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1 AFRICAN DEVELOPMENT BANK GROUP WORLD BANK GROUP Strengthening Country External Audit Systems in Africa A Joint Strategy of the Africa Development Bank and the World Bank African Development Bank World Bank Sector Director Sector Manager Task Manager Task Team Peer Reviewers Consultants Sector Director Sector Manager Task Manager Reviewers Gabriel NEGATU Carlos SANTISO Abdoulaye COULIBALY Lisandro MARTIN Kenneth Jerry ONYANGO, Damoni KITABIRE, Devinder GOYAL, Chigomezgo MTEGHA, Emanuele SANTI, Henri Marcelin NDONG- NTAH ORPC, ORQR, ORPF, OAGL, GECL Claude CORNUAU, Andy WYNNE Gerard BYAM Edward OLOWO-OKERE Renaud SELIGMANN AFTFM, AFTPR, AFTPC Consultations This document outlines the strategic orientations for the African Development Bank and the World Bank s contribution to strengthen auditing in Africa. It was prepared in consultation and with guidance from African Supreme Audit Institutions and development partners, in particular through a consultative forum organized in Tunis in March 2008 and internal consultations within the World Bank and the African Development Bank in OSGE FEBRUARY 2010

2 Table of contents 1. Introduction 1 2. Challenges and Opportunities for the Reform of Supreme Audit Institutions Performance of Supreme Audit Institutions Supreme Audit Institution status and mandate Supreme Audit Institutions and aid effectiveness 4 3. Recent Experience of the African Development Bank and the World Bank in Supporting Supreme Audit Institutions African Development Bank World Bank 6 4. Strategic Thrust and Operational Priorities Objectives and approach Overall approach Priority areas Levels of Intervention Instruments, Synergies and Complementarities Policy dialogue Advisory and analytical activities Operational Support Delivering results Conclusions and Recommendation Conclusions Recommendation 18 Annexes Annex 1: Action Plan 19 Annex 2: Paris Declaration and Accra Agenda for Action relevant aspects 21 Annex 3: Global Partnership Agreement 22 Annex 4: Background to Supreme Audit Institutions 23 Annex 5: AFROSAI-E Institutional Framework 27 Annex 6: ADB Support to Supreme Audit Institutions 31 Annex 7: References and Notes 33

3 Abbreviations and Acronyms AAA ADB AFROSAI AFROSAI-E CREFIAF EITI HIPC IDI INTOSAI IIA PD PEFA PEMFAR ROSC SAI Accra Agenda for Action African Development Bank African Organization of Supreme Audit Institutions African Organization of Supreme Audit Institutions Anglophone countries Conseil Régional de Formation des Institutions Supérieures de Contrôle des Finances Publiques des Pays Francophones d Afrique au Sud du Sahara (African Organisation of Supreme Audit Institutions Francophone countries) Extractive Industries Transparency Initiative Heavily Indebted Poor Country INTOSAI Development Initiative International Organization of Supreme Audit Institutions Institute of Internal Auditors Paris Declaration Public Expenditure and Financial Accountability Public Expenditure Management and Financial Accountability Report on the Observation of Standards and Codes Supreme Audit Institution

4 Executive Summary 1. There is a wide consensus on the importance of Supreme Audit Institutions in strengthening public financial management and good financial governance across Africa. They are autonomous state institutions that undertake the external audit of public sector bodies and, as such, are one of the key functions in the formal system of financial accountability and public sector governance. 2. The Paris Declaration and Accra Agenda for Action call for greater moves towards country ownership of reform strategies and donor actions that are more harmonised, transparent and effective. 3. The Joint Strategy should ensure more effective co-ordination between the African Development Bank and the World Bank. This first step has been taken due to the greater commonalities and complementarities between the two Banks, the similarity of their instruments and the experience of joint working. This strategy provides the foundation for enhanced coordination between the Banks to support Supreme Audit Institutions capacity-building initiatives on a sustainable basis. 4. Public governance is based on the division of powers and responsibilities. Traditionally, such a division distinguishes between the executive, the legislative and the judiciary. Public financial management is undertaken by the executive and the audit of this function is the responsibility of either the legislature or the judiciary or a combination of the two branches. Each country has developed its own approach to external oversight of government finances. However, Supreme Audit Institutions play a critical role in supporting accountability, promoting transparency in public financial management and providing an objective view of the regularity and probity of financial transactions and systems. An effective Supreme Audit Institution requires effective political support to ensure its effective independence from the institutions it audits; the resources necessary to fulfil its mandate; editorial freedom and ability to promptly publish its reports; and to ensure that its findings are acted upon and its recommendations implemented. 5. The Africa Development Bank and the World Bank have been supporting Supreme Audit Institutions and their regional bodies for several years as part of their support for good governance and public financial management. The central objective of this work is to build capable and responsive states by strengthening transparency, openness and accountability in the management of public funds. This should provide better services, especially for the poor, and improve development outcomes. 6. The objective of the Joint Strategy is to ensure that the Africa Development Bank and the World Bank are the favoured partners of African countries in their efforts to promote good governance and sound financial management and, specifically, effective Supreme Audit Institutions. The Joint Strategy is based on a holistic approach aimed at developing the capacities of Supreme Audit Institutions within the framework of the public financial management and wider governance systems of which they are an essential part. It recognises that the institutional reform plans for each Supreme Audit Institution must be based on a wellfounded development needs analysis and be agreed by the key stakeholders in each country. 9. The Joint Strategy recommends the strengthening of Supreme Audit Institutions in the following five priority areas: (i) support for institutional and policy reforms (ii) strengthening institutional capacity (iii) providing technical assistance and advisory services (iv) develop partnerships with parliaments and other political actors, and (v) enhanced and targeted support to fragile States. 8. The Joint Strategy will last for five years with a mid-term review. It envisages support to Supreme Audit Institutions in Africa through a hierarchy of activities at country, sub-regional, and regional and international levels. This will be through the more effective use of existing resources with additional resources being sought from existing resource envelopes. i

