Korea’s Experiences of Participatory Auditing Board of Audit and Inspection Seongjun Kim Public Participation in the Audit Phase of the Budget: Opportunities and Challenges Joint GIF-IBP-World Bank Seminar April 30, 2015 The Board of Audit and Inspection of Korea

Presentation Outline 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 1

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 2

The Board of Audit and Inspection of Korea 3 SAI of Korea 1. Introduction to the BAI

The Board of Audit and Inspection of Korea 4 1. Introduction to the BAI 4  BAI’s Duties and Functions Verifying Final Accounts of the State - Government Performance Report Review (GPRR) as a part of verification process Auditing (Financial Audit, Performance Audit) - Central & local governments, Legislative and Judiciary, Public institutions, Bank of Korea, Armed forces Inspecting Performance of Government Employees - Excluding National Assembly, courts of law and Constitutional Court - BAI may request the head of responsible authority to take a disciplinary action on public sector employees

The Board of Audit and Inspection of Korea 5 1. Introduction to the BAI  BAI’s Duties and Functions Rendering Legal Decisions on - Accounting Officers’ Violation of Financial Regulations - Protests and Complaints Against Agency Actions Making Legal Opinions on Accounting and Audit Laws and Regulations Supervising/Assessing the Performance of the Internal Audit Units in the Public Sector Ombudsman - 6 Regional Citizen Complaints Centers

The Board of Audit and Inspection of Korea 6 1. Introduction to the BAI  Contributing characteristics of the BAI that led to successful development of citizen engagement Operational independence Comprehensive audit mandates Good working relationship with Internal Audit High expectations and trust from citizens

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 7

The Board of Audit and Inspection of Korea 8 2. Background for Citizen Engagement at BAI  Korea has a long tradition of hearing people’s voice Sinmungo (big drum) during Chosun dynasty (15 th century)  Citizen engagement has evolved ever since BAI’s establishment in1963 Civil Petition & Complaints Reception Center (1971) Fraud hot line (#188) Open audit system (1990s) Business Complaints Reception Center (2004)

The Board of Audit and Inspection of Korea 9 2. Background for Citizen Engagement at BAI  Now BAI has full spectrum of citizen engagement except the direct participation in audit process (i.e., citizen auditors) Gathering audit information (complaints, etc) More focused or targeted information collection (open audit system) Advisory service from citizen/experts group Formal audit request

The Board of Audit and Inspection of Korea Background for Citizen Engagement at BAI  Rapid democratization and citizen empowerment since late 1980s  Decentralization process resumed in 1988 with revision of Local Autonomy Act, Local Finance Act  Against this backdrop, BAI introduced Audit Request for Public Interests (ARPI) in 1996  Anti-Corruption Act of 2002 introduced Citizen Audit Request (CAR), which strengthened legal foundation of citizen engagement in audit

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 11

The Board of Audit and Inspection of Korea 12 Planned AuditRequested Audit InitiationBAIRequesters Audit scopeBroad/complicatedSpecific / narrow / less complicated Audit team sizeOver 10 auditors1-2 auditors Duration of field works Over 2 weeks2-5 days 3. BAI’s Participatory Audit System  Planned Audit vs. Requested Audit

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System Citizen Audit Request (CAR) Audit Request for Public Interests (ARPI) Eligibility of audit over 300 citizensover 300 citizens/CSOs/ head of public entities / local councils Audit matters (subjects) illegal acts or corruption budget abuse mismanagement improvement Matters excluded from being audited under investigation or trial private matters under the jurisdiction of local governments matters under investigation or trial private matters 13  Who can request an audit on what?

