Supreme Audit Institutions mandate and independence. The case of KENYA

Supreme Audit Institutions (SAIs) have inherited the responsibility of auditing governmental institutions and to report on the audit to the concerned authority (i.e. the legislature in general). To function effectively, SAIs must be assigned appropriate status and given adequate authority. The must important of these guaranteed powers is their mandate which refers to their statutory or formal independence as laid down in the legal framework such as the constitution, laws, and regulations. The nature of SAIs mandate involves who they, themselves, are accountable to and report to (i.e. reporting procedures) and, scope of responsibilities (are there limits on the scope of audit?) (Rakner and Wang 2005, p.18).

The type of auditing system chosen influences the nature of the mandate given to SAIs. Currently, there are three auditing systems used all around the world. These are (The World Bank 2002, pp.1; M. Dye and Stapenhurst 1998, p.13; Wang and Rakner 2005, p.15; DFID 2005, p.2-11):

The Judicial or Napoleonic: The SAI in a judicial system is usually known as the Court of Accounts (or Audit) and, is generally a self standing Court dealing only with financial matters. It is likely to have only a limited relationship with the national Parliament. Members of the Court are appointed for a non-limited term until a fixed retirement age. The Court selects a member to act as its president on a first among equal basis. The main focus of the audit work is to verify the legality (i.e. compliance audit ) of the transactions which have taken place. The professional staffs have legal rather than accounting or auditing backgrounds. There is often no PAC in the national Parliament and, there is limited follow up of the Court’s reports by Parliament.

The Westminster system: In this case, the SAI as an independent body interacts with the parliament. A national Audit Office (NAO) is instituted with a single head, often called the Auditor General, who may be an officer of Parliament. All rights, powers and responsibilities are vested in the Auditor General personally, rather than in the NAO as an institution. The staffs of the institution are either accountants or auditors. It is a core element of parliamentary oversight and works closely with the Public Accounts Committee (PAC) that review the audit report and the SAI. The model focuses primarily on financial audit and on the value for money with which audited bodies have used their resources. This focus on financial management facilitates the implementation of performance audit work.

The Board system: In this system, the SAI has a number of members who form its college or governing board and take decisions jointly. Members of the college normally have a considerable freedom in determining their working methodologies and there may be a variety of audit approaches between different colleges within the same institution. Members are appointed for a fixed term of office by a vote of parliament, with their period in office often being limited to a maximum of two terms. The focus of the SAI’s work, mainly financial audit or compliance audit, is influenced by the general legislative and historical context of the country it operates in. Finally, the professional background of staff varies to reflect the SAI’s main audit focus.

In the case of the Kenyan SAI, Article 226 of the revised Constitution of 2010 proclaims that, an act of Parliament shall provide for the auditing of accounts of all governments (Constitution of KENYA 2010, p.135). In Paragraph 3 of the same Article, it is stated that the accounts of all governments and State organs shall be audited by the Controller and Auditor-General (CAG), thereby choosing a Westminster system of auditing. According to the Article 229, Paragraph 1 of the Constitution, the, to be, CAG shall be nominated by the president and, with the approval of the National Assembly, appointed by the President (Constitution of KENYA 2010, p.136). Contrary to what is expected, the CAG is not directly appointed by the Parliament. And, the CAG can only be removed from office by the President on the recommendation of a tribunal, and only under specific circumstances defined in the Constitution (LINPICO 2009, p.68).

Article 229, also, describes the required financial qualification necessary to be considered for the role and also, the term of office . The most important aspect of this Article is, however, its presentation of the CAG’s Office duties. It requires it (Constitution of KENYA 2010, p.137):

 To audit and report on the public accounts of the Government of Kenya, the accounts of all government officers and authorities, the accounts of all courts and commissions, and the accounts of the Clerk of the National Assembly;

 To examine the disbursements of monies appropriated by Parliament, to ensure that they have been applied to the purposes to which they were

appropriated and, to ensure that the expenditure conform to the authorities that govern them;

 To submit audit reports to Parliament for debate and consideration, and taking appropriate action.

In order to operationalise these pronouncements, the Parliament of KENYA revised in 2009 the previous Public Audit Act of 2003. Article 34 of the revised Act establishes the CAG and his staff as the Kenya National Audit Office (KNAO). In Article 35, requirement is made to the Government of KENYA to ensure that the KNAO receives the number of staff the CAG believes is necessary to properly carry out his functions (Public Audit Act 2009, p.18).

Article 42 of the Act requires the CAG to submit its reports to the Minister of Finance. The Minister is then obliged to transfer the report to the National Assembly no later than seven days after it first meets after the Minister has received the report (Public Audit Act 2009, p.18). The statement of this Article 42 seems to be in contradiction with the Article 229 of the Constitution as regards the duties of the CAG. This raises the question of independence of the KNAO.