5 9. At the national level, both Banks will seek to co-ordinate their support to African countries to strengthen their public audit systems and institutions, including internal audit institutions. They will reinforce their advisory and diagnostic activities to assist countries to develop and refine the reform priorities and action plans for their Supreme Audit Institutions. Special attention will paid to: (i) (ii) (iii) (iv) (v) the formulation of appropriate institutional and regulatory frameworks for internal and external audit institutions and structures; the development of the technical capacities and the strengthening of institutional capacities of Supreme Audit Institutions; a move towards, or a strengthening of, the audit of systems which seeks improvements in the quality of internal control rather than solely the identification of irregular transactions; the development of the technical capacities of Public Accounts Committees and other parliamentary bodies responsible for the oversight of Supreme Audit Institutions and the follow-up to audit recommendations; and the strengthening of the demand for financial accountability through enhanced cooperation between Supreme Audit Institutions and civil society budget oversight organisations. 10 At the sub-regional level and in line with the principle of subsidiarity, the African Development Bank and World Bank will support those bodies working to strengthen Supreme Audit Institutions within their linguistic groups (AFROSAI-E, ARABOSAI and CREFIAF). 11. At the regional level, AFROSAI will be supported to better perform its functions and responsibilities through the strengthening of the capacities of its secretariat, the strengthening of the institutional and technical capacities of its members, including the development of their strategic action plans, and the enhancement of cooperation with key stake-holders. 12. The expected results of this strategy will include measurable improvements across a range of performance indicators in terms of increased support provided and enhanced external audit function in African countries. 13. The strategy is not intended to define a new set of initiatives and activities, but rather to provide a harmonized strategic framework to rationalize and scale-up both Banks support to country audit systems, mainly based on existing resources and instruments (policy dialogue, budget support, capacity building, and technical assistance). Additional resources will however be sought through existing resource envelopes (multinational operations and trust funds, including the Governance Partnership Facility of the World Bank and the soon to be established Multi-donor Governance Trust Fund of the ADB). ii

6 1. Introduction 1.1. Good governance is essential for sustained economic growth and poverty reduction. The promotion of good governance to alleviate poverty is a central component of the strategy of both the African Development Bank and the World Bank in Africa. The key elements of good governance have been identified as accountability, transparency, participation, combating corruption and the promotion of an enabling legal and political framework 1. Both institutions agree that corruption is generally a symptom of governance failures and, therefore, combating corruption requires strengthening governance and promoting integrity, in particular in the area of public financial management Improved public financial management 2 is at the core of good governance and is key to the achievement of the Millennium Development Goals. For this reason, in the 2005 Paris Declaration 3, development partners agreed to strengthen their national public financial management systems and donors committed to use those systems to the maximum extent possible. In 2008, the Accra Agenda for Action 4 aimed to accelerate and deepen this approach and identified building more effective and inclusive partnerships for development as one of the three major challenges facing the development community. Further details of the relevant commitments from these two initiatives are contained in Annex There is a wide consensus on the importance of Supreme Audit Institutions 5 in strengthening public financial management and good governance. Supreme Audit Institutions are an integral part of the country systems for overseeing public finances and ensuring domestic accountability. They are autonomous state institutions that undertake the external audit of public sector bodies and, as such, are one of the key functions in the formal system of financial accountability and public sector governance. The strengthening of Supreme Audit Institutions can therefore result in significant improvements in the effectiveness of governance as a whole. Both the African Development Bank and the World Bank are committed to supporting Supreme Audit Institutions as part of their work to improve governance in Africa. There is a clear need for co-ordinated donor efforts to support Supreme Audit Institutions capacity-building initiatives on a longer-term and sustainable basis 6. This strategy provides the foundation for enhanced cooperation between the Banks as the first step towards wider donor coordination in this field. This has been possible due to the greater commonalities of approach of the two Banks, the similarity of their instruments and the experience of some joint working It has been accepted that donor actions should be more harmonised, transparent and collectively effective 6. A Global Partnership Agreement (GPA) is being developed between INTOSAI and the donor community to harmonize, rationalize and coordinate support to SAI at the international, regional and country level to enhance the effectiveness of the support provided (see Annex 3 for further details). The development of the Joint Strategy is timely as INTOSAI will be holding its first triennial congress in South Africa in This is the first time that an INTOSAI congress has been held in an African country and will provide an opportunity to further raise the profile of Supreme Audit Institutions in Africa and underscore the importance of independent, credible and effective external auditing of public finances This Joint Strategy proposes an approach to scaling-up support to Supreme Audit Institutions in Africa based on country ownership and enhancing coordination between the African Development Bank and the World Bank. The Joint Strategy is informed by the lessons learnt on improving governance generally documented in the African Development Bank s Strategic Orientations and Action Plan for Governance 8 ( ), the African Development Bank s Capacity Development Strategy 34 and World Bank Governance and Anti-corruption Strategy 9, as well as other international efforts aimed at promoting more effective oversight and audit institutions, including those of the International Organisation of Supreme Audit Institutions (INTOSAI) The Strategy draws on lessons learnt from experience and recent studies carried out in the region by staff of the two Banks and other institutions. The Joint Strategy is in line with, and will support, the strategies developed by the sub-regional bodies of Supreme Audit Institutions (AFROSAI-E, ARABOSAI and CREFIAF). It also supports AFROSAI s strategy which includes support to each Supreme Audit Institution for the development of their own strategic plans. In line with the Paris Declaration and the Accra Agenda s emphasis on country ownership, the Joint Strategy will be based around these strategic plans. The Joint Strategy will last for five years and will include a mid-term review. 1

7 2. Challenges and opportunities for the reform of Supreme Audit Institutions Across Africa there are a variety of models for the structure and approach of Supreme Audit Institutions. Annex 4 provides some background on the different models which have been adopted, their role in improving accountability and transparency, types of work undertaken and relationships with other institutions Performance of Supreme Audit Institutions An international collaborative effort, Public Expenditure and Financial Accountability (PEFA), has developed a robust tool for measuring public financial management performance and providing sound assessments of the quality of public financial management systems for countries at all income levels 11. The PEFA framework includes a number of benchmarks concerning audit, accountability and internal control An analysis of the scores of the four PEFA indicators that impact most directly on the quality of the external auditing and financial reporting underlines the current weakness of public sector financial accountability in Sub-Saharan Africa 12 (details of these indicators is provided in Annex 6). Analysing the data from 27 assessments conducted using this methodology in sub-saharan Africa, the average score was low, ranging from D+ to C (on a scale ranging from A to D). This average is lower than both other regions of the world and other dimensions of the budgetary cycle in Africa as shown in Figure 1 below. Later assessments for Uganda and South Africa found better scores for these four performance indicators, especially in the latter country. Figure 1: Average PEFA scores by region and budget dimension 13 Region EAP (8) ECA (8) LAC (14) MENA (3) OECD (1) SAS (2) SSA (21) Budget Credibility Comprehensivviness and Transparency Policy-Based Budgeting Predictability and Control in Execution Accounting and Reporting External Scrutiny Average EAP=East Asia & Pacific, ECA=Eastern Europe & Central Asia, LAC=Latina America & Caribbean, MENA=Middle East & Northern Africa, OECD=Organization for Economic Cooperation and Development, SAS=South Asia, SSA=Sub- Saharan Africa Supreme Audit Institutions are often deprived of the necessary financial, human and material resources for effectively undertaking their mandates. As a result, not many Supreme Audit Institutions are able to present audited annual financial statements to their Parliament within much less than12 months of the end of the relevant financial year (in some cases this may be due to the late preparation of the accounts by the Ministry of Finance). The CABRI report on budget practices in Africa 14 reported that only two out of 26 countries met the OECD standard (audited government accounts to be available within six months of the end of the fiscal year) and in nine countries it takes more than twelve months. When their audit reports are submitted they are not necessarily treated with the seriousness they deserve and their recommendations are not necessarily implemented Supreme Audit Institution status and mandate Independence: to assure the effective independence of Supreme Audit Institutions, it is necessary to ensure that the following eight principles from the 2007 Mexico Declaration 15 are complied with: (i) (ii) (iii) the existence of an appropriate and effective constitutional/statutory/legal framework and of de facto application provisions of this framework the independence of SAI heads and members (of collegial institutions), including security of tenure and legal immunity in the normal discharge of their duties a sufficiently broad mandate and full discretion, in the discharge of SAI functions 2

