DEVELOPMENTS IN PUBLIC SECTOR AUDIT: HOW EFFECTIVE ARE EFFICIENCY AUDITS?

Abstract: A crucial issue facing the public sector is the extent to which efficiency and effectiveness are elements in the concept of accountability to parliament and the people. This paper argues that the recent moves towards efficiency audit in many countries, including Australia, need to be extended to effectiveness audit, and that to the extent that this does not occur, efficiency (and compliance) audit in the public sector is ineffective and accountability lacking.
An examination of Australian public sector auditing is undertaken first, based on a discussion of the 1974–76 Royal Commission on Australian Government Administration, the 1977–82 Review of New South Wales Government Administration and the subsequent implementation of their recommendations as the means of clarifying and elucidating the definitions of compliance, efficiency and effectiveness audit, as well as a means of critically analysing Australian developments. Developments in public sector auditing in the United Kingdom and the United States of America are critically examined. Finally, the future prospects and problems facing public sector audit in Australia are reviewed, and policy options relating to the development of comprehensive audit are outlined.     

Auditing as a tool of government accountability? Exploring divergent causal mechanisms through three Honduran cases

Audits of government entities offer a potential tool to hold public officials to account and to improve the functioning of public administration; however, empirical studies of audit impacts show mixed results. This is largely due to the diversity of audit regimes with different goals and accountability mechanisms, which yield different causal chains. In this study, I compare three distinct audit regimes with distinct casual mechanisms in Honduras. I find that backward-looking audits, which aim to hold officials accountable for past behavior or performance, require effective horizontal accountability mechanisms to investigate and prosecute cases. Forward-looking audits, which aim to hold officials accountable for future behavior or performance, require independent accountability mechanisms, a systematic follow-up methodology, public dissemination, and pressure from the media and civil society. Complementary initiatives that build on audit recommended reforms are found to strengthen these weaknesses in the causal mechanism linking audits to outcomes.     

Signaling Government Financial Reporting Quality to Credit Analysts

The quality of governmental financial reporting and auditing is of continuing concern to oversight bodies and to those interested in the financial accountability of governments. While governments may have operational incentives to improve financial reporting, external incentives depend on external users' ability to distinguish cities with better reporting practices from those with inferior systems. Two methods that cities with better systems may use to distinguish themselves are the GFOA's Certificate of Excellence for Financial Reporting and through the reputation of the audit firm. This article examines whether the degree of reliance that bond raters place on accounting data is influenced by the Certificate and by the type of auditor. In addition, since inadequate fees have been cited as a possible cause of substandard audits, we examine the trend in audit fees for cities for the period 1985–1989. The findings suggest that the use of a Big Eight audit firm does increase the reliance placed on cities' financial statement numbers but there is only weak evidence that the Certificate has a similar effect. In addition we find evidence of a significant decline in audit fees for the period 1985–1989.     

Central Audit Institutions and Performance Auditing: A Comparative Analysis of Organizational Strategies in the OECD

The New Public Management supplies a rationale for broadening the mandate of external audit institutions to encompass performance auditing. This article examines conceptual, empirical, and managerial issues raised by external performance auditing. Conceptually, performance auditing is a misnomer for a class of mainly evaluative review activities. Empirically, OECD countries vary in terms of the specific types of performance audits conducted by their principal external audit bodies. Explaining such variation offers some insight into the contemporary politics of public management policy. Managerially, audit bodies whose mandate includes performance auditing confront two major strategic issues: whether to conduct such evaluative reviews in an auditing style and whether to gear their work to achieving performance improvement in auditee organizations.     

ACCOUNTABILITY, EFFICIENCY AND THE ROYAL COMMISSION ON AUSTRALIAN GOVERNMENT ADMINISTRATION

Abstract: This paper deals first with alternative concepts of accountability and efficiency. It views accountability—and associated concepts of efficiency—in a hierarchy of increasing sophistication and potential usefulness, but corresponding operational difficulty. The lowest level is fiscal or fiduciary accountability, relating to the actual expenditure of funds and procedures by which that expenditure is accounted for. The second level is efficiency accountability, defined in terms of the ratio of some physical measure of output to cost. The most sophisticated level is effectiveness accountability, in which the output measures used reflect the attainment of objectives or programs. Corresponding to these levels is a hierarchy of approaches to auditing, namely financial, efficiency, and effectiveness auditing.
The second part of the paper looks at the present situation in Australia and at the recommendations of the Royal Commission on Australian Government Administration in terms of this framework. It argues that the government should commit itself to a continuing, comprehensive process of analysis and evaluation of public programs and activities aimed at making programs efficiently effective in a manner consistent with regular financial procedures. A "package" for implementing this approach—including revised institutional arrangements—is discussed in terms of the difficulties likely to be encountered—difficulties such as the shortage of capable personnel and problems of extending analytical practices to the State and local spheres of government.     

