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INTOSAI

InternationalJournal

ofGovernment

Auditing

April 2002

©2002 International Journal of Government Auditing, Inc.

The International Journal of Government Auditing is published quar-terly (January, April, July, October) in Arabic, English, French, Ger-man, and Spanish on behalf of INTOSAI (International Organizationof Supreme Audit Institutions). The Journal, which is the officialorgan of INTOSAI, is dedicated to the advancement of governmentauditing procedures and techniques. Opinions and beliefs expressedare those of editors or individual contributors and do not necessarilyreflect the views or policies of the Organization.

The editors invite submissions of articles, special reports , and newsitems, which should be sent to the editorial offices at U.S. GeneralAccounting Office, Room 7826, 441 G Street, NW, Washington, D.C.20548, U.S.A. (Phone: 202-512-4707; Facsimile: 202-512-4021; E-mail: <[email protected]>).

Given the Journal’s use as a teaching tool, articles most likely to beaccepted are those which deal with pragmatic aspects of public sec-tor auditing. These include case studies, ideas on new audit method-ologies or details on audit training programs. Articles that deal pri-marily with theory would not be appropriate.

The Journal is distributed to the heads of all Supreme Audit Institu-tions throughout the world who participate in the work of INTOSAI.Others may subscribe for US$5 per year. Checks and correspon-dence for all editions should be mailed to the Journal’s administra-tion office, U.S. General Accounting Office, Room 7826, 441 G Street,NW, Washington, D.C. 20548, U.S.A.

Articles in the Journal are indexed in the Accountants’ Index pub-lished by the American Institute of Certified Public Accountants andincluded in Management Contents. Selected articles are included inabstracts published by Anbar Management Services, Wembley, En-gland, and University Microfilms International, Ann Arbor, Michi-gan, U.S.A.

InternationalJournal

ofGovernment

Auditing

April 2002—Vol. 29, No. 2

Board of EditorsFranz Fiedler, President, Court of Audit, AustriaSheila Fraser, Auditor General, CanadaMohamed Raouf Najar, Premier Président, Cour des Comptes, TunisiaDavid M. Walker, Comptroller General, United StatesClodosbaldo Russian Uzcategui, Comptroller General, Venezuela

PresidentGloria Jarmon (U.S.A.)

EditorDonald R. Drach (U.S.A.)

Assistant EditorLinda J. Sellevaag (U.S.A.)

Associate EditorsOffice of the Auditor General (Canada)Deepak Narain (ASOSAI-India)Luseane Sikalu (SPASAI-Tonga)Michael C.G. Paynter (CAROSAI-Trinidad and Tobago)EUROSAI General Secretariat (Spain)Khemais Hosni (Tunisia)Yadira Espinoza Moreno (Venezuela)INTOSAI General Secretariat (Austria)U.S. General Accounting Office (U.S.A.)

Production/AdministrationSebrina Chase (U.S.A.)

Members of the Governing Board of INTOSAIJong-Nam Lee, Chairman, Board of Audit and Inspection, Korea,

ChairmanArpád Kovács, President, Allami Számvevöszék, Hungary, First Vice-

ChairmanTawfik Ibrahim Tawfik, President, General Auditing Bureau, Saudi

Arabia, Second Vice-ChairmanFranz Fiedler, President, Rechnungshof, Austria, Secretary GeneralArah Armstrong, Director of Audit, Audit Department, Antigua and

BarbudaHumberto Guimarães Souto, Ministro, Presidente do Tribunal de

Contas da União, BrazilLeopold A.J. Ouedraogo, Inspecteur Général d’Etat, Burkina FasoMohamed Gawdat Ahmed El-Malt, President, Central Auditing

Organization, EgyptVijayendra N Kaul, Comptroller and Auditor General, IndiaAkira Kaneko, President of the Board of Audit, Kaikeikensain, JapanBjarne Mørk Eidem, Auditor General, Riksrevisjonen, NorwayGenaro Matute Mejía, Contralor General, Contraloría General, PeruAlfredo José de Sousa, President, Tribunal de Contas, PortugalPohiva Tu’i’onetoa, Auditor General, Audit Department, TongaMohamed Raouf Najar, Premier Président, Cour des Comptes, TunisiaSir John Bourn, Comptroller and Auditor General, National Audit

Office, United KingdomDavid M. Walker, Comptroller General, General Accounting Office,

United StatesGuillermo Ramírez, President, Tribunal de Cuentas, Uruguay

Contents

1 Editorial

3 News in Brief

11 Petroleum Fund Audit

14 Reform Initiatives in Bangladesh

18 Audit Profile: Brunei Darrusalam

20 Reports in Print

21 Inside INTOSAI

2001 Index

International Journal of Government Auditing–April 20021

“Breaking the Banks”

I am pleased to have been asked to write this editorial forthe Journal and to share my perspective on an issue that hasbeen discussed by INTOSAI members in recent years: the roleof SAIs in addressing the problem of financial crimes. Thiswas discussed at our Montevideo congress in 1998 in thecontext of preventing and detecting fraud and corruption, andthe issue was raised again at our congress in Seoul last Octoberin the context of money laundering. As colleagues continue toaddress this challenging issue, and in the spirit of INTOSAI’smotto, “Mutual Experience Benefits All”, I thought that readersmight be interested in the experiences my office has had withthis issue.

Our experience relates to an investigation into tax evasionon a large scale that began in 1999 following media reportsconcerning a major Irish bank’s use of bogus non-residentaccounts as a means of evading Deposit Interest RetentionTax (DIRT). Simply put, deposit interest is a form of incomethat is, therefore, liable to assessment to income tax; DIRT is aspecific tax on this interest income. It is a self-assessment tax,and financial institutions have a statutory obligation to deductDIRT from relevant interest paid to depositors, to pay it over tothe Revenue Commissioners at specified intervals, and to makea return on a prescribed form.

The bank in question denied any wrongdoing and claimedit had an agreement with the Revenue Commissioners on howthe matter should be treated. Moreover, the bank asserted thatthe issue of bogus non-resident accounts had been anindustry-wide problem and was well-known to the Stateauthorities.

After initial enquiries by Parliament’s Public AccountsCommittee failed to shed any meaningful light on the position,Parliament (at the Committee’s instigation) passed legislation

By Mr. John Purcell, Comptroller and Auditor General of Ireland

giving me special powers of a quasi-judicial nature toinvestigate the matter and to report my findings.

Specifically, I was requested to (1) carry out aninvestigation into the operation of DIRT by the RevenueCommissioners and the financial institutions over a 12-yearperiod, (2) ascertain if there was a shortfall in the amounts ofDIRT paid by financial institutions and the reasons for and thecircumstances of the shortfall, and (3) ascertain the informationknown or available to the financial institutions, the RevenueCommissioners, the Department of Finance, and the CentralBank of Ireland concerning the practice of using bogusnon-resident accounts to evade DIRT.

Once the enabling legislation was passed, a dedicatedteam of staff from my Office with expertise in accounting,information technology and law was set up to undertake theinvestigation work. At an early stage, the financial institutionswere invited to furnish information to me under severalheadings, and all of them responded positively. Follow-upmeetings with representatives from the institutions clarifiedand elaborated on that information. At the same time, fileswere sought and obtained from the relevant State authorities;in addition, the examination of papers was augmented bydiscussions with the organisations as necessary. Each of thefinancial institutions and the three State authorities werefurnished with a synthesis of the information they hadprovided in order to verify my understanding of the facts atthat stage.

Once all the preliminary information had been obtained,the investigation took on a new complexion. Using the specialpowers granted by the legislation, I adopted a three-prongedapproach: (1) directing the financial institutions to makediscovery on oath by way of affidavit of any documents whichwere germane to the subject matter of the investigation, (2)appointing a private sector auditor to carry out an examinationin the financial institutions of non-resident accounts andrecords, and (3) directing persons to attend before me to giveevidence on oath.

As regards the first element, I sought documents thattouched upon or concerned specific aspects of DIRTadministration in the institutions between January 1, 1986, andDecember 1, 1998 — in particular, minutes and documents ofthe Board, its sub-committees or audit committees in whichany reference was made to DIRT or non-resident accounts;reports to or received by senior management concerning theadministration of DIRT and non-resident exemptions, includinginternal audit reports; and relevant correspondence to andfrom external auditors.

Mr. John Purcell


In terms of the appointment of a financial auditor, I did notapproach Irish auditing firms to avoid potential conflicts ofinterest. After consultation with U.K. Inland Revenue and anumber of U.K.-based firms with relevant expertise, I appointedan auditor to undertake the work in the financial institutionson my behalf—56 offices and branches of 22 institutions in allrepresenting the vast majority of the DIRT deposit base. Inaccordance with the special legislation, the auditor and herteam performed the work under my control and supervision.

The third element of my approach was to hold hearings totake evidence on oath from 76 witnesses. The oral hearingswere effective in teasing out the provenance of the informationcontained in the documentation and eliciting new facts.

The investigation was completed and the report presentedto Parliament within a 7-month period. It established a patternof extensive non-compliance across a range of financialinstitutions. The institutions had been less than diligent inconfirming the residence status of account holders and, inmany cases, had actively encouraged ineligible persons toopen non-resident accounts in order to boost their deposittaking business. Even when internal audit units within thefinancial institutions had reported weaknesses in this area, thefollow-up was often lacklustre, uncommitted, and notsystematic. The report estimated an indicative DIRT shortfallof hundreds of millions of euros.

The report found that the State authorities in questionhad adopted a passive approach to the financial institutions intheir management of compliance and more or less ignoreddanger signals which had cropped up at intervals during the12-year period. This passiveness was compounded by theRevenue Commissioners’ failure to exercise the limited accessinspection rights they had in the financial institutions. Inessence, to put it at its harshest, the State’s attitude had beenredolent of the three wise monkeys—“Hear no evil, see noevil, and speak no evil!”

The investigative report formed the basis of the subsequentPublic Accounts Committee inquiry into the matter. Thehearings, which were in public and broadcast on nationaltelevision, gave an intriguing insight into corporate governancein financial institutions, the State’s monitoring of the bankingsector, and the operation of the Revenue Commissioners.

The Committee’s report had a major impact, including

• the establishment of a new single regulatory authorityfor all financial institutions,

• a restructuring of governance arrangements in theRevenue Commissioners,

• enhanced Revenue Commissioners’ access andinspection rights in financial institutions, and

• a new supervisory body for the auditing profession.

Based on the findings of my investigative report, theRevenue Commissioners carried out a series of lookback DIRTaudits in the financial institutions. These audits produced•million (US$194 million) in back tax, interest, and penaltiesfrom the financial institutions. A follow-up voluntary disclosurescheme for holders of bogus non- resident accounts producedan additional • million (US$197 million) in underlying tax from3,500 account holders. Intensive audit work by the RevenueCommissioners currently under way on bogus non-residentaccounts is expected to yield further large sums of money.

The main lessons learnt from my investigation and thesubsequent Public Accounts Committee hearings were thefollowing:

• Delegation of tax collection functions to private sectorbodies must be accompanied by the implementation ofan effective monitoring regime.

• Clear lines of responsibility are a prerequisite for goodgovernance.

• Control authorities such as the RevenueCommissioners should always exercise in full thepowers granted to them in law to ensure compliance.

• Internal audit must be independent in the exercise ofits functions and properly staffed and have a direct lineof reporting to the Board.

• The independence of external audit can becompromised by the provision of other services tobusiness.

• It is probable that an SAI will need to invoke specialpowers to carry out effective examinations in which theprivate sector is involved.

For more information, contact the author at: Office of theComptroller and Auditor General, Head Office, Treasury Block,Dublin Castle, Dublin 2, Ireland; tel: 01-6031000, fax: 01-6031010,e-mail: [email protected], or www.irlgov.ie.


Representatives from the SAIs of Belgium, Denmark, Norway, Portugal, the Netherlands, andthe United States, gather for a group photograph during their meeting in Brussels.

Bangladesh

New Comptroller and AuditorGeneral

Mr. Muhammad Ahsan Ali Sarkartook the oath of office as the Comptrollerand Auditor General of Bangladesh onMarch 5, 2002. His predecessor, Mr. SyedYusuf Hossain, retired on February 4,2002.

