commission considers that its role is not to impose a type of internal control on Member States, other than a certain level of standards of course.

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Perspectives des réformes comptables et des systèmes de contrôle en Europe :

> Integration of the control chain (single audit concept)

> Extension of the scope for certifi cation to in-clude the entire public sector (social security, local governments)

> Outlook within the framework of European in-tegration

> Chris Butler, Head of Internal Control and Risk, British Treasury

> Somir Ali, Expert Accounting Adviser, Financial Reporting Policy Offi ce – British Treasury

> Peter Salamon, Head of Internal Audit for the Treasury, Hungary

> Ciaran Spillane, Head of Budgetary Performance (General Budget and FED”), EC Budget DG

> Patrick Lefas, Master Adviser, French State Audit Offi ce (Cour des Comptes)

> Vincent Mazauric, Deputy Director in charge of Pu-blic Management, DGFiP, French Ministry for Budget, Public Accounts and Civil Service

The roundtable was led by Stéphanie Flizot, Senior Lecturer in Public Law, IPAG, Université Paris-X Nanterre, France.

Stéphanie Flizot introduced the debates by first reminding participants about the main subjects to be looked at. The fi rst focused on the nature of the accounting reform carried out within EU countries, its global or non-global nature from the perspective of an accounting reform combined with a budgetary reform and the scope of the reform, the current or planned initiatives, as well as consolidation, for example, and the approaches and pathways retained.

Somir Ali noted that the scope for the reforms and the accounting methods vary considerably from one country to the next, even if there seems to be a gene-ral movement towards accrual accounting. In the UK, central government adopted this method relatively late on. Local or social security institutions and public commercial groups have however used it since they were created. Alongside the accounting reform rolled out in 2000/2001, the budgetary framework has also

V- ROUNDTABLE: OUTLOOK FOR ACCOUNTING REFORMS AND CONTROL SYSTEMS IN EUROPE:

been reviewed. As a result, the entire UK public sector in terms of national economic accounting applies ac-crual accounting in full. However, to fully benefi t from accrual accounting, it is necessary for all public sector players to draw up their accounts in a consistent way, on the same accounting bases, and producing their accounts on time. These changes and developments should make it possible to produce one single account for the whole government by 2009/2010, while also improving the transparency of information and facili-tating its appropriation, including by the public.

Chris Butler added to the British experience by explaining that the decision to apply international accounting standards was taken very early on. Firstly it involved setting up a consultative standards committee, inde-pendent from the Treasury Ministry, responsible for ensuring that changes to accounting standards were not made solely in the interests of the government. In this way, the UK has been able to limit the differen-ces compared with international accounting standards and benefi t from a specifi c and stable frame of refe-rence.

He highlighted the fact that the changeover to accrual accounting has made the presentation of the fi scal accounts considerably more complex and increased the risks of accounting data being corrupted. Within this context, internal audit has a major role to play by carrying out system audits aimed at guaranteeing the compliance of the data produced, in addition to its advisory role on accounting policy.

Stéphanie Flizot summarised what had just been said by highlighting the global and integrated nature of the accounting reform process and the involvement of all the players from the control chain. She said that she would like to know about the specifi c aspect of the renewal of relations between players in light of Hungary’s experience.

Peter Salamon reminded participants that, in general, a rational control chain must provide added value at each stage, in accordance with the principle of value for money. To be effi cient, this control chain must avoid any duplications of control and be based on a delegation of responsibilities and duties. In Hungary, a system with several levels, both internal and external, has therefore been set up, with a co-ordination me-chanism. This approach can be illustrated as a “house of controls”, with a ground fl oor occupied by internal

27



control (100%), which falls under managerial respon-sibility, a fi rst fl oor where internal audit is located, a second fl oor for external audit and a third fl oor co-vering regional or national-level audits for operations co-fi nanced by the European Union (5% audits).

These different levels of control are characterised by their complementary nature. First of all, on an opera-tional level, internal control is permanent and under the responsibility of all the departments, while inter-nal audit is ex-post and carried out by a separate, specialised and independent department. In terms of missions, internal control needs a clear external and internal regulatory framework, an identifi cation and analysis of risks, a management of sensitive infor-mation and access controls, as well as a monitoring of corrective measures. Internal audit’s missions aim to ensure the effi ciency and effectiveness of internal control, the effectiveness of risk management, the existence of a complete and regularly updated audit trail, the existence of indicators making it possible to measure the effectiveness and effi ciency of manage-ment. Co-ordination between the different levels of audit, internal and external, regional and national, guarantees the protection of fi nancial interests for the State (member) and the European Union.

