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THE EIGHTH ASSEMBLY AND SYMPOSIUM ON GOOD GOVERNANCE
OF
ASOSAI

October 9-15, 2000
Chiang Mai, THAILAND

THE STATE AUDIT OFFICE OF THAILAND

Keynote Address

Dr. Bhokin Bhalakula, Thailand

Excellency, Dr. Panya Tantiyavarong, Chairman of ASOSAI,
Distinguished Delegates and Honorable Guests,
Ladies and Gentlemen:

It is my great pleasure to be here with you this morning. I was asked by the Thai State Audit Office two months ago whether I can give a speech regarding good governance in Thailand. I did not hesitate to accept this invitation because personally I believe that the function of the two newly established institutions that is Administration Court which I am working with actually, and the State Audit Commission involve directly. Therefore this morning in this conference I would like to present some of my ideas regarding how to implement good governance in the public sector.

The term "good governance" was first coined by the World Bank a decade ago in its report on the administration of countries in Africa. Subsequently, the term was mentioned and explained in a very comprehensive approach in a United Nations Development Programme (UNDP) policy document entitled "Governance for sustainable human development in 1997. Since then, the phrase," good governance has often been quoted throughout the world. Recently, in Thailand, it has come to refer to good administration and management in the public sector in particular. This constitutes a response to the rare compliance with the rule of law and the lack of transparency of activities on the part of public authorities, though in recent years, there is a series of laws regarding people's rights and liberties and smart administrative practices. It should also be noted that the said term has been one of the conditions set out by international financial institutions in rendering assistance to the country after the financial crisis in Asia.

Nevertheless, whatever the explanation of the term, it would be meaningless if there were no serious effort to such a concept. In addition, the goal to be achieved depends almost totally on the system itself and the institutions designed to control and monitor that system. In this address, I would like to make the following points:

How important good governance is for the public sector. And, the role of the pillar institutions in guaranteeing effective implementation of good governance.

The key policy of the UNDP in promoting sustainable human development is good governance. It further believes that good governance should be a primary means of eradicating poverty (UNDP, Governance for sustainable human development, a UNDP policy document January 1997. ). Governance is subsequently defined by the UNDP as "the exercise of political, economic and administrative authority in the management of a country's affairs at all levels. It comprises the mechanisms, processes and institutions, through which citizens and groups articulate their interests, exercise their legal rights, meet their obligations and mediate their differences. Therefore, "good governance is, among other things, participatory, transparent and accountable. It is also effective and equitable. And it promotes most of all the rule of law".

The UNDP paper explains further that "governance has three legs: economic, political, and administrative. Economic governance includes decision-making processes that affect a country's activities... Political governance is the process of decision-making to formulate policy. And administrative governance is the system of policy implementation.

Besides, the UNDP stresses that "good governance encompasses the state, but it transcends the state by including the private sector and civil society organizations" and it defines the state by including institutions from both the political and public sectors. In this address, I will focus mainly on public sector institutions and public authorities who are the key players in promoting or distorting the rule of law that guarantees the sustainable development of society.

I would like to conclude by dividing the characteristics of good governance in the public sector in to the following five areas:

This terminology is not unknown in common law communities although it is better known in code law countries as "legal State" or "Etat de droit" in French. However, both terms tend to represent the same concept i.e. everybody whoever he or she is whether it be a politician, judge, government official or just the man in the street, must abide by the law. In the French legal system, in particular, in public law, the principle of legality seems to be predominant in describing, giving the power to public authorities and limiting it. Public law jurists are against the arbitrary act and abuse of power committed by the authorities. So, they invented a variety of legal frameworks and institutions to cope with irregularities and malpractice. Two of the most important organs in Thailand, among others, that are designed to protect the principle of legality are the newly established Administrative Courts and the State Audit Commission. The independence of both institutions are endorsed by the current Constitution that has been in effect since 1997.

However, in order to have good, appropriate and acceptable laws, it is vital that there be a reasonable explanation, transparency, participation, accountability etc. on the part of all concerned in society at large so that a state of affairs can be achieved in which the rule of law is truly binding.

It has long been recognized in Scandinavian countries that good administration means less concealment on the part of the authorities. Transparency is highlighted everywhere as one of the means to tackle irregularities and unreasonable acts on the part of State officials. To ensure that transparency is observed, a free flow of information and express process and procedure regarding the issuance of rules, regulations or decisions of the authorities are needed. In Thailand, two essential acts i.e. the Administrative Procedure Act and the Official Information Act were enacted in 1996 and 1997 respectively. The main objective of these acts is clear: to make transparency a concrete reality, at least in the eyes of the law. For the rest, all we need is for everyone concerned-through the two laws already mentioned to make a stand against all the kinds of irregularities that might occur. Moreover, such laws can be held as tools for the Administrative Courts and other institutions in such matters to check and control strict adherence to the principle of legality.

It is understood in a democratic society that the right' of the people is not limited only to the right to elect representatives at both the State and local levels." All men and women should have a voice in decision-making, either directly or through legitimate intermediate institutions that represent their interests. Such broad participation is built on freedom of association and speech, as well as capacities to participate constructively. (UNDP. ibid. ) The actual Constitution of the kingdom of Thailand widely recognizes the people's participation in the government of the country such as the right to participate with the State and the community in the preservation and exploitation of natural resources, the right to participate in the decision-making process of State officials in the performance of administrative functions which affect their rights and liberties, the right to recall members of the local government, and the right to instigate impeachment proceedings against a minister, member of parliament, judge, supreme prosecutor, election commissioner, ombudsman, State audit commissioner and certain high ranking officials, the right of referendum, the right to propose a bill etc. The use of said rights is already underway.

I would like to confirm that without accountability, good governance does not exist. Decision-makers whether in the public sector, the private sector and civil society organizations must be accountable to the public. It is the duty of everyone in society to feel and realize that he or she must take full responsibility in his or her sphere of work. Accountability is also a main factor in measuring whether the service rendered by the persons or organizations is in fact efficient. The Thai parliament passed an act concerning liability for torts committed by State officials in 1996 along with the Administrative Procedure Act and the Official Information Act as mentioned earlier. The Liability for Torts Act was designed to alleviate the financial burden of State officials.

