19684 1998 Pillars of Integrity: The WORLD Importance of Supreme n Audit Institutions in BANK Curbing Corruption INSTITUTE Kenneth M Dye and Rick StapenIurst WBI Working Papers '~~~~~~~~~~ Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption Kenneth M Dye and Rick Stapenhurst Abstract Building strong institutions is a central challenge of development and is a key to controlling corruption. Among public institutions, the Supreme Audit Institutions (SAIs) play a critical role, as they help pro- mote sound financial management and thus accountable and transparent government. However, the full potential of the SAI to address corruption has not been exploited, in part because of the lack of under- standing of the overall capacity of the SAI. SAls are well situated to contribute; they are widely viewed as the independent watchdogs of the public interest and, in some countries, they are already putting a greater focus on accountability for "ethics in the public service" in the scoping of their audit work and also undertaking value-for-money audits. This paper discusses the role of SAIs in promoting accountability and transparency within gov- ernment, considers some of the factors making for effective SAIs and highlights the linkages between the audit institutions and other "pillars of integrity," notably the media and Parliament. The Economic Development Institute of the World Bank 1998 Copyright C 1998 The International Bank for Reconstruction and Development/The World Bank 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. The World Bank enjoys copyright under protocol 2 of the Universal Copyright Convention. This material may nonetheless be copied for research, educational, or scholary purposes only in the member countries of The World Bank. Material in this series is subject to revision. The findings, interpretations, and conclusions expressed in this document are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or the members of its Board of Executive Directors or the countries they represent. Corruption is a problem that all countries have to confront. Solutions, however, can only be home-grown. National leaders need to take a stand. Civil society plays a key role as well. Working with our partners, the Bank Group will help any of our member countries to imple- ment national programs that discourage corrupt practices. And we will support international ef- forts to fight corruption and to establish voluntary standards of behavior for corporations and investors in the industrialized world. The Bank Group cannot intervene in the political affairs of our member countries. But we can give advice, encouragement, and support to governments that wish to fight corruption-and it is these governments that will, over time, attract the larger volume of investment. Let me em- phasize that the Bank Group will not tolerate corruption in the programs that we support; and we are taking steps to ensure that our own activities continue to meet the highest standards of probity. -James D. Wolfensohn, President of the World Bank 1996 Bank-Fund Annual Meetings Speech Contents Foreword .............................................. vii I. Corruption ..............................................1 II. The Concept of National Integrity Systems ................................................. III. Supreme Audit Institutions as a "Pillar of Integrity" .............................................. 4 Auditing Models ................................................ InternationalAudit Standards .......................................6 Factors for SAI Success ..................................... 7' IV. Increased Role of SAIs ........................................10 V. SAIs and Other Pillars of Integrity ....................................... 12 The Media ........................................ 12 SAJs and Parliament ....................................... 12 VI. Conclusions: SAIs and Recent Anti-corruption Efforts ............ ........................... 13 Annex A: Types of Audits ....................................... 1 5i Annex B: Historical Background ....................................... 17 Annex C: SAIs and Performance Auditing ......9................................. 1 References and Bibliography ....................................... 21] Boxes Box 1: The Pillars ofIntegrity ....................................3....I................... ..3 Box 2: The European Court ofAuditors ........................................... . Box 3: The National Audit Office (NAO) of the United Kingdom ...........................................6 Box 4: INTOSAI .......................................... .7 Box 5 Common Features ofAudit Mandates ............................................ .8 Box 6: SAI Independence ..........................................9 Box 7. Puerto Rico's omptroller General .......................................... 10 Box 8: Developing and Improving Audit Capacity .......................................... 11 Box 9: Comptrollers Office in Venezuela .......1...................................13 Box 10: The SAl and the Control of Corruption .............................. 13 Box Al: CCAF-FCVlAttributes ofEffectiveness .............................. 13 Foreword T he link between governance and eco- part because of the lack of understanding of the nomic development is perhaps one of overall capacity of the SAI. This paper discusses the most topical issues in the develop- the role of SAIs in controlling corruption, con- ment arena today. The Economic Development siders some of the factors making for effective Institute (EDI) is a leader in the practical appli- SAIs and highlights the linkages between the au- cations of good governance principles to devel- dit institutions and other "pillars of integrity", opment policy. As part of its Governance pro- notably the media and Parliament. gram, the Regulatory Reform and Private Enter- Kenneth Dye is a principal of Cowater In- prise Division (EDIRP) has facilitated a series of ternational and former Auditor General of anti-corruption workshops, seminars, and sur- Canada. Rick Stapenhurst is a Public Sector veys in nearly two dozen countries in Africa, the Management Specialist at the World Bank. The Middle East, Eastern Europe, South Asia, and authors would like to acknowledge the seminal Latin America. Participants in these workshops contributions of Jeremy Pope and Petter have included politicians, senior public officials, Langseth in the development of the concept of leaders from civil society, and representatives "national integrity systems" and "the pillars of from international and bilateral agencies. Work- integrity." The authors would also like to ac- shop and seminar participants have outlined in- knowledge the suggestions made by Jules Muis novative ways to increase transparency and ac- and Vinod Sahgal on early drafts of this paper, countability, and reported the progress in more and the suggestions made by participants at the traditional reform activities in the civil service, Regional Seminar on "Accountability and Good budgeting, and financial management. Governance" (Delhi, May 5-8, 1998), as well as It is widely accepted that one of the most the assistance of James E. Quigley and Elsa critical elements of a country's anti-corruption Pilichowski in production. The views expressed program is the strengthening of public institu- herein are entirely those of the authors and do tions. Among public institutions, the Supreme not necessarily reflect the views of the Economic Audit Institutions (SAls) play a critical role, as Development Institute or the World Bank. they help promote sound financial management and thus accountable and transparent govern- Danny Leipziger ment. However, the full potential of the SAI to Senior Manager Regulatory Reform and Private Enterprise Division address corruption has not been exploited, in Economic Development Institute vii Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption overnance as defined by the United Na- transparency in government and thus, in curbing, tions Development Programme' corruption. An effective SAI can be one of the key G (UNDP) is the "exercise of economic, institutions charged with the responsibility of con- political and administrative authority to manage a trolling corruption through preventative measures country's affairs at all levels. It comprises the mecha- (Sahgal, 1996). However, the full potential of the nisms, processes and institutions through which SAI to address the issue has not been exploited, in citizens and groups articulate their interests, exer- part because of the lack of understanding of the cise their legal rights, meet their obligations and SAI's potential for controlling