The Role of Parliament in the audit of public accounts

Overview Audit and the ‘chain of accountability’ Types of supreme audit institutions The Lima Declaration Types of audit Interaction between auditors and parliament The role of parliamentary committees Follow-up mechanisms

Types of supreme audit institutions A public organization, independent of government and responsible for auditing and reporting government’s financial operations. Audit courts are independent of the legislative and executive branches and integral to the judiciary. Auditor generals are independent bodies that report directly to parliament and have no judicial function. The International Organisation of Supreme Audit Institutions (INTOSAI) has fundamental standards for national audit in the Lima Declaration of Guidelines on Auditing Precepts.

Lima Declaration: The supreme audit institution should… Be independent from audited entity and protected against outside influence. Have functional and organizational independence, guaranteed by the constitution. Have the financial means to accomplish its tasks. Self-determine its audit program. Have members with prerequisite qualifications and moral integrity. Report annually and independently to Parliament. Produce reports that are objective, clear, limited to essentials, precise and easy to understand. Audit all public financial

Types of audit Financial audit is traditional focus of public sector auditing. Auditor general model, financial audit focuses on the accounts of government departments using sampling techniques. Audit court model, emphasis on the legality of spending to see whether government revenue and spending have been used for approved purposes and departments have conformed to laws. Perform value for money or performance audits. ‘Three Es’ economy, efficiency and effectiveness.

An example of ‘value for money’ considerations in the health sector Hospital purchases inputs: staff, equipment, medical supplies; Transforms these inputs into outputs in services to community; The outcomes are effects on patient health. Performance auditing checks for economy, efficiency and effectiveness in this process, asking, respectively: 1. Are supplies, equipment and staff purchased for cheapest price? (economy); 2. Is adequate number of operations carried out with inputs? (efficiency); 3. Do operations improve patient health? (effectiveness). It can be summarized that the ‘Three Es’ require respectively spending less, spending well, and spending wisely.

Interaction with parliament Relationship varies between systems. Court model tradition, parliament uses audit information for a formal vote on the execution of a budget. Westminster tradition there is no formal vote on budget, parliamentary review generates recommendations for improving public spending. Supreme audit institutions have established parliamentary liaison offices and accompany related work of parliament on an ongoing basis. More recently, many supreme audit institutions have also developed a more ad hoc advisory function.

Role of parliamentary committees In Some Legislatures… Audit findings are not considered in detail, but most parliaments use committees to do so. The same committee responsible for approving budget also must consider audit reports. A dedicated public accounts committee is used for the scrutiny of audit findings. Sectoral committees, such as those responsible for health, education or defense, scrutinize relevant audit findings.

Public accounts committees First modern PAC in UK in 1861 Strong link with Auditor General Policy-neutral: focus on implementation Cross-partisan: opposition chairperson in 67% of PACs in the Commonwealth Hearings with accounting officers Increasing importance of value for money audit But: evidence says this system does not work well in many developing countries Delayed reporting Poor quality of reports Government non-response

Follow-up mechanisms Parliament’s recommendations and government’s implementation: 1. Committee reports must be followed by a formal government response. 2. A formal government response does not always ensure that the committee’s recommendations are acted upon. 3. A formal tracking report produced regularly by the audit institution systematically considers the implementation of each recommendation. 4. Instead of separate tracking report, some auditors include a chapter that reviews departmental action on previous recommendations in their annual audit report.

Concluding remarks External audit and parliamentary scrutiny are fundamental for holding government to account. Supreme audit institutions have evolved to different traditions - audit court and auditor general two main, but variations occur. Independence of supreme audit institutions is fundamental. Parliament engages with audit findings effectively through dedicated committee capacity. Follow-up mechanisms are important for ensuring that recommendations are actually implemented.