Public Financial Management Reform in South African Provincial Basic Education Departments

Since the transition to democracy in 1994, the South African government has engaged in a sustained programme of public financial management (PFM) reform across the national, provincial and local spheres of government. This study evaluates the progress of the nine provincial education departments (PEDs) in implementing the Public Finance Management Act of 1999 and explores the factors that facilitated or impeded reform. A PFM progress (PFMP) index is constructed to track each PED's performance from 1997/1998 to 2013/2014 and then used to benchmark its progress over time and relative to the education sector as a whole. The indicators comprising the PFMP index assess key PFM functions (budgeting, accounting, financial auditing and audits of performance information), financial leadership and the effectiveness of governance institutions such as audit committees. While there has been considerable progress in PFM, distinct differences in the quality and effectiveness of PFM practices across the nine PEDs remain. Stable top administrative leadership, availability of PFM skills, varying degrees of accountability and departmental capacity to establish PFM systems that conform to new accounting standards drive variances in reform outcomes. Copyright © 2016 John Wiley & Sons, Ltd.     

贯彻落实科学发展观 促进审计工作科学发展

我国的审计工作正处于转轨的全新时期,如何搞好审计工作是难点问题,笔者以科学发展观为指导,结合实际情况,强调要树立科学的审计理念,强化审计监督职能,增强审计质量意识,以求达到提高审计工作成效的目的。     

Epidemiological accountability: philanthropists,global health and the audit of saving lives

Abstract

There have been concerns about the recent private turn and re-emergence of philanthropies in world health, with many worrying about philanthropies’ perceived lack of transparency and accountability. In contrast, I argue that while the private turn might have led to a decline in democratic or public accountability, it did not bring an end to all forms of accountability. Specifically, I suggest that philanthropists’ involvement in global health has led to the spread of another, new form of accountability: epidemiological accountability. The latter is a combination of two regimes of expertise and practices hitherto kept separate: audit and epidemiology. To substantiate this argument, I draw on my research on the Bloomberg Initiative – a global effort to reduce tobacco use spearheaded by the Bloomberg and Gates foundations.     

Enron/Andersen: Crisis in U.S. Accounting and Lessons for Government

Accounting and auditing play a key role in the belief of ordinary taxpayers and investors in their institutions. This is equally true of the private and governmental sectors. The Enron/Andersen scandal, regrettably, is not an isolated case, but rather merely indicative of underlying, structural flaws in our financial systems. Moreover, there is evidence that some of these flaws may be present in governmental accounting and auditing. The Sarbanes‐Oxley Act of 2002 is an attempt to address these problems in the private sector, but does not address concerns in the public sector. Public sector accounting issues that need to be addressed and monitored include substandard audit work and related liability issues, the appropriate funding of GASB so as to ensure its independence, auditor fees, and auditor independence questions including protection of elected and appointed state auditors.     

Auditors‐General: Cuckoos in the Managerialist Nest?

The role of Auditors‐General has expanded in recent decades, particularly with the development of performance auditing. Performance auditing originated in the managerialist concern for monitoring results, but in some respects Auditors‐General have found themselves at odds with managerialism, particularly where outsourcing and privatisation have reduced the level of public accountability. Performance auditing has also increased the potential for Auditors‐General to clash openly with elected governments, though for the most part they confine their scrutiny to the activities of public servants. Auditors‐General have more authority to confront governments over matters of propriety than over efficiency and effectiveness issues.     

