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Decree on Internal Control in Local Public Sector Entities

| News | Public and Regulatory Law

On 1 July 2018, Royal Decree 424/2017 of 28 April 2018 came into force, regulating the legal regime of internal control in local public sector entities, approved by the Council of Ministers on 28 April 2017, with the aim of covering a need for transparency that is overwhelmingly evident in our society

On 1 July 2018, Royal Decree 424/2017 of 28 April 2018 came into force, regulating the legal regime of internal control in local public sector entities, approved by the Council of Ministers on 28 April 2017, with the aim of covering a need for transparency that is overwhelmingly evident in our society. This should be a milestone in the improvement of the control of Spanish local management, as well as an alignment of strict supervision existing in the State and the Autonomous Communities.

The implementation of the modern control model, which has been in place for many years, in both the State Public Sector and the Autonomous Communities, is based on the use of much more transparent and cutting-edge control procedures, especially with regard to auditing and risk analysis for planning.

In this regard, we must analyse the general characteristics of the control carried out by the municipal auditors and the different Provincial Councils. The previous regulation maintained an entirely outdated conception of the role of the financial controller, based on excessively formal control and with an evident lack of means for its implementation. It is also important to point out that the role of the Financial Controller was well resourced but with too few means to carry it out properly.

However, the new regulation establishes the legal obligation to control annually - which was previously unheard of - all subsidiaries and, together, 80% of the entity's consolidated budget. Special reference should be made, as it is a novelty and a gateway to certain companies to work with the Administration, to the possibility of being able to hire professional means, as well as external auditors.

Another new development would be the prior intervention of all expenditure commitments. In the recently repealed regulation, the figure of the municipal auditor was the one who had to agree to the documents that came to his desk and supervise the aspects of all the files that involved the assumption of a commitment of expenditure.

The problem, as the reader will appreciate, was obvious. Think of a city council of considerable size, with a high workload and a shortage of resources. In fact, it was merely a formal control, without substance, with an evident impossibility of carrying out an effective control of the expenses assumed by the Corporation, which has even resulted in the investigation - previously charged - by some kind of criminal lawsuit against this national authority in some of the recent macro cases of corruption. It goes without saying that this slowed down the administrative processes tremendously, with the evident damage to suppliers and the administered, with the aggravating factor of the Administration's financial controller assumed a responsibility that did not correspond to his position and that, therefore, was not remunerated.

Although we must wait for the Courts to interpret the provisions of this legal body, the jurists hope that the new regulation will lead to the implementation of a system already firmly established in the State and in the Autonomous Communities, commonly known as limited prior intervention. In other words, this entails an analysis prior to the commitment of the formal elementary aspects of the dossier, with the manager fully assuming responsibility for its legality, since, a posteriori, the financial controller would analyse all the dossiers a posteriori, with particular emphasis on the annual financial control and audit plan, which undoubtedly constitutes progress in this area.

Finally, and although we could go into much more detail on these and other issues, it is important to stress that the new regulations establish an obligation to exercise genuine financial control, by means of an audit, of all expenditure with limited prior intervention and, per calendar year, of practically the entire consolidated budget of the Entity, which seems reasonable and correct.

 

To conclude, let us recall that one of the main measures targeting the Public Administrations in the last CORA report - Commission for the Reform of Public Administrations - was a consolidation of the internal control bodies, whose tangible consequence was that corruption, according to the latest CIS barometer, constituted the second most worrying problem for the Spanish people. The main objective of the Internal Control Regulation of Local Bodies is to reduce it. We will see if this mechanism introduced by the legislator helps to combat it.

 

For further information, please contact:

Fernando Ortega

fernando.ortega@AndersenTaxLegal.es

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