Posted by Laura Gores, Xavier Rame, and Carolina Renteria[1]
In October 1977, the Lima Declaration of Guidelines on Auditing Precepts adopted by the IX International Congress of the International Organization of Supreme Audit Institutions (INTOSAI) made a strong linkage between audit and trust. The Declaration states that “the concept and establishment of audit is inherent in public financial administration as the management of public funds represents a trust.“ Forty-four years later, SAIs in many countries have made progress but still face challenges in playing a meaningful role as watchdogs of the transparency and accountability of public finances. Some recent reports highlight these challenges.[2]
From the IMF perspective, SAIs are important partners. The Fund works with member countries to promote good governance and address institutional vulnerabilities to corruption.[3] Economic governance issues are fully integrated in its surveillance, lending, and capacity development (CD) operations. Strengthening controls and oversight of public expenditure and revenue, publishing timely audited financial reports of public sector entities, and strengthening the fiscal transparency and accountability systems have been for years the core elements of Fund advice and CD support to its membership – even more so since the outbreak of the COVID-19 crisis.As governments around the world struggled to respond to this unprecedented crisis, the Fund provided swift and substantial relief, in the form of upfront emergency disbursements. As of October 2021, the Fund has provided more than USD 117 billion in financial assistance and debt service relief to help 87 countries address the COVID-19 crisis.[4] At the same time, it recognized the increased vulnerabilities to corruption and misuse of public funds in a crisis setting. As many countries lowered ex ante controls to be able to spend quickly and support vulnerable households and firms, transparency and accountability became even more crucial to ensure that spending reaches those that most need it. Independent SAIs are, of course, important allies in the strategy to mitigate those risks and safeguard public resources.
The IMF’s Managing Director has summed this up well in her advice for countries: “spend as much as you can but keep the receipts.”[5] Keeping the receipts is a necessity to safeguard public resources and ensure that an independent auditor will be able to hold accountable those officials who in many countries have been granted powers to do “whatever it takes” in response to the crisis.
The objective was to make sure that resources were quickly, effectively, and efficiently used to save lives in the present – and waiting a few years to get this assurance was not an option. For this reason, the Fund insisted that countries receiving IMF emergency support commit to conducting independent audits of their COVID-19 related emergency spending. This has been the case in over 50 countries at different levels of development.[6] This is a strong signal that the IMF expects SAIs to live up to their role as guardians of public finances. Whenever feasible, we have encouraged innovative approaches and “real time” audits to help identify mismanagement or fraud as early as possible. The emergency response to the pandemic is not over and will require a sustained engagement from SAIs to foster transparency and accountability. They must also be prepared for what comes next. Many countries will have to manage the long-term fiscal impact of the pandemic, including high levels of debt and large stocks of contingent liabilities. At the same time, they are launching massive investment plans, increasing revenue collection or debt to finance them, and exploring innovative financing mechanisms, often outside the regular budget process. The SAIs will need to play a key role to ensure that public investment results in impactful and transformative infrastructure that supports a healthier and greener recovery for this generation and the ones to come.
In this context, the question of the SAI’s ability to conduct effective audits as a basis of accountability of those in charge of managing public resources is central. Independence is key: it provides the assurance that the auditors’ opinion is based on facts and their work is guided by their own best judgment, without any undue external influence. But independence is not enough. SAIs also need to deliver results: (1) conduct timely, relevant and risk-based audits, (2) publish their audit findings, and (3) engage with Parliaments and citizens to make their voice heard and ensure timely follow-up on audit recommendations.
The IMF has high expectations regarding the role of SAIs. The Fund’s new capacity development program focuses on strengthening SAIs’ legal and institutional capacity to produce and publish audits that support accountability for the use of public funds in the emergency response - with a particular focus on corruption vulnerabilities, and indications of misappropriation. This initiative is a starting point, and the IMF is ready to support SAIs.
While the pandemic has eroded the trust in governments, SAIs should play a leading role in rebuilding it – a key factor of economic and social development. After all, they are the ones who can independently determine if the government kept the receipts.
[1] Fiscal Affairs Department, IMF.
[2] See: Supreme Audit Institutions Independence Index and The Role of Supreme Audit Institutions in Auditing the Domestic Budget Support of IMF Emergency Financing.
[3] In 2018, the IMF Executive Board approved the Framework for Enhanced Engagement on Governance.
[4] Assistance was provided through various IMF instruments: Rapid Financing Instrument (RFI), Rapid Credit Facility (RCF), Extended Credit Facility (ECF), Catastrophe Containment and Relief Trust (CCRT), as well as the conclusion of new or augmentation of existing arrangements.
[5] IMF Managing Director Kristalina Georgieva's Opening Press Conference, 2020 Spring Meetings.
[6] IMF, Implementation of Governance Measures in Crisis-Related Spending, May 2021.
Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.
