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Liability Cycle

You are in: Home English Version > e-Government > Liability Cycle > Public Administration planning and general audit process

Public Administration planning and general audit process

The economic accounting systems of Government and Public Bodies is firstly provided by Legislative Decree No. 165/2001, Law No. 94/1007 and is governed by Section III of the related implementation Legislative Decree No. 279/1997.


The reference regulatory framework is characterized by the following principles:

a) separation of political orientation tasks and administrative orientation tasks

"Government bodies with political-administrative orientation functions set out objectives and programs to be implemented (and, to this end, they issue a specific annual directive), …and assess that the outcome of administration and management activities comply with the given guidelines (Art. 4, Legislative Decree No 165/2001).

b) senior officials' power to bring forward objectives and operational programs

When preparing the annual budget, senior officials in general management offices have the specific task of submitting objectives and programs to the political authority, taking into account the costs incurred to carry out institutional functions and services (art. 14, Legislative Decree No. 165/2001; Art. 17 Law No. 59/1997; Legislative Decree 286/1999 and Art. 4 bis, Law No. 468/78).

c) senior officials are entitled to autonomous management powers.

Senior officials have been entrusted with administration, management, spending, organization and audit tasks and are accountable for administration and management activities and their outcomes. In order to assess the efficiency of the activities and services they have been entrusted with, "… senior officials should implement appropriate organizational measures to audit and analyze the costs and performance related to administration and management activities as well as to organizational decisions" (Art. 18, Legislative Decree No. 165/2001).

d) budget monitoring; cost auditing

"In order to provide for a better budget auditing, by function and program, and cost auditing ….the Treasury Department (today's Ministry of Economy and Finance)…collects information on the flows…related to all public government bodies" (Art. 58, Legislative decree No. 165/2001). "Public government bodies identify the individual activity programs and send the Treasury Department (today's Ministry of Economy and Finance) all necessary elements for cost auditing. To this end, and "in order to outline economic expenditure profiles" (that is, costs) the aforementioned Ministry "shall define internal and technical auditing procedures" / Art. 59, Legislative Decree No. 165/2001).

e) a new public budget process, taking into account institutional function and service costs. The political authority draws up its annual resource allocation (that is, budget) proposals based on the assessment of the costs incurred, the performance attained and the results achieved for institutional functions and services, resulting from the economic and statistic information system that supports its internal audit activities. The Ministry of Economy and Finance, that coordinates public finance and accounts, receives, examines and assess these proposals in relation to the institutional function and service costs. It then draws up its budget proposal that will be submitted to the Government and subsequently to Parliament (Art. 17, Law No. 59/1997, Legislative Decree No 286/1999, and Art. 4 bis, Law Nom 468/78).

f) a single analytical economic accounting system for all Public Administrations. In order to improve the use of resources and to make the public budget (first and foremost the State budget) consistent with the new administrative requirements - now oriented towards objective, resource and result efficiency - Law No. 94 of 3 April 1997 was issued: it is a specific mandate to the Government to introduce an analytic economic accounting system by cost center into the public accounting system. This mandate has been implemented through Legislative Decree No. 279 of 7 August 1997 whose Section III regulates the new economic accounting system for Public Administrations and its key elements (chart of accounts, cost centers, services supplied) and correlates some aspects to the State property account-annual report, as provided for by the same decree.


This system replaces the abolished incremental historical expenditure criterion in the budget definition process and becomes an information support to the functional requirements and achievable objectives of both Government and Public Bodies (in their autonomous budget definition process) and Minister of Economy and Finance (as coordinator of public accounts) (Articles 3 and 5, items g) and h), Law No. 94/1997).

As to Government and Public Bodies, the new system basically provides for the following:

  • continuous and concurrent monitoring of their own management costs;
  • a permanent dialogue with the Ministry of Economy and Finance, with reference to the assessments related to financial planning and annual budget, thus enabling selective and targeted cost and expense reduction actions;
  • a common reference role for their autonomous use of identification, assessment and audit instruments, as provided for by Law No. 59/97 and Legislative Decree No. 286/99 establishing the internal control system each Administration should be equipped with.

As far as the Ministry of Economy and Finance - State General Accounting Department - is concerned, besides the aims and purposes of any other Government and Public Body - the systems represents an instrument that supports the implementation of the tasks that the legislation has entrusted to it and that can be summarized as follows:

  • analysis, assessment and evaluation of Government's and Public Bodies' costs, functions and institutional services for financial planning and budget preparation purposes and to allow for a better allocation of resources;
  • monitoring of budget adjustment effects;
  • technical evaluation of costs and charges to the competent public bodies' and government's provisions and legal initiatives falling within their respective competence;
  • consolidation of the costs related to the multiple public bodies' institutional functions;
  • production of fact-finding documentation in favor of political and auditing bodies.

The aims of the analytical economic accounting system specifically involves the various offices and units of the State General Accounting Department (Inspectorates - particularly the Inspectorate General for Budget Policies - Central Budget Offices).


The single economic accounting system correlates the resources employed, the results attained and the related management responsibilities and is founded on the following principles: identification of the economic competence of administrative phenomena, correlation between necessary resources and how they are allocated, and comparison between budget and attained results. To assess management - hence the objectives pursued - from an economic point of view, the accounting system makes reference to costs, that is the value of actually used human and capital resources (goods and services) rather than expenditure, that represents the monetary expense related to their acquisition. Unlike expenditure, costs emerge when resources are used: consequently, the value of costs is established in relation to the real resource consumption and it is charged to the administration period when such costs are incurred, regardless of the period when the financial expense is made. In order to analyze the way objectives are attained, resources, classified in relation to their "nature" and according to a Charter of Accounts, are correlated to their "allocation" and the result of such allocation is to be assessed: the guidelines fixed by Legislative Decree No. 279/97 make reference to responsibilities, in other words to the subject who decides how and when allocated resources should be employed (that is, the holder of the cost center) as well as to the aims, that is the ends to be pursued (institutional missions or target-functions).

The new accounting system is also characterized by a systematic comparison between the set goals and the results attained and makes it possible to periodically check, throughout the fiscal year, consistency between forecasts and the real management performance: therefore, it becomes a management control system.

According to this logic, this process includes four fundamental stages: the planning phase, when objectives are defined and resources, actions and the necessary time are planned (budget); the management phase, when events are detected; the control phase, when assessments are made on an annual basis to check that management is carried out in such a manner that the established objectives are attained; and the final stage when the final management results are accounted for.

The analytical cost accounting system requires the following:

  • introduction of new procedures to facilitate the process,
  • organization adjustment to allow new information flows, and
  • the use of appropriate information measurement and identification support systems.