Born in 1943, Mr. Sarkar received hisM.A. in English from Rajshahi Universityin 1964. He qualified in the CentralSuperior Services Examination andjoined Bangladesh’s Audit andAccounts Service in 1967. Prior to hispresent appointment he served asSecretary, Ministry of Labor andEmployment of the Government ofBangladesh. He also served for 2 yearsas a National Consultant for the Reformsin Government Audit (RIGA) Project,which was jointly sponsored by theGovernment of Bangladesh and theUnited Kingdom’s Department forInternational Development.

In his varied career, Mr. Sarkar hasserved in the capacities of AdditionalSecretary, Joint Secretary, and DeputySecretary in several different ministriesof the Bangladesh government.

Mr. Sarkar has received training in anumber of foreign countries, includingthe United States of America, Singapore,and Pakistan.

ASOSAI WorkshopThe Office of the Comptroller and

Auditor General (C&AG) of Bangladeshhosted the ASOSAI Workshop onFinancial Audit from September 3-12,2001. The 8-day workshop wassponsored by ASOSAI, andrepresentatives from 16 Asian countriesparticipated.

News in Brief

New SAI WebsiteThe Office of the Comptroller and

Auditor General (C&AG) of Bangladeshhas launched its website, www.cagbd.org. The website containsinformation relating to the activities ofthe Office of the C&AG, the rules andprocedures the office follows inconducting audits, as well as suchimportant and useful documents asGovernment Audit Standards, the Codeof Ethics for Government Auditors andthe Performance Audit Manual. Visitorsto the website will also be able to see theoffice’s annual reports and audit reportson various ministries. The reports are inMSWord format and can be downloadedif desired. In addition, there is a sectionwith news about the Office of C&AG,and new publications will be posted tothe site. The office believes that thewebsite will be useful for its own staff,its clients, and other interested groups.

The Office of C&AG also welcomescomments and suggestions on how toimprove the site and make it more userfriendly.

For further information, contact:189, Shaheed Syed Nazrul Islam, Saran,Kakrail, Dhaka-1000, Bangladesh; fax:++880 (2) 831 26 90; e-mail: [email protected]; or www.cagbd. org.

Belgium

F-16 SAI ConferenceOn June 15, 2001, senior audit

officials from the six countries thatparticipate in the F-16 MultinationalFighter Program met at the F-16 SupremeAudit Institutions (SAI) Conference inBrussels. The countries representedwere Belgium, Denmark, Norway,Portugal, the Netherlands, and theUnited States. The newest membernation, Portugal, had been invited toparticipate in the conference after itentered the program in June 2000.

The delegations were briefed aboutthe case closure of the follow-on-buyand the F-16 mid-life update. The U.S.General Accounting Office (GAO)clarified the results of its 1996 review ofthe pricing of the mid-life updateprogram (see GAO/NSIAD-96-232available at www.gao.gov). Theparticipants also received an overviewof efforts to reengineer the foreignmilitary sales system in order to providea better view of the contractnegotiations process and to speed upcontract closeouts. In addition, thedelegations discussed the decisionsmade concerning the successor to theF-16.


For more information on the F-16SAI Conference, contact Mr. Beckers,the Belgian Court of Audit,Regentschapsstraat 2, B-1000 Brussels,Belgium; fax: 32-2-551-8622; or e-mail:[email protected].

Canada

Commissioner of the Environmentand Sustainable DevelopmentDelivers 2001 Report

Ms. Johanne Gélinas, Canada’sCommissioner of the Environment andSustainable Development, delivered her2001 report to Canada’s House ofCommons on October 2, 2001. This wasMs. Gélinas’ first report since she wasappointed to her post in August 2000.The concept of sustainable developmentis integral to her duties and is the focalpoint of her office’s role asenvironmental watchdog. As the reportstates, “Sustainable development doesnot just mean protecting theenvironment; it means also improvingand maintaining the quality of life forpeople both in Canada and other partsof the world.”

The 2001 report sets out three broadareas of federal activity—thegovernment’s effectiveness inprotecting and preserving the GreatLakes and St. Lawrence River basin,federal departments’ managementsystems and practices for implementingtheir sustainable developmentstrategies, and modifications theCanadian government has made to itsapproaches to climate change andenergy efficiency. It also discusses theenvironmental petitions process thatallows Canadians to bring theirenvironmental concerns to the attentionof the government. The seven chaptersof the commissioner’s 2001 report alsocontain video excerpts illustrating theissues being discussed.

Looking toward the future, theCommissioner stated that the centraltheme of her 2002 report will be theprogress the federal government hasmade in key areas such as toxicsubstances, contaminated sites, andwaste management. For 2003 andbeyond, she plans to ask the basic

question, “What can we audit that willmake the biggest difference toCanadians?” Subjects may includeenvironmental health, the relationshipbetween commerce and the environment,natural resources as precious capital tobe preserved, and the government’scapacity to act as a good steward andmanage its programs with due regard tothe environment and sustainabledevelopment.

For more information, contact:Commissioner of the Environment andSustainable Development, Office of theAuditor General of Canada and theCommissioner of the Environmentand Sustainable Development, 240Sparks Street, Ottawa, Ontario, K1A0G6 Canada, tel: (613) 995-3708,f a x : ( 6 1 3 ) 9 5 7 - 0 4 7 4 , e - m a i l :communications@oag-bvg. gc.ca.

To view the Commissioner’s report,please go to www.oag-bvg.gc.ca/d o m i n o / c e s d _ c e d d . n s f / h t m l /menu3_e.html.

European Union

New President and Members ofthe ECA

On January 16, 2002, Mr. JuanManuel Fabra Vallés of Spain, nominatedto the Court in March 2000, became theninth president of the European Courtof Auditors (ECA). Mr. Fabra Vallés,whose term runs until January 15, 2005,was responsible for the Court’s audit ofthe European Development Fund from2000-2002. He also was a member of theaudit group responsible for drawing upthe Statement of Assurance (DAS).From 1994-2000, he was a member of theEuropean Parliament, where hisresponsibilities included serving onboth the Committee on Budgets and theCommittee on Budgetary Control.Mr. Fabra Vallés was a member of theSpanish Parliament from 1982-1994.During that time, he was a member of theNorth Atlantic Assembly, theParliamentary Assembly of the Councilof Europe, and the Western EuropeanUnion Assembly.

Born in Tortosa, Spain, Mr. FabraVallés holds a degree in law from theUniveridad Complutense of Madrid. He

was a corporate manager in the field ofagriculture and technology transfer inSpain, with projects in France, the UnitedKingdom, the Netherlands and theUnited States.

Effective January 1, 2002, five newmembers joined the ECA. Thesemembers, nominated by the Council ofthe European Union in consultation withthe European Parliament, are Mr. LarsTobisson (Sweden), Dr. Hedda vonWedel (Germany), Mr. David Bostock(United Kingdom), Mr. Morten LouisLevysohn (Denmark), and Mr. IoannisSarmas (Greece). The Council alsorenewed the mandates of the followingmembers: Mr. Hubert Weber (Austria),Mr. Francois Colling (Luxembourg),Mr. Maarten B. Engwirda (TheNetherlands), and Mr. Jean-FrancoisBernicot (France).

Mr. Juan Manuel Fabra Vallés

For more information on the ECA,contact: European Court of AuditorsExternal Relations Department 12, rueAlcide De Gasperi, L-1615 Luxembourgtel: 352/4398-45410, fax: 352/4398-46430,e-mail: [email protected]. int, orwww.eca.eu.int/en/organigramme/organigram.htm.

Germany

2001 Annual Report IssuedOn October 16, 2001, Germany’s

Federal Court of Auditors presented itsannual report to the federal legislativebodies and the government. The reportreflects topics addressed in some of the600 management letters that the FederalCourt of Auditors issued during thecourse of its annual audit and advisorywork. The report contains comments


about federal appropriations and capitalaccounts and 86 contributions onspecific audit findings, most of whichaddress highly topical issues. The caseshighlighted in the report have a one-timesavings potential of about •1.7 billion(euro).

Privatization and outsourcingactivities are the key topics of this latestreport. The weaknesses highlightedinclude inefficient design andimplementation of projects or poorselection procedures for outsourcingprojects. The report also addresses thegeneral financial relationship andfunding practices between the federalgovernment and the federal states,highlighting such major problems asshortcomings in tax collection and publicworks management and excessive orunjustified federal funding provided tofederal state projects and programs. Inaddition, the report discusses majorshortcomings in the defense sector, suchas excess inventories and inefficientprocurement procedures. As in previousyears, the report examines the high levelof public debt, which remains a concern.

The abridged versions of the annualreport (in German and English) areavailable at no cost by writing toBundesrechnungshof, Referat Pr/Int, D-53048 Bonn. The full report in German isalso available at the above address eitherin hard copy or as a compact disk. Inaddition, the report may be downloadedfrom the Internet at www.bundesrechnungshof.de.

For more information, contact:Federal Court of Audit, D - 53048Bonn,Germany, tel: ++49 (1888) 721-0, -1000, or fax: ++49 (1888) 721-2610.

Indonesia

Constitutional AmendmentsStrengthen SAI

The Republic of Indonesia isbeginning an era of reformation thatcalls for constitutional amendmentsregarding the role of the Audit Board.The simple wording of the 1954Constitution has left room for manyinterpretations that hindered the Board’s

activities in the movement to moredemocratic practices and regionalautonomy.

Some examples of interpretationsthat have limited the Audit Board:

• The Audit Board has jurisdictionin auditing only the centralgovernment, not regionalgovernments and state-andregion-owned enterprises.

• The Audit Board has insufficientoffices in the regions, preventingthe audit agency from fulfillingits audit activities.

• The Audit Board has nojurisdiction for reporting its auditto regional parliaments, which infact have the right to control theregional executive. Under theConstitution the Audit Boardreports only to the nationalparliament.

These conditions weret consideredsufficient grounds for enactingamendments to the Constitution,particularly to sections dealing with theAudit Board (Article 23, Paragraph 5).This paragraph stipulates: “in order toaudit the accountability of state finance,an Audit body shall be established, theregulation for which shall be prescribedby statute. The result of the audit shallbe made known to Parliament.”

The regulation of the Audit Boardcalled for by the Constitution wasformulated in Act No. 5 of 1973. The actestablishes the board as a “High StateInstitution” to be independent from theinfluence and power of the government,but not superior to the government.Organizationally, the board is one of thefive high state institutions, including thePresident, and the Parliament, that areall on the same level.

The task of amending theConstitution rests with the People’sConsultative Assembly. In its letter toan ad hoc committee of this Assembly,the Audit Board made many substantialproposals, that were geared towardsstrengthening the position of the AuditBoard, such as confirming that the AuditBoard’s offices be located not only in

the capital city of the country, but alsoin the capital cities of the provinces. Thismove will also be followed-up byconfirmation of a regulation that thefindings of the regional offices of theAudit Board also be submitted to theregional parliaments national parliament.

Another asset of the Audit Boardthat needs to be confirmed is itsindependence and professionalism. Theauthority, therefore, for establishinggovernment auditing standards isprerequisite to, and an example of, theindependence and professionalism of anexternal auditor.

There have been constraints thatcould have impaired the role of the AuditBoard in the regions, such as in Article25 of Act No. 25 of 1999 on regionalautonomy. This article states only thatthe audit on the accountability ofregional finance is carried out accordingto existing rules and regulations,meaning that the audit may be carriedout by audit agencies, outside the AuditBoard.

The current government is stillundecided about whether to have onlyone external auditor and only oneinternal audit organization. The externalauditor would be the Audit Board, andthe internal audit organization would be,at the national and regional levels, theoffice of inspector general.

In its annual meeting on November2001, the People’s ConsultativeAssembly provided three new articlesfor the Audit Board through its thirdamendment (Articles 23E, 23F, and 23G)that confirms the board’s mandate toaudit the finances of the nationalgovernment, the provincial government,and the government at the second—level administration. The audit findingsmust be reported to the three respectiveparliaments, and each parliament mustconsider follow-ups recommended bythe Audit Board. These constitutionalprovisions override Article 25 of Act No.25 of 1999.

