Colombia tightens fiscal supervision of public servants

Colombia has introduced a new law that will increase the fiscal accountability of public servants 

The new law will assist the correct implementation of Legislative Act 04 of 2019, and strengthen the control of public finances, according to a note from law firm Philippi Prietocarrizosa Ferrero DU & Uría (PPU), penned by Bogotá-based partners Rebeca Herrera (pictured), John Morales (pictured, below) and Paola Monroy (pictured, bottom).

According to the Colombian Constitution, the Comptroller General (Contraloría General de la Nación) must establish responsibility derived from fiscal management, impose pecuniary sanctions, collect fines and apply coercive jurisdiction over the amount deducted from such sanction.

Fiscal irresponsibility arises from inadequate fiscal management, and it is the obligation of public servants or individuals who manage public resources to compensate for the damage caused to the treasury in the performance of their functions, according to PPU.

In order to safeguard public assets, Law 610 of 2000 created a fiscal responsibility procedure, defining a set of administrative actions aimed at determining and establishing the responsibility of those who are in charge of public assets or resources and whose purpose is to obtain compensation for damage caused to the state due to the misuse of public funds.

The main coverage of civil liability policies of public servants corresponds to protecting the state from patrimonial detriment as a consequence of actions made by public resources administrators, as long as they are declared responsible within a fiscal responsibility procedure.

Prior to the enactment of Decree Law 403, insurance policies that covered fiscal responsibility, including those of public servants, were seriously affected by the decisions adopted by the Comptroller General, and which triggered several policy periods from claims arising based on the same incidents, according to PPU.

In general, civil liability insurance policies written under a claims-made basis are defined by an annual period and it is customary for the insured to have the same conditions over several years, while the first-claim clause seeks to determine a single policy to handle claims arising from the same incident, but that may be presented in different calendar years.

Decree Law 403 has a major impact as it extends the expiration term of the fiscal action from five to 10 years, PPU said.

However, it maintains the same statute of limitations of the fiscal responsibility action for five years, counted from the resolution of the opening of the action, but with the possibility of being interrupted. This amendment implies that the coverage of the policies covering fiscal responsibility must contemplate a minimum term of 10 years, doubling the previous expiration period, plus five years for the effects of the limitations.

With this extension, international reinsurance markets that have a risk appetite close to five years will have to adjust their underwriting manuals and policies in order to remain competitive in the Colombian market, according to PPU.

Likewise, the re-insurance market must continue to make a strict evaluation of those risks to introduce the correct amendments to technical notes corresponding to insurance policies covering fiscal responsibility, in order to be able to continue providing insurance solutions to those risks, the law firm said.

The amendments establish that misconduct by those who carry out fiscal management, and public or private servants who concur, influence or contribute directly or indirectly to that, will be considered as gross negligence or willful misconduct.