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System 14  What are the selection criteria? Does it pursue public interests?  BAI defines public interest as “welfare or good of the public and the whole society, not confined to certain group or person”

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System 15  Handling Process of Audit Request Submit an audit request (over 300 people) Allocate an auditor to preview the audit request (eligibility/ audit ability) Refer it to the Review Committee (monthly meeting) Notify acceptance/rejection to the requester Conduct field work Finalized at the BAI Commissioners’ Meeting Notify the audit results to requesters/related public entities Publicize the audit result through BAI website

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System Submission of audit request Eligibility Preview Committee Review (ARRC) BAI investigation Closing of the case Notifying audit results 16

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System 17

The Board of Audit and Inspection of Korea 3. BAI’s Participatory Audit System 18

The Board of Audit and Inspection of Korea  How long does it take to receive the audit result? 2-6 months (if not accepted, in 40 days)  How many auditors are involved? Audit Request Investigation Bureau has 100 auditors (72 BAI staff, 28 seconded staff) 20 auditors in charge of requested audits Other 80 in charge of civil petitions/complaints (over 14 thousand cases in 2014) 3. BAI’s Participatory Audit System 19

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 20

The Board of Audit and Inspection of Korea  Responding to citizen needs and grievances Principal-agent theory  Facilitating more active citizen participation, which, in turn, contributes to enhancing government accountability and building participatory democracy  Improvement in public services Most frequently requested areas are also high-risk areas: permit/licensing (20%), budget abuse (17%), construction (15%), transportation/environment (9%) 4. Values and Benefits of Participatory Audit 21

The Board of Audit and Inspection of Korea 4. Values and Benefits of Participatory Audit 22

The Board of Audit and Inspection of Korea  Reducing blind spots and dark corners Bottom-up approach through the eyes and ears of citizens  Affecting the behavior of government workers Reducing “opportunity” element in Cressey’s fraud triangle 4. Values and Benefits of Participatory Audit 23

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit System 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 24

The Board of Audit and Inspection of Korea Risks  Politically-motivated purposes of audit requests Attempts to make an issue of their demands by utilizing BAI’s high visibility Number of requests by local councils jumps in election years: average 5 requests → 13 (2009), 11 (2013) Online CSOs become more and more active Number of registered CSOs : 3,236 (2001) → 10,086 (2011) 5. Risks and Control Mechanisms 25

The Board of Audit and Inspection of Korea  Auditors are exposed to highly conflicting issues  Limited audit resources can be used in less prioritized issues 5. Risks and Control Mechanisms 26

The Board of Audit and Inspection of Korea Control Mechanisms  How to control the risks while ensuring the benefits (SR) and promoting citizen participation (LR)?  Design audit request system with explicit consideration of risks Qualification of requesters Scope of requests Screening system (eligibility preview, ARRC) 5. Risks and Control Mechanisms 27

The Board of Audit and Inspection of Korea Control Mechanisms  Refrain fieldworks for politically sensitive requests during preview stage  Placement of experienced and motivated auditors 5. Risks and Control Mechanisms 28

The Board of Audit and Inspection of Korea 1. Introduction to the BAI 2. Background for Citizen Engagement at BAI 3. BAI’s Participatory Audit 4. Values & Benefits of Citizen Engagement 5. Risks & Control Mechanisms 6. Lessons Learned and Challenges 29

The Board of Audit and Inspection of Korea 6. Lessons Learned and Challenges  Success Factors Legal foundation should be in place to ensure continued operation and resource inflows Top management’s support is necessary to provide motivation to auditors Offering various but related activities increases citizen satisfaction (synergy effects exist) Enhanced access through various online and offline media encourages more active participation 30

The Board of Audit and Inspection of Korea  Success Factors Risks should be considered proactively before launching Higher standards on ethics are required for audit staff in order to deal with those who have direct interests Good cooperation with service delivery agencies through their internal audit units expedites the process Well-staffed and functioning CSOs seeking public interests Lessons Learned and Challenges

The Board of Audit and Inspection of Korea  Challenges Promote citizen engagement in public auditing Expand dimensions of citizen engagement in audit process Measure and promote the values and benefits of participatory audit Lessons Learned and Challenges

The Board of Audit and Inspection of Korea  There are great benefits, both explicit and implicit, from the citizen engagement  Risks can be controlled within reasonable cost Priorities in audit resource allocation may vary among SAIs  BAI’s participatory audit model shows a great potential, but it may or may not work in other circumstances Lessons Learned and Challenges

The Board of Audit and Inspection of Korea Thank you 34