• Theme: Role of SAIs in promoting effective management of public finance and investments.

• Sub-Theme I: Audit mandate, strategies and methodologies in improving public financial management.

• Sub-Theme II: Auditing of public investments

• Sub-Theme III: Auditing of financial institutions and insurance companies.

• The roles and functions of SAIs differ widely. Some have responsibilities in relation to all levels of government, from local up to national levels, while others operate only at the national level. SAI differ also in the extent of their audit mandate; and there are significant differences in the political and governmental systems within which they discharge their functions.

• Some SAIs have powers of surcharge and disallowance to enforce corrective measures, while others do not have such powers. The extent to which such powers are given to the SAI should be determined by the highest legislative authority in the respective country.

• RECOGNISING the increasing involvement of governments in economic, entrepreneurial and development activities in all member countries;
   

• RECOGNISING the increasing demand for more efficient and effective management of public sector resources;
   

• RECOGNISING that the efficient and effective use of public sector resources depends first and foremost on sound financial management practices, and comprehensive reporting and accountability processes;
   

• RECOGNISING that member SAIs of ASOSAI can, and should, play an active and influential role in promoting more effective management of public finance and investments through;

1. encouraging their respective governments, by whatever means considered appropriate, to introduce more effective financial management techniques and reporting standards, and;
    

2. developing the capability of their SAIs to carry out more effective regularity audits and performance audits of public financial activities, including investment, financing and insurance activities, with a view to identifying where improvements can be made in the conduct of such activities.

1.1 Public accountability is the responsibility of those entrusted with public resources to account for those resources. It is an essential element of the obligation under which a delegated authority is given the right to take decisions on behalf of the nation.

1.2 SAIs play a unique and essential role in improving public accountability. In part, they do so by promoting improvements in public financial management.

1. emphasising the importance of accountability for outputs and outcomes of activities, as well as the disposition of inputs,
    

2. adopting requirements and standards for auditee organisations to apply corporate planning techniques, including clear specification of goals and objectives and performance measures
    

3. adopting comprehensive public reporting standards for departments and authorities, covering the preparation and audit of annual financial statements, preferably on an accrual basis, and achievements in relation to the corporate plan,
    

4. developing or strengthening systems for the effective management of the public revenues, expenditures, public borrowings and public debt, and,
    

5. requiring auditees that have not done so to institute an effective internal audit functions as part of the internal control system, in accordance with standards and guidelines issued by the appropriate central agencies.

1.4 The jurisdiction, powers and functions of the SAIs should be clearly set out in the Constitution or a statute of the legislature.

1.5 Ideally SAIs should have independence in relation to all aspects of their resources, and in relation to their auditing and reporting responsibilities. SAIs should have sufficiently wide powers, including powers to carry out and report on performance audits, powers of access to books and records, powers to obtain information from any official and powers to make suggestions for improving financial management systems, internal control systems and reporting systems.

1. raising the profile of the SAI, and continuously promoting public awareness of the value of sound financial management and the vital role the SAI plays in improving public administration, for the general good, and
    

2. persuading the respective government and legislature that in order to attain its objectives the SAI should have sufficient independence and powers.

1.7 SAIs should adopt procedures for the forward planning of audit activity so that scarce audit resources are concentrated primarily in those areas where opportunities for improvement in financial management, and more effective achievement of results and outcomes, are most likely to be found.

1.8 The carrying out of audit tasks, including performance audits, should focus predominantly on those aspects of public finance and investment where the risk of error, fraud, mismanagement, or other distortion of results and outcomes, is perceived to be the greatest.

1.9 In the case of a major public programme or investment project extending over a period of years, in addition to annual regularity audits, performance audits should be undertaken at appropriate intervals throughout the life of the programme or project, rather than only after it has been completed.

1.11 SAIs should adopt preliminary survey and analytical review techniques in order to establish priorities for the conduct of performance audits, and hence achieve the most effective deployment of scarce auditing resources.

1. the planned and actual outputs and outcomes of the audited activity,

2. the management structures and methods in place to ensure that the outcomes are as planned,

3. the existence and appropriateness of performance standards, measures, and indicators, and

4. the external factors which limit the achievement by the auditee organisation of its objectives.

1.13 In the reports on such audits, SAIs should endeavour to highlight where significant improvements can be made, and endeavour to make practical suggestions to improve management performance. Before finalising the report, the SAI should discuss the audit findings with the auditee and seek agreement to the recommendations as far as possible.

