EU-Report Accession Bulgaria

Chapter 28: Financial control

Since the last Regular Report, Bulgaria has made substantial progress in this area.

As regards public internal financial control, a new Public Internal Financial Control (PIFC) law came into effect at the beginning of 2001. Since then, progress has been steady, but increased during the summer of this year. In July 2002, the Bulgarian authorities established a Council under the Council of Ministers to discuss PIFC policies. This Council has approved the latest version of the PIFC Policy Paper of 2000 -- as agreed with the Commission -- giving direction for the short term and intermediate future of Bulgarian PIFC policies. In August 2002 the Council of Ministers adopted the first series of amendments to the PIFC Act in compliance with the recommendations of the updated Policy Paper. Under these amendments the independence of the Head of the PIFC Agency will be satisfactorily established. Responsibility for the ex ante financial control function will be moved from the PIFC Agency to a newly established financial control function under the responsibilities of the Heads of the national budget spending agencies. The PIFC Agency has started placing internal auditors in most, but not yet all budget spending centres.

As regards external audit, progress has been substantial. The National Audit Office (NAO) Act came into effect in December 2001. A number of important supplementary regulations and forms on the implementation of the Act have also been adopted. A new organisational structure for the NAO and its Regional Offices was adopted in March 2002. The NAO has prepared a new information technology strategy. Arrangements to update audit standards and internal regulations in line with the Act are nearing completion. The NAO has been a member of the International Organisation of Supreme Audit Institutions (INTOSAI) since July 2001 and became a member of its European counterpart (EUROSAI) in March 2002.

With regard to control of structural action expenditure, a programme of institutionbuilding is under way and aims to improve the capacity of the National Fund and the various implementing agencies to manage pre-accession funding, in preparation for the eventual extended decentralisation of Phare and ISPA implementation, scheduled for 2004. For ISPA, Bulgaria has taken the necessary steps to start up the EDIS process. Good progress has been made with regard to establishing a management and control system in particular the establishment of a Financial Control Unit in the Ministry of Finance and of project teams at the level of implementing agencies. However, further steps are needed to meet the requirement for internal financial control and internal audit. Bulgaria's SAPARD Agency has operated reasonably well in its first year. The National Audit Office Act establishes an audit trail on EC funds and the NAO has a special unit to audit EC funds. In mid-2002, Bulgaria tabled a strategy for transition to the Structural Funds, including developing its administrative capacity in this regard (see Chapter 21: Regional policy and co-ordination of structural instruments)

In the field of protecting EC financial interests, the Bulgarian authorities have set up a temporary structure within the Ministry of Interior following a decision in principle to create an operationally independent anti-fraud co-ordinating service or structure which will be responsible for co-ordination of all legislative, administrative and operational aspects of the protection of EC financial interests.

Overall assessment

The adoption of the Public Internal Financial Control Law constitutes an important step towards the establishment of the legal basis for adequate public internal financial control. However, further amendments are still required to implement the Strategy Paper and the Operational Plan for the PIFC Agency. Bulgaria also needs to improve the secondary legislation and adopt tertiary regulations on manuals for financial management and control systems and internal audit, audit trails, the audit charter and the Code of Ethics. Bulgaria further needs to strengthen the administrative capacity of the PIFC institutions and further develop sustainable training facilities for internal auditors. There is a need for further sustained and determined efforts to implement the new legislative framework and to ensure that the PIFC Agency discharges its responsibilities in an effective manner, which delivers tangible improvements in the area of public internal financial control.

Concerning external audit, as a result of the National Audit Office Act, the legal basis for adequate public financial control has now been established. This Act contains all the necessary provisions for organising and operating external audit to international standards and EC requirements. Bulgaria now needs to make further progress as regards upgrading external audit functions, especially in terms of systems-based and performance audits, developing an external audit manual and enhancing training efforts.

These activities will need to be supported by substantial investment in developing administrative capacity and training staff in the PIFC Agency, the NAO and line ministries.

A timetable has been established for the extended decentralisation of Phare and ISPA implementation. Bulgaria needs to continue to strengthen the capacity of the National Fund, the CFCU and other implementing agencies dealing with pre-accession funds in preparation for the extended decentralisation of Phare and ISPA implementation, which will itself be essential preparation for participation in the Structural Funds after accession. The Ministry of Finance should play a pro-active role in ensuring progress in this area. The strategy for transition to the Structural Funds should be implemented as soon as possible.

In May 2001 the Commission adopted a Decision provisionally conferring management authority for SAPARD, on a fully decentralised basis, to the SAPARD Agency. The Commission's guidelines concerning certification of Bulgaria's accounting procedures have been respected and judged satisfactory.

As regards the prevention and fight against fraud, Bulgaria should designate as soon as possible, in consultation with OLAF, an operationally independent institution or administrative structure with the appropriate competencies to co-ordinate all legislative, administrative and operational activities related to the protection of the EC financial interests.

Conclusion

In its 1997 Opinion, the Commission concluded that provided the current commitment persisted, the National Audit Office would be able to function in accordance with EC standards within the medium term. It noted that major efforts would be essential to strengthen internal financial control functions.

Since the Opinion, Bulgaria has made considerable progress towards the establishment of the legal basis for adequate financial control and to start to develop necessary administrative capacity. It still needs to finalise the legislative framework and complete and strengthen administrative structures.

Negotiations on this chapter have been provisionally closed. Bulgaria has not requested any transitional arrangements in this area. Bulgaria is generally meeting the commitments it has made in the accession negotiations on this chapter.

Bulgaria should focus its further efforts in particular on the continuing amendment of the legal framework and completion and strengthening of the required institutional structures, including in the area of the protection of the EC financial interests where ongoing substantial efforts are still required.

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