1. Assessing Financial Management and Control on entity level
Instrument developed by the National Academy of Finance and Economics (NAFE), Ministry of Finance, the Netherlands
PEMPAL, Skopje, April2019

2. Previous PEMPAL meeting:
The National Academy of Finance and Economics of the Dutch ministry of Finance developed a draft guide for guidance on assessing FMC and the steps after that;
The developed guide describes:
‘steps to take towards a proper assessment;
Instruments for conducting FMC-assessments;
Follow-up steps after assessment: action plan.
Since then:
- Updates and changes made based on experiences in practice

3. What we learned in the practice
Assessment tools should focus on the key issues;
Assessment tool should be efficient, swift, practical and understandable;
Assessment tool should deliver insight in area’s where targeted actions make sense are realistic;
Working with internal working groups should be well guided by experts.

4. Assessing tools are available but….
Often their scope is very broad, covering the total spectrum of IC: COSO-elements, COSO-principles  not swift, not efficient, not always pinpointing the key-issues;
Some lead to so called ‘maturity level classifications: it is questionable if maturity levels give enough information about underlying problems;
Self assessments (without guided expertise) might give blurred picture of reality;
Clear assessment criteria are often lacking;
CHU’s often focused on gathering statistical data, compliance orientated, ticking boxes.

5. Characteristics of the NAFE-assessment guidance tool:
Limited in scope than total spectrum of IC: it focusses on key fundamental elements of Financial Management and Financial Control only: total around 50 key-criteria to assess;
Criteria are based on: (partly) COSO, Three lines of Defense and the management-/Deming-cycle (plan, do, check act) as well as best practice environments and existing tools (e.g. PEFA);
Assessment criteria have been plotted in an ‘assessment matrix’ which forms the basis for instruments like questionnaires, document analyses, interviews etc.;
Key focus is on the managerial activities (and FMC-related responsibilities and accountability requirements) and the budget process.

6. Structure of assessment criteria
General requirements: conditional aspects which make or break a sound functioning FMC- environment;
specific assessment criteria for each element of the Deming Cycle. These criteria are related to functional requirements of first and second line functions in best practice FMC-environments;
Emphasis on two main PDCA-cycles: the budget cycle and the managerial function (1st and 2nd line)
Throughout this structure the focus is on:
Integration (e.g. planning, budgeting and accounting);
Participation (e.g. involvement first line functions in planning and budgeting);
Coordination (e.g. coordinating activities in the second line or activities within budget programs);
Communication (e.g. flow of managerial information, accounting systems).

7. General Conditional Criteria
Category of criteria
Criteria are aimed at
A: General Conditional Criteria
Accountability structure (mandates, authorities, delegation in relation to (budget)programs, key tasks and organizational structure);
Senior management responsibilities;
Risk management;
Roles/responsibilities related to financial control (and F-management);
Specifically for the Budget cycle:
Delegated budget;
Integration of budget cycle with operational process and accountability requirements;
PBB- and MTBP-proof budget systems.

8. Criteria related to planning
Category of criteria
Criteria are aimed at
B: Criteria related to planning
Alignment strategic objectives with operational objectives and –plans (cascade);
Balanced participation in planning process (1st-line, 2nd-line, and senior management);
Quality of planning ‘products’ (e.g. objectives);
Setting of KPI’s (also for fin control);
Business processes and related key-risks.
Specifically for the Budget cycle:
Involvement first line in budget planning process;
Connectivity of budget planning with objectives and KPI’s;
Activity based budgeting, relation with performance-(planning).

9. Criteria related to execution
Category of criteria
Criteria are aimed at
C: Criteria related to execution
Execution of tasks, responsibilities in line with planning;
Adequate administrative systems (accounting systems on performance and financial administration, integration/connectivity);
Segregation of duties;
Specifically for the Budget cycle:
Budget execution process (and its monitoring);
Information sharing on budget execution 1stline and 2ndline
Ongoing control on financial transactions;
Financial administrative process: roles, responsibilities and authorizations;
Control on excess spending beyond approved ceilings.

10. Criteria related to control/monitoring
Category of criteria
Criteria are aimed at
D: Criteria related to control/monitoring
Planning in relation to controle: how is that organized;
Control and monitoring on adequateness of controls in the first line processes;
Relevant, timely and adequate information for senior management;
Role first and second line in control and monitoring;
Role internal audit;
Horizontal control coordination (e.g. audit committee, 2nd line functions etc.);
Specifically for the Budget cycle:
Consolidated and integrated reporting: performance, budget information, KPI’s;
Review/evaluation of expenditure programs;
Reports on revenue/expenditure.

11. Criteria related to responsive actions
Category of criteria
Criteria are aimed at
E: Criteria related to responsive actions
Linkage of decision making process to managerial information;
Adaptive/flexible possibilities to react on necessary changes;
Re-prioritization;
Adapting KPI’s, objectives;
Follow-up of audit recommendations.
Specifically for the Budget cycle:
Use of historical data/financial information in upcoming budget cycle(s).

12. Practical use of the developed tool:
Internal working group: needs to be well instructed and guided by experts (workshops/training);
General questionnaire based on the criteria can give input for a second stage deeper review;
Deeper review by interviewing relevant internal functions and stakeholders: three lines;
Working group composes report;
Support and involvement of internal audit is needed and essential;
Action plan based on findings;
Assessing several entities gives insight in general status of FMC in a country.