© OECD

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PUBLIC FINANCE MANAGEMENT AND AUDIT IN JORDAN

THE INTERNATIONAL CONTEXT

PHILIP DUNCOMBE

AMMAN, JORDAN

4-5 NOVEMBER 2014

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THE ‘PARTNERSHIP’

• Parliament and its committees

• External audit (supreme audit institutions)

• Ministry of Finance and Internal audit

• Publicly-funded institutions

• Accountable officers and line management

“The Expectation Gap”

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RESPONSIBILITIES AND ACCOUNTABILITY

• Management is responsible for maintaining effective systems of control

• Internal audit provides assurance to management that systems of control operate effectively

• Supreme audit institutions provide independent assurance to Parliament and civil society of the reliability of national, financial statements

• Parliament maintains oversight of the effective operations of the control systems

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INTERNATIONAL STANDARDS

• COSO Standards: ‘Management Control – Integrated Framework’ – 2013*

Definitions of:

• Management Control

• Management Control Objectives: Operations, Reporting. Compliance

• Components: Control environment, risk assessment, control activities, information and communication, monitoring activities

Standards also define 17 Principles

Committee of Sponsoring Organisations of the Treadway Committee

refer to ‘Internal Control’ (www.coso.org/IC)

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CONTROL FRAMEWORKS IN PUBLIC

INSTITUTIONS • Frameworks be designed to ensure:

The economic, efficient and effective achievement of objectives

Adherence to laws and to internal and external rules and regulations

The safeguarding of assets and information

Prevention and detection of fraud and error

High quality of accounting records

Timely production of reliable financial and management information

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INTERNAL AUDIT

• Established in 1948

• Currently 170,000 members in 165 countries (~ 1,000 members in UK)

• All members work to the same international standards and a code of ethics

• Established in both public and private sector organisations

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INTERNAL AUDIT

• Independent and objective*

• Add value and improve an organisation’s operations

• Apply a systematic and disciplined approach

• Evaluate the effectiveness of management, control and governance processes

* International Institute of Internal Auditing – Global Standards (www.theiia.org)

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EXTERNAL AUDIT – SUPREME AUDIT

INSTITUTIONS

• INTOSAI* – Lima Declaration (Auditing Precepts) (1998)

General

Independence

Relationship to Parliament, government and the administration

Powers of Supreme Audit Institutions

Audit Methods, audit staff, international exchange

Reporting

Audit Powers of Supreme Audit Institutions *www.intosai.org

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EXTERNAL AUDIT – SUPREME AUDIT

INSTITUTIONS • INTOSAI – Mexico Declaration on SAI Independence (2007)

Core Principles:

• Legal framework

• Independence

• Broad mandate and full discretion

• Unrestricted access to information

• Right to report

• Freedom to decide content and timing of reports and publication

• Effective follow-up mechanisms

• Financial, managerial and administrative autonomy and available human, material and monetary resources

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‘MAKING A DIFFERENCE’

• ISSAI 12 – ‘The Value and Benefits of SAIs – making a difference to the lives of citizens’

SAIs should:

• Strengthen the accountability, transparency and integrity of government and public sector entities

• Demonstrate ongoing relevance to citizens, Parliament and other stakeholders

• Be a model organisation through leading by example

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SUPREME AUDIT INSTITUTIONS

‘MAKING A DIFFERENCE’

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Accountability,

transparency,

integrity

Model

Organisation,

leading by

example

Relevance

to citizens, Parliament and others

SAIs making a

difference to

the lives of

citizens

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NATIONAL AUDIT OFFICE -UK

• Key facts (2013-14)* 822 staff

£84.6m expenditure, £20.3m revenue

Audit £1 trillion combined revenue and expenditure

427 accounts certified

66 value for money reports Audit

60 PAC hearings supported

21 other Committees supported

£1.1 billion savings to the public purse

£16 of financial impacts for every £1 the NAO spends

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PARLIAMENT - AN INTERNATIONAL

EXAMPLE

• Oversight by Parliament*

Typical core tasks of parliamentary committees:

• To examine and comment on the policy of public institutions

• To examine the expenditure of public institutions

• To examine the administration of public institutions

• To assist the Parliament in debate and decision

* Ref: Parliament of UK: Select Committees - Core Tasks (January 2013)

( www.parliament.uk/briefingpapers/SNO3161)

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PARLIAMENT - AN INTERNATIONAL

EXAMPLE

• Standing Order 148 - The Committee of Public Accounts*: “For the examination of the accounts showing the appropriation

of the sums granted by Parliament to meet the public expenditure, and of such other accounts laid before Parliament as the committee may think fit, to consist of not more than sixteen members.”

“The committee shall have power to send for persons, papers and records, to sit notwithstanding any adjournment of the House, to report from time to time, to appoint specialist advisers either to supply information which is not readily available or to elucidate matters of complexity within the committee’s order of reference, and to adjourn from place to place.”

*Ref: www.parliament.uk

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PARLIAMENT - AN INTERNATIONAL

EXAMPLE

• Recent Reports by PAC, Session 2014-15*

Child Maintenance 2012 Scheme (17th Report, October

2014)

Early Contracts for Renewable Electricity (16th Report,

September 2014)

Local Government Funding – Assurance to Parliament (13th Report, September 2014)

Army 2020 (11th Report, September 2014)

Major Projects Authority (10th Report, August 2014)

* All Reports are available on www.parliament.uk

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THE ACCOUNTABILITY CYCLE

Government requests and

Parliament grants funds

Auditor General audits accounts,

examines spending and reports to

Parliament

PAC holds enquiry session and

produces a Report

Government responds to the

Report

NAO monitors Government actions

and follows up

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WITHDRAWAL FROM PRE-AUDIT

• Current situation:

Blurs responsibilities between Ministry staff and management, internal control units and the Audit Bureau

Weakens systems of control within Ministries

Leads to unnecessary duplication of work

AND

Impacts adversely on Audit Bureau resources

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WITHDRAWAL FROM PRE-AUDIT

• Key reforms:

Reinforce management responsibility for implementing proper controls

Provide mechanisms to deter ‘undue influence’ over staff

Strengthen internal control units to perform full internal audit functions

Convince Audit Bureau and Parliament that ‘withdrawal’ is essential for good governance

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POSSIBLE ISSUES FOR WORKSHOPS

• What needs to be changed to strengthen internal control units?

• What is needed to ensure that the Audit Bureau is able to withdraw from pre-audit?

• What can Parliament do to strengthen the public accountability cycle?

• How can the risks of fraud and corruption in the public sector be minimised?

• What are the obstacles to reform and how can they be resolved?

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VIEWPOINT OF THE

NATIONAL AUDIT OFFICE UK

“A strong public audit framework contributes towards stronger financial management, good

governance and accountability, and has a deterrent effect on fraud and corruption”*

* Annual Report and Accounts, June 2014. Page 24

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Thank you for your attention

Any questions?

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