2.2 SAIs have to ensure that all aspects of investment projects and programmes, such as economic, technical and administrative and financial, are appropriately planned, designed and implemented, and that adequate recording, reporting and evaluation systems are developed by executive authorities.

2.3 There being alternative uses or opportunity costs for funds, all available options for investments have to be considered as an integral part of the decision making process and these should be available for audit examination.

2.4 From the point of view of the accountability of government for the entire portfolio of public investment, it is desirable that they are distinctly disclosed in the national budget and accounts covering also those in development of human resources and enhancement of the productivity of physical assets.

2.6 The audit of public investments should, inter alia, consider the feasibility studies, guarantees of funding and detailed project planning reports relating to the investments.

2.7 Where public investments are made in business enterprises or undertakings, profitability being a necessary condition in addition to socio-economic benefits that may accrue, financial analysis with emphasis on return on investments should receive adequate attention in audit.

2.8 Where public investments are made in promotional, developmental, research and extension activities, socio-economic benefits being a necessary condition apart from financial viability considerations, socio-economic and cost-effectiveness analysis should be primary basis for audit examination.

2.9 Although the scope of audit may not extend to questioning the policy decisions in regard to investments, the adequacy as well as the reliability of the information provided for the purpose of the decisions should, inter alia, be considered.

2.10 SAIs may review an approved investment project or programme even though implementation may not have commenced, so that possible risk and deficiencies could be identified at an early stage.

2.11 The nature and significance of public investments being what they are, there should be comprehensive financial evaluation with emphasis on auditing the final accounts for completed projects. Furthermore, emphasis should be put on reviewing the project implementation systems and procedures. And there should be increasing resort to socio-economic and technical analysis and evaluation, as far as possible. For this purpose the relevant expertise should either be built up within SAIs or hired as and when needed.

2.12 An oft noticed phenomenon in public investment programmes and projects is cost escalation owing to initial planning errors, unrealistic cost estimates, or time overruns caused by poor implementation management. Cost estimation and control should therefore receive special attention in audit.

2.13 In addition to audit of individual investments it may be desirable and even necessary to organise a sectoral review of investments, especially in a planned economy, in order to promote better coordination and management.

2.14 Crash programmes of public investments in urgent rehabilitation and rebuilding in the event of destruction of assets caused by natural calamities, war, civil disturbances or acts of terrorism amounting to national disaster, cannot be evaluated in audit applying normal standards of planning, implementation and other accountability arrangements. It may be necessary for the government to lay down appropriate standards consistent with the minimum needs of public accountability in these circumstances. The audit then may be conducted on the basis of such standards and it may be suitably mentioned in the related audit reports.

1. make the most effective use of resources in assisting those in need, and
    

2. ensure appropriate economy, efficiency and accountability.

3.1 This sub-theme relates to Public Financial Institutions (PFIs) and Public Insurance Companies/Corporations (PICs) which include major entities pertaining to banking, development finance, investments and insurance, etc. but not specialised organisations pertaining to social welfare such as pension, health, old age etc.

3.4 SAIs should increase the scope of performance audit of PFIs and PICs to cover all key aspects of their operations of PFIs and PICs, including, where appropriate, the review of specific insurance contracts and loans. SAIs should also develop audit planning documentation to include all such areas and have this documentation updated when new aspects come to light.

3.6 PFIs and PICs generally operate in a highly computerised environment, calling for the use of Computer assisted Audit Techniques (CAATs) by SAIs. However, the use of CAATs has not reached an operational stage in most SAIs. It is essential, therefore, that SAIs develop their own methods and techniques to audit effectively in this environment; to acquire the necessary hardware and software; and, where appropriate, in the early stages, to make arrangements with auditees for the use of their computer facilities in applying CAATs.

3.7 Since the availability of the necessary hardware and software in the SAI may be a key constraint in applying CAATs, SAIs should take steps to identify their essential requirements and proceed to acquire appropriate computer facilities as early as practicable.

3.9 PFIs and PICs are specialised agencies and their operations are technically complex. The audit of these organisations therefore requires matching expertise within the SAI. This represents a major challenge for most SAIs.

3.10 SAIs should recruit suitable personnel for the purpose of further training in the use of CAATs and for doing audit through the use of data available on computer installations of auditee organisations.

3.11 SAIs should make an effort to recruit personnel who are qualified in the relevant disciplines, such as banking and insurance.

3.12 SAIs may also train their own personnel in the relevant fields in cooperation with training programmes of PFIs and PICs.

3.13 SAIs may develop their own courses for performance audit of PFIs and PICs and cooperate with other SAIs in improving their methodology.