Fighting corruption in the public sector

Launch of the OECD Public Governance Review of Brazil’s Supreme Audit Institution (the Federal Court of Accounts)- Speech by Janos Bertok

 

Brasília, Brazil, 4 December, 2012    

TCU President Zymler, Honourable Ministers, Ladies and Gentlemen,

It is my pleasure to present to you today the OECD’s Review of Brazil’s Federal Court of Accounts. This review focuses on the audit of Brazil’s consolidated year-end government report: the Accounts of the President of the Republic. At the OECD, we consider this government report to be a fundamental element of accountability.

 Brazil is very active at the OECD although it is not a member.  Brazil participates in many of our committees, for example, the Competition Committee where it has undertaken, not one, but two reviews which the government has used to reform its competition law and agency.  Brazil also adheres to many OECD instruments.  For example, the government has adhered to our agreements on the Mutual Acceptance of Data and to our Recommendation on Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.   This peer review, under discussion today, is another example of the fruitful Brazil-OECD collaboration.  It is one of a series which the OECD will conduct in close co-ordination with the International Organisation of Supreme Audit Institutions (INTOSAI). South Africa chairs its Subcommittee on the Value and Benefits of Supreme Audit Institutions. It is a pleasure to have a representative of the Auditor-General of South Africa here today.

I would like in particular to thank President Zymler and his staff for their warm welcome and professional collaboration throughout this entire process.  This review has been an intensive process. We have conducted over 100 interviews at all levels across the TCU as well speaking to many of its stakeholders. We have reviewed a decade of audit reports and support materials. This has been supplemented by round table discussions and peer review dialogue in Brasília and Paris.

 I would also like to thank the other branches of Brazil’s federal government and other stakeholders for their input into this peer review. This includes officials from the National Congress, the Office of the Comptroller General of the Union, the Federal Ministry of Finance and the Federal Ministry of Planning, Budgeting and Management. The OECD also received much input from Brazil’s media, civil society, private sector and academia.

 The OECD report has also benefited from the valuable input of many other countries – the Federal Court of Accounts’ peers. Twelve supreme audit institutions shared information on their practices and procedures, allowing the OECD to benchmark the Federal Court of Accounts practices. In November 2011 the OECD was accompanied by officials from supreme audit institutions of 6 countries – Australia, Chile, China, Mexico, South Africa and the United States – to discuss the audit of the year-end government report. In May 2012 the preliminary OECD findings were discussed among officials from nine supreme audit institutions – Belgium, Chile, Finland, France, the Netherlands, Peru, Poland, Portugal and Switzerland.

This report reflects the strengthening policy dialogue between the OECD and Brazil, one of the OECD key partners. This peer review builds upon review of the federal executive’s transparency, integrity and internal control policies launched by OECD Secretary-General Angel Gurria in 2011 – as well as other work on territorial development that will be launched in early 2013.  It is worth mentioning here that we have also cooperated on a review of human resource management in government in 2010, a review of regulatory policy in 2008 and on public budgeting in 2003. The relations between Brazil and OECD has been fruitful.  This policy dialogue is all the more important as the OECD has launched its Development Strategy that will enable us to support institutional reforms in key partners.

 

The role of SAI in supporting good public governance

Supreme audit institutions are a key part of the institutional framework of democratic states and play a central role in supporting good public governance. We place much attention on the role of institutions and the political economy of reform when we deal with policy challenges. The OECD New Approaches to Economic Challenges initiative recognises the importance of institutions and the political economy of reform in order to improve the working of market economies and reduce inequalities.

Our mission is to help governments strengthen their decision‑making processes upon which legitimate and decisive actions depend. An effective functioning of governments and the equitable and efficient distribution of public resources need: functioning legislatures, vigilant external audit institutions, efficient courts and a vibrant civil society.

Supreme audit institutions can support a strategic and forward looking state. They provide a valuable source of independent information on the implementation of public policies and the functioning of government. Supreme audit institutions support accountability and decision making within government in a number of ways.   These institutions can do directly hold the executive branch of government to account. In addition, they can support the legislature to hold the executive to account. They can also communicate more widely and engage media and civil society.

The role of supreme audit institutions has assumed greater significance in today’s uncertain times. Governments play a critical role in promoting sustainable and inclusive economic development and social well being. As budgets fall and public accountability rises, governments are often pressed by the electorate to be more transparent and more efficient.

In Brazil, government expenditure is over 30% of GDP, which is in line with the average of OECD countries. The federal government’s inclusive social policies have significant impact of human capital. Bolsa Família, Brazil’s conditional cash transfer programme, for example, alone reaches a quarter of Brazil’s population.

