The National Audit Offi

No. 7 2000 European Organisation of Supreme Audit Institutions

PRIMERAS JORNADAS EUROAMERICANAS MADRID, 17-18 FEBRERO 2000

The Commonwealth of Municipalities and the Austrian Court of Audit Auditing the UK Economic Regulators - The National Audit Office Experience International Contacts of the Accounting Chamber of Ukraine: Becoming Wider and Wider The Court of Audit of the Gran Duchy of Luxembourg Index

1 EDITORIAL

INFORMATION

2 EUROSAI NEWS

14 EUROPEAN UNION 14 New Composition of the European Court of Auditors 15 The European Court of Auditors on a working visit to the Algemene Rekenkamer 15 Working meeting with Mrs. Michaele Schreyer, Commissioner Responsible for Budget, at the European Court of Auditors (ECA) on March 23, 2000 16 Meeting of the Liaison Officers of the Supreme Audit Institutions of the European Union in Luxembourg on 3 and 4 October 2000 16 Working visits to Candidate Countries 18 Meeting of the Working Group of SAIs of Central and Eastern Europe, Cyprus, Malta and the ECA in Riga 19 Meeting of the Contact Committee of Heads of the Supreme Audit Institutions of the Member States of the European Union on 21 November 2000 20 Meeting of Presidents of SAIs of Central and Eastern European Countries, Cyprus, Malta and the European Court of Auditors Sofia, 7 and 8 December, 2000

REPORTS AND STUDIES

21 THE COMMONWEALTH OF MUNICIPALITIES AND THE AUSTRIAN COURT OF AUDIT Dr. Jens Budischowsky, Doctor of Law Auditor in the Municipalities Department of the Austrian Court of Audit 24 AUDITING THE UK ECONOMIC REGULATORS - THE NATIONAL AUDIT OFFICE EXPERIENCE John Ashcroft, Director of Business and Utility Regulation, National Audit Office 28 THE AUDIT OF COMPLEX IT INFRASTRUCTURES Mike Gilbert, Audit Manager UK National Audit Office 31 INTERNATIONAL CONTACTS OF THE ACCOUNTING CHAMBER OF UKRAINE: BECOMING WIDER AND WIDER Valentin Simonenko, President of the Accounting Chamber of Ukraine 34 THE COURT OF AUDIT OF THE GRAND DUCHY OF LUXEMBOURG 37 GOVERNANCE AS PART OF PERFORMANCE AUDIT EXAMINATIONS Jens Lund Andersen, Head of Section of The National Audit Office of Denmark Foto de cubierta: XX aniversario TCE. 13 de octubre de 1997. El Presidente del TCE, Sr. Bernhard Friedman, se dirige a los ilustres huéspedes: Sr. Santer, Presidente de la Comisión Europea; Sra. Schleicher, Vicepresidenta del Parlamento Europeo; Sr. Juncker, del Consejo de la Unión Europea, y Sr. Carbone, el más veterano de los presidentes de las Entidades Fiscalizadoras Superiores de la Unión Europea. Al fondo, los 15 miembros del TCE.

ISSN: 1027-8982 ISBN: 84-922117-6-8 Depósito Legal: M. 23.968-1997 EUROSAI magazine is published annually on behalf of EUROSAI (European Organisation of Supreme Audit Institutions) by the EUROSAI Secretariat. The magazine is dedicated to the advancement of public auditing procedures and techniques as well as to providing information on EUROSAI activities. The opinions and beliefs are those of the editors and contributors and do not necessarily reflect the views or policies of the Organisation.

The editors invite submissions of articles, reports and news items which should be sent to the editorial offices at TRIBUNAL DE CUENTAS, EUROSAI Secretariat, Fuencarral 81, 28004-Madrid, SPAIN.

Tel.: +34 91 446 04 66 - Fax: +34 91 593 38 94 - E-mail: [email protected] - tribunalcta@tcu. es - www: http://www.eurosai.org The aforementioned address should also be used for any other correspondence related to the magazine. The magazine is distributed to the heads of all the Supreme Audit Institutions throughout Europe who participate in the work of EUROSAI.

EUROSAI magazine is edited and supervised by Ubaldo Nieto de Alba, EUROSAI Secretary General, and Marta Fernández-Pirla, M.a José de la Fuente y de la Calle, Jerónimo Hernández, Martin Elliot and M.a Socorro Orcajo. Designed and produced by DiScript and printed by Star Press. EUROSAI magazine is printed on environmentally-friendly, chlorine-free (EFC) 110 gsm coated art paper which is bio-degradable and can be recycled.

Printed in Spain - Impreso en España

EUROPEAN ORGANISATION OF SUPREME AUDIT INSTITUTIONS Editorial

On the occasion of the holding of the First Euro-American Conference, in Madrid on 16 February 2000, participating SAIs had the opportunity of sharing experiences and broadening debates on cooperation strategies in the current processes of integration y globalisation. Right now, cooperation requires a new scope and a new impetus aimed at the construction of integration spaces Ðintegration of controlsÐ in which the goal is to strengthen professional ethics, to consolidate the transparency of public management, which is essential for achieving efficacy of control activity in this process of generating common zones of audit, and to relocate competencies (delocating them in order to then relate them from a joint perspective) at all levels of the Control Network so that each of them can act in line with the new scope, in other words, with the new space considered globally. Within the dynamic of cooperation, and as far as actions performed by our Organisation are concerned, I would not wish to omit the advances made by the Working Group on the Environment and the first steps starting to be taken by our Training Committee. In the former case, as you all know, the 4th EUROSAI Congress (Paris, June 1999) approved the creation of this Working Group, which is currently made up of 19 SAIs plus the European Court of Auditors. The Group has already had its first meeting and is planning to hold a First Seminar in the coming spring with the primary objective of achieving a regional audit programme for previously selected environmental areas. 1 As far as the Training Committee is concerned, its objectives are directed towards designing a Web page within the EUROSAI’s own site. This page is going to be used for the exchange of information in general and will offer the possibility of accessing training programmes designed by the different SAIs, of holding seminars on those subjects that have been specifically selected by the SAIs following an initial questionnaire, and of encouraging cooperation with IDI, primarily for the long-term development of the Regional Training Pro- gramme. With the wish that the best results are obtained in the progress made by these common actions, it is worth while recalling that current processes require creative reactions and therefore a complex learning, in other words, learning that is on-going and done in the group. Finally, I once again end by extending my very sincere gratitude to the authors for the way in which they have collaborated with the Secretariat of EUROSAI, by permitting a new edition of the Magazine of this Organisation thanks to the generosity of their contributions, and I would like to encourage everyone to carry on participating in this common objective, for which I place myself at your disposal for any help that you might require.

Ubaldo Nieto de Alba President of the Spanish Court of Audit Secretary General of EUROSAI

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Eurosai News

GENERAL CONCLUSIONS AND RECOMMENDATIONS OF THE FIRST EURO-AMERICAN CONFERENCE OF SUPREME AUDIT INSTITUTIONS Presentation of the General Conclusions and Recommendations by the Members of the Court of Audit of Spain Eliseo Fernández Centeno and Ramón Muñóz Álvarez

PREAMBLE ideas and experiences favor the performance of their functions within the postu- On the occasion of the 1998 INTOSAI lates which proceed from INTOSAI, of in- Congress held in Montevideo, the interest dependence, professionality, the promotion which had previously been demonstrated in of good financial management, and infor- intensifying communication between the mation to public authorities and citizens European Organization of Supreme Audit through the publication of objective reports. Institutions (EUROSAI) and that of Latin At this time, this cooperation presents America and the Caribbean (OLACEFS), a new scope and needs renewed momen- by holding a meeting between both region- tum, in light of the experiences of SAIs al groups, was made more concrete. This and of the new political, social and eco- Spanish-American initiative was well re- nomic realities that surround them, which 2 ceived at the Prague meeting of the Execu- demand expanded efforts and updated active Committee of EUROSAI in February tivities from audits. 1999, at which the Secretary General of EUROSAI presented the initial proposal of This First Euroamerican Conference of the President of OLACEFS. In June 1999, Supreme Audit Institutions sought a con- in Paris, the Executive Committee of EU- crete rapprochement between our regions ROSAI approved the proposal to hold a and allowed participating SAIs to discuss joint conference for reflection in Madrid, and share experiences, recognize new coinciding with the twenty-second meeting problems and challenges, promote investi- of the Executive Committee of the Organi- gation and discover new cooperation zation, in February 2000. strategies, as reflected in the following General Conclusions and Recommenda- This First Euroamerican Conference to tions, which are the result of the task of study the cooperation of Supreme Audit In- synthesizing the papers presented and the stitutions (SAIs) in integration and globaliza- discussions of the different sessions: tion processes was held under the auspices of the Spanish Court of Auditors, and assem- bled representatives of the SAIs of EURO- GENERAL CONCLUSIONS SAI and OLACEFS in Madrid, offering them the opportunity to share experiences 1) The convergence of values, princi- and discuss the perspectives for collaboration ples and objectives that takes place in inte- and cooperation in these processes. gration processes, as well as the growing The bonds between the SAIs of EURO- levels of interdependence, present SAIs SAI and OLACEFS are long-standing, and with new opportunities for collaboration, are added to those that have sprung up in their work of offering the proper control through their shared participation in INTO- of public management that civil society SAI and its Committees and Working Parties. demands in modern nations. SAIs have always recognized, as re- The European Union, its expansion to- flected in the Lima Declaration, that coop- wards Eastern Europe and the eastern eration and the international exchange of Mediterranean region, the evolution of

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First Euro-American Conference. Madrid, 2000. closed systems towards open systems, the action of SAIs as an element of balance in different processes of regional rapproche- the system of national authority, the attain- ment in Latin America—such as those of ment of the consent necessary for cooper- MERCOSUR, the Andean Community ation, and the quest for effectiveness. and the Central American Integration Sys- The new scope of this cooperation is tem—have generated new spheres of ac- gradually appearing, in accordance with 3 tion for the SAIs of Europe and America the level of integration in which SAIs act, and have given a new dimension to their and allows simultaneous cooperation Net- cooperation. works to operate among them, with differ- 2) Cooperation among the SAIs of ent degrees of intensity. EUROSAI and OLACEFS, in the heart of 5) In the new institutional areas that INTOSAI, allows better advantage to be arise when integration processes, such as taken of the opportunities that have arisen that of the European Union, further evolve, with the new millennium, promotes the it becomes necessary to manage the coop- building of integrated areas and constitutes eration between SAIs itself so that their a strategy to strengthen ethics and consol- actions in the integrated system may be ef- idate the transparency in public manage- fective at all levels, local or regional, na- ment that is required by globalization. tional, supranational and global. 3) Sharing the values of the political, In the globalization process, public au- economic and social changes that result dits, in their new dimension, cannot be con- from integration processes, based on the sidered to be detached from the institution- equality of rights and on diversity, places al sphere in which they are immersed, as the the SAIs of EUROSAI and OLACEFS be- latter is decisive in effective organizations fore a perspective in which it is essential to and procedures in open, democratic sys- develop cooperation strategies directed to- tems and those integrated into larger areas. wards supporting the work of auditing and towards increasing the synergy derived 6) It is the role of SAIs to promote from inter-regional association. good financial management, so that it con- tributes not only to economic progress but 4) The complex process of globaliza- also to social and ethical progress, and tion affects not only the internationaliza- generates new procedures that anticipate tion of markets, information, technological the most appropriate organizational and progress, culture and demands in the mat- public management models, which obliges ter of human, social and ecological rights, the audit to exceed its formal role in order but also affects audits, and it requires the to evaluate the risks that the regulations

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themselves contain and to set itself up as richment and collaboration in matters such an element that promotes efficient organi- as audits of the environment, bilateral and zations and responsible procedures. multinational projects, international cooperation funds, public debt, fraud and cor- 7) SAIs are broadening their spheres ruption, privatization processes and the of action, quantitatively and qualitatively, functioning of decentralized public sectors. both in supranational integration and in the decentralization of the respective national SAIs have an important responsibility public sectors; and the detection of errors in this integration, whatever their formal and of the responsibilities of public ad- level and the methods for collaboration ministrators in matters of organization, in- that are foreseen may be. It is the role of ternal management and control methods at OLACEFS and EUROSAI to support all the different levels of the audit Network those efforts and fulfill the specific func- is moving to the forefront. tion of converting their SAIs into promot- ers of the disclosure of audit demands on The integration of audits into a Network the operative state of regional integration constitutes the guarantee that the overall agreements, promoting the study of means system will maintain its effectiveness, allow for performing their functions in a supra- more current auditing reports to be pre- national sphere, and adapting the human, pared, delimit the risks resulting from orga- material and technological resources to the nizations, procedures and regulations, and specialization of the job of auditing. give greater importance to SAIs in their role as support to the respective Parliaments, 10) In integration processes that al- with the transfer of results to help make au- ready have an Audit Institution, such as the dit regulations more homogeneous. European Court of Auditors, it is necessary to integrate the audit Network formed 8) SAIs need to establish methods of by said SAIs, those of the member Coun- cooperation to carry out an effective audit tries of the Union, and—where decentral- of the application of the aid that Interna- ization processes of national public sectors tional Organizations channel in the inter- 4 are carried out at the same time—those of national field, and go beyond the mere au- the respective Regional Audit Institutions. diting of the economic contribution of each member Country. Concurrent auditing areas of the Euro- pean Court of Auditors, national SAIs and, OLACEFS and EUROSAI can set as the case may be, Regional Audit Institu- themselves up as catalyst Organizations tions, require necessary cooperation in in- which facilitate achieving the integration tegration and decentralization so that the of the SAIs of Europe and America in au- overall system can function effectively, dits of the application of international aid with said Institutions transferring audit refunds and in achieving the development sults to the respective Parliaments (Euro- plans of the respective countries, as well as pean, national and regional), without mal- their economic and social progress, functions or duplications. through promoting audit clauses in contracts between nations and trade contracts 11) Cooperation in integration and between both continents. globalization refers to all types of activities intended to encourage the independence 9) In Latin America, where union and the professional status of SAIs and to processes have been initiated to different improve the performance of their func- degrees, without having culminated in the tions, without limiting themselves to the creation of Audit Institutions, OLACEFS exchange of information and experiences, constitutes an appropriate arena so that the and constitutes an appropriate methodolo- SAIs of participating countries can foresee gy for analyzing shared problems and solu- audits to assume the new challenges of in- tions and anticipating the performance of tegration and globalization and promote joint initiatives in the auditing area. the cooperation which will allow the most In integration processes, it is necessary appropriate audit Network for each stage to identify new fields of auditing so that to be configured and prepared. SAIs, at the different levels of the Network The rapprochement between EURO- they form and acting in relation to the SAI and OLACEFS facilitates a new area whole, define scopes, objectives and of joint cooperation for their mutual en- methodologies to overcome the “grey

