Commission Report 2002 (Romania)

• 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, Romania has made further progress in this area.

In the area of Public Internal Financial Control (PIFC), the Government adopted a policy paper in November 2001 which defines the framework for the organisation of the public internal financial control system. It also describes the principles for the development of internal audit within budget spending centres and envisages the establishment in the Ministry of Public Finance of a Central Harmonising Unit for Internal Audit. The Directorate for Preventive Financial Control in the Ministry of Public Finance has been strengthened by the recruitment of additional staff, and the deconcentration of preventive financial control functions to county level has been initiated in 10 counties. A Code of Ethics for internal auditors was adopted in June 2002.

In the area of external audit, a law adopted in February 2002 on the organisation and functioning of the Romanian Court of Accounts provides clarification of the Court`s mandate to conduct audits relating to the privatisation of public companies and public procurement. The law contains provisions for reducing the number of members of the Court of Accounts. The ensuing dismissal of all the members of the Court is in conflict with the principle of independence of the supreme audit institution, as established by the relevant international standards.

Romania has made some progress as regards the control of structural action expenditure. The law on the organisation and functioning of the Romanian Court of Accounts, adopted in February 2002, defined the responsibilities of the Court for the audit of EC financial assistance, including SAPARD funds and related co-financing. The Court has continued the development of methodological norms for external control procedures relating to certification of the accounts of the SAPARD Agency. In July 2002 the Commission adopted a Decision provisionally conferring management authority for SAPARD, on a fully decentralised basis, to the SAPARD Agency. With respect to ISPA, Romania has made efforts in setting up the required management and control systems, and is in the process of finalising the assessment of the compliance of the national institutions and procurement procedures with the requirements for extended decentralisation. Romania has established a timetable for extended decentralisation of PHARE and ISPA implementation.

The Prime Minister`s Control Department has been designated as the anti-fraud co-ordination service, responsible for the co-ordination of all legislative, administrative and operational activities related to the protection of EC financial interests. A start has been made with the implementation of effective co-operation with OLAF through this co-ordinating service. In order to reinforce inter-institutional co-ordination within Romania, a working group on the protection of the Communities' financial interests has been set up involving the relevant Romanian institutions and bodies.

Overall assessment

With regard to Public Internal Financial Control, Romania needs to complete the establishment of functionally independent internal audit units in all budget-spending centres, focusing on systems-based procedures and performance-audit functions. Furthermore, appropriate working methods should be defined for the Central Harmonising Unit at the Ministry of Finance. Both the internal audit units and the Central Harmonising Unit need to be adequately staffed with wel-trained and experienced personnel and therefore appropriate and adequate human resources and training policies should be put in place. The draft Internal Audit Law should be finalised and adopted, as should the draft Preventive Financial Control Act. The Internal Audit Committee provided for under the draft Internal Audit Law should be established and made operational. Manuals for financial management and control systems and internal audit should be developed and audit trails should be defined. Preparations should continue for the decentralisation of ex ante financial control from centralised financial control to resident financial controllers in the spending units by the end of 2003.

In the area of external audit, Romania needs to reinforce the independence of members of the Court of Accounts through an amendment to the relevant article of the Constitution, in order to ensure the Court`s financial independence and enhance its overall operational capacity. A comprehensive set of standards for external audit, conforming to internationally accepted external audit standards and in line with the EC acquis, should be developed and implemented. Effective staff training should be further developed. Romania also needs to enhance the formal procedures for parliamentary scrutiny of the Court`s audit findings and to improve the transparency and dissemination of the Court of Accounts` reports.

As regards the control of structural action expenditure, Romania should concentrate efforts on the need to strengthen national public internal financial control systems and external audit services.

In the area of the protection of EC financial interests, Romania should pursue its efforts to develop an effective co-ordination structure, and should give priority to the development of mechanisms for administrative enquiries and for the judicial follow-up of anti-fraud investigations.

Conclusion

In its 1997 Opinion, the Commission concluded that major efforts were essential to strengthen the internal financial control functions.

Since the Opinion, significant steps forward have been taken, both as regards definition of the role of the Romanian Court of Accounts as the national external audit body in line with international standards, and as regards introduction of modern financial management and control as well as internal audit arrangements within the bodies responsible for public expenditure.

Negotiations on this chapter continue. Romania has not requested any transitional arrangements.

Romania should focus further efforts on implementing sound financial control systems by completing alignment, further developing its legislative framework and administrative capacity to protect the Communities` financial interests, and completing and strengthening the required institutional structures.

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