Governance in the Public Sector

An ECSAFA Perspective

Prepared for the Eastern, Central and Southern African Federation of Accountants (ECSAFA) by the Association of Chartered Certified Accountants with assistance from the South African Institute of Chartered Accountants the Institute of Certified Public Accountants of Uganda and the National Board of Accountants and Auditors, Tanzania.

ABOUT THE EASTERN, CENTRAL AND SOUTHERN AFRICAN FEDERATION OF ACCOUNTANTS (ECSAFA) The mission of the organisation is to build and promote the accountancy profession in the Eastern, Central and Southern regions of Africa in order that it is, and is perceived by accountants, businesses, financiers and governments, to be an important factor in the economic development of the region. ECSAFA Membership Angola Botswana Ethiopia Kenya Lesotho Malawi Mauritius Mozambique Namibia South Africa Swaziland Tanzania Uganda Zambia Zimbabwe

ECSAFA, June 2002

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Contents
Preface ............................................................................................ v

Executive Summary .................................................................................. vii Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Introduction ......................................................................... 1 Standards of Behaviour ........................................................ 13 Organisational Structures and Processes ................................ 21 Control ............................................................................... 33 External Reporting ............................................................... 49

Appendix 1: Good Governance: A checklist for Permanent Secretaries ......... 57 Appendix 2: Code of Conduct for Public Officials ....................................... 63 Appendix 3: Staff Code of Conduct (example) ........................................... 67 Appendix 4: Internal Auditing Guidelines ESAAG .................................... 75 Appendix 5: External auditing The Lima Declaration, INTOSAI ................. 95 Appendix 6: Further Reading ................................................................ 109 Appendix 7: Glossary of Terms .............................................................. 113

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Preface
Good corporate governance, or just good governance, is essential for all successful organisations. The principles of good governance openness, integrity and accountability are not just optional extras. They are the fundamental foundations on which effective organisations are built. In the public sector, governance is as important, or even more important, than in the private sector. Public services should be just that, services to the public. Staff working in the public sector are sometimes known as public servants. Governance processes and arrangements are essential to ensure that they live up to their name. As accountants, professionals in the member bodies of the Eastern, Central and Southern African Federation of Accountants (ECSAFA) are particularly concerned about the way that organisations manage their affairs. Whether they work in the private or public sectors they expect their organisations to uphold the highest standards of accountability, openness and integrity. For these reasons, ECSAFA is pleased to provide this contribution to the development and maintenance of proper governance in the public sector. We commend this publication to all public sector managers in eastern, central and southern Africa. We hope that it will assist them to work with others in the public sectors of their countries to achieve the highest standards of public service management. Between 1996 and 1998, an ECSAFA team, funded by a grant from IFAC, visited those government officers across the region with responsibility for government accounting services. The aim was to promote higher standards of accountability in the public sector. The team found that there was mixed understanding and little unanimity of what constitutes proper accountability and governance. As a result, ECSAFA Council encouraged the Public Sector Committee of IFAC to produce guidance on this subject. ECSAFA is grateful to the International Federation of Accountants (IFAC) for permission to adapt their publication, Governance in the Public Sector: A Governing Body Perspective (August 2001), to the prevailing circumstances in ECSAFA member countries. We are also grateful to the East and Southern African Association of Accountants General (ESAAG) for permission to reproduce

their Internal Auditing Standards and INTOSAI for permission to reproduce their guidance on public sector external auditing. The IFAC study has been modified so that it is appropriate for central government ministries or departments that do not have a governing body. It is assumed that a permanent secretary, who is an executive manager and the head of a paid service reporting to a minister, manages such bodies. The minister is assumed to be politically responsible for the ministry or department. ECSAFA will prepare a companion document to this one that will apply to the arrangements found in government business enterprises (or public entities) that have a board which may include non-executive directors. It may be useful for national bodies affiliated to ECSAFA to adapt this guide to their particular local environments by including references to their national legislative and regulatory requirements. Attitudes to governance have changed over time and we expect them to evolve further in the future. Thus we expect that this Guide will have to be revised and refined to reflect the experience of public sector governance across the region and the world. We hope that our members will use this Guide to assist in the further development of effective governance arrangements in their public sector organisations. In turn, we hope that this experience can be used to inform future editions of this Guide. This Guide has been prepared for ECSAFA by the Association of Chartered Certified Accountants (ACCA), with assistance from the South African Institute of Chartered Accountants, the Institute of Certified Public Accountants of Uganda and the National Board of Accountants and Auditors, Tanzania. ECSAFA would like to thank all of them for their contribution and particularly ACCA who also printed and circulated this publication. Ndung'u Gathinji Chief Executive ECSAFA Hughes Building, Kenyatta Avenue, PO Box 42423, Nairobi, Kenya. e-mail: ecsafa@africaonline.co.ke www.ecsafa.org June 2002

