Public Finance Control System

Question 1

What are the five layers of the control system of public expenditure pyramid?

Answer 1

Internal control

External control

Jurisdictional control

Political control

Social control

Question 2

Internal Control

Answer 2

Internal control has a dual nature: assurance-based and consulting based. It tells managers whether the systems and processes are working well (assurance), and at the same time helps managers to improve those systems and processes where necessary (consulting).

There are three types of internal control:

• ex ante concomitant control (to prevent illegal or irregular expenditure)
• on-going review (normal administration—not necessarily carried out by audit officers)
• ex post audit (carried out by internal auditors).

Question 3

External Control

Answer 3

The external control subsystem provides assurance to a country’s parliament and the public that public financial management has been carried out according to law.

External control is carried out by independent bodies (Supreme Audit Institutions) that provide assurance on the legality and regularity of financial statements and underlying transactions (financial control and compliance control, respectively). They also report on the economy, efficiency and effectiveness of public expenditure (performance control).

External control takes into account the work of internal control and reviews the extent to which it can be relied on.

Question 4

Jurisdictional Control

Answer 4

Jurisdictional control is the process through which the courts punish breaches of the law that have taken place in the use of public funds. These include a financial liability of the administrative body or of the official in charge, or the disciplinary or criminal liability of the official concerned.

Historically, SAIs operated jurisdictional control alongside external control. This model has survived as a ‘continental model’, for example in France where Cours des Comptes (Court of Auditors) operates as an SAI and administrative court.

Jurisdictional control differs from the other control subsystems as it operates on an unsystematic basis when specific cases are brought its attention.

Question 5

Political Control

Answer 5

Political control is the oversight of the executive by the legislature. The legislature is usually reliant on external control (SAI) for the information needed to discharge its functions.

The high points of political control are the legislature’s power to approve the executive’s budget. A failure to gain budgetary approval may be seen as a vote of no confidence.

In Westminster systems, parliamentary approval is needed for the government’s budget (supply estimates) and the retrospective sanction of irregular expenditure. Public Accounts Committees undertake ex post value for money investigations.

Question 6

Social Control

Answer 6

Social control sits at hte apex of the public finace control system. It is exercised by the public through, the media, civil society organisations and individuals.

Effective social control relies on transparency and access to financial information to allow citizens to hold their governments to account.