Public financial management and accountability

Audit and oversight institutions

External audit is the mechanism whereby Parliament is assured that accounts are accurate and demonstrate probity (adherence to principles), and that spending has complied with agreed allocations and policy objectives.  Good quality audit systems are crucial for effective budget management, financial accountability, and decision-making. They are also critical to the effective use of international development aid.

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Internal auditing

Internal auditors support managers in monitoring and controlling an organisation's behaviour and performance against agreed constraints and objectives. They report to internal managers or ministries, rather than to Parliament.

Nordin Van Gansberghe, C., 2005, ‘Internal Audit: Finding its Place in Public Financial Management’, Public Expenditure and Fiscal Accountability Programme, World Bank, Washington
What is the role of internal auditing in public financial management and service delivery? This article, published by the World Bank, argues that effective internal auditing procedures, if supported by donors, can promote greater efficiency and accountability by informing governments about the risks and improvements in public finance management and service delivery. Efficient internal auditing procedures require compliance with strict standards, effective risk management and reform of financial management capacity. 
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Rameesh, K., 2003, ‘Best Practices for Internal Audit in Government Departments’ Working Paper 10, Centre for Good Governance, Hyderabad
Traditionally, internal audit has been seen narrowly as an activity of self imposed internal checks. However, the concept has undergone a sea change with regard to its definition and scope. How can best practice be expanded outside the financial sphere? How can internal audits exist as independent functions within organisations? This paper from from the Centre for Good Governance in Hyderabad India, suggests that the concept of the audit should be greatly expanded outside the financial realm.
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Diamond, J., 2002, 'The Role of Internal Audit in Government Financial Management: An International Perspective', International Monetary Fund (IMF), Washington D.C.
How relevant are Internal Audit (IA) guidelines to developing and transitional countries? A variety of IA models and methods exist, is there one model that can represent the way forward for all countries? This report sanctioned by the International Monetary Fund (IMF) explores the relationship between the Public Expenditure Management (PEM) system and the IA, offering suggestions for viable strategies to develop it in hostile institutional environments.
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INTOSAI, 2001, 'Internal Control: Providing a Foundation for Accountability in Government', INTOSAI, Vienna.
This booklet argues that it is essential that all managers in an organisation understand the importance of establishing and maintaining effective internal control. To help them implement effective internal control, the booklet puts forward an overall framework for establishing and maintaining it.
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External audit and supreme audit institutions

External auditors oversee a wide range of activities, including the audit of financial statements and the legality and probity of transactions. In some countries, auditors also assess the value for money, or performance, of operations.

External auditors, or Supreme Audit Insitutions (SAIs) are completely independent of the organisation being audited and report to Parliament. Department for International Development (DFID) 2004, Characteristics of Different External Audit Systems, DFID, London
Accountability for the use of public funds is a cornerstone of good public financial management. Supreme Audit Institutions (SAIs) are the national bodies responsible for scrutinising public expenditure. How do they operate? This paper by the United Kingdom Government Department of International Development gives an overview of the principal characteristics of the three most common systems, their potential strengths and weaknesses, and some of the implications of working with SAIs from different traditions.
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Krafchik, W., ‘2003, ‘What Role can Civil Society and Parliament Play in Strengthening the External Audit Function?’, International Budget Project, Washington DC 
How do parliaments and civil society organisations (CSOs) assist the work of auditors-general (AGs) in auditing public finances? How can CSOs and AGs co-operate better with each other and parliament to improve the auditing process? This paper from the International Budget Project reviews the interdependent roles of parliament, civil society and AGs to find examples of best practice in external audits. It argues that CSOs should directly monitor and publicise the auditing process, while AGs should select and present their reports carefully to better engage parliament and civil society.
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Ramkumar, V. and Krafchik, W., 2005, 'The Role of Civil Society Organizations in Auditing and Public Finance Management,' The International Budget Project
The role of Supreme Audit Institutions (SAIs) as public finance watchdogs is still limited in many developing countries around the world. How can SAIs and Civil Society Organisations (CSOs) work together to increase the effectiveness of audit processes? This paper from the International Budget Project (IBP) examines the potential role of civil society in the budget process through four case studies. It argues that greater collaboration with civil society organisations can help SAIs overcome some of the challenges they face.
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Legislative oversight

Whilst SAIs act as important checks on departments and government funding, there is increasing interest in getting parliaments themselves to provide budgetary oversight at the legislative stage. This allows for overall accountability in the budget process by elected politicians, as well as helping information from the auditing stage of the PFM cycle reach decision making at the budgeting stage.

Commonwealth Parliamentary Association (CPA), 2001, 'Parliamentary Oversight of Finance: Ensuring Accountability in Public Expenditure', report of a CPA workshop, Nairobi
Why is legislative oversight of the law-making process important and how can legislative oversight be ensured? These and other issues were tackled by a three-day workshop on 'Parliamentary Oversight of Finance and the Budgetary Process'. Organised by the Commonwealth Parliamentary Association (CPA) and the World Bank, the workshop was held in Nairobi, Kenya during December 2001. It was attended by parliamentarians, Auditors General, and representatives of international organisations and civil society. The report of the workshop recognised some of the obstacles to legislative oversight and made various recommendations for improving oversight mechanisms. Parliaments have a constitutional mandate to scrutinise government spending and oversight functions are vested in the legislature as a fundamental principle of the separation of powers. The message from the workshop is that there is a need to improve the capacity of parliament, its committees and public auditors to oversee the budgetary process.
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Santiso, C., and Belgrano, A.G., 2004, 'Politics of Budgeting in Peru: Legislative Budget Oversight and Public Finance Accountability in Presidential Systems,' Paul H. Nitze School of Advanced International Studies, Washington D.C.
What can be done to improve accountability and curb corruption in emerging economies? What should be the role of parliaments in the budgetary process? This study, written for a seminar arranged by the Economic Commission on Latin America and the Caribbean, reviews the dynamics of executive-legislative relations in budget policymaking and oversight in Peru. The experiences after implementing first-generation economic reforms illustrate the limits of expeditious decision-making and the consequent need to strengthen the mechanisms of accountability.
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What other resources are available on the GSDRC?

Use the site search at the top of this page if you wish to look for wider resources on audit and oversight institutions.

Documents in the earlier section of this guide on the role of parliament and government ministries which will also be of use.

Additional information resources

International Organisation of Supreme Audit Institutions (INTOSAI)

For a useful introduction to legislatures and budget oversight see the following page of the International Budget Project website: http://www.internationalbudget.org/themes/LEG/index.htm.

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