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Executive Summary
Corporate governance is the means by which an organisation is directed and controlled. The introduction to this publication sets out the case for having good governance, and the need for further improvements, in the public sectors of ECSAFA member countries. The term "governance" is used, rather than "corporate governance", purely because the word "corporate" may be interpreted as a private sector term; no distinction is made between the two terms. The introduction also explains the governance framework, including the role of the permanent secretary, parliament and the three fundamental principles of corporate governance: openness, integrity and accountability. The remaining chapters set out recommendations, derived from these fundamental principles, on standards of behaviour (chapter 2), organisational structures and processes (chapter 3), control (chapter 4) and external reporting (chapter 5). STANDARDS OF BEHAVIOUR Openness, objectivity, integrity, honesty and accountability are necessary ingredients of effective governance and should be demanded of all public servants. The permanent secretary and other senior managers should conduct themselves in accordance with high standards of behaviour as role models to others. Permanent secretaries determine the values and standards that define organisational culture and behaviour. Public sector organisations should adopt a formal code of conduct defining the standards of behaviour required. Such a code, or other policy document(s), should cover such issues as conflicts of interest, political influence, gifts, hospitality and entertainment and dealing with suppliers. All staff are entitled to be treated by their managers and colleagues openly, honestly, courteously and considerately.

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ORGANISATIONAL STRUCTURES AND PROCESSES Public sector organisations need effective structures to ensure proper accountability, clear communication with stakeholders and clarity about roles and responsibilities. Proper accountability means being accountable to the public for public money and for reporting on the performance of the organisation in relation to clearly defined objectives. Communication with stakeholders (e.g. the public, staff, Parliament, suppliers, recipients of services supplied) needs to be open, honest, transparent, timely and relevant to the stakeholders interests. It also needs to be adequate and to present the information fairly. There needs to be clearly defined divisions of responsibility at the head of public sector organisations to ensure a balance of power and authority between Parliament, the minister and the permanent secretary. Ministers are usually politically accountable to Parliament for the operation of their departments and permanent secretaries are usually operationally accountable for the discharge of the responsibilities and commensurate authorities delegated to them. Permanent secretaries should establish clear channels of communication with their stakeholders on the organisations mission, roles, objectives and performance, with appropriate procedures to ensure that they operate effectively in practice. Areas of accountability and responsibility should be clearly defined. In particular, the permanent secretaries should maintain an up-to-date formal framework of delegation including a formal schedule of matters reserved to themselves. The minister is a key stakeholder and to strengthen accountability of the permanent secretary there should be agreed performance benchmarks between the two of them. CONTROL Permanent secretaries need to ensure that their organisations have effective internal control. Internal control, broadly, is a process to provide reasonable assurance that objectives will be met. Permanent secretaries should ensure that the effectiveness of internal control is assessed and should report on the result of this assessment. Internal control is effective to the extent that it provides reasonable assurance that the organisation will achieve its objectives.

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Internal control includes, but is not restricted to: budgeting and financial management, having appropriately trained staff, internal audit, risk management, audit committees, anti-corruption arrangements, structures and procedures, as well as people aspects such as culture, motivation and team work. EXTERNAL REPORTING Public sector organisations should publish an annual report, including financial statements presenting a balanced and understandable account of the organisation's financial and non-financial position and performance. The report should include a statement on how the organisation has applied relevant codes of governance. The financial and certain other aspects of the report should be subject to external audit. There should be prompt and effective action taken to correct identified negative audit findings