corruption. mediate their differences ... Governance encom- The purpose of this paper is to contribute to passes the state, but transcends the state by includ- the review of how SAIs might help control corrup- ing the private sector and civil society organiza- tion. The first section presents a short definition tions." (UNDP, 1997). of corruption and summarizes some of the reasons Good governance is accountable, participatory why it is important to curb corruption. The sec- and transparent (see Box 2). It ensures that politi- ond section summarizes the concept of "pillars cf cal, social and economic priorities are based on integrity"-those institutions that play a role in broad consensus in society and that the voices of curbing corruption. Section three, the core of the the poorest of the poor and the most vulnerable paper, discusses the role of one of the pillars-su- are heard in decision-making over the allocation preme audit institutions-in promoting account- of resources. One of the principal causes of "bad ability and transparency and the linkages between governance" is the existence of corruption. Con- the audit institutions and other pillars, notably the versely, one of the core foundations for good gov- media and Parliament. The final section presents ernance is accountability-the obligation to ren- some conclusions and recent developments regarcl- der an account for a responsibility conferred. (In ing the role of SAIs in curbing corruption. government, accountability is a process that sub- jects a form of control over departments and agen- I. Corruption cies, causing them to give a general accounting for News media around the world are reporting on their actions, an essential concept in democratic corruption on a daily basis; and clearly demonstrate public administration). that it is not something that is exclusively, or even This paper discusses the role of supreme audit primarily, a problem of developing countries. Re- institutions (SAIs) in promoting accountability and cent events in Europe and North America have 1 2 Dye and Stapenhurst shown all too clearly that corruption is not some- public service delivery, no country can afford the thing that is exclusively, or even primarily, a prob- inefficiency that accompanies corruption. While lem of developing countries. some may argue that corruption can help grease Clearly, corruption is a complex issue. While the wheels of a slow-moving and over-regulated its roots are grounded in a country's particular so- economy, evidence indicates that it increases the cial and cultural history, political and economic costs of goods and services, promotes unproduc- development, bureaucratic traditions and policies, tive investments, and leads to a decline in the qual- one can generalize to state that corruption tends ity of public services (Gould and Amaro-Reyes to flourish when institutions are weak and eco- 1983). Indeed, recent evidence suggests that rather nomic policies distort the marketplace (World than expediting public service, corruption maybe Bank, 1997b). It distorts economic and social de- more like "sand in the wheels" : recent corruption velopment, by engendering wrong choices and by surveys in Tanzania, Uganda, Ukraine and else- encouraging competition in bribery rather than where show that people paying bribes to public in the quality and price of goods and services. officials actually received slower service than those Moreover, it is the poor countries-and the poor who did not. within poor countries-wlhich can least afford the Simply defined, corruption is the abuse ofpub- costs of corruption (Langseth, Stapenhurst and licpowerforpersonalgain orfor the benefit ofa group Pope, 1997). Moreover, evidence suggests that if to which one owes allegiance. It occurs at the inter- corruption is not contained, it will grow and that section of public and private sectors, when public once a pattern of successful bribes is institutional- office is abused by an official accepting, soliciting, ized, corrupt officials have an incentive to demand or extorting a bribe. Klitgaard (1996) has devel- larger bribes, engendering a "culture" of illegality oped a simple model to explain the dynamics of that in turn breeds market inefficiency (Rose- corruption: Ackerman 1996). Acorruption as1a9"cancer.C (Corruption) = M (Monopoly Power) + Corruption has been cLescribed as a cancer. D (Discretion) -A (Accountability) It violates public confidence in the state and en- dangers social cohesion. Grand corruption-where In other words, the extent of corruption de- millions of dollars change hands, is reported with pends on the amount of monopoly power and dis- increasing frequency in rich and poor countries cretionary power that an official exercises. Mo- alike. Petty corruption is less reported, but can be nopoly power can be large in highly regulated equally damaging; a small bribe to a public servant economies; discretionary power is often large in for a government service may only involve a mi- developing countries and transition economies nor payment, but when such bribes are multiplied where administrative rules and regulations are of- a million times, their combined impact can be enor- ten poorly defined. And finally, accountability may mous. If left unchecked, the accumulation of seem- also be weak, either as a result of poorly defined ingly petty bribes can erode legitimacy of public ethical standards of public service, weak adminis- institutions to the extent that even noncorrupt of- trative and financial systems and ineffective watch- ficials and members of the public see litrle point in dog agencies. remaining honest (World Bank, 1997b). Successful strategies to curb corruption will Forms of corruption need to be contained for have to simultaneously seek to educe an official's practical reasons. Faced with the challenge of at monopoly power (e.g. by market-oriented re- least maintaining, if not irmproving, standards of forms), discretionary power (e.g. by adminis- Pillars of Integrity The Importance of Supreme Audit Institutions in Curbing Corruption 3 trative reform) and enhance accountability (e.g. by politicians and policy makers, but also by through watchdog agencies). Such mechanisms, members of civil society. when designed as part of a national effort to reduce corruption, comprise an integrity system. II. The Concept of National Integrity Systems This system of checks and balances, designed Appropriate economic policies, which reduce the to manage conflicts of interest in the public sec- opportunity for corruption (or, in the above model, tor, limits situations in which conflicts of inter- M-the monopoly power of officials), maybe con- est arise or have a negative impact on the com- sidered a prior condition for successfully curbing mon good. This involves both prevention and corruption. With regards to institutional strength- penalty. An integrity system embodies a com- ening, country strategies vary a great deal, but prehensive view of reform, addressing corrup- worldwide the policy responses to corruption typi- tion in the public sector through government cally involve one or more of the eight following processes (leadership codes, organizational institutions or "pillars": change) and through civil society participation * political will; (the democratic process, private sector, media). * administrative reforms Thus, reform is initiated and supported not only * "watchdog" agencies (anti-corruption com- Box 1: The Pillars of Integrity . . ........ l 0 ,0 R Anti-corruption agencies; Ombudsman; Auditor General Source: Langseth, Pope, and Stapenhurst (1 997). 