<strong>265.</strong> STRATEGY OF PUBLIC INTERNAL FINANCIAL CONTROL (PIFC) DEVELOPMENT INMONTENEGROMINISTRY OF FINANCE OF MONTENEGROSTRATEGYOF PUBLIC INTERNAL FINANCIAL CONTROL (PIFC) DEVELOPMENTIN MONTENEGROPodgorica, November 2007.2
<strong>265.</strong> STRATEGY OF PUBLIC INTERNAL FINANCIAL CONTROL (PIFC) DEVELOPMENT INMONTENEGRO1. IntroductionIn the chapter “Sector policies” relat<strong>in</strong>g to <strong>f<strong>in</strong>ancial</strong> <strong>control</strong>, <strong>of</strong> its Progress Report on Montenegr<strong>of</strong>or 2006, the European Commission stated the follow<strong>in</strong>g:“Montenegro will have to substantially upgrade its system <strong>of</strong> <strong><strong>in</strong>ternal</strong> and external <strong>control</strong>. TheState Audit <strong>in</strong>stitution will need to be upgraded to a supreme audit <strong>in</strong>stitution fully <strong>in</strong>dependent andfunctional <strong>in</strong> l<strong>in</strong>e with <strong>in</strong>ternational standards and the EU best practices. Montenegro should alsoupgrade its Public Internal F<strong>in</strong>ancial Control <strong>strategy</strong> as soon as possible and enhance <strong><strong>in</strong>ternal</strong>audit capabilities.It will be necessary to improve the system <strong>of</strong> <strong>public</strong> <strong><strong>in</strong>ternal</strong> <strong>f<strong>in</strong>ancial</strong> <strong>control</strong> (PIFC) <strong>in</strong> accordancewith <strong>in</strong>ternational standards <strong>of</strong> <strong>public</strong> <strong><strong>in</strong>ternal</strong> <strong>control</strong>, <strong>in</strong>ternational <strong><strong>in</strong>ternal</strong> audit standards and theEU best practices. Specifically, there is a need to develop decentralized managerial accountabilitythat will be supported by appropriate <strong>f<strong>in</strong>ancial</strong> management and <strong>control</strong> system and functional<strong>in</strong>dependence <strong>of</strong> <strong><strong>in</strong>ternal</strong> audit.In order to harmonize <strong>f<strong>in</strong>ancial</strong> management and <strong>control</strong> and <strong><strong>in</strong>ternal</strong> audit it will be necessary toestablish a central harmonization unit (CHU) .The Central Harmonization Unit shall be placed <strong>in</strong>the M<strong>in</strong>istry <strong>of</strong> F<strong>in</strong>ance and will be directly report<strong>in</strong>g to the M<strong>in</strong>ister, on the <strong>development</strong> andprogress made <strong>in</strong> the PIFC area. The Centralized Harmonization Unit would be <strong>in</strong> charge <strong>of</strong>discussions on PIFC pr<strong>in</strong>ciples <strong>in</strong> the <strong>public</strong> sector, <strong>development</strong> <strong>of</strong> strategic documents, draft<strong>in</strong>gand enforcement <strong>of</strong> legislation, organizational structure as well as coord<strong>in</strong>ation <strong>of</strong> methodology andtra<strong>in</strong><strong>in</strong>g <strong>of</strong> managers and the staff <strong>in</strong>volved <strong>in</strong> <strong>f<strong>in</strong>ancial</strong> management and <strong>control</strong> and <strong><strong>in</strong>ternal</strong> audit.”In December 2006, pursuant to the EC recommendations, the Government <strong>of</strong> RM adopted theAction plan for implementation <strong>of</strong> recommendations from the draft European Partnership, which <strong>in</strong>the part relat<strong>in</strong>g to the Sector policy concern<strong>in</strong>g <strong>f<strong>in</strong>ancial</strong> <strong>control</strong>, planned <strong>in</strong> its short term priorities,that the M<strong>in</strong>istry <strong>of</strong> F<strong>in</strong>ance