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1. Introduction
IMPORTANCE OF GOVERNANCE 1.1 Over the last decade or so, corporate governance has brought about much debate and change. Broadly speaking corporate governance generally refers to the processes by which organisations are directed, controlled, and held to account1 and is underpinned by the principles of openness, integrity and accountability. Governance is concerned with structures and processes for decision making, accountability, control and behaviour at the top of organisations. In some countries, corporate may be interpreted as a private sector term. To avoid any possible confusion, the term governance is used in this Guide to describe what is commonly referred to in the private sector as corporate governance. In some countries government governance is used to describe governance in the public sector. The authors of a 1999 World Bank working paper concluded that there is new empirical evidence that governance matters, in the sense that there is a strong causal relationship from good governance to better development outcomes such as higher per capita incomes, lower infant mortality and higher literacy.2 1.3 Comment such as this serves to highlight the importance of good governance. In virtually all countries the public sector plays a major role in society, and effective governance in the public sector can encourage the efficient use of resources, strengthen accountability for the stewardship of those resources, improve management and service delivery, and thereby contribute to improving peoples lives. Effective governance is also essential for building confidence in public sector organisations, which is in itself necessary if public sector organisations are to be effective in meeting their objectives.

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Australian National Audit Office (1999). Discussion Paper, Corporate Governance in Commonwealth Authorities and Companies. 2 Kaufman, D., Kraay, A. and ZoidoLobaton, P., (1999). Governance Matters, Working Paper, The World Bank.

CURRENT SITUATION 1.4 As recently as a generation ago, performance targets for aid were almost exclusively expressed in terms of the amount of money or other resources disbursed. Those who favoured aid regarded the practice as so self-evidently right that any inquiries into the efficiency with which it was carried out appeared superfluous if not mean. Similarly, assessment of governmental budgetary performance was based on financial compliance and not on value for money. Today, with increasing education, globalisation and democratisation, the situation is totally different. Firstly, most international aid and assistance is assessed on a stick-and-carrot basis, so aid agencies insist on good governance. Secondly, it is no longer easy for governments to censor or control inflows of information and freedom of expression and association. Citizens are now informed directly from many sources, particularly via television and the Internet. Local and international issues and events that demand immediate responses are projected into living rooms or in newspapers locally and globally, thereby triggering action. Thirdly, there is an increasing social awareness by the people, which poses a new challenge for governments to be participatory in decision making, and transparent and accountable in the conduct of public affairs. In many developing countries, financial management systems have not been able to support adequately policy formulation, budgetary implementation, monitoring and control. The critical agencies that shape and implement public financial management are the ministries of finance (including the accountant generals departments), the treasuries, the central banks, the Auditor-General, internal audit sections and Parliaments. Yet, in many developing countries, the functions, roles and relationships of these institutions, and of politicians and civil servants, are blurred. Corruption, abuse of power and public office for private gain, and other types of financial irregularity have been given widespread international recognition as a cancer in public administration and governance. Financial irregularity, where it exists, results in a waste of resources by diverting government policy and the energies of public officials and the press from the public interest to the activities of those who breach the duties of public office.

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NECESSARY IMPROVEMENT 1.8 Improvements in the management and administration of government are essential if the global efforts to halt corruption and other types of irregularity are to achieve desired results. Governments and their development partners have tended to devote exclusive attention to macro economic and fiscal issues to the almost complete neglect of effective risk assessment, financial management, monitoring, control and evaluation. In most cases, the rules and systems of financial accountability, record keeping, accounting and reporting, internal control and internal auditing have not been well defined. If the rules and systems have been defined, ignorance and/or noncompliance seem to be the norm rather than the exception. In other cases, the endeavours tend wrongly to emphasise external or independent auditing of financial statements instead of emphasising efficacy of internal control systems. Without an integrated accountability framework or defined measurable performance indicators to determine objectively whether financial records are maintained and managed effectively, financial and other records may be unreliable, incomplete and difficult to use. All this serves to create opportunities for fraud, graft, inefficiency and waste. It also leads to loss of revenue and impedes economic and fiscal planning. This Guide outlines the principles of governance and their application to public sector organisations, in particular to government ministries or departments. Governance practices will need to be tailored according to the circumstances of individual public sector organisations and the countries within which they operate. As organisations develop and change over time, it will be necessary for the permanent secretary responsible for each organisation, to review and amend its governance practices. SCOPE OF THE GUIDE 1.11 The principles outlined in this Guide apply to all public sector organisations, including national governments, regional governments (e.g. state, provincial, territorial), local governments (e.g. city, town), related governmental organisations (e.g. agencies, boards, commissions) and government business enterprises (or public entities). This Guide is written specifically for central government ministries or departments, as these are the largest and most significant public sector

