INTOSAI Public Debt Working Group
Republic of the Fiji Islands Meeting
July 2008
Audits of
Public Debt & Public Assets
Jose Oyola, Ph.D., CPA
US Government Accountability Office
1
Topics in Presentation
• INCOSAI 2007 Recommendations
• Recent Trends in Public Debt & Public Assets
• Benefits & Challenges of Conducting Audits of
Assets Linked to Public Debt Management
• Conducting an Audit of Short-Term Investments:
Case of United States
• Next Steps by Working Group on Public Debt
2
INCOSAI 2007 Recommendations
on Public Debt
Within their legal framework, SAIs should perform their
audits to encourage:
FULL DISCLOSURE
• Ensure full disclosure of public debt and public assets
• Preparation of regular reports on
– the financial status of the public sector that compares public
assets with public debt
– trends of indebtedness and public assets
SOUND ACCOUNTING & AUDITING STANDARDS
• Development of standards for recording & evaluating public assets
and public debt
3
Recent Trends in Public Debt & Public Assets
Debt trends are diverging across countries
• Countries with Trade Surpluses
• Total debt is leveling or down
• Domestic debt is substituting foreign-held debt
• Countries with Trade Deficits
• Total debt is growing
• Foreign debt share is increasing
4
Recent Trends in Public Assets
Official Foreign Reserves
Official Foreign Reserves in Convertible
Currencies (USD billion)
$157
'00
'08
124
110
$105
57
44
$52
33
32
25
33
30
17
$0
Malaysia Thailand Norway
Canada Australia
5
Recent Trends in Public Assets
Investments in Long-term Debt & Equity Securities
Source 
/ Purpose
Oil exports
Stabilize
revenue
Russia Reserve Fund
Mexico Oil
Stabilization Fund
Benefit future
generations /
public
pensions
Norway Government
Pension Fund
Australia Future
Fund
Management
of government
assets
Saudi Arabia Public
Investment Fund
SingaporeTemasek
Malaysia Khazanah
Wealth / yield
maximization
Abu Dhabi Investment Singapore
Authority
Government
Investment Corp
Qatar Investment
Authority
Budget surpluses
Foreign
reserves
China
Investment
Corporation
Korea
Investment
Corp
6
Benefits of Conducting Audits of
Public Debt & Public Assets
• Better assess the financial position of
government
• Enhance the SAI capacity to examine the
sustainability and risks of public debt / assets
• Enhance the effectiveness of the Offices that
manage public debt & public assets
7
Benefits of Including Public Assets
Australia’s Net Debt = Gross Debt – Financial Assets
$120
million
Total gross debt
$100
Total net debt
$80
$60
$40
$20
$0
-$20
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
-$40
8
Challenges Faced by SAIs in
Audits of Debt and Assets
• Legal authority to conduct audit
• SAI team’s expertise & access to information
• Which assets / offices should be audited?
Assets
Managing units/offices
Cash-equivalent assets
Debt Management Offices, Treasury,
Ministry of Finance
Foreign exchange
reserves
Central Bank, Treasury, Ministry of
Finance
Financial assets – debt
and equity
Sovereign Wealth Fund Board or
Corporation, Central Banks, Treasury,
Ministry of Finance
9
Audit Case: Short-term Investments of
United States Government
• US Treasury Debt & Cash Management
Goals
– Finance the government’s borrowing needs at
the lowest cost over time
– Treasury must always have cash on hand to
pay bills.
10
Information for a Cash Management Study
US Treasury’s Daily Cash Balance & Investments
Treasury General Account
TIO Accounts
Repo Investments
Sep-06
Sep-06
Aug-06
Aug-06
Jul-06
Jul-06
Jun-06
Jun-06
May-06
May-06
May-06
Apr-06
Apr-06
Mar-06
Mar-06
Feb-06
Feb-06
Jan-06
Jan-06
Dec-05
Dec-05
Nov-05
Nov-05
Oct-05
Oct-05
billions
Oct-05
$100
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
TT&L Main Accounts & SDI
11
US Treasury – Short-term Investment Options
1.
Treasury General Account (TGA) – $5 billion target
balance in its general account at the Federal Reserve.
2.
Treasury Tax & Loan Program (TT&L) – banks
collect taxes and receive additional cash deposits from
the Treasury. These funds are subject to withdrawal
on short-notice.
3.
Term Investment Options (TIO) – banks place bids in
auctions for additional cash investments for a fixed
term.
4.
Repurchase agreement (repo) – Treasury began a
pilot program to engage in reverse repos in March
2006, with banks only.
12
GAO Findings & Recommendations
• Findings
– Treasury faces significant capacity and concentration risks in
current cash management program
– Treasury earns better rates on its investments in repos and
TIOs than TTL.
– Treasury obtains an implicit rate on its investments in the
general account at the Fed
• Recommendations
– Congress should consider an expansion of Treasury’s legal
authority to invest in repos using broker-dealers, not only banks
– Better align large cash inflows and outflows to reduce volatility
of cash balance
13
Ongoing GAO Audits:
Sub-prime Mortgage Credit Crisis
Audit approaches
 Identify basic principles of oversight for regulated
financial entities
 Assess effectiveness of market discipline
 Identify best management practices related to complex
financial products
 Evaluate the effectiveness of accounting for off-balancesheet instruments
 Evaluate the effectiveness of liquidity management
14
Other Evaluations of Public Management
of Cash Balances, Foreign Exchanges
• 2006 Report of Auditor General of Fiji – Chapter
on Reconciliation of Cash Balances
• 2006 KPMG Report to Finance Canada on
Receiver General Cash Management Program
• 2005 Report of the Auditor General of Australia
on Foreign Exchange Risk Management
15
Next Steps of Public Debt Working Group
• Potential projects & activities
– Publish Guidance on Accounting / Audits of Public
Debt / Assets by asset/debt categories: short-term
investments, foreign exchange reserves, long-term
investments
– Conduct Surveys of Audit / Accounting Practices
– Use PDWG Website resources
http://www.intosaipdc.org.mx/Public%20Debt%20Committee.html
• Disseminate reports
• Establish an open, widely available communication that SAI
can use to ask questions, post comments, find audit reports
and studies of other SAI and public debt / public asset
experts
16