The full content of the analysis you can find here

EXECUTIVE SUMMARY

At Monday’s meeting of the Czech government (19 December 2016), the Minister of Finance submitted the draft law on public internal control (government draft no. 607/16) which on the same day was approved by the Government (“the draft law”). The draft law shall replace current legislation (Financial Control Act no. 312/2001 in force as of 01/01/2002) that designs the legal framework of the public internal control in the Czech Republic.

According to the Czech Ministry of Finance the draft law should:

• Increase protection of public funds
• Give More flexibility to approval procedures
• Avoid duplicity of controls
• increase quality of public finance management
• strengthen internal audit function

These goals may, at the first glance, look laudable but in fact, the draft law goes against these goals. The purpose of this paper is to analyse the draft law and to highlight its main deficiencies which, if the draft law is adopted, will considerably dilute the effectiveness of the internal control in public institutions in the Czech Republic.

The legislation that builds strong internal control is essential in the fight against fraud and corruption. Strong internal control also helps to build the trust with citizens. The EU-28 Public Internal Control Network1 set out that Effective Public Internal Control should be designed in line with the following overall principles:

• Good public governance in the public interest is the context, the purpose and the driver of PIC
• PIC is focused on performance
• PIC is based on COSO and INTOSAI
• The accountability triangle is a cornerstone of PIC
• PIC is organised according to three lines of defence
• PIC requires a functionally independent internal audit function
• PIC is harmonised at an appropriate level
• PIC adopts a continuous improvement perspective2

CONCLUSION: On the basis of the arguments which follow, it is concluded that the draft law is not based on the principles of Effective Public Internal Control established by the EU-28 Public Internal Control Network. By contrast, the draft law goes against these principles and creates control environment that is vulnerable to misuse, fraud and corruption.

Contens of the position paper:

• OVERVIEW OF THE MAIN DEFICIENCIES OF THE DRAFT LAW ON PUBLIC INTERNAL CONTROL
• OVERVIEW OF THE CURRENT CZECH LEGISLATION ON PUBLIC INTERNAL CONTROL
• CRITICAL OVERVIEW OF THE DRAFT LAW ON PUBLIC INTERNAL CONTROL
• MINISTRY OF FINANCE IS RESPONSIBLE FOR EXTERNAL AUDIT OF REGIONS AND MUNICIPALITIES
• THE DRAFT COMES UP WITH A VERY INSUFFICIENT DEFINITON OF CONFLICT OF INTEREST
• KEEPING THE EXISTING NON-TRANSPARENT SYSTEM OF WAIVER OF FINES FOR COMMITTED BREACHES OF BUDGETARY RULES