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Part V. The Audit and Legislative Oversight Process

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 12. The Audit and Legislative Oversight Process

Once expenditures have been completed and all transactions have been recorded, the executive prepares an annual report that shows the total expenditures incurred by agencies during the year. An independent auditing agency then verifies these expenditures for accuracy. In many countries, audit reports are submitted to the national legislature, which evaluates the comments in the audit reports and makes recommendations to the executive for corrective action.

This chapter discusses the audit and legislative oversight functions undertaken by a country’s supreme audit institution (SAI) – the main body responsible for oversight of government accounts – and by the legislative committee that oversees audit results. The first section examines the three basic models of SAIs. The second section examines the types of audits SAIs undertake and the types of audit opinions provided in audit reports. The third section presents an overview of the basic procedures followed by a legislature as it conducts oversight of the annual budget.

Chart 5: Oversight Process.

1. Models of Supreme Audit Institutions

Almost every country legally mandates the existence of an entity to oversee public expenditures. Known generally as supreme audit institutions, they may have such names as Office of the Auditor General, Board of Audit, or Court of Accounts. In addition to SAIs, individual agencies may have internal auditors who report to agency management, and in some countries, local government audits are undertaken by audit bodies created specifically to fulfill this function. Also, the SAI or the government may appoint private sector auditors to undertake audits of some public agencies and public corporations.

Broadly speaking, most SAIs can be classified under one of the following three models (refer to Table 8): Westminster (or parliamentary), judicial (or Napoleonic), and board (or collegiate).¹⁶

Table 8: Types of SAIs and Where They Are Found

Westminster Model

SAIs that follow the Westminster model typically have a powerful head – called the auditor general – who can be removed only with the parliament’s agreement. The SAIs organized according to this system primarily perform financial audits (though some, including those in South Africa and the United Kingdom, also undertake performance audits); they place less emphasis on compliance audits (discussed in the next section).

Sometimes the auditor general under this model is required to perform an additional set of non-audit tasks that have a control function and that under other models are performed by a separate functionary called the comptroller (or controller). These tasks include authorizing requests for transfers of funds from a central agency to departmental accounts.

At the end of the fiscal year, the SAI conducts audits of the financial management and annual accounts of government agencies. The auditor general’s audit reports are laid before the parliament and considered in detail by a legislative committee.

The Westminster model requires the legislature’s active participation to follow up on the SAI’s audit findings. This provides some room for civil society organizations to work with both SAIs and legislatures to highlight government failures and enforce corrective action.

Judicial Model

As suggested by the name, SAIs following the judicial model are part of the national judicial system and consist of judges who are members of the SAI. A key aspect of the judicial model is that government officials (specifically, accountants¹⁷ in government agencies) are held personally liable for illegal transactions. The SAI judges the legality of the public accountant’s actions and can either “discharge” the public accountant from further liability or impose a penalty.

Unlike the Westminster model, an SAI following the judicial model has only a limited relationship with the legislature. Audit reports of individual agencies are not placed before the legislature, and the SAI itself acts on these audit findings. However, the SAI does present the legislature with a report on the national accounts (compiled by the Ministry of Finance), which is based in part on audit findings from individual agencies and other findings of SAI reviews. The legislature relies on this report to hold the government accountable for the management of state finances.

The SAI in the judicial system is sometimes called the Court of Accounts or Court of Audit and exists as an independent court dealing only with financial matters. In some countries, the Court of Accounts might form part of the Supreme Court, in which case it might not have the same degree of autonomy as it would if it were independent of the Supreme Court.

In some countries – Portugal, Italy, and their former colonies – the SAI performs not only audit functions but also control functions, such as approving certain types of public expenditures. While this resembles the control functions found in the Westminster system, it differs from that system in the level of detailed checks that the SAI initiates prior to making transfers. Specifically, in the Westminster model the SAI authorizes the release of funds from the consolidated fund to the control of individual ministries and departments; under some judicial models, in contrast, the SAI performs “pre-audit” functions before authorizing payments for procurements the government makes to individual suppliers.

The main focus of the SAI audit under the judicial system is to verify the legality of transactions rather than to assess either the value achieved for the expenditure or the quality of agency performance. The legislature’s limited involvement in reviewing audit findings can reduce the opportunities for civil society to participate in holding agencies accountable under this system. However, the strong powers vested in the SAI under this model (especially its penal powers) provide an incentive for civil society to engage with the SAI and demand corrective action against agencies or projects of concern.

Board Model

Under the board system, the SAI consists of several members who form part of its governing board and report jointly to the legislature, through committees such as the Public Accounts Committee (PAC). This system is similar to the Westminster system in terms of the relationship of the SAI to the legislature – the board submits audit reports to the PAC, which uses the audit findings to hold government agencies accountable. The board system is also similar to the judicial system in that it has multiple board members (like the multiple judges in the judicial system), though they lack judicial powers. The board might consist of multiple committees (“colleges”) specializing in certain technical areas and following different audit approaches.

The board model is highly inclusive and accommodates the views of its different colleges. However, this can also slow down decision-making processes. Depending on the degree of autonomy assigned to individual colleges, the board may not always speak with one voice, which may undermine the SAI’s consistency in the conduct of its activities.

The length of board member terms and the schedule of appointments can reduce the system’s effectiveness. The terms must be neither too long nor too short, and they should be staggered so there is not a sudden loss of leadership and institutional memory when members’ terms expire.

Under the board model, the SAI refers any audit findings that point to fraud or corruption to the public prosecutor. This is different from the Westminster model, in which the findings are submitted to the legislature. By taking up cases of corruption directly with the prosecuting agency, the board model can shorten the process by which public officials are held accountable for fraud and corruption.

The board model gives civil society organizations an opportunity to interact with officials who have a great degree of autonomy and who work on a variety of auditing issues. However, while civil society may find a few sympathetic voices within the SAI, convincing the SAI as a whole to take up a particular position could prove difficult.

2. Types of Audits Undertaken and Audit Opinions Provided by SAIs

Public sector audits generally take one of the following three forms: financial audits, compliance audits, or performance audits.

Financial Audits

Financial audits are also referred to as attestation audits because the auditor attests to, or verifies, the accuracy and fairness of the presentation of financial statements. All government agencies maintain books of accounts (cash books, ledger accounts, etc.) in which they record individual financial transactions. Each transaction in the books of accounts should be recorded from vouchers authorized by designated officials and supported by evidence specifying the nature of the transaction, such as bills and receipts. The agency then uses the books of accounts to prepare financial statements such as a consolidated receipts and disbursements statement, which shows the overall level of receipts and expenditures incurred by the agency during a financial period (usually a year).

In the course of a financial audit, an auditor scrutinizes a sample of vouchers to establish the authenticity of the transactions in the books of accounts and consolidated financial statements and to determine whether the accounts fairly present the entity’s financial affairs.

The auditor’s observations are recorded in an audit report, which may list all errors and irregularities that were uncovered. In many countries, the audit report also contains a formal opinion by the auditor on whether the financial statements present a true and fair picture of the government’s financial position and whether the receipts and payments have been applied as per the budget law. (Audit opinions are discussed in greater detail below.)

