M O N T E N E G R O

slide1. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European UnionWorking Group for Chapter 32 – Financial control Bilateral screening: Chapter 32
PRESENTATION OF MONTENEGRO Brussels, 19 June 2013<br>
slide2. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PUBLIC INTERNAL FINANCIAL CONTROL
- PIFC Ana Krsmanović
Assistant Minister
Ministry of Finance
ana.krsmanovic@mif.gov.me<br>
slide3. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control CONTENT OF THE PRESENTATION

Strategic documents and legislative framework
Overview of the current state
Financial management and control
Internal audit
Central Harmonization Unit
Plans for further development<br>
slide4. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32:
Financial control STRATEGIC DOCUMENTS

Strategy for the Development of the public internal financial control in Montenegro (December 2007)

Strategy of further development of the public internal financial control (PIFC) in Montenegro for the period 2013-2017 (June 2012)

Strategy for Public Administration Reform in Montenegro 2011-2016

Strategy for Fight Against Corruption and Organized Crime 2010-2014

Draft Plan on Reorganization of Public Sector – to be adopted in June 2013<br>
slide5. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control LEGISLATIVE FRAMEWORK CORE LEGISLATION

Law on Public Internal Financial Control System (Official Gazette, No. 73/08,20/11 and 30/12)

Budget Law (Official Gazette, No. 40/1,...30/12)

RELEVANT LEGISLATION

The Law on Public Administration (Official Gazette, No.38/03,22/08 and 42/11)
The Law on Civil Servants and State Employees (Official Gazette, No. 39/11, 50/11 and 66/12)
Public Procurement Law (Official Gazette , No. 42/11)<br>
slide6. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION FOR FMC (PIFC LAW)

Rulebook on the manner and procedure for establishment and implementation of public financial management and control (Official Gazette, No. 37/10);

Rulebook on the methodology for reviewing the quality of financial management and control in the public sector;

Instructions on the content of the report and the reporting method of the financial management and control system (Official Gazette, No. 55/12);

Manual for Financial Management and Control (July 2011)

Guidelines for the development of internal rules and procedures for FMC

Guidelines for the development of internal policies and procedures for establishing, implementing and developing the financial management and control, the Action Plan for the implementation of the activities (July 2011)<br>
slide7. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION RELEVANT FOR FMC

Secondary legislation for the State Treasury and Budget

Directions on State Treasury Operations (Official Gazette, No. 80/08 and 16/13)
Rulebook on the manner of preparation and presentation of financial statements of the budget, state funds and local governments, Official Gazette, No. br. 32/10 and 16/13)
Decisions about the design and content of the program budget (Official Gazette, No. 32/10 and 16/13)

Secondary legislation in the area of the organization of public administration
Decree on Criteria for Internal Organization and Systematization of Tasks in State Administration (Official Gazette, No. 07/13)
Decree on Organization and Manner of Work of State Administration (Official Gazette, No. 05/12, 25/12 , 61/12 and 20/13)
Rules of Procedure of the Government of Montenegro (Official Gazette, No. 03/2012)<br>
slide8. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control LEGISLATIVE FRAMEWORK SECONDARY LEGISLATION FOR IA

Decree on the Establishment of internal audit in the public sector(Official Gazette, No. 50/12)

Decree on titles of internal auditors - March 2009 (Official Gazette, No.23/09)

Rulebook on the internal method and procedure - May 2009 (Official Gazette, No. 32/09)

Rulebook on the curriculum and manner of conducting the examination for authorized internal auditors in the public sector –December 2011 (Official Gazette, No.63/11)

Internal audit manual (third edition)

Rulebook on the methodology for reviewing the quality of internal auditors in the public sector (Official Gazette, No.11/13)

Instructions on the content of the report and reporting method for the internal audit work (Official Gazette, No.55/12)<br>
slide9. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control OVERVIEW OF THE CURRENT STATE OF PLAY Financial management and control
Internal audit
Central Harmonization Unit<br>
slide10. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL IMPLEMENTATION OF FMC

Appointment of persons responsible for the establishment of FMC in each institution
Action plans
Internal procedures
Analysis of the financial management and control in the public sector in Montenegro
Initial activities in risk management<br>
slide11. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL<br>
slide12. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL

FMC AND BUDGET CYCLE

BUDGET PLANNING

Carried out in line with macroeconomic and fiscal policies and decisions on the design and content of the program budget
Emphasis on controls with established limits
Program planning, but without established limits
Minister responsible for legality of spending, Budget Law does not emphasize responsibility for economic, efficient and effective management
PIFC law requires a wider responsibility