From now on, the total liability will rest solely on the State if an infringement committed by the official is considered as simple negligence and not as intentional or grave carelessness. This worldwide standard is believed to encourage State officials to carry out their duties in an upright and honest manner under the Administrative Procedure Act as well as the Official Information Act.

If the four principles mentioned above must be regarded as inevitable, effectiveness and efficiency cannot be omitted either. The public sector has to prove that the service it renders is the result of the best use of available resources. Therefore, some means of both internal and external evaluation are needed and such assessment must be free of bias and undesired intervention.

The said five characteristics are interrelated, usually reinforce one another and cannot stand alone.

Institutions that Guarantee Effective Implementation of Good Governance

Good governance can only we a sweet word that brings hope to those who wish to live in a harmonious community with sustainable development in all respects. As I just cautioned, we have to be clear in answering one major question: how can we make effective implementation of good governance real?

Two essential institutions should be taken into account and their legal role, performance, experience etc., regularly assessed.

Before focusing on the structure and role of the Administrative Courts and the State Audit Commission, we should pay attention to the principle of legality or "le principle de legalite" which in the French legal system is regarded as the most important rule in protecting the rights of individuals in their dealings with the authorities as well as in encouraging good administration. According to this principle, administrative acts (actes administratifs) both regulations of general effect (actes reglementaires) and individual decisions (actes individuels) of public authorities must comply with the law. And the law here means the hierarchy of norms i.e. the constitution, parliamentary statutes, general principles of law and regulations.

I would like to point out that the French legal and administrative system are interesting in terms of the role of State officials in managing the country. It is sometimes said in France that "We are not governed, but administered."(L. Nenille Brown and John S.Bell, French administrative law, Clarendon press, Oxford, 1993, p.24. ) Within the French context, this kind of administration by bureaucrats has created an important role for Administrative Courts in controlling the legality of all "actes administratifs."

French administrative courts can be classified as follows:

Courts of general jurisdiction There are three :

• Conseil d'Etat (Supreme Administrative Court)

• Cours Admistrative d'Appel (Appellate Administrative Courts-5 Courts)

• Tribunaux Administratifs (Administrative Courts of first Instance - 26 courts in metropolitan France)

There are about 50 specialized Administrative Tribunals (Juridictions Administratives Specialisees) which were established by statutes and are subject t the direct control of the Conseil d'Etat by way of appeal ('cassation' being the French term for this). The names of these specialized tribunals whether courts, conseils, chambers, commissions etc. vary by area regarding matters ranging from public professions (such as doctors, architects) , public finance, and education to social welfare, military pensions, etc. to refugees. But the most important and spectacular are The Court of Accounts (La Cour des Comptes) and The Budget and Finance Disciplinary Court (La Cour de discipline budgetaire et financiere) or the State Audit Commission in the Thai version, an institution with powers and duties that cover most functions of both French Courts but which is not considered as a court in any formal or literal sense.

The French experience is the result of a long history and can actually be regarded as one of the most sophisticated and effective mechanisms there is for ensuring that all kinds of administrative actions conform with the principle of legality. Thus, there is no doubt that good governance can be implemented without much difficulty.

Thai Administrative Courts and the State Audit Commission will be touched upon briefly in this address in order to illustrate how the effective implementation of good governance can be achieved within the Thai context.

A copy of the French Supreme Administrative court known as "Conseil d'Etat" was first seen in Thailand in 1993. But the role of the Thai Council of State or Conseil d'Etat was limited to that of legal advisory body only. No jurisdictional mission was ever given to this institution though there were several attempts to place the necessary legislation before the Parliament for deliberation. Since 1932, during the period of constitutional monarchy, all sorts of administrative acts have been examined by the Judiciary. However, the Judicial Courts have restricted its control over the internal affair of the administration and that the Judiciary should not intervene in such affair.

The establishment of Administrative Courts did not proceed smoothly. Many Thai judicial judges constantly came with the following interpretation and explanation: that, according to the principle of "separation of powers", there can only be one jurisdictional institution i.e. the Judiciary. The idea of setting up any other kind of jurisdictional institution would be contradictory to this principle and thus unconstitutional. As a result, the duality of jurisdictions similar to the French system would not be possible in the eyes of the Judiciary. We had to wait until 1995 when the then Constitution first recognized the principle of duality of jurisdictions. The jurisdictions. The 1992 Constitution, with amendment in 1995, provided for the establishment of Administrative Courts along with the existing Judicial Courts to try and adjudicate administrative cases. Later, the current Constitution of 1997, known as the political reform constitution, confirmed the principle.

In order to realize stipulations contained in the Constitution with regard to Administrative courts, in act relating to the establishment of Administrative Courts and Administrative Court Procedure was enacted in 1999, last year. Accordingly, there are two levels of courts.

1. The Supreme Administrative Court

2. The Administrative Courts of First Instance There are 2 types :

• The Central Administrative Court

• Regional Administrative Courts

The Central Court has jurisdiction throughout Bangkok and its adjacent provinces. The 16 Regional Courts in the first stage, are located in various provinces throughout the country.

Administrative Courts have the power to try and adjudicate the following cases of dispute:

1. Cases concerning an unlawful act on the part of administrative bodies or State officials;

2. Cases concerning negligence of duties of administrative bodies or State officials;

3. Cases concerning a tort or other liability committed by administrative bodies or State officials;

4. Cases concerning administrative contracts. This is the first time in Thailand we have the notion of administrative contracts;

5. Cases stipulated by law requiring administrative bodies or State officials to file a lawsuit against a person to force that person to force that person to commit or refrain from committing any act;

6. Cases concerning matters prescribed by law to be under the jurisdiction of Administrative Courts.

However, at present, only the Supreme Administrative Court has been set up but it is not yet operational. The Central Court and some Regional Administrative Courts are under preparation for establishment. The opening of the Supreme and Central Courts are scheduled on December 2000 and that of the Regional Courts will follow suit next year.