Compliance Audits

When conducting a compliance audit, the government auditor determines whether the following conditions have been satisfied:

1. Has the expenditure been authorized by a competent authority?
2. Has the expenditure been authorized by the budget appropriation law and made in accordance with the terms of the law?
3. Does the expenditure conform to the procedures (relevant rules, regulations, and orders) promulgated under the country’s various public finance and other laws?

Performance Audits

In recent decades, SAIs in some countries have broadened their mandates to include measuring “value-for-money” considerations in public spending. Such performance auditing requires expertise not just in accounting and finance but also in such disciplines as economics, computer science, and engineering. Since the auditor seeks to report on a particular program’s management and technical operations, the performance audit team must be familiar with the program’s technical and managerial aspects. Therefore, performance audits are often resource intensive and require large expenditures.

In undertaking a performance audit, an auditor typically reports on the following three factors:

1. Economy: Can the program be run at less expense?
2. Efficiency: Can the relationship between inputs (both human and material) and outputs (goods or services) be improved? Put another way, are maximum outputs being achieved from minimum inputs?
3. Effectiveness: Is the program delivering its intended results, as assessed by measuring program performance indicators against actual results (National Audit Office, UK, 2007)?

Audit Opinions

An audit opinion is expressed after the auditor examines the following four issues:

1. Has the auditor received all of the information required to conduct an audit?
2. Are the financial statements presented in the prescribed form?
3. Have the requirements of all relevant laws been met in all significant respects during the maintenance of the accounts?
4. Do the financial statements present a true and fair view of the accounts (i.e., are they reliable)?

An auditor’s opinion can fall into one of the following five categories: “unqualified,” “emphasis of matter,” “qualified,” “adverse,” or “disclaimer” (meaning that s/he is unable to express an opinion). These terms are explained below.

Unqualified Opinion: An unqualified audit opinion is issued when an auditor believes that all four of the above conditions have been met. This does not mean the financial statements are correct to the exact amount, but any misstatements are not large enough to affect a typical user’s judgment. For example, an audit report on a District Council in Tanzania stated:

In my opinion, the financial statements fairly reflect, in all material respects, the financial position of Arumeru District Council as of 30th June 2005 and the results of its operations and cash flows for the year then ended, in accordance with Part IV of the Local Government Finances Act No. 9 of 1982 (National Audit Office, Tanzania, 2005a).

Emphasis of Matter: When an auditor wishes to highlight an issue of concern in the financial statements that does not affect the audit opinion itself, s/he issues an opinion that is somewhere between an unqualified opinion and a qualified opinion and is called “matters emphasized.” Such an opinion is normally contained in a separate paragraph from the audit opinion. For example, an audit report on the statistics agency of South Africa presented a clean audit opinion subject to “matters emphasized” as follows:

In my opinion, the financial statements fairly present, in all material respects, the results of the operations of Statistics South Africa for the year ended 31 March 2000, in accordance with prescribed accounting practice and in the manner required by the relevant act. Without qualifying the audit opinion expressed above, attention is drawn to the following matters: During the audit, certain shortcomings in the internal control were reported in the management letter and the accounting officer confirmed that the necessary corrective steps would be taken. These steps were evaluated and many of the matters were again reported in the management letter. These matters included the recoverability of R687,233 owed by ex-employees, long-outstanding cases of theft and losses, monies received at provincial offices not being banked in a timely manner, receipts issued after money had been banked, and fixed assets not being adequately maintained resulting in the non-confirmation of the completeness and existence thereof. The corrective steps taken by the accounting officer will be evaluated during the audit of the 2001 financial year (AG South Africa, 2001).

Qualified Opinion: Contrary to its literal meaning, a “qualified” audit opinion is not a good thing; it is issued if the SAI concludes that the accounts and financial statements are misleading, but not totally bogus. For example, an audit of Tanzania’s Ministry of Agriculture presented a qualified audit opinion as follows:

In my opinion, except for non-delivery of one motor vehicle worth [Tanzanian Shillings] Shs. 29,640,000 and farm assets and implements valued at [Tanzanian Shillings] Shs. 35,737,056.60, the procurements of household furniture and equipments, chemicals, fumigants, pesticides and maintenance of physical infrastructures and other services were generally done in accordance with the Public Procurement Act No. 21 of 2004 (National Audit Office, Tanzania, 2005b).

Adverse Opinion: If the auditor feels that the financial statements are not fairly stated and the concerns raised by the audit findings are fundamental, s/he is compelled to issue an “adverse” opinion. For example, the auditor in the Philippines gave an adverse opinion on the financial statements of the Department of Education for 2005 due to significant variances regarding cash, inventory, property, plant and equipment, liabilities, and income and expenses, which affected the accuracy and validity of the account balances. The audit certificate concluded:

[I]n our opinion, because of the effects of the matters discussed in the preceding paragraphs, the financial statements referred to above do not present fairly, in conformity with generally accepted accounting principles, the financial position of the Department of Education as of December 31, 2005 or the results of its operations and its cash flows for the year then ended (Commission on Audit, Philippines, 2005).

Audit Disclaimer: The auditor issues an audit disclaimer when s/he has not been able to obtain sufficient appropriate evidence and accordingly is unable to express an opinion. Audit disclaimers are most often issued when the auditor is not provided access to all the books of accounts, when the values of significant items in the accounts are uncertain, or when officials in the audited agency do not provide certain information on the financial statements. For example, an audit report on the financial statements of the consolidated fund of the Government of Uganda presented an audit disclaimer as follows:

Because of the significance of the matters discussed in the preceding paragraphs [ten matters, including some relating to undisclosed project accounts, departure from accounting policy, non-production of financial statements, etc.], I do not express an opinion on the financial statements (Uganda Auditor General 2003).

3. The Role of the Legislature in the Audit Process

The SAI usually submits its audit reports to the national legislature, typically to a committee mandated to review audit findings. The committee reviews the information; it may also hold public hearings during which executive agency officials must testify regarding any significant audit findings. The committee then prepares a report laying out specific recommendations regarding the corrective action the agencies should take. The entire legislature then debates and adopts the report.

In most countries, the legislature depends on the national audit institution for reports on the government’s financial performance and adherence to the budget law. If the linkages between the legislature (through its committee responsible for public accounts and audits) and the national audit institution are weak, this will hamper the legislature’s capacity to oversee government finances. The national audit institution should be independent, its head should be removable only by an act of the legislature, and it should have the financial and human resources to undertake audits of the government. Further, the institution should have the power to audit all government finances and, therefore, should have full access to government information (accounts and finances) in a timely manner. An independent audit institution can significantly enhance the functions of the legislative committee responsible for budgetary oversight by providing it with critical information through its financial, compliance, and performance audits.

The legislature’s precise role in the audit process depends in part on the country’s audit system. As discussed above, in the Westminster system, audit reports largely direct the legislature’s oversight function. The legislatures in these countries often establish committees such as the PAC, which are responsible for overseeing the audit reports on behalf of the legislature. The PAC organizes hearings on audit findings at which officials from the relevant agencies testify regarding the contents of audit reports.

