Commission Report (2002): Poland

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 28: Financial control

Progress since the last Regular Report

Since last year's Regular Report, Poland has made some progress in this area both in legislative alignment and in improving its administrative capacity.

Poland has moved forward with the legislative alignment of its Public Internal Financial Control (PIFC) systems, following entry into force in January 2002 of the amendment to the Public Finance Act, which provides a legal basis for PIFC in line with the acquis. The amendment to the Act describes managerial accountability in respect of financial management and control systems, establishes functionally independent internal audit services in the budget spending centres, and gives the Ministry of Finance responsibility for developing and co-ordinating methodology for the PIFC systems, including compliance assurance. The central unit harmonising PIFC methodology in Poland, is a department within the Ministry of Finance. It was created in January 2002 and currently employs 11 staff. The head of this department, the General Internal Auditor is currently being recruited. In February 2002 the Implementation Strategy for the System of Financial Control and Internal Audit was approved. This Strategy Paper lays down the principles for further implementation of the Public Finance Act and the development of secondary legislation. In July 2002 the Ministry of Finance approved the Detailed Method and Procedure of Performing Internal Audit. This regulation lays down rules for internal audit in the public sector.

Regarding external audit, the Supreme Chamber of Control (NIK) has set up a task force to implement the recommendations on external assessment of its functioning and has drafted a strategic development document, as well as working versions of audit manuals. The NIK co-operates with the European Court of Auditors and is an active member of the European (EUROSAI) and international (INTOSAI) networks of supreme audit institutions.

Poland has made limited progress in the area of control over structural action expenditure. With respect to ISPA, good progress has been made in setting up an adequate management and control system that can ensure proper implementation of the ISPA assistance, in particular with regard to the development of working procedures, manuals and checklists. Nonetheless, further steps need to be taken to meet the requirements for internal financial control and internal audit, and administrative capacity needs to be assessed. While the amended Public Finance Law, referred to above, has established the legal base for the PIFC system, little progress has been made in introducing the Extended Decentralised Implementation System (EDIS) for the Phare programme, although some progress has been made in the case of ISPA. In July 2002 the Commission adopted a decision provisionally conferring management authority for SAPARD, on a fully decentralised basis, on the SAPARD Agency. (see Introduction)

With regard to the protection of the Communities' financial interests, an administrative reorganisation has resulted in the transfer of the horizontal, multi-disciplinary anti-fraud co-ordinating structure (GAFU) from the customs administration to the treasury control structure of the Ministry of Finance, where it will continue to perform similar tasks. Given that this decision was only recently taken, it is too early to give an evaluation at this stage.

Overall assessment

With regard to Public Internal Financial Control, Poland needs to further enhance the functions of managerial accountability and to establish operational internal audit units in all line ministries and provide for an adequate number of staff. Development and approval of implementing regulations of the Public Finance Act are of particular importance. The General Internal Auditor should be appointed as soon as possible so that the leadership necessary for developing PIFC in the public sector in Poland is not further delayed. Manuals for financial management and control, an Internal Audit Charter and a Code of Ethics for internal auditors have to be developed. Internal audit manuals are being drafted but await implementing secondary legislation for approval. Some training courses have already taken place for internal auditors, but much more training will have to be provided, as and when internal auditors in line ministries are recruited.

In the area of external audit, the Supreme Chamber of Control (NIK) is considered to fulfil the criteria for the adequate functioning of a supreme audit institution. Operational and functional independence of the NIK and its audit scope are broadly satisfactory, as are the formal mechanisms for discussing the NIK's recommendations in Parliament. The audit manual needs to be finalised and approved and some attention paid to bringing its formal audit opinion into line with internationally recognised auditing standards. Further efforts on the part of the NIK but even more importantly on the part of Parliament and the Government are required to enhance procedures for following up actions to be taken on audit findings.

With regard to the control of structural action expenditure, substantial efforts need to be made in order to enhance Poland's capacity to manage pre-accession funding and future structural funds, in particular through the establishment of clear, public, internal financial control rules and procedures, together with substantial reinforcement of Poland's administrative capacity in this regard. Poland needs to reinforce and accelerate efforts leading to the extended decentralised implementation system before mid 2003 in order to allow EDIS accreditation to be achieved in the second semester of 2003. The development of mechanisms for the rapid recovery of lost EC funds is equally important (see also Chapter 21 -- Regional policy and co-ordination of structural instruments). With a view to ensuring effective protection of EC financial interests, Poland needs to ensure that the experience and operational capacity of the multi-disciplinary anti-fraud co-ordinating structure (GAFU) is transferred to the new service within Ministry of Finance, and that its legislative framework and administrative capacity to prevent and fight against fraud is substantially reinforced.

Conclusion

In its 1997 Opinion, the Commission concluded that the process of implementation of financial control systems would need significant efforts by the Polish administration, both in terms of institutional structures for adequate financial control and basic legislation. This having been said, it further remarked that provided the necessary resources were made available, Poland should be in a position, in the medium term, to fulfil the EU requirements in the field.

Since the Opinion, steps forward have been taken, mainly over the past two years. A reasonable level of alignment with the acquis has been achieved, implementing capacity, however remains considerably below even this level. Further substantial efforts are required therefore to bring Polish legislation in line with the acquis and ensure that the necessary administrative capacity is in place.

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

In order to be ready for membership, Poland will need to give urgent attention to successful implementation of its new Public Internal Financial Control legislation, to completion and strengthening of its legislative framework and administrative capacity for the protection of the Communities' financial interests, to moving substantially forward on the management of pre-accession funding and to the establishment of the necessary structures and adequate administrative capacity for future structural funds, in particular regarding control and audit. The full implementation of the measures in the Action Plan relating to, notably the strengthening of the internal audit function and the development of an anti-fraud unit, would go a long way to ensure that the current gaps in administrative capacity are filled.

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