4 Dye and Stapenhurst missions; supreme audit institutions; component of Klitgaard's equation (C = M + D ombuds offices) - A)-and are a necessary component of public * parliaments; sector performance. They can be a very cost- * public awareness/involvement; effective means of promoting transparency and * the judiciary; openness in government operations, and can * the media; contribute to improved government perfor- * the private sector. mance. Also, the audit function contributes to The notion of a "national integrity system" was public information about violations of accepted developed by Ibrahim Seushi, President of Trans- standards of ethics and deviations from prin- parency International-Tanzania. The concept is ciples of legality, accounting, economy, effi- straight forward: the eight institutions identified ciency and effectiveness. above are interdependent and together support the Audits can help curb corruption and act as notional of 'national integrity', much the same pil- a potent deterrent to waste and abuse of public lars might support the roof of a house (see Dia- funds by, for example, helping restrain any ten- gram 1). Pushing the analogy further, if any one of dency to divert public resources for private gain. these "integrity pillars" weakens, an increased load Audit can help reinforce the legal, financial and is thrown on to the others. If several weaken, their institutional framework which, when weak, al- load will tilt, so that the round ball of 'sustainable lows corruption to flourish; it can help estab- development' rolls off" (Langseth et al. 1997). The lish a predictable framework of government be- general equilibrium of the pillars is therefore im- havior and law conducive to development, it can portant, and a government has an incentive to keep reduce the arbitrariness in the applications of the eight pillars in balance. rules and law and it can help simplify adminis- trative procedures, particularly where they III. Supreme Audit Institutions as a "Pillar hinder the smooth functioning of markets of Integrity" (Sahgal, 1996). It can also expose non-transpar- Responsible internal financial management is cru- ent decision making that is clearly not in the cial to national integrity, but national audit offices, public interest (World Bank, 1991). or supreme audit institutions (SAIs), are (or at least, While a plethora of polls in industrial coun- should be) the linchpin of a country's integrity sys- tries indicate that many citizens do not trust their tem. As the agency responsible for auditing gov- governments to always act in the public interest, ernment income and expenditure, the supreme the SALs are widely viewed as independent watch- audit institution acts as a watchdog over financial dogs of the public interest and are thus well situ- integrity and the credibility of reported informa- ated to promote transparency and ethical behavior tion (as well as 'performance' or 'value-for-money' in their jurisdictions. If the currency of account- auditing: see Annex A). ability If information, then transparency allows Auditing is a function that serves account- accountability to work effectively; it focuses on ability as it adds credibility to the assertions of public reporting and availability of information, the person or entity rendering account, and it with the objective of making what governments provides valuable insights and information to do more visible (Sahgal, 1996). Thus, one can re- the person or entity conferring the responsibil- write Klitgaard's equation as ity (see Annex B for a brief history of auditing). Audits are fundamental to accountability-a key C = M + D -A() Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption 5 to highlight that Accountability itself is a function Box 2: The of Transparency. Buropean Court of Auditors The aim of adding has evolved beyond an The European Court of Auditors, located in Lux- emphasis on minimizing waste, abuse and fraud embourg, is responsible for auditing all Euro- and ensuring compliance with financial and ad- pean Union budgetary expenditures. The court ministrative laws and regulations to value-for- is composed of one member from each of the money assessments (see Annex A). Thus, audit's fifteen European Union countries. This diversity potential for proactively promoting good gover- of members reflects the different audit ap- nance is.generallyrecognize as an importat f proaches from their home countries. The court is nance is generally recognized as an important fac- divde int the ui eeomn n e tor inpublicsectorreform. Theresosblte divided Into three Audit Development and Re- tar in public sector reforms. The responsibilities ports Group and a Statement of Assurance of the SAI's now include, in addition to ensuring Group. The Statement of Assurance Group deals that the executive complies with the will of Parlia- with new requirement under the Treaty on Euro- ment (as expressed through parliamentary appro- pean Union to provide the European Parliament priations), the promotion of ethical behavior, effi- with an annual statement as to the reliability of ciency and cost effectiveness and the the accounts and the legality of and regularity ofsound internal financial controls of the underlying transactions. Each Group is enourage mt . composed of between three and five Members to reduce the opportunities for corruption and in- of the Court. crease the likelihood of its detection (Sahgal, 1996). As well as examining the legality and regu- larity of transactions, the Court also is required Auditing Models to examine the soundness of financial manage- While the importance of SAI's may have increased, ment, meaning of whether funds have been used there is no common approach to legislative audit- with due regard for economy, efficiency and ing. There are three basic auditing models: the cost effectiveness. The Court also assesses the Napoleonic model, the Westminster model and the adequacy of internal systems of office adminis- Boardnsystem. The French have exported the Na- tration, and the adequacy of safeguards against Boardnic system. The Fourenchs Comptes model tothe fraud. In addition, the Court relies on country poleonic system or Cours des Comptes model to the SA. an.efrsjitadt ihntoa . ~~~~~~~~~~~~~SAls and performs joint audits with national Latin countries of Europe and to some extent in audit bodies. South America and Africa. It is a compliance-ori- ented system that makes legal judgments on com- pliance with laws and regulations. The Cours des While the AG is personally responsible for the Comptes systems have a large number of magistrates operations of his office, the system is essentially who enjoy judicial independence. Most European- collegial in nature. The AGs usually report annu- conducted performance audits are smaller and less ally to parliament although there are some excep- expensive than those in North America, and many tions such as in the United Kingdom and Canada are directed at whole government programs. Yet, where reporting is more frequent. The auditors like SAIs in North America, the most sophisticated report on financial statements and the operations European SAIs give a significant role to social ob- of government entities; generally, there is less em- jectives in determining what to examine. phasis on compliance although compliance issues The Westminster system is designed to have are not ignored if they are identified. an Auditor General (AG) make periodic reports to The Board model is similar in nature to parliament using the professional audit staff of the the Westminster system and is prevalent in Office of the Auditor General (OAG) (Box 3). Asia. Indonesia, Japan and Korea use a Board 6 Dye and Stapenhurst system with a chair and a small committee. InternationalAudit Standards Like the Westminster model, these systems For many years the public sector financial audit- are essentially collegial and the chairman is ingcommunitydid not observe internationalstan- de facto the Auditor General. dards of audit reporting, although the International Box 3: The National Audit Office (NAO) of the United Kingdom The introduction of performance auditing in Brit- the face of government restructuring. During the ain was legislated in response to the demands of past decade, NAO has offered a lot of training the Parliament (the Public Accounts Committee, to its staff, hired a large number of accountants or PAC) for audited information extending be- and social scientists, enabling integrated audit yond mere financial audit opinions. Increasing teams-supplemented by experts from the private parliamentary concerns about the influence that sector and academia-to use multi-disciplinary the executive body, particularly the Treasury, re- approaches to performance auditing by combin- tained over the NAO created the political climate ing diverse skills and background. to pass the National Audit Act in 1983, which Similar to the US GAO contribution to gov- gave the Comptroller and Auditor General ernment savings, the UK NAO performance (C&AG), who reports to the House of Commons auditing has identified savings of £270 mil- (Public Accounts Committee), express powers to lion (US$425 million)-equivalent to £7 saved carry out investigations of how departments use for £1 spent on audits. From an annual bud- their resources (seeAnnexC). Thus, the C&AG is get of US$66 million, about 38 percent of now able to provide assurance about perfor- NAO resources are dedicated to performance mance and about whether public money has been auditing to produce over 50 reports annually. spent properly and for the purposes intended by The cost of performance audits continues to Parliament. However, the C&AG is not entitled to decline as a result of better management and question the merits of policy objectives; exami- planning, with