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institutions in ECSAFA countries. The principles in this Guide should, however, be easily amended for other types of public sector organisations. The IFAC Guide, on which this Guide is based, was written for public sector organisations with boards that include nonexecutive directors. Such organisations will also find the King Report on Corporate Governance for South Africa, published in March 2002, a useful additional source of guidance. 1.12 The King Report promises to be a major contribution to corporate governance. Although it focuses on the private sector, many public sector organisations, including those without boards for which this Guide has been written, will find the sections on auditing and accounting, internal audit, risk management and non-financial matters, including ethics, particularly useful. A variety of terms are used to describe the head of staff or most senior manager of a public sector organisation; these include permanent secretary, chief executive, chief executive officer, secretary to the treasury and principal. This Guide uses the term "permanent secretary" to describe this person. In the interest of good governance, a minister with direct responsibility for delivering a service or activity should ensure that the recommendations for governance in this Guide are applied. In any circumstances where these recommendations cannot be applied directly, the basic principles of governance openness, integrity and accountability should be followed when interpreting and applying this guidance locally. OVERALL RESPONSIBILITY FOR THE GOVERNANCE FRAMEWORK 1.15 In the overall governance framework, the roles of Parliament and ministries or government departments often overlap. It is normally the responsibility of the permanent secretary, of an organisation that controls other organisations, to ensure that appropriate governance arrangements are applied in all such controlled organisations. It is necessary to ensure mechanisms are in place to secure adherence to good governance, including the recommendations in this Guide. Similarly, permanent secretaries of such controlled organisations also have a responsibility to ensure good governance in

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their own organisations, while government is the ultimate controlling organisation. 1.17 One example3 of the overall accountability process in the public sector is shown in Figure 1.1 below.

Figure 1.1: Example of overall accountability process in the public sector

Parliament
Independent, objective information Transparency

Conferred responsibility Audit reporting Accountability reporting

Conferred responsibility

Audit

Auditor-General
Acknowledgement of Responsibility

Minister/Permanent Secretary

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In most countries, there is a separation of the executive and Parliamentary functions of government. Parliaments usually provide authority for the acquisition and use of financial resources (by passing laws to levy certain taxes and approving budgets to regulate government spending). They are also responsible for overseeing the development and administration of government policy.

Office of the Auditor-General of Canada training material

ROLE OF THE PERMANENT SECRETARY 1.19 The permanent secretary is authorised by Parliament to spend (within an overall budget), invest, borrow and administer programmes in accordance with any laws and regulations that apply. The permanent secretary is also responsible for authorising the acquisition and use of financial resources, within the authorisation by Parliament, and for overseeing and monitoring the implementation of the approved budget or financial plan. The permanent secretary is usually responsible for: planning, directing and controlling day-to-day operations directing operations with due regard to economy and efficiency maintaining an adequate system of internal control ensuring compliance with applicable authorities selecting and applying appropriate accounting policies safeguarding assets measuring the effectiveness of programmes and reporting on their performance to those to whom they are accountable and preparing reports that provide an account of their administration. 1.21 Personal responsibility for internal control and wider governance may be given to the permanent secretary as the head of each ministry or government department. The permanent secretary may be designated as the accounting officer to indicate that he or she will be held to account in this way. This Guide assumes that the permanent secretary has such responsibility.

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The permanent secretary may be required to consult with and report to the Ministry of Finance on matters relating to the control and management of public funds and resources. They may also be required to manage their ministries in line with financial regulations set by the Ministry of Finance. OVERSIGHT FUNCTION OF PARLIAMENT