It should also be noted that, in order to give full independence to Administrative courts, the Constitution, in section 249, stipulates that "the transfer of a judge without his or her prior consent shall not be permitted except in the case of termly transfer provided for by law, promotion to a higher position, being under a disciplinary action or becoming a defendant in a criminal case." And section 280 states that "the Administrative Courts shall have an independent secretariat, with the Secretary - General of the Office of the Administrative Courts as the superior responsible to the President of the Supreme Administrative Courts". This is the same structure as the State Audit Commission and the State Audit Office.

State audit has been known in Thailand since the reign of King Rama V in 1875. Nowadays, the present Constitution stipulates that "The State audit shall be carried out by the State Audit Commission and The Auditor-General who are independent and impartial". It is significant to note that this is the first time in Thai history that the State Audit was incorporated in the Constitution. Qualifications, prohibitions, selection and vacation of office of members of the State Audit Commission and the Auditor-General as well as their powers and duties and those of the State Audit Office which is an independent body, shall be in accordance with the Organic Law on State Audit. Under the previous enactment of 1979, there was no independent State Audit Commission; the Auditor-General who headed the Office of the Auditor-General was placed under the supervision of the Prime Minister. As a result, the old Office of the Auditor-General was required to present, for each fiscal year, a report on the audit of receipts and payments, the statement on the financial status and performance report including recommendations to the Prime Minister in order to be submitted to Parliament afterwards. Though the nomination of the Auditor-General was subject to approval by Parliament, the selection of a person to be subsequently appointed rested solely with the Prime Minister and the Cabinet. In this respect, it is doubtful whether independence and impartiality of the Auditor-General and his Office could be guaranteed.

Under the new Constitution and the Organic Act on State Audit of 1999, I dare say that the independence of the State Audit Commission, the Auditor-General and the Office of the State Audit is fully guaranteed by the said laws. That is why I mentioned above that Administrative Courts and the State Audit Commission as well as the Auditor-General, will be the two main institutions in safeguarding good governance.

The State Audit Commission has vast powers and duties, for instance:

• To set State Audit Policy;

• To set standards regarding State Audit;

• To set rules and procedures concerning budgetary and financial discipline;

• To try and adjudicate - as a supreme body - wrongful acts concerning budgetary and financial discipline;

• To set administrative fines;

• To select an appropriate person to be appointed as Auditor-General (with the approval of the Senate)etc...

The Organic Law on State Audit organized the whole system governing the Thai State Audit. Now, the State Audit Commission is held to assume a role similar to that of the French "Cour des Comptes" and "Cour de discipline budgetaire et financiere". The latter function is so evident since the law considers the State Audit Commission as a supreme organ in adjudicating infringements of budgetary and financial discipline. The law also prescribes the setting up of a Budget and Finance Disciplinary Committee, comprising a Chairman selected from among State Audit Commissioners, and not less than 4 and not more than 7 persons with expertise in accounting, internal audit, finance, law or management appointed by the State Audit Commission.

The Budget and finance Disciplinary Committee will act on behalf of the State Audit Commission and its resolutions will be forwarded to the latter for a final decision. In principle, of course the State Audit Commission's ruling on this matter can be submitted to Administrative Courts for reason of illegality.

It seems to me that in countries where the rule of law or the principle of the legal State is well established and strictly obeyed, the term "good governance" is less important and is not a subject for discussion nor does it serve as the criteria for some institutions of give assistance. Anyhow, I do accept that, in Thailand, we still need to make a greater effort and summon the requisite courage to attain such a goal. Please note that we wish to do this not to please other countries or international monetary institutions that provide our country with financial aid. In fact, we understand our problem, we have our own way out and our own idiosyncratic vision, and most of all, we have proceeded to engage in both conceptual and' tangible reform before the recent economic crisis struck in 1997.

We started to talk seriously about political reform in 1994, which finally, in 1997, led to an overhaul of the 1992 Constitution. I would like to say that the term "political reform" in our context is an expression of "good governance". There is no difference between these two things in terms of the goal to be achieved. We want to see upright and honest politicians as well as State officials. We want to see the promotion to people's rights and liberties, people's participation, easy access to official information and so on.

The present Constitution created several independent institutions, for instance, the National Counter Corruption Commission, the Election Commission, the National Human Rights Commission, and the State Audit Commission with the aim of using these bodies as protectors of "good governance" along with the newly established Constitutional Court and Administrative Courts.

The Administrative Courts are charged with protecting the principle of legality vis-a-vis all kinds of irregular acts committed by State agencies of officials whilst the State Audit Commission is expected to exert legal and professional control regarding receipts and payments, the custody and disbursement of money deriving from the national budget etc., over all audited agencies, audited officers or officials involved in such matters.

The Constitution gave these two organs the maximum chance of guaranteeing good governance. Lastly I would, therefore, like to ask all of you to lend all possible support whether moral, financial, academic or technical, to both institutions, especially the State Audit Commission, the Auditor-General and the Office of the State Audit in order to strengthen every aspect of its performance.

Please have the necessary courage and be confident you are doing the right thing. With all my best wishes.

Thank you. (Applause)

Good morning dear Colleagues, Ladies and Gentlemen,

It's a great honour to be asked to speak to you this morning on the topic of governance. We've already heard a very elegant outline particularly from a rule of law approach which I have also mentioned in my paper. However, I have not gone into the detail that the keynote speaker has already provided to you. But that presentation has set the tone for today. In the time available, it is clearly not possible to cover all the points raised in my paper but I will endeavour to cover some key issues.

You will understand I speak from an Australian perspective and that may have, in some cases, limited relevance to individual country situations. However, I will outline the principles and broad practices so that you will be able to more easily compare with those in your own environment. But importantly this afternoon we will have a group of panellists who will speak from their particular perspectives. I am sure that across the keynote speaker, myself and the panellists you will hear a variety of iews that will allow you to assess what is important in your own environment from both a governance and corporate governance point of view.

I am-going to use a few overheads basically because I know that, for many of you, my accent may be strange 'Australian English'. So at least you will have the key thoughts and perhaps better understand the concepts that you might not comprehend so well because of any accent problem.