In countries following the judicial model, judges of the Court of Accounts deal with audit issues; the legislature has only a limited role in the audit process and the president of the Court of Accounts sends audit reports to the legislature only at his/her discretion. However, even in this system, the Court of Accounts submits a report to the legislature on the extent to which the execution of the budget corresponds to budgeted appropriations – and the legislature has the power to request that the court conduct an audit of a specific government entity. In addition, while the Court of Accounts has the power to impose sanctions on the executive for failing to comply with financial management laws, the legislature can add political weight to such sanctions.

In countries following the board system, the national audit institution submits its audit reports to the executive (specifically, to the national Cabinet or Council of Ministers). The executive in turn sends its annual report (along with its audit findings and its comments on them) to the legislature. Staff of the national audit institution attend legislative deliberations on the executive’s annual report to explain the opinions and decisions it contains.

In some countries, PACs also have a formal mandate to conduct their own investigations, so their oversight is not limited to the issues contained in audit reports. These PACs are empowered to summon officials to appear for formal hearings – though relatively few actually use their power to take up issues not contained in audit reports. Upon completion of their hearings, the PACs submit to the legislature for its consideration a list of specific actions to be performed by the relevant agencies. (Generally, the PACs do not have the power to sanction the executive for non-adherence to public finance laws; instead they rely on the legislature to impose such sanctions.)

In some countries, the executive is required to respond formally to the legislature’s recommendations, normally within a certain period such as two to six months. The legislature, in turn, can take further action if it is not satisfied with the response. In practice, unfortunately, governments often ignore legislative audit recommendations and legislatures rarely follow up to demand corrective action. On the other hand, some national audit institutions include information in their audit reports on previous audit findings and the government’s response to them, which facilitates long-term legislative oversight by allowing the legislature to continue to review the executive’s response to its recommendations and make additional recommendations.

¹⁶ This section draws on DFID, 2004 and 2005.
¹⁷ Ministry of Finance officials based in line ministries and other bodies as public accountants are responsible for maintenance of financial statements in countries following the judicial model.

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13. Case Studies of Successful Civil Society Initiatives to Engage with the Audit and Legislative Oversight Process

This chapter presents four case studies detailing successful civil society work in the audit and legislative oversight phase of the budget process. The first, from Mexico, examines a coalition’s success in auditing an HIV/AIDS program. The second, from Tanzania, involves analysis of trends in government audit opinions. The third, from the Philippines, concerns a joint audit undertaken by civil society and the national audit office on road construction projects. The fourth, from South Africa, examines government oversight systems, including the SAI and the legislative oversight committee.

1. Fundar Examines HIV/AIDS Funds in Mexico¹⁸

Organizational Profile Fundar – Center for Research and Analysis, a Mexican non-governmental organization founded in 1999, has developed a unique role as a professional, research-based organization that participates in social justice debates through applied budget work. Fundar works on transparency, human rights, governance, and citizen capacity building in coordination with alliances of other civil society organizations. Fundar has refined its budget work to center around two broad areas: budgets and public policy, and human rights and governance. It also has cross-cutting programs examining legislative issues, transparency, and local-level power.

a. Introduction

In 2002, Mexico’s Chamber of Deputies (the lower house of Congress) approved an increase of 600 million pesos for national health programs. Subsequently, however, the president of the chamber’s Budget Committee arbitrarily made changes to the chamber’s approved budget. One of the changes was to shift 30 million pesos that had been allocated to purchase anti-retroviral drugs for an HIV/AIDS program to help fund ten Centers to Assist Women.

Angry legislators charged that the committee president had acted inappropriately, even unconstitutionally, by ignoring the committee’s funding recommendations. A number of civil society organizations, including Fundar as well as groups focusing on reproductive rights, women’s health, gender budgeting, and HIV/AIDS advocacy, formed a coalition to investigate these allegations.

As a first step, the coalition requested that the Health Ministry provide documents relating to its health programs. The ministry refused. Undeterred, the coalition repeated its request – this time on the basis of Mexico’s recently enacted freedom of information law. Eventually it succeeded.

Ministry of Health documents corroborated the legislators’ allegation regarding the diversion of the 30 million pesos. Further investigation revealed that the Centers to Assist Women to which the funds were diverted are managed by Provida, a right-wing, non-governmental organization that campaigns against abortion and the use of condoms – positions that run counter to government HIV/AIDS and population policies. The investigation also revealed that Provida received more than half of the total amount paid by the government to all non-governmental organizations in 2003.

The coalition then examined the actual utilization of the monies appropriated to Provida. Fundar, a member of the coalition, requested copies of all documents Provida submitted to the Health Ministry and conducted a comprehensive audit of the expenditures. Fundar’s audit revealed startling findings: approximately 90 percent of the 30 million pesos allocated to Provida were blatantly misused. Expenditure invoices submitted by Provida revealed numerous irregularities, such as payments to fictitious organizations (one of which had the same address as Provida), expenditures seemingly unrelated to a health program (such as expensive Mont Blanc pens and lingerie), and excessive expenditures on certain items (such as a publicity campaign).

When the health minister refused to meet and discuss these findings, the coalition launched a targeted media campaign using the services of a media agency that focuses on gender issues. The newspaper Reforma, which has a large national circulation, carried the details of the Provida case in an exclusive front-page story in 2004. The story captured national attention. As a result, a number of other mainstream media outlets covered subsequent developments in the story on a routine basis over the next two months.

b. Methodology

A review of the steps Fundar took during its audit of Provida details how other organizations can conduct similar audits.

Accessing Information

Fundar began by learning what information it would need to conduct the audit and then developing a strategy to obtain this information. Through Mexico’s freedom of information law, the coalition was able to obtain approximately 6,800 pages of bills and invoices Provida had submitted to the Health Ministry to account for the 30 million pesos it spent, ostensibly to prevent abortions in cases of unwanted pregnancies. (Part VI discusses how organizations can obtain needed information when the country lacks an access to information law.)

Initiating an Audit

Faced with the daunting task of analyzing such a large number of accounting records, Fundar turned to its in-house accountant. Fortunately, the methodology the accountant adopted is easy to replicate.

Scrutinizing Expenditures

Fundar undertook five steps to scrutinize expenses incurred by Provida.

1. Fundar entered all 6,800 invoices into a computer spreadsheet. Data from the invoices were divided among five categories.

Invoice number: In Mexico, all invoices (whether from the private, public, or non-governmental sector) must be printed at a government printing press. Each invoice is given a unique identification number, which follows a chronological order. Invoices generally have an expiry date, stated in the invoice itself, after which time they cannot be issued in the course of a financial transaction. Fundar recorded the actual invoice number from each invoice.

Date: Fundar recorded the date on which the transaction was undertaken or the expenditure was incurred.

Description of expenditure: In this category, Fundar provided the details of the transaction recorded on each invoice. Each invoice lists all items purchased, as well as the name, address, and government tax identity number of both the buyer and the seller.

