A PRESENTATION BY THE AUDITOR- GENERAL OF GHANA ON SUB- THEME No 5 OF THE CONCEPT PAPER ON THE FORUM:

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1 A PRESENTATION BY THE AUDITOR- GENERAL OF GHANA ON SUB- THEME No 5 OF THE CONCEPT PAPER ON THE FORUM: ADOPTION OF PERFORMANCE AND RESULTS BASED AUDIT, CONTROL, INSPECTION AND EVALUATION 1.0 Introduction 1. The objective of this paper is to present an overview of the development of performance auditing in Ghana, the challenges in the development of performance audit and the way forward. The project proposal for the theme of the conference highlighted six questions the presentation has attempted to answer by putting the adoption of performance auditing in Ghana SAI in context. The Paper also provides shared experience for CAFRAD 2.0 Why Performance Audit is imperative for all state institutions 2. The Guidelines of International Organisation of Supreme Audit Institutions (INTOSAI) on Auditing Precepts 1 affirmed the significance of the traditional task of Supreme Audit Institutions (SAI),that is, to audit the legality and regularity of financial management and accounting. It however went further to acknowledge another equally important type of audit-performance/ value for money audit. This type of audit seeks to examine the economy, efficiency and effectiveness of public administration. 3. A full scope audit of the public sector will therefore cover not only financial operations but also the full range of government activities including organizational and administrative systems. Each SAI should therefore determine on the basis of its priorities, the appropriate mix of VFM and financial audits to be carried out in an audit engagement in the public sector. 1 INTOSAI (International Organisation of Supreme Audit Institutions), 1977, Lima Declaration of Guidelines on Auditing Precepts 1

2 4. The Ghana Audit Service (GAS), the SAI of Ghana, is mandated by Article 187 of the 1992 Constitution of the Republic of Ghana to audit the public accounts of Ghana. Like most SAIs, it was originally established to fulfill a narrow regularity auditing function, that is, to provide assurance that the financial statements fairly reflected the revenues collected and expenditure incurred and that the implementing bodies had appropriate authority for the transactions they had undertaken and had acted in accordance with relevant laws and regulations. 5. In keeping with the Lima declaration and emerging trends and best practices in international auditing, the range of work of GAS has been expanded to include a consideration of how well government bodies perform their work, typically looking at the economy, efficiency and effectiveness of service delivery. 6. The mandate for this type of audit is provided in Section 13e of GAS Act of 2000, Act 584, which requires the Auditor-General to audit programmes and activities of public sector entities to determine whether they have been undertaken with due regard to economy, efficiency and effectiveness in relation to the resources utilized and the results achieved. GAS started performance auditing in In furtherance of the need to ensure SAIs devote considerable time, attention and resources to VFM, the AFROSAI-E expects SAIs as part of their capacity building to be at level 4 ( the Managed Level 2 ) of the Institutional Capacity Building Framework. At this level, SAIs are expected to use at least 40% of their audit staff for performance auditing by The expectation is that performance audit practice will grow over the period from Level 1, the Founding Level, where no performance audit is carried out to Managed Level at Level Benefits of Performance Auditing 8. Performance auditing is a non-recurrent independent examination 3 of government undertakings, programs, activities or organization with due regard to economy, efficiency and effectiveness in the use of resources in carrying out its responsibilities. 2 AFROSAI-E: A good practice guide to enhance the independence of Supreme Audit Institutions in English Speaking African Countries, Handbook in Performance Auditing, Theory and Practice 2

