1. INTRODUCTION TO PUBLIC FINANCE MANAGEMENT Module 5.1 - External Scrutiny and Oversight 1

2. 2.2 & 2.3 Planning and budgeting 3.1 The Budget Execution Cycle 5.2 Decentralisation 1.1 Introduction 2.1 Macroeconomics of the Budget 4.1 Revenue Administration 3.2 Payroll, Procurement & IT 1.3 Budget Classification 4.3 Accounting & Reporting 4.2 Treasury Management 1.2 The Budget 5.3 Assessing & Recapitulation 3.3 Internal Control & Audit 5.1 External Scrutiny & Oversight Module map 2

3. Introduction to various kinds of audit (financial, performance, etc.) External audit function and legislature Importance of independence of Auditor General Role of the Public Accounts Committee and legislature MODULE OUTLINE 3

4. Introduction to various kinds of audit (financial, performance, etc.) External audit function and legislature Importance of independence of Auditor General Role of the Public Accounts Committee and legislature MODULE OUTLINE 4

5. Assurance to Parliament (and/or President) on: regularity and probity of financial transactions soundness of internal financial controls. Independent and objective review of financial transactions and financial reporting Certify the annual financial statements May provide view on efficiency, performance or value for money What is External Audit? 5

6. Accountability cycle 6 Audit of budget implementation

7. Audit & oversight process 7 Treasury responds to PAC recommendations Budget implemented & managed Audit undertaken Draft report to agency & final to Parliament PAC submits findings to full Parliament Action taken These may be the weak links or Finance Committee

8. Anti-corruption commission training advice on internal controls investigation and prosecution Inspector general of government ombudsman - complaints Other review agencies 8

9. Introduction to various kinds of audit (financial, performance, etc.) External audit function and legislature Importance of independence of Auditor General Role of the Public Accounts Committee and legislature MODULE OUTLINE 9

10. Review transactions (all?) to ensure that: the annual budget has been followed Financial Regulations have been complied with adequate records have been maintained Improving the approach: Audit sampling? Problems found – solutions provided? What Do External Auditors Do? 10

11. Two aspects of public sector audit of equal importance: Traditional audit of legality and regularity of financial affairs is undisputed Audit of performance, effectiveness, economy and efficiency of public administration Up to each Auditor-General to determine their relative importance LIMA declaration of INTOSAI (1977) 11

12. Auditing Standards (1992 and Code of Ethics - 1998) produced by INTOSAI 2002 - INTOSAI Auditing Standards Committee to develop financial audit guidelines Practice Notes on the application of private sector International Standards on Auditing or separate guidelines International Audit Standards 12

13. Pressure to undertake performance work, but different skills are required An approach which requires careful planning and a gradual build up of skills. Priority is good probity, compliance and sound internal financial control Problems with VFM audit 13

14. Independence from the executive Audit completed within 12 months of year end Annual audit report promptly made public Auditor-General responsible for the whole of the public sector Public Accounts Committee helps to ensure accountability & implementation of audit recommendations Challenges for public sector audit 14

15. Introduction to various kinds of audit (financial, performance, etc.) External audit function and legislature Importance of independence of Auditor General Role of the Public Accounts Committee and legislature MODULE OUTLINE 15

16. The existence of an appropriate and effective constitutional/statutory/legal framework and of de facto application provisions of this framework The independence of SAI heads and members (of collegial institutions), including security of tenure and legal immunity in the normal discharge of their duties A sufficiently broad mandate and full discretion, in the discharge of SAI functions Unrestricted access to information Mexico Declaration (2007) - 1 16

17. The right and obligation to report on their work The freedom to decide the content and timing of audit reports and to publish and disseminate them The existence of effective follow-up mechanisms on SAI recommendations Financial and managerial/administrative autonomy and the availability of appropriate human, material, and monetary resources Mexico Declaration (2007) - 2 17

18. Autonomy in reporting – Developing Countries From INTOSAI survey carried out in 2000 reported in 2001 18

19. The power of the President to appoint or terminate the appointment of the Auditor General Dependence upon a budget controlled by the Executive Branch of Government Interference as to the design and implementation of audit work plans Limitations on what reported and how quickly What Undermines Auditor Independence? 19

20. Primary Accountability 20

21. Auditor General – reports to Parliament through a Public Accounts Committee (UK) Audit Court– discharge for public accountants (France) Audit Board – members of college headed by a president, consensus rather than individual opinions (Germany & Japan) State Inspector General – appointed and reports to the state president (French sub-Saharan Africa) Models of Supreme Audit Institution 21

22. Court of Accounts Move from Chamber of Accounts of the Supreme Court ies Wide scope but limited remit (accounts of Public Accountants & Budget Out-turn Report) General State Inspectorate – Supreme Audit Institution in some African states Francophone approach 22

23. Officers of the Legislature Wide scope and remit (Can examine any aspect except of execution of policy – but not policy itself) Reports directly to the legislature on Government and state activities Anglophone approach 23

24. Public accounts of all public institutions including: Accounts of any and all public corporations established by parliament & bodies receiving public funds Local governments Auditor General to have access to all documents, offices and staff necessary for audit work Scope of the Auditor General 24 the courts the Central Bank subsidies PPPs the security agencies foreign embassies

25. Audit opinions are typically classified as: Clean – OK Qualified – except for… - emphasis of matter - Adverse - not OK - Disclaimer – don’t know Certification of Public Accounts? 25

26. Traditional opinion: Subject to the observations contained in this report, the moneys expended were applied for the purposes for which they were appropriated by Parliament and the expenditure conformed to the authority that governed it Audit opinion - 1 26

27. ‘Modern’ opinion: In my opinion the financial statements provide a true and fair view of the state of the Government’s financial affairs on 31 December 201X and the transactions for the financial year then ending, subject to the observations contained in my audit report. Audit opinion - 2 27

28. Introduction to various kinds of audit (financial, performance, etc.) External audit function and legislature Importance of independence of Auditor General Role of the Public Accounts Committee and legislature MODULE OUTLINE 28

29. Audited financial statements and audit report to be submitted to parliament within 12 months KEY BENCHMARK FOR PFM Nine months (or before next budget passed to parliament) still challenging in some countries Audit report should be made public as soon as submitted to parliament Timeliness of Audit Reports 29

30. Audit work plans include follow up on previous audit findings Line Ministries provide evidence of follow up Sanctions are applied (by management) for failing to implement corrective measures Follow Up of Audit Reports 30

31. Frequently the SAI may do little more than send its annual report to parliament… there is commonly little communication about its contents, the lines of investigation to pursue or the means of following up the findings DfID (2005) Public Accounts Committee – or Finance Committee 31

32. Member of opposition chairs the PAC Members have appropriate skills & training Meetings are publicised and usually open PAC recommendations implemented Sanctions for defaulters are followed-up Commonwealth good practice 32

33. Timely review of audit reports Questioning of accounting officers where there are anomalies Follow up of recommendations made to the executive Public Accounts Committee – or Finance Committee 33

34. Effective audit is key to public financial management Auditor General may provide good independent view of a government’s finances Publication of accounts and Auditor General’s report within a year of period end is VITAL Independence & relationship with Public Accounts Committee (or Finance Committee) are key INTOSAI provides standards and capacity building KEY MESSAGES 34