Review of the work performed by the Task Force Global Financial Crisis and its impact on a theme paper proposed by Canada Richard Domingue SAI – Canada June 2011

Financial and Economic Turmoil 2007 financial and economic crisis impacted the fiscal accounts of virtually every country. Emerging economies and developed economies were affected  Revenues declined  Spending increased as well as discretionary stimulus measures to support aggregate demand 2

Financial and Economic Turmoil (cont’d) Many developed economies supported the financial sector directly  Operations affected government assets and liabilities (with potential impact on contingent liabilities)  Impact on borrowing needs as financial needs increased  Impact on borrowing strategies and operations Financial turmoil created challenges for debt managers What is the role of SAIs during and after a financial and economic turmoil ? 3

Theme Paper proposed by SAI Canada SAI Brazil on behalf of the SAI Canada presented in 2010 an outline entitled Government Support during Financial Crisis: Impacts on Public Debt and Potential Roles for SAIs 4

Theme Paper proposed by SAI Canada (cont’d) Proposed research agenda included the following issues and potential roles for SAIs: 1. Auditing government intervention to support financial system/institutions  SAI could examine the impact of grants, equity purchases, loans, guarantees, central bank operations.. on government balances and how they should be accounted 2. Auditing the adequacy of the regulatory regime  SAI might want to examine the robustness/completeness of the regulatory/supervisory framework  Adherence to best practices and guidelines  Role of SAIs in improving the framework. 5

Theme Paper proposed by SAI Canada (cont’d) 3. Auditing Economic Stimulus Plans  SAI could look at the decision-making process program, design, accountability, results, compliance,, timely delivery, exit strategies… 4. Auditing Debt management practices during/after turmoil  SAIs might want to examine how debt managers adjusted to sudden increase in financial requirements, emerging risks, changing market conditions… 6

Risks of overlap with the TFGFC ? While SAI Canada proposed to work on this theme, the Task Force on Global Financial Crisis (TFGFC) was also working on related issues. Risk of overlap. SAI Canada and SAI Brazil recommended in 2010 to the WGPD Secretariat that the theme paper be reconsidered to take into account the risk of potential duplication between the WGPD and the TFGFC – “ a wait and see approach”. TFGFC completed part of its important work. 7

TFGFC / subgroups: initial observations on the role of SAIs and lessons for SAIs Sub-group 1: Causes of the Financial Crisis and Implications for SAIs Focused on the causes of the financial crisis, lessons learned, and actions to minimize future crises. Role of SAIs:  Audit the sustainability of public finances  Audit governments’ implicit guarantees  Promote accountability for financial stability, adequacy of regulation/supervision  International coordination and cooperation  Transparent and reliable financial reporting 8

TFGFC / subgroups: initial observations on the role of SAIs and lessons for SAIs (cont’d) Sub-group 2a: Actions taken in response to the financial crisis Role of SAIs:  Performance audits of financial regulatory/supervisory agencies  Reviews of risks analyses and of contingency plans  Requires qualified resources/staff and increased resources to fulfill responsibilities  Authority to ensure oversight and accountability  Augment competencies of SAI  Ensure integrity of reported information and timeline 9

TFGFC / subgroups: initial observations on the role of SAIs and lessons for SAIs (cont’d) Sub-Group 2b: Stimulus measures: effects on the real economy, process for implementing spending and measures Sub-group 3: Challenges to SAIs Mandate of SAIs, audit tools, human resources implications, approaches that SAIs could take to communicate on developments in major financial markets, institutions and the broader economy. TFGFC Status Report to XX INCOSAI Role of SAIs:  Promote sound public finances  Improve efforts and use of early warning of financial risks  Review quality of statistical data  Oversee use of funds from IFI (such as IMF)  Oversee implementation of new international regulatory standards 10

Overlap between WGPD vs TFGFC The following areas have already been covered by the TFGFC.  causes of the crisis and lessons learned  actions taken to avert/minimize financial crisis  challenges financial crises present to SAIs. Hence it is suggested that while the following issues described in SAI Canada outline should not be considered by the WGPD to avoid overlap with the TFGFC:  Government support to stabilize the financial sector and role of SAIs (sub-groups 1, 2a)  Auditing and reporting government intervention to support financial system (sub-groups 1, 2a) Example of interventions in selected jurisdiction (sub- group 1)  Adequacy of the regulatory regime (subgroups 1, 2a)  Auditing Economic Stimulus Plans and support to stabilize economy (subgroup 2b) Description of stimulus measures (sub-group 2b) 11

Revised proposal by SAI Canada: “Debt Management and Financial Stability: Potential Roles for SAIs”  The WGPD will focus on the relationship between debt management practices and financial stability Proposed outline: 1. Brief overview of the financial / economic turmoil 2. Discussion on the fiscal expansion that followed and its impact on public debt 3. Debt Management, Financial Stability and Potential Roles for SAIs 12

Revised proposal by SAI- Canada Questions ? 13