an emphasis on tighter, faster, nations are focused on the means employed to and sharper examinations. Also, performance achieve the policy objectives set by the govern- auditors have improved the quality and value ment and approved by Parliament. of their reports by: Selection of performance audit studies are * identifying financial savings; made annually based on a variety of criteria * adopting emerging trends such as market which include the amount of money involved; testing; prima facie evidence of poor value-for-money; * using a thematic approach; the level of political, parliamentary; and political * applying rigorous methodologies that provide concern; and the likely added value to be de- defensible findings and conclusions; and rived from the NAO conducting a study. The * contracting with private sector experts when choice of audits is solely that of the C&AG, but their expertise enhances a performance au- the views of the PAC are taken into account, and dit. its response to the NAO report may be included As in Canada and the United States, NAO in the final report to Parliament. undertakes internal quality reviews of ongoing NAO is one of the leading SAIs and empha- and completed work, through contractual ar- sizes rigorous audits, quality assurance, and ob- rangements with independent quality panels. The jectivity. A well trained staff conducts a wide va- panels provide advice on audit issues, evidence riety of performance and financial audits with the and report drafting. latter having become increasingly important in Pillars ofIntegrity: The Importance of Supreme Audit Institutions in Curbing Corruption 7 Federation of Accountants (IFAC) has for many years published international audit standards which Box 4: INTOSAI have direct application to commercial entities and The International Association of Supreme Audit state-owned enterprises. Institutions (INTOSAI), based in Vienna, Austria, In recent years, however, there has been more is the worldwide association of national audit acceptance of public sector auditing standards. In offices. INTOSAI has developed its own audit the middle 1 980s, IFAC established a Public Sec- guidance for the SAIs of the world to conduct fi- nancial, compliance and performance audits. tor Committee (PSC) to focus on accounting and Tauditingo standard wereraccep and auditing standards applicable to public sector au- adoptes at the 1992 conference of INTOSAI. The dits and accounts. Currently there are numerous INTOSAI Auditing Standards are compatible with pronouncements available from the IFAC PSC, the Government Auditing Standards produced by which offer guidance to public sector auditors and the United States General Accounting Office in a many countries with institutes of professional ac- publication widely known as the Yellow Book. They countants have established their own public sector can also be easily adapted to the needs of devel- committees, which provide useful guidance to au- oping country SAls until these countries are ready ditors of public sector entities. to develop their own standards. Developing coun- try SAls should make the intellectual investment needed to understand these standards as they 3.1 Factors for SAI Success apply to performance audits. An international Several factors have been identified to SAI success. auditing standards team should be part of the Of these, the most important are: having a clear research and methodology group of a develop- mandate; independence (both from the executive ing SAI. and to investigate issues at its sole discretion); ad- equate funding and staff, and the sharing of knowl- edge and experience. where the auditor is feared and perhaps not re- spected as a professional advisor who adds value to CLEAR MANDATES the entity. The modern view is that learning les- Auditing mandates should be rooted in a set of sons from mistakes is more constructive than pe- rules and boundaries agreed to by parliament. Au- nalizing bureaucrats. dit acts that define parliament's objectives are the SAIs wishing to create mandates should review most effective way of communicating and autho- the explicit performance auditing mandates of rizing an audit mandate (Box 5). Failure to set out other audit institutions. Before legislation can be auditing requirements in legislation leaves an SAI drafted, SAIs and governments must define audit- vulnerable to criticism that it is exceeding its man- ing and determine the independence of auditors, date. Also, an audit act ensures that the SAI ad- the scope of audits, the entities to be audited, and dresses all the issues that parliament wishes to be the reporting responsibilities of auditors. scrutinized by an independent body. In developing audit mandates, developing SAI INDEPENDENCE country SAIs need to reconsider the role of sanc- Independence is a fundamental feature of all the tions and penalties. Although they are no longer industrialized country SAIs. Not only is the inde- common in the Western world, many developing pendence of the organization clearly enunciated, country institutions regularly apply sanctions and the personal independence of the AG (sometimes penalties. This practice creates an environment a Chair or President) or members of a Court of 8 Dye and Stapenhurst Box 5: Common features of Audit auditors, because performance audit reports on Mandates government operations have more potential to embarrass a government and its ministers. If SAI The purpose of setting out an audit mandate is to independence in developing countries is not pro- assure parliament that it will receive independent tected by legislation or strong tradition, the situa- credible audit assurance and other useful infor- tion needs to be changed. The SAT leader should motion about the management of public funds. be able to report directly and frequently to the par- Audit legislation often contain these features: . crtei fo th seeto of an AuiorGn liament without interference from the politics of *criteria for the selection of an Auditor Gven- eral (Comptroller & Auditor General; Presi- the executive government. Such independence de- dent of the Court of Accounts; Chairman of mands freedoms for the Auditor General to audit the Board of Audit); and report as deemed necessary, with adequate * term of service; personnel and financial resources. * provisions for retirement or dismissal; Independence of a SAI and its leader is a hall- * scope of audit, when and what to report mark of an effective SAI. If the SAI is going to upon, will be influenced by whether: - all information and explanations have been audit the government, it must have the authority received, to do its job without threat of retaliation and the - accounts and essential records and systems power to proceed with its plans. It must not be are maintained properly, dependent on those that it audits to determine how - financial statements meet international and auditing will be conducted. The SAI leader also country standards, needs status to persuade very senior members of - money has been expended as intended, the government bureaucracy of the importance of - expenditures have proper authority, his recommendations or requests for information. - there has been due regard for economy, Independence can be strengthened by including efficiency and effectiveness, the role of the AG in the constitution of the coun- - there are appropriate systems in place to prevent fraud and waste, try, as has been done in Indonesia, India, Japan - the Auditor has recommendations to im- and Zambia. prove government operations, and In Japan, the Board of Audit is independent - fraud exists. of the Cabinet. The Board has three Commission- * reasonable access to records; ers who are appointed by the Cabinet and attested * immunity from liability for the Auditor tobytheEmperor.TheCommissioners,whohold General; the same status as State Ministers and Supreme requirement to report regularly rather than Court Judges, hold office for a 7-year term and annually; his/her status is assured during the term to secure * right to hire and fire SAI employees; * right to contractout for professional services; the Board's independence from the Cabinet. In and Indonesia, the Chairmen, Vice Chairman and * provision of adequate budget. Members of the Supreme Audit Board are ap- pointed by the President on their nomination by Parliament. In India, the Comptroller and AG is Audit is always carefully set out in legislation and appointed by the President and his oath of office acknowledged in tradition. This was and is true requires him/her to uphold the Constitution of the for financial and compliance auditing and is country and the laws made thereunder. In Canada equally, if not more important, for