8 (iv) unrestricted access to information (v) the right and obligation to report on their work (vi) the freedom to decide the content and timing of audit reports and to publish and disseminate them (vii) the existence of effective follow-up mechanisms on SAI recommendations (viii) Financial and managerial/administrative autonomy and the availability of appropriate human, material, and monetary resources The status of Supreme Audit Institution staff must guarantee their independence and their work must be worthy of such independence. Their career path or even their immediate security can dissuade officials or staff from extending their audit work as far as their professional judgement would require. This is true for the Auditor General or President down to the most junior audit staff. The application to the Supreme Audit Institution of laws or regulations concerning the general civil service can significantly limit its effective independence. These may include regulations over staff recruitment, promotion, levels of remuneration, office organization or conditions of service. In addition, there may be undue restrictions on the implementation of the overall annual budget allocated to the Supreme Audit Institution Administrative functioning of the Supreme Audit Institution must ensure its complete independence from the executive in practice as well as in theory. Audit plans should be implemented without influence from public or government officials. Supreme Audit Institution staff should have timely access to all the information, people and systems they consider necessary to undertake their work. The budget of the Supreme Audit Institutions should be adequate and agreed directly with Parliament. The executive should not be able to influence the overall size of the annual budget nor the manner in which it is implemented during the year Technical capacities: Each Supreme Audit Institution requires sufficient staff with the technical capacities necessary to undertake its full range of functions. Supreme Audit Institutions do not generally have sufficient human resources with the appropriate auditing and controlling skills. With the working conditions, and particularly the salaries, often governed by general civil service regulations, Supreme Audit Institutions often have difficulty attracting and retaining sufficiently skilled staff. This is compounded by the general shortage of skilled human resources in accounting and auditing in Africa, as revealed by assessments of financial, operational and management systems in Africa (for example, ROSC, PEFA, PEMFAR) Audit coverage: all public financial operations, regardless of whether and how they are reflected in the national budget, should be subject to audit by the Supreme Audit Institution. Supreme Audit Institutions should be empowered to audit taxes, enterprises if the government has a substantial participation in them or exercises a dominating influence, and the use of subsidies granted from public funds Dissemination and follow-up of audit findings and recommendations: Supreme Audit Institutions are part of a broader public finance auditing system, constituting one of the pillars of financial integrity. Their effectiveness therefore depends, to a large extent, on the flexibility of functional linkages with other components of the system. The work of Supreme Audit Institutions will have little value and the motivation of its auditors will be low if real sanctions, administrative and, if need be, penal, do not follow as a result of their observations or if their recommendations are not implemented Continuing professional training efforts, often funded with the support of development partners, have not necessarily yielded the expected results. Trained staff may be attracted by the private sector which may be able offer higher salaries and more attractive conditions of service. As a result of the internal organization of Supreme Audit Institutions, auditor staff may not able to apply the skills they have received when they return to their office. This may either be because the audit approach does not exist in their Supreme Audit Institution (for example, performance, social, gender, environmental audit or even computer audit) or the trained staff may not be assigned to the relevant unit Support from Parliament: When a Supreme Audit Institution s observations are sent to Parliament, members of Parliament need sufficient technical capacity to understand them and adequate political motivation to ensure that the executive acts on their recommendations. Many African Parliaments do not have sufficient technical capacity to understand, utilise or act on the annual reports from their Supreme Audit Institutions. Members of Parliament also need to have sufficient autonomy from the executive to be able to hold it to account. 3

9 Political and civic support to Supreme Audit Institutions. For Supreme Audit Institutions to be able to sustainably perform their tasks, it is necessary for them to have long-lasting political and civic support. Supreme Audit Institutions may be able to overcome some of the challenges they face by forming and strengthening alliances with parliaments and civil society: (i) Parliament may be able to require the executive to comply with the observations of the Supreme Audit Institution and implements their recommendations. (ii) Civil society can exert pressure from its organizations, including the media, representing citizens generally 16. Informed public opinion can exert real influence on the executive for the benefit of Supreme Audit Institutions, their working conditions and ensuring that appropriate action is taken on their observations Supreme Audit Institutions and aid effectiveness Improving transparency, accountability and effectiveness in the use of development resources is a key objective of the Paris Declaration (2005). Enhancing the credibility of the budget as a tool for the allocation and use of development resources (whether domestic or external) will contribute to improving alignment of donor support and also enable Parliaments to more closely monitor government development plans an essential factor in strengthening country ownership of these plans The Paris Declaration and Accra Agenda for Action encourage development partners to increase their use of national systems (particularly in the areas of public financial management and public procurement). This should enable partner countries themselves to establish and strengthen their institutions responsible for implementing development policies and adequately accounting to their parliaments and citizens for the use of the associated resources. Studies conducted by development partners, notably the 2009 report of the OECD Development Aid Committee (DAC) on the use of country public financial management systems 17, reveal that greater effort will be needed to achieve the agreed targets. In addition, this study specifically called for greater collaboration between donors in support of sustainable capacity building for Supreme Audit Institutions and Public Accounts Committees. It also recommended that donors do not make additional requirements on government for auditing (except for exceptional audits) but rely instead on the audit opinions issued by the country s Supreme Audit Institution and on the government s normal financial reports and statements Where it is considered necessary for special audits to be commissioned (which may particularly apply in fragile states), donors can avoid sidelining national audit authorities by involving them in the commissioning of audits. In several countries, such involvement is required by law. There is also scope for harmonization of donor audit requirements and safeguards (as happens through various forms of pooled funding). The African Development Bank and the World Bank, along with the European Commission, are developing a common approach to budget support in fragile states which underscores the centrality of restoring effective internal and external auditing functions in such states (including issues on due diligence, safeguards and audits) Credible, effective and independent external auditing in African countries is important for donors and the Banks, particularly in the context of increasing use of budget support as the preferred aid delivery mechanism. This requires strong domestic accountability systems and robust assurance and fiduciary safeguards that only strong SAIs can provide. 4