The first observation I should make is that I have not discussed the notion of international governance in my paper other than in general terms. I would hope that, this afternoon, Mr. Nishimoto will raise with you a number of issues from the Asian Development Bank perspective that are impacting on the globalization debate and which are raising questions about what is the capacity of some governments to govern in an environment dominated by many multinational firms whose revenues often exceed their individual gross domestic product. I have not covered that situation basically because I felt that our interests collectively are in country governance issues and particularly in relation to public sector management and the role of our Supreme Audit Institutions in promoting better public administration as an effective partner in realizing the objectives and expected results of our parliament, or its equivalent, and those of our other governing bodies. With that in mind, let me now start on my presentation.

The first overhead is an early reminder that good governance is not an option. It demands instruments to ensure that democracy delivers its promise regardless of the level of development of a particular economy or society. Some might argue, and I am not necessarily one, that developing countries need stronger governance in order to realize their potential. That is a matter for those countries. I could say, from a developed country point of view, that we need good governance in order to ensure that we can reach our potential as a nation and that ordinary people in our community have the opportunity to express themselves and to work and to play in an environment which is open and transparent and which assists them to develop their individual potential.

Let me reiterate that the focus of my paper is about^ governance in the broad sense and, in particular, the important role of Supreme Audit Institutions as an essential element of good governance. The major thrust is about the notion of corporate governance or how individual organizations govern themselves in order to achieve their objectives and determine their strategies, their performance assessments and their relationships with their various stakeholders. These are all elements of good governance. From both a management and an auditing perspective, we often focus on the organization's control environment. We examine our risk management approach. We look at control as an element of risk management. One question is how do we as Supreme Audit Institutions enhance such an environment and encourage good corporate governance within individual agencies?

This overhead gives a World Bank definition of governance. There are several definitions as you are well aware but I chose this one not because it is particularly instructive but because it is pragmatic. It reflects basic issues that I continually remind my people about, hi essence, while we talk about good governance and about setting strategies and objectives and good performance measures and the like, we should never forget that we work in a political environment with all its values and judgements, inconsistencies and sometimes contradictions, that exist and which have to be managed. Those of us who have worked in public administration for many years are well aware of the difficulties that can arise in operating in a political environment when you are personally supposed not to act politically but still be responsive to the Government of the day.

Governance is said to be the exercise of political power. However, it is more than that. It is perhaps more instructive to look at what the World Bank has to say. It notes the characteristics of good governance as an efficient public service, an independent judicial system and legal framework to enforce contracts, the accountable administration of public funds, and respect for the rule of law and human rights at all levels of government. In particular, the World Bank refers to the need for an independent auditor, and I stress independent, directly responsible to a representative legislature. As well, there is a need for a pluralistic institutional structure and, in particular, a free press, that is, an open and free media.

Quite clearly, when you think about it, the concept of governance goes well beyond government. And in our country, and in a number of yours, increasingly, governance is about ways in which the private sector operates in partnerships with government in order to realize national aspirations and public sector outcomes in terms of the latter's policies and programs. Also, from a pragmatic viewpoint, the next overhead contains a statement recently made by the Chairman of the United States House International Relations Committee. He notes how, in our environments, corruption can undermine the basis of our growth and stability including an adverse impact on the morale of our entrepreneurial community and, in particular, on that of our ordinary citizens who, as the Chairman indicates, deserve good government.

In Australia, the Government has adopted governance as a priority area for its aid program. This was principally in recognition that good governance is one of the key elements of priority redirection and sustainable development. The following overhead shows a diagram reflecting the operations of our international AID organization that we call AusAID. In particular, it outlines the operational framework for effective governance. The framework is in four parts : to improve economic management, to promote effective and equitable legal systems, to strengthen civil representation and participation, and finally, the one which is the major focus of my paper, the strengthening of public sector management for more effective service delivery and greater efficiency.

This program has been in place with some of your governments. It was set up in 1997 to help improve the institutions of government. The basic proposition is that if, you can improve those institutions, then you have a reasonable chance of achieving the outcomes that you want to achieve under a sound governance framework. But it is essential to have an independent Supreme Audit Institution while ensuring openness and transparency, clear responsibility and direct accountability. These are necessary attributes for good government. If there is not a sound institutional framework within our countries, then how are we going to expect those who are responsible to actually behave in ways which reflect good governance .

From a Supreme Audit Institution perspective, and particularly from a good governance point of view, we want to ensure our independence and have this clearly specified, at least in legislation. In some countries, such as Thailand and Bangladesh, our colleagues are actually recognized in those countries' Constitutions. In Australia, the position of Auditor-General is recognized in separate legislation. It is imperative that we continue to promote the notion of independence for Supreme Audit Institutions. As part of that independence, for example, we need to have assurance about the necessary resources to carry out our functions.

We have to promote the notion of open and public reporting. There should not be undue delay in reporting or sitting on reports which are never released. Preferably, there should be instant release of reports for public debate and comment in a free press. As well, there should be processes to ensure that all audit activity is seen to be effective, for example, with appropriate follow-up action and requirements for accountability in terms of agency responses to our recommendations for improvements to be made in the way in which they operate. And we all know that audit follow-up, and particularly support from the Parliament and the Government and the agencies concerned, is absolutely imperative if we are going to achieve effective audit outcomes.

So I certainly would not argue, as this overhead indicates in a humorous way, for a short rope reflecting the extent of our mandate. What I would hope is that, if we are going to be kept on any kind of rope, then it is a very long one.

Fortunately, in Australia, we have been given an extensive mandate which has been supported both by the Government and Parliament. An extensive mandate does focus us on meeting the expectation of bureaucratic accountability for the resources being used and agency performance, particularly in achieving effective and efficient public sector management of those resources. And in discussion with many of you over the years I think this has generally been the case in most countries. As with other elements of the bureaucracy, we also have to be judged by our performance.

We simply can't be interested onlookers standing aside from the institutions of government. If we are going to make progress, then the lessons that we learn in our audits have to be promulgated and brought to the attention of our stakeholders, and hopefully implemented. And one of the ways in which a number of us are doing that we are producing better practice guides which come out of our audit activity. And what do they encapsulate? They encapsulate in many cases the good practices already being conducted within individual agencies, and observe good practice in other countries and indeed often in the private sector.