performance and India, it takes both houses of Parliament to Pillars of Integrity The Importance of Supreme Audit Institutions in Curbing Corruption 9 terminate the AG before the normal retirement tinuous development of their staff To ensure high- time. In Belgium, Members of the Court can only quality work, they need to employ qualified staff, be removed by the Chamber of Representatives, remunerate them adequately, emphasize continu- and in the United Kingdom removal of the Comp- ous improvement and encourage subject-matter troller and Auditor General is by the monarch on expertise. For example, there is a need for auditcrs a resolution of both houses of Parliament. A simi- to improve their skills in fraud detection and in- lar requirement for approval by the legislature ex- formation technology through a combination of ists in Ireland, Luxembourg and in Austria, where training, education and experience (Sahgal, 1996). a verdict of the Constitutional Court can also re- In those circumstances where professional knovvl- move the President. In Portugal only the State Presi- edge is required, calling on outside expertise may dent can remove the President of the Tribunal de be desirable (INTOSAI, 1977). Contas. Developing country SAIs seldom produce sta- There is another dimension of SAI indepen- tistics on individual and project levels of effort. dence: freedom to determine what shall be audited. In all developed country SAIs, there is little or no interference by executive government on the choice Box 6: SAI Independence of issues to be audited. Those being audited should To be effective, any external auditor must be de- have no influence on the choice of who or what void of accountability to, or susceptible to pres. gets audited. Likewise SAIs need the freedom to sures from, the clients or institutions being au- determine what shall be reported. The reporting dited. The office should not be a part of, or of audit findings should be the sole decision of the managed by, a government department it has to SC, not the auditee. There should be room for audit. To be so would create a systemic conflict of discussion and negotiation, but at the end of the interest and to open the door to forms of "man- discussion and negoon,ib uity at the endit offe th agement.' The supreme audit institufion's clients day, it is the responsibility of the audit office to are parliament (or comparable bodies) and its decide what will be reported. subjects are the public officials entrusted with public expenditure. ADEQUATE FUNDING AND STAFF Unfortunately, this office can be particularly SAIs are often short of funding, especially through- vulnerable to pressure from its clients, and in the out the developing world. While it is probably true majority of cases, the Executive. To assure inde- that some improved efficiencies could be obtained pendence, the office should have relative freedom .. . . . ~~~~~~to manage the department's budget and to hire in these SAIs, it IS unlikely that Improved efficiency omng h eatens6de n ohr woun d teserat, is unlikel tat iprovie ecen and assign competent professional staff. The latter would generate sufficient savings to provide com- is important if it is to maintain its ability to match petitive salaries and modern technology for SAIs. the capability of senior officials in govemment. Governments will have to consider the adequacy The responsibilities of the office of the Audi- of resources for many developing country SAIs. tor General also include ensuring the Executive Budgetary constraints often inhibit the upgrading complies with the will of the Legislature, as ex- and maintenance of staff skills. Few developing pressed through parliamentary appropriations; countries set annual targets for performance audit promotes efficiency and cost effectiveness of gov- training or devise budgets that take the cost of ernment programs; and prevents corruption torsesaini devier budgets .th ak co sto through the development of financial and audit- courses and external training into account. ing procedures designed to reduce the incidence SAI staff must be adequately paid and trained. of corruption and increase the likelihood of its Effective SAIs subscribe to the principle of con- detection. IC Dy E>,e and Stapenhurst Box 7: Puerto Rica's Contptrar General g4_ing budgets and set targets for the resources to be Box 7: Puerto Rico's Comptroller General committed to training. This target could be ex- In Puerto Rico, the Comptroller General embarked pressed as a percentage of the office budget or as a on an aggressive modernization program and mandatory number of days of training for each the current Comptroller General, Ileana Colon auditor and administrator. In addition, requiring Carlo, credits the fact that her office had, by the staff to use timesheets would simplify the manage- end of 1996, recovered $28 million in unlaw- fuily disbursed funds. In 1987, for example, the ment of audit costs. large majority of employees of the Office oper- ated with typewriters, manual ledgers and add- SHARING OF KNOWLEDGE AND EXPERIENCE ing machines. A decade later, the Office had International exchange of ideas, knowledge and become the best-equipped and most updated of experience is an effective means of raising the qual- all government departments . Accountability, No. ity of audit, harmonizing standards, sharing best 14, June 1997. practices and generally helping SAIs to fulfill their mandates. To this end, international congresses and training seminars, regional and inter-regional con- Costs are not assigned to individuals or perfor- ferences and the publication of international jour- mance audit projects, and data are not used to gauge nals have promoted the evolution and development the progress of projects. In the absence of project of the auditing function (INTOSAI, 1977). In- budgets and management information systems, creasingly, too, SAIs need to liaise closely with en- performance audits are likely to be inefficient and forcement officials in other government agencies expensive, since no records are kept and there is to ensure that skills and insights are shared and no accountability for project management. In ad- that they become more adept at uncovering cor- dition, a lot of SAIs are overstaffed, with ruption (Sahgal, 1996). undertrained auditors who add little value to the audit process. For SAIs to maintain credibility, they IV. Increased Role of SAIs must manage themselves in an effective manner A well performed and reported audit serves as an that would result in a favorable performance audit essential instrument for development, promoting report if the SAI itself were subjected to a perfor- good governance by improving public sector man- mance audit of its own operations. agement. Any SAI that provides high quality audit Although SAIs are often responsible for com- services clearly has the potential to assist its legisla- menting on the economy, efficiency, and effective- ture and other governing bodies in holding the gov- ness of government operations, few engage in cost ernment accountable for its stewardship of public management themselves. Most do not track the resources. There are currently many innovations resources that are consumed by each audit or over- in public sector auditing. The Canadian OAG has all operating costs. Budgets are rarely produced for been studying well performing organizations, and performance audit projects, audit administration, conducting studies on ethics, values and learning or training and methodology development. None organizations. In Europe, the SAIs are focusing on of the developing country SAIs surveyed has a capi- audits of programs that directly affect the public's tal budget. Timesheets are rarely used, thus there concerns. SAIs are collaborating on audits. Results- is no database for determining the cost of perfor- based audits and audits of the environment have mance audits, administration, or training. Devel- recently gained popularity proving that auditing is oping country SAIs should develop annual train- not a static process. Pillars ofIntegrity: The Importance of Supreme Audit Institutions in Curbing Corruption 11 In the developed world, SAIs have moved to- Box 8: Developing and Improving Audit wards more proactive involvement in better ac- countability and more effective operations of gov- Capacity ernment. The shift has been described as moving Countries that choose to develop and improve from a role of observer to a more pro active role as their audit capacity should adopt strategies thcit an improver. Executive government takes some risk have proven successful afer 30 years of experi- in allowing an informed critic to make comments ence by SAls in