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area” of static cooperation and move to a RECOMMENDATIONS dynamic process of institutionalizing cooperation, after the study and preparation 1) The rapprochement between EU- of criteria, regulations and directives in ROSAI and OLACEFS should be which shared values are reflected. strengthened through seminars, confer- 12) It is the job of the regional Orga- ences and participation in acts pro- nizations to create conditions favorable to grammed by both Organizations, in which beneficial cooperation with SAIs that have the creation of the conditions and climate evolved from closed to open systems, fos- favorable to mutually beneficial coopera- tering opportunities for technical interac- tion and the exchange of auditing experi- tion and institutional approximation. ences should be sought. 13) Coordination, in those Countries For this rapprochement process, it where audits are decentralized and there are would be very advantageous to provide in- Audit Institutions of a more limited scope formation about audit methodologies that than a national one, must be oriented to- may arise in the integration processes of wards avoiding malfunctions or duplica- the European Union to all the SAIs that are tions in concurrent auditing, towards members of EUROSAI and OLACEFS. strengthening control, towards transferring 2) OLACEFS and EUROSAI should the results to the respective Parliaments to play a coordinating role between the SAIs improve decentralized public management of Europe and America, in order to bring and towards having the results allow na- together the realities and problems of au- tional SAIs to effectively program and car- diting and those that are of shared interest ry out coordinated audits on specific areas for both Continents. of the management process of the public sector as a whole, with results of interest to 3) EUROSAI and OLACEFS should the national Parliament and which would promote research in audit matters, request- allow possible responsibilities to be filtered. ing the preparation of shared conclusions backed by experience and making their re- 5 The existence of Regional Audit Institu- sults known to the SAIs of both Organiza- tions facilitates the evaluation of the effec- tions, once the common areas of interest tiveness of public management in all its man- for several SAIs of Europe or America ifestations and, through the appropriate have been defined. coordination, permits the effectiveness of the system considered as a whole to be evaluated. 4) OLACEFS and EUROSAI should carry out studies to identify the areas of 14) The European experience confirms action which have priority so that audits that promoting cooperation among SAIs performed by SAIs have a preventive ef- means respecting independence and the fect on any distortion of integration and different legal and auditing systems. SAIs globalization processes and can anticipate must give great importance to cooperation and avoid possible errors. Both Organiza- and furnish sufficient resources to carry it tions should promote joint regional actions out, by means of the creation of specific in matters of international importance, units in charge of the relationship with oth- such as globalization and its effects on ex- er SAIs and establishing agile communica- ternal public control, strategic audit al- tion and information procedures. liances or on the fight against corruption. Solid institutional relationships serve 5) EUROSAI and OLACEFS should as support to SAI cooperation Networks strengthen cooperation through the design and facilitate the analysis of common and execution of training programs, the problems and the formulation of concrete transfer of technology and the exchange of proposals. Their development requires experts in specific areas, so that the expe- that new initiatives be explored, profes- rience of the most advanced SAIs may be sional training resources be shared, ex- known, globalization possibilities may be change programs for public officials be ap- identified, working parties in specific mat- proved, agreements be finalized when ters may be created and liaison agents for international projects and organizations cooperation may be designated. are audited, and evaluations performed by auditors of other SAIs be introduced as an 6) OLACEFS and EUROSAI should element to guarantee quality. jointly organize and carry out forums for

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discussion, analysis and reflection on audit Keeping in mind the aim of EUROSAI matters of national, regional and interna- and OLACEFS and the objectives consid- tional interest and importance, and pro- ered in their by-laws, both Organizations mote permanent communication of the ac- should promote the creation of auditing tivities of the SAIs of both Organizations professorships at Universities, to strength- which are of shared interest, through pro- en research and knowledge of the respec- fessional magazines and newsletters, the tive methodologies. Internet and e-mail. 8) OLACEFS and EUROSAI should 7) EUROSAI and OLACEFS should promote cooperation among SAIs, within promote innovative research, adapting, the framework of INTOSAI principles, creating and perfecting concepts and both in the regional sphere itself in inte- methodologies, with the aim of making gration processes as well as in an intercon- auditing effective in light of new organiza- tinental and global context. tional realities in the public sector.

MINUTES OF THE XXI EUROSAI GOVERNING BOARD MEETING Paris (France), 15 November 1999

In the latest meeting of the Governing the XXI EUROSAI Governing Board Board Ð Madrid on 16 February 2000 Ð it meeting was approved. was agreed at the proposal of the President of EUROSAI to send the minutes of Board meetings to all member SAIs of the Organi- 2. APPROVAL OF THE MINUTES 6 sation in order to ensure that they are accu- OF THE XIX AND XX rately informed. In this way, these minutes GOVERNING BOARD MEETINGS will not just be distributed but will also be published in the EUROSAI magazine. For this reason, the minutes of the 21st Meeting The Minutes of the XIX and XX Gov- are included below, since this is a document erning Board meeting (Paris - 31 May - that has already been approved by the Gov- 3 June 1999 were approved. They are at- erning Board in its meeting in Madrid last tached as Annex 2. 16 February, along with a synthesis of the 22nd Meeting of the Governing Board, the minutes of which will be published 3. ANALYSIS OF THE REPLIES TO in the coming issue of the Magazine. THE QUESTIONNAIRE ON The EUROSAI Governing Board met TRAINING AND CONSTITUTION in Paris, at the headquarters of the OF THE TRAINING Supreme Audit Institution of France, on 15 COMMITTEE November 1999; it held its XXI meeting with the participation of the members who 3-1. The replies of EUROSAI mem- appear listed in Annex 1. bers to the questionnaire on training which was sent on 4 August 1999 demonstrate1 that SAIs do not wish to set up a Training 1. APPROVAL OF THE AGENDA Centre. This position had already been FOR THE XXI EUROSAI drafted in the Governing Board meeting GOVERNING BOARD MEETING held in Prague, in February 1999. These replies confirm that in EUROSAI there is a Mr. Joxe, President of EUROSAI, real need of training on multiple areas and opened the session. Then, the Agenda for show the practically unanimous interest of

1 Annex 3 includes a note dated 3 November 1999, where appears a synthesis of the 36 replies to the questionnaire.

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the Members of the Organisation to set up languages, two languages selected by each a Virtual Resources Centre (Internet). SAI, all the official languages. 3-2. Considering the replies, the Gov- 3-2-3. The working group will meet in erning Board agreed not to take into con- January 2000 in Frankfurt. Before the sideration the idea of setting up a Training meeting, the EUROSAI Presidency will Centre and to study future ways of co-op- send to the members and observers of the eration in the field of training: Governing Board a document to be used as 3-2-1. Following a proposal of the a basis for the debate. President of the SAI of Portugal, Mr. de 3-3. The President of EUROSAI point- Sousa, the Governing Board agreed to or- ed out that the actions of the Organisation ganise an exchange of training programmes should be co-ordinated with the projects al- between the members of EUROSAI. ready existing in the area of the European The representative of the Bundesrech- Union (setting-up of a database about the nungshof pointed out that, in Germany, the SAIs of the member countries of the majority of training seminars is organised Union) and with those of the area of the for the whole federal administration by a INTOSAI Development Initiative (IDI). central body. Only a small number of spe- The Supreme Audit Office of Norway cific training seminars is organised by the holds the Presidency of said organisation. Bundesrechnungshof itself. Such informa- Mr. Engeseth (Norway) said that EU- tion is, on the whole, not suitable for ex- ROSAI is the only regional Institution that change. lacks of a Training Committee. The cre- 3-2-2. The Governing Board consid- ation of such committee would make easi- ered the creation of an Internet Resources er the co-operation with IDI. Likewise, he Centre on training issues. informed about the human and material resources that the SAI of Norway is going to In order to define the contents and the make available to IDI. structure of this Internet Resources Centre, the Governing Board agreed that a work- 7 ing group made up of representatives of 4. OBJECTIVES OF THE the members and observers Supreme Audit ORGANISATION: REFLECTION Institutions of the Governing Board would ON ARTICLE 1 OF THE meet in January 20002 to draft a proposal STATUTES to be presented to the Governing Board during the meeting that will be held in Madrid on 16 February 2000. These pro- The Governing Board began a reflec- posals will have to provide an answer tion about the objectives of EUROSAI mainly to the following questions: mentioned in article 1 of the statutes of the organisation. Ð The contents of the Resources Centre. The President of EUROSAI said that Ð The kind of information on training this reflection about the statutes is closely that will include (internal training of related to the previous item of the Agenda, SAIs; training organised by the SAIs of as there are references to issues of training EUROSAI for SAIs of other countries; and information in article 1 of the statutes framework for the exchange of training, (article 1.3 and 1.6). He pointed out that etc.). the objective of exchange of information is Ð The structure of the Resources Centre. accomplished with the publication and distribution of EUROSAI magazine and Ð Who and how will manage and up- Newsletter. However, he considered that date the Resources Centre. these means are not sufficient, particularly, Ð Language or languages that will be for all the members to be informed about used in the network of the Resources Cen- the legislative changes in the field of audit tre. The members or observers of the Gov- as well as in the areas of organisation and erning Board suggest different possibili- operation of the respective Institutions. He ties: only one language among the official also highlighted sections 1.4 and 1.7 of the

2 Meeting that the SAI of Germany has accepted to organise in Frankfurt.

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statutes where EUROSAI appears as re- 5. INFORMATION ABOUT THE sponsible for the study of subjects and EUROSAI-OLACEFS problems related to public finances. EU- CONFERENCES. FEBRUARY ROSAI could develop these two objectives 2000, MADRID trough the WEB page that could be used to exchange information among SAIs about Mrs García-Crespo informed about theoretical and university questions set out some aspects of the organisation of the in the field of public finances. coming EUROSAI-OLACEFS Confer- Finally, and in relation to section 1.2 of ences, that will take place in Madrid on the Statutes, Mr. Joxe highlighted the need 17-18 February, immediately after the of a greater co-operation among the re- XXII EUROSAI Governing Board meet- gional institutions existing in the area of ing that will be held on Wednesday, 16 INTOSAI. February. After a brief description by the mem- The SAI of Norway will provide writ- bers and the observers of the Governing ten information about IDI during the EU- Board of the relations of their respective ROSAI Governing Board meeting and the SAIs with universities, the Governing OLACEFS Conferences. Board considered the idea of carrying out Subsequently, the Governing Board an exchange of information on this subject. meeting was adjourned.

SYNTHESIS OF THE DECISIONS OF THE 22nd GOVERNING BOARD OF EUROSAI (Madrid - 16 February 2000) 8 On 16 February 2000, the Governing training action that EUROSAI wishes to Board met in Madrid. The minutes of that organise for its members, and it has arrived meeting will be approved in the next meet- at some concrete results: this training ac- ing of the Governing Board, to be held in tion will be dealing with one of the topics Slovenia in 2001, when they will be dis- most requested by the SAIs in the ques- tributed to all members of EUROSAI, as tionnaire that they were sent in the sum- agreed by that Board. Nevertheless, it mer of 1999: “Computing techniques and seems useful to inform readers of the Mag- auditing”. Conceived as an exchange of azine of the main results of the meeting. experiences aimed at seasoned auditors, this action is going to be held in Poland, 1. The Governing Board has created a very probably on the dates 20 and 21 Feb- EUROSAI Training Committee composed ruary 2001. of eight SAIs: Germany, Denmark, Spain, France, Poland, Portugal, Czech Republic A second subgroup of the Training and the United Kingdom. Under the au- Committee is working on the creation of thority of the Governing Board, this new web pages on training, to be housed by the Committee will concern itself with all Cour des Comptes of France, with a link to training matters, for which purpose it has the web site of our Organisation, housed already held two meetings: one in Copen- by the Tribunal de Cuentas of Spain. This hagen on 10 May 2000 and the other in subgroup is composed of the SAIs of Den- London on 10 October 2000. mark, Spain and France. The dummy for these web pages has now been defined and In order to attend to the tasks assigned the project will be coming into operation to it by the Governing Board, the Training shortly. Committee has been divided into various working subgroups. A third subgroup is in charge of cooperation between EUROSAI and the INTO- The first subgroup, made up of the SAI Development Initiative (IDI). This co- SAIs of Germany, France, Poland and the operation was in principle agreed by the Czech Republic, is preparing the initial Governing Board de EUROSAI and has

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22nd Governing Board of EUROSAI. been assigned to the Training Committee. the Governing Board has decided to or- This subgroup, made up of the SAIs of ganise a seminar prior to the Moscow Con- Norway, the future Secretariat if the IDI, gress. The SAI of Poland will be hosting Spain, France, Poland and the Czech Re- that seminar in 2001, the topic for which public, has been making progress in this will be “Computing techniques in control 9 cooperation and has been preparing the by SAIs over the execution of State bud- bases for a Long-term Regional Training gets”. Programme (LTRTP) for EUROSAI. This 4. The Governing Board decided to is a wide-ranging programme whose con- organise a conference on the topic “The tent will have to be decided by EUROSAI. different scopes of control over public The search for funds to finance the pro- funds (national funds and Community gramme is now underway. funds)”. The SAI of Portugal has agreed to 2. The Governing Board decided to host this conference in Madeira. It will be send SAIs a questionnaire on relations be- held on 31 May and 1 June 2001. The tween them and universities, given that the preparation work for this conference, in promotion of such relations appears in Ar- which EURORAI will also be joining in, ticle 1 of the EUROSAI Statutes as one of are already underway. the objectives that the organisation must 5. The SAI of Poland presented the pursue. The results of this questionnaire Governing Board with the tasks carried will be presented in the meeting of the out by the Working Group that it chairs, a Governing Board in 2001. group that it was decided to create in the 3. The SAI of the Russian Federation 1999 EUROSAI Congress. Various meet- presented the Governing Board with a re- ings have been held, or are planned to be port on preparations for the 5th Congress, held (coordinating meetings in Bucharest to be held in Moscow in 2002. The Gov- in February 2000, meeting of the member erning Board decided that the subject for SAIs of the Working Group in Warsaw in this Congress would be: “The role of the October 2000, and a meeting in Oslo in SAIs in control over the execution of State the spring of 2001). The many results of budgets”. The sub-topics have yet to be de- these works are going to be reported to fined. the meeting of the Governing Board in For the previous Congress (Paris, 2001. 1999) a seminar was organised a year be- The next meeting of the Governing forehand (Lisbon, 1998). In the same way, Board will be held in Slovenia in 2001.

