Kosmo, J. 2012. Strengthening the Capacity of Supreme Audit Institutions. GREAT Insights, Volume 1, Issue 3. May 2012. Maastricht: ECDPM
Supreme Audit Institutions (SAIs) constitute a key component of accountability and the separation of powers between the executive, legislative and judiciary. Independent, well resourced, multidisciplinary SAIs are uniquely positioned to provide objective assessments of the legality and economy, efficiency and effectiveness of a country’s public expenditure and revenue, and serve as drivers of reform in domestic resource mobilization and better public expenditure.
Effective public sector auditing matters for three reasons. For one, It is a key component of public financial management (PFM). Weak government audit means that systemic problems in the collection and spending of public funds, and the use of public assets, may go unnoticed. Strong government audit can be a catalyst to continual improvement in PFM, strengthening government performance and service delivery, as well as reducing opportunities for corruption.
Secondly, public sector auditing strengthens state-society relations. Effective SAIs with the necessary independence from the executive are uniquely placed to contribute to building strong state-society relations. Where they are recognized by non-state actors as being independent and are able to undertake and report transparently to society on the collection and utilization of public funds, they enhance the legitimacy of the state and strengthen accountability between state and society. Their work also supports the core functions of the state: those basic building blocks which all states need to function effectively. For example, state revenue collection, management of natural resource revenues, legality of the use of public funds, and strengthening financial controls to reduce corruption.
And finally, it contributes to managing donors’ fiduciary and development effectiveness risk. When development funds are channeled through partner government systems, donors rely on government audit to ensure funds are used for the purposes intended and achieve expected results.
Working together to strengthen Supreme Audit Institutions
While evidence suggests there has been a small improvement in SAIs’ performance since Paris and Accra declarations on aid effectiveness, change is slow and progress uneven. Public Expenditure and Financial Accountability (PEFA) reports show that public sector auditing in developing countries needs strengthening, and often constitutes one of the weakest components of PFM. A 2010 Stocktaking of the SAI community showed that for one in six countries, the SAI audits less than 10% of public expenditure annually. Further, only a limited number of SAIs in developing countries have the resources and skills to carry out performance auditing.
Recognizing the need to strengthen SAIs in many countries, two unique global partnerships exist to support SAIs in their capacity development endeavours.
The International Organization of Supreme Audit Institutions (INTOSAI) was established in 1953, and constitutes a unique peer partnership of 190 SAIs built around accepted global norms and a collegiate approach to achieving mutual goals. INTOSAI promotes the strengthening of SAIs globally, enabling them to help their governments improve performance, enhance transparency and accountability, fight corruption, and improve the use of public funds. SAIs work together to agree on global standards, develop global public goods, strengthen capacity development, create peer pressure for reform and foster knowledge sharing. The INTOSAI Capacity Building Committee, eight regional bodies and the INTOSAI Development Initiative (IDI) work with SAIs to build institutional, professional and organizational capacity. This includes practical and on the job assistance utilizing peer-peer, south-south and triangular cooperation. Stronger SAIs help the weaker: the 2010 SAI stocktaking demonstrated that 48 SAIs provide support to their peers. Similarly, SAIs in developing countries identified a clear added value from receiving support from peers.
The donor community shares many of INTOSAI’s goals. Recognizing this, INTOSAI and 16 development agencies(1) have established the INTOSAI-Donor Cooperation. This provides a strategic focus in supporting capacity development of SAIs in developing countries. It puts country leadership and priorities at the heart of support, and challenges SAIs to identify needs, manage capacity, development resources, and demonstrate delivery of results.
Unlocking the potential of SAIs for more effective public expenditure and resource mobilization
Most SAIs have the mandate to undertake audits of both public sector expenditure and revenue through financial, compliance and performance auditing. SAIs can play a key role in enhancing the effectiveness of government expenditure and revenue by providing parliament and the public with independent assessments on the collection and use of public funds. While the emphasis of SAIs has traditionally been on the audit of expenditure, SAIs are increasingly involved in strengthening domestic resource mobilization through the audit of taxation, profit from state enterprises and revenue from extractive industries. There are currently several planned initiatives to strengthen the role of SAIs in domestic resource mobilization, such as a capacity development programme on the audit of the petroleum sector run by the Office of the Auditor General of Norway; the development of guidelines on revenue audits (focusing on extractive industries) being developed by the African Organization of English Speaking SAIs; and work under the auspices of the INTOSAI-Donor Cooperation on SAI involvement in the audit of revenue from extractive industries.