some industrialized countries: about its operations and financial statements. * free SAls from government interference; However, if the government is not willing to al- * establish dear auditing mandates in legislation; , . * ~~~~~~~~~~compensate auditors competitively to avoid low such exposure, the lack of commitment to coste ain cptlo i audit ill waken he auitingproces conider-costly brain drain; audit will weaken the auditing process consider- * carefully recruit high quality auditors from a ably. Governments must be willing to provide an variety of disciplines, especially for perfor- appropriate strong mandate, and to provide the mance auditing; financial and human resources to fulfill the man- * provide each SAI with its own training facil- date. Likewise there needs to be unrestricted ac- ity and audit program; cess to information. * document audit methodology and support Following decades of experimentation with with training; aistiae rge f* publish reports upon audit completion, and audit strategies, a number of lessons emerge from not wait for annual report; industrialized countries that have shown an effec- * produce audit reports that are clear and in- tiveness in their work to promote governmental teresting; accountability. Although there are differences in * focus performance audit reports on a few sig- methodology, common successful strategies can be nificant topics; borrowed and used to advance auditing in the de- * establish quality control and quality assur- veloping world (see Box 8). ance mechanisms for performance auditing; Transparency is built on the free flow of infor- and *attract attention to audjit reports by encoujr- mation, i.e. enough information to determine re- attac aentintorudtr sponsibility for failure, incompetence or deceit. Aa auditor cannot come to a final conclusion if there is a limitation in the scope of an audit due to a nia, Zambia and the Slovak Republic. In certain restriction on information access. Auditors need countries, access is limited, for example, limitations to have complete and accurate evidence to con- exist in the United States, France and the C'zech clude their opinions. Barriers such as a need to Republic. Unfettered access to information is an obtain permission to receive evidence should be indication of the extent of independence conferred eliminated in clear legislation that enables the au- upon the SAI. In the most advanced countries, ditor to obtain whatever information he or she access is complete and unfettered. deems essential. SAls can become key instruments for main- In most advanced countries, the SAI is given taining and enhancing the credibility of the state complete access to information that it needs to do in the eyes of the public. In many countries, the its audit work. Examples are found in the SAI leg- AG enjoys high credibility in the eyes of the pub- islation for the following countries: Japan, Canada, lic. Sometimes it is the individual him or herself India, the United Kingdom, Sweden, Spain, the but more often it is the good reputation of the in- Netherlands, Germany, Moldova, Romania, Esto- stitution. Faith in SAIs is developed from good 12 Dye and Stapenhurst auditing over a long time where the public comes reports are not read directly, only the media mes- to understand that the auditor is not a political sages are absorbed. So it is important for an SAI to person and can be trusted to stick to the facts and have access to the media to convey essential audit be objective and fair. When the public places faith findings and recommendations. in an SAI, it is well positioned to report on The media also play a large role in shaping government's progress in improving its operations. the public's attitude towards the audit office. SAIs SAIs can contribute to reforms and monitor how need public support to gain the confidence of par- changes are occurring. They can develop recom- liamentarians. Good media relationships certainly mendations to make reform more effective and enhance the SAI reputation for competence, inde- make the management of change as transparent as pendence and fairness. possible. Good auditing in many countries is seen as a major contributor to the evolution of public SAIs and Parliament sector reform. The relationship between a Parliament and its SAI is at the core of the objectives and purpose V. SAIs and Other Pillars of Integrity of Parliament's oversight function (Stapenhurst The concept of an integrity system highlights the and Miller). Effective Parliamentary oversight interlinkage between institutions, orpillars. The SAIs, requires that Parliaments scrutinize public ex- if they ate to be effective, rely on an effective Parlia- penditures and revenues. Since few MPs have ment-to whom they report-and media, which can the skills to undertake this function, Parliaments publicize wrongdoing discovered by the SAI. typically rely on SAIs to audit the public ac- counts on their behalf, requiring the SAIs to The Media report regularly on their findings. The media plays a significant part in enhancing In the Westminster Parliamentary system, the role and public stature of an SA. Effective SAIs the reports from the Auditor General's Office have established a good working relationship with are usually referred automatically to the Public the media. All forms of media, i.e. television, print Accounts Committee (PAC) for review. In the and radio are useful for getting the audit message United Kingdom hearings are held almost ev- across to parliamentarians and the public. Audit ery week when Parliament is in session and the reports tend to be written in very cautious and Auditor General personally attends hearings on stilted language, which is not easily read or under- their reports. Witnesses from government de- stood. Sometimes important issues get lost in the partments and agencies are called to these hear- careful phrasing of an audit report. However the ings and the Auditor General and his auditors media gives the SAI an opportunity to use plain attend and offer comment on their findings. The language and in a short article or interview, con- PAC considers the testimony of the witnesses vey succinctly the essential points of an audit find- and sends its reports to Parliament for comment ing. While the use of the media is not popular with and action. Frequently, there are recommenda- bureaucrats because context is lacking, the clarity tions requiring follow-up action by the Auditor of the message is enhanced. General. Sometimes, too, the Auditor General Politicians are particularly interested in media is called as a witness before other Parliamentary items. If audit findings are highlighted in a media committees, thereby allowing these committees presentation, parliamentarians are likely to pay to focus on financial and operational matters close attention. Many auditors realize that their pertinent to their mandate. Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption 13 Benefits to those who bribe can be enormous and Box 9: Comptroller's Office In Venezuela corruption associated with international business Prior to 1938, Venezuela's General Accounting transactions could involve both politicians as well Office was a generally weak, powerless organi- as bureaucrats. The most successful corrupt prac- zation, located within the executive branch.;With tices are those where the corruptor and the assistance from the United States, the Office of , ~~~~corrupree both gain sufficient advantage to be sat- the Comptroller General was established and is now auomptrous.r Beneralwased tthed Co lmia isfied with the transaction. Other forms of corrup- now . auooos Bae on the Coomia tion such as theft of state assets by those who are model, it is only loosely affiliated to Congress. on ch as th e assets by those w re Like the Comptroller General in Puerto Rico, the in charge of the assets is a huge problem. A recent GAO is undergoing a period of intensive mod- form of corruption has emerged with the privati- ernization; it is moving away from ex-ante con- zation of state-owned enterprises for the benefit of trol of contracts and payments towards a system officials . Theft of government financial resources of comprehensive ex-post financial and perfor- such as pocketing revenues, not repaying advances mance audits. Accountability, December 1996. are all forms of corruption that auditors must be more vigilant in identifying. Audit can be a powerful force to combat In Parliamentary systems other than the corruption. It also can be a potent deterrent to Westminster-type, there are similar relationships be- waste and abuse of public funds exposing non tween the Parliament and the SAI. An exception is transparent decision-making