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NEWS ON EUROSAI MEMBERS THE CHAMBER OF ACCOUNTS OF THE RUSSIAN FEDERATION: NEW PRESIDENT HAS BEEN APPOINTED

On April 19, 2000 the State Duma of Military Political Academy named after the Federal Assembly of the Russian Fed- V.I. Lenin, in Moscow. He is a Doctor of eration appointed Mr. Sergey Vadimovich Law and Professor. Married with one son. STEPASHIN to the post of President of In 1973-1989 Mr. Stepashin served in the Chamber of Accounts of the Russian the system of the Ministry of the Interior Federation for a period of six years. in the cities of Leningrad and Moscow. Mr. S.V. Stepashin was born in March From 1989 to 1993 he was Deputy of the 1952 in the city of Port Arthur. In 1973 he Supreme Soviet of the Russian Soviet Fed- graduated from the Leningrad Higher Po- erative Socialist Republic (RSFSR), where litical College of the Ministry of the Inte- he first headed the Subcommittee on rior of the USSR, and in 1981 from the Questions of Military Servicemen and then the Committee on Defence and Secu- rity of the Russian Parliament. In the years of 1993-1998 Mr. Stepashin occupied high state posts in the Government of the Russian Federation: First Deputy of the Minister of Security, Director of the Federal Counter-Intelli- gence Service, Director of the Federal Se- curity Service, Director of the Administra- 10 tive Department of the Government Administration, Minister of Justice and Minister of the Interior of the Russian Federation, consecutively. In 1999 S.V. Stepashin carried out supreme governmental functions, first as Member of the Presidium of the Govern- ment, First Deputy Chairman of the Gov- ernment of the Russian Federation, and Minister of Interior, and after that, as Chairman of the Government of the Russ- ian Federation. After being elected to the State Duma of the Federal Assembly of the Russian Federation in December 1999 he became Mr. Sergey Vadimovich Stepashin, new Chairman of the Chamber of Accounts of the Chairman of the State Duma Commission Russian Federation. on the Fight against Corruption.

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SECOND INTERNATIONAL CONFERENCE ON INTERNAL CONTROL HELD IN BUDAPEST, HUNGARY FROM MAY 8 TO 11, 2000

The first International Conference on In- portance of the Conference in the coordi- ternal Control was held in Budapest in 1997. nating the development of internal controls. One of the main results of this first Mr. Árpád Kovács, Chairman of the In- conference was that a second conference ternal Control Standards Committee, re- needed to be held for clarifying important ported on the results of the first Interna- question of management responsibilities tional Conference on Internal Control and in establishing and maintaining internal on the importance and justification of control systems. holding the second International Confer- ence on Internal Control. The INTOSAI XVI Congress approved the programme prepared by the INTOSAI Mr. Gene Dodaro, Principal Assistant Internal Control Standards Committee, Comptroller General of the US General which constituted the basis of the second In- Accounting Office, greeted the partici- ternational Conference on Internal Control. pants on behalf of top-level GAO officers and also emphasised the importance of in- In order to plan for and implement this ternal control second international conference within the Internal Control Standards Committee, a In the framework of the Conference the Subcommittee was established to discuss programme approved by the Internal Con- and execute both the theoretical and the or- trol Standards Committee was accom- ganisational tasks. The Subcommittee or- plished. ganised several working group meetings in The excellent moderators, Dr. Kurt the Hungarian State Audit Office’s training Grüter, Director of the Swiss Federal Au- facilities in Velence. dit Office, Dr. Vaclav Perich, Vice-Presi- 11 We would like to mention that these dent of the Supreme Audit Office of the Subcommittee meetings were attended by Czech Republic, Mr. James R. Bonnell, representatives from Austria, Belgium, the Regional Inspector General of the US United States of America, the United Agency for International Development, Kingdom, Egypt, Lithuania, Hungary and and Mr. Bernhard Kratschmer, Counsellor the Russian Federation. A representative of the Austrian Court of Audit, performed from the Supreme Audit Office of the their tasks at a very high level. Czech Republic also participated and, de- All the speakers invited to the confer- spite the fact that this organisation is not ence represented a high quality and knowl- member of the INTOSAI Internal Control edge of their profession. Among others, Mr. Committee, it actively participated in the Michel Herve, Chief of Cabinet to the Eu- preparation work for organising this sec- ropean Union, Mr. Heinz Pfost, Member of ond conference. the German Federal Court of Audit, Mr. Approximately 200 participants from Boaz Aner, Deputy General Director of the about 50 countries took part in the Confer- State Comptroller’s Office of Israel, Mr. To- ence, which was also attended by repre- by Jarman, Assistant Inspector General for sentatives of several significant interna- Audit of the US Agency for International tional organizations: NATO, OECD, Development, Mr. Pjotr Chernomord, Audi- European Union, etc. tor of the Russian Chamber of Accounts, Dr. József Róoz, Professor of the Budapest Dr. Árpád Gönez, President of the Re- College of Economics. Some supplemen- public of Hungary opened the conference. tary speakers also had the opportunity to In his opening remarks he emphasised the present papers, such Mr. Graham Joscelync, importance of internal control for ensuring Auditor General of the World Bank. the efficient utilisation of public money. The presentations and the workshops Dr. Franz Fiedler, Secretary General of that followed them greatly helped towards the INTOSAI, in his message sent to the explaining management responsibilities in conference, announced the significant im- establishing and maintaining internal con-

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trols. During these workshop discussions ing the INTOSAI Guidelines for Internal some new issues arose that drew attention Control Standards. In connection with this to those problems and questions which the issue the Conference resolved that any INTOSAI Internal Standards Committee possible modifications will have to be dis- will have to discuss and determine how cussed during the next INTOSAI Internal best to deal with them. Control Committee meeting. The issues that possibly warrant addi- As part of the process of compiling the tional study are: results of the Conference, the Internal ¥ What is the significance of the Audit Control Standards Committee determined Committee? How is it functioning, and the implementation of the following rec- how does it ensure management responsi- ommendations and the execution of the bility in connection with internal control? following activities: ¥ Another question arose concerning 1. A task force will be established, led the regulation of internal control of state- by the US General Accounting Office, owned companies, mainly with regard to which wi1l produce a document for man- determining the management responsibili- agers summarising the most important re- ty for establishing and maintaining inter- quirements of management responsibili- nal controls. ties in establishing and maintaining internal control activities. ¥ Some countries pointed out that there were problems in coordinating con- 2. The Hungarian State Audit Office, nections between external and internal au- the organisation hosting the two confer- dit, and what the role of management was ences on internal control, will prepare a in this respect. summary including the entire text of each speech and all the comments made by the ¥ An important issue was how to regu- moderators and supplementary speakers. late the adoption of compulsion in connec- This detailed summary will be sent to all tion with internal controls from the view- INTOSAI member countries. 12 point of management responsibilities and activities. The next meeting of the INTOSAI In- ¥ Mention was made in several re- ternal Control Standards Committee will spects of how to ensure independence of deal with the issues that were raised during internal control. the Conference. The question on produc- ing a declaration on protection of auditors ¥ A question arose in the form of a de- has already been passed on to the Secre- mand for a system to be worked out for tary General of INTOSAI by the Commit- protecting control data against hackers. tee. The other important issue on the pro- ¥ The Russian Chamber of Accounts tection of control data against hackers was brought up an issue dealing with how to forwarded to the Chairman of the INTO- ensure the protection of auditors. It was SAI EDP Committee. recommended that the INTOSAI Internal We would like to thank the US Agency Control Standards Committee should take for International Development for provid- steps to regulate the rights and protection ing the equivalent of $2000 for helping the of auditors in a separate declaration. Hungarian State Audit Office in connec- ¥ Finally, there were several interest- tion with hosting the 2nd International ing questions on the possibility of modify- Conference on Internal Control.

SEMINAR OF THE SAIS OF THE RUSSIAN FEDERATION AND GERMANY

On 11 April 2000, a seminar was held K.M. Karmokov, former President of on Moscow on “Cooperation between Par- the Accounts Chamber of the Russian Fed- liament and the Accounts Chamber for the eration, explained on behalf of that Institu- preparation, execution and control over the tion the unique system of controlling the execution of State Budgets”. execution of State budgets and the differ-

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ent facets of cooperation between the Ac- following topics: the problem of strength- counts Chamber and the Federal Assembly ening operational control over tax rev- within this system. enues of the Federal Budget; improving The President of the Federal Court of the control activities carried out in re- Audit of Germany, Hedda von Wedel, gave sponse to requests from the Chambers of a speech titled “The role of the Court of the Federal Assembly; and the efficien- Audit of Germany in preparing the draft cy of the recommendations made by State budgets and in controlling their com- the Accounts Chamber of the Russian pliance. Models of cooperation with Par- Federation as a result of controlling the liament”. execution of the Budget in terms of non-budgetary state funds and final Following that speech, Juta Tize-Ste- budgetary state funds, during the years her, President of the Auditing Sub-Com- 1998-1999. mittee of the Budgetary Committee of the German Bundesrat, focusing on the topic Having drawn up the conclusions of of the role of Parliament in drawing up, ex- the Seminar, the Delegation from the Fed- ecuting and controlling the State Budgets. eral Court of Audit of Germany held an in- Participating in the debate were the terview with G.Y. Semiguin, Vice-Presi- area chief auditors of the Accounts dent of the State Duma of the Russian Chamber of the Russian Federation: V.G. Federation, and with A.D. Zhukov, Presi- Panskov, M.I. Besjmelnitsyn and I.G. dent of the Budgetary and Fiscal Commit- Dajov, who, in that order, referred to the tee of the Duma.

RUSSIAN-BRITISH SEMINAR IN MOSCOW 13 In the bilateral seminar held in autonomous regions of the Russian Feder- Moscow on 22 and 23 June 2000, experts ation. They also delved into other topics from the Accounts Chamber of the Russ- such as the methodology for calculating ian Federation and their colleagues from the tax basis; refunds and the effective col- the National Audit Office of the United lection of taxes; compliance by banks with Kingdom held an exchange of experiences the rules of collaborating with the Public from the viewpoint of control over execut- Treasury; the gathering of federal taxes in ing the budget for tax revenues. the field of foreign trade and in relation to During the seminar a total of 16 reports public goods; and the organisation of co- and speeches were presented. operation among the control, fiscal and financial bodies and the Treasury in order to In their respective papers, the two make it possible to execute the federal chairmen of the seminar Ð V.G. Panskov, budget for tax revenues. member of the Accounts Chamber of the Russian Federation and Tim Berr, head of British participants focused on the the British delegation and Comptroller and problems of the practical administration of Assistant Auditor of the National Audit the tax system and made an in-depth study Office (NAO) of the United Kingdom Ð of the details of audits that have to be con- described the tax systems and legal frame- ducted when tax management is comput- works for tax gathering in the two coun- erised, the auditing of budgetary revenues tries, emphasising the role of the SAIs as and the different types of control on these far as control over compliance with fiscal audits, including the rendering of accounts legislation is concerned. to Parliament. During the course of this exchange, the In the interview that the delegation area chiefs of the Russian Accounts Cham- from the NAO held with S.V. Stepashin, ber referred to the problems that they have President of the Accounts Chamber of the had to tackle in organising that control Russian Federation, the future lines of bi- when it comes to tax gathering and they lateral relations between the SAIs of both explained the tax system existing in the countries were marked out.

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European Union

NEW COMPOSITION OF THE EUROPEAN COURT OF AUDITORS

The European Court of Auditors Transport and Communication 1992 -1993 (ECA) has welcomed four new Members and Minister of Justice 1993 -1994. to its institution from March 1, 2000 for a ¥ Mr. Vítor Manuel da SILVA term of six years. They are Mr. Robert CALDEIRA has held various positions at REYNDERS (Belgium), Mr. Juan Manuel the Portuguese Ministry of Finance since FABRA VALLÉS (Spain), Mrs. Máire 1984, and most recently as Deputy Inspec- GEOGHEGAN-QUINN (Ireland) and Mr. tor General of Finance at the Inspectorate Vítor Manuel da SILVA CALDEIRA (Por- General from 1995 until 2000. His specif- tugal): ic responsibilities have included co-ordi- nation of the European Community con- ¥ Mr. Robert REYNDERS has been a trols and internal control system of the Director and a Member of the Board of the Portuguese State’s Financial Administra- National Bank of Belgium since 1991, in- tion. He has participated in various work- cluding responsibility for the bank’s In- ing groups of the European Community spection and Audit Division and Statistics for the protection of the financial interests Department. Before this he worked as of the European Union. Head of the Private Office of the Federal Minister for the Budget from 1988 until In addition, Mr. J¿rgen MOHR (Den- 1990. He has been a Committee Member mark), Mr. Giorgio CLEMENTE (Italy), at the European Central Bank for imple- Mr. Aunus SALMI (Finland) and Mr. Jan 14 mentation of the EURO from 1991 until O. KARLSSON (Sweden), Members of 1999. the Court of Auditors, whose term of office expires on February 29, 2000, have ¥ Mr. Juan Manuel FABRA VALLÉS had their mandates renewed from March 1, was a Member of the Spanish Parliament 2000 until February 28, 2006. Mr. Jan O. from 1982 until 1994. From 1991 until KARLSSON’s term of office as President 1994 he was Member of the Western Eu- of the ECA continues until January 2002. ropean Union’s Parliamentary Assembly. In accordance with the Treaty, these He has been a Member of the European Members of the European Court of Audi- Parliament since 1994, and Member of the tors were appointed by the Council of the Committee on Foreign Affairs, Security European Union in its decision of Decem- and Defence Policy, a Member of the ber 17, 1999, having acted unanimously Committee on Budgets from 1994 until 2000 and Member of the Committee on Budgetary Control from 1994 until 1999 (including Rapporteur on the 1997 budget of the European Union).

¥ Mrs. Máire GEOGHEGAN-QUINN was a Member of the Irish Parliament from 1975 until 1997. Her career has included positions as Minister of State at the Department of Industry, Commerce and Energy 1978 -1979, Minister for the development of Irish speaking regions 1979 - 1981, Minister of State for Education 1982, Chairwoman of the Parliamentary From left to right: : Mr. Vítor Manuel da Silva Caldeira, Mr. Juan Manuel Fabra Vallés, Mr. Jan Committee on Women’s Rights 1982 - O. Karlsson, Mrs. Maire Geoghegan-Quinn and 1987, Minister of State for European Af- Mr. Robert Reynders at the European Court of fairs 1987- 1991, Minister for Tourism, Justice, 8 March 2000.

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after consulting the European Parliament. The European Court of Auditors in its The Members of the Court are indepen- new composition has adopted the alloca- dent in their functions representing solely tion of its audit and other responsibilities the interest of the European Community. between the Members. This new organisa- The Treaty confers upon the European tion chart is available on the Court’s Inter- Court of Auditors the main task of auditing net site: http://www.eca.eu.int/EN/coa.htm. the accounts and the implementation of the The new Members of the European budget of the European Union, with the Court of Auditors gave a solemn undertak- dual aim of improving financial manage- ing on their independence and integrity be- ment and reporting to the EU citizens on fore the Court of Justice during its formal the use made of public funds by the au- sitting on Wednesday March 8, 2000 in the thorities responsible for their manage- presence of the other Members of the ECA ment. and representatives from other institutions.