So in Australia, it has been said by the relevant minister for the public service, that what the government's objective is, is to focus today on the key elements of policy development, legislative implementation and the contracting and oversight of service delivery. Now I know that is different in many countries. What is reflects of course, as I was indicating earlier in Australia, and others, the greater private sector involvement in the delivery of public services. The greater level of privatisation that is occurring, and, of course the oversight of that privatisation by Supreme Audit Institutions. But as I was discussing with some of our colleagues last night, it is introducing new problems in the governance arena, because in essence now, there is an expectation that the private sector will in some way behave similarly to the public sector to its obligations to citizens. But of course the private sector is oriented towards making the bottom line profit or enhancing its share value. And while it may have very highly public-spirited motives, at the end of the day it is the bottom line that counts. So there is a tension already between the differences between the private sector and public sector accountability. And of course that is raising special problems for Supreme Audit Institutions. I in particular, am now encountering problems of natural justice that is coming up because of comments that are made in audit reports about the activities of the private sector in delivering of public services. And this has become a real issue in these areas where you involved greater private sector participation, and in particular when you subject that to audit.

My colleague David MacDonald who you would have all met by now, if not previously, certainly at this conference. He did an excellent report last year on "Towards Service Excellence: The Responsiveness of Government Agencies to their Clients". And what David is pointing out here, is that contrary to the views that a number of you do express, that there is no real significant difference between the public and private sector, that what he has pointed to is that there is indeed. There is the dependency factor. And obviously in the welfare areas that is quite apparent. There is the force of law, which we in fact heard from the keynote speaker this morning. And finally, there is the lack of choice. In other words you don't really have a choice when you go to the government if you have different government services quite obviously. You go to a private sector entrepreneur, you don't like the nature of their product or the price, or the service, you can go to someone else. That is not the case with the government. So there are special factors that need to be taken into account that makes the performance and accountability different. And that obviously impacts on the nature of our government's arrangements. Another observation in this, returning to the impact of the global environment, is that the question of competitiveness or contestability of the public sector against similar elements in the private sector now would seem likely to be focused more externally than internally. Now I don't know to what extent a number of you have been asked to benchmark or look at the activities of individual agencies and benchmark them against the private sector or against other equivalent public sector entities. In the environment of globalization, and if you are looking towards the competitiveness of your country, against all other countries, then the notion that is starting to emerge and be discussed in Australia, is the need for greater partnership between the public and private sectors in order to ensure that if the private sector is to compete on world markets, it has to have a very highly efficient public sector backing it. And so consequently, if we are looking at benchmarking, the issue then becomes are you looking at national benchmarks or international benchmarks. And increasingly we are saying, that we are looking at international benchmarking, not national benchmarking.

This observation is also made, which bears on a practical issue, and the practical issue is I suppose one in which there is an obvious tension as I was discussing with the interpreters at morning tea. What we would hope is that if there is going to be a choice between markets and these networks of public and private, or public sector agencies operating as a network in a more efficient and effective manner, what we would hope is the decisions that are taken on that, are based on the practicality. That is, they are based on the outcomes that they will achieve, rather than in fact philosophical differences between the parties who govern on the day. Now for many of my colleagues this sounds to be highest humbug if I can say that. But in essence what we are saying is, can we afford in this modern area, and a global environment with greater private and public sector involvement in national competitiveness, can we abstract ourselves purely by ideology by stating that purely a market situation is better than a public sector provision of these services. And what we are saying is or this particular author is saying, no we don't want the worst of both worlds, we want the best. And in fact we should be raising these issues of outcomes as indeed a lot of governments are now doing.

So in this topic of networking, and I have now skipping for the interpreters, to one that you don't have but I will bring you back to the number, this is an outcome of a study that was done in the United Kingdom. And I have used this to illustrate the relationships that I have been trying to talk about. That brings in the issues in part, the keynote speaker spoke about this morning and the earlier comment that David MacDonald made, and that is that in this relationship now that is increasingly starting to exist between the provision of services to the ultimate client, to the public, by means of contractors by the private sector, there is a system that is sitting in there that is based increasingly on trust but in particular supported by distributed and procedural justice that is, in terms of equity, that there is equity in the distribution of goods and services within the country, and of course in terms of procedural justice, and we come back to the issue raised by the keynote speaker this morning, on administrative law and the importance of administrative law. Now, again the people at the back, they wont see this, but I can illustrate it and talk about it so that you understand the point that I am making. This diagrammatic representation in that triangle referring to distributive and procedural justice can be looked at in another way. There are three elements of trust involved in such a relationship: contractual trust, that in fact you will get what you pay for ; goodwill trust, in terms of the relationship between the parties involved; and the competence, that is that the people are competent to deliver the services that in fact are required. And what these authors are saying is that obviously there needs to be cooperation and communication to make this triangle work to exhibit these three elements of trust. And in terms of the competence, that in terms of contract specification, you have to specify time, roles, rights and responsibilities.

Now these are all ingredients in one way of a market hierarchy but in essence the point I am trying to make to you in a governance framework is that with greater networking, this element of trust in these various contexts is becoming that much more important. Now to the market economist, this is anathema because what they want to see is clear measurement, clear outcomes and essential responsibilities noted for each and every party. Now of course we want to see that as well. But in essence in government there are many aspect of government that we know cannot be measured. That is that in many cases it is a qualitative assessment that is important, and as Supreme Audit Institutions, constantly we are raised, and with ourselves in the performance management area, looking at how can we best assist agencies and the government in making better qualitative assessments that reflect elements such as trust in a networking environment.

Well my friend is as puzzled as I am.

So let me now go onto corporate governance after making those general comments. I earlier made a comment, or at least implied it. I should have made it more directly, that there is no single model of governance. Equally, there is no single model of corporate governance. Now what we can do is establish some basis principles, as indeed the keynote speaker talked about earlier, and we can adapt our approaches to those principles to suit the particular governance environment the countries in which we are a part. But in essence and all the comments that have been made in this

area are similar, and this will not be any surprise to you. Indeed this is a comment that was made by the International Federation of Accountants, that there are three principles of good corporate governance; openness; integrity and accountability. And of course accountability reinforces the first two factors.

