Karachi, In a significant development for public financial management and internal control (PFM/IC), essential features and standards have been outlined to improve stewardship, effective utilization of public resources, and forward-looking financial planning in public entities. These reforms are crucial for enhancing financial stability and operational efficiency in government sectors.

According to International Monetary Fund, the key aspects of PFM/IC include securing financial stewardship traditionally overseen by ministries of finance, ensuring effective utilization of public resources across the civil service, and being forward-looking to avoid commitments that threaten financial stability. While many countries claim to meet these requirements, evidence of success, especially in risk assessment and forward financial planning, is often limited.

Improving PFM/IC is a long-term endeavor supported by international organizations and external auditors. For European Union members or aspirants and recipients of EU funds, enhancing PFM/IC quality is a legal requirement based on decentralized managerial accountability. This reform extends beyond financial aspects, demanding managerial changes and the establishment of clear policy objectives, efficient resource utilization, financially informed policymakers, and well-trained operational management.

The cultural tradition of a country heavily influences the establishment of a managerial approach. In many developing and transition economies, centralized decision-making by political appointees is prevalent. The EU principle of decentralized management mandates reforming this tradition, advocating for delegated operational decision-making and professionalization of the civil service.

Croatia, among recent EU joiners, has made progress in applying public internal financial control (PIFC) but still faces challenges. Many developing countries in Europe, Africa, and other regions remain reliant on centralized decision-making, with ministers involved in basic administrative tasks.

International standards of internal control, such as the COSO standards, have been developed and are implicitly used by advanced countries like the UK. These standards encompass control environment, risk management, control activities, information and communication, and monitoring. Adopting these standards implies acknowledging unwritten assumptions about management, governance, and transparency, which are critical for quality management.

Implementing PFM/IC or PIFC impacts budgetary and financial accounting arrangements, altering the relationships between ministries of finance and line ministries. Managers require detailed budgetary and management accounting information for financial performance judgment and spending control, along with the authority to act on such information.

In countries with weak financial stewardship, starting with less advanced reforms such as strengthening public financial administration and internal control is advisable. A primary focus should be on securing effective financial stewardship and ensuring political clarity about service objectives.

For a comprehensive analysis of developing the PFM/IC approach, the book “Public Financial Management and Internal Control” by Palgrave Macmillan offers an in-depth view, with a free online version available.