The People’s ConsultativeAssembly also recommended that theAudit Board be considered as the onlyexternal auditor of the state and that it


increase its audits of all governmentministries, agencies, and institutions, ofthe central government, as well as thoseof the provincial governments, state- andprovince-owned enterprises, and allorganizations using public funds. Indoing so, the Audit Board should useprofessional auditors, having sufficientintegrity and independence andprovided with sufficient means toperform a proper audit. If the auditsdisclose matters that give rise to asuspicion that a criminal offensce or actdetrimental to state finance has beencommitted, the Audit Board shall presentsuch cases to the government.

With these latest amendments andrecommendations, it is hoped that theAudit Board can, in the near future, playa more active role in the move toincreased accountability and goodgovernance in Indonesia.

For additional information, contact:Badan Pemeriksa Keunangan, Jl. JendGator Subroto 31, Jakarta 10210,Indonesia; fax: ++62 (21) 572-0944; e-mail:[email protected]; or www.bpk.go.id.

Ireland

Expenditure Review ReportIssued

The Comptroller and AuditorGeneral, Mr. John Purcell, published areport on his examination of thearrangements for systematicallyreviewing the effectiveness ofgovernment expenditure programs. Byway of background to this work, theDepartment of Finance set up a processin May 1997 whereby all governmentexpenditure was to be reviewed over athree-year cycle. The process, knownas the Expenditure Review Initiative, wasseen as an important element of thepolicy of delivering better governmentand was central to the StrategicManagement Initiative which aimed tomove public sector management awayfrom the traditional focus on inputs toconcentrate more on the achievement ofresults. The Expenditure ReviewInitiative was to provide key informationthat would feed into policy making andthe management of programs.

New systems and procedures wererequired to support the review processand to develop the capacity withindepartments to carry out expenditurereviews. The SAI’s examinationaddressed the following questions:

• Was public expenditurecomprehensively reviewed overthe period?

• Were the expenditure reviewscarried out well?

• Were the arrangements put inplace to manage the ExpenditureReview Initiative successful?

Main FindingsAt the end of the three-year period

under review, 62 out of the planned 118expenditure reviews had been completedwhile a further 21 were in progress. Atmost, 37 percent of governmentexpenditure was reviewed in the periodfrom mid 1997 to the end of 2000. Whilefalling short of what was an ambitioustarget, it still represents a reasonableeffort from a standing start.

Assessment of a sample ofexpenditure review reports revealed thatreviews were generally better atexamining the objectives of spendingand the level of cost efficiency achievedthan at reviewing the adequacy ofperformance indicators or evaluatingeffectiveness. Only three of the 13reports assessed achieved a soundprofessional standard across all the mainelements of the expenditure review. Twoof the 13 reports did not reach a soundprofessional standard on any of the maincriteria. Despite the shortcomings, thereviews had the effect of directingattention to areas of expenditure whichhitherto had not been analysed to anygreat extent. The report also noted thatthe initiative provided some reassurancethat taxpayers’ money was generallybeing used to good effect in the areasunder review. In addition, a strategywhich involves prioritizing keyexpenditure areas has been put in placefor the next series of reviews.

In issuing the report, Mr. Purcellstated that, “Systematic evaluation ofwhat is achieved through public

expenditure is an essential part of goodpublic sector management. Theexpenditure review initiative helped todevelop the evaluation process inDepartments but much more needs tobe done before it can be said thatevaluation is an integral part of how theCivil Service manages its day-to-daybusiness.”

For more information, contact:Office of the Comptroller and AuditorGeneral, Head Office, Treasury Block,Dublin Castle, Dublin 2, Ireland, tel: 01-6031000, fax: 01-6031010, e-mail:[email protected], or www.irlgov.ie

Nepal

Annual Audit Report IssuedThe Right Honorable Bishnu

Bahadur K.C., Auditor General of theKingdom of Nepal, submitted the 38thAnnual Audit Report to His Majesty theKing on August 31, 2001. The followingmonth, the Auditor General gave abriefing to the King on the report’scontents and presented a copy of thereport.

On September 28, 2001, the reportwas presented to Parliament, and thefollowing week the Auditor Generalpresented the executive summary of thereport in the Public AccountsCommittee. During his presentation, hecommended the committee for its seriousdeliberations on the report and itsissuing of needed directives.

The report is divided into four parts,in addition to the executive summary. Part1 deals with the audit of governmentoffices, the court, the army, and thepolice. Part 2 contains the findings fromperformance audits. Part 3 comprisesthe reports of autonomous andcorporate bodies. Part 4 contains thecertified financial statements. Thecomplete report can be read on the Officeof the Auditor General’s website,www.oagnepal.com.

For further information, contact:Office of the Auditor General, BabarMahal, P.O. Box 13328, Kathmandu,Nepal; fax: 977-1-262798; or e-mail:[email protected].


Pakistan

Ordinance Clarifies SAIResponsibilities

Pakistan has a federal system ofgovernment, with four provincesconstituting the federation. The auditorgeneral of Pakistan is appointed underArticle 168 of the constitution. Underthe Audit and Accounts Order of 1973,the auditor general was responsible forpreparing, maintaining, and auditing theaccounts of the federation and itsprovinces. In order to restate the auditorgeneral’s auditing independence and tobring the position’s terms and conditionsof service on par with those of otherconstitutional appointments, thegovernment issued Ordinance No. XXIIIof 2001, which defined the auditorgeneral’s functions, powers, and termsand conditions of service. The law waseffective as of July 1, 2001.

According to the ordinance, theauditor general is to audit allexpenditures from the consolidated fundof the federation and of each provinceto ascertain whether moneys shown inthe accounts have been disbursedlegally. The auditor general must alsoaudit all transactions of the federationand the provinces that relate to publicaccounts, trading, manufacturing, profitand loss accounts, balance sheets, andother subsidiary accounts. In addition,the auditor general must audit all receiptspayable to the consolidated funds orpublic accounts of the federalgovernment and the provinces and tothe accounts of each district. To furtheraugment the position’s independencefrom executive authority, the auditorgeneral has been given the authority toincur expenditures, within budgetaryprovisions, and to make regulations,provided they are consistent withprovisions of law and approved by thefederal government.

For additional information, pleasecontact: Office of the Auditor General ofPakistan, Constitution Avenue,Islamabad 44000, Pakistan; fax: ++92 (51)922 52 43; e-mail: [email protected].

Peru

New Comptroller GeneralOn October 26, 2001, Dr. Genaro

Matute Mejía was named ComptrollerGeneral of Peru. As such, he alsobecomes President of the Latin AmericanOrganization of Supreme AuditInstitutions (OLACEFS) and a memberof the Governing Board of INTOSAI.

During his career, Dr. Matute haswon numerous awards, including theSion Raveed prize from the BusinessAssociation of Latin America Studiesand scholarships from UCLA, the PacificAcademy for Advanced Studies in LosAngeles, and the Canadian Agency forInternational Development.

For more information, contact:Contraloria General de la República,Lima, Peru, Tel: ++51 (1) 330 41 19, 330 3150, 330 31 54, Fax: ++51 (1) 330 32 80, 33005 12, E-mail: [email protected], or www.contraloria. gob.pe.

Puerto Rico

First Conference onAdministrative Excellence

On February 6, 2002, the HonorableManuel Díaz Saldaña, the Comptrollerof Puerto Rico, convened his office’sFirst Conference on AdministrativeExcellence. The conference was part ofthe 50th anniversary celebration of theOffice of the Comptroller of Puerto Rico,which was established under theConstitution of the Commonwealth ofPuerto Rico in 1952 and in Act. No. 9 ofJuly 24, 1952.

The Office of the Comptroller ofPuerto Rico has the constitutional andministerial duty to audit all governmenttransactions related to funds and publicproperty. The office promotes excellencein government by sharing the principlesand practices of good publicadministration it has developed withgovernment officers and employees andby serving as a role model in continualimprovement and process measurement.

To commemorate this special event,the Honorable Sila M. Calderón,Governor of Puerto Rico, approved aresolution proclaiming February 3 - 9 theWeek of Administrative Excellence andFebruary 6 the Day of AdministrativeExcellence. She attended theconference, as did the president of theSupreme Court of Puerto Rico, thepresidents of Puerto Rico’s Senate andHouse of Representatives, and mayorsof different island municipalities.

Dr. Genaro Matute Mejía

Dr. Matute is an expert in planning,operations, management developmentand information systems. He has 25years experience in training seniorexecutives for public and privateadministration. Prior to his appointmentas Comptroller General, he was directorof the Masters Program, professor, andmember of the Professors Council at theGraduate School of BusinessAdministration in Lima, Peru. He wasalso an investigator for the Center forJudicial Investigations and a member ofthe Information Systems PlanningCommittee of the Judiciary. In addition,he has served as a consultant to theUnited Nations and an advisor/instructor for private companies such asIBM and Kodak of Peru.

Dr. Matute holds a Ph.D. inManagement, with an emphasis inInformation Systems, from University ofCalifornia at Los Angeles (UCLA) in theUnited States. He received MBAs fromthe University of British Columbia (inVancouver, Canada) and from theGraduate School of BusinessAdministration in Lima. He was awardeda B.S. in Mechanical Engineering fromSan Luis Gonzaga National Universityin Ica, Peru.


The purpose of the conference wasto bring together leaders from varioussectors of Puerto Rican society—government, private enterprise, laborunions, universities, religiousorganizations, and representatives ofcivil society—to send the nation aforceful, proactive message in supportof administrative excellence. The eventwas designed to focus on positivemanagement values in both governmentand the private sector.

Mr. Gene L. Dodaro, chief operatingofficer of the U.S. General AccountingOffice, served as keynote speaker for theconference at the luncheon. Otherguests at the conference included Dr.Hugo F. Arias Fabián and FranciscoOsiris Martínez, president and vicepresident, respectively, of the Court ofAccounts of the Dominican Republic.

One of the morning sessionsaddressed the importance of internalcontrols in business. The afternoonincluded a session on the impact of TotalQuality Management in attainingexcellence in administration and twopanel discussion groups. One panel oftop leaders of the universities in PuertoRico discussed “Excellence in HumanAffairs.” On the second panel, topleaders of private enterprises discussed“Perspectives Towards an Admin-istration of Excellence.”

The conference addressed manyissues related to excellence. The citizensof Puerto Rico expect and have the rightto receive excellent services from allpublic officers and governmentemployees. The citizens also expect thegovernment to use the resources thathave been entrusted to it effectively,efficiently, and according to law.Therefore, the government is obligatedto establish and maintain high standardsand levels of excellence to ensure theproper functioning of public entities,particularly with regard to the services itprovides to its citizens.

Excellence depends on principles ofjustice and public ethics and on the willto comply with these principles withresponsibility, integrity, and dedication.Therefore, excellence in servicetranslates into guaranteeing quality inservice and establishing and complying

with institutional values of the highestmoral caliber. For individuals, this isdemonstrated through relationships withcoworkers characterized bypleasantness, courtesy, and thewillingness to share skills andknowledge. It is also demonstratedthrough a high sense of equity andresponsibility in doing a job, complyingwith all rules and regulations, notdiscriminating, and not soliciting orreceiving favors or gifts of any kind fordoing the work for which one isresponsible.

It is a matter of public interest thatgovernment and the private sectorpromote and provide continuingeducation on codes of conduct,principles of quality, and the ethicalvalues that must characterize thefulfillment of their duties. They also mustpractice the norms and processes relatedto good administration and publicmanagement.

For more information, contact:Oficina del Contralor de Puerto Rico, SanJuan 00936-6069, Puerto Rico, tel: ++1(787) 754-3030, fax: ++1 (787) 751-6768,e-mail: [email protected], or www.ocpr.gov.pr.

Seychelles

New Auditor GeneralMr. Marc Benstrong was appointed

Auditor General of the Seychelles inOctober 2001 for a 7-year term inaccordance with Article 158 of theconstitution. Immediately prior to thisappointment, Mr. Benstrong served asDeputy Auditor General.