Stéphanie Flizot remarked that this control chain approach gives a specifi c position for external audit and indicated that she would like to know the views of the French State Audit Offi ce’s representative on the role to be played by external audit in this chain

Patrick Lefas came back to the certifi cation of the State’s accounts in France. This mission was recently entrusted to the French State Audit Offi ce, in addition to its traditional missions, namely public manage-ment control and the judicial audit of the accounts. With regard to the certifi cation of the accounts, the French State Audit Offi ce has drawn inspiration from experiences in other countries, notably the UK. They have enabled it - despite starting off later - to pro-gress more quickly. In this respect, he highlighted the fact that France had one key asset, namely that the French State has traditionally centralised its accounts. This made it possible for France to move more quickly and reach the level at which the Supreme Audit Ins-titution must certify the accounts of the State, which includes public authorities (Parliament, Government, Presidency, etc.), as well as indirectly - through long-term fi nancial investments - all of the State’s equity interests. Similarly, the foreign experiences have made it possible to rapidly defi ne the methodological framework applicable in terms of the certifi cation of the accounts. Indeed, all the Supreme Audit Institu-

tions carrying out the certifi cation share the same frame of reference, namely international audit stan-dards (IAS). However, Patrick Lefas stressed that this was not an easy challenge insofar as certifi cation re-presents a new profession that is different from all of the State Audit Offi ce’s other missions. In addition, this mission requires a risk-based approach that must be shared with the party producing the accounts (the Ministry of Finance) and all of the government bodies.

He specifi ed that France although made this choice, the link between accounting reform and certifi cation is not automatic. They do not go hand-in-hand. Never-theless, certifi cation provides an additional guarantee on the quality of the accounts in relation to the reader of the accounts since it represents a strong act that engages the certifying authority’s responsibility.

Stéphanie Flizot thanked Patrick Lefas for this presen-tation of the certifi cation process from the certifying authority’s viewpoint. Given that it represents a shared process and reform, she explained that she would like to have the opinion of the producer of the accounts and the party being certifi ed

Vincent Mazauric considers that certifying the accounts represents a good illustration of the overall need for the reforms and their gradual nature since the issues are so complex. It is necessary to respect a learning curve, while setting out a clear objective. To progress, Vincent Mazauric considers that quality must be achie-ved as early as possible in the chain. To take up the image of the “house of controls” used previously by Peter Salamon, he stressed that while the ground fl oor is important because without a ground fl oor there is no fi rst fl oor, the foundations are also important.

Over and above the accounting function, and for qua-lity to be able to improve, all of the public managers must be involved in the approach.

Ciarian Spillane highlighted the fact that the European Commission is heavily dependent on the quality of the control chain, since 80% of expenditure in the EU is paid by Member States. In this way, the interdepen-dency of all the players is very important.

Stéphanie Flizot reminded participants that the ac-counting reforms are meeting requirements for both transparency and improvements in public manage-ment. The latter is also characterised by an increase in the number of stakeholders, an increase in the number of public or private entities that the State enters into agreements with. Within this new context, what are the issues relating to the consolidation of 28



accounts. Several countries are looking into consoli-dation projects. What is the British and French expe-rience on this subject?

Chris Butler stated that in the UK, there are around 1,300 public entities. The consolidation process is therefore extremely complex and takes a lot of time. Many diffi -culties have been encountered and not all of them have been resolved to date. More specifi cally, it is essential to verify the security and reliability of the consolidation system and ensure its consistency. A certain number of questions, some of which have political implica-tions, must also be resolved before embarking on this approach. Nevertheless, consolidation offers enormous advantages. While initially the objective in the UK was to make it possible to use consolidated accounts for the production of national accounting, representatives from the British Treasury, at central level, rapidly realised the benefi t of having consolidated data on expenditure.

Patrick Lefas indicated that in terms of the consolida-tion of accounts, we could consider the fact that, insofar as all Member States declare data for all government bodies to Eurostat on a consolidated basis, there is no other possible option than achieving a general consoli-dation of the fi scal accounts.