Expenditure amount: Fundar recorded the invoice amount.

Comments: This category was used in a subsequent stage to record anomalies identified in invoices.

2. Fundar then created a table summarizing all of the expenditures, organized by the ten expenditure categories Provida had used when estimating its costs for the government. Fundar also calculated the share of Provida’s total expenditures incurred in each expenditure category, which enabled Fundar to examine Provida’s expenditure priorities. Fundar concluded that Provida had spent a much larger share of its budget than originally estimated on publicity, without providing much information to justify this expenditure.

3. In addition, Fundar created a table that categorized expenditures into the four quarters of the year, which enabled Fundar to examine Provida’s spending patterns. Such patterns can often disclose information about the quality of spending: for example, if the majority of expenses are incurred in the last quarter of the year, this could indicate that the agency was keen to spend money even if it meant wasting it so that it could apply for the next installment of funding in the subsequent year. One can also examine whether the expenditures followed a logical order. For example, one normally does not buy furniture before renting an office.

4. Fundar then carefully scrutinized all 6,800 invoices for three “value-for-money” factors: economy (could the expenditure have been undertaken at less expense?), efficiency (were maximum outputs achieved from minimum inputs?), and effectiveness (did the expenditure deliver its intended results?). Fundar also looked for procedural irregularities and any evidence of falsification of bills and/or fraud. Any anomalies were recorded under the “comments” category.

5. Fundar consolidated its findings into a brief report that was discussed with other coalition members and subsequently distributed to the media.

c. Results Achieved

Successes

The publicity received by the Provida case caused additional civil society organizations to join the coalition. In a short period of time, more than 1,000 diverse organizations from all over the country jointly submitted a memorandum to the government seeking an official investigation into the Provida case.

Bowing to civil society pressure, the government instructed its internal controller to conduct an investigation, which corroborated the coalition’s findings and identified other administrative irregularities. In its report, the controller recommended that Provida be fined 13 million pesos and required to return the funds provided to it. Mexico’s supreme audit institution also conducted an audit of the Provida case and reconfirmed the controller’s findings. The SAI demanded that Provida return the funds, pay the imposed penalty, and be barred from receiving public funds for 15 years. Further, the Ministry of Health cancelled all further disbursements to Provida that had been planned for subsequent years.

Challenges

Legal loopholes have helped Provida avoid paying its penalty, and the case is being adjudicated in court. Also, inadequacies in Mexico’s judicial process have allowed the president of the Budget Committee, who was instrumental in getting Provida the government grant, to escape indictment. However, the Provida case enabled civil society organizations to develop the skills and strategies needed to undertake research and advocacy initiatives on budget issues, as well as the media strategies needed to publicize their findings.

The Provida case offers many lessons for civil society organizations in other countries. For example, while Fundar faced a daunting hurdle in deciphering 6,800 pages of financial records, the five-step process it followed (described above) helped the group scrutinize Provida expenditures. Also, since the coalition was unsure whether the government would take action against Provida on the alleged misuse of funds, it developed a successful strategy to guide the release of audit results to the media in a form that immediately attracted public attention. The results show that a civil society organization can undertake its own audit initiative and hold government accountable.

Information on Fundar can be obtained from the organization’s website, http://www.fundar.org.mx.

2. HakiElimu Publicizes Trends in Audit Reports in Tanzania

Organizational Profile HakiElimu (“Education Rights” in Kiswahili) was founded in 2001 by 13 Tanzanians with a longstanding commitment to transforming public education for all children. It now has more than 40 staff members and is governed by a board of directors that includes leaders in civil society, academia, the media, the law, and research and development institutions. HakiElimu’s primary objective is to help create and sustain a national movement for social and educational change by stimulating broad public engagement, information sharing, dialogue, membership development, and networking throughout Tanzania. The organization also wishes to influence national policies on education and related matters – and broaden public participation in key policy processes – through research, analysis, advocacy, and networking.

a. Introduction

Much of HakiElimu’s work has focused on improving Tanzania’s formal education sector. However, a growing part of the group’s work focuses on civic education, or empowering citizens by educating them about their rights and encouraging them to make sure those rights are protected. HakiElimu’s engagement with audit reports falls into this second category of its work.

In 2006, HakiElimu decided to expand its budget advocacy work to include audit reports. By publicizing the findings of audit reports from the controller and auditor general, HakiElimu hoped to hold government accountable for management of public funds. Furthermore, HakiElimu noted that experiences in a number of other countries, such as South Africa, India, and the Philippines, have shown the power of this type of work.

Another reason for HakiElimu’s decision was that local communities rather than guilty officials have often suffered the consequences of poor audit reports. Districts that receive an “adverse” auditor’s opinion are automatically ineligible for a major grant that helps fund school construction, the rehabilitation of health centers, and other projects. Cutting these funds is likely to harm district residents, particularly the poor – even though they are not responsible for the irregularities that lead to poor audit results.

HakiElimu began its involvement in audit reports by creating a set of leaflets that presented the findings of recent audit reports in an attractive and accessible manner and sharing them with the media, executive branch officials, legislators, and civil society partners. (The leaflets also aimed to publicize the Tanzania Governance Noticeboard [TGN], an interactive online database of budget and audit data created by the Research on Poverty Alleviation, one of HakiElimu’s partners.) The first round of leaflets, issued in 2006, proved extremely successful, and the controller and auditor general provided significantly more cooperation with the project when it was repeated in 2007.

b. Methodology

As a first step in its efforts to rank government agencies according to their performance in audit reports, HakiElimu accessed data on audit opinions provided by the Tanzanian SAI from a variety of sources. The TGN was the primary source of data for the first set of leaflets, but HakiElimu also used individual audit reports for the different central government agencies and local government authorities (LGAs) as backup.

HakiElimu reported on the following four indicators that the TGN compiled for each central agency or LGA: the auditor’s opinion, “questioned revenues” (revenues about which the auditor is not satisfied that the correct procedures have been followed, or for which there is insufficient documentation), “questioned expenditures,” and questioned expenditures as a percentage of discretionary expenditures. This last indicator allowed HakiElimu to compare government entities with budgets of different sizes. The most recently released audit reports were considered, as well as those of the previous two years.

Table 9: Abstract from a HakiElimu Audit Leaflet

For the second round of leaflets, HakiElimu received advance copies of the individual audit reports and worked from these alone, as the TGN website was not updated in time to provide the needed information.

HakiElimu issued two different sets of leaflets, one for local governments and other for central agencies; both were printed in English and Kiswahili. The leaflets took the form of a poster that folds into an A2-size leaflet. One side had a table that ranked the central agencies from best to worst (refer to Table 9); the other provided background on the audit process in Tanzania, defined key terms, and highlighted major trends.