By what are we really talking about? And I think I have outlined earlier the notion, but let me just make sure that I get some agreement about that. Some people just confuse and say, "This is just another management model you are talking about". Well it is far more than a management model, because in an environment where you have a range of public enterprises, some, or many, controlled or led by a chief executive officer, some have a chief executive officer and an advisory board, some have an advisory board that operates in an executive capacity, some have commercial type boards involving private sector type people. So there is a whole range of different types of organisations and the way in which they are governed, and that responsibility and accountability will differ in those kinds of organisations and the relationship. So each organisation has to determine the appropriate corporate governance structure that bests suits its environment. But there are common principles are about it structures. Importantly, its culture, its values, its ethics, its code of conduct. The glue that holds the organisation together, that reflects its reputation out in the market or out in the public sector environment. Its policies, what it does. More particularly the way in which it deals with its various stakeholders. Increasingly the private sector is learning this lesson. That its not just price that determines its ultimate position in the market. But ultimately it's the way in which it deals with its clients that really determines its ultimate success. And so, what corporate governance then, in a narrow framework is concerned with, is the structures, the processes for decision making, the controls, the behavior that support effective accountability for performance outcomes and results. And most governments today, of course, almost as an act of faith, are now orienting themselves to results outcomes. That's what they say they are after. Process is important, but results is what we are after. In Australia, as in New Zealand and the United Kingdom to a certain extent, we are now adopting the words, "Inputs", "Outputs", "Outcomes". And what our government is saying is that outcomes are what are important. SAI's are saying, "Yes, but good processes produce good outcomes". So do not forget that you cannot undermine the notion of having good process to secure good outcomes. So that if you loose your focus on good process, then you are likely to get outcomes that are not in accordance with your expectations.

An observation that was made by an academic in Australia, I think is particularly important. And that in this new governance environment, governments can't walk away from the notion of being responsible for their citizens. In this case the comment is made, "Disinterested facilitators of market exchange". In other words we stand back and we let the market distribute the resources of the economy and the services in the most efficient and effective manner. This academic is saying, very similar to David MacDonald's earlier comment, of the differences between the public and private sectors, and what he is then going on and saying is "the limit of the governments responsibilities to its citizens are far more extensive than simply the delivery of public service performance". I would actually go further than this particular academic and say that any performance measures that do not involve the quality of the relationship with the citizen is not a performance measure. But he is talking about in a more market orientated, measurable way, the outcome that is produced in terms of money values or other quantitative results.

But there is also another important comment. Let us not get carried away by the notion that good corporate governance is some kind of insurance policy. By itself it is not. And in fact this particular comment by the Chartered Institute of Public Finance and Accountancy in the UK makes it clear that you cannot expect, even if you have got a very good system of corporate governance, you cant expect to have total protection against management failure or fraudulent behavior.

The Federation of Accountants, and again, don't worry about the details here in reading it, I just want to make the point that the Federation makes in terms of the governing body, and repeating for emphasis the points that, in a corporate governance environment, the responsibilities are basically about organisation structure and processes; the external reporting factor, which or course is your transparency and accountability; the controlled environment, which in fact includes importantly, not only the internal control environment itself and risk management, internal audit, audit committees if you have them, the budgeting and financial management frameworks, and of course importantly your staffing arrangements, and then the fourth one is the standards of behavior which I emphasized in terms of the cultural environment. And that is in the first instance the notion of real leadership and the presence of codes of conduct with the notion of objective conduct and honesty. A contrary view, in a way, to some of the points I have been making. This comment was made by a very prominent Australian who is the chairman of three major private sector corporations. And despite the support in the United Kingdom, the United States, New Zealand, Australia, Singapore and a number of other countries that I can mention, that good corporate governance is essential, and essential for the private sector as well as the public sector. And it does get a reflection in the shareholder value as indeed American studies have shown. What he is saying is an interesting point. That again is a process and outcome problem. And his point is absolutely valid. If your corporate governance frame-work is no more than a box ticking exercise, that is you go through and you just tick the questions. In many corporate governance frameworks they say, here are twenty questions or forty questions. If you get 35/40 with a tick then you have got a good corporate governance framework. What he is saying is that corporate governance is far more than ticking boxes. And he is making the important point that I have been trying to make, that, in terms of leadership and strategy and the direction which the company and/or the public agency is going, there has to be that strong emphasis on performance. In this case delivering benefits to their shareholders. He has gone on to say that indeed a corporate governance framework as some kind of insurance policy is likely to make Directors risk averse. In the same way, the public sector for years has been criticised as being risk averse. That is that we unduly paid attention to process and controls, and depended on them, and forgot about the purpose of us being there. That is to produce outcomes for our citizens. And I think that is a very timely warning to all of us in the public and private sectors that yes, we have to deliver value and at the end of the day that is the result that will count. In essence that does not negate as indeed I am sure Stan Wallis would say, it does not negate good process, it does not negate good values and ethics and codes of conduct, quite the reverse. But it is a case of getting your priorities right.

So my friend then becomes even more concerned as to exactly how to mange in that sort of contentious and contradictory environment.

It may sound axiomatic, and I mention the particular importance of the relationship with stakeholders as part of good corporate governance. But I think you would all agree with me, that it is often the fundamentals that let us down. And in this case what is being said is, in terms of having robust accountability, we need to have a clear understanding and appreciation of the roles and responsibilities of the relevant participants. And sometimes we forget about who are the participants. Sometimes, public sector managers have got a very narrow viewpoint about who are the real stakeholders. And of course then trying to ensure that in their corporate governance framework that they have clear accountability for those stakeholders falls down because they haven't properly identified who are their stakeholders and what are they responsible to them to do. Fundamental? It is the fundamentals that often let us down.

And talking about fundamentals, whenever risk management is discussed internationally or indeed nationally, the inevitable topic of risk management comes up. And of course risk management is very dear to the heart of Supreme Audit Institutions. This is a definition put out by Standards Australia, which in fact is an Australia and New Zealand Standard. You can look at international literature and you will see similar kinds of definitions. So there is nothing different about it, nothing unique. But is does in fact focus very much on a basic need which is again is the question of fundamentals and which we find consistently that agencies and indeed from the literature, private sector companies do not do. And that is to do the basic identification of the risks that their organization is facing, to analyse those risks, to assess them, to determine how to best treat them. And then of course having taken such action, to monitor and communicate to those who are taking the decisions, the extent to which they are being successfully met.