3 9. Performance audit is not a regular audit with formalized opinion but an examination made on an ad hoc basis that focuses on performance rather than expenditure and accounting. Some of the benefits of carrying out performance auditing are as follows: Performance auditing promotes good governance 10. Good governance encompasses concepts such as the 3Es, transparency and accountability and the United Nation and Development Partners are increasingly engaging countries only on condition that they undertake reforms that ensure good governance. Consequently, the output, quality and impact of public services are becoming predominant issues which Donors, Parliamentarians and governments expect SAIs to address by carrying out performance auditing. 11. Carrying out performance auditing essentially entails trying to find out whether or not we are getting value for money and if it is possible, to spend the money better or more wisely. To answer these questions, performance auditing tries to find out: whether things are being done the right way, and if the right things are being done. 12. While the first question deals with whether policy decisions are being carried out properly, the second refers to the effectiveness and the impact on society. In principle however, Performance auditors do not question the merit of a Policy in itself eg. Why the Government decided to build a bridge on a certain river. But in the course of implementing the policy, that is, building the bridge, performance auditors can examine whether the implementation was carried out economically, efficiently and effectively Performance auditing promotes transparency 13. Performance auditing is also a way for the taxpayers, financiers, legislature, executive as well as ordinary citizens to execute control and to obtain insight into the running and outcomes of different government activities. Insight is facilitated by the fact that performance auditing is independent of the agency whose activities are subject to audit. In this way, performance auditing promotes transparency Performance auditing facilitates renewal and change 14. Inherent incentives for improvements are limited in the public sector compared to the private one, where the market mechanism and the making of profits is an automatic 3

4 system for assessing a company s success. The performance audit process results in recommendations which initiates a process of renewal and change, leading to greater efficiency and effectiveness in the governmental administration Why is the audit or control of state institutions difficult? 15. Notwithstanding the immense benefits to be derived from carrying out performance auditing, various dynamics within the internal and the external environment within which the a SAI operates makes carrying out performance auditing a daunting task. Some of the challenges which make the audit of state institutions difficult are discussed below. Lack of operational and functional independence 16. SAIs often lack the operational and functional independence they need to be able to function effectively. These may result from the appointment of the Auditor-General by the President without the involvement of Parliament or keeping him in an acting position, where by the incumbent may pander to the whims of the executive to assure his retention. Also the legal framework may be weak or silent on his tenure of office, conditions of service and legal immunity from prosecution in the course of his work. Inappropriate legal framework 17. There could be the absence of an appropriate and effective constitutional/statutory/legal framework specifying who and what can be audited, the scope Inadequate funding of SAIs 18. The administrative or operational expenses of the SAI are often determined by the Treasury Office/Ministry of Finance which agencies are invariably audited by the Auditor-General. Even though the determination is done according to the level of resources Government can offer from the consolidated fund for the performance of external audit function, public officials have often starved accountability institutions of much needed funds for the hiring and retention of highly qualified personnel and their operations. Inadequate resources lead to either no audits or at best poor quality audits as less qualified and poorly remunerated staff are used to conduct audits. Inadequate follow-up on audit recommendations 4

5 19. It is not uncommon for the Executive to refuse to act on the findings of SAIs for political expediency. The operational independence of SAIs to carry out audits is rendered ineffective where issues of accountability identified and reported for corrective action are ignored and therefore keep recurring in subsequent audit reports. This renders the work of SAIs useless and the resources employed wasted and is a big disincentive for due diligent audits in future. The concept of Audit Reports Implementation Committee has been introduced to pressurize management to implement audit recommendations. Supportive environment and Audited entities 20. Corruption can only be effectively prevented and combated if a strong, complaint and accountable Public Financial Management (PMF) Systems, institutions and practices are in place. The absence of a comprehensive and strong PFM system for controlling expenditure commitments and annual budgeting makes the audit of the institutions difficult. The introduction of the Ghana Integrated Information Management System (GIFMIS) which is now being piloted will provide the E governance framework to enhance audit work. 21. Senior managers often distance themselves from the audit process because they are unaware of the benefits of performance audit, e.g., to provide insight that would enable them re-examine their operations to assure economy, efficiency and effectiveness. They rather assign all responsibility of responding to audit observations and other interactions to accountants and other subordinate staff. They tend to get surprised when they receive audit reports and realize that the issues touched on during the audit process were highly placed issues that required senior management involvement. 4.0 How to make the institutions of control instruments to fight injustice and to establish the system of accountability. 22. SAI must be fair, objective and professional in conducting audits of government program and activities in order to gain acceptability. The choice of audit areas should be of interest, topical and adds value to improve the use of state resources. The audit reports have to be credible with sufficient and persuasive evidence so as to gain the trust of the government, parliament and the public. It is only then that SAI will be positioning itself to justify its role as instrument for enforcing accountability. 5