PERFORMING AUDITORS?: ASSESSING AND REPORTING THE PERFORMANCE OF NATIONAL AUDIT OFFICES—A THREE-COUNTRY COMPARISON

Abstract: This article reviews self-assessment and reporting strategies of national audit offices in the United Kingdom, Sweden and Australia and develops a framework for the reporting of their performance. There is a common emphasis in the audit office objectives on serving their primary client and on improving the performance of the public sector, but there are differences in emphasis regarding the clients being served. The differing approaches to assessing and reporting their own performance can in part be attributed to differences between their mandates, objectives and identification of the clients being served. The audit offices have developed complementary internal quality assurance processes which generate additional performance information and have been subject to external peer reviews which assess and report on their performance. A framework is developed which clarifies the relationship between audit office objectives and the measures used. It involves a hierarchy of performance parameters, including effectiveness, efficiency and workload and gives priority to meeting the needs of the primary client. The study has revealed that significant progress is being made in particular areas of assessing and reporting audit office performance and this should encourage audit offices to share their experiences internationally to enhance their own accountability to their primary clients and the communities they serve.     

Democratic Accountability in Decentralised Governance1

This article develops a conceptual framework for studying democratic accountability in decentralised governance, and discusses critical issues about democratic accountability from a citizen's perspective. First, the concept is discussed and adapted to make it useful for studying democratic accountability in different governance structures. Second, the article scrutinises conditions for democratic accountability in decentralised governance based on three models. Third, democratic accountability is discussed with reference to a case study of public reviewers operating in four municipalities in Sweden. The study indicates that municipal auditors and the local media have the greatest impact on municipal policy. On the whole, auditors improve local governments’ internal control and systems for steering and monitoring municipal policy, whereas the media sometimes alter the policy agenda without changing the policy. Auditors maintain and support an elitist democratic orientation of democratic accountability, and the media maintain this democratic orientation and in addition promote democratic dialogue. Viewed from a citizen's perspective, the traditional accountability system does not work satisfactorily. State inspectors and municipal auditors – two important public reviewers in the current system – could improve their work to make it more useful to citizens’ democratic control. Another way discussed to develop democratic accountability is to promote participatory policy and concrete means of accountability (e.g. on‐site visits, conducted tours and different forms of democratic dialogue). The formal way to improve democratic accountability implies more transparency, monitoring and control, which may also lead to distrust and scapegoat thinking (i.e. a surveillance society), whereas concrete modes of accountability, more associated with participatory and deliberative democracy, imply mutual responsibility and trust building. Strengthening participatory policy, active citizens, collective responsibility and democratic dialogue could be an alternative to the emerging audit society.     

Internal audit public sector capability: a case study

Internal auditing is an essential part of governance and can be a valuable asset to public sector institutions. However, for public sector internal auditing to effectively support management, the internal audit function (IAF) should be capable. The question arises as to how the capability of public sector IAFs can be measured. The Institute of Internal Auditors Research Foundation published the Internal Audit Capability Model (IA‐CM) in 2009 to provide a capability self‐assessment tool for public sector IAFs. The main objective of the study is to determine whether the IA‐CM can be used successfully to measure internal audit capability levels, and a secondary objective is to determine whether the tool can be successfully adapted for a specific public sector organisation and/or country. To achieve these objectives, the model was applied in a South African public sector organisation by means of a case study, where the IAF of the case was ranked against the key process areas (KPAs) of the model. The ranking was conducted based on a documentary review and interviews with applicable officials within the case. The model was successfully tested in measuring the internal audit capability level of a South African public sector organisation; however, a total of eight potential feasibility hindrances or considerations have been identified that could negatively affect the implementation of seven of the KPAs of the IA‐CM. Copyright © 2015 John Wiley & Sons, Ltd.     

Accounting and Accountability in Italian Local Governments: Recent Changes and Challenges for the Future

The Italian public sector, especially local government, has been experiencing an era of considerable change over the last four years following reforms introduced by the National Legislature (Parliament). The reforms influence many aspects of local government operations: organization, policy, management, finance, accounting, and auditing. This article analyzes some aspects of accounting reform in the new laws and directives in order to demonstrate how the traditional concept of accountability for local governments is changing. The direction of reform is clearly toward federalism and away from national authority and control in the public sector.     

Banking on Accountability? Strengthening Budget Oversight and Public Sector Auditing in Emerging Economies

This study reviews a decade of support by the World Bank and the Inter‐American Development Bank to parliaments and external audit agencies in Latin America. It underscores recent developments in development finance reflecting a broader understanding of the determinants of fiscal credibility and financial integrity. It reveals a learning curve in multilateral assistance to budget oversight institutions. It argues that there exists unexplored potential to improve the effectiveness of multilateral assistance to budget oversight institutions, including in the choice of strategies and instruments. More fundamentally, it underscores the need to tackle the underlying political economy of public finance accountability.     

