Public internal financial control (PIFC) was introduced by the European Commission to help public sector organisations align their financial management and control systems with the principles of sound financial management. This paper reviews the state of internal control and internal audit in EU candidate countries and potential candidates, identifying achievements, challenges and options for further development. While the core elements of PIFC have supported convergence with EU good practices and international standards, implementation often remains focused on compliance rather than results. The paper proposes measures to strengthen internal control and enhance the effectiveness of internal audit.
Refocusing public internal financial control
Guidance for SIGMA partners
Abstract
Contents
- The concept of PIFC
Evolution, objective and nature, and the three pillars of PIFC. - Benchmark for public internal financial control
International internal control and internal audit standards, EU requirements, and European good practices. - Implementing public internal financial control
Challenges in financial management and control, internal audit, and the role of central harmonisation units. - The way forward
Strengthening internal control, internal audit, central harmonisation and the overall effectiveness of PIFC.
Internal control: strong frameworks, weaker implementation
Results comparing policy and institutional framework to implementation practices
EU candidate countries and potential candidates have largely established the legal, institutional and strategic foundations for internal financial control. However, implementation in practice continues to lag behind, limiting the impact of reforms on public financial management outcomes.
Internal audit: strong foundations, steady implementation
Results comparing policy and institutional framework to implementation practices
Results are generally positive for internal audit, with the function operating broadly in line with international standards across all six Western Balkan administrations. Challenges remain, however, in areas such as capacity and staffing in internal audit units and the implementation of audit recommendations.
The way forward
The weaknesses identified in this paper provide an opportunity to consider ways to improve implementation of PIFC.
PIFC reforms should place greater emphasis on the financial aspects of management and control, linking internal control more closely to budget planning, execution and reporting while using outcome-oriented indicators to assess progress.
EU candidate countries and potential candidates could strengthen internal financial control by defining minimum requirements for organisational accountability, risk management, control activities, monitoring and oversight, drawing on the principles set out in the EU Financial Regulation.
Internal control should be embedded within wider public administration and public financial management reforms, rather than treated as a stand-alone compliance exercise. Better alignment with budgeting, planning, reporting and organisational reforms can improve effectiveness.
More flexible organisational arrangements, including shared services, centralised or hybrid models, could help address fragmentation, strengthen capacity and improve audit quality and coverage across the public sector.
Financial inspection should complement, rather than overlap with, internal audit. Its role should focus on ex post investigations of serious cases of suspected mismanagement, irregularities, fraud or corruption.
Central harmonisation units should move beyond standard setting, capacity builiding and monitoring compliance to support better financial management through data-driven analysis, stronger co-ordination and improved reporting to government.
Reporting arrangements should focus more on whether internal control and internal audit improve performance and financial management outcomes, helping managers and governments identify weaknesses and take corrective action.