Mr. Benstrong brings to theposition a high level of professionalismand a wealth of experience acquired overthe years in a wide spectrum of financialpolicy areas involving nationalbudgeting, financial planning, andcontrols and privatization of publicenterprises. A firm believer in ethics andaccountability, Mr. Benstrong hasidentified “capacity building” as his firstpriority. Mr. Benstrong, who receivedprofessional accountancy training in theSeychelles and in the United Kingdom,began his government career in the

Treasury Division of the Ministry ofFinance, where he held a number ofpositions, including that of chiefaccountant for 4 years. From 1996through 1999, he served as the directorgeneral of the Financial Planning andControls Division; he was appointeddeputy auditor general in 1999.

2000 Annual ReportThe report of the auditor general was

presented to the National Assembly inDecember 2001 in accordance withArticle 158 (5) of the constitution. Thereport is the first issued by the newlyappointed auditor general. The reportsynthesizes observations arising fromthe audit of the Annual FinancialStatements for the year ended December31, 2000, and a number of ministerialportfolios.

Part 1 of the report presents variouscomments on financial transactions andsome useful analysis of public revenueand expenditure, movement ofsignificant account balances, and publicdebt based on the accounts of thegovernment. A brief status report oneach set of financial statements auditedduring the year—a new feature of thereport—is also included in part 1.

Part 2 of the report examinesfinancial operations of selectedministries and implementation of publicprojects. The report highlights a numberof problems brought to the attention ofaccounting officers for remedial actionduring the course of audits. Theseinclude some matters of audit concernthat have not been resolvedsatisfactorily despite previous auditcomments.

Included at the end of the report arethe certificate of the auditor general; thestatement of assets and liabilities as ofDecember 31, 2000; and the abstractaccount of revenue and expenditure,along with notes forming part of theaccounts.

For more information or to obtain acopy of the report, contact the AuditDepartment, P.O. Box 49, Victoria,Seychelles; fax: ++248-324046; or e-mail:[email protected].


South Africa

Regional CooperationThe South African Audit Office

plays a major role in managing theNetherlands-sponsored training anddevelopment programs of AFROSAI-E,the English-speaking group of SAIs onthe African continent. It also manages asimilar project funded by Sweden forSAIs of the Southern AfricanDevelopment Community.

The auditors general of the regionmet in June 2000 in South Africa andagain in October 2000 in the Netherlandsto finalize their strategic planning for theperiod from 2001 through 2003. Thesemeetings were also attended byrepresentatives from the respectivedonor agencies and the audit offices ofSweden and the Netherlands, whichprovide technical and managerialsupport for the two developmentcooperation projects.

During the past year, steps havebeen taken to foster cooperation betweenthe two groups by, among other things,combining and restructuring technicalwork groups, harmonizing trainingmaterials, and coordinating traininginterventions. Besides providingregional training opportunities in thevarious audit fields, the projects areaddressing aspects that promote theeffective functioning of the SAIs asinstitutions, for example, quality controlprocedures, management skills, on-the-job technical support, and theindependence of the auditors generaland their offices.

A database of relevant informationpertaining to the SAIs in the region ispresently being compiled, which willform the basis for future evaluations ofthe progress SAIs in the region make inenhancing the standard of their auditperformance.

Deputy Auditor-General and CEOAppointed

Appointed June 1, 2000, Mr. TerenceNombembe serves dual roles in theOffice of the Auditor-General. In hiscapacity as the Deputy Auditor-General,Mr. Nombembe provides support to the

Auditor-General to safeguard theindependence, impartiality, andprofessional status of the office as anexample to the public sector and theprofession. He is committed to buildingconstructive relationships with bothinternal and external stakeholders so thatthe South African taxpayer can see thatthe office adds value to society.

In his role as CEO, Mr. Nombembehas primary responsibility for driving theimplementation of strategy, and hisstated goal is to use the office’sinfrastructure to transform it into aninstitution that is run as a business. Thisapproach, he believes, will contribute tothe systematic and sustainabledevelopment of the financialmanagement skills that are required inpublic service.

From his 18 years of experience inbusiness, Mr. Nombembe is able to drawparticularly on the founding of GobodoIncorporated in 1997. The companystarted out in an environment that wasnot friendly to emerging black businessand provided an integrated service toclients and support for small and mediumenterprises. It has since expanded, withits Gobodo Corporate GovernanceServices (Internal Audit Division)operating nationally through offices inCape Town and Pretoria.

Mr. Nombembe began his career astrainee accountant with KPMG in Umtatain 1983. In 1986 he was promoted to auditsupervisor. Since then he has served asan internal auditor at Unilever; factoryaccountant at Lipton Tea and SoupCompany; senior internal auditor at BPSouth Africa; finance manager at BPBotswana; and market research manager,again at BP South Africa. Among hisaccomplishments was the implementa-tion at BP South Africa of a proactiveaudit methodology that included thecontrol risk self-assessment approach toauditing. As market research manager atthe company, he was involved inresearch aimed at enhancing BP’s levelof customer responsiveness, loyalty,and satisfaction.

Born in 1961 in Qumbu, Transkei,Mr. Nombembe matriculated at UmtataTechnical College in 1979. He wasawarded a B. Com. degree by the

University of Transkei in 1982 and theB. Compt. (Hons.) by the University ofSouth Africa in 1986. He qualified as achartered accountant in 1990.

For more information, contact: Officeof the Auditor-General, Pretoria 0001,South Africa, tel: ++27 (12) 426-8401, -8239, fax: ++27 (12) 426-8256, e-mail:[email protected], or www.agsa.co.za.

United States of America

GAO Files Suit Over Access toEnergy Policy Group Information

In February 2002, the ComptrollerGeneral of the United States, DavidM.Walker, filed a lawsuit seeking accessto information about the operations of atask force that was charged withdeveloping national energy policy andwas headed by the Vice President of theUnited States. The 25-page complaintfiled by GAO gives a detailedchronology of GAO’s efforts over theprevious 8 months to gain theinformation requested by the U.S.Congress. Specifically, the Congressasked the General Accounting Office toinvestigate who the task force and itsstaff met with, the subjects of itsmeetings, and the costs of its activities.Upon filing the suit, GAO issued a briefstatement saying, in part, “We take thisstep reluctantly. Nevertheless, givenGAO’s responsibility to Congress andthe American people, we have no otherchoice. Our repeated attempts to reach areasonable accommodation on thismatter have not been successful. Nowthat the matter has been submitted tothe judicial branch, we are hopeful thatthe litigation will be resolvedexpeditiously.” The complaint (CivilAction No. 1:02cv00340) has beenposted on the Internet at http://news.findlaw.com/hdocs/docs/gao/wlkrchny022202cmp.pdf.

On April 11, 2002, GAO filed a motionfor summary judgment in the lawsuit,stating that the Comptroller General’ssuit “presents pure questions of law, asto which there are no material facts indispute.” The Justice Department, whichis representing the vice president, hasbeen allowed 40 days to respond to the


GAO motion. Oral argument before ajudge has been scheduled for September18, 2002. Additional information on thisissue is available at www.gao.gov.

GAO Issues 2001 Performanceand Accountability Report

On February 27, GAO issued itsperformance and accountability reportfor fiscal year 2001.

The report shows that GAO servedthe Congress and the American peoplein a variety of ways. GAO’s workthroughout the year led to $26.4 billionin savings — a return of $69 on everydollar invested in GAO — as well asalmost 800 actions taken to improve

government services for the Americantaxpayer. In addition, 79 percent of therecommendations GAO made in fiscalyear 1997 had been implemented by theend of fiscal year 2001. Finally, GAOwas able to respond rapidly in the faceof the tragic events of September 11,thanks to past and present work.

The 2001 report is a three-in-onedocument, encompassing informationabout the past year’s accomplishmentstraditionally presented in accountabilityand performance reports, as well as plansfor the upcoming year contained inperformance plans. In addition to dataon GAO’s overall performance, ithighlights progress in meeting each ofGAO strategic goals. Looking forward,

it previews what GAO expects to achievein fiscal year 2003, a preview of GAO’supdated draft 2002-2007 strategic plan.The report also includes GAO’s fiscalyear 2001 financial statements, whichreceived an unqualified opinion from itsindependent auditor.

GAO has issued both a compactHighlights version of the report and acomplete version containing the texts ofthe fiscal year 2001 performance andaccountability reports and the 2003performance plan. Both versions can beaccessed on the Internet atwww.gao.gov/audit.htm under thesubheading “Reports and Plans AboutGAO.”


Audit of the Norwegian GovernmentPetroleum FundBy Mr. Alfred G. Martinovits, PhD, Senior Adviser, Office of the Auditor General of Norway

The Office of the Auditor General conducted a performanceaudit of the Norwegian Government Petroleum Fund in a periodending December 31, 1998, with developments in certain areasanalyzed into 1999. The audit encompassed a review of thesystems and routines used by Norges Bank, Norway’s centralbank, for monitoring management of the Fund and ensuringcompliance with the guidelines of the Ministry of Finance. Theresults of the audit were published in the Office of the AuditorGeneral’s Administrative Report no. 4, 1999.

ObjectivesThe objective of the audit was to investigate whether the

Ministry of Finance and Norges Bank were managing theNorwegian Government Petroleum Fund in accordance withthe decisions and intentions of the Parliament, including theregulations and guidelines laid down by the Ministry ofFinance.

The audit used as its starting point the purpose andstrategy of the Petroleum Fund as defined in the GovernmentPetroleum Fund Act. According to the Act and guidelines givenby the Ministry of Finance, the Fund

• helps to ensure that funds will be available for the centralgovernment’s future financial commitments. To this end,the Fund must give a good return within the frameworkof an acceptable risk level and good control.

• is placed in financial instruments abroad, denominatedin foreign currency, and is built up mainly by NorgesBank’s purchase of foreign currency in conformancewith national monetary and foreign exchange policies.

• must not diminish the effectiveness of the fiscal budgetas an instrument of governance, and therefore it isimportant that adequate and relevant information issubmitted to the Parliament.

The following questions were investigated:

1. Is the Ministry of Finance’s and Norges Bank’smanagement of the Norwegian Government PetroleumFund satisfactory?

2. How is the Fund structured and built up in relation tonational foreign exchange and monetary policy?

3. To what extent has the Parliament been informed aboutthe management and performance of the Fund?

BackgroundThe main objective of the Norwegian Government

Petroleum Fund is to contribute to a budget process that takesinto account the long term. The Government Petroleum FundAct provides for the Ministry of Finance to manage the Fundand to establish a hypothetical, benchmark portfolio againstwhich the success of investments can be measured. NorgesBank is responsible for the operational management of theFund on behalf of the Ministry.

The Fund, held in a separate account in Norges Bank, hasbeen invested entirely in financial instruments and cashdeposits in foreign currencies. To date, the proceeds from theFund have not been used toward the government’s outstandingdebt but have been transferred to the fiscal budget only tofinance the non-oil budget deficit.

Money from petroleum activities is held temporarily in abuffer fund in order to minimise costs. The Petroleum BufferPortfolio is transferred each quarter to the main portfolio of theGovernment Petroleum Fund. The buffer portfolio containsdirect transfers of foreign currency from the State’s directfinancial interest in the oil industry, transfers from the otherforeign currency reserves, and currency purchases on themarket.

The amounts invested in the Petroleum Fund are mainlybought in the foreign currency market in accordance withnational monetary and foreign exchange policies. The Ministryof Finance guidelines for monetary policy entail that the use ofinstruments must always aim to stabilize the exchange rate ofthe Norwegian krone against other European currencies. Duringa budget surplus, conflicts may arise between the need toacquire an amount of foreign currency equivalent to the surplus,mostly by purchase on the market, and the need to keep theinternational value of the Norwegian krone stable. This kind ofconflict is particularly likely if the international value of theNorwegian krone is already under downward pressure. Thenet cash flow from the State’s direct financial interest in the oilindustry is already in foreign currency, thus reducing thelikelihood of this kind of conflict of interest. However, thecommon features of the structure of the Fund and the foreignexchange policy indicate a need for auditing in this area.

