SUPREME AUDIT INSTITUTIONS
By Jack Titsworth and Rick Stapenhurst,
with input fom Bill Dorotinsky, David
Shand, Anand Rajaram.
Supreme Audit Institutions (SAIs) are
national agencies responsible for
auditing government income and
expenditures.
Their legal mandate,
reporting relationships, and effectiveness
vary in accordance with nation-state
concepts and current government
policies.
Their primary purpose,
however, is to act as watchdogs over the
management of public funds as well as
the quality and credibility of reported
government financial information. In
many countries the SAI audits all public
sector organisations. Other countries
have established a separate, specialised
organisation to audit government
business
enterprises
and
other
autonomous or politically sensitive
public organisations.
SAIs' role in curbing corruption is
increasingly relevant. Audits are potent
deterrents to waste and abuse of public
funds. They help reinforce the legal,
financial, and institutional framework
which, when weak, allows corruption to
flourish, and they establish a predictable
framework of government behaviour by
reducing arbitrariness in the application
of rules and laws.
As the Bank seeks to improve the
capacity of such institutions as SAIs,
parliaments, the media and civil society
that were formerly outside its primary
areas of intervention, it has increased its
support for strengthening SAIs. In the
past, Bank and donor projects often
established parallel auditing systems,
bypassing the role and legitimacy of
developing-country SAIs on whose work
they could not always rely. Equally
problematic, have been projects that
encouraged a performance audit
approach but ignored fundamental
institutional weaknesses in the financial
management systems.
The purpose of this note then is to help
staff appreciate the role and nature of
SAIs, particularly in the context of
public expenditure management and
financial accountability diagnostics, and
with
respect
to
reviews
and
recommendations concerning public
sector institutions.
Different Models of SAI
All SAIs reflect the concept of their host
state, but the current note will focus
mainly on the three basic auditing
models that one finds in most developing
countries:
the
Napoleonic,
the
Westminster, and the Board systems.
In the Napoleonic or Cours des Comptes
model, the SAI has both judicial and
administrative authority; it is an integral
part of the judiciary, makes legal
judgements on compliance with laws
and regulations, and exercises a budget
control function to assure that public
funds are well used. The French the
Cours des Comptes is independent of
both the legislative and executive
branches of government. It audits the
accounts of every government body
(departments, ministries, and agencies;
commercial and industrial entities under
the purview of ministries; and social
security bodies).
Its jurisdiction is
derived from primary legislation. The
Latin countries of Europe, Turkey and
most South American and Francophone
African countries use this model.
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In the Westminster system, which is
employed in many Commonwealth
countries, the Office of the Auditor
General (AG) is an independent body
that reports to Parliament. This office,
comprised of professional auditors,
submits periodic reports to Parliament
on the financial statements and
operations of government entities but
with less emphasis on legal compliance.
These auditors are not civil servants
although their terms and conditions of
employment are normally similar to civil
service peers.
AGs usually report
annually to Parliament although in
Australia, Canada, New Zealand the
United Kingdom and some other
countries reporting is more frequent. In
contrast to the Cours, the AG has no
judicial function but, when warranted,
his findings may be passed to legal
authorities for further action.
The Board model, prevalent in Asia, is
similar to the Westminster model as it
helps Parliament exercise its oversight
role. Indonesia, Japan, and Korea, for
example, have a Board system composed
of an Audit Commission, the decisionmaking body, and the General Executive
Bureau, which is the executive organ.
The President of the Board is the de
facto Auditor General. The Board of
Audit is a constitutional organisation
independent of the executive.
Its
primary mandate is to analyse the
expenditures and revenues of the state
and report its findings to Parliament.
South Africa's “hybrid” SAI could be
considered a fourth model. The Audit
Commission establishes the Office of the
