This article presents the findings of a limited scope survey of SAI developments in Sweden, the Netherlands, and Germany, covering the following aspects :-
The choice of revenue audit as the main subject of the survey is influenced by the pendency with the Philippine Supreme Court of the case of Bureau of Internal Revenue (BIR) Vs. Commission on Audit (G.R. No. 119934), wherein the authority of the Philippine SAI (i.e. Commission on Audit, or COA) to ascertain if tax assessment and collection practices of revenue agents are in accordance with the procedures prescribed by law and regulations, is being challenged by the central tax body (Bureau of Internal Revenue) of the Philippine Government. Fraud audit and audit by sampling have likewise been selected as survey subjects in view of the topicality of the former, and the fact that the Philippine SAI is experiencing difficulty in adopting the latter as a faciIitative audit technique.
Audit Organisation
The state audit institution of Sweden is the Riksrevisionsverket or the National Audit Office, created under the Constitution with overall responsibility for auditing the central government administration. It employs some 600 auditors or "Revisors" to perform its main tasks of: (a) developing and carrying out effectiveness audit and supervising the internal auditing of government agencies; and (b) compilation and analysis of revenues and expenditures as a basis for decision- making by the Government.
Revenue Audit
The authority of the Riksrevisionsverket to audit government revenues is based on its Constitutional function to audit the Government and its agencies, and this has never been challenged in the past. In fact, as the state audit institution, it claims the exclusive authority to obtain all forms of information from agencies of government, including tax bodies.
The national tax collection arm of Sweden is organised as a self-governing authority under the supervision of the Department of Finance, with regional and district offices all over the country. It administers all national tax revenues, which include income and value added taxes. The Riksrevisionsverket undertakes the audit of the national tax agency and its regional and district offices through audit teams on a cyclical basis of 3-year intervals. It co-ordinates closely with, and relies heavily on the internal auditors of the agency, over which it exercises supervisory powers.
To maximise its audit effectiveness, the Riksrevisionsverket places a great deal of emphasis on thorough planning of the audit, carefully considering all available information concerning the agency to be audited. Due to the number of agencies to be audited in relation to the limited revisors or auditors available, the audit scope is confined to "risk areas" as determined in the audit plan. Thus, the audit of a tax collecting agency for a particular audit period may only pertain to the assessment phase of a given tax source. Great emphasis placed on careful evaluation of the internal control systems of the tax agencies, and in this regard all records, documents and reports of the tax officers are available to the revisors for examination, including the working papers of the tax assessors and collectors.
Fraud Audit
"Fraud", in the sense of a criminal act over public funds and property, is basically a policy matter. As an audit body, it is not the responsibility of the Riksrevisionsverket to prosecute frauds, or even gather evidence necessary in its prosecution. When in the course of audit, a revisor stumbles on a case of fraud, the matter is immediately reported to the police authorities. The audit report, which is addressed to the agency head, the other executive officers and the legislature, shall invariably disclose such fraud cases.
Nevertheless there are cases when the Riksrevisionsverket undertakes special fraud audits at the behest of parliament or the Government, such as the recent audit of a controversial railway project. The participation of the SAI in this case, however, was merely to ascertain the regularity of the bidding process.
Audit Sampling
Sampling as an audit technique has long been practised by the Riksrevisionsverket and is imbedded in the computer programs which monitor the transactions of agencies. The computerised sampling programs are scientifically determined, and the selection of the samples is without human intervention.
Audit Organisation
The state audit institution of the Netherlands is the Algemene Rekenkamer or the Court of Audit, created under the Constitution, composed of three members who are appointed for life. It is charged with legality and efficiency control of government transactions and accounts. All persons and institutions charged with government funds and property are liable to the Court of Audit, and can only be released from their responsibility by a statement issued by the Court, which has a personnel complement of 330.
Revenue Audit
Under the Netherlands Constitution, the Algemene Rekenkamer is responsible for auditing state revenues and expenditures. The budget and accounting law specifies that the main duties of the Court of Audit are to conduct regularity and performance audits, both with respect to financial management and financial accounts of the government. The Court has a special bureau involved in the audit of taxes which employs fiscal specialists. In the field of revenue, attention is paid to both tax assessment and collection, including prevention of non compliance with tax laws.
The Tax and Customs Administration is the central tax body which is part of the Ministry of Finance. It collects direct taxes, as income and corporation taxes; and indirect taxes, as turnover or value added and excise taxes. As regards the audit of revenue, regularity auditing focuses primarily on the timeliness and completeness of collecting and accounting, and on the legality and regularity of tax assessments. It also extends to the assessment and substantive audit procedures within the revenue administration, as well as on the feasibility and auditability of tax rules and measures applied. SAI's access to the files and records of central government departments usually causes no serious problems. In case confidential information on individuals is at stake, it may be necessary to work out a special procedure to protect the privacy of the people or companies involved. For the purpose of revenue auditing, the Algemen Rekenkamer however has no access to the books and accounts in the possession of taxpayers.
It may be noted here that the "audit of tax assessment" by the Court of Audit is different from the "tax audit" conducted by the Tax and Customs Administration itself. Audit of assessment of taxes by the Algemen Rekenkamer had not been fully developed until 1968. However, tax audit has always been undertaken by the Tax and Customs Administration. The role of the Algemen Rekenkamer is limited to the investigation of whether the Tax and Customs Administration body does its job adequately. Recently the Court of Audit has reached an agreement with the Tax and Customs Administration concerning the assurance of quality with regard to all vital processes, including tax assessment.