The first real transfer (of approximately NOK 2 billion) tothe Norwegian Government Petroleum Fund was made in May1996 from a profit in the central government accounts for 1995.As of June 30, 2000, the Fund was worth NOK 304.6 billion, orapproximately USD 33 billion. The National Budget for 1999


predicts that the Fund will continue to grow until around 2020.At the end of 2001, the Fund held almost USD 70 billion. Thegovernment’s goal is that the Fund be placed as financial assetsabroad so that Norway will be able to enjoy the returns on theinvestments in the future.

On January 1, 1998, Norges Bank Investment Managementwas set up as a separate unit within Norges Bank. It isresponsible for the operational management of theImmunisation Portfolio, the Petroleum Buffer Portfolio, and thelong-term portfolio, all of which are included in the officialforeign exchange reserves, and for the Norwegian GovernmentPetroleum Fund and the Government Petroleum InsuranceFund. In this way, a single unit bears the responsibility for allthe portfolios that are managed with a long-term horizon.

MethodologyTo ascertain the facts and derive the audit criteria for our

investigation, data were collected from documents andinterviews with , among others, three of the external investmentmanagers assisting Norges Bank. Relevant records at NorgesBank and the Ministry of Finance were reviewed. And theaudit included a demonstration of the risk management systemused by Norges Bank.

Transcripts of the interviews with the staff at Norges Bankand the external service providers were verified in writing bythe parties concerned. The interview responses of the Ministryof Finance were similarly written out and were confirmed bythe Ministry in writing.

A first draft of the introductory chapters and factual partof the report was then sent to the Ministry of Finance, andmost of the Ministry’s response and comments were includedin the final version of the audit report.

Audit criteria, the norms and standards that apply inconnection with any individual performance audit, were derivedfrom such sources as the decisions of the Parliament, acts oflaw, regulations, performance goals, guidelines, andacknowledged practice. The Ministry of Finance and NorgesBank were informed of the defined audit criteria and were giventhe opportunity to comment upon them as well as the morefactual aspects of the report.

The AuditIn this paper, we concentrate on the findings and facts

related to two main points discussed in the audit report:circumstances related to risk management and the use of externalservice providers. We have chosen this focus partly becausethese elements are important, but also to demonstrate the degreeof detail with which the audit was carried out. Other mattersraised in the audit will be presented briefly in connection withour discussion of the conclusions in the report.

Elements of RiskNorges Bank must employ a secure and confidence-

inspiring system for management of the considerableoperational risks involved in managing the Norwegian

Government Petroleum Fund and the official foreign exchangereserves. The Bank must have a full overview of all the mainrisk factors, which it classifies as market risk, credit risk, andadministrative risk.

Market risk is the risk of a change in the value of a financialinstrument as a result of changes in the exchange rate, interestrates, and share prices. Credit risk is the risk of a loss as aresult of the failure of debtors or counterparties to fulfil theirobligations. Norges Bank has contact with (and is thus exposedto risk from) the issuers of the securities that the Bank owns(issuer risk) and the various institutions that it does businesswith (settlement risk, which has three elements: counterpartyrisk, repurchase risk, and liquidity risk). Administrative riskcovers all other risks, financial and nonfinancial.

Market risk must be regarded in relation to the expectedreturn, and Norges Bank takes a calculated active risk in orderto achieve a higher expected rate of return. The goal ofinvestment management is to minimize the risk at a givenexpected rate of return, or, using a general level of acceptablerisk, to maximize the return. Thus, minimization of market risk isnot a goal in its own right. However, administrative risk andsettlement risk, which do not affect the expected return, arereduced as much as possible.

External Service ProvidersNorges Bank Investment Management must limit as much

as possible the risk associated with settlement of accounts,deposits, and the use of subcontractors. Means of limitingthis risk include the choice of and follow-up on the functioningof external service providers and the execution of contractsbetween Norges Bank and the service providers.

Norges Bank has entered into agreements with four externalinvestment managers regarding index management of theFund’s equity portfolios and has selected five investmentmanagers to perform “active management” on parts of theequity portfolio. In connection with the external managementof shares, Norges Bank has entered into an agreement with aglobal depository bank responsible for the settlement of theshare transactions and appointed to act as custodian of theshares. In connection with internal interest rate management,agreements have been entered into with five banks regardingthe deposit of securities and the settlement of transactions. Inthe internal trade of equity futures contracts, stockbrokers areused as counterparties. In addition, Norges Bank InvestmentManagement deals indirectly with brokers through the externalinvestment management companies and with subdepositoriesthrough the depository bank.

In choosing external investment managers, importance wasattached to such criteria as the company’s size and experiencein index management; investment processes; systems forperformance attribution; commitment to communicating withNorges Bank; internal controls; executive team and chief ofinvestments; transaction costs; and fees (though not at theexpense of other requirements). The Bank also looked at thecompany’s ability to trade “intelligently,” for example, inconnection with large companies being added to or removed


from the benchmark portfolio, and the company’s ability toassist in buying or selling shares by means of a high degree ofinternal crossing against other clients’ movements. This is doneoutside normal brokering activity with a counterpart havingthe opposite interest, thereby saving costs.

Findings and ConclusionsIn 1998 Norges Bank’s rate of return on the portfolio was

0.20 percentage points higher than the benchmark portfolio. In1999 this difference was 1.25, in 2000 it was 0.20, and in 2001only 0.02 higher. Although no target was set for excess return,in our opinion the achieved results are satisfactory. Expectedrelative volatility, which is the standard deviation of thedifference between the yield rates of the actual portfolio andthe benchmark portfolio, was by far within the stipulated limitof 1.5% during the whole of 1998. Fund management costswere low compared to similar activities carried out by otherinternational fund managers.

We found that the Government Petroleum Fund benchmarkportfolio showed due consideration for asset and currencydistribution. The chosen markets are all well functioning andliquid and are all controlled by appropriate laws and controlbodies. The Ministry of Finance’s strategy for the managementof the Petroleum Fund reflects careful weighing of risk againstreturn.

Norges Bank’s management and control appear to be ofthe same standard as similar fund managers’ practicesinternationally. Indeed, The Petroleum Fund management andcontrol system currently under development in Norges Bankoperates with more stringent requirements than otherinternational actors, will comply with the guidelines laid downby the government administration, and will also be compatiblewith systems already in use in Norges Bank. Implementationof the new system will satisfy requirements for internal controllaid down by the Banking Insurance Commission of Norway.

Norges Bank has established a sound risk managementand control system. At the same time, the Bank hasacknowledged the limitations in its expertise in connectionwith some of the tasks that it has been assigned, and it has

therefore engaged external assistance with investments inshares and with the custodial function. We found that thebanks providing external assistance have the necessary ethicalstandards and are in countries where banking inspectionauthorities monitor the banks’ activities closely. The Ministryof Finance has been properly informed about the choice ofbanks to provide external assistance.

In 1998, the Norwegian krone was under downwardpressure. Norges Bank continued, however, to buy foreigncurrency on the market.

It should be evaluated whether the Parliament also needsto be informed about the real growth of the GovernmentPetroleum Fund in terms of net foreign asset accumulation.Apart from one case in 1997, the Ministry of Finance hascorrectly reported the financial results of the management ofthe Fund to the Parliament. However, sometimes specialexpertise is required to understand which principle (marketvalue or lowest value) was used to calculate the return.

Norges Bank does not publish data about the performanceof the Petroleum Buffer Portfolio, only for the Petroleum Funditself, so it is not possible to evaluate the economicconsequences of using the buffer fund.

The Ministry of Finance has not performed anycomprehensive analyses to ascertain the consequences forthe Norwegian economy of using money from the Fund in thefuture.

When the Government Petroleum Fund was established,the Ministry of Finance did not undertake comprehensiveanalyses of the tasks delegated to Norges Bank in terms ofpossible conflicting objectives, such as those found in thepurchase of foreign currency, or issues related to organizationaland resource challenges, such as the Bank’s limited expertise.Had the Ministry done so, it would have been able to foreseethe consequences of assigning Norges Bank a task that doesnot naturally belong among the tasks of a central bank.

For further information or comments, please contact theauthor by e-mail: [email protected] Tel: +47 22 24 12 28.


IntroductionOver the past two decades, the world has witnessed a

clear shift of paradigm in public administration with increasingemphasis on governance for growth and development. Goodgovernance, with its principal attributes of accountability andtransparency, is receiving increasing attention frompolicymakers, legislators, and civil society in all democraciesregardless of their levels of development. Added to theemphasis on accountability and transparency is the growingconcern about economic, efficient, and effective use ofresources.

One of the basic elements of a country’s governancestructure is public sector management, which should aim atachieving greater efficiencies in governmental operations,reduce and prevent opportunities for corruption, and checkleakage and waste of public resources. In a developingeconomy where resources are scarce and waste is endemic, itis important that sound management practices designed tooptimize resources are strictly adhered to. There is a widelyheld view that it is not lack of resources but the optimum andbest use of available resources that make the difference in ourefforts to promote growth and development. Sound andefficient management essentially makes the difference.

There is an increasing demand from the people in thegovernments of developing countries for delivery of goodsand services and an increasing expectation of a higher qualityof life. In today’s globalized world, the developing nations arefaced with the twin challenges of living up to the increasingexpectations of the taxpayers and the people, on the one hand,and growing competitiveness of the new international economicorder on the other.

Experts, professionals, academics, and developmentpartners tend to believe that optimization of resources couldbe a critical element in the process of ensuring improvementsin the welfare of the people. Waste and misuse of resources arepotential threats to providing better opportunities and benefitsto the people. Poor management is one of the principal factorsresponsible for waste and misuse. Improved management andoptimization of resources are, therefore, inseparably linked.

Financial management is an integral component of theoverall management process. It is the principal focus of thispaper because it is an essential prerequisite for the success ofany organization. It plays a significant role in the economic,efficient and effective use of public resources.

Reform Initiatives in the BangladeshOffice of the Comptroller and AuditorGeneralBy Syed Yusuf Hossain, Former Comptroller and Auditor General of Bangladesh

Admittedly, the institutional arrangements, systems, andprocedures that exist in the developing world do not fit in thecontext just outlined and therefore warrant substantivechanges through a process of sustained reforms. Many nations,within their available resources, have realigned their efforts tobring in reforms to keep pace with the developments takingplace elsewhere. Developing nations—having appreciated theirpresent needs and being late starters in the process ofdevelopment—have to redouble their efforts to make up forlost time. Their development partners are increasinglydemonstrating a willingness to support the reforms agendasthat bring systemic and institutional improvements as well asprofessional development and knowledge management.

Against this backdrop in recent years, the government ofBangladesh has undertaken a number of reform initiatives inimportant areas, including public financial management.Consistent with these efforts, the Bangladesh Office of theComptroller and Auditor General (OCAG) has launched reformprograms to address those weaknesses and flaws in the existingsystems and procedures that limit the potential role of thedepartment in the process of ensuring accountability andoptimum use of resources for good governance.

The purpose of this paper is to review the reform agendaundertaken thus far by the Bangladesh OCAG and highlightthe contributions the reforms make towards the department’sability to fulfill its mission and realize its vision as a proactivepartner in the process of governance.

Reform Initiatives: Transition toQuality Audit and Professionalism

Since the inception of the Bangladesh OCAG, its approachto audit had been essentially conventional, focusing only onthe review of transactions against compliance with rules andregulations. Instances of reviewing transactions againstmateriality were rare. The audit results, therefore, failed tocreate any desired impact. The information provided toParliament through annual audit reports was of limited use.The role of audit as an integral part of the country’s governancestructure was seriously limited, and the department’s imageand effectiveness, as a result, were substantially impaired.

In addition, the audit-management relationship wasmarkedly strained, as audit could not orient itself to offer anyobjective assessment of the strengths and weaknesses of thesystems and procedures in place, performance of the


organization in achieving its objectives, or problems withinthe organization. Nor could the audit, therefore, offersuggestions for corrective measures and remedial actions.Auditors’ questioning of insignificant issues led managementto view the audit function, generally speaking, as an impedimentto achieving development goals. Audit, therefore could notperform its role as an aid to the modern management process.