Auditor General outside the civil service
as an independent body. The President
appoints the Commissioners as well as
the General Auditor, but they are not
responsible to the Executive. They
report annually to Parliament. South
Africa is the only African country that
has a truly independent SAI that satisfies
all the efficiency and effectiveness
criteria (see below). In many other
African countries, SAIs rely on the
Ministry of Finance for their operating
budgets and report to the President or the
Prime Minister rather than to Parliament.
Types of Audits
There are three basic types of audit:
attest or financial auditing, compliance
auditing, and performance or value-formoney auditing. In financial auditing,
the auditor attests to the accuracy and
fairness of an organisation's financial
statements. Normally these statements
are backed by evidence to support the
amounts disclosed.
In compliance auditing, the auditor
verifies that government income and
expenditures have been authorised and
utilised
for
approved
purposes.
Transactions are reviewed to determine
if the government department or agency
has conformed to all pertinent laws and
regulations. This includes checking the
spending authority in the annual budget
and any relevant legislation.
Performance or VFM auditing confirms
whether taxpayers receive value for their
tax revenues. The audit team works
closely with subject-matter experts who
offer advice and review audit results.
The performance-auditing mandate
varies among SAIs. Sometimes it is
confined to reviewing operational
efficiency or the extent to which there
has been due economy in the use of
resources; in other cases it extends to
reviewing
the
effectiveness
of
government programmes in achieving
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their objectives. Further, some SAIs
audit the accuracy and reliability of
performance indicators contained in
annual reports and other documents.
Financial, compliance, and performance
audits combine to form an audit
framework (“comprehensive auditing”)
that, over time, provides a complete
view of an organisation or a function.
Audits that promote honest, accountable
and productive government can be
described as constructive audits; they
encourage government to manage
revenue and expenditures for effective
results. These audits ask the right
questions
about
accomplishments,
failure, and economic efficiency. The
most effective audits contribute to the
transparency
of
government
programmes.
Audits and the Budget Cycle
Audits play a key role in implementing
the so-called budget cycle. The budget
sets out the government's fiscal policies-revenues,
expenditures
and
the
economic policies on which these are
based. As a public document, it requires
public disclosure, evaluation, and
auditing. Here SAIs play a key role. On
the basis of the report issued by the AG
or the Court, a public accounting is
issued describing how the budget has
been implemented and managed.
Role of Parliament
In the Westminster Parliamentary
system, the relationship between
Parliament and its SAI is a core element
of Parliament's oversight function.
Effective oversight requires public
scrutiny of expenditures and revenues.
Since few MPs have the skills to
undertake this function, Parliaments
typically rely on SAIs to audit public
accounts.
The multi-party Public
Accounts
Committee
(PAC)
(traditionally chaired in some countries
by an opposition member) usually
reviews OAG reports. In the United
Kingdom when Parliament is in session,
the Auditor General personally attends
the nearly weekly hearings where the
AG and his staff present and comment
on their findings. The PAC considers
the testimony of witnesses from
government departments and agencies
and sends its reports to the full
Parliament for comment and action.
Frequently, there are recommendations
or instructions requiring follow-up
action by both the Auditor General and
government accounting officers.
In the Board system, the Auditing Board
prepares and sends an annual report to
the Cabinet that is submitted to the Diet
(parliament) with the final accounts of
State revenues and expenditures. Board
staff attend all the deliberations on fiscal
accounts and are expected to explain the
Board’s opinion. The Audit Report, a
public document, is required by
Parliament for it to consider the
country’s public accounts.
In Cours des Comptes-style SAIs,
Parliaments do not automatically receive
the SAI reports, although they may
receive a report on the work of the court.
There are, however, four possible forms
of collaboration between the Cours and
the Parliament:

The president of the Cours des
Comptes may, at his discretion, pass the
Cours’ findings to Parliament's Finance
Committee.

A Parliamentary Committee may
ask the Court to conduct a specific
management audit.

The Cours' Annual Report,
presented to Parliament and submitted to
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the President of the Republic, addresses
the legal concordance between the
general accounts of the Finance
Department and the Treasury.

In a separate document, the
Cours prepares an annual report for
Parliament on how the resources made
available by the previous year’s Finance
Act have been used.
Conditions for Success of an SAI
Several factors have been identified as
pre-requisites to SAIs' success:
Conducive Environment
SAIs do not stand alone--they function
within a wider cultural and institutional
setting. SAIs are only effective to the
extent they are permitted to conduct their
work and the degree to which their
reports are utilised within the
accountability cycle. In many countries
the public accounts themselves are
poorly maintained so SAIs do not have
access to the right records, Parliament is
only an echo chamber, and the Finance
Ministry does not follow through on
their reports to ensure that audit queries
or observations are addressed. Flagrant
abuses identified by the SAI are often
not prosecuted, and, in some cases, their
work has been blocked or sabotaged.
Clear Mandates
Auditing mandates should be anchored
in a set of rules and boundaries ratified
by Parliament.
Failure to establish
legislative auditing requirements leaves
SAIs vulnerable to criticism about their
mandates. Before drafting legislation,
SAIs and governments must define
auditing per se by determining the
auditors'
independence,
reporting
responsibilities, the scope of audits, and
the entities to be audited--elements
shaped by national legislation and
domestic conditions. In Westminster
Parliamentary systems, an audit also
ensures that the SAI addresses all the
issues Parliament wants scrutinised by
an independent body.
SAIs wishing better to define their
mandate could review the mandates of
other SAIs. Before legislation is drafted,
governments and SAIs need to define
auditing per se, establishing the
independence and setting out the
reporting responsibilities of auditors, the
scope of audits, and the entities to be
audited. This should be determined in
accordance with national legislation and
domestic conditions.
SAI Independence
Independence is a fundamental feature
of all advanced countries' SAIs.
Independence must be clearly enunciated
and the personal independence, based
upon appointment and secure tenure, of
the AG (sometimes a chair or president)
or Court of Audit members, has to be
clearly established in legislation and
acknowledged in tradition. The AG's
autonomy is essential, given the need to
report directly to Parliament without
interference from other government
branches. The SAI's and its leader's
independence are the hallmark of its
effectiveness. It must be completely
sovereign to determine what it audits and
how to conduct those audits. The SAI
leader also needs legal and traditional
status to ensure that senior government
bureaucrats will make information
available and respond appropriately to
recommendations. Independence can be
strengthened by setting out the role of
the AG in the constitution of the country
as India, Indonesia, Japan, Uganda and
Zambia have done.
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In the French model, for example, the
Cours des Comptes' autonomy is
guaranteed by its status as a Court, the
security of tenure of its magistrate
members, and by its right to design its
own programme of activities.
Another dimension of independence is
the freedom to determine the scope of
audits scope. Auditees should not have
any influence on the audit. Likewise,
the substance of the audit report should
be the sole decision of the SAI. While
discussion and negotiation are integral
parts of the process, it is the audit
office's responsibility to decide the
reports' final contents.
Adequate Funding, Means and Staff
SAIs
require
adequate
funding,
equipment and facilities.
In the
developing world where these are often
inadequate, there is some potential for
increased efficiencies, but it is unlikely
that these alone would generate
sufficient savings to provide competitive
salaries and modern technology.
Governments need to appreciate the
costs and the high rates of return of
audits, and undertake to provide
commensurate levels of funding.
SAI staff must be adequately paid and
trained.
Effective SAIs provide
competitive pay and benefits, and
subscribe to the principle of continuous
staff development. To ensure highquality work, they need well-qualified,
adequately remunerated staff who are
encouraged to improve continuously
especially their subject-matter expertise.
For example, auditors could enhance
their skills in fraud detection and
information technology through a
combination of training, education, and
experience.
The number of authorised personnel
should be determined independently
from government control; e.g., in the
Board model, the Board of Audit
controls the number of personnel in the
General Executive Bureau.
Although responsible for commenting on
the
economy,
efficiency,
and
effectiveness of government operations,
few SAIs engage in self-evaluations.
Most do not track resources that are
consumed by audits or overall operating
costs. Budgets are rarely produced for
performance
audit
projects
and
administration, or for training and
methodology development.
This is
especially true in developing countries.
To help maintain credibility, SAIs
should be managed in a manner such
that a performance audit of their own
operations would result in a favourable
report.
Sharing of Knowledge and Experience
International
exchange of ideas,
knowledge, and experience is an
effective means of raising the quality of
audits, harmonising standards, sharing
best practices and generally helping
SAIs to fulfil their mandates. To this
end, international congresses and
training seminars, regional and interregional conferences, and international
publications
have
promoted
the
evolution and development of the
auditing function. Increasingly, SAIs
need to liase closely with enforcement
officials of government agencies to
ensure that they share skills and insights
and become more adept at uncovering
corruption. Furthermore, it is of prime
importance to develop a uniform
terminology of government audits, based
on comparative law.
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Adherence to International Auditing
Standards
The adherence by the SAI
to appropriate professional auditing
standards
(for
example,
those
promulgated by the International
Organisation
of
Supreme
Audit
Institutions (INTOSAI) or international
professional accountancy bodies) is an
important aspect of ensuring the quality
of audit work.
Limitations
SAIs have limitations, which differ
among countries because of distinct
constitutional, legal, political, social, and
economic systems, thus making it
impossible
to
suggest
universal
remedies. The major limitations are:

Impairments to independence.

A shortage of qualified and
sufficient personnel--a severe problem
for many SAIs whose staff cannot keep
pace with changing scope, techniques,
and complexities. The scope of audits
requires integrating various specialised
skills including those of engineers,
economists,
statisticians,
computer
experts, and lawyers. However, most
SAIs are staffed only with accountants
and thus lack insight into many audited
areas. Furthermore, most government
entities require computer auditing, but
capable professionals are often not
available; and low salaries and poor
terms of service result in high staff
turnover.

A lack of adequate monitoring
and follow-up of audit findings. If audit
queries or recommendations are not
followed up by Parliament and acted
upon by the Executive/Government,
control over public funds is less
effective.

Limiting
audits'
scope.
Restricted
audits
question
the
effectiveness of SAIs' interventions as
well as the motivations for their
existence. In some cases, SAIs cannot
audit enterprises if the State has only a
limited financial interest; in others, they
cannot conduct external control over
international organisations.
Role of SAIs in Curbing Corruption
The XVI INTOSAI Uruguay (1998)
Congress emphasised that SAIs’
contributions to improved transparency
and accountability limit opportunities for
corruption. Although prevention is not
an explicit SAI responsibility, audits
may detect fraud and abuse. SAIs
generally agree that fostering strong
financial management, based on reliable
reporting and internal control systems,
represents a critical element in their role
to prevent and detect corruption by
promoting
transparency
and
accountability
in
government
programmes and actions.
Further Readings
- INTOSAI. 1977. Lima Declaration of
Guidelines on Auditing Precepts. The
IX Congress of INTOSAI, Lima, Peru.
- Mbanefo, Uche. 1998. Strengthening
African Supreme Audit Institutions. A
Strategy Paper and Action Plan. The
World Bank.
- Sahgal, Vinod. 1998. Strengthening
Legislative Audit Institutions: a Catalyst
to Enhance Governance and Combat
Corruption.
Office of the Auditor
General of Canada.
- Dye, Kenneth and Rick Stapenhurst,
Pillars of Integrity.
Importance of
Supreme Audit Institutions in Curbing
Corruption. WBI, 1998
- World Bank.
1991.
Managing
Development:
the
Governance
Dimension.
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This note, written by Rick Stapenhurst
(Senior Public Sector Management
Specialist, World Bank Institute) and
Jack Titsworth (Consultant, World
Bank) draws upon and substantially
extends the analysis contained in
"Pillars of Integrity, The Importance of
Supreme Audit Institutions in Curbing
Corruption," cited above. The note
incorporates a substantial contribution
from
David
Shand,
Financial
Management Board, and several other
commentators from both inside and
outside of the World Bank. The authors
are very grateful to Lisa Borgatti for the
research she carried out for this note.
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