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Parliament has the right and responsibility to hold government and its organisations accountable for their management of the financial affairs, the use of resources entrusted to them and the result achieved. In effect, accountability is the obligation to answer for a responsibility that has been conferred. It presumes the existence of at least two parties: one who allocates responsibility and one who accepts it with the undertaking to report upon the manner in which it has been discharged. Therefore, Parliament plays an important role in the overall framework of governance in the public sector. Parliament needs to exercise control over the expenditure of public monies made available to the organisation. It usually reviews the annual reports of public sector organisations, evaluates the standard of their work and makes recommendations, based on the facts contained in the various audit reports by the Auditor-General (see paragraph 5.245.30 and Appendix 5 of this Guide). In some countries, a Public Accounts Committee fulfils the responsibility of reviewing the audit reports of the Auditor-General in detail, on behalf of Parliament. In the interest of transparency, the hearings of such a committee should be public. There are therefore four steps making a cycle of accountability: (1) (2) (3) audit and reporting by the Auditor-General hearings by Parliament recommendations of the Parliament to the permanent secretary and (4) the response of the permanent secretary.

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The efficiency of the cycle depends on the timeliness with which all four steps are completed. 1.26 The committee systems in most Parliaments are well suited to hold accountable those who exercise public power in society. Various committees of a Parliament usually have different areas of expertise to enable effective accountability. The traditional system of accountability through elected persons (Parliament), who are in turn held to account by the citizens in a democratic election, may, however, be weak and ineffectual. For example, in some countries Parliament has limited powers of effective control or influence over government-owned organisations. Therefore, it is important to ensure that centrally controlled and funded entities are able to respond to local needs and concerns, and good governance arrangements are in place that enable communication with stakeholders. PRINCIPLES OF GOVERNANCE 1.27 The Report of the Committee on the Financial Aspects of Corporate Governance4 (the Cadbury report) defined corporate governance as the system by which organisations are directed and controlled. It identified the three fundamental principles of corporate governance as: openness integrity and accountability. 1.28 These principles are relevant to all public sector organisations. Public sector organisations have to satisfy a complex range of political, economic and social objectives, which subject them to external constraints and influences. They are also subject to different forms of accountability to their various stakeholders.

Cadbury Committee (UK) (1992). Report of the Committee on the Financial Aspects of Corporate Governance.

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These three principles have been developed and redefined to reflect the public sector context, as shown in figure 1.2 below. Figure 1.2: Principles of governance in the public sector context
Openness Openness is required to ensure that stakeholders.5 can have confidence in the decision-making processes and actions of public sector organisations, in the management of their activities, and in the individuals within them. Being open through meaningful consultation with stakeholders and communication of full, accurate and clear information leads to effective and timely action and stands up to necessary scrutiny. Integrity comprises both straightforward dealing and completeness. It is based upon honesty and objectivity, and high standards of propriety and probity in the stewardship of public funds and resources, and management of an organisations affairs. It is dependent on the effectiveness of the control framework and on the personal standards and professionalism of the individuals within the organisation. It is reflected both in the organisations decision-making procedures and in the quality of its financial and performance reporting. Accountability is the process whereby public sector organisations, and the individuals within them, are responsible for their decisions and actions, including their stewardship of public funds and all aspects of performance, and submit themselves to appropriate external scrutiny. It is achieved by all parties having a clear understanding of those responsibilities, and having clearly defined roles through a robust structure. In effect, accountability is the obligation to answer for a responsibility conferred.

Integrity

Accountability

Stakeholders will include the electorate, elected representatives (Parliament), providers of resources (taxpayers, lenders, bondholders and creditors), service providers and partners (employees, contractors and other government organisations) users of services (individuals and businesses who benefit from the services that the organisation provides), interest groups, analysts and other statistics gatherers (policy analysts, economists, financial analysts, rating agencies), the media and the wider community.

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These fundamental principles are reflected in each of the dimensions of the governance of public sector organisations: standards of behaviour how the permanent secretary and senior management of the organisation exercise leadership in determining the values and standards of the organisation, which define the culture of the organisation and the behaviour of everyone within it; organisational structures and processes how the permanent secretary and senior management within organisations are appointed and organised, how their responsibilities are defined, and how they are held to account control the network of various controls established by the permanent secretary and senior management of the organisation to ensure: the achievement of the organisation's objectives the effectiveness and efficiency of operations the reliability of internal and external reporting and compliance with applicable laws and regulations and internal policies and external reporting how the permanent secretary and senior management of the organisation demonstrate their financial accountability for the stewardship of public money and the organisation's use of resources.

