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Effects of Financial Management and Control System Implementation on Budgets of Counties in Croatia

Development of financial management and control system in the public sector has positive effect on the reduction of irregularities in the public administration and contributes to detection of different manipulations with public funds. Furthermore, it reduces the corruption risk and ensures preconditions for effective public fund management. Financial management and control system is established and developed to ensure efficient financial management in public sector. This system is designed to control business performance in a manner to support the realization of goals ensuring that funds are spent on economical, efficient and effective way. The key purpose of this system is to ensure the financial statements’ reliability and comprehensiveness and to protect public funds from losses caused by inadequate management and unjustified spending. The Republic of Croatia has developed this system on the request of the European Union. EU required from all member states to develop an appropriate system that would be in charge of (1) monitoring the operation and management of public sector units as well as (2) informing society on spending public funds. The aim of the paper is to investigate the effects of financial management system and control implementation on the budgets of counties in Croatia, precisely to research to what extent the implementation of this system influenced the counties’ budgets. Empirical research is based on secondary data collected from the consolidated annual reports on the system of internal controls in the public sector of Croatia over a period of ten years. The data collected will be analyzed using the correlation and regression analysis method. The paper presents the correlation between the development of the financial management and control system and the selected financial indicators calculated on the basis of information collected from budgets of counties in Croatia for ten years’ period. The method of correlation analysis will be used to determine the degree of correlation between the two observed variables (selected factors of the financial management and control system and indicators from counties' budgets). This method explains the causal relationship between the observed indicators ; in paper will be estimated the value of the dependent variable ; and an appropriate regression model that describes the relationship between the observed variables will be developed. The representatively of the obtained regression model will be verified by the coefficient of determination and the coefficient of regression variation.

financial management, internal control, budget, efficiency, Croatia

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