6 23. To gain this legitimacy, GAS has identified the following areas for special emphasis: Selection of audit areas developing audit criteria quality assurance, and conducting performance auditing with an environmental perspective Selection of Audit topics 24. performance Auditing was introduced in Ghana Audit Service in 2002 as part of a wider Public Sector reforms. GAS has so far tabled 32 reports in Parliament which covered diverse audit topics. Audits of Health delivery, water and sanitation, Agriculture, and areas covered in the Millennium Development Goals have been conducted and received the approval of PAC. Reports of AFROSAI-E Quality Assurance Quality Reviewers, on performance audit reports produced by member countries show that selection of audit topics were generally based on public concerns expressed in the media. To assert our independence and neutrality, GAS select audit topics based on a systematic selection procedure that is risk based, that is, risk to the entity, program or activity concerned rather than solely on media reportage which are usually politically inclined. 25. The motivation to audit a program or activity should not be decided at the instance of a politician or a journalist but should be a planned process devoid of political interference. In Ghana, environmental scanning has been used with little success because of lack of cooperation from the organizations. A strategy is now in place to develop a One Pass Plan (OPP), which is based on risk to select audit topics for the next three years Audit Criteria 26. The INTOSAI Implementation Guideline for Performance audit, defines audit criteria are reasonable and attainable standards of performance against which the economy, efficiency and effectiveness of activities can be assessed. While in some countries there 6

7 are reasonable levels of acceptable standards for comparison, in others they are limited. The source of audit criteria, unfortunately in Ghana are limited more often than not to the audit entity s set targets. Having a wider acceptable source of criteria that include areas of good practice and criteria developed by professionally accepted bodies can be a common basis for communicating with the stake holders, making findings more acceptable Quality Assurance 27. Quality Assurance in Performance auditing is key and a critical aspect of the audit process. INTOSAI auditing standards states that the SAI should establish systems to confirm that integral quality assurance processes have operated satisfactorily; ensure the quality of audit reports; and to secure quality improvements and avoid repetition of weaknesses. 28. The establishments of quality assurance systems have either not existed or have not been effective in most SAIs. AFROSAI-E reviewers have identified this weakness in most member states. The use of internal peer review as a quality assurance and quality control measure does not make up for activities designed to ensure that audits are conducted in accordance with relevant auditing standards. Without well established Quality Assurance systems, quality reports are not guaranteed, reports take long to complete thus becoming irrelevant at the time they are tabled Performance auditing with an environmental perspective 29. Over the last two decades, following the Earth summit in Rio de Janeiro in 1992, then the UN adoption in 2000 of the Millennium Development Goals and the World Summit on Sustainable Development in 2002 in Johannesburg, global awareness of environmental issues has grown rapidly. 7

8 30. The increased knowledge and experience acquired during this period has led to rethinking of the role and responsibilities of both government and industry. The INTOSAI working group on Environmental Auditing developed a guideline and methodology for the conduct of performance audit with environmental perspective. The Guidance on conducting Audit of activities with an Environmental Perspective was approved at the 17 th INTOSAI congress in Seoul in 2001 to guide SAIs in understanding the nature of such audits. 31. AFROSAI-E member states have produced performance audit reports with environmental perspectives to their respective Parliament but these reports were not seen as environmental audits. A conscious effort was not made to consider environmental issues in the reports. Three of such reports by Ghana SAI included Management of World Heritage Sites (The Slave forts and Castles), Accountability arrangement in solid waste management and the Management of Wetland (RAMSAI Sites). The constant violation of the rights of the poor to clean environment and potable water can be controlled if SAIs undertake these audits to make governments aware of the injustices meted to them when activities of investors in mining and timber concessions are not closely monitored. 5.0 How to check the effectiveness of government actions 32. As external auditors to government, we make an important contribution in checking the effectiveness of government programs through performance audits by adopting a forward looking and constructive approach to: reviewing how departments and agencies determine the need for goods and services and how they procure them to identify how this might be done better highlighting good practice backed up by practical examples which might be more widely applied 8

