NOVEMBER 2017 GOVERNANCE NOTES No.4 FEBRUARY 2018 No. 5 EXTERNAL OVERSIGHT OF SUPREME AUDIT INSTITUTIONS: WHO AUDITS THE AUDITOR? Prepared by Marc-Anton Pruefer and Daniel J. Boyce Supreme Audit Institutions (SAIs) are the highest Audit Institutions (ISSAIs) Framework. It is grouped national authorities responsible for overseeing and into four levels: founding principles, prerequisites for the holding governments to account for their use of public functioning of SAIs, fundamental auditing principles, resources. A broad-based consensus underscores their and auditing guidelines (INTOSAI 2016a). The framework importance to public sector accountability and good encompasses the responsibilities, competencies, governance. relationships, and reporting requirements of SAIs in the The contribution of SAIs to good governance system of public sector accountability, including external is twofold (see box). As part of the public sector oversight of SAIs. accountability system, SAIs reinforce the effectiveness “ISSAI 20—Principles of Transparency and of bodies responsible for government policy, Accountability” calls for legislation and regulation to hold expenditure, and public financial management. SAIs responsible and accountable; publicly disclosed Second, through their audit work, they assess policy financial statements that are open to independent audit implementation, assure the compliance of policy or parliamentary review; assessment and reporting by makers, and provide “evidence of the performance of SAIs on their operations and performance in all areas, the machinery of government” (OECD 2011, 13–14). including their use of funds; and publicly available and But, who oversees the auditor and how? easily understood audit results. It also encourages SAIs Arrangements for scrutinizing the work of SAIs to seek expert guidance, conduct external independent are determined by constitutional and legislative assessments of their operations, such as peer reviews and frameworks and differ from country to country. A new joint and parallel audits, and to report publicly the results international framework offers guidelines for developing of such exercises. oversight systems and procedures. This Governance Note examines international SAI PERFORMANCE FRAMEWORK standards and monitoring tools for external oversight An INTOSAI tool for measuring, monitoring, and reporting of SAIs and illustrates practices from 21 member performance—the SAI Performance Measurement countries across Regions of the World Bank. Framework—can be used to assess compliance with ISSAI 20 principles. It covers seven domains, including external INTERNATIONAL STANDARDS FOR EXTERNAL SAI reporting, and can be applied using (i) self-assessment OVERSIGHT by SAI staff, (ii) peer assessment by an INTOSAI regional The International Organization of Supreme Audit body or peer SAI, or (iii) external assessment by an Institutions (INTOSAI) develops standards for public sector external auditor, development partner (such as the World auditing and provides a forum for external government Bank), or consultant. auditors to work on issues of mutual concern and Under the SAI Performance Measurement Framework keep abreast of new developments and best practices. Implementation Strategy 2017–19, the tool is expected Recently, INTOSAI endorsed principles for external SAI to become firmly anchored within the organization, and oversight and related performance assessment tools. all SAIs are encouraged to use it on a voluntary basis The complete collection of professional standards (INTOSAI 2016b). As more assessments are carried out, and best practice guidelines for public sector auditors greater knowledge will be gained on the nature and extent is contained in the International Standards of Supreme of external oversight of SAIs. 1 GOVERNANCE NOTES FEBRUARY 2018 No.5 EXAMPLES OF EXTERNAL OVERSIGHT IN PRACTICE is commonly performed by the legislature as part of Anecdotal information was gathered from World the budgeting process or through external financial Bank Group staff on some of the key characteristics, audit, with peer review in some cases. SAI oversight and challenges, and solutions associated with different accountability need to be carefully balanced with their oversight arrangements in member countries. They are independence to avoid undermining their effectiveness. grouped into two categories: Consequently, there is no general answer to the stylized question “Who audits the auditor?”, but country Auditing of the SAI examples, as well as standards and guidance provided • In the Dominican Republic, Indonesia, Kenya, Kyrgyz by INTOSAI, provide a framework for country-level Republic, New Zealand, Poland, and Tanzania, analysis. The principles espoused in ISSAI 20, INTOSAI parliament appoints an independent auditor to audit guidance, and the SAI PMF tool can help governments the SAI’s financial statements. establish appropriate transparency and accountability mechanisms. • In France and New Zealand, the audit report of the SAI’s activities is submitted to parliament and includes detailed performance information. SAI Objectives • In Mexico, an audit of the SAI is conducted by a legislative commission chaired by an elected SAIs generally pursue four objectives necessary representative from an opposition party. for a country’s stability and growth: proper and effective use of public funds, development of • In Argentina, the SAI is not required to have its annual sound financial management, proper execution of financial statements audited but can chose to do so administrative activities, and communication of and publish results online. information publicly through objective reports. • In Chile, Panama, Paraguay, Uganda, Uruguay, and They conduct three types of audits: Vietnam, there is no financial audit of the SAI. • Financial audits assess the accuracy and SAI Oversight fairness of the accounting procedures used by a government entity and whether its financial • Canada, France, Indonesia, Morocco, and the United statements and reports correctly portray its States conduct peer reviews by other SAIs, a practice financial position and activities. officially endorsed by INTOSAI as part of its ISSAI framework. • Compliance audits assess whether funds were • In Egypt and Palestine, the SAI reports directly to the used in compliance with all pertinent laws and executive branch, which also has the power to remove regulations and for the purpose for which they the SAI director. were appropriated by the legislature. • In the Dominican Republic and Kenya, a parliamentary • Performance or value-for-money audits analyze oversight role has been formally adopted, but it is not the economy, efficiency, and effectiveness of implemented in practice. government spending in achieving the stated objectives of its programs and policies. • In Colombia, the Auditor General’s Office, a legally and financially independent body, is mandated to oversee The founding principles for public sector auditing the national SAI (Comptroller General’s Office) and are presented in the Lima Declaration of 1977, subnational SAIs. which was endorsed by the International Organization of Supreme Audit Institutions CONCLUSION (INTOSAI 1977). INTOSAI was founded in 1953 Although international standards are authorized and today has 194 full members and 5 associated and endorsed by SAIs worldwide, their application members, including the World Bank. in practice depends on individual constitutional and legislative frameworks. Formal scrutiny of SAI activities 2 GOVERNANCE NOTES FEBRUARY 2018 No.5 REFERENCES INTOSAI (International Organization of Supreme Audit Institutions). 1977. ISSAI 1: The Lima Declaration of Guidelines on Auditing Precepts. Adopted by acclamation of the delegates, October 1977, IX INCOSAI, Lima, Peru. ———. 2016a. “About Us.” See the INTOSAI website (accessed July 18, 2016). ———. 2016b. “INTOSAI Leading by Example in Performance Measurement.” PASAI Bulletin (blog), December 8. OECD (Organisation for Economic Co-operation and Development). 2011. Good Practices in Supporting Supreme Audit Institutions. Paris: OECD. Sources for more Information INTOSAI http://www.intosai.org/ ISSAI http://www.issai.org/ SAI PMF http://www.idi.no/en/sai-pmf GOVERNANCE GLOBAL PRACTICE Guiding Results through Public Institutions Governance Notes captures knowledge derived from World Bank engagements and technical and financial assistance requests. The views expressed are those of the authors and do not necessarily reflect the views of the World Bank. For more information, contact: askgov@worldbank.org. 3