Recognizing that SAIs have the potential to play a more significant role in enhancing public revenue and expenditure, it is pivotal that the SAI community, donors, civil society and others work together to scale up support to SAIs in developing countries and ensure support is provided more effectively. INTOSAI and its membership, working in partnership with the donor community, have identified a number of lessons to ensure better and more sustainable results from efforts to strengthen SAIs. These include:
1) SAI leadership of reforms: Capacity development support must be based on the needs of the SAI, and SAI-owned and led, rather than focusing on reducing donors’ fiduciary risks. This is the only way of ensuring ownership and sustainable and effective reforms. Interventions should be rooted in SAI-owned needs assessments and Strategic and Development Action Plans.
2) Long term engagement: Strengthening SAIs takes time. It requires building cooperation, trust and mutual understanding between partners. Previously there has been too much focus on short term, isolated initiatives and stop-go reform. SAI capacity development has been most effective when built on long term partnerships. For instance the successful development of the SAI of Zambia has taken place through a partnership with the Office of the Auditor General of Norway and Norwegian Embassy in Zambia ongoing since 1998. This illustrates that it may take up to 10 years to see sustainable impact from capacity development.
3) Peer support: Development partners should recognize the added value of peer support as a component of SAI capacity development. SAIs have a unique institutional knowledge and experience of reporting to parliaments, and of measures needed to maintain a reputation and standing as an independent accountability organization. Peer support is the preferred modality of the SAI community and can be used to harness the benefits of triangular and south-south cooperation.
4) Ensuring credible SAIs through SAI independence. Promote strengthening of SAI independence from the Executive in line with the recent landmark UN General Assembly resolution which calls on all member countries to implement the Lima and Mexico Declarations on SAI Independence.
5) Working with SAI stakeholders: For SAIs to have more impact, they need to strengthen their capacity to engage and work with external stakeholders. It is also necessary to develop the capacity of Parliamentarians, Civil Society Organizations and donor staff to understand SAI reports and use them effectively.
6) Support for strengthening the SAI’s operating environment: “Strengthening SAIs is not just a matter of money and technical advice on the auditing standards. While we need SAIs to be well resourced, we also have to help build an environment which promotes accountability through transparency and public participation”. These foundational factors are largely outside the SAI’s control, though in the long term SAIs may be able to influence them. Prospects for improvement in the SAIs operating environment are also bounded by political-economy factors. This is where support from domestic parliaments, civil society, the donor community and other stakeholders is most needed: to create coalitions to advocate for change when windows of opportunity arise. Programs and donors should be able to respond flexibly to take advantage of political-economy changes which provide opportunities to strengthen the environment in which an SAI operates.
7) Good practices and guidance on SAI capacity development: Recognizing the accumulation of dispersed knowledge on SAI capacity development, INTOSAI and the donor community have begun documenting good practices and developing guidance on capacity development of SAIs. A guide on good practices in working with SAIs was recently published under the auspices of the OECD DAC Taskforce on Public Financial Management.(2) The INTOSAI-Donor Cooperation will also develop, in partnership with Train4Dev,(3) a training course on working with SAIs, targeted to the donor community.
8) Country systems and SAI credibility: Donors should continue to support the country systems agenda and avoid establishing parallel structures that could undermine national institutions. For example, in one country in sub-Saharan Africa donors assessed the SAI and found it to be too weak to use for auditing donor projects. Parallel structures for auditing donor projects were established, rather than supporting efforts to strengthen the SAI. This had an unintended consequence that the perception of a weak SAI was used by the executive to dismiss the findings of the SAI’s audit reports as not being credible, thus undermining an already weak accountability structure in that country. This highlights the importance of working with country systems and accountability institutions, to enhance their capability and credibility.
9) Stronger focus on results: Recognizing there was a limited evidence base on SAI performance, work is ongoing to develop an evidence base and measure results of SAI capacity development. The 2010 stocktaking report ‘Capacity Development of Supreme Audit Institutions: Status, Needs and Good Practices’ painted the first ever global picture of the state of external government audit, covering 183 SAIs. Work is ongoing within INTOSAI to develop a global SAI Performance Measurement Framework, helping SAIs to apply performance management approaches to their capacity development. This will also enable tracking of changes in SAI performance over time.
Mr. Jørgen Kosmo is Auditor General of Norway and Chairman of the Board of the INTOSAI Development Initiative (IDI).
This article was published in GREAT Insights Volume 1, Issue 3 (May 2012)
1. INTOSAI, African Development Bank, Austria, Belgium, Canada, European Commission, Inter American Development Bank, IMF, Ireland, Islamic Development Bank, Netherlands, Norway, Sweden, Switzerland, UK, USA, World Bank.
3. Train4dev is a Joint Donors Competence Development Network