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From these fundamental principles of openness, accountability and integrity it is possible to derive a set of recommendations on governance. Figure 1.3: Recommendations on governance in the public sector
Standards of behaviour (Chapter 2): Leadership Code of conduct Integrity and honesty Objectivity and openness Relationships. Organisational structures and processes (Chapter 3): Accountability for public money and performance Communication with stakeholders Roles and responsibilities Balance of power and authority Permanent secretary Relations between Ministers, permanent secretaries and senior managers Remuneration policy. Control (Chapter 4): Internal control Budgeting & financial management Staff training Internal audit + audit committees Risk management Anti-corruption commission External reporting (Chapter 5): Annual reporting Use of appropriate accounting standards Performance measures Auditor-General

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2. Standards of Behaviour
INTRODUCTION 2.1 The openness, integrity and accountability of individuals within a public sector organisation are fundamental to effective governance. The reputation of the organisation depends on the standards of behaviour of everyone within it, whether senior managers, staff or agents contracted by it. Therefore, effective procedures and safeguards should be put in place to ensure that all management and staff: are committed to high standards of personal behaviour and maintain open and honest relationships with the public, with people from other organisations, and with other employees and officers of the organisation. 2.3 The IFAC Financial Management and Accounting Committee published Study 8 Codifying Power and Control: Ethical Codes in Action in May 1999.6 The study focuses on ethical codes as one way in which corporations make explicit their values, guide and direct decision making, and define the ground rules of behaviour. Study 8 notes that: Corporate Codes serve three purposes. First, they are vehicles through which the power of overarching forms of social morality is drawn on for use as corporate power. Second, they are vehicles for deploying corporate power over values, choices and behaviours in ways designed to induce appropriate responses to contextual

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Study 8 Codifying Power and Control: Ethical Codes in Action, published by the IFAC Financial Management and Accounting Committee in May 1999.

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requirements. Third, they are vehicles for establishing control over the exercise of values, choices and behaviours so that appropriate responses to contextual requirements are induced. LEADERSHIP 2.5 The permanent secretary and other senior managers should exercise leadership by conducting themselves in accordance with high standards of behaviour, as a role model for others within the organisation. The permanent secretary has a leadership role his or her actions should set a high standard: formally by setting rules and regulations and communicating those standards, and informally through personal adherence to high standards of behaviour and the setting of a good example. In a central government environment, Parliament, or a specific permanent secretary on behalf of all the permanent secretaries, may set codes of behaviour for all public officials. Permanent secretaries are usually responsible for determining the values and standards that will serve to define the culture of the organisation and govern the behaviour of everyone within it. High standards of behaviour should be demanded of all public servants. Permanent secretaries and other senior managers have a special responsibility to demonstrate the standards expected of others within the organisation. CODES OF CONDUCT 2.9 Public sector organisations should adopt a formal code of conduct defining the standards of behaviour that the permanent secretary, senior managers and all other staff are required to follow. A government-wide code of conduct may exist, which staff in all public organisations are required to follow. Guidance from the UN on developing such a code is included as Appendix 2 and an example of such a code is included as Appendix 3 to this Guide. The code of conduct should: commit staff to the highest standards of behaviour

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 be developed in a consultative manner and involve the organisations stakeholders receive total commitment from the permanent secretary and senior management of the organisation they should set the example for other employees to follow and be sufficiently detailed, so as to give a clear guide to the expected behaviour of all employees. 2.12 On appointment, the permanent secretary, senior management and staff of the organisation should undertake to uphold and abide by the code of conduct. They should be aware that failure to follow the code might lead to dismissal. Codes of conduct should reflect the three fundamental principles of openness, integrity and accountability. They should also address: honesty objectivity and openness and relationships. Integrity and honesty 2.14 All public servants should conduct themselves in accordance with high standards of behaviour to maintain the organisation's good reputation. In particular, staff should be trustworthy in the handling of public funds. They have to demonstrate: integrity and honesty in handling assets and resources entrusted to them care in safeguarding property, assets and confidential information to ensure they are not stolen, abused or damaged