that was not in the the Cours des Comptes-style SAIs, where Parliaments public interest. Curiously though, auditors in do note automatically receive the SAI reports (al- the private or public sector who have been though they may receive a report on the work of the trained to audit financial statements do not have court). Rather, audit issues under this system are dealt with by magistrates in a judicial fashion. Box 10: The SAI and the Control of VI. Conclusions: SAIs and Recent Anti- Corruption Corruption EffortsVio Corpto Efforts. Vinod Sahgal (I1996) has identified the following Experience indicates that no one institution, act-Sagl196)hsietfdtefoown Exprieceindcats hatno neinsituio, ac- steps that an SAI can take to improve its capacity ing alone, can significantly reduce corruption. In- teps thatianS U , ~~~~~~~~~~~~~to curb corruption: deed, the very concept of a "national integrity sys- * Clarify its mandate and mission statement tem" highlights the linkages between institutions. regarding its role as a catalyst for combat- In the case of the SAIs, their reporting to Parlia- ing corruption ment and relationship to the media is important. * Proactively promote policies that encourage Corruption has been identified as a symptom ethical behavior in the public service of something gone wrong with the management oActively promote improvements in the qual- of the state. The World Bank has defined corrup- ity of the public service tion as " the abuse of public office for private gain". *Strengthen their Reporting and communica- Such a definition would include bribery with gov- * Raise the public's awareness about ethics and ernment contracts, bribery influencing government corruption benefits, bribery to reduce taxes owing, bribery in * Work with educators to enhance communi- issuance of licenses, bribery with registrations and cations in schools and homes on the subject permits, bribery to change or not change laws. of corruption 14 Dye and Stapenhurst a history of finding much fraud through their audits. Their main contribution to preventing corruption has been the strong psychological factor of deterrence. However the deterrence factor is not enough to prevent corruption in the public sector. Reporting on corruption and criminal activity is required of the General Ac- counting Office of the USA and of the SAIs of the Philippines, Bhutan, Indonesia, Malaysia, Spain, Romania, Moldova, China, Estonia, Lithuania, Germany, the Netherlands, Sweden, India, the United Kingdom, South Africa, the Czech Republic and the Slovak Republic. It is noteworthy that this list suggests that some de- veloping country SAIs are ahead of their coun- terparts in the industrial world when it comes to detecting corruption. Within the International Organization of Su- preme Audit Institutions-the international orga- nization of SAIs-there is an increasing interest in corruption and fraud. SAIs are going to study cor- ruption and develop new audit methods to pre- vent it as much as possible. They need to examine whether the checks and controls devised by gov- ernments to deal with corruption are adequate and actually working. Two areas where auditors have been quite successful in identifying corrupt prac- tices is detecting situations where managers are drawing pay for ghost workers, and identifying sub- standard construction through inspection. Audi- tors are developing better methodologies to detect corruption and bring to light corrupt practices. X Pillars of Integrity. Thoe Importance of Supreme Audit Institutions in Curbing Corruption 15 Annex A: Types of Audits A udits can be classified into three basic are violated, the scope of the audit was com- types: attest or financial auditing, com- promised or if underlying systems are inadequate pliance auditing and performance audit- to produce reliable financial statements. ing or value-for-money (VFM) auditing. In finan- In compliance auditing, the auditor asks if the cial auditing, the auditor attests to, or verifies, the government collected or spent no more than the accuracy and fairness of presentation of financial authorized amount of money and for the purposes statements. Attest audits result in opinions that in- intended by the government. The audit team re- dicate whether reliance can be placed on a views transactions to see if the government depart- government's financial statements. Auditors plan ment or agency conformed to all laws and regula- and perform attest audits using their knowledge of tions that govern its operations. This includes accounting and auditing, and of the government checking the spending authority contained in the organizations being audited. As part of these au- annual budget and relevant legislation. dits, they gather evidence, on a test basis, to sup- In performance auditing or VFM auditing, thLe port the amounts and disclosures in the financial auditor asks whether or not taxpayers got value for statements. Audit procedures might include com- their tax dollars. Often the audit team works closely paring the results of operations with planned re- with an advisory committee of experts who offer sults, checking the reliability of an organization's advice and review audit results. Performance au- financial control systems and checking samples of diting seeks to ensure that administrative proce- transactions and balances. dures adhere to sound management policies, prin- Ultimately the financial auditor adds cred- ciples and practices. Also, it looks to see that the ibility to financial statements prepared by an or- best use is made of human, financial and other re- ganization by providing an unqualified audit sources including procedures, information systems opinion on the financial statements. Where the and performance measures and monitoring ar- auditor cannot express an unqualified opinion, rangements used by audited organizations and that he/she will provide additional useful informa- the organization's performance helps achieve its tion to the reader of the financial statements institutional objectives. Performance audits encour- explaining his/her reservations. Auditors will age governments to improve the way they manage qualify or deny opinions if financial statements public funds. They will focus on matters of due are materially misstated, accounting principles regard to the "3 E's" and will also address the pro- 16 Dye and Stapenhurst tection of assets. This type of auditing has much more effect on democracy than any other approach to verification. Financial, compliance and performance audits combine to form an audit framework ("compre- hensive auditing") that, over time, provides a com- plete view of an organization. Audits that promote an honest, accountable and productive government can be described as constructive audits; they en- courage government to manage for results and be concerned about managing revenues and expendi- tures in an effective manner. These audits ask the right questions about what was accomplished and whether there was success or failure, and if there was a concern for economy and efficiency. The most effective audits demonstrate the transparency of government programs and reveal important les- sons to be learned. ? Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption 17 Annex B: Historical Background A uditing has been an important part of pub- dicators for economy, efficiency and effectiveness lic administration for a long time-going (sometimes referred to as the "3 E's") were explored back to early centuries in Egypt, China and developed. These efforts improved the audit and Korea. Early emperors and pharaohs wanted reporting about government operations, most no- to know if their assets were being protected, so au- tably in Canada, Sweden, the United Kingdom, ditors were sent out to ensure that rice was stored and the United States. Now performance auditing as reported and that taxes were being collected is widespread in Europe, North America, Austra- properly. In 18th century Europe, audit systems lia and New Zealand, and is emerging in Asia and were developed that focused very much on com- South Africa. ? pliance with rules and regulations decreed by vari- ous rulers. In the Anglo Saxon tradition, the no- tion of compliance with laws was extended to auditing financial accounts and giving opinions on the fairness of account presentations. In the latter part of the 20th century, the notion of auditing performance and operations emerged and became an important part of the audit process. In the 1960s and 1970s, parliamentarians were looking for reliable data to assure parliament that executive government was accountable for its pro- grams and taxpayers were calling for a more effi- cient and less expensive