10 3. Recent Experience of the African Development Bank and the World Bank in Supporting Supreme Audit Institutions 3.1 African Development Bank Support to budget oversight institutions and country audit systems is a central thrust of the African Development Bank s new governance strategy. The ADB Board of Directors approved a new Governance Strategic Directions and Action Plan for in May The ADB s central objective in governance is to assist African countries build capable and responsive states by strengthening transparency and accountability in the management of public resources, with an emphasis on oversight institutions and accountability systems. In addition, recognizing that corruption is a symptom of broader governance dysfunctions, especially in the management of public resources, the ADB s approach to anti-corruption focuses on strengthening institutions and systems of domestic accountability, budget transparency and financial integrity The ADB is scaling-up its support to independent oversight institutions that hold governments to account. It is increasing its assistance to Regional Member Countries (RMCs) to develop financial control and audit frameworks and strengthen the technical and human capacity of institutions involved in control and audit of public funds, such as external auditors, inspectors-general, internal auditors and anti-corruption bodies Reinforced public sector governance and enhanced country systems for managing public resources will contribute to open governments, engaged societies and an improved business environment. The ADB s governance activities are deployed at three levels: the country, sector, and regional. The choice, mix and sequence of aid instruments to deliver the ADB s support in governance are tailored to the countries governance challenges and environment. The ADB has adopted PEFA as one of the institutional performance indicators of the Results Framework of the Eleventh African Development Fund (ADF) and PEFA PI-26 in particular as one of its performance indicators for its work in support to economic governance and public financial management The ADB is supporting SAIs through various complementary instruments, notably policy dialogue and advise, direct budget support, capacity building projects and operations, small grants and analytical work. Internal reviews of the 111 budget support and institutional strengthening operations approved between January 2002 and June 2009 revealed that support for external auditing is a central pillar of the Bank s activities in the area of governance. Between 2007 and 2009, 53% of ADB budget support and institutional strengthening operations (compared to 32% between 2002 and 2006) included support to external oversight. Figure 1 shows a significant increase in support to external oversight, in particular in promoting public audit institutions. Figure 1: Structure of ADB governance portfolio, January 2002 to June 2009 (as percentage of ADB governance operations with a PFM component) 5

11 3.1.5 At the country level, the ADB endeavours to assist RMCs to strengthen national public resource management mechanisms, taking a particular Box 1: Examples of ADB support to audit institutions interest in audit institutions, integrity systems In Mozambique, a UA 60 million budget support loan approved in 2006 and accountability mechanisms. This includes a component to strengthen public financial management by approach is adjusted to the needs and improving the external audit function of the Administrative Tribunal. demands of each country, while paying The programme also contributes to the creation and consolidation of special attention to fragile states where it is internal audit in ministries. In Uganda, an important component of the Good Governance Institutional Support Project of UA 10 million especially necessary to gear actions towards approved in 2004 is to strengthen the Office of the Auditor General and the consolidation of state institutions and the Inspector General of Government. In Morocco, both phases (2004 building of financial governance and resource and 2006) of the Public Administration Reform Support Programme for a management capacities. As of 2009, the ADB total of UA million included assistance to performance evaluation and control functions, and the strengthening of both the internal and is supporting reforms of public financial external audit functions. The budget of the Moroccan SAI was management systems and the strengthening of substantially increased, by 16% annually, over the period , external audit institutions in more than 25 which enabled it to recruit more auditors and computerize its work. The member countries (see box 1). A particular main objective of an institutional support project approved in 2006 for effort was made after the adoption of the Burkina Faso of UA 2.5 million is to improve transparency, reliability and efficiency in budget management and to strengthen audit institutions. Governance Strategic Directions and Action The project contributes to capacity building in the key institutions Plan in 2008 to scale up this support. charged with public expenditure programming, internal and external Training of auditors and magistrates in new auditing. audit techniques and procurement of equipment are recurring sub-components In the context of the ADB s strategy for fragile states, adopted in 2007, support has been provided, for example, to Serra Leone and Liberia. In addition, the technical assistance provided through the Fragile State Facility (FSF, pillar III) is often targeted at strengthening audit capacities. In 2009, the Economic Governance Reform Program I (UA 10 million) for Sierra Leone was designed to support the three pillars of the government s reform program. These are core public financial management reforms, revenue administration, and enhanced external audits. The program aims to reduce the delay in publishing the audits of public accounts by ensuring that audit reports are submitted to Parliament within twelve months of the end of the fiscal year. In Liberia, the Public Financial Management Reform Support Program I (2008) aims to support the reform of public financial management systems and the modernization of revenue administration. This program, in coordination with other donors, has an important component on rebuilding internal audit functions and strengthening the capacity of the Auditor General s Office The ADB intervenes at the regional level to encourage and support regional and sub-regional initiatives that promote good economic and financial governance standards and codes, by seeking synergies and complementarities with other development partners. The ADB is strengthening regional institutions, notably AFROSAI whose mission is to facilitate the development and harmonization of regional audit standards, the sharing of experiences and knowledge between African SAIs. To this end, the ADB is supporting the institutional strengthening of AFROSAI in the preparation of its first strategic plan and its implementation action plan, adopted in It is also providing support, through small grants, to sub-regional capacity building networks in public finance auditing, in particular AFROSAI-E and CREFIAF A summary of Bank supports to external audit functions and strengthening the capacity of the Auditor General s Office is presented in Annex World Bank The World Bank has substantially increased its support for public sector reform since the end of the 1990s 21. In total, between 1990 and 2006, 466 projects committed about US$ 20 billion to support reforms, 83% of which amount was funded by adjustment loans, and the rest sourced from investment projects The share of these projects in the regional portfolio increased considerably for all regions over the period under review, in particular for the Africa region where they represent today a quarter of the portfolio in terms of the number of projects. The number of Africa region projects devoted to the public sector with a significant public finance reform component also increased remarkably, from 22 to 64 between and The majority of these projects are financed by adjustment loans with conditions relating to the strengthening of public financial management and audit institutions. 6

