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Saturday, December 19, 2009

Review: The Political Economy of Government Auditing

The Political Economy of Government Auditing: Financial Governance and the Rule of Law in Latin America and Beyond

Carlos Santiso

Routledge (2009)

Reviewed by Andy Wynne – andywynne@lineone.net

This book provides a welcome analysis of the role that government auditing can play in the quest for greater transparency and accountability in the management of public finances across the Global South. Whilst Carlos Santiso’s detailed analysis is limited to three countries in South America, his insights will be of great value for all those interested in the role of government auditing (and as global citizens we should all be in this position).

Carlos examines what he terms autonomous audit agencies in Argentina, Brazil and Chile. These three countries illustrate the three main models of such agencies – parliamentary or auditor general; accounts court (cour des comptes); and the Germanic or board. He takes a political economy approach that addresses the context in which audit agencies are embedded. Reforming autonomous audit agencies, Carlos concludes, must consider the trajectory of state building, the role of law in public administration and the quality of governance.

His careful analysis of the key relationship between the audit agency and parliament highlights the challenges which any of the models may have. Carlos explains this relationship as follows:

[Autonomous audit agencies] are essentially oversight agencies which depend on accountability institutions to enforce accountability on government. Accountability institutions are those state powers endowed with the constitutional prerogatives to hold government to account. In the constitutional model of separation of powers, those accountability institutions are the legislative and the judiciary (page 57).

As a result, Carlos argues that:

Therefore, a central paradox of [autonomous audit agencies] resides in that their effectiveness depends both on their independence from government and the efficacy of their functional linkages with the legislatures and the courts (page 58).

This raises the important issue of who an audit agency should be independent from. Many commentators merely state that the audit agency should be independent or autonomous to use Carlos’s term. Carlos considers carefully which institutions the audit agency needs to be free to criticise without fear of suffering repercussions (line ministries and especially the ministry of finance), but also those institutions (primarily the legislature) where a positive and constructive inter-relationship is key to the success of the agency. But even here the relationship may be complex as it depends on politicians acting in an a-political or selfless manner. Something which can be incredibly difficult to achieve in many countries!

Due to his choice of countries, Carlos does not consider the added complexities of, for example, French African countries. Here there are usually two types of audit agencies neither of which may have strong relationships with their parliaments. The first of these is the traditional French style accounts court (cour des comptes) whose main role is to try (in a judicial sense) the public accountants who play such a key role in the French approach to public expenditure management. The other agency is the general state inspection (inspection générale d'État) which is often dismissed as not being independent of the executive, as in some countries it is a tool of the president or prime minister.

However, many other audit agencies do not have adequate independence, for example, an INTOSAI survey undertaken in 2000 found that of 113 Supreme Audit Institutions around 70 had their primary accountability to parliament whilst in near 40 cases it was to the head of state. Similarly AFROSAI-E (the regional body for English speaking Africa) found in 2001 that only 5% of their members considered that they had adequate independence. In Botswana, Lesotho and Zimbabwe the Auditor General’s annual reports are submitted to the Minister of Finance to pass on to parliament, whilst in Zambia the report is submitted to the president. Similarly, the Auditors General in Ghana, Nigeria and Tanzania, for example, are appointed by the president of these countries (as are the heads of most accounts courts, including that in France). Similarly the president of an accounts court will typically be appointed by the president of the country will submit their annual report to the president to pass on to parliament.

Six Francophone governments have designated their general inspector of the state as their Supreme Audit Institution whilst 10 have designated a cour (or chambre) des comptes. Thus the following are all members of INTOSAI and so are the Supreme Audit Institution for their countries:

· Burundi - Inspection Générale des Finances

· Cameroun - Contrôle Supérieur de l’Etat

· Centrafrique - Inspection Générale d'État

· Guinée (Conakry) - Inspection Générale d'État

· Mali - Contrôle Générale des Services Publics

· Niger - Contrôle Générale des Services Publics

· Togo - Inspection Générale d'État.

These two types of audit agency, accounts court and general state inspection, may in fact be complementary. The accounts court concentrates on issues of regularity (especially legality) whilst the general state inspection may take on a wider role including performance or value for money audit. With this role it may be thought that the role of the general state inspection would be welcomed by many reformers who support this move for audit agencies, but in most cases the general state inspection has been ignored. Carlos shows the great variety of approaches to the organisation, remit and work of audit agencies. If, as has been shown in practice, it is so difficult for traditional audit agencies to adopt performance audit, why not establish a second agency with this specific responsibility.

The distinction between internal and external audit may also be blurred. Carlos points out that some audit agencies may undertake ex ante compliance control, or pre-audit as it is termed in many English speaking African countries, where it is the staple work of the internal auditors. In French speaking African countries the general finance inspection (Inspection Générale des Finances) is generally considered to be the internal audit function. The general finance inspection reports to the ministry of finance on the quality of financial management in other ministries. However, these countries also have the function of the contrôleur financier who undertakes a similar role to internal audit in Anglophone countries.

Each agency has its own role and several countries have established general state inspections in recent years (for example, Benin and Djibouti) and Togo is establishing an accounts court in addition to its general state inspection. Mali has gone further. In 2002, it established a Bureau du Vérificateur Général (Office of the Auditor General on the Canadian model). This agency has been created to complement the roles of its existing accounts court and general state inspection (Contrôle Générale des Services Publics).

Relationships may also change over time, so, for example, Carlos points out the case of Brazil where:

The logic of external auditing gradually shifted from being an instrument of executive control of the bureaucracy to becoming an instrument of legislative restraint on the executive (page 97).

In French African countries this could also occur with a move from the general state inspection being a mechanism for the president to control of the bureaucracy to the accounts court (or auditor general) being an instrument of parliaments. With these complexities it is re-assuring that Carlos believes that his research “does not find a direct correlation between the model of external audit agency and the effectiveness of external auditing (page 123).

The key findings from his comparative analysis are:

1. Effective autonomous audit agencies improve the credibility of the budget and the quality of governance.

2. External audit agencies are part of the broader system of checks and balances in government financial management.

3. Independence is critical to guarantee impartiality, but should not be an end in itself.

4. Shortcomings in government financial accountability reflect deeper dysfunctions in the relations between external audit agencies and legislatures.

5. External audit systems are in transition, seeking to redefine their role in fiscal control and their contribution to public management.

This book provides the details of these findings and a wide variety of audit practices, but as importantly describes how these practices developed over time in conjunction with other public institutions. As such it is an invaluable source of information for anyone who is involved in the reform of audit agencies in Latin America or other parts of the world. This will include audit staff, but also the rest of us as global citizens.

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