Rather than drawing many strong conclusions, the leaflets primarily asked questions and made comparisons to make the data easier to understand. For instance, the audit report for the Ministry of Education and Vocational Training was summarized in the following way:

The Ministry of Education and Vocational Training also came under fire for outstanding issues from previous reports amounting to 11.5 billion shillings. This Ministry received a Qualified opinion in 2005/06, with the audit report citing “unverified transfers and subsidies paid to institutions of Shs. 8.2 billion” and “unvouched and improperly vouched expenditure amounting to Shs. 7.4 billion”. Put differently, the total amount of suspect expenditures for the Ministry (Shs. 15.7 billion) is enough to pay the annual salaries for over 10,000 primary school teachers.

c. Results Achieved

Successes

The 2006 leaflets were very well received and raised the public profile of government audit reports, generating significant coverage in both the English and Kiswahili media. HakiElimu launched the leaflets at a public meeting for journalists, civil society representatives, and donors; journalists in attendance were encouraged to follow up with the chair of the Public Accounts Committee, which they did, resulting in more in-depth coverage.

After the 2006 release, Tanzania’s president called a meeting of top government officials to discuss the audit reports, a truly unprecedented move in that country. While HakiElimu cannot take direct credit for this meeting, it seems clear that the audit leaflets created an environment in which leaders were forced to recognize audit reports after having let them languish on shelves in previous years.

Also after the 2006 release, HakiElimu received a call from the controller and auditor general himself, saying he wanted to work with the organization to create the second set of leaflets. His office subsequently provided HakiElimu with advance copies of the individual audit reports to help prepare the 2007 leaflets and distributed those leaflets at the Tanzania Accountability Conference, organized in collaboration with the World Bank.

HakiElimu also received positive feedback from civil society partners in Tanzania and internationally.

HakiElimu’s engagement with audit reports is an example of the group’s strategy for promoting change. The traditional channel for much research-based advocacy work is linear, beginning with research that is then turned into a serious policy paper that is then shared with decision makers, often through briefings and workshops. The idea is that change will occur once policymakers are adequately informed. HakiElimu has found, however, that research reports often sit on shelves, their findings ignored. Thus, the group has focused more on getting its research findings into the public domain – in part through collaboration with the media – to create public pressure for change.

Challenges

HakiElimu has faced a number of challenges in its audit work. The group had little familiarity with government audit systems and audit reports, for example, and had to invest resources in building its capacity in this area.

In addition, after encountering a number of errors on the TGN website, HakiElimu decided that all data needed to be double-checked against individual audit reports from the government. This process was time-consuming but essential to ensure that the data were reliable.

Moreover, HakiElimu found it difficult to obtain copies of the individual audit reports, even though they were technically public records. Despite multiple information requests, it was able to obtain these records only through another non-governmental organization (Research on Poverty Alleviation, which works closely with the government). This fact highlights the importance of strategic relationships.

Finally, it should be noted that the Tanzanian controller and auditor general, like his counterparts in many other countries, primarily undertakes financial audits, which do not focus on many of the value-for-money concerns that interest civil society. In such situations, organizations like HakiElimu may have to supplement the official audit results with separate studies that highlight other financial and performance management problems in government agencies.

Information on HakiElimu can be obtained from the organization’s website, http://www.hakielimu.org/first.asp.

3. Concerned Citizens of Abra for Good Government Audits Public Highway Expenditures in the Philippines¹⁹

Organizational Profile The Concerned Citizens of Abra for Good Government (CCAGG) is a non-governmental organization that monitors government projects in Abra province of the northern Philippines. CCAGG was formed in 1987 as a result of opportunities created by a new government policy designed to increase community participation in development programs. CCAGG specializes in monitoring infrastructure projects within its province and uses local monitors (volunteers drawn from the area) to verify that road and bridge construction projects are executed according to contract norms. The organization’s full-time staff are supported by hundreds of volunteers drawn from the communities in which CCAGG works.

a. Introduction

Under a government policy imposed in 1987 to increase community participation in government development programs, CCAGG members received training from the National Economic Development Authority in monitoring development projects. Relying on information provided by the government, CCAGG members then used the local media (radio, newspapers) and organized community meetings to inform residents about the details of various infrastructure projects, including budgets, the wage components in the projects, and other relevant data. This experience provided CCAGG members with valuable insight into government contracting and project management.

As they were publicizing information on the projects, CCAGG members were shocked to see a newspaper advertisement issued by the Ministry of Public Works and Highways (MPWH) declaring that it had successfully completed 27 projects in Abra province. Knowing this declaration to be untrue, CCAGG members decided to take action. To strengthen the case against the agency, CCAGG developed detailed documentation on the actual state of projects that had been declared completed; the documentation included affidavits composed by residents of project areas and photographs of the project sites. CCAGG submitted these findings to the MPWH and demanded that the district engineers be investigated.

An official government audit concurred with CCAGG’s findings and several officials were charged with corruption. CCAGG members stood as official witnesses for the government prosecutor and provided evidence against officials with the MPWH in Abra province. After a long struggle, 11 government officials were suspended for misconduct. The MPWH’s chief engineer and deputy chief engineer in Abra were also barred from serving in the province in the future. CCAGG estimates that this was perhaps the first case in the history of the Philippines in which a civil society organization’s vigilance had resulted in the conviction and punishment of government officials on charges of corruption.

Further, as a result of this case, the MPWH’s regional director issued a directive requiring that road construction contractors in Abra province be paid only after CCAAG had verified their bills for accuracy.

b. Methodology

CCAGG members have developed a distinctive technique for monitoring government projects. Members of CCAGG – primarily housewives, students, and out-of-school youth – observe road construction projects and report their findings to specialist colleagues, such as engineers and accountants who volunteer with or, are employed by, the organization. These staff in turn conduct detailed investigations on project sites. During their site visits, monitors (CCAGG volunteers and staff) are equipped with their own kits – packed lunches, record books, measuring tapes, cameras, and voice recorders – to assist them in the monitoring process.

The Philippines constitution and presidential orders contain a number of legal provisions that encourage non-governmental organizations to participate in governance. CCAGG uses these provisions to defend its right to monitor government projects and to access information from government agencies, including:

• the “Blue Book” issued by DPWH, a technical reference guide with specifications for highways, bridges and airports;
• approved plans and drawings for the project under investigation;
• specifications regarding the size, shape, and quality of construction, and procedures to be followed during the project’s implementation; and
• the program of work containing general information on the project under study, such as location, source of funding, contract amount, mode of implementation, schedule, and the agency officer who approved the document.

CCAGG compares information in these documents against both the information obtained by the monitors from their physical inspection of project sites and the financial and accounting documents and other technical reports submitted by the contractor upon the project’s completion. Investigations watch for evidence of corruption or poor performance, including the use of sub-standard materials in road construction projects or fraud in contracting procedures (such as rigged contracts).

At the end of the monitoring process, CCAGG members fill out a form that lists the project’s name, location, funding source, mode of implementation, implementing agency, inspection date, and current status, as well as the monitors’ findings and recommendations for action by government.If the audit identifies problems with the project, this form is submitted to the relevant government officials along with specific demands for corrective action.