12 3.2.2 An analysis of the breakdown by theme of conditionality contained in World Bank adjustment loan operations with a public finance reform support component revealed that only a around quarter of these operations contained conditions concerning external auditing, whereas nearly seventy percent related to budget formulation. Figure 3: Percentage of World Bank Policy-Based Operations with Public Financial Management Reforms Conditionality in a Particular Area This analysis reveals important synergies and complementarities with the African Development Bank on the concentration of conditions under multi-donor budget support, coordinated around common reform and performance matrices (Performance Assessment Frameworks, PAF) as well as enhanced policy dialogue in Working Groups on audit and public financial management In addition to adjustment loans, the World Bank has two other instruments for supporting Supreme Audit Institutions, namely investment projects and Institutional Development Fund grants. However, within the Africa region, there are few investment projects with a significant component for the strengthening of Supreme Audit Institutions To date, eight Institutional Development Fund grants managed by the Africa region concern, directly or indirectly, support to Supreme Audit Institutions. They represent a commitment of US$ 4.6 million. Three of these are regional grants (including support to AFROSAI-E) and the other five are for individual Supreme Audit Institutions Beyond financial support to Supreme Audit Institutions, the World Bank could request Supreme Audit Institutions in recipient countries to participate in the auditing of its projects. The Bank s policy is to rely on national systems by default, whenever they have the capacity. But, within the Africa region, the proportion of projects audited by national Supreme Audit Institutions decreased between 2005 and 2007 fiscal years, from 23% to 21% (this is lower than the global figures). In addition, the proportion of audits conducted by private sector auditors on behalf of a Supreme Audit Institution dropped from 6% to 4%. However, the Bank started in 2008 to undertake systematic assessments of the potential for its use of country financial management systems, including external audit, for its investment operations in the Africa region. As a result, more Supreme Audit Institutions are now being entrusted with the audit of Bank projects These analyses of African Development Bank and World Bank support to public audit systems and institutions highlight the importance of first complementarities between both Banks, on the basis of their respective comparative and institutional advantages and secondly a combination and synergies between the instruments deployed, in support of the reform efforts made by African countries. 7

13 4 Strategic thrusts and operational priorities 4.1 Objectives and approach The objective of the Joint Strategy is to enhance the effectiveness of the support of the Banks to African countries to achieve greater accountability in public finances through more effective Supreme Audit Institutions. The Joint Strategy is guided by the commitments contained in the Paris Declaration and the Accra Agenda on strengthened country systems for managing public finances, country-owned reform efforts, enhanced domestic accountability and coordinated donor support. The African Development Bank Strategic Orientations and Governance Action Plan and the World Bank Strengthening World Bank Group Engagement on Governance and Anticorruption 23 form the basis of actions proposed in this Joint Strategy, both of which emphasise the need to scale-up support to oversight mechanisms and domestic accountability institutions, especially in the area of public finances Strengthened country systems for managing public finances and accounting for the manner in which public resources are used have both a developmental and a fiduciary dimension. The Paris Declaration considers capacity building to be essential for improving development outcomes and achieving the objectives of reform ownership, aid alignment and mutual accountability. In accordance with the Paris Declaration, both institutions are committed to strengthening and, whenever possible, using the public finance management systems of partner countries. Development partners (notably those that use budget support as a preferred instrument for support to institutional reforms) have an increasing interest in reliable and high quality auditing of resources, both those from internal sources, as well as those provided by donor partners. The main reason for the use of the country s Supreme Audit Institution is, on the one hand, to be in line with national accountability rules and, on the other hand, to support the strengthening of national systems The Joint Strategy is based on a holistic approach aimed at developing the capacities of Supreme Audit Institutions within the framework of the public financial management and wider governance systems of which they are an essential part. The aim is to enable them to achieve greater transparency and openness of public sector financial operations, strengthened ethics, increased accountability and reduced corruption. This will necessarily include ensuring adequate independence for Supreme Audit Institutions. Improvements in the effectiveness and independence of a Supreme Audit Institution depend on appropriate political support; the active involvement of an effective Public Accounts Committee, a suitable relationship with the Ministry of Finance and the engagement of civil society in demanding greater budget transparency and domestic accountability The Joint Strategy places capacity development and institution building at the centre of priorities. It is increasingly acknowledged that capacity building involves changes in institutional rules and organizational systems, and not only training and skills transfer actions. To be successful, capacity development must necessarily be the fruit of an endogenous process that starts from where each country is, is conducted by national players with precise objectives, efficiently using existing capacities and harmonizing external aid within this framework The Joint Strategy recognises that the institutional reform plans for each Supreme Audit Institution must be based on a well-founded development needs analysis and be agreed by the key stakeholders in each country. Institutional building must be based on a solid, detailed and informed assessment of the existing independence, institutional capacity and appetite for reform of each particular Supreme Audit Institution and the wider governance reforms in each country. An historical perspective and recognition of the stage of development of each SAI is particularly important, especially for fragile states, along with an assessment of the particular trajectory of change in each country. Peer reviews by officers from other Supreme Audit Institutions may have a role to play in the development of such assessments. This should then lead to the development of a detailed reform plan which is clearly agreed with the relevant stakeholders in the country and forms the basis of the support from the Africa Development Bank, the World Bank, and other development partners. 8

14 4.2 Overall approach The central objective of the African Development Bank and World Bank in governance is to help African governments to build capable and responsive states by strengthening transparency, openness and accountability in the management of public funds. This should create opportunities for poor people, provide better services, and improve development outcomes. African countries have the prime responsibility for improving governance country ownership and leadership are key to successful and sustained development. African countries have achieved significant progress in improving governance practices, but considerable challenges remain in strengthening institutions of governance. Stronger public sector institutions and improved country systems for managing public resources will contribute to capable states, engaged civil societies and improved accountability and transparency The Banks will strive to strengthen, rather than bypass, country systems. Better national institutions are the more effective and long term solution to governance and corruption challenges and to mitigating fiduciary risk for all public resources, including that from the Banks. Effective Supreme Audit Institutions play a central role in strengthening country governance and facilitating the use of country public financial management systems by providing assurance on fiduciary risk to the two Banks The Africa Development Bank and the World Bank will work with donors, international institutions, and other actors at the country, sub-regional and regional levels to ensure harmonized approaches and enhanced coordination based on respective mandates and comparative advantage The criteria on which the African Development Bank and World Bank strategic orientation in the area of assistance to Supreme Audit Institutions is based are: (i) (ii) alignment with country priorities and ownership by the countries will be achieved by adapting their support to the governance challenges faced by the countries, their reform priorities and country potential for progress synergy and relevance: support to Supreme Audit Institution will aim to strengthen synergies with relevant interventions used to create beneficial interactions with the rest of the portfolio of the two Banks (iii) complementarity and partnership: will be achieved by drawing on the comparative advantages of each of the two institutions and on their capacities to complement and catalyse the interventions of other development partners. 4.3 Priority areas Guided by the above principles, the Joint Strategy recommends the strengthening of Supreme Audit Institutions in the following five priority areas: (i) Supporting institutional and policy reform (ii) Strengthening institutional capacity (iii) Providing technical assistance and advise (iv) Developing partnerships with parliaments and other political actors, and (v) Enhancing targeted support to fragile states. Supporting institutional and policy reform In the face of weaknesses prevailing in some countries, the Joint Strategy will support countries in their efforts to strengthen the policy and institutional framework of their Supreme Audit Institutions. AFROSAI-E has developed a Capability Model, which provides a useful reference framework for assessing the stage of institutional development of Supreme Audit Institutions and guiding strategies for institutional strengthening. An overview and the details of level three of this model are included as Annex 2. The AFROSAI-E Capability Model is being adapted for Francophone African countries by CREFIAF. It is vital to have realistic expectations on the pace of sustainable change which is achievable, and the importance of prioritizing and sequencing reforms to Supreme Audit Institution. 9