In many cases we are finding that people are going through, because we have been pressing this whole notion of risk management as part of good corporate governance to agencies, they have gone through the processes of observing the standard but what they then seem to do is just simply stop. And they do not monitor, regularly monitor and review and produce reports back, on the extent to which their whole environment is changing under a constant change of risks to the organization. So it is a static concept for them. And that is where we found that many of the inefficiencies and ineffectiveness of public sector activities are emanating from because the risk profile has changed for the organization. And they have not identified that or indeed dealt with it.

Not a flippant, but rather a flippant little equation was put to me some time again that, from a public sector management point of view, worry is a function of risk probability and its consequence. Now in essence, while that is a little lighthearted treatment, it has got a larger element of common sense about it. Because indeed if we do assess the likely probability of risks in the various areas that our organizations operate in and their consequences, there might be a good chance of us doing something about it.

The head of one of our public sector insurance organizations again, making a point similar to one of the overheads I showed you earlier, is that this is not an exercise in insurance per say. That is you pay your premium and then you forget about it. The fact of the matter is that if you do take out insurance to cover a lot of the risks to an agency or any organization, it certainly does not remove the onus to do the kinds of things that the standard requires. And that is to properly manage the risk profile. And not the least of those of course is to the reputation. And increasing, the reputation of public sector organizations is as important to those organizations as indeed, the reputation to a private sector corporation and its future. This is a comment made by Arthur Levitt who was the Chairman of the US Securities and Exchange Commission. He made that quite recently. And I think that it is a strong lesson to us all that indeed, even for SAIs, that if we do not perform, if we do not meet the expectations of our stakeholders, and we lose the confidence of those stakeholders. Once lost this fragile but strong characteristic it is almost impossible to rehabilitate. I think it is a timely lesson to all of us and to take on board both in dealing with the agencies in which we are dealing with on a day-to-day basis and indeed ourselves. Now most of you will no doubt have, and probably have seen the United Kingdom Turnbull report which indeed is just now the latest of a series of corporate governance reports in the United Kingdom, and this is the most recent one. Why is this important? Why am I putting it up? Because really for the first time what Turnbull is doing is bringing to all of our attention, not just the public sector, but the private sector, that in fact that risk is just not about financial consequences. And it is not just about financial statement audits, it is not about fraud and corruption. Risk is far broader, and in fact he is advocating in the UK context that in terms of private sector reporting that they report on a much wider range of risks that simply financial risks. And it is a lesson for the public sector as well I might say.

This is in fact, I won't put it up, no. 28.1 just refer, and a number of you will obviously be aware of this. But it is an interesting one for us in the future that the International Standard of Auditing, a draft proposed standard at this time, is requiring auditors to quiz managers and boards of directors about what systems they have in place to detect fraud and glaring errors. Auditors will also need to check whether incorrect statements in the companies books, including omission of amounts and disclosure as simply honest mistakes. Businesses will not only have to notify auditors in writing of any fraud or suspicious activities, they will also be required to produce any financial statements that turn out to be incorrect. And then finally and importantly for all of us, auditors will be required to pass these details on to those in charge of governance at the company or organization that is being audited. So while in many cases we have argued in terms of strict standards that an audit is not unnecessarily going to establish whether fraud and corruption exists. Such is the concern both in private and public sectors around the world that indeed we may find ourselves as a result of such a draft standard actually looking now at the extent to which we need to put in place audit approaches to secure that outcome that draft standard is requiring.

You would expect me, and I say this quite frequently to our colleagues, that, indeed if an organization has got, and we would hope that at least in Australia, and it is a requirement in terms of the public sector for organizations to have audit committees. We see those audit committees as being an extremely important element of a corporate governance framework, and their responsibility to a Chief Executive Officer or to a Board, Advisory, or Collegiate or Corporate. We see it as important in terms of any relationship between internal audit and we see it ultimately as a real partnership. And we see it as a means of effective communication in a good corporate governance environment with the organization. So there is a policy of no surprises. That indeed we can talk to them openly about the issues that are impacting on them, about their broad risk control for instance, about their financial management, about their financial reporting, and our concerns. And indeed where you have performance audits, where we could best conduct performance audits that will result in real value adding both to the organization itself and to the audit in terms of our reporting responsibilities to parliament.

I think also you would expect, and we have discussed this in groups in the last couple of days, there is no question that Information Technology and Communications is going to have a tremendous impact on governance and corporate governance arrangements in the future. Indeed in the globalization environment, people argue that existence of the Internet will be bypassing a lot of government activities. In fact already in Australia our taxation commissioner is undertaking studies to the extent to which the use of the Internet will undermine the revenue capacity, the taxation capacity of the Australian Government by the use of tax havens taking profits in other countries and the like. And so there is a real issue of governance here in terms of the efficiency and the effectiveness. We can improve our governance arrangements with the better use of information technology and communications. But they will also change the nature of our governance arrangements. And increasingly what we will see, as indeed in a number of our parliaments as we see now, there is a hook up right throughout the parliament of a computing network, information instantaneously available to members, reports that are made available on their PCs on their desks. The old process of actually submitting reports in paper will now be gradually replaced by submitting reports in electronic formats, instantaneous communication, and instantaneous information. And that will impact on the ability of individual members to contribute to government and it will also impact on their ability to question agencies and indeed SAIs in the conduct of their affairs. And we have to be out in the forefront of that if we are going to be effective.

Now, the Central Information Technology Unit in the United Kingdom, I put this one up . because what we've had a problem in Australia over the years, and a confrontation between so called open standards and proprietary standards. And of course the use of the Internet and the World Wide Web has got that advantage of openness to the extent to which governments and private sector people don't close down elements of that and don't make it unresponsive. But importantly what the Central IT Unit is doing as part of the UK's modernising government initiative, is trying to make government more responsive with seamless delivery of services to its citizens and it clients. That is, one illustration we talk about frequently, in the future, people won't be concerned about whether there is the social welfare department, and industry department, a local government department. They will just look at being government and they will go in and seek information and that information will come back from the responsible agencies.

