Practical Advice for Auditors of Foreign Aid Projects in the Pacific: First Co-Operative Financial Audit

Report ID: 242

The regional co-operative audit of funds provided by foreign aid was the first pilot for a co-operative financial audit conducted by the Pacific Association of Supreme Audit Institutions (PASAI) under its co-operative audit program. Supreme Audit Institutions (SAIs) in six Pacific Island Countries (PICs) conducted individual audits. This report summarises the findings across the six individual audits conducted and identifies some of the common weaknesses in the audit of foreign aid projects. Furthermore this pilot program resulted in multiple observations and lessons learned which will assist SAIs in the conduct of financial audits of foreign aid projects in the future.

It is expected that both SAIs and development partners in the Pacific Region may learn valuable lessons from individual SAI reports as well as from this regional report to improve and enhance the quality of the audits of funds provided by foreign aid.

Six SAIs participated (Cook Islands, Fiji, Kiribati, Samoa, Tonga and Tuvalu), with 12 participants attending the planning meeting and 10 participants attending the final reporting meeting.

The conduct of a financial audit does not include any scope for the auditor to comment on the efficiency or progress of the project itself or the effectiveness of the foreign aid received by government. This scope falls under the audit requirements of a performance audit. On this basis, the audit reports provided an audit opinion on compliance with the funding agreement.

The audit findings that resulted from the audits are summarised as follows:

1. non –compliance with the funding agreement in relation to procurement processes and reporting requirements

2. weak controls over the disbursement of payments

3. poor record management systems

4. lack of asset management processes in place (no fixed assets register)

5. budget reports were not sufficiently comprehensive and were sometimes not prepared according to funding agreements (or project operational manuals)

6. untimely budget reporting which limits their usefulness

7. lack of evidence of governance arrangements such as no signing of minutes of steering committees and no sign off by review panelists to engage contractors

The management responses received from the auditees were positive and in support of the audit recommendations raised by the SAIs.

Overall the foreign aid for these projects was generally managed effectively and as a result the findings were not pervasive and the audit opinions issued were therefore unmodified. However, these audit findings are repeated year after year and usually the auditors do not follow up on the implementation of recommendations until the next annual audit. If these audit issues are not addressed by the implementing agency when the auditors raise them, this increases the opportunity in the future of risk of theft, fraud and misappropriation of funds or assets.

Details of the audit scope, including what constitutes a risk-based approach to financial auditing and audit findings can be found in Section 1 and Section 2 of this report.

Report of the Task Force on European Banking Union on prudential supervision of medium-sized and small (“less significant”) institutions in the European Union after the introduction of the Single Supervisory Mechanism

Report ID: 259

As from 2008, Europe was hit by a financial crisis and a subsequent sovereign debt crisis. Many governments supported failing financial institutions with public funds amounting to hundreds of billions of euros. In response, the countries of the euro area introduced the European Banking Union, including a Single Supervisory Mechanism. In this Mechanism, the European Central Bank is directly responsible for prudential supervision of all ‘Significant Institutions’. National Competent Authorities are directly responsible for supervising the ‘Less Significant Institutions’, based on guidance of the European Central Bank.

The Supreme Audit Institutions of Austria, Cyprus, Finland, Germany and the Netherlands carried out a parallel audit to examine banking supervision at national level. The objectives of the parallel audit were:

1) to gain insight into differences among EU Member States in the way supervisors have set up and carry out prudential supervision for LSIs, and

2) to collect evidence about possible ‘audit gaps’ that may have emerged as a result of the introduction of the Single Supervisory Mechanism.

One of the findings was that a comprehensive audit mandate assessing the supervisory review and  evaluation process of banking supervision is no guaranteed in the Single Supervisory Mechanism(SSM) and that before November 2014, National Supreme Audit Institutions audit scope went far beyond what the ECA is able to exercise today vis-à-vis the ECB.

EUROSAI website:  https://www.eurosai.org/en/databases/audits/Report-of-the-Task-Force-on-European-Banking-Union-on-prudential-supervision-of-medium-sized-and-small-less-significant-institutions-in-the-European-Union-after-the-introduction-of-the-Single-Supervisory-Mechanism/

Underlying Risks to Sustainable Public Finances

Report ID: 304

Parallel Audit Report to the Contact Committee of the heads of the SAIs  of the Member States of the European Union and the European Court of Auditors by the SAIs of Finland, Latvia, the Netherlands, Portugal, Slovakia and Sweden (Coordinator).

The parallel audit project was endorsed by the Contact Committee at its meeting in June 2015. The participating SAIs followed an agreed broad common audit approach allowing them to conduct their audit work according to their national mandates. Each SAI was free to decide the scope, audit questions and methods for their respective audit while recognising the common approach. This parallel audit report is thus a synthesis of six audits conducted independently by SAIs at the national level. It contains general observations and conclusions but no common recommendations.