15 The AFROSAI-E Capability Model seeks for each Supreme Audit Institutions: an appropriate and effective constitutional/statutory framework to ensure adequate independence, and effective financial autonomy from the executive arm of government the Supreme Audit Institution has a sufficiently broad mandate in terms of covererage of the whole of the public sector and the approaches it adopts strong political will for an effective Supreme Audit Institution and the Supreme Audit Institution has full support in exercising its mandate the conditions for appointment to, terms in and removal from the Supreme Audit Institution are constitutionalised and entrenched all annual reports of the Supreme Audit Institution are issued within, at the most, one year of the financial year end audit reports are issued at the sole discretion of the Supreme Audit Institution an effective internal audit approach based on internationally accepted auditing standards, guidelines and procedures an effective internal quality control process for the Supreme Audit Institution an adequate level of financial resources appropriated by Parliament without any involvement of the executive, including auditees human, administrative and other resources to execute the mandate are independently managed by the Supreme Audit Institution an independent parliamentary process exists to oversee the activities of the Supreme Audit Institution the Supreme Audit Institution or its governing body determines its key policies and practices In countries where the institutional arrangements for external audit are unclear, complex or subject to controversy, the Banks will work with all parties involved and their partners to clarify the basis for transparency and accountability in the public sector. The banks will be guided in this task by relevant international standards and guidelines, as well as by sub-regional agreements rather than an adhering to preconceived notions of set institutional models. This task will no doubt be challenging, but will be needed as a prerequisite to the development of the capacity and resources of these external audit entities Both Banks will intensify their support to countries with the specific objective of developing effective Supreme Audit Institutions, efficient internal control structures and sound financial governance. The Joint Strategy proposes support for the building of the necessary technical and human capacities of functions such as internal audit and general state inspectorates. Co-operation between such functions and the Supreme Audit Institution in each country will also be encouraged. This will be facilitated by the joint work which has taken place by their respective international bodies, INTOSAI and the Institute of Internal Auditors (IIA) In the area of governance in general and support to Supreme Audit Institutions in particular, the Africa Development Bank and the World Bank will be guided by the principle of country ownership. The Joint Strategy seeks to promote good governance and to combat corruption, by cooperating with governments and civil society in each country. The Joint Strategy is based the fact that it is the responsibility of African countries to improve their own governance in order to accelerate poverty reduction. Where countries own and commit themselves to promoting their reform agendas, improvements in governance will be achieved more rapidly and will be longer lasting The implementation of significant reform of Supreme Audit Institutions requires strong political commitment from governments and a will to restore transparency and accountability in their operations. The two Banks will play an advocacy role with governments to sensitize them to the importance of having strong Supreme Audit Institutions that are able to promote integrity, transparency and accountability in the use and management of public funds The African Development Bank and World Bank are committed to remaining engaged in the fight against poverty, and seeking creative ways of providing support in poorly-governed countries and fragile states (see section below on fragile states). In these circumstances, proper sequencing and pacing of reforms, and starting from where a country is, not where it should be, are particularly important. Schick and, more recently, Allen 24 have argued that a gradual approach to reform which focusing on the basics is more likely to be successful and sustainable. Thus, for example, effective financial audit should be firmly established before moving on to performance audit. 10

16 Strengthening institutional capacity The Banks will intensify their support to strengthen the institutional capacities of Supreme Audit Institutions. They will endeavour to help countries to strengthen technical, human and financial resources in the area of auditing, accounting and public finance. The achievement of this objective requires an innovative approach in order to sustainably address the acute shortage of skilled and appropriate human resources particularly in the areas of budgetary control and audit The Joint Strategy recognises that the current capacity of Supreme Audit Institutions in Africa varies greatly from country to country and, therefore, support must be tailored to each particular country s needs and the stage of institutional development of its Supreme Audit Institution. One indicator of this is the PEFA scores for Supreme Audit Institutions in Africa which range from B+ to D The Joint Strategy also recognises that capacity building takes time and, therefore, expectations of institutional change ought to be realistic. A realistic timetable should be established for capacity development tailored to the stage of institutional development of the country s audit function and based on a development needs analysis for each Supreme Audit Institution. These timetables need to be realistic and not over ambitious to ensure their success. Supreme Audit Institutions in particular usually develop slowly over a long period of time because they are a function of a wider system of checks and balances with the overall governance and accountability arrangements. However, in specific circumstances, radical change can occur quite quickly The Joint Strategy supports efforts to: (i) Provide a platform for a comprehensive and integrated approach to the issue of human resource capacity development in the area of public financial management in Africa, particularly technical and professional training in accounting and auditing; (ii) Build a partnership in human resources development in public financial management in Africa between African governments, development partners, and national and regional training and accreditation institutions; (iii) Build on the training currently provided across the region especially by AFROSAI-E, ARABOSAI, CREFIAF and the INTOSAI Development Initiative; (iv) Improve, through dialogue, understanding between development partners so as to mobilize resources for the development of human resource capacities in public financial management in Africa ; and (v) Assist in the strengthening and further development of national, sub-regional and regional technical and professional training institutions as a means of ensuring the sustainability of capacity development programmes To ensure the success of these actions, the Banks will assist Supreme Audit Institutions in the development of human resource policies aimed at attracting and retaining the necessary skilled personnel. Capacity development involves changes in institutional rules and organizational systems which go beyond training and professional development. Some programmes of support to Supreme Audit Institution have not achieved the desired results because they were limited to training programmes, did not address the root causes of poor capacity and often had over ambitious timetables Mainstreaming Gender: The Banks are committed to mainstreaming gender concerns, strengthening social cohesion and encouraging domestic accountability. Gender budgeting is a powerful tool for mainstreaming gender in a core area of public policy. Gender responsive budgets are not separate budgets for women, but instead, general budgets that are planned, approved, executed, monitored and audited in a gendersensitive way. The Banks are gradually step-up work on gender-responsive auditing to ensure the institutionalization of a gender equity perspective in the budget process, from approval to ex post auditing, in the broader context of the mainstreaming of gender in poverty reduction strategies. In addition, the Banks will encourage more women employment and gender training in SAIs to address the gender enrolment gap in SAIs. Providing technical assistance and advice The Banks will increase support for the development and dissemination of guidance on international standards and best practices in public sector audit. Auditing is a technically complex area 11

