Commission Report 2002 (Slovakia)

• 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, Slovakia has made further progress in this area.

Slovakia has moved forward with regard to the implementation of its Public Internal Financial Control systems. The Act on Financial Control and Internal Audit, which provides the basis for the establishment of both financial management and control and internal audit systems, entered into force as of January 2002. The process of institution building, notably the establishment of internal audit units in line ministries and agencies, has advanced, but is not yet completed. So far, internal audit units have been established in the Ministry of Finance, the Ministry of Environment, the Ministry of Economy, the Ministry of Defence, the Ministry of Justice, the Ministry of Transport, Post and Telecommunication, the Prosecutor´s Office and in three regional offices. A central harmonisation unit for financial management and internal audit has been established under the direct authority of the Minister of Finance and has been operational as of October 2001. Slovakia is currently working on the set of implementing instruments for internal audit, such as the Implementation Regulation, the Internal Audit Manuals, Internal Audit Charter, Internal Audit Trails and the Code of Ethics for the Internal Auditor. The Code of Ethics for the Financial Controller was adopted in January 2002. A special issue is to clarify the understanding of the difference between the roles of internal auditor and of ex post financial controller in such a way that redundancy or duplication be avoided.

Slovakia adopted in June 2002 an amendment to the Act on Budgetary Rules, which aims to strengthen managerial controls and responsibilities with regard to public funds, including those stemming from the EC budget. The Act on State Treasury, adopted in May 2002, provides for the establishment of the State Treasury system, which is, however, not yet operational. The Act on Accounting, aiming at harmonisation with international accounting standards (IAS), was adopted in June 2002.

Slovakia has made substantial progress in the area of external audit. An amendment to the Act on the Supreme Audit Office (SAO), reflecting the recent changes in the Slovak Constitution, entered into force in January 2002. This amendment expands the scope of the SAO competences, including those to audit the EC funds, which are treated as state budget resources. It also specifies the position of the chairman and vice-chairman of the SAO and repeals the competence of the Ministry of Finance to audit SAO. The SAO currently has a staff of 233, of which 158 are auditors. In addition to the headquarters in Bratislava, there are regional offices in Kosice and Banská Bystrica. The SAO has adopted a Code of Ethics for its auditors based on the Code adopted by the International Organisation of Supreme Audit Institutions (INTOSAI).

Slovakia has progressed in the area of control over structural action expenditure. The Slovak Government approved the instructions for the use of ISPA, SAPARD and PHARE funds and the procedures for financial control of pre-accession instruments. In April 2002 the Commission adopted a Decision provisionally conferring management authority for SAPARD, on a fully decentralised basis, to the SAPARD Agency (see section A.b. - Relations between the European Union and Slovakia). Slovakia has already started the gap assessment exercise which is the first step leading to the extended decentralised implementation system (EDIS). With respect to EDIS for ISPA, Slovakia has recently taken the first steps to start up the process. Regarding ISPA implementation, progress has been made to establish a management and control system, but further steps need to be taken to meet the requirements for financial control and internal audit.

Progress can also be reported in the field of the protection of EC financial interests. A special department within the Office of the Government (Inspection Section) has been designated by the Slovak authorities as anti-fraud co-ordinating service, responsible for the co-ordination of all legislative, administrative and operational activities related to the protection of the Communities' financial interests. Effective co-operation with OLAF and relevant Slovak institutions and bodies should now be put in place. The Act on Control in State Administration, which - among others - specifies the modalities of co-operation between the Office of the Government and the European anti-Fraud Office (OLAF) was adopted in July 2002.

Overall assessment

With regard to Public Internal Financial Control, the Slovak framework legislation is to a very large extent in line with EC standards. Full alignment will be reached upon the adoption of the proper implementation- regulations based on the Act on Financial Control and Internal Audit and of the relevant tertiary legislation. Slovakia also needs to complete the establishment of internal audit units in all budget-spending centres with internal audit focusing on systems-based and performance-audit functions. The newly established internal audit units need to be adequately staffed with wel-trained and experienced personnel. Given the continuing need for qualified staff in this area, sustainable training schemes need to be put in place. With regard to financial management and control systems, Slovakia needs to strengthen the ex ante financial control function throughout the budget income and spending centres.

In the area of external audit, the Slovak Supreme Audit Office (SAO) is operationally and functionally independent and its audit activities cover satisfactorily all public and EU funds. The reporting and follow-up procedures with regard to SAO audit findings have been put in place. The SAO´s procedures are to a large extent in line with the INTOSAI audit standards. It needs, however, to continue incorporating these standards and the EU implementing guidelines for these standards into its current work.

With regard to control of structural action expenditure, Slovakia should continue its efforts to enhance its capacity to manage the pre-accession funds and future structural funds, in particular through the reinforcement of administrative capacity in this regard. The development of mechanisms for the rapid recovery of lost EC funds is equally important (see also Chapter 21, Regional Policy). Slovakia 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 designation of a Slovak anti-fraud co-ordinating service constitutes an important step forward with a view to ensuring suitable protection of EC financial interests. However, the necessary legal framework to allow this service to exercise its co-ordinating functions remains to be further elaborated, and adequate administrative capacity to implement the acquis in this area needs to be ensured, including effective co-ordination between the Inspection Section and the other Slovak institutions and bodies as well as with OLAF.

Conclusion

In its 1997 Opinion, the Commission pointed out that it was difficult to assess to what extent the financial control legislation was being effectively implemented and whether the control authorities enjoyed the necessary independence to carry out their duties. It concluded that efforts were essential to strengthen financial control and audit functions.

Since the Opinion, Slovakia has progressed steadfastly, although until 2001, progress has been slow in developing the necessary Public Internal Financial Control functions.

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

In order to be ready for membership, Slovakia will need to give urgent attention to adopting the remaining implementing and tertiary regulations in the area of Public Internal Financial Control; to completing the establishment of the internal audit function throughout all ministries and agencies; to strengthening of the ex ante financial control function; as well as to further reinforcing the legal framework and the administrative capacity for the protection of the Communities' financial interests. In order to tackle these weaknesses, Slovakia is in the process of strengthening its administrative capacity, in particular by increasing human resources and carrying out training. Efforts should be stepped up.

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