And yet, he considers that consolidation must take into account the specifi c features of each public entity, na-mely the local authorities and social security institutions. According to him, the fi rst step must be to consolidate achievements for the State’s annual accounts. Its im-plementation already requires a considerable amount of work. It is essential to make the system reliable and ensure a return on investment for this fi rst stage before going any further. From his point of view, the next step would be to work on the linking of the cash budgetary accounting system, which is now multiyear, and the State’s general accounting on an accrual basis. It is only at a later stage that we will be able to consider changing over to a certifi cation of the State group’s consolidated accounts.

Stéphanie Flizot wondered - without however wanting to look back over the prerequisites in terms of accounting frames of reference and information systems - about the scope that is likely to be subject to consolidation, notably in the case of local authorities

Vincent Mazauric noted that in France, local authorities are starting to show an interest in the accounting reform and the certifi cation of accounts. A very strong political movement is developing aimed at improving the management of all local entities, regional authorities

as well as hospitals for instance. This movement is also institutional since a reform of the Constitution in July 2008 set out the principle that all of the accounts of government bodies must be accurate, consistent and faithfully refl ect the management, assets, liabilities and fi nancial position. This clear political commitment must not however mask the diversity of the situations and the diffi culties to be overcome. In any case, the process is only just beginning.

To take up the role of the 3rd level outlined by Peter Salamon, Stéphanie Flizot wondered about the role that the European Union could play in terms of accoun-ting standards and the mode that could eventually suit all national situations

Ciaran Spillane considers that there is not likely to be one single solution. The diversity of national experien-ces demonstrates this. Similarly, the development of consolidation is only interesting if it is carried out on a relevant scale. It is important to always ask questions about the actual objectives of the reform.

Patrick Lefas noted that the European Commission plays an absolutely central role in debates on the harmonisation of accounting standards for busines-ses. However, it absent as far as the public sector is concerned. The European Commission has carried out its own approach in-house, but has not shared its work. And yet, its experience would have been inte-resting for Member States. This shows that the Euro-pean Union already has its block of skills, namely the European system for national accounts for overseeing budgetary discipline and controlling public defi cits, but that nothing has been planned concerning the constituent elements. However, moves to ensure the reliability of the SEC 95 declaration are based on the accounting quality of each one of the entities making up the European Union (States, local authorities and social security institutions). Similarly, Patrick Lefas expressed his regret that Europe, when it comes to accounting standards for the public sector, does not have any capacity to infl uence the international stan-dard-setter (IPSAS Board) and that European States are therefore working within this area on a dispersed basis. To illustrate this point, he mentioned the recent examples of standards for Service Concession Arran-gements (IFRIC 12) and fi nancial instruments (IAS 32 and IAS 39).

Vincent Mazauric indicated that many EU countries are committed to accounting reform. In the absence of any common guidelines, this is not necessarily based

29



on the same foundations and principles, which may result in signifi cant balance sheet differences. These differences are not only technical. They may in time

have a political impact. It is therefore important to establish a minimum set of rules for convergence and exchanges on this subject at European level.

30



Philippe Parini, Director General of Public Finances, expressed his delight with the range and quality of the discussions.

The concept of accounting quality, relatively new in France compared with Anglo-Saxon countries, seems fundamental. At State level, it represents a decision support tool for the country’s fi nancial policy and a factor for its effi ciency. It requires the administrative organisation to be improved, notably in order to make fi nancial management more effi cient.

Most of the States are seeing a similar trend, bringing them closer to the rules for private accounting. The changeover from cash accounting to accrual accoun-ting represents one illustration of this. Moving closer in this way is benefi cial, not for ideological reasons, but because public accounting can benefi t from the more advanced reviews from private accounting.

SYNOPSIS AND CLOSE OF THE SYMPOSIUM

The work has clearly shown that European countries share identical issues. Most of the States are looking into how to inventory and value their assets and lia-bilities. Philippe Parini believes that it is essential to share experiences and defi ne - based on common issues - common solutions. In order to have an in-fl uence, together, in international discussions and the resulting international accounting standardisation. And to infl uence public governance since accounting standardisation represents, from this point of view, a lever for improving administrative effi ciency.

From this perspective, he confi rmed that he would like to see further meetings organised, based on the same spirit as this seminar.

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GLOSSAIRE

DECEMBER 2008

Control Systems: A Key Factor in the Achievement …...Control Systems : A Key Factor in the Achievement of Central Government Accounting Reform Symposium September 18 and 19, 2008

Documents