The International Consortium on Governmental Financial Management (ICGFM) maintains this public financial management blog. The focus is on PFM reform in emerging countries by addressing issues such as transparency, integrated financial management information systems, international donor funding, auditing, cash management, procurement, public private partnerships
ICGFM Promotes Knowledge Transfer Among Public Financial Management Experts
Working globally with governments, organizations, and individuals, the International Consortium on Governmental Financial Management is dedicated to improving financial management by providing opportunities for professional development and information exchange.
In the last decade, has the ‘audit game’ changed? Or its operating context? Or both? These questions lie at the core of the discussion on the relationship between public management reform and public sector auditing (Pollitt, 2002). Devolution of powers and tasks (Gruening, 2001) and new managerialism introduced by the reforms have changed the environmental and legal framework in which municipalities operate. A popular argument is that these developments have also affected how audits, internal and external, are conducted (Hoggett, 1996).
This research analyses the link between public management reforms and public auditing in German and Italian municipalities in recent decades. By tracing changes and constancies of the audit institutions in countries so fundamentally different with respect to administrative culture, political systems, and legal traditions, the developments in the two countries that are similar will be significant. Furthermore, the study of local audit systems in Germany and Italy highlights the institutional conditions of reform paths by describing (1) the historical process of institutional survival of auditors through adaptation of new tasks in Italy and (2) the relative ‘decline’ of auditors in Germany due to institutional resistance. It therefore describes the different functions local auditors play during restructuring processes. Interestingly, audit reform doctrines in both countries have been similar. Both envisioned a kind of consultant role for the auditor. In the Italian case the role of local auditors changed towards being a ‘Trojan reform horse’ within local government. German auditors actively opposed such a notion.
One widely accepted argument is that New Public Management (NPM) triggers change in public auditing. This argument builds on an institutional theoretical perspective that changing institutional environments lead to reaction of those operating within them. Central (and presumably municipal) auditing bodies respond to NPM as the paradigm of public sector management in Anglo-Saxon countries by institutional, procedural, and cultural acclimation (OECD, 1996). The introduction of performance audits is for example seen to be one consequence of administrative reform though it has been mainly discussed with regard to supreme audit institutions, meaning that local auditors have thus far not been in the limelight (Pollitt & Summa, 2002, Power, 1997, Barzelay, 1996, OECD, 1996).
Business accounting has always been considered by some people to be the model for government accounting. In 1802, Thomas Jefferson, the author of the American Declaration of Independence, wished to “see the finances of the Union as clear and intelligible as a merchant’s book,…” In the 1970s, Arthur Andersen & Co., an innovative accounting firm, tried to realize Jefferson’s dream by challenging the U.S. Government itself to render its accounts according to Generally Accepted Accounting Principles (GAAP), since it required business firms to follow GAAP, apparently believing that business GAAP was applicable to the U.S. Government. In the 1980s, the late Professor Robert Anthony of Harvard University was similarly convinced that American state and local governments should use business accounting principles, so that it would not be necessary to have a separate Governmental Accounting Standards Board. (It fell on the author as a young academic in 1980 to inform the Financial Accounting Standards Board how government differed from business.) In the 1990s, opinion leaders from several countries adhering to the “business accounting for government” approach successfully elevated this viewpoint to the international level. International Public Sector Accounting Standards (IPSAS) patterned after international (business) accounting standards were developed, with exceptions only when government differed from business. The purpose of this brief essay is to answer three questions: What is so appealing about business accounting that it is urged upon government? How is government viewed differently by public budgeting specialists? When these two groups hold conflicting views on government financial presentation, how should those conflicts be resolved?
In the past, managers in the public sector had a narrower range of expectations for the role of internal audit than managers in the private sector. This explains why the internal audit function in the public sector was dominated by pre-payment audits. Thus internal auditors devoted most of their time to the checking on individual transactions before the payments were made. However, in recent years internal auditing has assumed a strategic dimension and that underscores why it has become an essential component of public sector governance and financial management reforms in many developing countries. The intent of this paper is to present a position that internal auditing in the public sector, when well structured and given the required mandate to perform, improves performance and serves as a valuable resource in promoting good governance. It generates thoughts on the importance and challenges of public sector internal auditing.
Trends in Accountability from an Auditor's Perspective
The role of the public auditor has advanced beyond verifying numbers and financial reports. Today, auditors in the public sector have evolved into serving as an independent source of accountability for not only financial performance but for commitments to outcomes, policies, efficiency, and effectiveness. In addition to serving the public interest, public sector auditors can be a valuable resource for management by providing important feedback on overall performance.
Our panel, representing internal audit functions of international organizations, will discuss trends in the role of the public audit function, the tools being employed in performing this new role, and what we can expect in the future for public accountability. The panel will consist of:
David Nummy, moderator, (Executive Director, Grant Thornton)
The International Consortium sponsors a learning forum and luncheon the first Wednesday of each month from January through June, and from September through December, at The Carnegie Endowment for International Peace. Sessions begin at 11:45 and details can be found on the Upcoming Events page on the ICGFM web site. Summaries of the presentations and question-and-answer periods which follow are published on the ICGFM blog
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