For example, in one project, CCAGG members found that a contractor had not constructed a road properly: the road bed was not properly prepared and the cement mixture was faulty. On receiving this information from CCAGG, the government ordered the contractor to replace the affected sections of the road at its own expense. Similarly, in another project, CCAGG found that a contractor had over-billed the government for the cost of road construction material; the government ordered the contractor to compensate for the overpayment by extending the road at no additional cost.

c. Results Achieved

Successes

Recognizing the critical role CCAGG plays in preventing corruption as well as the expertise it has developed in monitoring public works projects, the National Commission on Audit (COA) – the SAI of the Philippines – entered into a partnership with CCAGG in 2001 to conduct participatory audit exercises in Abra province. Subsequently, CCAGG staff worked with COA officials to audit road repair projects undertaken by DPWH in Abra province.

The audit exercises assessed the impact of the projects and whether they had been executed with due regard to value-for-money factors (economy, efficiency, and effectiveness). The audit team examined available records, interviewed key project officials, and conducted site visits to determine adherence with applicable laws and confirm information gathered through other means. The team also organized five group discussions with local residents to learn their views. At the end of the audit period, the team presented an official audit to the COA’s regional director.

The community’s involvement greatly assisted the audit team in verifying the accuracy of expenditures. In one project, for example, the contractor’s invoices showed that a certain task had been accomplished in 18 days, even though the contract had estimated that it would require 100 days. The project engineer explained the discrepancy by claiming that the contractor employed more pieces of equipment than the contract had stipulated. But local residents told the audit team that this claim was false and the poor construction of roads was proof of the hasty and incomplete efforts made by the contractor in this project (COA, 2002).

The head of the COA, to whom the results of the participatory audits were submitted, described the results of the exercise as “very focused and efficient” (Valderrama, 2003). The COA also incorporated the lessons from the audit process into its manual on the Conduct of Participatory Audits (COA 2002).

Challenges

The COA-CCAGG participatory audit illustrates many of the challenges facing civil society groups and audit institutions that wish to collaborate.

First, the participatory audit caused some tensions between CCAGG and COA personnel. COA staff objected to CCAGG demands that they discuss preliminary audit findings with community members, arguing that the audit findings should not be disclosed until they were finalized. In response, CCAGG staff argued that (unlike the COA) they were used to involving citizens at all stages of their investigations. Similarly, CCAGG staff feared that official audits, which were restricted to the post-project period and thus depended on tracking official paper trails, might miss potentially valuable findings. To the credit of both organizations, some aspects of CCAGG’s audit methodology were incorporated into the participatory audit exercise. For example, the audit included social impact analysis, which measures the project’s impact on targeted communities.

Second, even though the audit exercise was declared a success by all participating organizations, it was discontinued after a change in the COA administration. The new COA commissioner had other priorities and ended the project. This raises serious questions regarding the sustainability of participatory audits if they can be eliminated as the result of a change in administration. Legislation may be needed to ensure that such exercises are not dependent on the whims of the ruling administration.

Finally, a UNDP report suggested that the new COA commissioner was very concerned that the introduction of civil society organizations into the formal audit process might harm “client confidentiality” (Buendia, 2002). When deciding on the viability of a participatory audit process, the government should measure the obvious advantages of including partners from civil society organizations against traditional privacy concerns.

Information on CCAGG can be obtained through email addressed to ccagg2000@yahoo.com (CCAGG does not operate a website)

4. Public Service Accountability Monitor Assesses Oversight Systems in South Africa

Organizational Profile Based at South Africa’s Rhodes University since 1999, the Public Service Accountability Monitor (PSAM) is a non-profit independent monitoring unit that works to build African institutions and ensure government accountability regarding socio-economic rights and the effective use of public resources. PSAM has 11 full-time staff members who focus on the provincial government administration of South Africa’s Eastern Cape province and gather information on the management of public resources and the handling of misconduct and corruption cases by government departments. This information is collected and published to give members of parliament, civil society organizations, and the general public the tools to hold public officials accountable for their performance.

a. Introduction

In the mid-1990s, the South African media began reporting widely on instances of maladministration and corruption in the Eastern Cape province. In response to these reports, the PSAM was established as an independent research project at Rhodes University in 1999. PSAM initially worked to track actions taken by the provincial administration in response to reported cases of corruption. Specifically, PSAM analyzed whether the actions taken against officials charged with and/or convicted of corruption were consistent with regulatory provisions governing public servants in post-apartheid South Africa. PSAM collected this information in a database that citizens and civil society organizations could use to gauge agencies’ commitment to fighting corruption.

Over time, PSAM realized that collecting and releasing information on instances of corruption and maladministration was not enough. In 2001, it developed a methodology of using scorecards to evaluate the structural challenges that provincial government agencies face in managing their resources effectively and in delivering services efficiently. These scorecards evaluate agencies’ strategic planning and financial management processes and assess their accountability to oversight bodies.

PSAM utilizes a wide variety of methods to obtain documents about public misconduct, including freedom of information requests when necessary. It publicizes its findings on a regular basis, including by producing a weekly column (the “Accountability Monitor”) in a provincial newspaper. PSAM also writes analyses for the public. These analyses are timed to coincide with the budgeting and oversight cycle to contribute to debates about the use of public resources and the delivery of public goods and services.

b. Methodology

PSAM compares published budget and policy plans to the actual performance reported by government agencies and oversight institutions to assess whether the agencies achieved the targets set in their budgets/plans. PSAM also verifies whether agencies have adhered to public finance laws in the execution of their duties.

PSAM analyzes financial information from a variety of sources, including plans, budgets, in-year and year-end reports, internal audit reports, annual reports published by each department, reports published by oversight institutions such as public audit institutions, and reports issued by the legislative committee responsible for the department under assessment. Since 2003, PSAM has completed annual analyses of six government departments (education, finance, health, housing, public works, and social development) in the Eastern Cape and has made its reports available on its website, www.psam.org.za.

PSAM standardized the presentation format of its analyses by creating a number of templates and accompanying guidelines. These assist its staff (and other analysts) in completing the templates and developing analyses. Among other items, the guidelines contain a checklist of questions that PSAM uses to develop analyses on a department’s performance.

Described below are PSAM’s templates on expenditure tracking and accountability to oversight, as well as its guidelines for filling out the templates and conducting an analysis.

i. Developing an Expenditure Tracking Report

PSAM’s Expenditure Tracking Report enables users to develop an account of the expenditures reported by a department and then compare these expenditures to the budget allocations made to the department.

Table 10: Budget and Expenditure of the Eastern Cape
Department of [Name of Department]

The first table utilized by PSAM researchers (refer to Table 10) captures spending trends in the department over a four-year period. In South Africa, this information is typically provided in a department’s annual report, which is published by the end of September following the end of the financial year under review. PSAM also recommends that researchers look at annual reports and financial statements from prior years to ensure that the figures for those years contained in the current annual report are consistent.

After this analysis is complete, PSAM researchers dig deeper by examining expenditures at the level of individual programs or related activities. PSAM completes a number of charts to facilitate analysis of these data. For example, the Ministry of Health’s budget could be broken down into subgroups such as “primary health care,” “hospitals,” or “administration.” Utilizing a table like Table 11, researchers compare the allocated budget against expenditures for the department’s programs and key sub-programs for the financial year under review.

