mitigating the global financial crisis impact: the role of government auditors, may 2011
TRANSCRIPT
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Mitigating theMitigating theGlobal FinancialGlobal Financial
Crisis ImpactCrisis ImpactThe Role of Government AuditorsThe Role of Government Auditors
Richard F. Chambers CIA, CGAP, CCSARichard F. Chambers CIA, CGAP, CCSA
President and CEOPresident and CEO The Institute of Internal AuditorsThe Institute of Internal Auditors
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Overview
Global Financial Crisis: Impact on
Governments Worldwide
Government Auditors: An Overview
Mitigating GFC Impacts: Five Ways
Government Auditors can Add Value
Conclusions
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We All Know the Problem
Revenues from sales tax, property tax, income tax,
and fees have declined
Citizens need higher levels of government services intimes of financial difficulty
Most OECD countries are running significant budget
deficits
State/local governments must run balanced budgets
This means difficult and painful choices.
This means difficult and painful choices.
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Budget Squeeze
Sales tax revenues down
Property taxes down
Income taxes down
Investments down
Fee income down Increased use of social
programs
Economic stimulus
programs Automatic triggers
(unbudgeted)
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Recent Austerity Measures
Country Austerity Measures
Czech
Republic
Cut public sector wages up to 43%; taxes on pensions of high
earners
Greece Raise VAT from 19% to 23%; raise pension age; cut publicsector bonuses; freeze salaries/pensions; raise retirement age
Ireland Cut public sector wages 5%; cut 24,750 jobs; cut minimum
wage; reduce social welfare and child benefits; increase capital
gains, capital acquisition, and carbon taxes; new water tax
United
Kingdom
Raise VAT from 17.5% to 20%; reduce government department
budgets by average of 19%; raise pension age; cut 490,000public sector jobs; reduce unemployment benefits
Source: Limiting Central Government Budget Deficits: InternationalExperiences, Congressional Research Service, 2011
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The Status Quo is Unacceptable
Rising public expectations for demonstrable
results and enhanced responsiveness
Government performance/ accountability andhigh-risk challenges
Additional resource demands due to
economy, healthcare costs, terrorism
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Government Auditors:
Work for good government
Help improve performance and assure accountability
Help identify and mitigate risks
Maintain independence to make difficult decisions
With light comes heat, and with heat comes action, andaction is what we want. How can we make governmentwork better? By improving the economy, efficiency, andeffectiveness of government.
T - The Honorable David M. WalkerFormer Comptroller General of the United States
With light comes heat, and with heat comes action, andaction is what we want. How can we make governmentwork better? By improving the economy, efficiency, andeffectiveness of government.
T - The Honorable David M. WalkerFormer Comptroller General of the United States
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Audit and the Financial Crisis
Two potential solutions:
Control costs
Traditional audit sweet spot
Grow revenue
Potential audit opportunities
With change comes risk Increases need for audit
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Mitigating GFC Impacts: Five Ways
Government Auditors can Add Value
1. Providing assurance on the accuracy of financial
reporting
2. Providing assurance that government resources arebeing used efficiently and effectively
3. Fostering accountability by government officials
4. Identifying opportunities for cost reduction and
containment5. Fostering greater public trust
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1. Providing Assurance on the Accuracy of
Financial Reporting
Generally accepted accounting principles
Adequacy and accuracy of disclosures
Privileged and confidential information
Report distribution
Five Ways Government Auditors can Add Value
In todays economy, financial reportsare under intense scrutiny by publicofficials, legislators, and citizens.
In todays economy, financial reportsare under intense scrutiny by publicofficials, legislators, and citizens.
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1. Providing Assurance on the Accuracy of
Financial Reporting
Financial audits include determining whether:
Financial information is presented in accordance
with established or stated criteria, Entity has adhered to specific financial compliance
requirements, or
The internal control structure over financial
reporting and/or safeguarding assets is suitablydesigned and implemented to achieve control
objectives.