THE EUROPEAN COURT OF AUDITORS ON A WORKING VISIT TO THE ALGEMENE REKENKAMER

Mr. Jan O. KARLSSON, President of In accordance with the Treaty on the the European Court of Auditors (ECA) European Union, the European Court of and Mr. Maarten B. ENGWIRDA, Dutch Auditors is to carry out its audits in liaison Member of the ECA, accompanied by with the national audit bodies and/or the Mr. Chris KOK, Director of the Depart- competent national departments. In this ment for External Relations of ECA, vis- context, the following topics were dis- 15 ited the Algemene Rekenkamer, the Dutch cussed during the meeting: national audit body, on Monday February ¥ the role and powers of the Algemene 14, 2000. Rekenkamer relating to the EU revenue and expenditure; The ECA’s delegation were received by Mrs. Saskia J. STUIVELING, Presi- ¥ the ECA’s recent audit reports; dent of the Algemene Rekenkamer, Mr. Pe- ¥ Possible closer co-operation of the ter Zevenbergen, Member of the Algemene Algemene Rekenkamer with the ECA in Rekenkamer and Mr. Tobias WIT- the context of the ECA’s Statement of As- TEVEEN, Secretary General of the Al- surance and the perspectives of the coming gemene Rekenkamer. Intergovernmental Conference (IGC).

WORKING MEETING WITH MRS. MICHAELE SCHREYER, COMMISSIONER RESPONSIBLE FOR BUDGET, AT THE EUROPEAN COURT OF AUDITORS (ECA) ON MARCH 23, 2000

On March 23, 2000 Mrs. Michaele dent, Mr. Jan O. KARLSSON and the SCHREYER came to the headquarters of Members of the Court in its new composi- the European Court of Auditors on Kirch- tion as well as with senior staff of the Court. berg for a working meeting. The purpose of the meeting was to During this meeting, Mrs. SCHREYER discuss the reform of the European and the Commission delegation had the op- Union’s Financial Regulation which the portunity to exchange views with the Presi- Commission is preparing for adoption by

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the Council. In view of the objective, shared by both Commission and the Court of Auditors, of optimising the protection of the financial interest of the European Community, the European Commission needs to strive, through fun- damental reform of the Financial Regula- tion, for more efficient (“best practice”) financial management, speedier payment systems, greater accountability and all in Mr. Jan O. Karlsson, President of the ECA and all, better value for money. Please see the Mrs. Michaele Schreyer, European Opinion 4/97 of the ECA on the matter Commissioner responsible for Budget. for further details.

MEETING OF THE LIAISON OFFICERS OF THE SUPREME AUDIT INSTITUTIONS OF THE EUROPEAN UNION IN LUXEMBOURG ON 3 AND 4 OCTOBER 2000

This year, after a meeting in Brussels nancial Regulations and the state of play in May, the Liaison Officers met once of the implementation phase of a digital again on 3 and 4 October in Luxembourg, network between SAIs of the EU Mem- at the Court’s headquarters on the Kirch- bers States and the ECA under the TESTA berg plateau, in order to prepare the meet- Community programme. 16 ing of the Heads of the SAIs, which took place in Luxembourg on 21 and 22 No- vember 2000. The meeting was conducted in two phases, the first devoted to the work of the Liaison Officers and the “ad hoc” Working Groups and concentrating more particularly on : a) co-operation with candidate countries, where Mr. Jacek Mazur of the Polish Chamber of Control and Mr. Rein Söörd of the State Audit Office of Estonia gave a presentation of the state of play of the Working Group; b) the co-ordinated audit of State Funds. The second part was dedicated more particularly to parallel audits on the management of Structural Funds, the intergov- Meeting of de Liaison Officers of the European Member States in ernmental Conference, the reform of Fi- Luxembourg on 3-4 october 2000.

WORKING VISITS TO CANDIDATE COUNTRIES

In view of enlargement, the European to carry out its audits in liaison with the Court of Auditors aims to improve and national audit bodies and/or the compe- intensify further the co-operation with tent national departments. Moreover, the the Supreme Audit bodies of the candi- setting-up of national internal control sys- date countries. In accordance with the tems and the audit of EU funds to candi- Treaty on the European Union, the ECA is date countries requires closer co-opera-

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tion between the institutions before acces- ¥ The SAI activities and its role in the sion. system of State organisation, contacts with the Parliament and auditors’ status. In this context working visits were or- ¥ Adapting audit methodology to the ganised during which, among others, the EU context. following topics were discussed: ¥ Auditing expenditure from EU bud- ¥ The role of the European Court of get and the role of the SCC in the EU inte- Auditors and possible tasks of the gration. Supreme Audit Institutions in the context ¥ Co-operation between the SAI and of the Enlargement. the ECA.

WORKING VISIT TO THE POLISH SUPREME CHAMBER OF CONTROL ON APRIL 3 AND 4, 2000

Mr. Jan O. KARLSSON, President of the Polish Supreme Chamber of Control the European Court of Auditors (ECA), (SCC), Mr. Jacek UCZKIEWICZ and Mr. accompanied by his Head of Cabinet Mr. Zbigniew WESOLOWSKI, the Vice-Pres- Michel HERVE and Mr. Chris KOK, Di- idents of the SCC. rector of the Department for External Re- The President of the European Court of lations of ECA visited the Polish Auditors, Mr. Jan O. KARLSSON also Supreme Chamber of Control (SCC), the met the President of the Republic of Polish national audit body, on April 3 and Poland, Mr. Aleksander KWASNIEWSKI 4, 2000. together with Mr . J. WOJCIECHOWSKI, The ECA’s delegation was received by President of the SCC in the afternoon of 17 Mr. J. WOJCIECHOWSKI, President of April 3, 2000.

WORKING VISIT TO THE HUNGARIAN STATE AUDIT OFFICE (SAO) ON MAY 12-15, 2000

Mr. Jan O. KARLSSON, President of Mr. Peter GOTTFRIED, the European Court of Auditors (ECA), State Secretary for Integra- lead a delegation from the Court of Audi- tion of the Hungarian Min- tors on a visit to the Hungarian State Audit istry of Foreign Affairs, re- Office (SAO) in Budapest on May 12-15, ceived the ECA’s delegation 2000. in order to exchange views on The ECA’s delegation was received by the negotiation process. The Dr. Arpad KOVACS, President of the Hun- ECA delegation also met Ms. garian State Audit Office, Mr. Istvan SAN- Ibolya DAVID, Minister of DOR and Dr. Lazlo NYIKOS, Deputy Justice, as well as Mr. Imre Presidents of the SAO. BOROS, Minister responsible for the Government co-ordi- Mr. KARLSSON’s delegation also met nation of the PHARE pro- representatives of the Auditing and Inte- grams, in order to discuss, gration Committees of the Hungarian Par- among other topics, the im- liament, discussing, among other points, plementation of the PHARE the follow up of audit observations and the programme. Mr. Jan O. Karlsson, President of the transposition and implementation of the ECA and Dr. Arpad Kovacs, body of EU law (“acquis communau- President of the Hungarian State taire”). Audit Office.

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EUROPEAN COURT OF AUDITORS ON A WORKING VISIT TO THE ESTONIAN STATE AUDIT OFFICE (SAO) ON SEPTEMBER 4-5, 2000

Mr. Jan O. KARLSSON, President of the European Court of Auditors (ECA) and Mr. Maarten B. ENGWIRDA, Member of the Court, lead a delegation from the Court of Auditors on a visit to the Estonian State Audit Office (SAO) in Tallinn on Septem- ber 4-5, 2000. Mr. Jan .O Karlsson, President of the ECA and Mr. Maarten B. Engwirda, Member The delegation met Mr Tunne KELAM, of the ECA during a meeting with the Estonian Vice-speaker and the Chairman of the Eu- SAO. ropean Affairs Committee of the Riigikogu (Parliament), and Mr Kalle JÜRGENSON, The ECA delegation also met Mr Siim Chairman of the Finance Committee of the KALLAS, Minister of Finance, to discuss Riigikogu discussing, among other points, the implementation and the internal con- the follow up of audit observations. trol of EU funds in Estonia.

MEETING OF THE WORKING GROUP OF SAIS OF CENTRAL AND EASTERN EUROPE, CYPRUS, 18 MALTA AND THE ECA IN RIGA

At their meeting in Prague last year in jects could be identified and ideally October, the heads of the above mentioned launched. SAIs decided to create a working group In order to reach these ambitious ob- that should follow-up the implementation jectives, the working group decided during of the recommendations concerning the this meeting to split-up its task into four functioning of SAIs in the context of Eu- areas and to nominate two co-rapporteurs ropean integration and the active approach for each of these areas. The areas and co- of SAIs with regard to accession. This rapporteurs are: working group, which is under the chair- manship of the Presidents of the Estonian ¥ Implementation of the recommenda- and Slovenian SAIs, Mr Juhan Parts and tions of the meeting of Presidents in Dr. Vojko Anton Antoncic, met for the first Prague on the functioning of SAIs in the time in Riga on 4th and 5th April 2000. context of European integration Co-rap- Representatives of the EU Contact Com- porteurs: Poland-Cyprus mittee Working Group and SIGMA were ¥ Implementation of audit standards, also present at the meeting. audit manuals and audit methodology The objective of the working group is Co-rapporteurs: Czech Republic-Malta to monitor in the first place the implemen- ¥ The active role of SAIs in the tation of the recommendations and to ex- process of enlargement Co-rapporteurs: change experiences SAIs have made. It Latvia-Bulgaria, assisted by the ECA should also report specific problems with the implementation of the recommenda- ¥ Needs assessment of SAIs for co-op- tions and give if possible further recom- eration with Member States SAIs and mendations to SAIs. Last but not least Technical assistance Co-rapporteurs: should the working group prepare a means Hungary-Romania, assisted by the EU to communicate the needs of the SAIs to Contact Committee Working Group and other SAIs so that technical assistance pro- SIGMA

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The results of this working group will before the report will be presented to the be discussed at the next meeting of the heads of the above mentioned SAIs at their working group in October 2000 in Prague, next meeting in December 2000 in Sofia.

MEETING OF THE CONTACT COMMITTEE OF HEADS OF THE SUPREME AUDIT INSTITUTIONS OF THE MEMBER STATES OF THE EUROPEAN UNION ON 21 NOVEMBER 2000

On 21 November 2000, the Heads of ¥ The first part was devoted to the “ad the Supreme Audit Institutions (SAIs) of hoc” Working Groups and their discussion the Member States of the European Union centred on: gathered in Luxembourg for their annual Ð co-operation with the candidate meeting, presided over by Mr. Jan O. countries; KARLSSON, President of the European Court of Auditors (ECA). Ð the parallel audit of Structural Funds management (creation of a working group); The Contact Committee meets annu- Ð the co-ordinated audit of State Aid; ally, alternating between Luxembourg and the capital city of another Member ¥ In the second part, the meeting dis- State. The 1999 meeting was held in cussed audit of state-owned companies Dublin. and the Intergovernmental Conference (IGC), particularly the exchange of infor- The meeting was conducted in two mation and the examination of Member 19 phases. States’ proposals.

Group Photo of the Meeting of the Contact Committee of the Supreme Audit Institutions of the European Union, Luxembourg 21 November 2000.

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MEETING OF PRESIDENTS OF SAIS OF CENTRAL AND EASTERN EUROPEAN COUNTRIES, CYPRUS, MALTA AND THE EUROPEAN COURT OF AUDITORS SOFIA, 7 AND 8 DECEMBER, 2000

The Presidents of the SAIs of Albania, implementation of the recommendations Bulgaria, Cyprus, Czech Republic, Esto- of Prague. nia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovak Republic, Slove- The second part centered on more gen- nia and the European Court of Auditors eral and political aspects of auditing in the met on 7 and 8 December 2000 in Sofia. European and international context. Pre- The objective of the meeting was this time sentations from Ms Michaele Schreyer, twofold as the annual meeting of the Pres- Commissioner of the EU, Dr Franz idents were linked to the official ceremony Fiedler, Secretary General of INTOSAI, of the 120th anniversary of the first Bul- Mr Jacques Magnet on behalf of Mr Pierre garian Audit Act. Joxe, President of EUROSAI, Mr Tim Burr, Deputy Comptroller and Auditor General of the United Kingdom National The first part of the meeting was dedi- Audit Office, and Mr Maarten B. Engwir- cated to the discussion of the report on the da, Member of the European Court of Au- implementation of the recommendations ditors, laid the foundation for an interest- adopted by the Presidents at their previous ing panel discussion which was led by Mr meeting in Prague. A working group Jan O. Karlsson, President of the European chaired by the Estonian and Slovenian Court of Auditors. The panel discussion SAIs had prepared this report. Mr Juhan was followed by the adoption of the rec- Parts, Auditor General of the Estonian ommendations. State Audit Office, and Dr. Anton 20 Anton i , President of the Slovenian The second day were closed with the Court of Auditors, presented the observa- official ceremonies for the 120th anniver- tions and recommendations of the working sary of the first Bulgarian Audit Act. Dr group. Other contributions from the Bul- Georgi Nikolov, President of the Bulgarian garian SAI, Romanian SAI, the represen- National Audit Office invited the partici- tative of the working group of the EU Con- pants to an evening about the history and tact Committee, EUROSAI, IDI, and future of the Bulgarian Audit Office and SIGMA illustrated the progress and the the traditions of the Republic of Bulgaria. deficiencies in implementing these recom- The following day the participants also mendations. After discussion, the Presi- had the possibility to visit the old town of dents agreed to create two new working Plovdiv and the Bachkovo Monastery, two groups: one to assist in the preparation and important sites for Bulgarian history. implementation of audit manuals and the another to initiate action on specific audit Further meetings of the Presidents will activities. These two working groups will be held 2001 in Cyprus and 2002 in Ro- provide concrete assistance to the practical mania.

EUROPEAN ORGANISATION OF SUPREME AUDIT INSTITUTIONS E UR SAI REPORTS AND STUDIES No. 7 - 2000

The Commonwealth of Municipalities and the Austrian Court of Audit

DR. JENS BUDISCHOWSKY Doctor of Law Auditor in the Municipalities Department of the Austrian Court of Audit The concept of commonwealth of municipalities applies solely to those administrative bodies which have their own legal capacity and undertake certain tasks on behalf of the Municipalities they represent, but under their own responsibility.