Indeed, in order to fulfil its task efficiently, the SAI of KENYA has to be guaranteed independence from the audited organisations and also protected from outside influences. The principles of independence were announced in the 1977 Lima Declaration of guidelines on auditing precepts. These principles can be summarised as follows (Josef Moser 2009, p.44):

 Organisational independence:

• The independence of members of the SAIs (absence of subordination, no possibility of arbitrary dismissal);

• The subordination of the auditors to the Managers of the SAIs – at least in their fundamental aspects – as well as;

• No outside influence is exerted on the auditors.

 Functional independence:

• The auditing powers of the SAIs are specified in the constitution;

• The SAIs are free to design the audit programme; and

• The SAIs can freely design the reports that are going to be published.

 Financial independence:

• SAIs, if necessary, request the organ (normally Parliament) responsible for approving the General Budgets for the State for the means that they consider to be necessary;

• During the financial year, they can freely avail themselves of the means authorised for them in the budgets.

In 2007, INTOSAI drew up the Mexico Declaration on SAI independence with the aim of helping its members achieve a greater independence. In this Declaration, eight core principles of independence were recognised as an important requisite for proper auditing of public finances (Josef Moser 2009, p.44-45):

1. Independence in their jurisdictional condition;

2. Independence in their financing;

3. Independence in its personnel management;

4. Independence when auditing;

5. Independence in the supply of information;

6. Independence in the presentation of the audit results;

7. Independence in the content and timing of reports;

8. Independence via their efficacy (follow-up mechanisms).

The importance of following the principles stated in the above declarations is related to the fact that SAIs are guarantors of the transparent and sound public affairs administration. Their role, however, is more than an instrument of accountability; it is both preventive and corrective. They also have a clarifying and confidence building impact. They discourage misappropriation and misallocation of funds, enhance efficient administration and stimulate the collection and allocation of funds (Babu Ram 2000, p.1-9). Their overall purpose is to create and maintain public confidence as to fiscal integrity in the spending and management of public funds.

In order to ensure the success of these important objectives, SAIs, in practice, disclose whether an organisation and its officials are (Ram Babu 2000, p.1-9):

 Operating with financial integrity,

 Complying with laws, regulations, contractual obligations and policy objectives;

 Providing financial statements that fairly present financial conditions and the results of operation;

 Safeguarding assets;

 Operating economically and efficiently;

 Achieving predetermined objectives; and

 Providing accurate and responsibility – oriented information on performance.

To comply with these objectives, it is important for SAIs to be independent from the body to audit and, to be protected from outside influences. In the case of KENYA, the independence of the KNAO through the CAG is guaranteed by the revised 2009 Public Audit Act which incorporates a statement no longer available in the 2010 revised Constitution of KENYA. The Act in its Article 46 proclaims that in the exercise of his function, the CAG shall not be subject to the direction or control of any other person and authority (Public Audit Act 2009, Article 46). This means that the independence of KNAO is legally recognised, although not directly in the Constitution. The Act also guarantees access to any information and records that may be required to perform the duties assigned to the office.

With regard to the submission of audit reports, Article 9 of the Act establishes that KNAO shall prepare a report on the audit conducted and shall submit the report to the Minister of Finance. It is required that the report shall be submitted within six months after the end of financial. The Minister is then obliged to transmit each report to the National Assembly no later than seven days after it first meets after the reception of each report by the Minister (Public Audit Act 2009, Article 10). This creates a discrepancy with international best practice because according to the principles of independence mentioned above, SAIs must be independent of the executive.

About the financial independence of KNAO, the KENYA National Audit Commission which is also created by the Public Audit Act prepares and submits the KNAO’s budget to the National Assembly through the Minister of Finance. The Minister (the Auditee) has thus the possibility to subject cuts to the received estimates before it is decided upon by the National Assembly (LINPICO 2009, p.69). Here again, there a discrepancy with international best practice because the SAI is not in full control of its own resources.

Concerning the review of the KNAO itself, Article 45 of the Public Audit Act states that the CAG, in consultation with the KENYA National Audit Commission, has to arrange for a review of the KNAO. It does not mention the name of the entity entitled to conduct the audit. However, the 2009 PEFA report of KENYA signalled that KNAO, in contrary with international best practice, is audited by the Internal Auditor General in the Ministry of Finance, a department which falls under KNAO’s audit competence (LINPICO 2009, p.69).

If compared with the Swedish National Audit Office (Riksrevisionen), one sees major differences in terms of mandate and independence. Indeed, the SNAO which was created in July 2003 from the merger of the Riksrevisionsverket and the Parliamentary Auditors (INTOSAI 2004, p.18) is an authority under the Riksdag (Parliament) whose function is to audit the activities carries out by the State (INTOSAI ND, p.5).

As a major component of parliamentary oversight, the main task of the SNAO is to fulfil the mission given to it by the Parliament to control the use of tax revenues (INTOSAI 2004, p.20). It is headed by three equal Auditors-General, who the Riksdag appoints for seven years each (National Audit Office 2005, p.254). The three Auditors-General decide for each of their areas of responsibility what audits to take on, how to carry them out, and what conclusions to draw from them. However, they will decide together on matters of mutual internal interest.

