The Managerial Challenge for Countries Wishing to Improve the Quality of Their Public Financial Management and Internal Control

What the paper says

Purpose: To encourage countries to recognise that effective public financial management and internal control (PFM/IC) depends on a compatible managerial organisation. That may therefore require managerial reform.Countries seeking to improve their PFM/IC arrangements tend to concentrate only on the technicalities of the reform. They are good at introducing the required laws and regulations, but less good at the practical implementation of those laws and regulations. The managerial implications are often not considered. Consequently, the potential benefits of the reform are not achieved. The article examines the challenges countries face in enhancing the practical quality of their PFM/IC arrangements. It argues that to treat PFM/IC as simply a technical financial reform is mistaken. The reform has significant managerial, parliamentary, and governance implications requiring changes to traditional managerial and governance structures. The managerial changes require a shift from a hierarchical (i.e. top top-down decision-making) management model that focuses simply on budgetary and financial controls to a proactive managerial model focused on delivering objective and obtaining value for money. The idea of ‘control’ should extend beyond financial controls to include those controls necessary to achieve objectives and improve performance. The critical managerial changes require delegating much operational decision-making from political to civil or local government officials along with the development of corresponding managerial accountability arrangements. This affects the relationships between politicians and officials, as well as between central and line ministries. Good corporate governance is fundamental to a well-managed and effective public organisation. This depends on effective political and managerial (official) leadership, transparency, and accountability.