17 which requires not only the availability of well trained staff, but also compliance with the internationally accepted norms, standards and best practices. INTOSAI has developed a comprehensive set of standards and guidance for its members which is continually updated and extended. In Africa, AFROSAI-E, in particular, has developed audit manuals to assist Anglophone Supreme Audit Institutions to implement INTOSAI Auditing Standards. Further efforts are needed to ensure that these manuals are fully utilised by Supreme Audit Institutions To enable Supreme Audit Institutions to effectively perform their functions, it is necessary to extend their knowledge and capacities of international good practice. The application of INTOSAI standards will require the adoption and use of suitable audit manuals, the training of auditors, standardized documentation and the implementation of suitable internal review process. To support this activity, the Joint Strategy will support (i) (ii) (iii) (iv) The preparation and adoption of audit procedures consistent with INTOSAI standards The development and updating of technical guides and audit manuals Continuous professional development and technical training in the application of audit standards, and The establishment of appropriate quality control systems. Developing partnerships with parliaments and other political actors Parliaments play a key role in providing political support for Supreme Audit Institutions and ensuring appropriate action is taken in response to their reports. Most Parliaments receive annual reports from their Supreme Audit Institution. Parliaments may be able to require the executive and particular public sector organisations to comply with the recommendations of the Supreme Audit Institution. Parliaments are directly mandated by the citizens and so have both the legitimacy and power to exert pressure to assist Supreme Audit Institutions to facilitate improvements in governance, accountability and internal control. Where such political support is not available it is unlikely that fully effective Supreme Audit Institutions will be able to develop with the necessary level of independence The Joint Strategy supports the strengthening of relations between Supreme Audit Institutions and parliaments, and, where appropriate, their Public Accounts Committees. This may be achieved by (i) building the technical capacities of parliaments to monitor and seek the implementation of recommendations from the Supreme Audit Institution; and (ii) organizing training and other forums between staff of the Supreme Audit Institution and members of parliament in order to develop a common understanding and approaches to improving governance and internal financial control The Banks will encourage greater demand for transparency and accountability in public finances by a committed and vigilant civil society, including the media. The Joint Strategy supports strengthening the demand for better financial governance by backing civil society involvement in budgeting and by strengthening the synergy between Supreme Audit Institutions and civil society organizations, in particular the media. Innovative partnerships between Supreme Audit Institutions, Parliaments and civil society organisations can apply pressure on governments to improve the quantity and quality of financial information which is made available to the public 25. Enhancing targeted support to fragile States The Banks have adopted strategies to strengthen and harmonize their assistance to fragile States 27. Good financial governance is both a condition and an objective of the increased commitment of both institutions towards fragile States. Fragile States and post-conflict States confront special development challenges. The Joint Strategy supports the provision of targeted and tailored assistance to fragile states to restore basic systems of governance, including effective Supreme Audit Institutions, which will guarantee transparent and rational management of public resources. In 2008, the African Development Bank has established a Fragile State Facility (FSF), which includes resources earmarked to provide long-term technical assistance to strengthen core state function, including external auditing In fragile States rich in natural resources, special attention will be paid to sound natural resource management, particularly in extractive industries. Improving the management of public resources generated by natural resources and extractive industries offers a unique opportunity to reduce poverty, in particular in 12

18 fragile and vulnerable States. Good governance in the management of natural resources revenues is necessary to avoid the natural resource curse and the resurgence of conflicts motivated by the exploitation of these resources. The Banks will support the Supreme Audit Institutions of these countries to develop the necessary expertise to reinforce transparency and reduce corruption associated with the extractive industries revenues. Both institutions have endorsed and actively support the Extractive Industries Transparency Initiative (EITI). The sustainability of the independent auditing of natural resources revenues ultimately depend on credible Supreme Audit Institutions capable of performing this task. 4.4 Levels of intervention The Joint Strategy of the Africa Development Bank and the World Bank will provide support to Supreme Audit Institutions in Africa at three levels: (i) country level (ii) sub-regional level; and (iii) regional and international levels. Level I: Country level At the national level, the Banks will further coordinate their support to African countries to strengthen their public audit systems and institutions, including internal audit institutions. The form of support provided by the Banks will vary from country to country, depending on specific circumstances while there is no one-size-fits-all, a consistent approach will be adopted towards operational decisions across countries, systematically anchored in national strategies Both Banks will reinforce their analytical and advisory activities to assist countries to develop and refine the reform priorities for their Supreme Audit Institutions. (i) (ii) The first step is to have an in depth understanding of the wider reform context in which each Supreme Audit Institution operates, including the governance environment in which it is embedded and the level of corruption risk. The second step is to develop a good understanding of the Supreme Audit Institution s current stage of development and institutional trajectory, its strengths, weaknesses, development needs and reform priorities. (iii) Finally each Supreme Audit Institution should be supported in developing practical ways to take the reform agenda forward, including through coordinate donor support programs It is important to work with the leaders and staff of each Supreme Audit Institution to develop a shared understanding of its needs, priorities and reform path. The Public Expenditure and Financial Accountability (PEFA) Framework can provide a picture of the quality of public audit and related functions in each country. This may be supplemented with drilled-down analytical instruments looking specifically at Supreme Audit Institutions. These findings should then form one of the key inputs for the development of suitable action plans, geared to the specific needs and environments of each country, to develop the capacities of their Supreme Audit Institutions The Joint Strategy will support assistance directly to individual countries, based on the strategic plans of their Supreme Audit Institutions, for: (i) The formulation of appropriate institutional and regulatory frameworks for internal and external audit institutions and structures; (ii) The development of the technical capacities and the strengthening of institutional capacities of Supreme Audit Institutions; (iii) A move towards, or a strengthening of, the audit of systems which seeks improvements in the quality of internal control rather than solely the identification of irregular transactions; (iv) The development of the technical capacities of Public Accounts Committees and other parliamentary bodies responsible for the oversight of Supreme Audit Institutions and the follow-up to audit recommendations; and (v) The strengthening of the demand for financial accountability through enhanced cooperation between Supreme Audit Institutions and civil society budget oversight organisations. 13

