Public Internal Financial Control in Ukraine: A Review of Achievements and Future Challenges

Public Internal Financial Control in Ukraine: Achievements and Future Challenges

At the beginning of 2024, the Ministry of Finance, with the support of the EU4PFM Programme, held a conference on public internal financial control (PIFC).

This hybrid event gathered over 130 heads of internal audit units from both central and regional levels, who participated in person and online.

This article highlights the key ideas shared during the conference by representatives of the Department for the Harmonization of Public Internal Financial Control of the Ministry of Finance and international speakers.

Achievements in the Ukrainian Public Sector

Over recent years, public internal financial control (PIFC) in Ukraine has made a significant leap forward. The reform, implemented by the Ministry of Finance through the PIFC Harmonization Department, is aimed at strengthening and improving internal control mechanisms and the internal audit function.

Key achievements include:

• A robust legal and regulatory framework for PIFC, with a series of MoF orders on internal control and internal audit aligned with international standards and concepts.

• Establishment of internal audit units and the development of risk management guidelines.

• Introduction of audit committees and certification programmes for internal auditors, which have significantly enhanced governance and the quality of internal control and audit.

Audit committees are designed to be effective advisory platforms for the top management of public bodies (e.g. ministries). Their recommendations will help ensure that the internal audit function addresses all key risks faced by the organization and operates impartially and objectively. External members of audit committees, acting as independent experts, play a crucial role in advising on risk management, audit, and control issues.

The internal auditor certification programme aims to raise the qualifications of internal auditors and bring their skills and competencies to a level consistent with international requirements. The Institute of Internal Auditors (IIA), which sets global internal audit standards, stresses the importance of qualified audit professionals, making certification a prerequisite. The programme, run by the PIFC Harmonization Department under the supervision of the MoF’s Certification Commission, ensures compliance with these standards.

Main Challenges Ahead

Despite significant progress, Ukraine still faces major challenges, many of which were identified in recent SIGMA/OECD assessments and in the European Commission’s Enlargement Report.

Strengthening Internal Audit Capacity

Internal audit capacity across Ukraine’s public sector remains uneven. Some units have adequate resources, while others face staffing shortages despite potentially large audit coverage responsibilities. Solutions should focus on more efficient use of existing resources, such as:

• pooling or combining audit resources,

• grouping auditors by specialization (e.g. IT audit, performance audit),

• outsourcing and/or sharing audit resources to address capacity gaps.

Although there is no single clear solution yet, discussions informed by international experience are ongoing. International Standards for the Professional Practice of Internal Auditing (IPPF) require management to ensure that the size and competence of the internal audit team match the scope of its tasks. EU4PFM will continue to support the MoF in developing a capacity solution suited to the Ukrainian context.

Enhancing the Internal Audit Function

The uneven capacity across internal audit units affects their ability to deliver value to management. The goal is to position internal audit as a trusted management tool that provides assurance and advisory services, informing leadership on key governance, risk, and control issues.

Ukraine’s national internal audit standards are largely aligned with international standards (last updated in 2017). However, with the significant update of international standards scheduled for 2025, the PIFC Harmonization Department must identify areas of the national standards that require updating to ensure full compliance with the new requirements.

These updates will also affect audit methodology, training, and certification processes. EU4PFM supports the MoF in this transition, focusing on risk areas highlighted in the updated standards — including IT risks, fraud risks, and cybersecurity.

Strengthening Managerial Accountability

Effective internal control systems rely on clear managerial accountability. This includes aligning strategic and operational goals of public bodies, clear distribution of tasks and responsibilities, and robust internal and external accountability structures.

Assessments have shown that managerial accountability in Ukraine’s public sector is still below best European practice. Key issues include limited delegation of powers, low accountability among middle and lower-level managers, and high centralization of decision-making structures.

Strengthening delegation of managerial authority — especially in risk management, internal control, and budgetary decisions — will enhance accountability and foster a culture of shared responsibility. EU4PFM experts work with the MoF to improve managerial accountability mechanisms, coordinating these efforts with public administration reform and budget reform.

Improving Risk Management Practices

Risk management is a key element of an effective internal control system. Reliable mechanisms for identifying, prioritizing, and monitoring key risks are necessary for building a robust control environment. Assessments show that risk management in Ukraine’s public sector is still in its early stages.

The challenge is to integrate risk management into daily operations and decision-making. This could include:

• discussing risks during management meetings,

• incorporating risk analysis into key business processes, such as budget planning.

Together with the PIFC Harmonization Department, EU4PFM experts are working to improve risk management practices through international knowledge exchange, practical assistance, and consulting.

The Road Ahead

The PIFC conference set a clear direction for future development. As was emphasized during discussions, these strategic goals have concrete targets that Ukraine cannot achieve alone — they require international support. EU4PFM continues to provide assistance across all mentioned areas.

One key area of focus is strengthening the institutional capacity of the PIFC Harmonization Department to fulfill its mandate. This includes developing technical specifications for an IT solution that will support monitoring functions and improve audit and control processes across the public sector.

Importantly, the conference was not limited to presentations but became an interactive platform with active debates both on stage and among participants, including those who joined remotely. For internal audit leaders, this was a landmark event, enabling better coordination and a clearer understanding of PIFC challenges — challenges that affect not only internal audit but also the roles and responsibilities of managers at all levels of the public sector.

Looking ahead, the next conference is planned for October 2024 and will target senior leadership and operational management. It will address critical challenges related to their roles, including financial control requirements under Chapter 32 of the EU acquis, as well as governance and the role of audit committees.

By equipping managers with the necessary knowledge and tools and fostering a culture of risk awareness and accountability, Ukraine can build a transparent, efficient, and effective public finance management system that works for the benefit of its citizens.