The approach used in the audit of tax collections is systems-based. The Court performs both general and specific reviews of the audits performed by the internal auditors of the Tax and Customs Administration. The selection of the fields for specific reviews is generally based on risk analysis.
Fraud Audit
When the Algemen Rekenkamer detects deficiencies or weaknesses in procedure such as misassessments, it advises the responsible ministry (i.e. the Ministry of Finance in the case of tax matters) on how to improve procedures and take corrective action. General audit findings regarding questions of law are invariably reported to Parliament, while matters pertaining to the interpretation of tax laws between the authorities and citizens are resolved by the regular courts of justice.
"Fraud", in the sense of a criminal act over public funds and property, is basically a police matter. As an audit body, it is not the responsibility of the Algemen Rekenkamer to prosecute frauds, or gather evidence necessary in its prosecution.
Audit Sampling
Whenever the mass of information to be audited or examined in-depth far exceeds the capability of available auditors within a given time frame, audit sampling has to be resorted to. Random sampling is generally used, but only after applying a number of audit techniques which include: analysing official documents or files; reviewing and evaluating reports; interviewing officials and experts; applying questionnaires in person or by mail; computer aided data processing and analysis; and compiling summary or comparative tables.
Audit Organisation
The federal audit institution of Germany is the Bundesrechnungshof or the Federal Court of Audit. The functions and independence of the Bundesrechnungshof is guaranteed in the German Constitution which provides that "The Federal Court of Audit, whose members enjoy the same independence as judges, shall audit the accounts and determine whether public finances have been properly and efficiently administered". The members of the Bundesrechnungshof include the President, the Vice-president, the head of audit divisions and audit sections. Decisions of the Bundesrechnungshof are generally made by "colleges" (committees) of two members, composed of the head of the audit division and the head of the audit section; and colleges of three members, which may be formed whenever necessary by including either the President or the Vice-President. The audit of the 16 federal states are lodged with the respective State Courts of Audit, with whom the Bundesrechnungshof shares audit responsibilities on the shared inflows of principal taxes.
Revenue Audit
The Tax and Customs Administration is the central tax body of the Federation which is part of the Ministry of Finance. It collects direct taxes, such as income and corporation taxes; and indirect taxes, as turnover or value added taxes and excise taxes.
The legal authority of the Bundesrechnungshof to audit revenues is embraced in the German Federal Constitution which provides that: "The Federal Court of Audit shall audit the accounts and determine whether public finances have been properly and efficiently administered". The Constitution has thus vested on the Court of Audit a comprehensive audit authority, which embraces the power to control the whole range of public revenues. For this purpose the Court has a special bureau for the audit of taxes, which employs fiscal specialists to look into both tax assessments and collects, including the prevention of non-compliance with tax laws.
The Federal Court of Audit has the authority to demand from all government entities under audit any information or document that it may consider necessary for its purpose. Under the law, the Federal Court of Audit and its authorised officers shall be given any information that they may request which has audit implications.
The audit criteria of the Bundesrechnungshof are "regularity", "compliance" and "performance". As applied to revenues and receipts, the audit of regularity and compliance aim to determine whether taxes and receipts are properly assessed, collected and accounted for according to law and applicable rules; and also whether programmes or activities are carried out in conformity therewith, as well as whether the overall administrative action was legitimate. In performance audits, the relationship between the intended objective and the resources used to achieve it are examined; i.e. to ascertain the degree of the minimisation of cost and the maximisation of output.
Recently the Federal Court of Audit has emphasised the control of tax revenue, in keeping with the resolutions passed by several congresses of INTOSAI calling for the control of public revenues with the same intensity as the control of public expenditures. Accordingly, the focus of the audit of revenue is no longer limited to questions of regularity, but encompasses as well both the efficiency of tax collection and the uniformity and equity of tax assessment. For this purpose the Bundesrechnungshof has doubled its auditing capacities in the field of revenue control, the aim being to create a balance between the audit of public expenditure and the control of public revenue. Agencies are audited by audit teams at cyclical intervals of three years or more, depending on the priority of the issue selected. Annual audit is deemed uneconomical, and even unnecessary, unless a special situation prevails requiring exception to the cyclical audit rule.
Fraud Audit
When in the course of its audit the Bundesrechnungshof discovers a case of fraud, this fact is invariably reported to the appropriate ministry, and to Parliament if the significance of the case so requires. Also, if such fraud constitutes an offence punishable under the penal laws, the matter is reported to the police authorities who will take over the investigation and gathering of evidence. While it is not the primary responsibility of the Bundesrechnungshof to prosecute frauds involving government funds and property, it nevertheless cooperates with the police authorities in its prosecution.
Audit Sampling
As a rule the audit of revenue is based on sampling. In selecting sample size and type, the auditor ensures that fundamental and material weaknesses are carefully considered. Also, the following principles are observed :-
The results of the survey of the SAIs of Sweden, the Netherlands and Germany clearly shows that there is a characteristic pattern common among them, and a uniform observance of certain standard audit practices. These can be summarised as follows :-