There was hardly any work within the OCAG to promotethe “marketability” of audit outputs to the clients for whomthey were intended. There had been little or no interactionbetween management and auditors that could lead to theirunderstanding and appreciation of each other’s role in therealization of shared goals as partners in management anddevelopment. The executive agencies ignored many of the auditobservations, leaving them unresolved for years. Many arestill pending with the Public Accounts Committee and, giventheir volume, their resolution in the foreseeable future seemsunlikely. Much of the value and significance of audit work wasthus seriously undermined in the process. Lack ofprofessionalism and severe constraints in skilled and trainedhuman resources were primarily responsible for this lacklusterperformance over the years.

In contrast to the scenario outlined above, there has beena marked shift in the approach to public sector auditing in theglobal setting over the past couple of decades, with specialfocus on issues of performance and results. The global auditcommunity set out to establish methodologies, procedures,and techniques for conducting performance audits to assessthe results of public spending in terms of economy, efficiency,and effectiveness. This significant shift was in most partattributable to a new set of concepts and emerging realities inthe domain of public administration. But it was also partlyattributable to the character, contents, and volume of publicspending for the attainment of national welfare goals. Moreimportantly, the accountability regime shifted from an emphasison procedures, control, and regulation to accountability forresults and performance.

Against these realities in territorial and global contexts,the OCAG realized that improvement in the quality andeffectiveness of its audit in conformity with internationalstandards would be the right step to enhance the usefulnessof the department’s work to the Parliament and the executiveas well as to other stakeholders.

The OCAG’s recent reform initiatives in government auditcan be seen as an appropriate step towards the improvementof quality and effectiveness. Three Technical AssistanceProjects aided by the United Nations Development Program(UNDP) and the Department for International Development(DFID), United Kingdom, are simultaneously at work toimplement a set of consciously chosen reforms. Specific needsfor various spheres of government auditing, coupled withtraining for skill development, are being addressed by theseprojects.

The projects are

• Strengthening the Office of the Comptroller & AuditorGeneral (STAG),

• Reforms in Government Audit (RIGA), and

• Enhancing Training Facilities of the FinancialManagement Academy (FIMA).

STAG ProjectThe STAG project aims mainly at capacity building

in the Bangladesh OCAG to establish effective andmodern audit practices.

The following outputs of the project have beencompleted:

• internationally accepted government auditingstandards,

• performance audit manual and guidancematerials,

• training courses in auditing standards andperformance auditing,

• a database of audit information and computernetworking between the Office of theComptroller and Auditor General (OCAG) andall audit directorates, and

• a cell in the OCAG to assist the Public AccountsCommittee and Public Undertakings Committeeof the Parliament to carry out their functionseffectively.

The following outputs are in the process ofcompletion:

• pilot performance audits and

• an action plan to initiate reorganization andenhance the independence, role, and thecapacity of the department.

Government auditing standards developed by theSTAG Project in conformity with INTOSAI standardswere launched in February 2000. The training programis in place to upgrade the skill levels of staff and officialsbased on auditing standards.

In the backdrop of the institutionalization of democracy,demands are being heard for greater accountability andtransparency in public operations and for establishing goodgovernance and the optimization of resources, and they arebeing discussed and deliberated more seriously than everbefore. This has raised the people’s expectations of anindependent legislative audit institution, which works as a keyoversight agency in the chain-of-accountability process.


The citizens of Bangladesh expect that the legislative auditinstitution should be able to identify waste, misuse,inefficiencies in the delivery of services, lack of propriety, andcorruption and that it should be able to suggest ways tominimize these ills and maximize outputs.

The principal focus of our reform agenda has been toprovide a solid methodology base in conformity with modernstandards and our own needs. The financial audit, whichremains the mainstay of our audit efforts, is being redesignedto add materiality and objectivity. There is an elaborate schemeon hand to train our staff and execute pilot audits to test thesuitability of the new procedures in our work environment. Toreinforce the entire reform process, efforts are underway tobuild awareness of reforms and develop auditor-auditeeinteraction. A series of workshops is being held towards thisend.

RIGA ProjectThis project is mainly responsible for piloting

reforms in the Directorates of Civil Audit and Localand Revenue Audit. The project started functioning inApril 1999. The following tasks have been completed:

• updating audit code and audit manuals for civilaudit, local audit, and revenue audit reflectingwider audit scope and modern standards,

• creating a code of ethics for public sector audit,

• preparing guidelines on performance audit,

• undertaking pilot audits based on the revisedmanuals and guidelines,

• developing strategic audit plans for civil andlocal and revenue audit directorates, and

• holding awareness-building workshops inmajor cities on reforms and improving auditor-auditee relationship.

Sustaining the outputs of the two technical assistanceprojects engaged in audit reforms requires, among other things,continued skill-development efforts through effective training.A reengineered, well-equipped training academy canadequately address this concern. The Financial ManagementAcademy Project was thus undertaken to revamp the activitiesof the department’s training academy with wider focus onpublic financial management.

FIMA ProjectIn 1996, the Audit & Accounts Training Academy

was restructured, renovated, and renamed the FinancialManagement Academy (FIMA) to provide training inthe field of public financial management across thegovernment. FIMA was taken up in April 1999. Theproject envisages the following outputs:

• Management, Accounting, Auditing andBudgeting (MAAB) Course: As part of senior-level training courses on government financialmanagement, FIMA introduced a 9-weekMAAB course. This course has been amilestone since the inception of FIMA. It hasdrawn junior and mid-level officials across thegovernment. It has helped these officialsproduce better output in their work places andhas enhanced skill levels in a multisectoralapproach to financial management. The coursehas been widely appreciated at all levels.

• Short Training Courses: FIMA also organizesa range of short training courses to developthe essential skills of mid-level officers acrossthe public sectors in government budgeting,audit, and accounting. The courses include

• Training in Accounting Skills & Knowledge(TASK)

• Training for Excellence in AccountableManagement (TEAM )

• Training in Budgeting & AccountingSystem (TIBAS)

• Building Essential Skills in Training (BEST)

• Awareness in Audit Reforms (AWARE)

• Senior-level training courses in GovernmentFinancial Management with special emphasison information technology

• Examination of the feasibility of introducing adistance learning program

• Diploma courses on auditing, finance, andmanagement

FIMA is a unique institution of its kind. Concertedefforts are underway to develop the academy into acenter of excellence in the field of public financialmanagement.


Any reform agenda will fail to realize its potential unlessthe results of reform initiatives are fully internalized. Anypossibility of losing the value of these reforms to the societyshould be guarded against carefully and addressed prudently.As a step towards internalizing reforms, the department isundertaking a wide consultative process involving key officialsacross the government to elicit their considered views on thedirection of reforms as well as on the outputs of the reforminitiatives. Conferences, seminars, workshops, discussionmeetings, and other forms of communication are part of thisprocess. Feedback and suggestions received from theparticipants are incorporated as appropriate for the reforminitiatives.

There is a clear need of active support from the other keyagencies in the accountability chain—the Parliament and theExecutive.

Other Initiatives: Towards Enhance-ment of Effectiveness and ImageBuilding

In order to support and institutionalize the above reforminitiatives as well as to take care of specialized needs forprofessional and skill development, a Performance AuditDirectorate, a Human Resource Development Cell, a QualityAssurance Cell, and an Executive Committee have beenestablished within the department.

The Performance Audit Directorate was initially created asa cell and later converted to a full-fledged directorate. It hasalready picked up several important sectors in which to conductperformance audits. Performance audits have also been initiatedunder the STAG Project and funded by UNDP. Thedepartment’s in-house experts and specialized consultants arecarrying out these audits jointly. For the first time there hasbeen outsourcing from the private sector to complement theskill and efforts of the department. This is an attempt to ensurea degree of sustainability and a step to further internalizereforms.

The Executive Committee, established in line with theexperience of some developed countries, involves key seniorofficials in formulating strategic plans and work programs aspart of participatory management.

The establishment of the Human Resources DevelopmentCell is another important initiative towards developing anappropriate and effective strategy for developing a systematicand coherent human resources management strategy. In thisregard, the department has taken a lead in public sectormanagement in Bangladesh.

The principal thrust of our reform agenda is establishingthe timeliness and the quality of audit. One of the majorweaknesses in our audit had been the consistent lack oftimeliness, which impaired the image of the institution as a“major informant” to the Parliament and a key player in theoversight function.

To clear the backlog, actions have been underway toupdate the audit reports to 1999–2000. To ensure timelines,audit reports for 2000–2001 on 14 key ministries were to becompleted by December 31, 2001, within 6 months after theclosing of the financial year. To establish quality, a carefullychosen quality assurance team has been commissioned. Theteam is at work and is examining the extent of the application ofgovernment auditing standards in carrying out audit as well asin reporting the results of audit. Increasingly, emphasis is beingshifted to quality from quantity to fulfill the basic mandate ofthe institution.

A sound and effective internal control mechanism is aprerequisite for successful management. The department istaking a closer look at the internal oversight functions. For thefirst time in Bangladesh, a survey of internal control systemsoperating in various key government departments and publiccorporations has been undertaken to identify the inadequaciesand system weaknesses prevalent in such organizations thathinder effective and proactive administration. The report hasbeen submitted to the government with a proposal to entrustthe department with the responsibility of setting internalcontrol standards for public sector entities and to monitor theresults. If the proposals are accepted, it would be a majorstride towards proactive management for greater accountabilityand efficiency. It would be a major example of the initiation ofpublic sector reforms by the Bangladesh OCAG.

As part of its image-building process, the departmenthosted for the first time an international conference on a verytopical theme—Improving Oversight Functions: Challengesof the New Millennium—which brought together members ofParliament from home and abroad, auditors general of othercountries, distinguished delegates, and experts from differentoversight institutions across the five continents. Organized incooperation with UNDP and the World Bank, the conferenceprovided an excellent forum for deliberating issues surroundingthe conference theme. The deliberations helped conferenceparticipants formulate important recommendations forimproving financial oversight functions in Bangladesh.

For the first time, the Bangladesh OCAG was elected tothe Board of Governors at the Triennial Assembly of the AsianOrganization of Supreme Audit Institutions (ASOSAI) held inThailand in October 2000. Following its election to the ASOSAIGoverning Board and in recognition of its efforts to enhanceinternational cooperation, the office was awarded theresponsibility for organizing the prestigious ASOSAIWorkshop on Financial Audit in September 2001. Sixteencountries participated, and Bangladesh was indeed privilegedto host the workshop. It has greatly enhanced the image andprestige of theBangladesh OCAG, nationally andinternationally. The arrangements, the professional approach,and the successful hosting of the workshop have been highlyappreciated by the Board of Audit, Japan, and the administratorof ASOSAI training programs. In recognition of our commitmentand contribution, at the recently concluded XVII InternationalCongress of Supreme Audit Institutions (INCOSAI) held in

(continued on page 23)


Audit Profile: Audit Department ofNegara Brunei Darussalam

The Sultanate of Negara Brunei Darussalam (the Abodeof Peace) lies in the northwest corner of the island of Borneo(the world’s third largest island) along the shores of the SouthChina Sea about 442 kilometers north of the equator. It has atotal land area of 5,765 square kilometers and a 1998 populationof 323,600.

Negara Brunei Darussalam assumed its independent andsovereign status on January 1, 1984. It is governed as a MalayIslamic Monarchy by the 29th ruler, His Majesty Sultan HajiHassanal Bolkiah Muizzaddin Waddaulah, the Sultan and YangDi-Pertuan. Brunei’s royal heritage dates back 600 years to itsfamed first Sultan, Mohammad Shah, who reigned from 1363 to1402.

