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Definitions
To have reasonable assurance that the objective of sound financial management is achieved, an entity must establish an appropriate internal control system.
Internal control
Internal control is a process effected by an entity's board of directors, management and other personnel, which is designed to provide reasonable assurance regarding the achievement of objectives in the following categories:
Internal control system in the Commission
In 2017 the Commission moved to a principle-based system with the aim of ensuring robust internal control through consistent assessment by the Commission, while providing the necessary flexibility to allow departments to adapt to their specific characteristics and circumstances. The new Internal Control Framework consists of five internal control components and 17 principles based on the COSO 2013 Internal Control-Integrated Framework.
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Internal Control Components
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Internal Control Principles
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Control environment
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1. Demonstrates commitment to integrity and ethical values
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2. Exercises oversight responsibility
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3. Establishes structure, authority and responsibility
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4. Demonstrates commitment to competence
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5. Enforces accountability
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Risk assessment
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6. Specifies suitable objectives
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7. Identifies and analyses risk
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8. Assesses fraud risk
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9. Identifies and analyses significant change
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Control Activities
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10. Selects and develops control activities
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11. Selects and develops general control over technology
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12. Deploys through policies and procedures
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Information and communication
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13. Uses relevant information
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14. Communicates internally
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15. Communicates externally
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Monitoring
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16. Conducts ongoing and/or separate assessments
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17. Assesses and communicates deficiencies
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[link new-window title="COBIT" link="https%3A%2F%2Fwww.isaca.org%2Fresources%2Fcobit" icon="external-link" /]
regarding IT governance in managing information and IT resources.
Performance measurement is the process of defining, collecting, compiling, monitoring and using objective indicators of the performance of organisations and programmes on a regular basis. An organisation is more likely to achieve its goals and objectives if it sets performance measures, monitors them and takes appropriate action.
Performance measurement supports an organisation’s efforts to provide:
- a clearer focus on its mission and strategy;
- improved management and decision making among others by producing performance data allowing better and more effective management;
- improved performance among others by motivating managers and employees to work harder to achieve organisational goals; and
- increased accountability to governing bodies and external stakeholders, including funding agencies and the public.
Over time, well designed performance measurement system will facilitate actual improvement in the organisation. To be useful, a measurement system must serve the needs of the management process it intends to support. An organisation will have very different, and complementary, management functions that serve different purposes. Each of these functions will make a distinct use of a specific set of performance measures that are developed to support it. A performance measurement system can make use of the following performance measures:
- strategic planning;
- budgeting and financial management;
- programme management;
- quality improvement;
- performance management;
- contract management;
- monitoring and reporting;
- communication with the public.
- evaluation; or
- external benchmarking by the auditee itself;
Strategic planning
Strategic planning approaches identify the most fundamental issues facing an organisation in the long run, and develop strategies to resolve those issues effectively.
SWOT analysis is often used to assess the organisation’s strengths and weaknesses with reference to external opportunities and threats. The resulting strategic plan usually sets strategic goals and objectives.
It is therefore essential to define and monitor performance measures to track progress in achieving strategic goals and objectives.
In some cases, desirable performance measures are actually defined first and then used to specify objectives and the targets to be achieved on those indicators of success.
Budgeting and financial management
Rather than allocating resources on the basis of inputs, recent years have seen a move towards activity-based budgeting, whereby resources are allocated according to the results that are to be achieved.
Such systems require performance measures of [a-glossary term="output"]outputs[/a-glossary]
, [a-glossary term="outcome"]outcomes[/a-glossary]
, efficiency and cost-effectiveness to assess the resources against output and [a-glossary term="result"]results[/a-glossary]
and to compare with alternative spending proposals in terms of the results they would produce.
However, performance measures of budgeting are not always feasible or possible due to political factors.
Activity-Based Management in the Commission
The Commission manages its administrative and operational resources through Activity-Based Management (ABM), with management undertaken around 'activities', which implement 'policy areas'. The ABM activities form the principal lines of accountability for the Commission's management of its activities and budget. The use of ABM as the basis for the Commission’s approach to sound financial management requires that expenditure is based on [a-glossary term="SMART"]SMART[/a-glossary]
objectives. In addition, the implementation of these objectives must be monitored by the relevant DG through [a-glossary term="RACER"]RACER[/a-glossary]
indicators on output and impact for each policy area and activity, with management required to take action to address any identified shortfall against objectives.
Programme management
Measurement systems and performance indicators focusing on [a-glossary term="programme"]programme[/a-glossary]
rather than organisational performance are used to strengthen programme management. Measurements typically track resources consumed, activities carried out, transactions completed, clients served, outputs produced, services rendered, and results and impacts achieved.
