Financial control of public finances in the state administration in Slovakia

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Financial control of public finances in the state administration in Slovakia

Nora Stangova, Agnesa Vghova

prof. Ing. Nora Stangova, CSc., PhDr. Agnesa Vghova, PhD.Katedra malйho a strednйho podnikania, Vysokв skola ekonomie a manzmentu verejnej sprвvy v Bratislave, Furdekova 16, Bratislava,

Abstract: The management ensures, that the activity of a particular state institution fully meets the needs not only the needs of the state but also those of the local community, the norms of social development and also the real possibilities of changing the given state of a particular process to a desired state.

The Financial Control Act precisely defines financial management as a set of procedures for responsible and transparent planning, budgeting, use, accounting, reporting and financial control of public funds and own funds aimed at their efficient, effective and efficient use. This definition is applied to the entire government sector, as financial management can not only mean a financial or controlling act or process, but it represents the whole set of procedures that define the rules, how these actions and processes will be performed, who will verify them and control their mutual communication.

Keywords: Financial Control, National Council of the Slovak Republic, Financial Audit Report, audit, control

Classification

Public Finances Management

The official and transparent use of public resources requires an effectively set up financial management system, where the key element is the financial control.

Financial management in the state administration must be linked with controling mechanisms and links at all levels which create its own controling system. (Vicen, 2014). Financial management of public finances is a specific set of activities that the state administration has at its disposal to achieve its financial stability and liquidity.

Scheme of the relationship between financial control and financial management:

Picture 1. Relationship between financial control and financial management (Olah, 2012)

The various components of financial management according to Mr. Olah are:

- planning - is defining of the goals, policy setting and character determination, subject, extetn and timing of the precedures necessary to achieve the goals,

- budgeting - and the budget are the basic tools for fiancial management managed by the public administration. Any budget policy failure can cause a thread to the fulfillment of goals, or to the usage of the budget (payment, withdrawing)

- accounting - is of fundamental importance for budget management, financial responsibility enforcement, and policy-making. Accounting is a basic tool for tracking the status and movement of all assets and liabilities of an organization.

- reporting - is an important tool for planning and setting economic and policy strategies. For this purpose, it should provide informationn on the ongoing activities and objectives of individual public authorities.

- financial control - the management process defines control as an important place in the direction of managed processes of all kinds, of which the dominant direction of financial processes in the state administration is, as it follows from the above scheme. (Olah, 2012)

The basic legal regulation is the Financial Control Act, which specifies exactly how the financial control is performed, such as basic financial control, administrative control and can be on the basis of the mandate issued by a public administrative body, or the head of the public administrative body be carried out as a financial control on place. (Vicen, Kuril, 2012).

1.1. Legislative changes in Financial Control

As the primary characteristics of financial control, we can mention economy and efficiency (§ 2 of Act No. 357/2015 Coll. on financial control ). The first basic qualitative criterion for the spending of public funds is economy, it means that the costs incurred on the object of the contract were appropriate to its quality price. Economy prefers rational use of public funds - reasonable costs incurred. (Vicen, 2016). Efficiency - the second qualitative criterion, also includes the internal rationality of using public finances and the requirement for the effectiveness of purchased goods. Efficiency is a relationship in which we compare the expended value inputs and the achieved value effects.

The Financial Control Act also determines the secondary characteristics of financial control - effectiveness and efficiency. „Efficiency is the relationship between the planned results of the activity and the actual result of the action in terms of the public funds used. Effectiveness is watching the relationship between the proper use of public funds and the effectiveness of their use.“ (§ 2 of Act No. 357/2015 Coll. on financial control ).

It should be noted, that the previous regulation has never determinated and neither the new Financial Control Act does specify any specific methods and examples of basic financial control (Vicen, 2016).

The advantages and disadvantages of the new Financial Control Act are presented in the following table:

Table 1. Advantages and disadvantages of the new financial control act

We can summarize the crucial changes in the performance of financial control into the next five points.

Execution of financial control according to the nature of the financial operation.

Financial control is newly divided into three categories, with the basic financial control being verified by all financial operations without distinction. The novelty lies in the performance of financial control in the case of the provision of public funds, when administrative financial control is also carried out. Its output is the processing of the draft report, not in the form of a financial control, as it was used originaly in the case of preliminary financial control.

The current performance of basic financial control and of the admnistrative financial control.

At the same time, two types of controls are carried out in the case of the provision of public funds. This is the area of grands, advances, transfers and allowances. Furthermore, there is an area where a separate regulation does not provide the implementation of a decision to provide funds, for example as in the case of the administrative, social or judicial field.

Elimination of preliminary financial control institute.

Since 2016, ongoing financial control is not being carried out. It is worth mentioning that the internal organization act should also suppose to think at it, if this is effective and defines ongoing financial control.

Relationships between the basic rules of control activity and financial controls.

An establishment that is in place since 2016 introduces a novelty - involvement of control rules (old, financial control rules) into the administrative financial control and on-site financial control. On the basis of the above, the responsible employees perform both types of financial control according to the rules that have been so far applied only to the controllers and the employees who have the control activity in the job.