1. THE COMMONWEALTH OF According to the provisions on the dis- MUNICIPALITIES IN AUSTRIA tribution of powers determined by the Constitutional Act of the Federal State of The The concept of commonwealth of mu- Austria, it falls to the latter to issue regula- organisation, nicipalities applies solely to those adminis- tions relating to the civil status of citizens trative bodies which have their own legal and to nationality. By means of the appro- in other words, capacity and undertake certain tasks on be- priate legislation, the Federal State has, the regulation half of the Municipalities they represent, with respect to those powers, provided for of the organs but under their own responsibility. Accord- the possibility of municipalities forming and structures ing to article 116.a. of the Constitutional themselves into commonwealths so that of Act of the Federal State of Austria such they can better comply with the undertak- commonwealths can be created either on ings transferred to them. commonwealths the basis of juridical foundations or on the For their part, the regulations relating of basis of the free wishes of the municipali- to social welfare must be issued by the municipalities, 21 ties in question, and the responsibilities and provinces. The Federal State of Upper is the exclusive undertakings transferred to them can be of a Austria (Oberösterreich) has provided in sovereign nature (e.g., tax gathering) or concern of the this respect that the powers relating to this autonomous they can have a private economic content must (with three exceptions) be held at the (e.g., water supply). The transfer of such re- regional level by commonwealths of mu- legislating sponsibilities cannot lead to the very exis- nicipalities. authority. tence of the municipalities being brought into question. It is therefore inadmissible to The organisation, in other words, the transfer all their undertakings and responsi- regulation of the organs and structures of bilities to one or several commonwealths. commonwealths of municipalities, is the exclusive concern of the autonomous legislating authority. Pursuant to the Consti- 2. CONSTITUTION AND tutional Act of the Federal State of Austria, ORGANISATION the necessary provisions must be issued relating to assemblies of commonwealths, The constitution of commonwealths of to the powers of the president of the com- municipalities, in other words, the funda- monwealth, and (to the degree that com- mental decision on the tasks and undertak- monwealths of municipalities have been ings of municipalities that are going to be constituted by means of agreements) the transferred, or which can be transferred as entry into and leaving of the common- the case might be, are determined accord- wealth and its dissolution. Assemblies of ing to the general distribution of powers commonwealths are made up of represen- between the Federal State and the different tatives of municipalities which, irrespec- provinces. If the Federal State has the tive of their size or importance, have been power to legislate, it will be able to trans- granted the right of co-decision. Similarly, fer certain tasks and authorities to the mu- the representatives of municipalities nicipalities and, in so doing, provide that formed into the commonwealth, who are these municipalities can form common- elected by a vote, must perform their du- wealths in order to guarantee compliance ties themselves, and any possibility of of the tasks entrusted to them. their being represented by, or of their du-

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ties being performed by, other officials or 3. COMMONWEALTHS OF employees of the State is rejected outright. MUNICIPALITIES AND THE The president of the commonwealth has COURT OF AUDIT The president a category similar to that of the mayor of a of the municipality: he represents the common- Since the passing of the reform of the Federal Constitutional Act of 1948, it falls commonwealth wealth, he chairs the assemblies and meet- has a category ings of it and of other associations, he acts to the Court of Audit to conduct audits on as the main person in charge of the employ- the accounts of commonwealths of munic- similar to that ees, etc. The establishment of other admin- ipalities, with application Ð mutatis mutan- of the mayor istrative bodies is at the discretion of the au- dis Ð of the provisions in force for the au- of a diting of accounts of municipalities with tonomous legislating authorities. Certain of municipality. these authorities provide that the manage- more than 20,000 inhabitants (large mu- ment of the commonwealth is performed by nicipalities). In this case, the Court of Au- a president and a small group of officials. dit acts as an organ of the autonomous parliament of the province in which the The main tasks of the commonwealths particular commonwealth of municipali- of Austrian municipalities consist of the ties being considered has its headquarters. creation and running of hospitals, schools, The powers of the Court of Audit extend to water supply utilities, pipelines, refuse dis- all the commonwealths of municipalities, Since the posal, assurance of social welfare, local without it being necessity for any particu- passing of the health policy activities, matters related to lar large municipality to be a member of it. the civil status and nationality of citizens, reform of the management of health, pensions and retire- As well as the commonwealths them- Federal ments, and prevention of accidents among selves, the Court of Audit must also audit Constitutional employees and mayors of municipalities. the foundations, institutions, funds and companies in which those commonwealths, Act of 1948, it In 1980 there existed 295 common- either on their own or together with other falls to the wealths of municipalities in Austria. Since bodies subject to the control of the Court of then, their number has multiplied: the data Court of Audit Audit, have at least a 50% holding in the to conduct 22 bank of the Austrian Court of Audit cur- share capital, the subscribed capital or the rently records the existence of more than capital itself of those companies, and of audits on the 2,000 commonwealths (as of August 1999). companies in which the commonwealth has accounts of a dominant position from the financial, eco- commonwealths Commonwealths for refuse nomic or organisational point of view. of collection ...... 86 municipalities. Commonwealths for tax gathering...... 14 4. SUBJECT OF THE AUDIT Commonwealths for running The auditing and control powers of the of hospitals ...... 3 Court of Audit extends to the financial Commonwealths in charge of management of the appropriate common- health ...... 436 wealth of municipalities. According to the Commonwealths for social Constitutional Tribunal of Austria, “finan- The auditing cial management” is to be understood as welfare...... 52 and control Commonwealths in charge of “behaviour that goes beyond the simple civil status...... 248 handling of financial means and which has powers of the repercussions of a financial nature”. As Commonwealths of civil registers . 248 Court of Audit this behaviour is applicable de facto to any extends to the Commonwealths of schools ...... 326 administrative action, the exercise of the financial Commonwealths for water broadest powers by the Court of Audit is supply (elimination of sewerage, thus made legitimate. management prevention of floods and swells, of the water supply)*...... 522 appropriate 5. AUDIT AND INSPECTION Other commonwealths ...... 70 OBJECTIVES commonwealth Total...... 2,005 of The objectives of auditing set down in * 305 commonwealths according to Austrian municipalities. legislation on water, to which can be added not just the Federal Constitutional Act are the same the municipalities, but also other entities or bodies. as for inspections made of the Federation,

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the provinces, the municipalities and the the requirement of information, the hand- commonwealths of municipalities, and they ing over of accounts ledgers, receipts and extend to checking the accuracy of arith- any other document, the right to turn to ex- The legal metical calculations, checking the compli- perts and also Ð as the most important stipulations ance of existing regulations, checking the means and the one with the greatest prac- economics, the efficiency and the efficacy. tical relevance Ð in situ inspection by the constitute directives When one talks about the accuracy of bodies of the Court of Audit. the arithmetical calculations, one is mak- In accordance with the distribution of guiding the ing reference to the historical starting powers of the Court of Audit, the auditing actions of the point that gave rise to the birth of auditing. of commonwealths of Austrian municipal- Administration The verification of the degree to which the ities is currently conducted by seven de- and they management accords with the existing partments. One of these is responsible for represent the standards aims to check that the adminis- school commonwealths, two are responsi- tration in Austria solely acts in accordance ble for hospital commonwealths, two are standards on with the laws (principle of legality). The concerned with commonwealths of water which the legal stipulations constitute directives supply, refuse and sewerage treatment, and Court of guiding the actions of the Administration another is in charge of the remaining com- Audit and they represent the standards on which monwealths. the Court of Audit conducts its work. conducts its In the case of in situ inspections, the work. The criterion of economy refers to the concerned commonwealth is notified of minimisation of spending; the criterion of ef- the control one or two months in advance. ficiency seeks to achieve the best possible re- Once the audit is completed, the appropri- lation between income and spending, and ef- ate report setting out the results obtained ficacy pursues the optimisation of tasks and is drawn up and passed on to the president In accordance undertakings that have to be performed. of the commonwealth within a period of with the These criteria constitute a unit that has to be three months, so that he can issue his distribution interpreted within the framework of the rela- opinion in this regard and so that it can of powers of tionship between objectives and means. serve as notification of the measures the Court 23 They authorise the Court of Audit to exercise adopted. the broadest control over the actions and ac- of Audit, the tivities of the administration: the available The report, the president’s statement auditing of and the reply from the Court of Audit are resources must be employed in such a man- commonwealths ner that Ð depending on the objectives that it all then handed on to the Regional Gov- is sought to attain Ð they provide the utmost ernment and to the Federal Government. of Austrian usefulness that can be achieved. The audit procedure ends with the publica- municipalities tion of an abridged version of the results of is currently the report, bearing in mind the statement conducted by 6. INSPECTION MEANS AND and the reply, which must be presented be- PROCEDURES fore the plenary session of the common- seven wealth. Until that moment, the results and departments. The law concerning the Court of Audit reports on audits conducted are confiden- lists the following as control instruments: tial.

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Auditing the UK economic regulators - the National Audit Office experience

JOHN ASHCROFT Director of Business and Utility Regulation, National Audit Office Between 1984 and 1996, United Kingdom Governments carried out a programme of privatisation that transferred substantially the whole of the telecommunications, gas, water, electricity and rail industries from public to private ownership. At the same time they created a regulator for each privatised industry to protect customers of privatised companies from potential abuse of their monopoly position.

INTRODUCTION WHO ARE THE REGULATORS?

Between 1984 and 1996, United Before the first major privatisation, of The utility Kingdom Governments carried out a pro- British Telecommunications in 1984, the companies were gramme of privatisation that transferred Office of Fair Trading (established in privatised as substantially the whole of the telecom- 1973) were responsible for overseeing the munications, gas, water, electricity and protection of consumers and the enforce- monopolies or near rail industries from public to private own- ment of competition law in the UK econo- monopolies, either ership. At the same time they created a my as a whole. They still retain this role, on a national basis, regulator for each privatised industry to and indeed are being encouraged to be as in the case of protect customers of privatised compa- more proactive, but with the privatisation 24 nies from potential abuse of their monop- of the utilities and rail came the formation telecommunications, oly position. The regulators are indepen- of bodies dedicated to the regulation of gas and railway dent of Ministerial control, but their specific industries, as detailed in Table 1. infrastructure, or as Offices are government departments, and regional monopolies they are accountable to Parliament for (water and their work. The National Audit Office au- WHY REGULATORS WERE electricity). dit the accounts of each regulator, and re- CREATED port to Parliament on the effectiveness with which each regulator performs the The utility companies were privatised functions and duties required by legisla- as monopolies or near monopolies, either tion. on a national basis, as in the case of This article describes how the National telecommunications, gas and railway infra- Audit Office examine the effectiveness of structure, or as regional monopolies (water the regulators’ work. and electricity). In the absence of regula-

TABLE 1 Ð The industry specific regulators Industry Name of regulator Date created Telecommunications Office of Telecommunications (OFTEL) 1984 Gas Office of Gas Supply (OFGAS) 1986 Water Office of Water Services (OFWAT) 1989 Electricity Office of Electricity Regulation (OFFER) 1989 Rail Office of the Rail Regulator (ORR) 1993 Postal services Postal Services Commission (Postcomm)1 2000

1 The Postal Services Commission has been created in shadow form. It will regulate the Post Office, which is still in public ownership.

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tion, such companies would be in a strong tors meet their duties and exercise their position to exploit their monopoly power. functions (Table 2). Customers would be unable to change their Such a wide range of duties and func- The supplier if prices were too high or if quali- tions across so many regulators means that regulators ty of service was too low. Also, monopolies in each year the National Audit Office suffer from limited incentives to operate ef- were created, have to choose which aspects of the regu- to protect the ficiently, whether they are in public or pri- lators’ work should be covered. The Na- vate ownership, until competition can be tional Audit Office therefore draw up a public from introduced to provide a market incentive to work programme by identifying important the risk of operate efficiently. And even when compe- areas of regulation that may warrant an in- abuses. tition is introduced, dominant companies vestigation. The National Audit Office fo- may act in an anti-competitive manner. cus in particular on subjects where they The regulators were created, therefore, to can add value for Parliament, customers of protect the public from the risk of such abus- regulated companies, and the regulators es. Each Act of Parliament privatising an in- themselves. dustry specified the duties and functions of the regulator it created. These duties and functions are not the same for all regulators, THE NATIONAL AUDIT OFFICE but generally similar principles apply: APPROACH TO EXAMINATIONS ¥ to protect customers of the privatised OF THE REGULATORS Since 1993 utility companies from exploitation of mo- the National nopoly power, where it exists; this in- In approaching the audit of the eco- cludes protection in respect of price and nomic regulators, the National Audit Of- Audit Office quality of service, promotion of economy fice strive to: have and efficiency in production, and protect- ¥ focus on outcomes for the customer, examined ing equal access to services for different society and the environment; how groups of customers; ¥ add value by identifying improve- effectively ¥ to facilitate or promote the developments to the regulatory process; the 25 ment of effective competition in their in- ¥ keep pace with developments so as dustry, including the enforcement of com- regulators to direct their scrutiny to topics where it meet their petition law; and would be most valuable; and ¥ to ensure regulated companies are duties and ¥ maintain and develop sufficient exercise their able to finance their activities. skills to meet each of these three chal- Some regulators have additional du- lenges. functions. ties. The electricity regulator, for example, Some examples of this approach fol- has a duty to promote efficiency in the low. consumption of electricity, and the rail regulator has a duty to promote use of the The primary focus of National Audit rail network. To carry out all these duties Office studies is on the outcomes the regu- and functions, regulators have a range of lators achieve. For example, the National powers, many of which derive from the li- Audit Office’s report in 2000 on the rail cences that allow regulated companies to regulator examined how well he ensures operate, most notably the power to order a that the railways are maintained and renewed. Railtrack is the company that owns company to take action required to comply The primary with its licence. By monitoring compa- and operates the rail network, and has a nies’ compliance with licences, regulators duty under its licence to maintain and re- focus of are able to gain assurance that they are new the network. The National Audit Of- National meeting their own objectives and duties. fice therefore focused on how well the rail Audit Office regulator does his job, which is to ensure Railtrack meet their duty, and not on how studies is on the outcomes NATIONAL AUDIT OFFICE well Railtrack did their job. Through doing EXAMINATIONS OF THE so, the National Audit Office were able to the REGULATORS identify ways in which the regulatory regulators process could be improved. achieve. Since 1993 the National Audit Office The National Audit Office can add val- have examined how effectively the regula- ue by identifying ways in which the regu-

