In June 2021 the top public sector auditors from across the Pacific met together for the annual Congress of the Pacific Association of Supreme Audit Institutions (PASAI). This year’s congress was held online, enabling streamed attendance from Supreme Audit Institutions (SAIs) across the Pacific and around the world. It was hosted by the New Zealand Office of the Auditor-General.
SAIs are the national agencies responsible for auditing government revenue and spending. They play a critical role in maintaining financial integrity by independently confirming the use of public funds. Having an independent government auditor is an important pillar of a well-functioning National Integrity System.
How independence drives impact
Independence is vital to this function. If an SAI is not properly recognised and resourced within their country’s legislative framework, it is difficult for them to drive impact in the financial management system. To be effective they have to be independent of those they audit, and protected against outside influence. This will increase credibility and confidence in their work. A strong, independent SAI is essential for a country’s good governance and public financial management.
The New Zealand Auditor-General (John Ryan), for example, has constitutional independence as an Officer of Parliament. He has operational independence and sets his own programme of work. He also has freedom of reporting, and managerial autonomy. These features are what are known in government auditing circles as ‘indicators of independence’.
This independence enables the Auditor General to provide quality and broad assurance to Parliament, to public entities and to the public, as evidenced by his recent reporting on the $13 billion Covid-19 wage subsidy, on the Government’s purchase of Ihumātao without Parliamentary approval, and his comments on its audits of local government.
Independence of Pacific SAIs
So how do other Pacific SAI’s shape up in terms of independence? It’s variable.
An April 2021 blog from PASAI reported on 18 Pacific SAIs against the relevant international standard. It showed:
- one country’s SAI has no independence,
- four have only the very basic feature of independence,
- eleven are at the development level with the SAI starting to develop and implement relevant strategies and policies, and
- two have independence that is functioning broadly as expected.
No Pacific SAI has yet reached the highest grade of Level 4 which indicates a continuously improving, well-functioning and independent SAI.
World Bank Report
In late July 2021 the World Bank published its Supreme Audit Institutions Independence Index 2021 Global Synthesis Report which covered 188 borrowing countries.
Pacific countries which were included in the index were:
- the Marshall Islands and Federated States of Micronesia - higher B category: ‘most independence indicators were met’
- Papua New Guinea and Tonga - D category: ‘some indicators met’
- Vanuatu and Samoa - E category with ‘few independence indicators met’.
In the World Bank Report indicators of independence include: constitutional and legal independence; transparency in appointment; financial and operational autonomy; audit scope; access to records; and rights/obligations.
The World Bank has correlated the independence indicators against other indicators such as levels of income, perceptions of corruption, and the level of budget openness. On the latter two there is a correlation, but interestingly, not in income levels. There are numerous examples where low income countries outperform countries (in independence indicators) with much higher levels of income. Simply put it’s not about money, it comes down to political will, and having the right skills in country to make the change.
What can be done?
Not surprisingly one of PASAI’s Strategic Priorities focuses on strengthening SAI independence in the Pacific, and a 2019 review of its implementation against its Strategy showed that it has made some solid progress. PASAI supports and encourages its members to be independent by providing resources, guidance and training.
But SAIs cannot achieve independence themselves. Legislative reform is often required and once enacted the Parliament or Legislature must support implementing the independence provisions by adequately funding and resourcing the SAI.
At the June PASAI Congress, Ed Olowo-Okere, Global Director, Governance Global Practice at the World Bank Group, noted that the issue of independence of audit institutions remains largely political, despite two UN declarations and the Lima Declaration. He noted that the role of SAIs in most countries is critical to ensuring the integrity of public finances, including providing oversight of revenues and donor funding. He emphasised that independence and capacity are fundamental to SAIs to perform their role effectively, and while capacity can be procured, independence cannot. Independence must depend on sound government legislation and policy.
The World Bank’s Independence Index contributes to this progressive reform, as a transparency tool.
Alongside limits on SAI independence PASAI member countries face other challenges. These include a shortage of qualified, experienced finance personnel, a lack of response to audit findings by audited entities, and a lack of capability and capacity to prepare accounts by the responsible entities. These challenges can in turn impact the timeliness and quality of audits, including audits of the financial statements of government.
With the theme ‘Impact through Leadership’ a lot of ground was covered in the three-day congress including presentations from a stellar line up of speakers - former Prime Ministers and current Pacific Prime Ministers and Ministers; Guest SAIs, former Auditor-Generals (including our Patron Lyn Provost) and guest speakers.
The Congress communique is available online.