SUPREME AUDIT OFFICE OF POLAND NEW TRENDS AND PROBLEMS IN A PUBLIC FINANCE MANAGEMENT AS A CHALLENGE FOR SAIs ― POLISH PERSPECTIVE WOJCIECH MISIĄG VICE-PRESIDENT

MAIN CHALLENGES FOR THE POLISH SUPREME AUDIT OFFICE: INTRODUCTION MAIN CHALLENGES FOR THE POLISH SUPREME AUDIT OFFICE:  Global financial and economic crisis  Implementation of performance-based budgeting  Publication of „Stiglitz Report” WHAT WE DID? WHAT WE LEARNED? VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 2

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 BACKGROUND – POLAND 1989 - 2012  Since 1989 Poland is undergoing the process of transformation from real socialism to democratic market economy  The public sector still needs the deep reforms  Consequences of the global crisis were relatively modest – no recession, no severe shocks in the financial sector Due to perturbations on global markets, a major part of business leaders adopted a cautious, defensive operating strategy  Since 2004 Poland is the member of European Union. Net inflow from the EU in the years 2004 – 2012 is equal to euro 46 billion Poland still has serious social and economic problems, like the relatively high unemployment rate , public debt is close to 55% of GDP, deficit of the general government exceeds 3% of GDP  There is not official long-term and medium-term development strategy VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 3 3

DURING THE FINANCIAL CRISIS SAI HAS TO: 2007 ANALYSIS – MOST IMPORTANT TASKS OF SAI DURING THE FINANCIAL CRISIS SAI HAS TO: — allow for real-time monitoring of the way that anti-crisis measures are performed, — allow for early reaction to threats in critical sectors of the economy, — counteract the crisis of trust. VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 4 4

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 CRISIS STRATEGY 1. SAI should adjust its plan of actions to the new situation and control effectiveness of crisis-containment efforts of the Government and other state offices, including the integrity of applying the new anti-crisis instruments. As the financial crisis caused a drastic decline in reciprocal trust of economic entities, SAI should refrain from steps which could deepen the mood of uncertainty and discourage from taking any risk. When auditing the state budget execution, SAI Should analyse the “anti-crisis effectiveness” of whole government’s fiscal policy, and not only the effectiveness of newly created anti-crisis instruments. SAI should control the effectiveness of use of public resources and the government’s measures improving this effectiveness, but these questions should not be linked to the present financial crisis VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 5 5

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 IMPLEMENTATION OF THE CRISIS STRATEGY ACCORDING TO THE RULES OF „CRISIS STRATEGY’, SAI OF POLAND: – included to the annual plans of audits the main problems related to the financial crisis – did not apply for – and his no intention of asking for – any extraordinary powers as regards the crisis – did not assess ex ante the government’s anti-crisis policy – performed audits relating to the crisis and crisis-containment actions within the regular plan of controls, and not an ad-hoc actions VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 6 6

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 PERFORMANCE-BASED BUDGET (PBB) -HISTORY 2007 The Working Group on Results-Based Budgeting was created in the Chancelry of the Prime Minister 2008 The government declares that the performance-based budgeting will be implemented not later than in 2012 2009 The Public Finance Act was amended in order to create the legal framework for the PBB 2010 The goverment published first PBB prepared according to the amended Public Finance Act 2011 Supreme Audit Office carried out the audit of the introduction of PB VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 7 7

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 LEGAL FRAMEWORK FOR THE PBB According to the Public Finance Act:  The government is obliged to present the PBB as the part of the explanatory notes to the draft state budget  The report on the PBB execution should be presented to the Parliament together with the report on the state budget execution  Minister of Finance is obliged to introduce three-level classification of the functions of the government (functions + programs + sub- programs)  The PBB encompasses only the state budget expenditure financed from the „domestic” sources  The results-based state budget is not a law VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 8

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 MAIN FINDINGS In practice, the planning procedure is the same as before the introduction of the new method. It means, that the „philosophy” of the budgeting did not changed VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 9 9

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 OTHER FINDINGS Reports on execution of PBB were not utilised in ex post analyses of state budget execution; they also did not serve as the basis for assessing individual Ministers. Execution of the PBB was never the subject of formal debate within the Council of Ministers. In some of the ministries, the defined performance indicators were not SMART 3. The initially set PBB was not modified following changes in the plan of expenditures. 4. In most of the controlled institutions there was no documentation of the rules and ways of collecting the data, on the basis of which the value of performance indicators was calculated. 6. No government institution verified the value of performance indicators reported by the ministries, voivods and other public agencies VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 10 10

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 POST-AUDIT RECOMMENDATIONS The government should continue the work for a full implementation of the results-based methodology of preparing the state budget 2. The government should consider the fundamental changes in the strategy of implementation of the performance-based methodology VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 11 11

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 STIGLITZ REPORT 1. When evaluating material well-being, look at income and consumption rather than production. 2. Emphasise the household perspective 3. Consider income and consumption jointly with wealth 4. Give more prominence to the distribution of income, consumption and wealth 5. Broaden income measures to non-market activities . . . 7. Quality-of-life indicators ishould assess inequalities in a comprehensive way 12. There is a need for a clear indicator of our proximity to dangerous levels of environmental damage VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 12 12

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 CONSEQUENCES OF STIGLITZ REPORT SAI should consider the following changes of the operational strategy: — extending the scope of audit relating to the public administration actions, the effects of which are important for the living and security (broadly defined) standards for citizens, — carrying out as many performance audits as possible, along with gradual reduction of cases of „pure” regularity audits — taking into account the Stiglitz Report recommendations when defining the benchmarks for the audited activities. VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 13 13

VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 LESSONS LEARNED The most important task of SAI in the times of the crisis is to rebuild the confidence When SAI audits the implementation of the new tools of public finance management, it should audit the real impact on the management, and not the legal provisions and formal procedures The Stiglitz report should be seriously considered as the starting point of the analysis of our procedures and benchmarks using to assess the economic and social progress VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 14

Thank you for your attention VII CONFERENCE OF EUROSAI & OLACEFS - TBILISI 2012 15