From evaluation to auditing and from programs to institutions: Causes and consequences of the decline of the program approach

In the wake of the “audit revolution” during the 1980s and 1990s, administrative systems across the western world have tended to gradually downplay evaluation as a component of the policy process. At the same time, auditing has dramatically increased in scope and depth, and has also, to some extent, come to fill the role in policymaking previously played by evaluation studies. This article reviews this development from the perspective of policymaking and institutional change or “drift.” Specifically, we look at the types of information and knowledge that are lost and gained as a result of these developments. We apply a cross‐national approach, drawing on the examples from the European and North American contexts.     

How Do Nonprofits Respond to Regulatory Thresholds: Evidence From New York's Audit Requirements

Nonprofits in the United States must comply with various state and federal regulations to maintain their tax‐exempt status. Despite persistent calls to increase accountability in the nonprofit sector, there is little research examining the burden imposed by existing regulatory requirements, especially at the state level. This paper uses a bunching design to estimate the avoidance behavior exhibited by tax‐exempt charities in response to New York State's audit requirements. There is clear evidence of bunching in response to the requirement that nonprofits above certain revenue thresholds file financial statements reviewed by or audited by an independent certified public accountant. Measuring the extent of bunching around the revenue notches yields estimates of the average revenue that nonprofits either forego or fail to report in avoidance of the requirements. Results from dynamic estimation show that charities near the threshold for a review engagement report approximately $1,300 less revenue than otherwise predicted by a counterfactual; charities near the threshold for a full audit report approximately $1,400 less. The results have implications for the optimal design of state‐level financial regulations.     

Democratic Order,Autonomy, and Accountability

Accountability is a principle for organizing relations between rulers and ruled, and making public officials accountable is a democratic achievement. There are, however, competing claims about what is involved in demanding, rendering, assessing, and responding to accounts; what are effective accountability institutions; and how accountability regimes emerge and change. This article provides a frame for thinking about institutional aspects of accountability regimes and their cognitive, normative, and power foundations. A distinction is made between accountability within an established regime with stable power relations and role expectations and accountability as (re)structuring processes in less institutionalized contexts and in transformation periods. A huge literature is concerned with the first issue. There is less attention to accountability as (re)structuring processes. The article, therefore, calls attention to how democracies search for, and struggle over, what are legitimate accountability regimes and political orders.     

Consequences of an Anti-Corruption Experiment for Local Government Performance in Brazil

Decentralization reforms, implemented to improve efficiency and service provision, pose a challenge for federal governments that would like to ensure that federal resources are used appropriately by local governments. To overcome this challenge, some federal governments have implemented costly oversight programs aimed at improving municipal governance. For instance, in 2003, the Brazilian federal government introduced a randomized auditing program with the goal of improving municipal performance by exposing episodes of corruption and mismanagement. Yet, we know little about whether these types of programs actually lead to improvements in local outcomes, especially in terms of service delivery. We argue that audits provide opportunities for learning that should improve performance outcomes. To test this argument, we examine municipal performance in over 5,000 Brazilian municipalities from 2001 to 2012. We utilize the random assignment of audits and estimate difference-in-differences regressions. We find that audited municipalities experience greater improvements in performance overall compared to unaudited municipalities, though the effect size is modest. We also find evidence that the auditing program indirectly improves municipal performance. These results indicate that top-down oversight programs, such as the Brazilian one, are useful not only for improving transparency and accountability, but also for the provision of public services as well.     

Accountability in Governance Networks: An Assessment of Public,Private, and Nonprofit Emergency Management Practices Following Hurricane Katrina

What is the most effective framework for analyzing complex accountability challenges within governing networks? Recognizing the multiscale and intersector (public, private, and nonprofit) characteristics of these networks, an accountability model is advanced organized around democratic (elected representatives, citizens, and the legal system), market (owners and consumers), as well as administrative (bureaucratic, professional and collaborative) relationships. This concept draws from 2005 events following Hurricane Katrina. Multiple failures of governing networks to plan for and respond to Katrina include a breakdown in democratic, market, and administrative accountability as well as a pervasive confusion over trade‐offs between accountability types emerging from crises. This essay offers several useful recommendations for emergency management planners as well as for those who teach and research.