The aims of the parallel audit was to 1) draw attention to risks that need to be addressed in order to maintain fiscal sustainability based on recommendations from international organisations; and 2) assess how the governments dealt with the recommendations they received.

This audit was based on reviews of country specific reports and recommendations from the European Union (EU), the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) issued in the period 2011–2015, (the audited period). The participating SAIs have mapped the various recommendations to their respective country as well as the government responses to these recommendations. They have furthermore audited the public availability of the recommendations at national level as well as national follow-up procedures. A number of SAIs have moreover assessed the effectiveness of government measures.

A general observation of the parallel audit working group is that recommendations issued by the three international organisations tend to overlap within each country. This might indicate that the international organisations have pinpointed relevant areas of concern. The overall conclusion is that multilateral surveillance of economic policy, even when the recommendations are not binding, constitutes good opportunities for governments to learn from best practices and to improve their policies.

SOURCE: https://www.eca.europa.eu/sites/cc/Lists/CCDocuments/Underlying%20Risks%20to%20Sustainable%20Public%20Finances/Parallel_Audit_Report_EN.pdf

COMPENDIUM CAROSAI PROGRAME ON COOPERATIVE AUDITS OF REVENUE DEPARTMENT

Report ID: 308

From 2013 to 2015, the SAIs of Bahamas, Barbados, Grenada, Guyana, Jamaica y St. Lucia conducted a parallel audit of revenues,aimed to improve SAI’s professional staff and organisational capacity to conduct and report on audit of revenues / revenue departments (AIM). This audit took place under the framework of a CAROSAI Programme on Cooperative Audits of Revenue Department supported by the INTOSAI Development Initiative (IDI), the INTOSAI Capacity Building Committee (CBC).

The audit objective was to assess the effectiveness of the management of taxes (such as VAT, income tax, business tax) in the participating countries by examining key aspects of the revenue collection process: 1. Registration; 2. Collection; 3. Compliance and enforcement; and 4. Monitoring and Reporting.

A general conclusion was tbat current management performance reporting mechanisms across the agencies audited did not enable management to exercise sufficient ongoing control over the debt collection function. In some instances high level revenue targets were set related to a predetermined value as opposed to an accurate assessment of total obligations.

This impacts governments’ revenue base. The development of a monitoring strategy would provide immediate business benefits by ensuring that where ineffective processes in the debt collections function are identified, they are reported to management promptly so that remedial action can be taken.

Over the longer term, regular management reporting based on monitoring the performance of the debt collection activities (with Key Performance Indicators assigned) would support management’s responsibility to ensure the efficiency and effectiveness of its collections business operations.

Source: https://www.eurosai.org/handle404?exporturi=/export/sites/eurosai/.content/documents/CAROSAI-Compendium.pdf

Rapport de la task force sur l'union bancaire européenne au comité de contact des présidents des institutions supérieures de contrôle des États membres de l'Union européenne et de la Cour des comptes européenne

Report ID: 317

En 2008, l'Europe a été frappée par une crise financière et une crise de la dette souveraine qui a suivi. De nombreux gouvernements ont soutenu des institutions financières en faillite avec des fonds publics s'élevant à des centaines de milliards d'euros. En réaction, les pays de la zone euro ont mis en place l'Union bancaire européenne, qui comprend un mécanisme de surveillance unique.  Dans le cadre de ce mécanisme, la Banque centrale européenne est directement responsable de la surveillance prudentielle de toutes les "institutions importantes". Les autorités nationales compétentes sont directement responsables de la surveillance des "institutions moins importantes", sur la base des orientations de la Banque centrale européenne.

Les institutions supérieures de contrôle de l'Autriche, de Chypre, de la Finlande, de l'Allemagne et des Pays-Bas ont effectué un audit parallèle pour examiner le contrôle bancaire au niveau national. Les objectifs de l'audit parallèle étaient les suivants:

1) de mieux comprendre les différences entre les États membres de l'UE dans la manière dont les autorités de surveillance ont mis en place et exercent le contrôle prudentiel des INS, et

2) de recueillir des éléments probants sur les éventuelles "lacunes en matière d'audit" qui ont pu apparaître à la suite de l'introduction du mécanisme de contrôle unique.

L'une des conclusions était qu'un mandat d'audit complet évaluant le processus des contrôle et d'évaluation du contrôle bancaire n'est pas garanti dans le cadre du mécanisme de surveillance unique (MSS) et qu'avant novembre 2014, le champ d'audit des institutions nationales supérieures de contrôle des finances publiques allait bien au-delà de ce que la CCE est en mesure d'exercer aujourd'hui vis-à-vis de la BCE.

Fonte: https://www.eca.europa.eu/sites/cc/Lists/CCDocuments/Task_Force_EBU/Task_Force_EBU_FR.pdf