Replacement of the Financial Audit Report by the Government Audit Office.

The Financial Audit Act regulates, for the audit area, a new public administration entity with clearly defined competencies - the Government Audit Office, which replaces the management of financial control and its exposition.

The system of internal control in the state administration was not centrally determined by 2016, even though these institutions managed public finances. As part of the amendment to the Financial Control Act, it was necessary to establish an obligation for all public bodies to establish a functional internal control system including the statutory control rules. Furthermore, we can assert with certainty that the change of law has also contributed to the implementation of internal control within the scope of the recommendations of the International Organization of Supreme Audit Institutions INTOSAI. By introducing a change to the law, a new concept of auditing by the public administration, which regulates common rules for the performance of internal audit and government audit, as an independent institute in the area of public internal control system, is introduced. In order to maintain the objective view of verified facts, it was necessary, for the independence of the internal audit and for the provision of the financial control, to make these institutions independent. For the same reason, organizational and functional independence of the government audit from management structures must be maintained.The internal audit performance is obliged to provide by the administrator of the state budget with at least two of its employees, according to the law.

II. Results of the National Audit Office activity in the last 3 years

In the structure of control bodies of the Slovak Republic, The National Council of the Slovak Republic is dominated, which is also the highest constitutional and legislative body in the Slovak Republic. Its control activities are directed mainly to the Slovak government. The Constitution defines the competencies of the National Council of the SR in the monitoring of the observance of the Constitution, of constitutional and other laws, the observance of international treaties and the verification of the fulfillment of the state budget. From specific forms, control is performed in the National Council through parliamentary committees, commissions, parliamentary polls and interpellations. The general control powers of the National Council of the Slovak Republic are specified by the Constitution of the Slovak Republic in Act. 86, 92, and of which immediately follows the status and competencies of the Supreme Audit Office of the Slovak Republic (hereinafter SAO SR).

In the monitored period, the SAO has worked under two plans with a time span of three years. The strategic focus of the audit activity of the SAO SR was on the following main thematic areas of health, transport, education and fiscal consolidation. Types of controls performed by SAO SR

Picture 2. Audits of the SAO SR Source: Own processing

Organizations, as public fund managers, the SAO SR found almost all of these audited entities.

Controling activity of SAO SR

Picture 3. Audits and the recommendations of the SAO SR Source: SAO SR

financial management liquidity public

Controlling activity in these years has shown, that many findings are repeated, despite the fact that measures have been taken in the past. From this state, it can be deducted that the measures by which the bodies have to eliminate the shortcomings are in many cases formal, evaluated without an assessment of their effect, and thus the state and its organizations do not bring greater added value to citizens.

Conclusion

The SAO SR has identified several systemic deficiencies, which will be discussed in detail during the analysis of each monitored period. It recommended the audited entity to take hundreds of measures and recommendations, see Chart no. 8, which have an increasing trend and should lead to better management of public finances and the establishment of internal control instruments. It follows that the SAO SR thus provides significant feedback to the responsible authorities and organizations to carry out their activities not only in accordance with the law but also economically, efficiently and efficiently for the benefit of the citizens.

From the audited financial reports of the SAO SA for the period 2014-2016, we chose public investment to be more detailed. As far as they make up a substantial part of the state's public finances, we think they deserve a lot of attention within the framework of financial control. We compare the interdependence of the public finance deficit with the volume of public investment. Financial control is a tool that must contribute to the efficient use of public finances, compliance with the rules on their redistribution and the resulting effect.

The inadequate results of Slovakia resulting from the audit activity of the SAO SR in the area of public finances have been found by comparison in recent years in the field of public investment.

The development in recent years has shown that due to the specific nature of the SAO's activity it is much more efficient to use the Peer Review selfassessment for the process of constantly improving the quality of work of the SAO SR, and consequently the use of the PMF instrument by foreign supervisors as the currently implemented Quality Management System - CAF-efficient user./Common Assessment Framework/

At present, the support of audit activities of the SAO SR is lacking in analytical materials and expertise. They are expected to be a common part of all control actions in the future, they will be used in the preparation of strategic documents, in the planning of the control activities, especially in the better planning of the controls of the riskiest areas, relusting from the risk analysis, in all performance controls, at all stages of the control activity (planning, preparation of control, performance and implementation of control results), etc. In connection with the use of analytical methods and databases, the drafting of opinions on draft State Budget and State Final Account as well as annual reports on the results of control activities submitted to the National Council of the Slovak Republic will reach a qualitatively higher level,

Framework recommendations in the controlling area are following:

In order to ensure greater efficiency in the management of public finances, it is necessary to strengthen the financial control in public administration by creating an effective control system,

Increase the effectiveness of financial control through a good selection of controlled entities,

Ensure the extension of the powers of the Supreme Audit Office of the SR through various sanctioning tools,

Ensure the increase of the personnel composition of the Supreme Audit Office's supervisors - through training abroad

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