as the competent body should prepare the document “Strategy <strong>of</strong>Public Internal F<strong>in</strong>ancial Control <strong>in</strong> the Re<strong>public</strong> <strong>of</strong> Montenegro”. Subsequently <strong>in</strong> the Program <strong>of</strong>Work <strong>of</strong> the Government <strong>of</strong> RM for 2007, it was proposed that the M<strong>in</strong>istry <strong>of</strong> F<strong>in</strong>ance wouldprepare the PIFC policy paper. In draft<strong>in</strong>g this document, the M<strong>in</strong>istry <strong>of</strong> F<strong>in</strong>ance has received anexpert assistance from SIGMA program.The purpose <strong>of</strong> this document is to describe the key elements <strong>of</strong> the current situation, <strong>development</strong><strong>strategy</strong> for establishment and <strong>development</strong> <strong>of</strong> comprehensive and efficient <strong>public</strong> <strong><strong>in</strong>ternal</strong> <strong>f<strong>in</strong>ancial</strong><strong>control</strong> <strong>in</strong> the Re<strong>public</strong> <strong>of</strong> Montenegro. The PIFC pr<strong>in</strong>ciples, which are described <strong>in</strong> this document,will be <strong>in</strong>corporated <strong>in</strong> the new law on <strong>public</strong> <strong><strong>in</strong>ternal</strong> <strong>f<strong>in</strong>ancial</strong> <strong>control</strong> system, by which Montenegrowill harmonize its current legislation <strong>in</strong> this area with the requirements <strong>of</strong> the EU (acquis).The PIFC <strong>development</strong> <strong>strategy</strong> will apply to both the national and the EU funds and will be veryimportant for the EU <strong>in</strong>tegration process <strong>of</strong> the Re<strong>public</strong> <strong>of</strong> Montenegro.The Public Internal F<strong>in</strong>ancial Control (PIFC) will be develop<strong>in</strong>g cont<strong>in</strong>uously and <strong>in</strong> that regard, theGovernment <strong>of</strong> Montenegro will be supplement<strong>in</strong>g this document on the proposal <strong>of</strong> the M<strong>in</strong>istry <strong>of</strong>F<strong>in</strong>ance.2. SummaryPublic Internal F<strong>in</strong>ancial Control <strong>in</strong>cludes part <strong>of</strong> the acquis pr<strong>in</strong>ciples that have been establishedby the EU as an overall system <strong>of</strong> <strong><strong>in</strong>ternal</strong> <strong>f<strong>in</strong>ancial</strong> <strong>control</strong>s for a good governance <strong>of</strong> the <strong>public</strong>funds, regardless <strong>of</strong> their source.The PIFC model <strong>of</strong> the EU has separated the functions and responsibilities <strong>of</strong> <strong>f<strong>in</strong>ancial</strong>management and <strong>control</strong> (FMC) cover<strong>in</strong>g ex ante, ongo<strong>in</strong>g and ex post <strong>control</strong>s, and <strong>in</strong>dependent<strong><strong>in</strong>ternal</strong> auditTo conduct an efficient PIFC model <strong>in</strong> the Re<strong>public</strong> <strong>of</strong> Montenegro, it will be necessary, first <strong>of</strong> all,to amend the current legislation framework by pass<strong>in</strong>g the Law on <strong>public</strong> <strong><strong>in</strong>ternal</strong> <strong>f<strong>in</strong>ancial</strong> <strong>control</strong>system (the Law on PIFC). This law will allow for the strengthen<strong>in</strong>g <strong>of</strong> a legal base for the<strong>in</strong>troduction <strong>of</strong> the PIFC concept and will enhance the legislation <strong>in</strong> the area <strong>of</strong> <strong>f<strong>in</strong>ancial</strong>3
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