History of the Brunei Audit DepartmentThe Audit Department was first opened in 1935, when

Brunei was still a British protectorate. Research on itsdevelopment up to the Japanese occupation from December16, 1941, to June 9, 1945, has not yet been undertaken. In 1949the Audit Department of the government of the neighboringNorth Borneo state of Sarawak became responsible for auditingthe Brunei government, and expatriate officers of Her MajestyThe Queen’s Overseas (Audit) Service made frequent visitsfrom Sarawak to the Brunei Audit Department. When Brunei’sConstitution was adopted in 1959, the first resident state auditor,an expatriate officer from Her Majesty The Queen’s Overseas(Audit) Service, was appointed as Auditor General. The firstlocal officer was appointed as the Auditor General in 1989.

Legal Authority and IndependenceThe Auditor General is appointed by His Majesty The

Sultan and Yang Di-Pertuan in accordance with section 66 ofthe Constitution of Negara Brunei Darussalam. TheConstitution provides that the Auditor General’s term of officewill be until he reaches the age of 55 and that the AuditorGeneral may resign his office at any time. He shall only beremoved from office on grounds of inability to perform thefunctions of his office (whether arising from infirmity of bodyor mind or any other cause) or misbehavior. According to theConstitution, the Auditor General can be removed only if hiscase has been investigated by a person who (1) holds or hasheld high judicial office in the commonwealth, (2) has beennominated for that purpose by His Majesty The Sultan andYang Di-Pertuan, and (3) has recommended that the AuditorGeneral should be so removed.

By Chong Fu Li, Assistant Auditor General of Negara Brunei Darussalam

The Constitution reinforces the independence of theAuditor General in the following ways:

• The Auditor General reports directly to His MajestyThe Sultan and Yang Di-Pertuan.

• The Auditor General’s salary is charged to theConsolidated Fund.

• The Auditor General decides the types of audit to becarried out.

• The Auditor General has access to all records subjectto his audit.

Scope of Audit AuthoritySection 67 of the Constitution outlines the power and duties

of the Auditor General, and the Audit Act (Cap 152) spellsthem out in greater detail. The Auditor General is mandated toaudit the accounts of Negara Brunei Darussalam, which includethe annual financial statement and the accounts of ministries,departments, overseas missions, and statutory entities.

However, by command of His Majesty The Sultan andYang Di-Pertuan, effective September 25, 1997, the AuditorGeneral was given a new mandate to audit the accounts ofgovernment-owned corporations (companies). To implementthis new directive, the Audit Department has introduced newarrangements to handle the audits of these entities. Thesearrangements were based on relevant regulatory factors suchas the Constitution, the provisions of the Audit Act, and theprovisions of the Companies (Corporations) Act, which requiregovernment-owned corporations (companies) to appoint theirown external auditors. Under the new arrangements, the AuditDepartment has implemented the following procedures:

• The Audit Department and the management of thegovernment-owned corporations (companies) willjointly recommend an external auditor. However, theAuditor General has the prerogative to make the finaldecision should disagreement arise during therecommendation process.

• The Board of Directors of the government-ownedcorporations (companies) will appoint the externalauditor.

• The Audit Department shall monitor and review thework of the external auditor.


Audit Department OrganizationIn carrying out his constitutional responsibilities, the

Auditor General is assisted by a Deputy Auditor General, 4Assistant Auditors General, and a total of 132 supporting staff.The Audit Department is divided into four main divisions, eachof which is headed by an Assistant Auditor General, and aTechnical Unit, which is headed by a Senior Auditor.

Main Division 1 is in charge of the audit of payroll (personalemoluments), retirement benefits (Pensions and Gratuities), andsocial benefits (Old Age Pension and Charity & Grants). MainDivisions 2 and 3 are responsible for financial and complianceaudits of all government ministries and departments (revenueand expenditure accounts). Main Division 2 is also entrustedwith the audit of the government of Negara Brunei Darussalam’sannual account. Meanwhile, the audits of statutory entities,government-owned corporations (companies), value-for-money audits, and computer audits are under the jurisdictionof Main Division 4. The Technical Unit handles the audit ofgovernment construction projects.

PlanningThe Audit Department prepares a strategic plan (a long-

term, 5-year plan) and an annual plan. Each year, the AuditDepartment will perform a post-mortem to identify why anytargets could not be achieved in order to improve its efficiencyand effectiveness.

The main focus of the Audit Department is the audit of theannual financial statement. In this regard, the audits of theministries, departments, and agencies have to be up-to-date tocorrelate with the audit of the annual financial statement.Because it is not possible to audit all ministries, departments,and agencies every year, the audits are selected based on arisk assessment. Thus, each division/unit has to prepare itsaudit plan and is required to submit monthly progress reportsto the Auditor General to highlight any deviations from theplan. In addition, the head of each division or unit has toexplain and justify the reasons for not meeting targets.

ReportingThe Constitution and Audit Act provide that the Auditor

General may submit a report to His Majesty The Sultan andYang Di-Pertuan at any time. Upon completion of an audit, theAudit Department issues preliminary advice, which contains asummary of significant audit findings and recommendations,to the head of department concerned. This is followed by anindividual report to the auditee, copies of which are given toPermanent Secretary of the Prime Minister’s Office, the Ministryof Finance, and the Supervising Ministry.

The Auditor General submits a quarterly report (whichcontains the findings of all reports issued for that quarter) andan annual report (which encompasses the audit of the annualfinancial statement and all major audit findings for the year) toHis Majesty The Sultan and Yang Di-Pertuan. In addition, theAuditor General submits special audit reports concerning anymismanagement of government resources to His Majesty TheSultan and Yang Di-Pertuan. These reports are tabled beforeCouncil of Ministers’ meetings for further deliberation andappropriate actions.

Human Resources ManagementThe Audit Department recruits three categories of

employees:

• those from upper secondary school (‘A’ Level ), forwhom in-house training is provided,

• those with the Higher National Diploma (AssociateDegree), and

• graduates from various disciplines.

Training is essential to keep abreast of the latestdevelopments and to maintain the professionalism of the staff.Therefore, to equip the staff to face the challenges of rapiddevelopments in infrastructure, technology, and the economy,the Audit Department sends its staff for training both locallyand abroad to attain professional qualifications andexperiences. In addition, audit staff are encouraged to take theinitiative to further their studies by, for example, enrolling inpostgraduate courses to expand their knowledge and ability toperform their jobs.

Future ProspectsThe main issue the Audit Department has been trying to

address is amending the Audit Act, because currently it doesnot include the mandate to carry out value-for-money audits,even though the Audit Department has already embarked onthese audits. The following constitute other challenges theAudit Department faces:

• issuing an up-to-date annual report,

• recruiting professionally qualified staff,

• automating the audit process,

• addressing the shortage of staff caused by its newmandate and wider scope of audit,

• producing quality and timely audit products, and

• carrying out more value-for-money audits.

For more information, please contact the AuditDepartment, Jalan Menteri Besar, Bandar Seri Begawan BB3910, Negara Brunei Darussalam; tel: 2-380576; fax: 2-380769;e-mail: [email protected] or www.audit.gov.bn.


Reports in Print

For over a decade, the U.S. General Accounting Office(GAO) has collected a large body of work describing bestpractices in audit processes, practices, and systems used byorganizations known for their excellence in various areas ofmanagement. These best practices serve as a model for otherorganizations with similar functions or missions. GAO’s website includes a list of GAO’s best practices reviews in ninemanagement areas. It also includes comparative benchmarkingstudies, which compare the practices of government agencieswith best practices for similar processes of leadingorganizations, and best practices methodology studies, whichprovide a framework for assessing operations based onidentified best practices. This information can be found underthe “Special Collections” section of the GAO Reports page onthe Internet (www.gao.gov/bestpractices).

*****The European Court of Auditor’s 24th Annual Report (on

the financial year 2000) is now available for Journal readers.The annual report is a component of the discharge proceduresgranted by the European Parliament. It consists of a report onactivities financed from the general budget and a report on theactivities of the sixth, seventh, and eighth Europeandevelopment funds. The observations in the report arise fromthe court’s audit of revenue and expenditure, including its auditfrom the point of view of sound financial management. Thereport is available on the European Court of Auditor’s Internetsite at www.eca.eu.int in all community languages.

*****GAO’s assessment tool for evaluating the process

government agencies use to determine where to invest theirinformation technology dollars is gaining acceptancethroughout government and the private sector, according tofeedback provided at a recent workshop on informationtechnology investment management. GAO developed theassessment tool, Information Technology Management: AFramework for Assessing and Improving Process Maturity(GAO/AIMD-10.1.23), to help agencies comply withrequirements for assessing the maturity of informationtechnology planning and investment control processesmandated in the Clinger-Cohen Act. Since its issuance, theassessment tool has been used by federal agencies and

consulting firms. For more information about the publicationand how you can obtain it, contact GAO’s Office of ExternalLiaison by e-mail: [email protected] or telephone: (202) 512-7260.

*****Detection and prevention of fraud continues to be of

interest to Journal readers. A new book, Financial StatementFraud, Prevention and Detection, is now available. Writtenby Zabihollah Rezaee, with a foreword by Joseph T. Wells, thebook is a valuable reference guide for fraud examiners, auditcommittees, management, and regulators. The primary focusof the book is on financial statement fraud prevention anddetection. Financial statement fraud is defined as deliberateand material misstatement of financial statements issued bypublicly traded companies to mislead users of financialstatements, particularly investors and creditors. The study offinancial statement fraud is valuable primarily because theefficiency and health of the capital markets largely depend onthe quality, integrity, usefulness, and reliability of the financialinformation received by the market. Financial statement fraudcan significantly contribute to unhealthy and inefficient capitalmarkets. Therefore, the prevention and detection of financialstatement fraud is crucial to the economic growth andprosperity of a nation. The book is published in English byJohn Wiley & Sons, Inc., 605 Third Avenue, New York, N.Y.10158 (telephone: (212) 850-6336). The book costs $65.00.

*****The government of Canada has released its report,

Canada’s Performance 2001, which contains a suite of societalindicators that provides a snapshot of the quality of life inCanada. The report is significant because, for the first time,the government offers a context with which governments andcitizens can focus their attention on the long-term health, well-being, and prosperity of Canada. Canada’s Performance 2001is the seventh annual report to the Parliament on governmentperformance. However, previous reports have not providedthe context, focus, continuity, and candor found in the currentreport. As a result, this report is important because it builds onthe best traditions of some key provincial governmentinitiatives in the area. The report is available through theCanadian Comprehensive Audit Foundation’s (CCAF) Website, www.ccaf-fcvi.com/html/english/canada_perform _2001_entry.html.


Inside INTOSAI

Inaugural Meeting of INTOSAI’sWorking Group on the Audit ofInternational Institutions

The first meeting of the Working Group on the Audit ofInternational Institutions was hosted by the auditor general ofSouth Africa and took place in Pretoria from January 30 throughFebruary 1 of this year. Delegates from 11 supreme auditinstitutions (SAI) were present: Austria, Denmark, India, Japan,Nepal, Norway, Saudi Arabia, South Africa, South Korea, theUnited Kingdom, and Venezuela. Other SAIs have alsoexpressed interest in participating in the group.

The working group was formed at the XVII INCOSAI inSeoul in October 2001. The participants agreed to establish anad hoc working group, made up of a limited number of interestedSAIs, to elaborate on and propose supplementary guidanceon SAIs’ audits of international institutions. The INTOSAIGoverning Board appointed Riksrevisjonen, the Office of theAuditor General of Norway, to chair the group.

The working group’s mandate is to elaborate and proposesupplementary guidance on SAIs’ audits of internationalinstitutions. The supplementary guidance that the group willpropose will cover issues such as audit mandate, system ofappointment, resources, and application of auditing standards.The working group will not cover the established UnitedNations’ audit system. The delegates also agreed that thegroup should reaffirm the benefits of external audits by SAIsor auditors seconded by SAIs of member states, and considerhow to best promote the involvement of SAIs of developingnations in these audits.

INTOSAI Working Group on the Audit of International Institutions meetingin Pretoria, South Africa.

At its first meeting, the working group decided that itsprimary focus would be to

• establish a clear set of principles governing theindependent external audit of international institutions,INTOSAI standards and guidelines;

• identify ways to promote these principles tointernational institutions through their member states;

• establish practical guidelines to assist INTOSAImembers in carrying out audits of internationalinstitutions; and

• provide a more rigorous definition and categorizationof international institutions, recognizing that theproduction of a definitive and up-to-date list may bebeyond its capacity.

