Budget process and corruption:

3. Where in the budget process does corruption tend to occur?

3.5 Control:  Audit and oversight  

CONTENT ON THIS PAGE:

• Internal audit   
  
  
• External audit 
  
  
• Legislative audit / Parliamentary oversight  

In many developing countries audit organisations (from internal audit offices in ministries to supreme audit institutions) are given meagre resources and are sometimes set in a legal framework that hampers their work.

Internal audit  

Internal audits focus on the enforcement of rules and regulation at the department or ministerial level. A World Bank examination (Africa Region Info Briefs - Procurement Audits) focusing on the procurement situation in Africa has come up with a number of inadequacies normally facing audit systems:

• Compliance with basic requirements: There are difficulties with compliance in procurement planning, packaging, and scheduling. Thresholds for purchasing procedures and aggregate limits for procurement have been exceeded. There has also been a lack of transparency in the choice of firms selected.
  
  
• Procurement process: There are cases of non-compliance with the due procurement process such as non-transparency of bidding documents, dealing with e.g. deadlines for submission/receipt of quotes, delivery periods, and payment terms.
  
  
• Contract management: Inadequacies are widespread e.g. with payments being made despite incomplete delivery of goods/services. Also, the supply of equipment not meeting the specifications or the end-user's needs (it is often refurbished or second-hand equipment that is delivered), involving fraud and/or corruption is a frequent problem. Moreover, delivery notes or receipts for goods are commonly unavailable.
  
  
• Filing of papers, maintenance of asset registers, and physical verification: Signed contract documents for goods, works, and consulting services are often not complete. Non-availability of output reports under consultant contracts is another area of concern.

Coupled with meagre resources, these inadequacies make misuse of funds difficult to detect. This implies that in many countries, the internal audit systems are not effective in preventing corruption.

External audit  

External audits are undertaken by Supreme Audit Institution (SAIs) and are also concerned with the overall accountability of public funds in general. They may also to some extent focus on government performances in pursuing higher level policies and strategies (e.g. poverty alleviation). The Auditor General - as the last step in the audit cycle - prepares a report which is examined by the legislature.

Both The International Organisation of Supreme Audit Institutions (INTOSAI) and the International Budget Project (IBP) have surveyed institutional weaknesses of SAIs. The surveys have roughly the same conclusions. The more recent IBP study may be summarised as follows:

• Not all annual audit reports are made public: In 12 of the countries surveyed, citizens did not have access to auditor's reports even though such reports were produced in 11 of these countries. In 19 of the countries surveyed, the year-end audit reports of departmental expenditures released to the public did not include an executive summary.
  
  
• Few SAIs produce their attestation report within six months of the end of the fiscal year: In 15 countries, final audited accounts of national departments are either not completed within two years after the end of the fiscal year, or are not released to the public.
  
  
• Most SAIs do not release public reports of audits of extra-budgetary funds, or they do not audit such funds at all.

A recent CMI study - The accountability function of the supreme audit institutions in Malawi, Uganda, and Tanzania - found that there are potential weaknesses in the SAIs' mandate, capacity, and autonomy in all three countries:

• The Auditor General is appointed and dismissed by the President: There is so far no evidence that unwarranted dismissals have taken place. This does not imply that possible dismissal is not an effective constraint on criticism.
  
  
• Classified expenditure is applied to a very large extent.
  
  
• Lack of finance, infrastructure, and human capacity makes SAIs unable to fulfil their assigned tasks. These tasks grow steadily with e.g. the introduction of Integrated Financial Management Systems (IFMS), performance audits, and a multiplication of the number of institutions to be audited. The quality of the internal audit within spending ministries is weak and adds to the workload of SAIs.
  
  
• Lack of autonomy in financial matters compromises SAI's independence.
  
  
• Lack of access to information similarly restricts autonomy.
  
  
• Lack of cooperation with the media and civil society represents a missed opportunity to promote and improve the work of the supreme audit institutions.
  

In addition, limited donor coordination added to the workload of the SAI and placed excessive demands on an already weak institutional capacity. The problem of off-budget donor funds going straight to ministries has remained, making it hard for the audit institutions to keep track of and audit these expenditures. This has contributed to undermining the authority of the SAIs.

In terms of corruption; limited scope, transparency, resources, and autonomy, are factors that serve to make the external audit process a less effective basis for subsequent legislative scrutiny. Despite these flaws, the available studies point out that a lack of effective follow-up by Parliament and the executive is often as much - if not more - of a problem.

Legislative audit/Parliamentary oversight  

Legislative oversight normally takes place through scrutiny by the parliamentary Public Accounts Committee and a parliamentary debate.

The International Budget Project (IBP) study reveals the following:

• Limited legislative scrutiny: In four of the countries surveyed, no audit report is viewed or scrutinised by a committee of the legislature. In 11 countries only some of the reports are viewed and scrutinised.
  
  
• Poor executive follow-up: In 7 of the countries surveyed, the executive did not report to the legislature or to the public on the steps it had taken to address audit recommendations. Nor did it release findings that indicate a need for remedial action.

This shows that the legislature is, in many countries, unable to hold a government effectively to account for misuse of funds. The CMI study of SAIs in Malawi, Uganda, and Tanzania shows that:

• Lack of resources and leverage hamper the parliamentary stage of the audit cycle.
  
  
• Party discipline serves as a constraint on the operations of the committees in all three countries.
  
  
• The committees are often unable to check and ensure that their recommendations are taken into account and acted on.
  
  
• The lack of enforcement mechanisms and incentives to impose sanctions constitutes a repeating problem in audit reports, thus turning the audit cycle into a largely cosmetic exercise.

Overall, however, the study finds that parliaments, civil society, and donors increasingly show commitment to the oversight process.

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