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TABLE 2 - Published National Audit Office reports on the regulators Regulator Date Title Subject The National OFTEL 1993 Licence Compliance and Licence Audit Office Consumer Protection compliance can add OFGAS 1996 The Regulation of Gas Tariffs: Price controls value by The Gas Cost Index identifying OFTEL, OFGAS, 1996 The Work of the Directors General duties ways in OFWAT, OFFER General of Telecommunications, which the Gas Supply, Water Services and regulator’s Electricity Supply approach to OFWAT 1997 Regulating and Monitoring the Quality of service achieving Quality of Service Provided to Customers by the Water Industry regulatory in England and Wales objectives OFTEL 1998 Countering Anti-competitive Enforcing can be Behaviour in the competition law improved, in Telecommunications Industry a practical OFFER 1998 Improving Energy Efficiency Environmental and cost- Financed by a Charge on protection effective Customers manner. OFGAS 1999 Giving Customers a Choice - The Promoting Introduction of Competition into competition the Domestic Gas Market OFTEL, OFGAS, 1999 How the Utility Regulators are Security of supply 26 OFWAT, OFFER Addressing the Year 2000 Problem in the Utilities (plus an update report) OFT 2000 Protecting the Consumer from Protecting Unfair Trading Practices consumers ORR 2000 Ensuring that Railtrack Maintain Monitoring and Renew the Railway Network investment The range of duties and functions lator’s approach to achieving regulatory developments. For example, in 1999 the objectives can be improved, in a practical National Audit Office produced two re- that a and cost-effective manner. A methodology ports on how the regulators were address- regulator commonly used is to survey regulated ing the Year 2000 problem in their indus- must perform companies and customers for their views tries. And the restructuring of markets to calls for a and experiences on the impact of regula- permit competition has been the theme of wide range tion. For example in preparing the 1999 re- several recent National Audit Office report on gas competition, the National Au- ports. of specialist dit Office surveyed customer awareness of skills (legal, The range of duties and functions that their choice of gas supplier, and their ex- a regulator must perform calls for a wide statistical, perience of changing gas supplier, which range of specialist skills (legal, statistical, economic provided valuable evidence on how the economic and accounting) in each regula- regulator can help to improve the informa- and tory office. In order to audit the work of tion available to customers. accounting) the regulators, the auditor also needs to Rapid technological advances and have access to these skills, to understand in each market structural change are now a feature the issues facing the regulators, and to be regulatory of the regulated industries, most notably able to assess the work of the experts em- office. telecommunications, and both the regula- ployed by the regulator. The National Au- tor and the auditor must keep pace with dit Office do this by employing econo-

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mists and statisticians, in addition to its troduced competition into the domestic traditional core skill base of accountants, electricity supply market. or by appointing consultants for expert ad- ¥ Knowledge and experience of how vice. For example, the National Audit Of- other regulators tackle a problem is useful fice appointed engineers to assist on the in making recommendations to the regula- report on the rail regulator, and specialist tor being examined, even when the Na- competition economists and lawyers in the tional Audit Office have not previously 1998 examination of how the telecommu- carried out an examination directly related nications regulator tackles anti-competi- to that problem. For example, knowledge tive behaviour. of how the water regulator use indepen- In addition, reports on the regulators dent reporting engineers to verify informa- contribute to the National Audit Office tion from regulated companies pointed to a corporate target of generating savings of recommendation as to how rail regulator £8 for every £1 the Office spends. The could secure similarly reliable information 1998 study on the electricity regulator’s from a regulated company. scheme under which electricity companies help their customers use electricity more efficiently led to recommendations that REACTION TO NATIONAL AUDIT saved customers £2.8 million in 1999, OFFICE REPORTS more than ten times the cost of the study. And the recommendations contributed to The National Audit Office’s primary the extension of the scheme, and to further audience are the Public Accounts Commit- savings rising to some £25 million a year tee of the House of Commons, which re- from April 2000. port to Parliament on how well government departments spend their money. The Committee have appreciated the reports on NATIONAL AUDIT OFFICE the regulators, and have welcomed the op- FINDINGS FROM AUDITING THE portunity to question regulators at parlia- REGULATORS mentary hearings, on the basis of National 27 Audit Office reports. Reports also receive As a result of the reports listed in Table wide coverage in the press and media. 2, the National Audit Office have provided Regulators themselves welcome National Parliament with a solid base of knowledge Audit Office reports that add value. and experience of how regulators work, The findings in National Audit Office the issues they face and how these issues reports have also influenced Government, can be addressed. This experience is useful regulators and consumers. The 1996 report in a number of ways: on all of the regulators, for example, was ¥ Comparative examinations of the ap- notable because it was the first compre- proaches of a number of regulators on a hensive review of the activities of the reg- particular issue allow the National Audit ulators of its type, and the Government ac- Office to identify areas of best practice and knowledged the value of its findings in the areas of weakness in the approach of one subsequent review of utility regulation. or more regulators. For example, the ex- The regulators have accepted the recom- amination of how the regulators addressed mendations made in all of the reports to the Year 2000 problem identified areas date. And the 1999 report on the gas regu- where all regulators would benefit from a lator emphasised the financial savings common approach to the independent which consumers could make, simply by checking of regulated companies’ systems switching to a different gas supplier. readiness by consultants. As part of the INTOSAI Working ¥ Examining how one regulator has Group on the Audit of Privatisation, and an dealt with a subject provides a platform for active member of EUROSAI, the National examining how other regulators tackle the Audit Office have contributed to INTO- same problem. Having already reported on SAI’s development of a set of guidelines for how the gas regulator introduced competi- auditors of regulatory organisations. The tion into the domestic gas supply market, Working Group was greatly assisted in this the National Audit Office is currently ex- work by other Supreme Audit Institutions, amining how the electricity regulator in- who responded to a survey of the audit of

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economic regulation in 1999, and who as- monitor developments to ensure that com- sisted in developing draft audit guidelines petition is effective. And some parts of the with their comments, and with examples of regulated industries will always be mo- Part of the experience of auditing regulators around nopolies, requiring the attention of regula- challenge for the world. The draft guidelines are now tors. Legislation currently passing through available on the Working Group’s website Parliament will add to the duties of at least the National [http://www.nao.gov.uk/intosai/wgap.home some of the regulators, in particular by in- Audit Office .htm]. creasing their duties towards the con- in the future sumer. Also, the Government have merged will be to the offices of the gas and electricity regu- add value in lators, to reflect the fact that a number of FUTURE NATIONAL AUDIT OFFICE an WORK ON THE REGULATORS companies operate in both these industries, and are creating new regulators, such environment Part of the challenge for the National as the Postal Services Commission to reg- where the Audit Office in the future will be to add ulate the postal industry. regulators value in an environment where the regula- These changes present the National are now well tors are now well established - the Audit Office with both challenges and op- established. telecommunications regulator was estab- portunities. The National Audit Office will lished over 15 years ago for instance. The continue to aim to produce reports that regulators have a better of understanding provide Parliament with valuable informa- of the companies they regulate, and the tion on the way regulatory powers are techniques and conventions of regulation used, while helping the regulators them- are now well established. But as long as selves, through assisting the spread of National Audit Office reports continue to good practice, helping the industries they add value, regulators will welcome them. regulate, and the consumers they protect. While some industries that were mo- In preparing this article, I have been nopolies at the time of privatisation have greatly assisted by the National Audit Of- 28 opened up to competition, regulation re- fice’s economic regulation team, most no- mains important, and regulators must tably Simon Banner and Chris Shapcott.

The Audit of complex it infrastructures

MIKE GILBERT Audit Manager UK National Audit Office Mainstream financial audit staff deliver most of the IT audits undertaken by the UK Na- tional Audit Office (UK NAO). However, the UK NAO also has a group of around 20 specialist IT auditors who undertake complex IT audits and provide advice and guid- ance to both financial and value for money audit specialists. This article looks at how and why the UK National Audit Office has entered into a three year partnership with Ernst & Young, a leading firm of chartered accountants, to develop our specialist IT audit skills and extend our audit coverage to reviews of complex IT infrastructures.

INTRODUCTION way in which EDS (UK) Ltd, the Inland Revenue’s IT partner, manages complex The UK National Audit Office has re- infrastructure services on their behalf. cently let a three year contract with Ernst These audits, which are an integral part of & Young to undertake a series of audits of the UK NAO’s IT audit of the Inland Rev- the Inland Revenue’s IT infrastructure. enue, cover capacity, interface, network The purpose of the contract is to audit the and change control management across

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ICL, IBM, UNIX and NT platforms. The Working together, both parties hope to use main focus of our programme of IT audits the best of private and public sector prac- supports our examination of the regula- tices to add value to their knowledge bases The UK tions and procedures used by the Inland and audit techniques and, in addition to National Revenue to assess and collect tax and our obtaining assurance about the proper oper- examination of the Department’s financial ation of the tax systems, provide a stream Audit Office accounts. We therefore obtain assurance of internal high quality reports containing has recently that the Department’s business critical sys- recommendations for Inland Revenue let a three tems are available when required, process management. year contract information securely and with integrity. Audits under this contract are being with Ernst & conducted in accordance with UK Ac- Young to counting Practices Board statements and EXTENDING OUR AUDIT undertake a Information Systems Audit and Control Association (ISACA) statements and stan- series of Until recently, our IT audit of the In- dards. Audits are also required to have re- audits of the land Revenue included annual reviews of gard to COBIT objectives and to best prac- Inland the operation of the main computer instal- tice as defined the UK Central Computer lations, business critical applications, IT Revenue’s IT and Telecommunications Agency (CCTA) and data security and the development of infrastructure. in their Infrastructure Library (ITIL) series new applications and systems. However, of publications, where relevant. The purpose the Department’s increasing reliance on of the contract complex interrelated IT systems, the intro- Participation in the audits covered by duction of electronic service delivery, pa- the contract is not restricted to UK NAO is to audit the per less trading and the modernising gov- staff working on the audit of the Inland way in which ernment initiative has led the UK NAO to Revenue. We have offered other NAO staff EDS (UK) extend their audit coverage to the manage- the opportunity to work with Ernst & Ltd, the ment of the risks associated with the De- Young and have also extended this oppor- Inland partment’s IT infrastructure. This is be- tunity to the Inland Revenue’s own Inter- cause the proper functioning of business nal Audit service. In discharging our oblig- Revenue’s IT 29 critical systems requires the complete and ations under the contract, both the UK partner, accurate transfer of information between NAO and Ernst & Young wish to ensure manages related applications, data centres and local that the public service receives the maxi- complex offices and effective control over key man- mum benefit for the sums invested. agement procedures such as capacity and infrastructure Both parties have recognised that, for change management. services on the contract to work as intended there their behalf. needs to be full and open communication between them. This involves liaison offi- THE CONTRACT WITH cers on both sides and protocols for re- ERNST & YOUNG solving any differences constructively and quickly. The success of the contract also The principal aims of this contract are depends upon the Department and EDS for the UK NAO and Ernst & Young to un- having confidence in the contractor’s abil- dertake the required audits in partnership The principal ity to safeguard the confidentiality of their together. This means that, although Ernst aims of this information and conduct the work to ap- & Young have full responsibility for deliv- propriate professional standards in away contract are ering these audits to the required standard, that minimises disruption to the Depart- for the UK NAO staff are working with them in the ment and EDS (UK) Ltd. NAO and planning and execution of key audits and in the delivery of the final reports. Conse- On security and the confidentiality of Ernst & quently, under the terms of the contract, information, Ernst & Young have under- Young to Ernst & Young have undertaken to provide taken a number of measures to ensure that undertake both training and support to UK NAO staff their working practices are secure and the required and to share their knowledge and tech- have had these accredited by the Inland niques with them under licence. In return, Revenue’s Departmental Security Unit. audits in UK NAO staff working with Ernst & These measures include the re-vetting of partnership Young have acquired a base level of exper- all staff working on the contract, the regis- together. tise in IT audit and are willing to under- tering of all documents received, the stor- take further study or training as required. age of all papers under lock and key and

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the dissemination of a bespoke security the Department’s entire IT operation and policy to all staff working on the contract. the infrastructure which links it together. To ensure that each audit goes as This was a major undertaking that took Both parties smoothly as possible, the UK NAO has es- over nine months to complete and required have tablished liaison points within both the a significant amount of co-operation from both the Department and EDS (UK) Ltd. recognised Department and EDS (UK) Ltd who co-or- that, for the dinate activity within their own organisa- This was forthcoming from the outset tions and channel any concerns via the UK mainly because: the exercise was ex- contract to NAO liaison officer. This not only allows plained to our clients in detail prior to the work as for the timely resolution of requests for in- start of work; it was carefully planned intended there from the start, and thus reduced the load formation and problems by both sides, it needs to be also provides for full and open communi- on third parties to a minimum; and, be- cation between auditors and auditees; cause it undertook to present the informa- full and open which is a pre requisite for success in a tion collected in a way which would be communication contract such as this. useful to EDS (UK) Ltd and the Depart- between them. ment. Consequently, both the Department and EDS (UK) Ltd contributed to an in- Once the survey had been completed, duction day for Ernst & Young which gave the drafting of the Invitation to Tender was them the background to the Department, relatively straight forward. To ensure that its contract with EDS (UK) Ltd and other the cost of individual assignments was useful information prior to the start of tightly controlled, the ITT provided suffi- work. For their part, Ernst & Young have cient technical and other material to allow bidders to make a fixed price bid for each agreed to: share audit programmes with Ernst & EDS (UK) Ltd prior to the start of work; of the assignments on offer. This was only keep them regularly informed of progress possible due to the Inland Revenue’s Young have and emerging issues as the audit proceeds; agreement to make this information avail- also agreed present the findings of the audit prior to able. To protect the confidentiality of the to give the drafting of the report; and, to issue the Inland Revenue’s systems unsuccessful 30 tenderers were required to return all tender significant final report in draft for comment. Ernst & notice of any Young have also agreed to give significant documentation and certify that they had notice of any intended penetration testing; retained no copies on any media. Bidders intended including the use of specialised software. were also given the opportunity to ask the penetration This is to ensure that EDS (UK) Ltd have NAO, Department and EDS questions pri- testing; the opportunity to test any software prior or to the submission of tenders and the Department and EDS also attended post including the to use and to arrange for “cloned” systems use of and data to be made available for testing. tender presentations to the UK NAO. Fi- nally, the UK NAO ensured that neither specialised Ernst & Young have allowed for flexi- party had any objections to the letting of software. ble working, to ensure that: innovative the contract to the eventual bidder. techniques are used when required; work programmes are tailored to the individual The tender process was, therefore, time circumstances of each audit; and, that consuming and complex. Other SAIs work is undertaken, where possible, at wishing to let a similar contract should not times that are convenient to EDS (UK) underestimate the time needed to complete Ltd. This, together with the NAO UK’s this phase of the procurement exercise. Letting this policy of involving both the Department The key to a successful contract of this contract has and EDS (UK) Ltd as observers in key nature is, therefore, agree the concept with been a stages of the procurement process, has led client departments and their outsourcing both these parties to adopt an open and partners at the outset, allow plenty of time complex constructive attitude to this work. for the preparation of the ITT and the tech- operation nical annexes which accompany it and and was keep interested third parties informed of conducted TIPS FOR OTHERS WISHING TO developments. When drafting the Invita- REPEAT THIS EXERCISE tion to Tender it is often helpful to look with the beyond the immediate tasks to be achieved advice of Letting this contract has been a com- and consider how the contract can be de- KPMG. plex operation and was conducted with the signed to allow for a skills transfer so that advice of KPMG. It involved a survey of the commissioning authority is in a posi-

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tion to deliver other complementary prod- products is maintained and provide a fo- ucts in the future. Once let, carefully de- rum for all parties to discuss the progress signed working arrangements should en- of the contract overall and individual as- sure that the delivery of high quality signments.