BUDGET EXECUTION

Single treasury system at the central level
Single treasury system at the local level
Commitments, it is necessary to strengthen the analytical record of outstanding obligations
Own revenues -part in the Treasury system, and some of its own funds<br>
slide13. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL

FMC AND BUDGET CYCLE

ACCOUNTING AND REPORTING

Unique accounts classification
Prescribed financial reporting
Reporting of arrears quarterly
Reporting on own income on a monthly basis
Annual work reports - without connection with the budget funds
Internal reports – if needed within spending units<br>
slide14. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL MANAGERIAL ACCOUNTABILITY

Law on PIFC,
Law on Budget
Law on State Administration

DELEGATION OF AUTHORITY AND SEGREGATION OF DUTIES
IN THE CASE OF FINANCIAL CONTROLS:
- Approving officer- Validation officer- Authorizing officer (Assistant Minister for State Treasury)<br>
slide15. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL THE DRAFT LAW ON BUDGET AND FISCAL RESPONSIBILITY

Key changes:

Medium-term planning
Emphasis on the managerial accountability
Introduction of budget inspection
Introduction of fiscal rules<br>
slide16. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL THE DRAFT LAW ON BUDGET AND FISCAL RESPONSIBILITY
FINANCIAL INSPECTION

Objective – Control of lawfulness of budget spending as well as control whether spending is in accordance to the annual Budget Law
Inspection findings sent to the Minister of Finance, head of authority and SAI
Control process and procedure for conducting control will be regulated by the Governmental decree<br>
slide17. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 3: Financial control Chapter 32:
Financial control FINANCIAL MANAGEMENT AND CONTROL<br>
slide18. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT Establishment - PIFC Law:

Organizing a separate organizational internal audit unit, within the entity which is directly responsible to the head of the entity;
Performing the internal audit by the internal audit unit of another entity, based on agreement, with the prior approval of the Ministry of Finance.

Decree on establishment of internal audit in the public sector

15 at central level- 12 in ministries and 3 funds and
15 at local level<br>
slide19. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDITEstablishment of IA units<br>
slide20. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDITNumber of internal auditors<br>
slide21. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT CENTRAL LEVEL

26 internal audit unit established by Rulebook (including 15 obliged by Law)
In 30 entities Internal audit shall be performed by internal audit of another entity
31 auditors allocated in 23 internal audit units, as follows:
- 17 units with 1 auditor
- 4 units with 2 auditors
- 2 units with 3 auditors
Coverage: 95% of the central budget LOCAL LEVEL

13 internal audit units established by decision on organization of local self -government
17 auditors allocated in 8 internal audit units, as follows:
-3 units with 1 auditor
-2 units with 2 auditors
-2 units with 3 auditors
-1 unit with 4 auditors<br>
slide22. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT INDEPENDENCE OF INTERNAL AUDIT

PIFC Law, Article 20, prescribes that internal audit unit shall be organizationally and functionally separated of other organizational units of the entity

Internal Audit Units established at the highest organizational level, directly responsible to the head of the entity
Internal Audit Charters
Independent planning and performing of audit
Reporting directly to the head of the entity<br>
slide23. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT COOPERATION WITH THE STATE AUDIT INSTITUTION (SAI)
Prescribed by Internal Audit Manual

Closely defined by Internal Audit Charter

Internal Audit reports are being submitted to SAI, during performing of external audit

Findings and recommendations of SAI are being taken into consideration in process of strategic and annual planning in performing of individual audits<br>
slide24. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT TRAINING

CHU with IPA 2009 Project assistance “Strengthening the management and control systems for EU financial assistance “ organized following trainings:
Basic training for internal audit
Practical training for performing individual audit in 5 pilot - institutions
Basic training for preparation of strategic and annual plan of internal audit
Practical training for preparation and development strategic and annual draft plan in 5 pilot- institutions

CHU in cooperation with HRMA organized and delivered series of one day trainings to newly appointed internal auditors at central and local level about role and importance of internal audit<br>
slide25. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control INTERNAL AUDIT CERTIFICATION

National certification - 7 auditors have been awarded with the Certificate of Chartered Internal Auditor in Public Sector (next exams - July 2013)

International Certification by CIPFA Programme for 40 internal auditors in public sector (programme started in October 2012.) – Training and exams (4 modules) conducted.<br>
slide26. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control CENTRAL HARMONIZATION UNITOrganizational scheme<br>
slide27. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control CENTRAL HARMONIZATION UNIT COMPETENCES