19 Level II: Sub-regional level At the sub-regional level, the Banks will support those bodies working to strengthen Supreme Audit Institutions within their linguistic groups. Support to AFROSAI-E, ARABOSAI and CREFIAF is an efficient way to assist Supreme Audit Institutions across the region, based on the principle of subsidiarity, which recommends that an activity should be organized nearest to its beneficiaries. Members of these subregional bodies share common political and institutional histories and cultures of external auditing and communication within the sub-regions is facilitated by the sharing of common languages. This approach is supported by AFROSAI s strategic plan which acknowledges the sub-groups comparative advantage in the implementation of capacity building programmes AFROSAI-E is the most developed of the sub-regional bodies. It includes the 21 Anglophone countries, but also the two Portuguese speaking countries of Angola and Mozambique. This regional sub-group provides training, technical assistance and coordination services to its members. AFROSAI-E s secretariat is hosted by the Office of the Auditor General of South Africa. It is supported by an active partnership with development partners and the Supreme Audit Institutions of some more developed countries. However, resources constraints still limit the effectiveness of the work of AFROSAI-E The Conseil Régional de Formation des Institutions Supérieures de Contrôle des Finances Publiques d Afrique Francophone (CREFIAF) is the body for the 19 Francophone Supreme Audit Institutions in Africa and also includes one Lusophone and one Spanish speaking institution. Progress has been made in recent years especially with the implementation of its capacity building programme and a series of trainings have been held. CREFIAF s secretariat is hosted by the Supreme State Audit Office of Cameroon. It is supported by an active partnership with development partners and the Supreme Audit Institutions of some more developed countries. However, resources constraints limit its consolidation and effectiveness The countries of North Africa belong to ARABOSAI, the organization of Supreme Audit Institutions of the Arabic-speaking countries of the Middle East and North Africa. Like AFROSAI-E members, countries of the Maghreb benefit from the rich capacity building programme offered by ARABOSAI. ARABOSAI s secretariat is hosted by the Cour des Comptes of Tunisia The Joint Strategy will support capacity building and training programmes designed to address the priorities of Supreme Audit Institutions within each sub-regional grouping and help to achieve (i) effective independence of Supreme Audit Institutions, (ii) adoption and dissemination of INTOSAI norms, standards, guidance and good practice; (iii) enhance knowledge and peer learning; (iv) implement effective capacity building and training programmes; (v) support optimum systems and risk-based approaches to audit, especially in fragile States; (vi) assist in the optimum management of human resources and (vi) support effective communication of audit findings and implementation of audit recommendations This will be achieved by establishing centres of technical excellence and communities of practice through (i) strengthening knowledge sharing amongst professional auditors and encourage peer learning and exchange; (ii) indentifying good practices principles and areas of work performed by Supreme Audit Institutions where good practice studies would be beneficial; and (iii) sponsoring a range of comparative studies of key elements of Supreme Audit Institutions activities, including through peer review and south-south learning. Level III: Regional and international levels The Banks will support regional and international initiatives to promote good financial governance and combating corruption. This will include: (i) Adoption and implementation of the INTOSAI Auditing Standards, Code of Ethics and other international guidance. International standards and codes are effective mechanisms for creating incentives for better governance. (ii) Development of the capacities of regional networks and institutions to establish guidance and training of international auditing standards and codes. 14

20 The Joint Strategy supports the building solid partnerships at the regional level with AFROSAI and at the international level with INTOSAI. (i) (ii) At the regional level AFROSAI will be supported to better perform its functions and responsibilities through the strengthening of the capacities of its secretariat, the strengthening of the institutional and technical capacities of its members, the development of strategic action plans, and the enhancement of cooperation with key stake-holders. AFROSAI is ideally suited to strengthen the institutional capacity of member Supreme Audit Institutions specifically to develop suitable strategic plans. At the international level, INTOSAI enables Supreme Audit Institutions to efficiently access information and capacity development. Institutional capacity building is one of the four strategic goals of INTOSAI s strategic plan agreed in INTOSAI, and its training arm INTOSAI Development Initiative (IDI), have a long tradition of focusing on the needs of emerging and developing countries. (iii) This support will include the implementation of the emerging Global Partnership Agreement (GPA), a framework document between the Supreme Audit Institution community led by INTOSAI and the donors. The GPA aims to bring together all like-minded donors and Supreme Audit Institutions in a common approach to develop support and funding for capacity development. 5. Instruments, synergies and complementarities The Banks will enhance coordination in the deployment of the array of instruments to promote good financial governance and strengthen country audit systems. They will use the instruments at their disposal, in a coordinated and concerted manner, to support the institutional reforms of Supreme Audit Institutions. The strategy is not intended to define a new set of initiatives and activities, but rather to provide a harmonized strategic framework to rationalize and scale-up both Banks support to country audit systems, mainly based on existing resources and instruments (policy dialogue, budget support, capacity building, technical assistance). Additional resources will however be sought through existing resource envelopes (multinational operations and trust funds, including the Governance Partnership Facility of the World Bank and the soon to be established Multi donor Governance Trust Fund of the ADB). The choice of aid instruments to deliver governance support will be tailored to each country s particular governance challenges and unique environment. Increased efforts are needed internationally for the donor community to meet the targets for improved aid effectiveness under the commitments of the Paris Declaration and Accra Agenda for Action. Similarly, increased harmonisation and co-ordination is needed in the support for Supreme Audit Institutions in Africa. Synergies will be achieved by strengthened co-ordination and harmonisation between the instruments of each of the two Banks (governance reform budget support loans, grants for institutional strengthening, non-lending activities and analytical work and advisory services). Increased collaboration with other donor agencies will create further synergies and complementarities Policy dialogue Sound financial governance and effective external auditing will be at the centre of the policy dialogue between the Banks and African countries. This dialogue will be guided by a rigorous assessment of country needs, risks of corruption and chances of success. (i) (ii) The quality of the fiduciary environment and the strength of country audit systems will be mainstreamed in country assistance strategy papers and will inform the choice and mix of aid instruments. As the Banks develop joint assistance strategy papers for an increasing number of African countries, the strengthening accountability and transparency in the management of public resources will need to be embedded in common approaches in order to reduce transaction costs, agreed on common principles and avoid mixed signals. These actions will be initiated in order to ensure that country strategies are based on an assessment and an extensive dialogue on the opportunities offered in financial governance and on the risks of corruption. The quality of the fiduciary environment and the strength of country audit systems will be a core pillar of the dialogue around budget support, including eligibility requirements, conditionality framework and performance assessment frameworks. The Banks will further coordinate their approaches to budget 15

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