International contacts of the Accounting Chamber of Ukraine: becoming wider and wider

VALENTIN SIMONENKO President of the Accounting Chamber of Ukraine The Accounting Chamber of Ukraine regards expansion as one of the main factors contributing to the development of that institution. During the three years in which the Chamber has existed, its specialists have participated in numerous international seminars focused on the problems of controlling and auditing of accounts, held in Poland, Hungary and the Russian Federation. Work visits have also be made to the USA, France, Bulgaria, Hungary, Poland, the Russian Federation and Moldavia in order to learn the valuable experience of these countries, so necessary for the young Ukrain-

ian SAI. 31

The Accounting Chamber of Ukraine coordinated and controlled system of pro- regards expansion as one of the main fac- fessional exchanges among auditors at the tors contributing to the development of world level. Since its initial steps, the Ac- that institution. During the three years in counting Chamber of Ukraine has felt sup- By becoming a which the Chamber has existed, its spe- ported and served by the executives of IN- cialists have participated in numerous in- TOSAI and EUROSAI, as well as by the member of the ternational seminars focused on the prob- collegiate audit bodies of a great many international lems of controlling and auditing of countries. We have established contacts organisations of accounts, held in Poland, Hungary and the with the coordinators of international tech- SAIs Ð INTOSAI Russian Federation. Work visits have also nical aid programmes and the representa- be made to the USA, France, Bulgaria, tives of foreign organisations in Ukraine, and EUROSAI Ð Hungary, Poland, the Russian Federation in particular with the executives of the Eu- the Accounting and Moldavia in order to learn the valuable ropean Union’s TACIS Programme and Chamber of experience of these countries, so necessary the UN development aid programme. We Ukraine found for the young Ukrainian SAI. have reached aid agreements with them for itself included The Accounting Chamber of Ukraine the training of the Chamber’s employees, as well as for receiving advice and infor- in a well- has carried out a considerable task of or- coordinated and ganisation in order to establish working re- mation. lations with the SAIs of France, Bulgaria, On the occasion of his recent visit to controlled the Russian Federation, Latvia, Lithuania the Chamber, Leonid Kuchma, President system of and Moldavia. These relations enable us to of Ukraine, rated very highly the contribu- professional expand our cooperation, share profession- tion made by this institution to such topics exchanges al experience and train our staff. as budgetary control and the efficient management of public funds. among auditors By becoming a member of the interna- at the world tional organisations of SAIs Ð INTOSAI Bearing in mind the experience of oth- and EUROSAI Ð the Accounting Chamber er countries, the Accounting Chamber of level. of Ukraine found itself included in a well- Ukraine is working on the creation of an

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information and analysis system for con- working on a draft bill which, if it be- trol over compliance with the State budget. comes law, would grant us those powers. On this point we are not just basing our- There is another unsolved problem that Bearing in selves solely on world practice; we are al- concerns the Chamber: the problem of re- mind the so making use of technical innovations pairing the damage caused to the State coming from within the country. So, the experience of budgets. So, over the period 1997-1999 the automated computing system currently other Accounting Chamber passed on 25 audit used by the Accounting Chamber of countries, reports to the State Attorney’s Office for a Ukraine provides our technicians with the sum of damages totalling 200 million griv- the possibility of quickly and efficiently pro- nas. Nevertheless, that Office filed suits Accounting cessing large amounts of information re- for 4.5 million, just 2.5% of the total abus- lated to the activities of assessment, analy- Chamber of es that were detected. This means that the sis and auditing of accounts, in such a way Ukraine is system that grants the State Attorney’s Of- that they are capable of solving very com- fice the main role in recovering diverted working on plex economic problems. Apart from serv- public funds is not functioning. In this re- the creation ing as an instrument of analysis for the gard, the Supreme Council of Ukraine has budgetary process, this system also consti- of an already approved a first reading of a series tutes a guarantee of transparency, glasnost, information of amendments that are radically going to of the State’s budgetary policy. The Ac- and analysis change the competencies of the Account- counting Chamber of Ukraine has, within ing Chamber. system for the framework of the information and control over analysis system just mentioned, prepared Most of the Accounting Chambers of and implemented a systematised method other countries would not find anything compliance for the storage and conservation of operat- novel in these examples. Nevertheless, for with the ing information of an economic, financial, the Accounting Chamber of Ukraine the State budget. statistical and socio-political nature of up adoption of each juridical norm contribut- to 950 Gb. This technology fully accords ing to its activities means a milestone on with modern technical standards and inter- the path being taken towards perfecting its 32 national regulations, as well as with the control over the management of public norms governing intellectual property funds. rights. The Chamber’s database is continually being added to with documents of a legal Even though there exists a certain ju- and methodological nature thanks to the ridical framework on which the Account- fruitful work being carried out by our for- ing Chamber of Ukraine bases its activi- eign colleagues. ties, we cannot consider that the liabilities for failing to comply with the legal re- The data that we receive on electronic quirements of the Chamber are sufficient. medium from the National Bank, the Fi- At this moment we cannot directly bring to nance Administration, the Public Treasury justice those people who refuse to provide and ministries and departments, as well as information requested by the Chamber. organisations and bodies of a private na- Nor do we have the right to apply mea- ture or otherwise, are distributed to the 134 sures of an administrative nature. Apart work stations of the Chamber, depending There is from the judicial power, the Ukrainian leg- on the competencies of each employee. another islation reserves these competencies solely In January 2000 the Chamber of Com- unsolved for a small group of what are known as the merce of Ukraine inaugurated its Web problem that de facto powers such as the Ministry of the (www.ac-rada.gov.ua) which informs citi- Interior and the State Security Service. concerns the zens of how the State budget is being com- Chamber: plied with and the work being carried out If the Chamber’s inspectors were able the problem by the Ukraine SAI. This is a further step to issue reports on administrative offences towards intensifying our ties with other of repairing and make charges in a court of law, then Courts of Audit and for strengthening pro- the damage we would not have to beg for information fessional links that join Ukrainian auditors like we have to do now. In the case of a re- caused to the with our colleagues in other countries. fusal, we could issue a warrant of infringe- State ment and go to court so that it can decide Our relations are traditionally strong budgets. on the sanction to be imposed. The Ac- with the auditors of neighbouring Poland. counting Chamber of Ukraine is currently One of the first visits abroad made by the

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President of the Accounting Chamber of The Swedish specialists, who at all Ukraine was indeed to that country, at the times took an interest in the practical re- invitation of Mr. Janusz Wojciechowski, sults of the seminar, started their work with For the President of the Supreme Accounting a study of the activities of the Accounting Accounting Chamber of Poland. One of our first coop- Chamber of Ukraine and later on reported eration agreements was the one that we to listeners on the activities and authorities Chamber of signed with our Polish counterparts. With- of the SAI of Sweden, sharing with us their Ukraine the in the framework of this agreement, whose experience in the field of controlling and adoption of content is constantly being renewed, we analysing revenues and spending of the each are carrying out exchanges of delegations State budget and offering practical recom- juridical and information. mendations to their Ukrainian colleagues. norm A reciprocal interest led us into estab- Specialists from the Accounting contributing lishing contacts of friendship and profes- Chamber of Ukraine participated in a sional cooperation with the Court of Audit training course titled “Assessment of the to its of Bulgaria. During the interviews, the functioning of public organisations” given activities President of that Court informed us of his by the RRV and SIPU in Kiev in March means a desire to share information, methodolo- 2000, which was then continued in Swe- milestone on gies, experience and control activities, and den during May and June of this same the path even to conduct joint audits in a crossed year. Ms. Inga-Britt Ahlenius, Auditor fashion. He was above all interested in the General of Sweden and President of the being taken proposal for cooperation within the frame- INTOSAI Committee for auditing stan- towards work of the Agreement of member coun- dards, provided the Accounting Chamber perfecting its tries of the Parliamentary Assembly of the of Ukraine Ð a recent member to that Com- control over Economic Community of Black Sea. The mittee Ð with numerous data for being the Cooperation Agreement that we signed studied and applied in the Chamber. with the Court of Audit of Bulgaria en- management The activities of the Accounting Cham- ables us to exchange delegations, experi- of public ber of Ukraine within the INTOSAI Com- ences and information. The visit to Bul- mittee for auditing standards started with funds. 33 garia in June 2000, paid by the delegation the invitation extended by Arpad Kovacs, of the Accounting Chamber of Ukraine, President of the SAI of Hungary and of the headed by the Secretary of the Office, Mr. INTOSAI Committee for internal control B. Khropatiy, was very complete and standards, for a representative from the pleasant. The Accounting Chamber of Chamber to take part in the 2nd Interna- Ukraine is currently still putting into prac- tional Conference of INTOSAI in May tice the different clauses of that Agreement 2000, held in Budapest. which we consider has a very good future. Our fruitful collaboration is continuing Our agenda of joint activities with for- with the General Accounting Office eign colleagues is now much busier than it (GAO) and the Technical Assistance Of- used to be in previous years. Very close fice of the Treasury Department of the US. contacts have been established with the In March 2000, we held a series of semi- SAI of Sweden (RRV). In February 2000, nars in the Accounting Chamber of and with the aid of the representative of Ukraine, along with these two institutions, the Swedish International Institute of the on the topic of “Viability and budgetary State (SIPU) in Ukraine, Ms. K. Falander, analysis”, with the participation of Mr. V. Our agenda the Accounting Chamber of Ukraine held a Zafra, the standing representative in of joint seminar on the topic: “Assessment of the Ukraine for budgetary affairs. activities efficiency of public auditing. The Swedish auditing model” with the participation of In July 2000, the Accounting Chamber with foreign the Audit Directors of the RRV, Messrs. N. of Ukraine held a seminar titled “Auditing colleagues is Anqlerud and G. Arnell, members of a of public aid programmes for agriculture” now much group of advisors who are working on ad- with the participation of Messrs. D. Wold- busier than it ministrative reform in Ukraine. Their aid en and D. Jones, specialists in the study of programme to our country grants an im- problems in the agrarian sector in the US. used to be in portant place to the Accounting Chamber Topics were debated related to aid pro- previous which, according to them, can and must grammes for farmers in the US and their years. contribute to the administrative reform be- possible introduction into Ukraine. A draft ing carried out in Ukraine. of the audit plan was prepared focused on

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the management of public funds intended of a sincere dialogue our Russian col- for Ukrainian farmers by way of compen- leagues were informed about the working sation for having used the credits of pri- principles applied in the Accounting The outlook vate banks that had been financing a range Chamber of Ukraine. for of agricultural activities. The outcome of the seminar was the presentation of that With the aim of strengthening and de- international project. veloping the friendly and professional re- contacts by lations between the Accounts Chambers of the In June 2000 a delegation of the Ac- Russia and Ukraine, their Presidents counting Chamber of Ukraine, headed by signed a joint action paper having the aim Accounting its President, Mr. Valentin Simonenko, vis- of tightening the financial discipline in Chamber of ited Moscow at the invitation of Mr. Ser- their common fields. This document opens Ukraine, one guey Stepashin, President of the Accounts up an important stage in the creation of an of the Chamber of the Russian Federation. The Agreement that will bind two good neigh- youngest visit by the Ukrainian delegation was of a bours together. constructive kind and was in response to SAIs in the the interests of both countries with regard The Accounting Chamber of Ukraine world, is to the study of the details of financial au- is continually working with representa- expanding diting, the role of the Ukrainian and Russ- tives of the UN, the European Commission ian Accounting Chambers in their respec- and other international organisations day by day. tive societies and their place in the system housed in Ukraine, drawing up projects for of public powers. Members of the Ukrain- joint action. The Ukrainian auditors have ian delegation had the opportunity to get to taken their first steps towards establishing know and study a series of special meth- personal and professional contacts with ods and procedures used by the Accounts their colleagues in India and China, coun- Chamber of the Russian Federation. The tries with which we are tied by reciprocal most important outcome as a result of this interests in professional exchanges. The visit was the decisive advance made in the outlook for international contacts by the creation of an agreement between the two Accounting Chamber of Ukraine, one of 34 institutions and the agenda for future co- the youngest SAIs in the world, is expand- operation was defined. During the course ing day by day.

The Court of Audit of the Grand Duchy of Luxembourg

The control by the Court of Audit thus refers to the performance, i.e., the economy, efficacy and efficiency of budgetary execution, but it cannot pronounce on the appropriateness of the spending. Indeed, in a democratic state, the appropriateness of spending will always depend on the different political choices made by citizens and their representatives in Parliament. The right to judge on the appropriateness Ð in other words, on the need and even the utility of spending Ð is theirs and theirs alone.

1. HISTORICAL BACKGROUND used to conduct a prior audit of State spending (system for the supervision of The old Audit Chamber, founded in payment orders), examining the docu- 1840 by Royal Decree, exercised control ments for checking the legality and regu- over all financial operations of the State larity of the spending before proceeding to and for that purpose it had the power to its payment, though after the commitment refuse the settlement of expenses. So, it had been made to the spending.