Preparation of laws and sub-laws regulation, methodology and work standard in the area of financial management and controls and internal audit
Training program performing for certification of internal auditors
Training Programme performing for FMC and Internal Audit
Coordination of establishment and development of FMC and internal audit;
Keeping registers: internal audit units, internal audit Charters, authorized internal auditors and FMC managers;
Review on quality of FMC and internal audit in entities;
Cooperation with professional bodies and institutions in the area of FMC and internal audit.
Preparation of annual consolidated report on internal financial controls system<br>
slide28. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control CENTRAL HARMONIZATION UNIT COOPERATION
DG Budget
IA units
FMC managers
Stat Audit Institution
Treasury Sector and Sector for Budget
Union of Municipalities
IPA Bodies
Human Resources Management Authority
Municipalities
Ministry of Interior
Institute of Internal Auditors of Montenegro
NGO Sector – Institute Alternativa
CHU of Slovenia and CHU Croatia
Ministry of Finance of the Netherlands<br>
slide29. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control CENTRAL HARMONIZATION UNIT MONITORING AND REPORTING

Pursuant to the Article 38 of the PIFC Law it is prescribed that the CHU performs review of quality on FMC and IA in Public Sector entities
Methodology for the review of the quality of FMC and IA is prescribed by the MoF Rulebooks
Reviewing of the quality of FMC and IA is based on submitted quarterly and annual reports of public sector entities
Preparation and submitting of annual consolidated report on FMC to the Government of Montenegro with the proposal of conclusions
Follow up of the implementation of conclusions
Monitoring of Action Plan (2013-2014) for the implementation of Strategy for further development of internal financial control system in public sector of Montenegro<br>
slide30. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL
Short to medium term plans

Further development of the framework for FMC within bilateral cooperation with the MoF of Croatia

Analysis of the accounting system in the public sector, accounting capabilities in institutions, as well as proposals for the improvement of accounting and capacity building in this area.

Connecting FMC/PIFC and budget system more closely (Budget and Fiscal Responsibility Law in the procedure)

Review of FMC quality by CHU in selected pilot institutions

Strengthening of the cooperation with the stakeholders<br>
slide31. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL

Short to medium term plans

Improving mechanisms of managerial accountability and clearer delegation of responsibility and authority

Improving financial reporting

Workshops at the local level in order to raise awareness about the importance of the PIFC

Strengthening capacities of the Parliament Committee for Economy, Finance and Budget

Update of the Action plan for PIFC Strategy<br>
slide32. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT FINANCIAL MANAGEMENT AND CONTROL

Long- term plans

Strengthening of the managerial accountability

Introduction of the strategic planning

Development of Key Performance Indicators

Establishment of continuous FMC training programs in cooperation with the Human Resource Management Authority<br>
slide33. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT INTERNAL AUDIT

Recruitment of internal auditors in IA Units at central and local level

Coordination of further establishment of internal audit in public sector entities at central and local level

Strengthening of the competences of internal auditors for performing more complex audits

Training of auditors for performing audits of EU funds - MoF of Netherlands<br>
slide34. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT INTERNAL AUDIT

Establishment of the sustainable system for the training and certification of internal auditors

Organization of workshops with the aim of presenting the Methodology for quality review of internal audit

Reviewing quality of internal audit work from CHU in selected pilot institutions

Updating Internal Audit Manual in the area of EU funds

Organization of regular meetings with internal auditors

Networking of internal auditors<br>
slide35. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT CHU

Strengthening capacities of the CHU employees

Updating the Action Plan for implementation of Strategy for further development of the internal financial control in public sector for period 2013-2017 (Deadline: IV quarter 2013)

Strengthening cooperation with the Sector for Budget and Treasury Sector in the implementation of PIFC in the core processes

Strengthening cooperation with the SAI through regular meetings and mutual trainings<br>
slide36. M O N T E N E G R O
Negotiating Team for the Accession of Montenegro to the European Union Chapter 32: Financial control Chapter 32:
Financial control PLANS FOR FURTHER DEVELOPMENT CHU

Cooperation with the Ministry of Interior in the area of State Administration Reform with aim to maintain and further develop established structure for PIFC implementation

Strengthening of the cooperation with the IPA bodies

Cooperation with the Institute of Internal Auditors of Montenegro

Strengthening of the regional cooperation<br>
slide37. Thank you for your attention!

QUESTIONS<br>