Table 11: Budget and Expenditure per Program for the [Department], [Financial Year]

PSAM encourages researchers to read all relevant budget and performance documentation on the department under review before completing the templates. In addition, researchers should review information contained in such documents as annual strategic plans, budget speeches, policy speeches, annual reports, provincial budgets, and expenditure reviews.

When analyzing the tables, it is useful to compare the allocation amounts in the year under review against allocations in previous years; changes in real (inflation-adjusted) allocations suggest a change in department priorities. The researcher should then ask a number of probing questions to help guide the development of the accompanying narrative, such as:

• What impact did the changes in the overall budget (as shown in Table 10) have on the department’s ability to address the most pressing social needs of those it serves?
• In Table 11, which program (or key sub-programs) received the most funding, and what does this reveal about the department’s spending priorities?
• In the current financial year, did the department overspend or underspend in its overall budget (Table 10), and/or in individual programs or sub-programs (Table 11)?

If the department has overspent or underspent its budget, the following questions can be analyzed:

• Has the department tended to overspend or underspend in previous years? Has the amount of the overspending or underspending declined over the four-year period?
• Did the department provide a valid explanation for its reported expenditures? (Answering this question may require the narrative documents that accompany and explain the budget, such as the annual report. The researcher may also review such information sources as newspaper articles on the department’s expenditure performance.)
• Are there significant or recurring causes of overspending or underspending? Did the department provide any explanation for its failure to address these causes in the financial year under review?
• What impact did the overspending or underspending have on the department’s provision of services?
• If the department overspent, was the overspending unauthorized – and will it have to be repaid in the next financial year? If so, what impact will that have on the department’s ability to accomplish its objectives that year?

It is important that researchers link the discussions of the tables PSAM has developed in order to form a comprehensive narrative that explains the various aspects of a department’s budget and expenditures as presented in the tables.

ii. Developing an Accountability to Oversight Report

PSAM also provides an analysis of the accountability of certain government departments to the supreme audit institution and the legislature. PSAM’s Accountability to Oversight Report analyzes any problems identified by the SAI and the legislative committees regarding the department’s performance, the department’s response to these oversight agencies, and the effectiveness of the oversight conducted by the oversight agencies (based on the department’s compliance with the agencies’ recommendations).

PSAM uses a standardized template to analyze whether oversight entities have effectively held departments accountable for their expenditures and their overall management. The template consists of a single standard table (refer to Table 12), but PSAM encourages researchers to create additional graphs and diagrams to illustrate a particular point, if needed.

Table 12: Department of [Name of Department] Auditor-General’s
Opinions, [Previous Financial Year - Financial Year under Review]

The table should provide information for the department’s four most recent financial years, including the financial year under review. The information for the table should be taken from audit opinions presented in SAI reports on the department.

To develop the narrative analysis that accompanies the table, PSAM consults reports issued by the SAI, the legislative audit committee, and the legislative committee with oversight responsibility over the department, as well as the department’s response to these findings. (Researchers seeking to adapt the PSAM method will need to identify the relevant documents produced in their country.) When reading these reports, PSAM considers questions such as the following:

• What are the legislative requirements governing the roles and responsibilities of the SAI, the legislative audit committee, and the committee responsible for legislative oversight – as well as the roles and responsibilities of the department under review?
• Did the department submit its annual report within the required time frame? If, not, what does this imply about the department’s responsiveness to oversight?
• How many of the issues that the SAI/legislative audit committee/legislative oversight committee raised about the department were also raised in previous years? What does this indicate about the department’s ability and/or willingness to address those issues?
• How many of those issues constitute public breaches of financial management legislation? How many of them could weaken the department’s accountability and service delivery systems?
• Did the department, in its annual report, provide explanations for those issues?

PSAM has developed dozens of reports analyzing the oversight and accountability of six departments in the Eastern Cape Province. These reports are available on PSAM’s website at http://perf.psam.ru.ac.za/pmwsindex.asp.

c. Results Achieved

Successes

PSAM has achieved encouraging results in the Eastern Cape, including a temporary decrease in the number of audit disclaimers issued to provincial departments. Such disclaimers are issued when the public auditor’s office is unable to form an opinion on the accuracy of the financial statements reported by an agency due to omissions or insufficient documentation.

Between 1996 and 1999 (the year PSAM was formed), audit disclaimers were issued to 12 of the province’s 13 major public agencies. Moreover, little was done to rectify the problems cited in the audits.

In response, PSAM began actively publicizing this state of affairs. PSAM staff members gave radio and newspaper interviews in which they explained the meaning of audit disclaimers in non-technical language. They explained that the issuance of audit disclaimers meant that the provincial administration could not account for the large majority of its budget over a period of several years.

Expanded publicity surrounding PSAM’s documentation of widespread corruption and mismanagement of funds helped persuade the South African cabinet to appoint an interim management team (IMT) in 2003 to improve financial management within the province. As a result, in 2005 audit disclaimers were issued for expenditures that comprised only 54 percent of the total provincial budget – a drastic reduction from 2002, when disclaimers were issued to more than 90 percent of the budget.

Challenges

Unfortunately, the improvement cited above has proven to be short-lived. In 2006, the auditor general issued disclaimers for expenditures comprising 88 percent of the provincial budget. PSAM suggests that the problem may result in part from the re-emergence of poor financial management practices after the departure of IMT personnel. Clearly, sustained pressure must be brought to bear upon agencies to improve their expenditure and performance management processes.

PSAM also faces a number of challenges in monitoring expenditure and performance management. The organization does not always have access to budget data, such as detailed monthly financial and quarterly performance reports. In some instances, PSAM has been forced to file lawsuits to obtain information from government agencies; in others, it has been unable to obtain needed information because agencies simply have not maintained records.

Another challenge for PSAM is getting the attention of the provincial legislature. Given PSAM’s focus on corruption and misconduct, it is perceived as having an adversarial relationship with the legislature (which is upset with the negative publicity it receives from PSAM exposes). In some instances, PSAM has struggled to obtain access to legislative forums such as standing committee meetings at which it can present its findings.

Maintaining the needed analytic capacity presents a further challenge for PSAM. New researchers entering the monitoring program must familiarize themselves with the significant knowledge base amassed through the systematic, multi-year monitoring of government agencies. In addition, it can take up to a year of training and application before new researchers acquire the unique skill set needed to fully implement PSAM’s monitoring methodology.

Information on PSAM can be obtained from the organization’s website, http://www.psam.org.za/ptlindex.asp.
 

¹⁸ This case study discusses the work done by Fundar to monitor HIV/AIDS funds in Mexico. However, Fundar was not alone in this initiative and worked as a member of a coalition of civil society groups in the country monitoring the HIV/AIDS funds.
¹⁹ This case study draws heavily on Ramkumar and Krafchik, 2005.