The SNAO also has a board which monitors auditing activities. It monitors the auditing activities and one the Auditors-General have decided in audit matters, it decides upon proposals and reports to the Parliament (INTOSAI ND, p.8). It appears here that the SNAO is an independent institution based on the Board auditing system, works closely with the Riksdag, and has the ability to perform both financial audit and performance audit . The board also makes a budget proposal for the SNAO and submits it to the Parliament, directly.

With regards to the submission of audit reports, annual audit reports for each agency are submitted to the Government, with a copy to the agency in question. Audit reports for the agencies under the Riksdag are, however, not submitted to the Government. The audit report on the state’s consolidated accounts is submitted to both the Government and the Parliament (National Audit Office 2005, p.258). The submission process appears to be quite intriguing, though. It gives the government the chance to request changes before the annual report is submitted to the Parliament.

Conclusion

This apparent lack of independence of the KNAO may be explained by the Kenyan political context. Indeed, KENYA is subjected to a strong power struggle between the different ethnic groups. This has created a persistent mistrust between the opposing political actors. Adding to this context, there is the issue of the National Assembly capacity to follow-up the work of the KNAO. These political and capacity pressures may have led the Government of Kenya to keep the KNAO under its oversight. The case of Sweden also shows the importance of the political environment, considering that it took them approximately 20 years of discussions at different moments to come to the conclusion that the SNAO responsibility should be transferred from the Government to the Parliament.

Bibliography

1) Babu Ram, 2000. “Some Thoughts on Objective and Effectiveness of Audit” In: ASOSAI, 2000. Asian Journal of Government Audit, [Online], ASOSAI, available from: http://www.asosai.org/documents/doc_journal_list.jsp#archives [Accessed 08/03/2012].

2) Busse Klaus-Henning, 2007. “The SAI’s Role in combating Corruption” In: INTOSAI, 2007. International Journal of Government Audit, [Audit], INTOSAI, available from: http://www.intosaijournal.org/archivededitions/archived.html [Accessed 06/03/2012].

3) DFID, 2004. “Characteristics of different external audit systems” [Online], DFID, available from: http://www.dfid.gov.uk/What-we-do/Publications/ [Accessed 10/03/2012].

4) Dye M. Kenneth, ND. “Corruption and Fraud Detection by Supreme Audit Institutions” [Online], The World Bank, available from: http://www.worldbank.org/reference/ [Accessed 04/03/2012].

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6) Government of KENYA, 2010. “The Constitution of KENYA” [Online], Government of KENYA, available from: http://www.kenyalaw.org/Downloads/The%20Constitution%20of%20Kenya.pdf [Accessed 20/03/2012].

7) GTZ, 2005. “Preventing Corruption in Public Finance Management” [Online], GTZ, available from: http://www2.gtz.de/dokumente/bib/05-0682.pdf [Accessed 07/03/2012].

8) INTOSAI, 2004. “INTOSAI: 50 years of Cooperation between SAIs” [Online], INTOSAI, available from: http://www.intosaijournal.org/index.php [Accessed 04/03/2012].

9) INTOSAI, ND. “Mandates of the Supreme Audit Institutions: Sweden” [Online], INTOSAI, available from: http://www.intosaijournal.org/index.php [Accessed 07/03/2012].

10) LINPICO, 2009. “PEFA Public Financial Management Performance Assessment Report for KENYA” [Online], LINPICO, available from: http://www.worldbank.org/reference/ [Accessed 12/03/2012].

11) Moser Josef, 2009. “The Independence of Supreme Audi Institutions, taking special account of the Lima and Mexico Declarations” in: EUROSAI, 2009. EUROSAI magazine, [Online], EUROSAI, available from: http://www.eurosai.org/eng/magazine.asp [Accessed 11/03/2012].

12) National Audit Office, 2005. “State Audit in the European Union” [Online], NAO, available from: http://www.nao.org.uk/publications.aspx [Accessed 21/03/2012].

13) National Council for Law Reporting (NCLR), 2009. “The Public Audit Act” [Online], NCLR, available from: http://www.kenyalawreport.co.ke/Downloads/Acts/Public%20Audit%20Act.pdf [Accessed 12/03/2012].

14) Njoroge D.G., 1991. “The Office of the Controller and Auditor General – KENYA”, In: ASOSAI, 1991. Asian Journal of Government Audit, [Online], ASOSAI, available from: http://www.asosai.org/documents/doc_journal_list.jsp#archives [Accessed 08/03/2012].

15) Rakner Lise and Wang Vibeke, 2005. “The Accountability function of supreme audit institutios in Malawi, Uganda and Tanzania” [Online], CMI, available from: http://bora.cmi.no/dspace/bitstream/10202/109/1/Report%20R%202005-4.pdf [Accessed 04/03/2012].

16) The World Bank, 2002. “Features and Functions of supreme audit institutions” In: CeFiMs, 2012. PFM: Reporting and Audit. London: CeFiMs, pp.351-354.

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