The issue in a number of countries, including, and in particular Australia, where a number of agencies are actually sharing outcomes, that is they are not solely responsible for particular services. They are responsible say, a number of industry departments, industry and trade departments come under, what we call Auslndustry that services quite a number of agencies. So when a private sector entrepreneur wants to get information about manufacturing, trade, imports, exports and the like, they go into Auslndustry. That information should be provided in a seamless way by whatever agency is behind Auslndustry. Now that means that their systems have got to be interoperable. They have got to be a free flow of information. And a lot of us are not structured in that way and we are inhibiting those kind of partnering network arrangements which will facilitate governance in the future.

I don't know the extent to a number of your countries; I know some have indeed put service charters in place, ala the United Kingdom, in particular. But these have become very important in Australia from the point of view of performance assessment and measurement and from my offices being one of the prime documents that we look at in terms of assessing the significance of the relationship the clients and customers, the quality of services being delivered and indeed highlighting any areas where there are deficiencies or inefficiencies and the like. So there is, in terms of performance management, service charters have a very real role to play. And of course if they do that, then as a matter of fact the SAI's then are going to use them as a vehicle for assessing the performance of the individual agencies in that respect.

My colleague who is the Auditor General for Western Australia makes this point that in terms of this partnering, networking environment, if this is going to be more the case, which is being facilitated by information technology and communications, that, there is a practical problem of trying to comply with policies designed to achieve fairness and value for money and indeed in providing effective performance. Now I referred to that earlier and it is an ongoing conundrum, and my friend again David MacDonald is doing a study which will we will be watching with interest, on performance measurement. And it is probably one of the most, I can certainly say from our office point of view, it is one of the most challenging areas for an S AI in order to be able to properly assess the performance measures that have been put in place by agencies in particular to provide them with better practice and better means to determine their performance assessments.

David Walker, who is the head of the General Accounting Office of the United States, has made this point quite eloquently, quite recently, on the focus of performance management and the issue of accountability. And his point is that it generates valid and reliable data for program impact on the allocation of resources and of course in the economy, efficiency, effectiveness and integrity. So he is putting, in terms of his office, he is saying, that is one of the most significant things that he is having to grapple with, which as I see it, is for all of us I believe, that this whole issue of performance management, if we are really going to focus on results and outcomes becomes a real issue for SAI's.

I have also discussed with groups, in the last couple of days, this notion of triple bottom line accounting. Which is getting quite a run in a range of countries around the world and increasingly in Australia in accounting and public administration documents. And what we are talking about her is not just the accounting in terms of financial results, but in issues of social and environmental impacts. We do have some private sector companies that are taking leadership in this area. But, my concern is that whether we in the public sector, are in fact, doing what we need to do and whether we as SAI's are encouraging agencies to be more concerned with and forthcoming in trying to make wider assessments of their accountability that does include issues of environmental and social consequences. And of course this issue has been discussed in ENTOSAI as well. I have got my eyeball on the time. Again this is in the paper and I just want to refer to it. The fourth national audit agencies, which make up the Public Audit Forum in the United Kingdom, have set out three fundamental principles, which they believe underpin public audit. Not surprisingly, in terms of my opening remarks, the issue of independence from the organizations being audited, and this does raise the question that Arthur Levitt has been raising in the United States about conflicts of interest where private sector auditors are also doing consulting arrangements for the people that they are auditing; the wide scope of public audit that is covering the audit of financial statements, including legality, probity and value for money concerns, so wider than just financial performance; and the ability of public auditors to make the results of these audits available to the public and to democratically elected representatives.

I just want to reiterate those points, because I believe they are a focus and they are important for us as auditors to bear in mind, and to make sure that we can achieve those kinds of outcomes

Now I come back in another way to a former US President, and reiterate the point that at the end of the day, whether it is for agencies or for private sector organizations, or indeed SAI's, that reputation is very easily cracked and, in this case he is saying, never mended well but I would say extremely difficult to mend.

I basically finish on one of the aspects that come out of the notion of networking and partnering. And I am onto 42 for the interpreters. My view, in this environment that I have been trying to describe and the changes, and I am really supporting the notion of this organization and indeed INTOSAI, and I would actually, and in my notes, have listed ASOSAI as well. But even though I know some of your offices, have got significant resources, but I think we all have skills problems, and skills problems that are in short supply. And what I am saying here, is that increasingly, if we are going to do our jobs effectively, we are going to have to reach outside our organizations, to get the support of our colleagues here, and in the frame-work of INTOSAI generally, and importantly, with the accounting and audit profession. It is important for us to have good relationships to contribute to the standards environment and the pressure now for international harmonization of standards, and the impact on national standards that that might bring about, in some cases contradictions. To be managed. To reflect the fact that the public sector is different and that private sector standards do not automatically apply to the public sector. Although in principle they should. But there may be variations or sub-paragraphs that are essential to reflect public sector concerns in standards making.

So that is one of my pleas in the in paper. That we do try to involve ourselves with our colleagues, both in the private and public sectors in order to do our jobs that much more effectively.

So, in conclusion, and I think a big sigh of relief, I reiterate the point, and this for the interpreters is 47, a comment made by Professor Richard Mulgan at the Australian National University, who has written extensively in this area of the public and private sector dichotomy and the issue of accountability. I think this is a particular point that we need to discuss with governments and parliament, and whatever government institutions that we have, including our client agencies. That there is quite a difference, as the earlier comment I made from David MacDonald, and there is a need to recognize that the parliamentary and political environment does introduce real disciplines that are absent in the private sector, and importantly, the notion of a political opposition.

So, in my view then, for SAI's, I think that at least these three areas are important resources for us. Firstly our independence, secondly our knowledge and understanding of the public sector because I believe that is where our comparative advantage lies in terms of say, big five firms and others. And thirdly, not surprisingly, our people, and the enhancement of their skills, as I was mentioning earlier, and their ability to actually undertake their tasks to remain credible, and to maintain our reputation. In this respect I don't think we can just sit back and take it all for granted.

Thank you.

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