However, citizens are losing trust and questioning the legitimacy and integrity of government actions in many countries throughout the world. This is evidenced by demonstrations from Occupy Wall Street to the Spanish indigniatos as well as protests in China and India. According to the 2012 Annual Global Trust Barometer by Edelman, people blamed their governments – more than any other institution – for the financial and political crises they have recently endured. In most of the countries surveyed, government is trusted by less than half to do what is right. It has becoming pressing that these trends be reversed.

 

Public governance in Brazil

In Brazil, the Federal Court of Accounts has a supporting role in strengthening fiscal transparency, improving the cost-effectiveness and quality of service delivery and building fiscal legitimacy. These are significant challenge both in Brazil and many other Latin American countries.

Since the mid-1990s, Brazil has enjoyed improved economic and financial stability largely due to an improved macroeconomic framework. Social progress has also been impressive, with a significant fall in poverty and inequality. Increasing attention has been devoted to environmental sustainability.  

Much has also been done to improve public governance. 

Brazil’s federal government has made remarkable improvements in transparency.  However information is only useful if it is reliable. The TCU audit reports have demonstrated concerns over the government reporting, and especially non-financial information. The external audit of accounts provides an opportunity to provide independent assurance over the integrity of government reporting for accountability and decision making purposes.

Brazil needs to continue to improve the cost-effectiveness and quality of service delivery. Previous work has revealed that the government is a big spender when compared to other emerging countries and some OECD countries. Unfortunately, the outcomes are not always commensurate with the level of spending, suggesting ample scope for efficiency gains.  Evidence suggests that efficiency gains could be found in infrastructure, education and health.

The success of Brazil’s fiscal reforms will depend on demonstrating a link between taxes and the provision of public services. In Brazil, fiscal policy has done little to reduce inequality because of the current tax structure which favours low levels of direct personal taxes and public social expenditure, as well as inadequate targeting of expenditure. This could be an area where supreme audit institutions have a key role in the state’s fiscal pact by supporting efforts to enhance the effectiveness and efficiency of public service delivery.

 

Brazil’s Federal Court of Accounts

The Federal Court of Accounts has undertaken a number of reforms to enable it to fulfil its mission better – and to advance its role in supporting good public governance.

The Federal Court of Accounts has developed its role in auditing regulatory, environmental and infrastructure policies. It has enhanced audit planning practices, targeting its finite resources where its impact can be greatest.  It has also increased resourcing of its units responsible for relations with the National Congress as well as communications and liaison with the media. This last point is critical for enhancing awareness of its work and accountability of its mission – and is in line with international standards and best practice.

Moreover, the Federal Court of Accounts plays a leading role in international audit community to develop identify good practices and enhance international norms. For example, the Federal Court of Accounts chairs the Subcommittee on Performance Audit, an area of growing focus for supreme audit institutions internationally. At a regional level, the Federal Court of Accounts will play a key role in providing strategic direction as President of the Latin American Network of Supreme Audit Institutions (OLACEFS) for 2013-14.

The desire for the Federal Court of Accounts to undertake a peer review of its audit of the Accounts of the President of the Republic, as well as to undertake technical assistance to enhance its financial audit practices (the focus of today’s international seminar), are critical for its mission. The peer review is particularly significant as it is still a relatively recent concept for SAIs. According to the INTOSAI Capacity Building Committee, there have only been approximately 30 peer reviews of SAI conducted in the previous decade.

 

Why is this peer review so significant?

The audit of the Accounts of the President of the Republic is considered by the Federal Court of Accounts as one of its most significant activities. These Accounts are a core element of the federal government’s financial reporting framework. This information is necessary to provide a holistic picture of government accountability.

Also, this peer review is the first requested by the Federal Court of Accounts. It demonstrated the federal external auditor to also be subject to an external audit.

Moreover, the Federal Court of Accounts has made a commitment during the recent Latin American Network of Supreme Audit Institutions (OLACEFS) that it would assess the implementation of the OECD recommendations in the next 2-3 years. This commitment to assess the implementation of the OECD recommendations is as critically important as the peer review. 

 

Audit of the Accounts of the President of the Republic

The Federal Court of Accounts completes its audit of the end-year government accounts within five months following the end of the fiscal year. This is within constitutional deadlines and adheres to international good practice which suggests that the audit opinion should be made available within six months of the fiscal year end.