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However, the actual efficacy of a sys- financial control on the other, which has to tem of prior auditing becomes threatened at be undertaken by the Court of Audit so that, the moment in which no systematic control in the financial management system of the In carrying is exercised over the spending commit- public sector, an overall concept of the au- out its work, ment. Moreover, by means of the practice diting function can be made a reality, in of prior supervision of payment orders, the which this function takes precise account of the old Audit Audit Chamber became involved in each the internal controls and inspection systems Chamber expenditure made by the State, a situation on the one hand, and the external control was that deprived the auditor of the possibility entrusted to the Court of Audit on the other. relatively of making overall qualitative observations dependent on a posteriori regarding the proper financial management of public funds. 2. STATUTE, COMPOSITION AND the executive FUNCTIONING OF THE COURT power. In carrying out its work, the old Audit Chamber was relatively dependent on the Set up by article 105 of the Constitution, executive power. It was directly involved modified in 1999, the Court of Audit is or- in the “internal” control of the State’s fi- ganised and exercises its functions pur- nancial operations and it came under the suant to the provisions contained in the Government, both with regard to the pro- Organic Act of 8 June 1999. Such close vision of budgetary resources and con- The Court is composed of five mem- cerning the recruitment of its personnel. bers, namely: a president, a vice-president ties between Such close ties between the auditor and and three councillors. the auditor the body being audited therefore repre- The Grand Duke appoints the members and the body sented a obstacle when it came to exercis- of the Court from among a shortlist of being ing qualitative control over the entire fi- three qualified candidates presented by the audited nancial operations of the State, as is Chamber of Deputies for each vacant post. therefore practised in the majority of Member States The members of the Court are appointed of the European Union. So, the recent Act for a period of six years. Appointments represented a of 8 June 1999 assigned to the Court of cannot be renewed. obstacle 35 Audit external control which now refers The members of the Court of Audit when it came not just to the legality and regularity of to exercising spending but also the proper financial may not hold other public offices, whether management of public funds. or not elective, nor may they directly or in- qualitative directly participate in any company, sup- control over The control by the Court of Audit thus ply or business having interests opposed to the entire refers to the performance, i.e., the econo- those of the State. my, efficacy and efficiency of budgetary financial The Court adopts its decisions collec- operations of execution, but it cannot pronounce on the tively. Its work programme, the annual appropriateness of the spending. Indeed, in general report, special reports, internal the State. a democratic state, the appropriateness of rules for the execution of the budget, its spending will always depend on the differ- spending forecasts and its internal regu- ent political choices made by citizens and lations are all approved by a majority of their representatives in Parliament. The the members making it up. All other deci- right to judge on the appropriateness Ð in sions of this collective organ are adopted other words, on the need and even the util- by a majority of the members present in ity of spending Ð is theirs and theirs alone. The Court is the meeting of the Court, with the atten- composed of Nor does it need stating that such a re- dance of at least three members being re- five form has in turn required essential modifi- quired. In the event of a tie, the president cations with regard to the internal control has the casting vote. members, carried out in ministerial departments, and The internal regulations adopted by the namely: a in particular it has required the introduction Court must be approved by the Chamber president, a of an efficient control as well as of the pow- of Deputies. vice- er of supervision of spending, both at the commitment phase and the payment phase. president In fact, it was basic to establish a clear sep- 3. PERSONNEL OF THE COURT and three aration between internal financial control councillors. on the one hand, which is for the Govern- In the performance of its functions, the ment to organise and carry out, and external members of the Court of Audit will be as-

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sisted by around forty agents from the 6. AUDIT PROCEDURE OF THE higher, middle or lower professional eche- COURT lons of the State. The Court of The recruitment of personnel will be The Court of Audit examines a posteri- Audit audits done within the limits of the organisation ori, in other words, once the commitment has been taken on and the payment been the financial chart and the framework of personnel ap- management proved by the Chamber of Deputies. made, the legality and regularity of the revenues and spending as well as the prop- of the The Court of Audit will likewise be er financial management of public funds. organs, able to turn to outside experts, who will act under the authority and responsibility of The Court decides on the date and administrations the Court. method of its controls which, either in situ and services of or remotely, it conducts by the mediation of its commissioner agents. For that purpose it the State. 4. FINANCIAL ENDOWMENT OF adopts all necessary provisions for guaran- THE COURT teeing the secrecy of its investigations. Any document or information that the Each year, the Budget for State Rev- Court of Audit regards as necessary for enues and Spending establishes the funds carrying out its task will be passed on to it assigned to the Court of Audit in view on request from the latter, including those of the forecasts produced by the latter relating to internal financial control car- body. ried out inside each ministerial department This arrangement is intended to guar- in a prior manner, in other words, prior to antee the independence of the Court of Au- the commitment and/or payment of the dit with respect to the Executive Power, corresponding expenditure. given that the Court has to audit the latter’s Any representative, administrator, The Court of accounts. Also, when setting the financial agent or officer of the bodies being audit- endowment of the Court of Audit, the ed, as well as, when so required by the Audit 36 Chamber of Deputies can make sure that control, any representative or agent of the examines a the Court has a sufficient size of staff. State, any manager of public funds or posteriori. The Court’s accounts are audited each member of the inspection services or audit year in conformity with the categories de- bodies whose attendance is regarded as termined by the Chamber of Deputies. The necessary, is obliged to appear when sum- settlement of the Court’s accounts is done moned by the Court of Audit. jointly with that of the accounts of the For these purposes, the persons in Chamber of Deputies. charge of finances as well as internal auditors or auditors of enterprises undertaken by bodies subject to inspection will be ex- 5. SCOPE OF THE COURT’S empt from professional secrecy with re- CONTROL gard to the commissioner agents of the Court of Audit during the course of inves- The Court of Audit audits the financial tigations conducted by them within the Each year management of the organs, administra- framework of their powers. tions and services of the State. the Court of The results of audits carried out by the Audit draws The Court of Audit also has the au- Court of Audit are subject to an opposing thority to audit public corporations, al- inspection from the bodies that were audit- up a General ways provided that they are not subject to ed. This procedure is carried out in writ- Report on any other financial control provided for by ing. The Court of Audit notifies the results the Draft Bill law. of its audits to the appropriate minister so of Settlement Finally, public corporations and private that he or she can present their case within of the State the period established by the Court. bodies and private individuals who are General beneficiaries of public financial aid in- The Court of Audit immediately intended for a specific objective shall be able forms the persons in charge of the audited Account for to be submitted to the control of the Court body of the outcome that the audit is gong the previous of Audit in order to make sure that those to have. If it considers that a fact or situa- year. public funds have been applied to the ends tion that it has knowledge of could lead to provided for. the instigation of criminal proceedings or

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disciplinary action, it will inform the In its observations, the Court of Audit Chamber of Deputies and other interested in particular points out: parties of this fact. Ð the conformity of the sums noted in the budget execution account and in the statement of State assets with those ap- 7. REPORTS FROM THE COURT pearing in the books and the justification of the regularity of the revenues and Each year the Court of Audit draws up spending that are verified; a General Report on the Draft Bill of Set- tlement of the State General Account for Ð important cases in which the bud- the previous year. This report is sent to the getary rules and principles of good man- Chamber of Deputies along with the point agement have not been respected; of view of the Government or the bodies Ð the main results of control over pub- concerned. lic corporations and/or private bodies that Also, the Court of Audit can at any are beneficiaries of public financial aid; moment, either at the instance of the Ð the lessons that can be learned and Chamber of Deputies or on its own initia- the measures that can be recommended for tive, present its observations on specific the future. aspects of financial management in the form of special reports. These reports give To end, the Court can be consulted by an account of the results of audits that can the Chamber of Deputies on draft bills last over several financial years. The re- having a significant financial impact for ports are sent to the Chamber of Deputies, the Public Treasury, as well as the provi- accompanied as appropriate by the point sions of the Budgetary Act and draft bills of view of the Government or the bodies relating to State accounting and corpora- concerned. tions of public law.

37 Governance as part of performance audit examinations

JENS LUND ANDERSEN Head of Section of The National Audit Office of Denmark This article concludes on the lessons learned of the NAOD in relation to applying good governance as part of the performance audit. Furthermore, the article presents perspectives for this kind of examinations in future years.

I. INTRODUCTION activity management, resource management and day-to-day budgetary manage- In 1999, the In 1999, the National Audit Office of ment. The contents of the processes and the National Denmark (NAOD) introduced new princi- tasks are previously described in EUROSAI Audit Office ples for “good governance”. The principles magazine no. 6 pp 30-33, in the article “The of Denmark are applied as benchmarks when examining principles of sound financial management” governance in state agencies. Governance is by Jens Lund Andersen. (NAOD) described by means of four steering tasks introduced and seven steering processes. The processes This article concludes on the lessons new concern target setting, planning, budgeting, learned of the NAOD in relation to applying principles for implementation and management control, good governance as part of the performance presentation of account, follow-up and re- audit. Furthermore, the article presents per- “good porting and evaluation whereas steering spectives for this kind of examinations in governance”. tasks include performance management, future years.

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II. EXAMINATIONS OF appropriation system was well functioning GOVERNANCE IN 1999 and most of the agencies had come a long AND 2000 way with the implementation of perfor- The mance management. Furthermore, most of examinations In 1999, the NAOD applied the princi- the agencies prioritised quality manage- only covered ples as part of examining governance in ment highly. a minor part six agencies. In 1999, thirteen extensive The examinations also showed that the examinations were implemented; whereof extent of performance management in the of the state good governance was applied in almost agencies depended on the complexity of agencies, half of the examinations. The following the tasks. The agencies that had a less and they agencies were examined: complex production structure had general- were not ¥ The Customs and Tax Administra- ly come further with the process of imple- selected with tion menting performance management, than the agencies that had a more complex the aim of ¥ The Prison Services work structure. Most of the agencies were establishing ¥ The Ministry of Social Affairs able to improve their steering by making basic more balanced management information. ¥ The EU directorate tendencies The departments, in particular, felt there ¥ National Survey and Cadastre, and was a need to strengthen the management for the level of ¥ The Copenhagen Hospital Associa- of the whole agency by following-up on tion. the agencies’ reporting of performance governance contracts. in the state When analysing the Customs and Tax Administration, the examination was sup- The examined agencies varied in size agencies. plemented with an efficiency analysis of and tasks and hereby they had different the local administrative authorities. The steering needs. In spite of this, the NAOD examination of the Copenhagen Hospital had no problems in applying the principles Association was followed-up by an addi- of good governance. The major problem 38 tional examination of the activities and the was that none of the examinations had any financial situation in the period 1995- or only little political or media interest, 1998. The four other examinations con- even though the examinations - from an cerned governance exclusively. The six audit-point-of-view reported on adminis- agencies were all different in size, the trative areas of significant social impor- smallest had annual work years of 235 and tance. the largest had 5,800 work years. Five of This is probably because the examina- the agencies had subordinate administrations were very broad and only partially tive authorities, all of which had indepen- directed towards the problem areas, which dent budget responsibilities. The examina- were detected during the examination. tion of governance of the Ministry of Social Affairs was extraordinary because it concerned the overall management of the III. HOW GOVERNANCE IS whole ministry. The other five agencies, LINKED TO PERFORMANCE that were examined, were all under the ad- AUDIT ministration of a department. The major The examinations only covered a mi- In order to avoid that governance ex- nor part of the state agencies, and they aminations become too extensive, the problem was were not selected with the aim of estab- NAOD has decided to link the four steer- that none of lishing basic tendencies for the level of ing tasks in good governance to the three the governance in the state agencies. Some ex- aspects of performance audit: economy, examinations aminations were initiated on the basis of a efficiency and effectiveness. This is illus- request from the Public Accounts Commit- trated in figure 1. had any or tee. The other examinations were initiated only little The day-to-day budgetary manage- by the NAOD on the basis of the agencies’ ment concerns management of resources political or materiality for the state accounts. and production measured in monetary media The examinations showed that gover- units - in other words - tasks that are linked interest. nance primarily were adjusted to present to making budgets and presenting ac- standards and guidelines in the area. The counts. Resource management concerns

EUROPEAN ORGANISATION OF SUPREME AUDIT INSTITUTIONS E UR SAI REPORTS AND STUDIES No. 7 - 2000

FIGURE 1. How governance is linked to performance audit stakeholders

governance budgetary resource activity performance management management management management

costs input operation output outcome

economy efficiency effectiveness cost effectiveness

external influence

the use of resources measured in physical the four steering tasks in good gover- units such as staff resources, EDP and ac- nance. But it seems only natural to assess commodations. The quality of the day-to- exactly where major problems may arise In good day budgetary management and resource in the steering chain for the cost effective- governance management is an indication of the aspect ness. economy. some of the Figure 1 also shows that the NAOD overall Equivalently, activity management considers governance tasks of importance concerns the production of an agency. for the whole agency. Still, governance considerations Thus, efficiency indicates the quality of and professional management are two sep- on steering the day-to-day budgetary and resource arate matters. Professional management needs on the management on one side, and activity concerns the day-to-day operation of the various 39 management on the other side. agency including assessing whether the organisational agency produces the services that the citi- Performance management concerns to levels are what extent the targets of the agencies zens need. It is not an objective, when ap- have been met. Thus, effectiveness indi- plying governance, to assess which targets included. cates the quality of activity and perfor- that are relevant for an agency or how the mance management, whereas analyses of targets may be measured. But it is an ob- cost effectiveness on one hand indicate the jective for governance to outline a ceiling quality of the day-to-day budgetary and re- for targets and to ensure that the outlined source management, and on the other hand targets are relevant and adequate. Gover- it indicates the quality of performance nance is applied when measuring the over- management. all steering of an agency including making management information. By linking the four steering tasks to the three traditional principles within performance audit, it is possible to apply the IV. CENTRAL AND principles of good governance in tradition- DECENTRALISED al performance audit examinations. There- GOVERNANCE fore it is logically to supplement efficiency examinations with examinations of the The standards in good governance are steering tasks that are of importance for not described on the various organisation- the efficiency. al levels such as the central level in the de- Figure 1 also shows that analyses of partments and major agencies, or on the effectiveness and cost effectiveness con- decentralised level for instance in the sub- cern all four steering tasks. It seems only divisions, offices etc. In good governance obvious, that such examinations concern some of the overall considerations on all steering tasks, right from the use of re- steering needs on the various organisation- sources to meeting targets. However, this al levels are included. One of the future ar- does not mean that examinations as such eas of development will be to outline such should include a detailed assessment of standards.

EUROPEAN ORGANISATION OF SUPREME AUDIT INSTITUTIONS No. 7 - 2000 REPORTS AND STUDIES E UR SAI

Steering needs are different on various issuing a number of guidelines on how organisational levels. This is because the governance should be organised. agencies have different sizes and tasks, but The most recent guideline from the Governance also because management on the various Ministry of Finance deals with governance examinations levels have different structures of incen- - balance and focus. Rules and regulations tives. If it were possible to establish a have had the for organising governance are established. intended number of common features for incen- However, there is also focus on the organ- tives, then it would be possible to assess isational arrangement of governance such effect - the the relevance of various steering tools in as the balance between hierarchy and mar- agencies various agencies. ket, centralisation and decentralisation, have An assessment of management behav- formalised and informalised management, improved. iour on various organisational levels is pri- short term and long-term management, marily intensified by the fact that the most and the balance between stability and dy- commonly used steering form is perfor- namics. mance-based contracts in state agencies in Denmark. Contracts are entered between departments and agencies including a re- VI. CLOSING COMMENTS source ceiling, and production and performance targets. Governance examinations have had the The development of performance- intended effect - the agencies have im- based contracts shows that the most recent proved. Therefore, the NAOD finds that it performance management includes more is not necessary to carry out additional ex- qualitative political targets than quantita- tensive examinations where all steering tive financial targets. Contracts without tasks and processes in an agency are ex- targets for activity levels and efficiency amined. However, a number of minor ex- will weaken governance. However, finan- aminations are planned where selected cial targets should be relevant and should steering tasks are part of the examination but focus is on efficiency or effectiveness. 40 cover the actions of the agency otherwise there is an imbalance in the performances Future governance examinations will thus of the agencies. Audit of the contracts pre- be better defined and the focus area of an sumes an assessment of the behaviour of examination will, only as an exception, be the management in both departments and governance. agencies. Furthermore, there are a number of questions, which possibly will change the ceiling for future examinations. For in- V. THE INITIATIVES OF THE stance, will it be possible to include an as- MINISTRY OF FINANCE IN sessment of individual steering tasks when DENMARK making traditional performance audit examinations? Will an assessment of the In the 1980s - 90s governance in the management’s incentive structure make state grew with inspiration from the princi- examinations more targeted? And will it ples of the New Public Management, how- be an audit task to examine the organisa- ever, adapted to Danish conditions. Target, tional arrangement of governance? It ceiling and performance management are seems that the possibilities for further-de- thus known principles. The Ministry of Fi- veloping governance in NAOD’s examina- nance has supported this development by tions are good.

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