Financial Management and Control of Public Agencies

All Member States of the EU and countries from Central and Eastern Europe use agencies of various shapes and sizes as part of their system of public administration. The legal forms vary widely from country to country depending on the legal tradition and the system of administration. Public agencies, if properly designed and managed, provide an opportunity for decentralising public administration, achieving greater transparency in government operations, and improving the efficiency and effectiveness with which government services are delivered to end users. Agencies can thus be used for economically and socially beneficial reasons, and indeed are sometimes employed as a stepping stone to more radical options, e.g. the privatisation of government services. However, agencies can also be misused for purposes that contravene the tenets of good governance and sound financial management. They can be a source of inefficiency, unregulated and covert expenditures, political favouritism and corruption. This paper originated in a request from the Ministry of Finance of the Czech Republic for SIGMA advice in developing new legal provisions for the financial management of public agencies. However, this subject cannot be addressed without avoiding the broader context. This paper has expanded well beyond the scope of the original mandate. It highlights the practice and experience of five EU Member States with very different legal systems and administrative structures. It focuses on issues relating to the financial management of public agencies but also discusses, in less detail, other issues concerning legal structures and governance. No single good practice "model" exists in this complex field. International best practice is still evolving. Moreover, we recommend a cautious approach by countries that are tempted to transpose elements of the agency models applied in countries such as New Zealand, Sweden and the United Kingdom. Would-be reformers should consider whether the legal and administrative structures are comparable, and the necessary systems of regulation, control and open reporting are in place and can be enforced. Whilst avoiding simplistic solutions, the paper includes recommendations that policy makers in Central and Eastern Europe should take into account before embarking on major reforms in this area.