The information provided by a balanced set of such indicators produced on a regular basis helps managers stay informed about overall programme performance and to identify problems, and - if necessary - to make changes in design, implementation and delivery systems to enhance performance.
Quality improvement
Quality improvement movements have become very popular in the public sector in the past two decades, and involve data-based approaches to delivering better service and improving operations.
The quality improvement process consists of groups of employees or cross-functional teams identifying problems in work processes, analysing the cause of those problems, and developing solutions to improve both quality and productivity.
The performance measures used most frequently tend to be more detailed, short-term indicators. They focus on such items as resource quality, equipment downtime, cycle time, waiting time, accuracy versus error rates, overall service quality, employee productivity and - sometimes - outcomes. Because there is such a strong emphasis on customer service and customer satisfaction, this kind of analysis often uses customer feedback measures.
Staff performance management
As used here, performance management refers to the process of directing and controlling human resources (employees and work units) in an organisation, with the aim of motivating them to perform better. Performance measures are frequently used to provide employees with feedback on their performance.
In particular, management by objectives (MBO) systems are often used in the public sector, due to emphasis on goal setting, decision making and objective feedback.
Contract management
Contract management is a hot topic in the public sector because of increasing use of privatisation and the contracting out of public service delivery to third-party providers.
Because of increasing accountability and results-orientated management, the focus of the contracts should be on what service providers will accomplish rather than on the resources to be used or the activities to be carried out.
Organisations contracting out responsibilities for programme implementation or service delivery need to set clear outcome-orientated objectives and appropriate performance measures to track achievement.
Monitoring and reporting
The most traditional use of performance measures is for monitoring and reporting on programme activities and an organisation’s operations. Such systems focus on inputs and outputs, and report on resources consumed, transactions completed, and products or services provided. They may also include measures of efficiency, productivity, service quality and results achieved.
When reported to top management, elected officials, legislatures or governing boards, they provide accountability of an organisation’s operations to its stakeholders.
While decisions and actions may be prompted by such data, such reporting systems may be relatively passive in nature if they are not embedded in formalised decision-making or management processes.
Monitoring and reporting on the Commission’s activities
Every department of the European Commission has a [link new-window title="management%20plan" link="https%3A%2F%2Fec.europa.eu%2Finfo%2Fpublications%2Fannual-management-and-performance-reports_en" icon="external-link" /]
for the year to come. It describes the actions for each department derived from the priorities and the strategic objectives of the Commission.
The [link new-window title="annual%20activity%20reports" link="https%3A%2F%2Fec.europa.eu%2Finfo%2Fpublications%2Fannual-management-and-performance-reports_en" icon="external-link" /]
are the basis on which the Commission takes its responsibility for the management of resources and the achievement of objectives.
Communication with the public
As an extension of their use in traditional monitoring and reporting, performance measures are beginning to be used to communicate with the public about organisation or programme performance. Many public organisations publish their 'report cards' on a regular basis to report on the performance to the public at large via printed materials, press conferences and the Internet. For example, the [link new-window title="Commission's" link="https%3A%2F%2Fec.europa.eu%2Finfo%2Fpublications%2Fannual-management-and-performance-reports_en" icon="external-link" /]
and the [link new-window title="ECA%E2%80%99s%20annual%20activity%20reports" link="https%3A%2F%2Fwww.eca.europa.eu%2Fen%2FPages%2FAnnualActivityReports.aspx" icon="external-link" /]
provide information on key performance indicators (KPIs).
Evaluation
Performance measurement is a basic requisite for (programme) [link title="evaluation" link="%2Faware%2FPA%2FPages%2FExamination%2FEvaluation.aspx" /]
. Key indicators observed repeatedly at regular intervals will accumulate data series over time, allowing effective evaluation.
Evaluations at the Commission
The evaluations at the Commission can cover a wide range of purposes and be addressed to a wide range of users.
External benchmarking
There is increasing interest in the public sector to carry out [link title="external%20benchmarking" link="%2Faware%2FPA%2FPages%2FExamination%2FBenchmarking.aspx%23Benchmarking-by-comparator" /]
, i.e. comparing an organisation’s performance to that of other similar organisations or programmes.
Corporate-style benchmarking emphasises learning successful strategies and tactics from star performers. In the public domain, first steps usually involve statistical benchmarking and analysing comparative measures, usually across organisations. Peer-to-group comparisons may also be useful to see how performance stacks up, identifying top performers and searching for leading-edge practices that might help boost performance.
Resources
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[link new-window title="INTOSAI%20GOV%209100" link="https%3a%2f%2fwww.issai.org%2fwp-content%2fuploads%2f2019%2f08%2fintosai_gov_9100_e.pdf" /]
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