government. As a result, industrialized country SAIs made considerable progress in developing and experimenting with performance auditing methods and techniques. Criteria for measuring government performance were established, methodological approaches were invented and applied and performance indicators were developed. Concepts of significance and in- 18 Dye and Stapenhurst Pillars ofaIntegrity: The Importance of Supreme Audit Institutions in Curbing Corruption 19 Annex C: SAMs and Performance Auditing T raditionally, most SAIs have exercised their Approaches to performance auditing have function through audits that concentrated evolved in response to economic and political pres- on whether government expenditures and sures. An early approach was to audit all the main operations complied with various laws and regula- systems used by a government organization. The tions. However, in recent years a number of SAIs theory behind this top-down, process-oriented have been directing their audits to the economy approach was that if systems were complete and and effectiveness of government operations, i.e. per- met good management standards, then it followed formance auditing or VFM auditing to provide in- that processes and activities would inevitably lead formation about the operations of an entity or of a to good performance. However, this approach was program or project. time-consuming and expensive, and such audits For auditing to be valued by bureaucrats in were often unwieldy to review and difficult to un- government, it is necessary for auditing to add derstand. value to their functions. Performance auditing A more modern approach is to audit projects seems to add more value to the stock of knowl- or groups of projects. Smaller audits have fewer edge about government operations than do fi- criteria to meet, although they also can focus on. nancial audit opinions which give assurance processes. The reports are more useful because they about the credibility of financial statements. focus on a few topics, and their finds and recom- Compliance audits, while useful for ensuring mendations are understandable and practical. And, cbmpliance with law or casting blame, do not since the audits of projects are smaller and easier add as much value as performance audits. For a to manage, costs are lower and reports are shorter modern SAI to fulfill its role, performance au- and more frequent. Another modern approach to diting should be an important mandate feature performance auditing is to audit a function across (and there should be sufficient budget and train- a number of departments of government. Audits ing to perform such audits as well). In tiny of personnel practices, cash management, travel, Bhutan, for example, the Royal Audit Author- and procurement lend themselves to this cross-cut- ity is mandated to conduct comprehensive au- ting approach. dit, financial and compliance audits, perfor- Performance auditing has always emphasized mance audits and/or any form of audit as it may the need to better define government and prograrn deem proper. objectives. As governments become more accus- 20 Dye and Stapenhurst tomed to and increase their use of performance Box A: CCAF-FCV auditing, program objectives and performance stan- EffectivenessC I Attributes of dards and targets will become more clearly stated, *management direction, greatly improving the relevance and efficiency of *relevance, auditing. Better definitions of expected financial * appropriateness, performance, quality of service, efficiency, output, a achievement of intended results, outcome and impact will significantly improve the * acceptance, base of auditable evidence, thereby vastly expand- * secondary impacts, ing the range of auditable activities. Performance a costs and productivity, auditing will also become more efficient as com- * responsiveness, puterized audit procedures take hold. * financial results, * working environment, While computers have been used for many worotetiono et, years for administrative and word processing ac- pronitorng and repting tivities, SAIs have changed their methods of audit- _monitoring_and_reporting. ing computerized agencies by employing Com- puter-Assisted Auditing Techniques (CAATs). a self-assessment of the organization's performance. These computer systems allow the auditor to down- And the auditor assesses how complete and rea- load information from government systems and sonable each assertion is, thereby producing a self- audit off-line or audit in real time. The Canadian assessment of the organization's performance. SAI invented Interactive Data Extraction and This approach has not yet gained widespread Analysis software (IDEA), which is used in many acceptance by many public institutions or private SAIs for auditing compliance, financial statements enterprises. The main obstacle is convincing man- as well as performance. agers that they can offer honest and realistic asser- Performance auditing will continue to evolve tions without risking their careers or exposing their as SAls gain more experience. However, most cur- organization to legal liabilities. With some experi- rent mandates limit the scope of performance au- mentation, this more efficient approach to perfor- diting by not allowing comment on government mance auditing may prove its worth. policy, only on the implementation of policy. SAIs Another recent trend has been to shift the fo- of Germany and Vietnam are exceptions as they cus of audits from processes to results. As with au- are allowed to comment on government budgets. dits oriented to examining processes, the audit cri- Some countries may allow their audit institutions teria for auditing results are developed beforehand to expand their mandates and evaluate programs to ensure that audit findings concentrate on the and policies, as in the United States. three E's of operational outputs, usually at the A new approach to performance auditing, project or program level. This approach abandons similar to that used in financial statement audit- a long-held regard for processes and systems, and ing, is being promoted by Canada's CCAF-FCVI, gets to the point of the exercise: did the activity previously known as the Canadian Comprehen- achieve the intended result? sive Auditing Foundation. This new approach has Results-oriented auditing has sharpened the fo- been described as Management Assertions on At- cus of performance auditing, and reduced the need tributes of Effectiveness (see Box 7). In this model, for field work and lengthy reporting procedures. management makes assertions on up to 12 funda- Choosing audit topics that affect the entire mental effectiveness attributes thereby producing society or a broad cross section of society is yet Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption 21 another recent trend in some industrialized coun- tries. With performance audit reports, politicians can respond quickly to current events and concerns. In Sweden, for example, priority is given to areas where an external, independent, and impartial au- dit is expected to help improve efficiency and ef- fectiveness of government operations. Also, as health care costs rise around the world, govern- ments may well use their SAIs for health care au- diting. Similarly, environmental auditing may be- come more commonplace. s 22 Pillars of Integrity: The Importance of Supreme Audit Institutions in Curbing Corruption 23 References and Bibliography Accountability, December 1996. ComprehensiveAudit-A Practitioner's Guide. Accountability, June 1997. .1987. ReportingandAuditingEffec- Canada. Office of the Auditor General. Septem- tiveness in the Public Sector (Full Report) ber 30, 1994. Response to the Study Group Sur- . 1987. Reporting andAuditingEffec- vey Questions: Significance in Value-for-Money tiveness in the Public Sector (Summary Report). 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Legislatures and Performance Auditing, Symposium of the OECD on Performance Auditing and Perfor- mance Improvement held in Paris. 26 Dye and Stapenhurst The mission of WBI is to help World Bank clients and staff acquire new development knowledge and skills through a variety of courses. seminars, and other learning events. it designs programs oin topics related to econornic and social development for governments, nongovernmental organiza- tions, and other stakeholders. The institute produces and dis- seminates publications and electronic information products that support these obiectives. For information on v/BI pubiications write to: Publications WB! The World Bank 1818 H Street, N.W. Washington. D.C. 20433 Tel: (202) 473-6349 Fax: (202) 522-1492 Vlisit us on the World Wide VWeb at: http://www.woridbank.org/wbi