Five Ways Government Auditors can Add Value
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1. Providing Assurance on the Accuracy of
Financial Reporting
Financial audits also evaluate:
Poor financial management systems
Corruption, fraud, fund diversions Use of reserves during unexpected events
Inadequate funding
Release of funds to Ministries/Departments/Agencies
Initiation of spending
Payment Recording of transactions
Production of accounting/budgeting reports
Five Ways Government Auditors can Add Value
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2. Providing Assurance that Resources are
Being Used Efficiently and Effectively
We need to know whether or not government
programs operate economically and efficiently
We need to know which initiatives are showingresults and which are not
We need verifiable evidence of success
Five Ways Government Auditors can Add Value
In todays economy, government
leaders need to know which programsare effective and which are not so they
can make tough choices.
In todays economy, government
leaders need to know which programsare effective and which are not so they
can make tough choices.
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2. Providing Assurance that Resources are
Being Used Efficiently and Effectively
During difficult economic times government auditors
can provide consulting services that will show if the
organization is conducting operations effectively
(meeting its goals) and efficiently (controlling costs)
Services might include management studies that identify
opportunities for enhancing the efficiency of operations
Five Ways Government Auditors can Add Value
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3. Fostering Accountability by
Government Officials Public officials are responsible for:
Complying with applicable laws and regulations
Using resources efficiently, economically, and effectively
Establishing and maintaining effective controls to ensure thatappropriate goals and objectives are met
Officials and employees who manage government
programs need to render an account of their activities
to the public
Auditing provides objective evidence enabling us tohold management accountable for key responsibilities
Five Ways Government Auditors can Add Value
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3. Fostering Accountability by
Government Officials
In the last analysis, of course, an oath will encouragefidelity in office only to the degree that officeholders
continue to believe that they cannot escape ultimateaccountability for a breach of faith.
- James L. Buckley
In the last analysis, of course, an oath will encouragefidelity in office only to the degree that officeholders
continue to believe that they cannot escape ultimateaccountability for a breach of faith.
- James L. Buckley
Five Ways Government Auditors can Add Value
Government officials should abide by a Code of
Ethics/Conduct and establish a culture for
preventing, detecting and reporting fraud and
corruption
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4. Identifying Opportunities for Cost
Reduction and Containment
Lack of coordination among departments
Inadequate cost information
Substandard contract management Mission fragmentation/program overlap
Ineffective procurement controls
Poor planning
Burdensome legal mandates
Five Ways Government Auditors can Add Value
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4. Identifying Opportunities for Cost
Reduction and Containment
Scrutinizing processes can identify opportunities for
increased efficiency
Encouraging adoption of performance measurementsystems can help departments focus their energies
and monitor quality and effectiveness.
Advocating rigorous, data-driven decision making
processes can lead to better outcomes
Five Ways Government Auditors can Add Value
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5. Fostering Greater Public Trust
Auditing provides credibility to the information
reported by or obtained from management through
objectively acquiring and evaluating evidence
Audit of government reporting is an essential element
of public control
Five Ways Government Auditors can Add Value
In todays economy, auditing provides
transparency to meet the growingdemand for objective information about
government programs and services.
In todays economy, auditing provides
transparency to meet the growingdemand for objective information about
government programs and services.
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5. Fostering Greater Public Trust
Citizens deserve to know that their state
government is spending their tax dollars
wisely on vital programs and services that
directly benefit them and make a measurable
difference in their lives.
- Edward G. Rendell
Two-term Governor of Pennsylvania
Citizens deserve to know that their state
government is spending their tax dollars
wisely on vital programs and services that
directly benefit them and make a measurable
difference in their lives.
- Edward G. Rendell
Two-term Governor of Pennsylvania
Five Ways Government Auditors can Add Value
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Conclusions The status quo is unacceptable in times of global
financial crisis.
A fundamental review of government programs andpolicies is necessary to determine what the
government should do and how the government
should do business in the future.
In times of financial crisis, internal audit is key toassuring ongoing government efficiency,
effectiveness, and transparency.
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For more information, contact:
Richard F. Chambers
President and Chief Executive Officer
The Institute of Internal Auditors
Questions?