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14. Other Successful Initiatives to Monitor Audit and Legislative Oversight

This chapter presents two further case studies of successful civil society work in the audit and legislative oversight phase of the budget process. They concern Asociación Civil por la Igualdad y la Justicia (ACIJ) in Argentina and the Concerned Citizens for Economic Justice (CCEJ) in South Korea.

1. Asociación Civil por la Igualdad y la Justicia Examines Legislative Audit Recommendations in Argentina

The Civil Association for Equality and Justice (Asociación Civil por la Igualdad y la Justicia, or ACIJ) was founded in 2002 by a group of young professionals – including lawyers, social scientists, and economists – to demand transparency and accountability in public institutions and to advocate for pro-poor policies in Argentina. As part of its effort to combat corruption and increase transparency, ACIJ routinely analyzes audit reports and tracks the actions taken to implement recommendations made by public audit institutions. These include audit reports assessing royalties paid by the private sector to the government for hydrocarbon extraction, as well as procurements made by the government for the national airport.

During its investigations, ACIJ discovered evidence of serious deficiencies in the management of the agencies that execute these programs. However, the government took no action to rectify those problems or to implement the national audit institution’s recommendations.

ACIJ demanded that it be allowed to attend meetings organized by the legislative committee (Comisión Mixta Revisora de Cuentas, or CMRC) responsible for reviewing audit reports. (These meetings had traditionally been closed to the public.) CMRC staff not only denied ACIJ’s request, but told ACIJ that the committee itself did not meet to discuss the audit findings; instead, the committee secretary approved certain audit recommendations and then obtained signatures of consent from the other committee members. ACIJ filed a legal suit demanding that CMRC meetings be open to the public and obtained a favorable ruling.

ACIJ then filed a second suit demanding access to minutes of previous CMRC meetings. Once again, the court issued a ruling in favor of ACIJ and required that this information be made public.

The meeting reports were found to contain many irregularities. Seventeen of the 65 reports contained false information, including falsified meeting attendance records. ACIJ concluded that CMRC members were not truly interested in analyzing audit reports or demanding corrective action. ACIJ publicized its findings, which were reported in national newspapers, and this negative publicity spurred the CMRC to begin meeting regularly (and properly) to discuss audit reports.

ACIJ also issued a public report detailing the CMRC’s deficiencies. For example:

• CMRC members are drawn from political parties based on the composition of the Congress. This means that when the same party controls both the executive and Congress, most CMRC members are unlikely to enforce actions that undermine the executive.
• CMRC reports and resolutions for the entire legislature contain little useful information, which prevents legislators who may be interested in examining an issue from understanding it.
• The CMRC does not impose deadlines by which the executive is required to respond to audit findings.
• The CMRC does not have in place a system to effectively follow up on its audit recommendations and ensure that executive agencies take corrective action.

In a sign of increasing cooperation between ACIJ and Argentina’s auditor general, ACIJ created a database of journalists and non-governmental organizations that have expressed interest in receiving the auditor general’s monthly bulletin summarizing its main investigations. ACIJ and the auditor general also agreed to create a system whereby civil society organizations can propose topics for audits to be conducted.

Information on ACIJ can be obtained from the organization’s website, http://www.acij.org.ar/.

2. Citizens Coalition for Economic Justice Investigates Corruption in South Korea²⁰

The Citizens’ Coalition for Economic Justice (CCEJ) of the Republic of Korea has been able to use South Korea’s public audit system – overseen by the supreme audit institution in the country, the Board for Audit and Inspection (BAI) – to improve government accountability for the use of public resources, particularly with respect to procurement.

CCEJ was founded in 1989 by 500 concerned citizens and has since grown to 35,000 members and 35 local branches. It has a national staff of 50 and can call on the support of 150 volunteer specialists. CCEJ’s overarching goals are economic justice, environmental protection, democratic and social development, and the reunification of the Korean peninsula.

The Korean SAI has instituted several processes to facilitate public participation in its work, including establishing a system under which citizens can request the SAI to audit agencies or programs that they are concerned about. CCEJ uses this audit request system to further its goals. Following the recognition of a problem within the administrative affairs of government, CCEJ collects and analyzes the relevant information; if there is evidence of a serious problem, CCEJ requests an audit of the institution.

One case in which CCEJ successfully used the audit request system dealt with the government’s decision to construct a National Cancer Center (NCC). In 1991, when the decision to build the center was being made, the Ministry of Health and Welfare estimated that construction would require 41.9 billion Korean Won (at the time, approximately US$58 million) and would provide more than 500 beds. Over time the budget grew, reaching over 200 billion Won in 1999. The NCC was completed in 1999, more than three and half years behind schedule. Full operation did not begin until late 2000.

Expert CCEJ volunteers, as well as other CCEJ staff, doubted the necessity of the NCC when it was first proposed. As the budget grew and construction delays mounted, CCEJ began investigating. CCEJ compared the budgets of cancer wards at other university hospitals with the government’s budget plan for the NCC and found that the latter was excessive. CCEJ also consulted with professors and government officers and discovered that a power struggle between two government ministries over control of the NCC had inflated the NCC’s budget even further. CCEJ presented its findings to the BAI and requested an audit.

The BAI determined that insufficient planning, unsystematic construction, and a lack of human resources had contributed to budget waste. It also found that overlapping and unclear investments between the NCC and a university hospital had caused inefficiency. The BAI informed the Ministry of Health and Welfare that it should harmonize the functions of the two hospitals and provide a firm plan for acquiring the human and material resources necessary to get the NCC open as soon as possible.

In a second case, a former audit official told CCEJ that the National Tax Service (NTS) had provided three companies with unfair tax cuts and that he had been demoted because of his opposition to those policies. In 2003, CCEJ began an investigation and issued an open inquiry against NTS citing unfair audit practices, preferential taxation, omitted taxes amounting to 6 billion Korean Won, and retaliatory actions against whistleblowers. The NTS replied that both the official’s demotion and the tax exemption of the three companies were lawful. CCEJ found the answer to be unsatisfactory and formally requested a BAI audit.

The BAI found that the tax collection by the NTS followed fair practices. The former audit official then took his case to the committee in charge of coordinating the Korean government’s anti-corruption policies. The committee accepted the arguments by the audit official and CCEJ, finding that there was “reliable reason” for suspicion, and transferred the case to a local prosecutor – who in turn decided that the official’s demotion had been unfair and the tax exemption had been unlawful. The prosecutor ordered that the required tax payments be collected.

CCEJ’s success in these cases reflects four important factors. First, South Korea has mechanisms in place that give civil society the right to seek official action in cases of suspected corruption; CCEJ was able to use this system to focus the BAI’s attention upon suspected budget waste and corruption. Second, as the NTS case shows, if one system of government redress does not yield satisfactory results, CCEJ works to find others. Third, CCEJ has a wide network of experts and volunteers upon which it can draw during investigations; these volunteers help both in identifying and in assessing cases. Finally, CCEJ uses the media strategically as a tool to pressure government to address citizens’ concerns.

Information on CCEJ can be obtained from the organization’s website, http://www.ccej.or.kr/English/.

²⁰ This case study draws on Lee, 2006.

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