9 supporting well managed risk taking and innovation that are likely to lead to sustainable improvements in both the cost and the quality of the programs activities or goods and services ensuring that departments and agencies have overall organizational and management capability to undertake large, novel and/ or contentious programs by bringing to the fore the short comings and failures of such departments comparing the achieved impact and effects of government program with the intended impact and the cost of achieving such impact or effects, and cooperating and sharing ideas and experiences with other SAIs in a bid to improve the quality of our audits in order to achieve our audit mandate effectively. 6.0 What missions and what capabilities must be conferred to control institutions so that they fulfill efficiently their mission? 33. Some of the missions and capabilities that must be conferred on SAIs to enable them contribute towards the prudent use and accountability of state resource are as follows: Sufficiently broad mandate 34. A SAI should have sufficiently broad mandate which should be embedded in legislations enacted by Parliament and possibly, in the highest law of the land determining the independence of the SAI, its functions, scope of audits, entities to be audited and the reporting responsibilities in terms of who to report to, when to report and what to report on. Independence 35. Independence is a basic prerequisite of an effectively functioning SAI given the need to report directly to Parliament without any interference from any arm or branch of government. The Auditor-general s mode of appointment, determination of his conditions of service, specification of the term of office and or retiring age and protection against 9

10 arbitrary removal from office should be provided for to assure security of tenure of office of the Auditor-General. Unfettered access to records and information 36. SAIs as accountability institutions cannot operate effectively if they do not have adequate access to information. The Auditor-General s unbridled access to institutional processes, books, records, returns and other documents relevant to the audit must be guaranteed by the SAI s legislation. Adequate funding, facilities and staff 37. Performance auditing is usually more expensive than the traditional financial audit and may require teams with special competencies to undertake, especially those involving complex topics. Governments need to recognize the cost as well as the benefits derived from the audits and provide commensurate funding. To ensure high quality audit work, SAIs must engage well qualified staff who should be adequately remunerated and encouraged to continuously build their capacities in their areas of expertise. This can only be achieved if the SAI is adequately resourced. Sharing of knowledge and experiences 38. Sharing ideas, knowledge and experience with other SAIs and interested stake holders inside and outside the SAI s jurisdiction helps to improve audits, harmonise standards, promote international best practices and generally help the SAI achieve its mandate. SAIs could avail themselves to international peer review and participate in international, regional and inter-regional congresses and training seminars in order to build the capacity of staff to improve their auditing practices. 10

11 Audit reporting and following up on audit recommendations 39. SAIs should have the freedom to decide on the content, scope and timing of audit reports and the right to publish and disseminate them as required by the 6 th INTOSAI principle. Additionally, PACs deliberation on the Auditor-General s report will remain merely an academic exercise if the recommendations are not effectively followed up and sanctions applied for non- performance. Improved stakeholder relations 40. The Audit entities, PAC, Media, the Public, Academia and other Research institutions are stakeholders SAIs should effectively engage by determining the respective mutual expectation gaps and strategizing to build the appropriate bridges. Civil Society Organisations may also be partnered to suggest potential audit topics and also act as a pressure to compel the Executive to Implement audit recommendations. Conclusion 41. A supreme audit institution s effectiveness in carrying out its oversight responsibility of ensuring accountability and transparency in the effective use of public resources depends to a large extent on its autonomy. The International Organisation of Supreme Audit Institutions 4 (INTOSAI) established eight core principles of the independence of SAIs that are essential requirements for effective public sector auditing. These have been referred to elsewhere in the presentation. SAIs push towards performance auditing can only be realized if these core principles are embedded in the appropriate legal frameworks of the respective countries and their de facto application ensured. Thank you for your attention. Mr. Yaw Agyei SIFAH (Ghana) 4 INTOSAI (International Organisation of Supreme Audit Institutions, 1977, Lima Declaration of Guidelines on Auditing Precepts 11