International commitments to enhance fiscal transparency by Brazil’s federal executive – and the Office of the Comptroller General of the Union, in particular – provide a solid foundation for improving the Accounts of the President of the Republic. The Office of the Comptroller General of the Union is a champion for open government both in Brazil and internationally, as demonstrated by its leadership in initiatives such as the Open Government Partnership and Global Initiative on Fiscal Transparency. 

The high level of independence of the Federal Court of Accounts from the federal executive and National Congress and its commitment to enhance the value and benefit it provides to Brazilian citizens, bodes well for the future audits. 

Let me focus on three key messages of the peer review:

(1)                the need to understand the broader governance context;

(2)                the need for targeted communication activities; and

(3)                the need for clear audit reporting.

 

1. Understanding the broader governance context

Supreme audit institutions are most effective when they forge partnerships with legislatures and when they provide them with timely information and fit into the accountability and decision making cycles. This means understanding the concerns of the legislature and helping the legislature to better understand the audit reports and conclusions and to take appropriate action.

The Federal Court of Accounts has done much to strengthen its relationship with the National Congress by increasing the resources for its unit responsible for interactions with the National Congress and by improving procedures to handle specific requests for information and audit by the National Congress and its committees. However, attention could also focus on the audit of the Accounts of the President of the Republic.

The National Congress takes approximately two and a half years to begin the review of the Accounts of the President after the completion of the Federal Court of Accounts audit. In fact, the National Congress has concluded only 1 out of 10 scrutinies of the Accounts of the President of the Republic in the past ten years.   This makes it difficult for the National Congress to follow up on its requests to the federal executive with respect to the Accounts or to hold the federal executive to account.

Fostering the relationship with the legislature does not undermine the independence of supreme audit institutions. Instead, taking action to understand the causes of the delay in legislative scrutiny, including the constraints and barriers, could assist the Federal Court of Accounts to work better with the National Congress to enhance public sector accountability.  Also, it would better inform decision making and link ex post and ex ante budget oversight.

More generally, the Federal Court of Accounts could give consideration to how the broad range of objectives of the audit is in sync with the accountability and decision making processes in the government. Data and recommendations lose value if they are not made available in a timely manner.

While the Federal Court of Accounts has taken action to broaden the objective of its audit to provide a more holistic assessment, the question should be whether broadening the scope is in fact, better? This is critical also for effective communication and the clarity of audit reporting – the other two key messages from the OECD peer review.

 

2. Effective communication

An explicit communication strategy for the audit could help the Federal Court support accountability and decision making processes. An explicit co‑ordinated communication strategy could define what the Federal Court wants its audiences to do upon receiving its audit work.

A communication strategy can achieve this by i) defining primary target audiences for the audit as well as discerning their current level of awareness, understanding and use of the audit report. Developing an explicit co-ordinated communication strategy can also provide a sound basis for evaluating, and learning lessons from, communication activities.

As I mentioned previously, the Federal Court of Accounts has undertaken a number of reforms during the past decade to enable it to fulfil its mission better. It has enhanced resourcing of its units responsible for relations with the National Congress as well as communications and liaison with the media. The Federal Court of Accounts must focus on defining specific communication objectives rather than simply bettering dissemination activities for the audit.

 

3. Clear and focused reporting

The audit has a specific objective – to provide an assessment of the integrity of government reporting. As such, the work must be clear and effective so as to be easily understood by decision makers and citizens.

Aligning the audit opinion with international audit standards will support better audience understanding of what the technical judgment means. This is particularly important as the Federal Court of Accounts embarks on a reform. A clear opinion will help audiences understand the differences attributed to new audit techniques.

Framing the main findings to highlight the benefits of action – and consequences of inaction – will help to guide the federal executive to where reforms should be targeted, and equip the National Congress and citizens to monitor the federal government’s commitment to improve reporting. It is not a question of what is a problem as in the case of Federal Court of Accounts qualifications, or who should do what in the case of Federal Court of Accounts recommendations, as is currently the case.

Redesigning the audit report to focus on the evidence underpinning the main findings and how these findings were reached is necessary to support discussions on government accountability. The current link between the Federal Court of Accounts audit report and its main findings is relatively low – averaging 30% during the past decade. This situation risks inadvertently diverting attention from the main findings.

 

Conclusion:

The findings and recommendations of this report will assist the TCU not only in better auditing the Accounts but also to advance its relationship with the National Congress, the federal executive and civil society –while safeguarding its independence.

The Federal Court of Accounts – and supreme audit institutions internationally – play a vital part in improving government and protecting the public interest. Like the OECD, your impact goes beyond your reports, the goal must be to improve government services and also the efficiency of government machinery in designing and implementing public policies. At OECD, we call it "better policy for better lives."

 

 

 

 

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