Management control as support for risk management – what does it involve and what is its purpose?
Management control is a tool that ensures a public sector entity operates efficiently and in accordance with the law. Unfortunately, it is often confused with internal auditing, which can make understanding what management control is quite challenging. In this article, we explain its purpose and argue why every manager should undergo training in this area.
Recently, we have been facing crisis events such as the COVID-19 pandemic and the war in Ukraine. Many institutions in Poland have felt the consequences quite painfully, mainly in terms of the need to reorganize their operations. However, this does not mean that these were completely new realities for them. Legal regulations had already been changing earlier, with new guidelines being introduced, often quickly and without proper preparation. A good example of this is the situation with GDPR, where there was considerable misinformation and confusion, also felt by entrepreneurs. Managers of public administration units often struggled with regulations that were difficult to understand (for them and others), and the only solution was to participate in training sessions, which offered little more since they focused solely on legal acts without discussing how to apply them in practice.
An effective risk management system, with management control as its key component, can help in dealing with such situations.
What is management control?
The definition of management control can be found in the Public Finance Act of August 27, 2009, in Article 68, paragraph 1. According to this, “management control in public finance sector entities is the totality of actions taken to ensure the achievement of goals and tasks in a manner that is legal, effective, economical, and timely.” This law also imposes an obligation on public sector entities to implement management control.
But how should we understand this control, and what actions are we talking about? Generally, it is not only about meeting standards and working in accordance with legal regulations, but also about maintaining a positive image. This is because every public sector entity is exposed to various risks, and without proper crisis management, it may lose its good reputation. All actions taken should be rational, measurable, and justified. The management control standards, which are outlined in the appendix to Communication No. 23 of the Minister of Finance of December 16, 2009 (Official Journal of the Ministry of Finance No. 15, item 84), explain this in more detail. Below, we list them as the objectives of management control.
Remember: Management control is a tool specific to the public finance sector. The coordinator is the Minister of Finance, and the obligation to implement it rests with entities such as mayors, city presidents, or heads of institutions. It is worth noting that management control involves setting goals and verifying whether they are being achieved. It is also an ongoing process, not a one-time action.
What are the objectives of management control?
- compliance of activities with legal regulations and internal procedures
- effectiveness and efficiency of operations
- reliability of reports
- protection of resources
- observance and promotion of ethical conduct principles
- effectiveness and efficiency of information flow
- risk management
All of these objectives are intended to lead to beneficial organizational changes. As we know, public institutions are often associated with a rather rigid and inflexible implementation of legal regulations, which creates the risk that they may not achieve any results and may struggle to handle crisis situations. Management control is designed to change this. While the law remains the most important element (which is completely understandable), the way the organization operates here is oriented towards development and achieving specific goals.
What is included in management control?
To define the elements of management control, we must again refer to Communication No. 23 of the Minister of Finance. In this communication, it is stated that the management control standards are divided into five areas:
Internal environment: This pertains to the organizational structure, particularly employees – their communication, authority, and competencies.
Objectives and risk management: Every organization should have clearly defined goals and tasks, as well as methods for monitoring and assessing them; it is also important to analyze and identify risks.
Control mechanisms: It is necessary to establish, document, and communicate the methods of control within the organization, including determining the division of key responsibilities and conducting an annual risk analysis.
Information and communication: This pertains to internal and external communication; it establishes the pathways and associated individuals to minimize the risk of irregularities as much as possible.
Monitoring and evaluation: This requires the creation of appropriate and tailored procedures, including self-assessment forms or internal audits.
This division is essential to understand how management control works. As we can observe, it is essentially a set of principles, procedures, instructions, and tools that support management. Management control helps to systematize and standardize processes occurring within the organization.
Additionally, as part of management control, three official documents must be created every year, namely: an annual activity plan specifying specific objectives within individual budget tasks, a report on the execution of the activity plan, and a statement on the state of management control.
Check out how comprehensive implementation of management control looks: Management Control.
What is the difference between management control and internal audit?
As mentioned at the beginning of this article, management control is often confused with internal audit. It is important to emphasize that these are two separate tools. What connects them is that both instruments are described in the Public Finance Act. How do they differ?
The difference between control and audit relates to the areas they focus on. The subject of management control is comparing the actual state with the required state. The Act (specifically, Article 69) clearly identifies the bodies responsible for conducting management control: the head of the unit in the public finance sector is responsible for ensuring the functioning of management control, while employees are the ones who practically implement this control.
On the other hand, internal audit (according to Article 272 of the Act) is an independent and objective activity aimed at evaluating the achievement of goals and tasks. This can be done through the systematic assessment of management control and advisory activities. The audit focuses mainly on the adequacy, effectiveness, and efficiency of management control. Importantly, the audit can be carried out by a designated internal auditor or by an external unit based on an appropriate agreement.
Training on management control
Building knowledge among employees at the management level is one of the most important steps to take for effective management control in your organization. The task of the management is to understand the principles and assumptions of management control from both a theoretical and practical perspective. We aim to make this easier, which is why we offer in-person training, e-learning, or other forms tailored to the participants’ expectations and work styles (e.g., webinars, videos). Our priority is to deliver knowledge in a way that ensures training participants understand and know how to apply in practice one of the main objectives of management control, which is risk management.
Why choose PBSG training? For years, we have been helping Polish institutions with risk management. As part of management control, we offer full support and consulting. Importantly, we work on a partnership basis and ensure that each project is tailored to the specifics and requirements of the organization.
As part of management control, we offer services such as:
- Comprehensive implementation of management control
- Compliance analysis
- Training for management staff
- Development of management control concepts
During management control training, we present the legal conditions for the functioning of the management control system in a clear and concise manner. We offer practical solutions that every manager can apply in their organization. In an engaging and digestible way, we discuss the requirements, goals of management control, and the roles and tasks of managers.
Moreover, we guarantee minimal theory and maximum practical application. The training is conducted by PBSG consultants, who possess the necessary experience, knowledge, and most importantly, have a deep understanding of local regulations. This is crucial in the case of management control because there are no one-size-fits-all solutions – the introduced management control must be tailored to the specific nature of the institution and its location.
You can check the current training offer on the website: Training for Managers.
In summary, management control is a tool primarily associated with ensuring the transparency of an organization’s operations, including the transparency of financial statements. However, it consists of many more elements that together ensure the continuity of operations and a positive image of the institution. Therefore, it is better to talk about management control in the context of management and refer to it as a universal management model whose goal is to improve the quality of operations of a given institution.