The working group will draw to the attention of INTOSAIGoverning Board any matters arising during its work oninternational institutions that go beyond its existing mandateand may have wider implications for member SAIs.

At the meeting, the delegates agreed on the terms ofreference for the working group, which will be presented to theINTOSAI Governing Board at the October 2002 meeting inVienna. In addition, the member SAIs are preparing severalworking documents for the working group’s next meeting, whichwill take place from June 19 through 21 2002 in Oslo. Theworking group will present its final products for considerationand approval at the XVIII INCOSAI in Budapest in 2004.


Members of the INTOSAI Strategic Planning Task Force took a break from their deliberations to pose for a group photo. From leftto right are: Mr. Quedraogo, Auditor General of Burkina Faso; Ms. Kabora, Burkina Faso; Mr. Borge, Norway/IDI; Mr. Engeseth,Norway; Mr. Kellner, Austria/General Secretariat; Mr. Lee, Korea; Mr. Matute, Comptroller General of Peru; Mr. Kim, Korea; Mr.Mork-Eidem, Auditor General of Norway; Mr. Walker, Comptroller General of the United States and Task Force chairman; Ms.Armstrong, Auditor General of Antigua and Barbuda; Mr. Al-Ibrahim, Saudi Arabia; Mr. Edwards (observer), Auditor General ofSt. Kitts and Nevis; Mr. Sinclair, United Kingdom; Dr. Tu�i�onetoa, Auditor General of Tonga; and Mr. Maggs, United Kingdom.

Strategic Planning Task Force Meets inWashington

INTOSAI’s Strategic Planning Task Force, established bythe Governing Board in Seoul in October 2001, held its initialmeeting in Washington, D.C., on April 25–26, 2002. Chaired byU.S. Comptroller General David Walker, the Task Force wascreated as INTOSAI approaches its 50th anniversary in 2003,and its mandate from the Governing Board is to develop astrategic planning framework that can guide INTOSAI into the21st century.

Auditors General and senior staff from all 10 SAIs on theTask Force–Antigua and Barbuda, Austria, Burkina Faso,Korea, Norway, Peru, Saudi Arabia, Tonga, the United Kingdom,and the United States—attended the Washington meeting.The meeting used a brainstorming approach to encourage openand frank discussions and deliberations, and it resulted inagreement on the basic elements of a draft framework forINTOSAI’s strategic plan, including proposed statements ofthe organization’s vision, mission, strategic goals, operationalobjectives, and core values.

INTOSAI Chairman Dr. Jong-Nam Lee, Chairman of theBoard of Audit and Inspection of Korea and host of the 17th

INCOSAI in Seoul, sent a congratulatory letter to the Task

Force in which he said, “As we all recognized in Seoul lastyear, our world in the 21st century is bringing to all of us rapidand unpredictable changes we had not seen in the last century.Important dynamic themes will influence our society on avariety of levels in the future. In the midst of global changes,INTOSAI needs a plan for new beginnings to help the SAIsbetter respond to the needs of the future. The strategic planningframework will revitalize and reinvigorate INTOSAI, and help itmeet its commitments to its members.”

To ensure wide participation in the strategic planningprocess and to reflect the views of member SAIs, the draftframework will next be circulated to the Governing Board,regional working groups, and committee chairs for comment.The framework will then be presented for discussion andapproval at the Governing Board meeting scheduled for Vienna,Austria, on October 16–18, 2002. With Board approval, theTask Force will develop the framework further for considerationand approval by the full membership at the next INTOSAICongress in Budapest in 2004.

For more information on the Task Force, contact the chairat: U.S. General Accounting Office, 441 G Street, N.W., ExternalLiaison, Room 7826, Washington, D.C. 20548 USA (tel: 202-512-4707; fax: 202-512-4021; e-mail: [email protected]).


IDI Update

General Guidelines for SAI TrainersThis landmark publication, was recently published on the

IDI website. The guidelines, which are a work in progress andcan be developed independently by regions, are based onIDI’s many years of experience in developing and deliveringthe Long Term Regional Training Program (LTRTP). Englishand Spanish versions of the guidelines are now available, andFrench and Arabic versions are currently in production.

The International DimensionIn the last two issues of the Journal, we reported that the

IDI Secretariat in Oslo had broadened the international makeupof its staff to include individuals from Norway, Japan, Canada,Estonia, and the United Kingdom. IDI is pleased to announcethat Luis Esteban Arrieta Castellar will also join the team inSeptember 2002, seconded from the Office of the ControllerGeneral of Colombia.

ASOSAI IT Audit WorkshopAt the beginning of March in New Delhi, India, several

ASOSAI graduates of the LTRTP delivered a 2-weekinformation technology (IT) audit workshop to participants

The INTOSAI Development Initiative(IDI) Update keeps you informed ofdevelopments in the work and programsof IDI. To find out more about IDI and tokeep up to date between editions of thejournal, check the IDI website: www.idi.no.

from SAIs in the region. The courseware from this workshopwill be made available to IDI graduates from other INTOSAIregions in CD-ROM format.

Cooperation with Other INTOSAI RegionsIDI is finalizing agreements regarding future cooperation

with ARABOSAI, ASOSAI, and SPASAI. ARABOSAI hasrequested a second round of the “train-the-trainers” programand assistance on development of its own website.

To further build up capacity in performance auditing,SPASAI will launch a development program for trainers, startingwith a 2-day seminar for auditors general and seniormanagement in May 2002. The program will be deliveredthrough a cooperative agreement between SPASAI, the AsianDevelopment Bank (ADB), and IDI.

IDI will also be involved in the second “train-the-trainers”program in ASOSAI. The first activity in the program will bethe 7-week Course Design and Instructor TechniquesWorkshop, which will be delivered by several ASOSAI trainingspecialists. While ADB will be the main sponsor of thisprogram, IDI will provide personnel to help deliver certainactivities in the program. The Government Auditing Foundationof Japan, as the executing agency, will manage the program inclose coordination with the ASOSAI Secretariat in India andTraining Administrator in Japan.

Contacting the IDIIf you would like to discuss any of the issue raised in this

IDI Update, please contact IDI by telephone at 47 22 24 13 49 orby e-mail at [email protected].

Seoul, Korea, the Bangladesh OCAG was proposed forinclusion in the following standing committees of theInternational Organization of Supreme Audit Institutions(INTOSAI):

• Internal Control Standards Committee,

• Working Group on Environmental Auditing, and

• Working Group on Program Evaluation.

Bangladesh was earlier included in the INTOSAI WorkingGroup on Audit of Privatization. Since then, Bangladesh hasbeen included in the INTOSAI Committee on Internal ControlStandards. The Bangladesh OCAG’s inclusion in two otherstanding committees is well in progress.

ConclusionThe initiatives described in this report are part of the first

generation of Bangladesh reforms in government auditing andare in conformity with the country’s reforms in public sectorfinancial management. To sustain the results of these initiatives,

there is a need for strategic reforms that warrants systemic,institutional, and structural changes. Implementation of suchreforms would require consistent efforts and an environmentthat supports changes for better results.

In all our reform endeavors, while we seek support fromwithin the Parliament and the government, we also look to thesupport and cooperation of our audit fraternity anddevelopment partners to reinforce and sustain our efforts.

In an ever-changing world of management, with new andemerging challenges, we in our nations’ SAIs need to cooperateto secure an environment that enables us to work to our fullpotential to help ensure the accountability and transparencythat support modern management practices and lead to theefficient, economic, and effective use of public resources.

For more information, contact: Office of the Comptrollerand Auditor General, Dhaka-1000, Bangladesh, tel: ++880 (2)831 46 53, 831 83 95-8, 831 82 40-3, fax: ++880 (2) 831 26 90, e-mail: [email protected], or www.cagbd.org.

Reform Initiatives in Bangladesh (continued from page 17)


2002/2003 Calendar of INTOSAI Events

April June

Editor’s Note: This calendar is published in support of INTOSAI’s communications strategy and as a way of helping INTOSAImembers plan and coordinate schedules. Included in this regular Journal feature will be INTOSAI-wide events and region-wide events such as congresses, general assemblies, and Board meetings. Because of limited space, the many training coursesand other professional meetings offered by the regions cannot be included. For additional information, contact the SecretaryGeneral of each regional working group.

August September

DecemberOctober November

May

EDP Audit Committee MeetingNew Delhi, IndiaNovember 27-29

January February March

July

V EUROSAI CongressMoscow, RussiaMay 27-31

IInd EUROSAI/OLACEFS ConferenceCartagena, ColombiaJuly 10-11

Public Debt Committee MeetingStockholm, SwedenJune 6-7

Privatization Committee MeetingOslo, NorwayJune 10-11

50th INTOSAI Governing Board MeetingVienna, AustriaOctober 16-18

31st ASOSAI Governing Board MeetingManila, PhilippinesOctober 22-24

15th UN/INTOSAI SeminarVienna, AustriaApril 8-12

Strategic Planning Task ForceWashington, D.C.April 25-26

2003


International Journal of Government Auditing

INDEX—VOLUME 28—2001

ARTICLESManzur Hussain, The Role of Pakistan’s SAI in Promoting Good National Governance, January, p. 6ASOSAI Assembly Addresses Governance Issues, January, p. 8Benjamin Ross, 5th Triennial CAROSAI Congress, January, p. 11Jameleddine Khemakhe, Integral Auditing, April, p. 6Matthew Andrews, Adjusting External Audits to Facilitate Results-Oriented Government, April, p. 10IDI Training Specialists Symposium Highlights Unity and Community, July, p. 6ARABOSAI Assembly Convenes in Rabat, July, p. 9Linda Sellevaag, XI OLACEFS Assembly Held in Panama, October, p. 9Armagan Tarim and Mehmet Baha Karan, Data Envelopment Analysis in Performance Evaluation, October, p. 12

AUDIT PROFILESMongolia, January, p. 15Nigeria, April, p. 14Korea, July, p. 12Finland, October, p. 15

EDITORIALSFuture Challenges: Reflections After 10-Years as Auditor General of Canada, January, p. 1Planning for the XVII INTOSAI Congress, April, p. 1Dealing With an Interconnected World, July, p. 1Maintaining Information Exchange—A Key to the Future, October, p. 1

INSIDE INTOSAIThe IDI Secretariat Moves From Canada to Norway, January, p. 18Munoz Appointed President of Madrid Audit Office, January, p. 19New ASOSAI Secretariat—India, January, p. 19Get Connected, April, p. 17INTOSAI’s Internal Control Standards Subcommittee Meeting in Budapest, April, p. 17Progress Report From the Auditing Standards Committee, April, p. 18New Website for the INTOSAI Working Group on Environmental Auditing, April, p. 18INTOSAI Privatization Working Group Meeting Held in Budapest, July, p. 16Internal Control Standards Meets in Miami, July, p. 17Environmental Auditing Moving Forward to XVII INCOSAI, Seoul 2001, October, p. 18IDI Update, October, p. 19

NEWS IN BRIEFSBangladesh, April, p. 3Barbados, July, p. 3Bhutan, October, p. 3Canada, July, p. 3; October, p. 3Chile, October, p. 3China, January, p. 2Croatia, October, p. 4Czech Republic, October, p. 4European Union, January, p. 2; July, p. 5Finland, January, p. 3Hong Kong, April, p. 3Iran, January, p. 3Ireland, April, p. 4

Italy, October, p. 4Japan, October, p. 5Malta, April, p. 4Nepal, July, p. 4New Zealand, October, p. 5Philippines, July, p. 4Poland, October, p. 6Qatar, October, p. 6South Africa, January, p. 4Sweden, April, p. 5Switzerland, July, p. 4Trinidad and Tobago, October, p. 6Tunisia, October, p. 7

Turkey, January, p. 4United Kingdom, October, p. 7United States of America, April, p. 5;

October, p. 8Uruguay, October, p. 8Community of Portuguese-Speaking

SAIs, January, p. 5International Consortium on Govern-

mental Financial Management, July,p. 5

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