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 proper observance of the organisations rules and procedures, particularly when accounting for finances economy to avoid waste and extravagance and personal honesty in claiming expenses and ensuring that official assets and resources are not used for private advantage. Objectivity and openness 2.15 Permanent secretaries should establish appropriate mechanisms to ensure that senior managers and other staff of the organisation are not influenced by prejudice, bias or conflicts of interest. Permanent secretaries and all other employees of public sector organisations involved in the decision-making process should be, and be seen to be, objective and should put the interests of the organisation above their private interests. This imposes an obligation to be fair, honest and free of conflicts of interest. Conflicts of interest 2.17 The permanent secretary and employees of public sector organisations are required to observe not only the law but also other relevant rules on disclosure of interest. In the treatment of disclosure of interest, complete openness needs to be observed. The appearance of a conflict of interest could be as damaging as the existence of a real conflict, and public office holders should do their utmost to ensure that in all their activities, both professional and private, the appearance of a conflict of interest does not arise. In this context, avoiding conflicts of interest means that permanent secretaries and other employees do not use their position in the public sector organisation to further their private gain in a social or business relationship outside the public organisation. Examples may include: any outside employment, directorships or material shareholding being entered into if it is contrary to the objectives and interests of the organisation

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 official decisions or official actions being improperly influenced by any relationship (e.g. kin, marriage or partnership) or by any personal or financial consideration fees for performing services that form part of official duties (e.g. lecturing) are disclosed to the organisation, which establishes procedures for their treatment and relevant political interests that may be directly related to the work of the organisation. 2.18 These rules could be underpinned by a register of interests to record all the relevant personal and business interests of the permanent secretary, senior managers and other staff. The register of interests for the permanent secretary and other senior managers should be publicly available. Where a conflict is established, or appears to conflict with public office, the person concerned should play no further part in the relevant discussion, decision or action. Political interests 2.19 Relevant political interests will include engaging in any significant political activity, including holding office, undertaking elected positions, making public appearances and undertaking candidature for election, in the previous five years. Any such activity should be disclosed in the register of interests. Gifts, hospitality and entertainment 2.20 Public servants should not offer or accept any payment, bribe, favour or inducement. Gifts, hospitality and entertainment should only be offered or accepted if there is a genuine need to impart information or represent the organisation. To resolve any doubts about the appropriateness of offering or accepting hospitality or a gift, the person should follow the guidelines below.

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 He or she should consider whether the offering or acceptance of any such gifts or hospitality could be regarded as normal and reasonable. Normal and reasonable is defined for this purpose as no more than the organisation would be prepared to offer in equivalent circumstances. Organisations should provide guidance as to what may be considered appropriate. Staff must not exceed such guidance without the specific and written authority of the permanent secretary or other designated senior manager. Where there is no guidance, the person needs to ensure that any hospitality or gift is not of a level or an amount which would lead any person to believe that he or she might be influenced. The person should ensure that a full record is kept of all hospitality or gifts offered, given or accepted above a minimum limit. The person should decline the gift if there is any doubt as to the objectivity and openness of making or accepting such an offer. RELATIONSHIPS The public and people from other organisations 2.22 All staff should uphold the reputation of the organisation for which they work by treating the general public and people from other organisations: in a helpful and courteous manner on a timely, reliable and, where appropriate, confidential basis and in an open, fair and efficient way. Other staff 2.23 All staff should have a general duty to treat colleagues: openly, honestly and courteously

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 with consideration for others health, safety and personal welfare and without harassment, discrimination or abuse of any kind. 2.24 The permanent secretary has a responsibility towards his or her staff. The permanent secretary needs to seek to establish an open climate and culture in which staff can have confidence in the fairness and impartiality of procedures for registering and dealing with their interests and concerns. Similarly, it is the responsibility of the permanent secretary and senior management to ensure equality of opportunity and to establish open and fair procedures for making appointments and for determining terms and conditions of service. The permanent secretary should nominate one of his/her most senior managers to be responsible for investigating any concerns raised by members of staff about standards of conduct. Any such investigation should be undertaken on a confidential basis. Suppliers 2.26 All staff should take care to maintain the reputation of the organisation for honouring contracts and other agreements to which it is a party. This implies building trust through fair, open and consistent dealing. Staff involved with suppliers should display high standards of competence and integrity. Individuals need to be aware of the risks involved in contracting and purchasing relationships. Suppliers should be selected on the basis of quality, suitability and value for money. Staff should be fair, straightforward and honest in their dealings with suppliers. They should take care at all times to avoid becoming, or appearing to become, obliged to an individual supplier e.g. by accepting gifts, hospitality, entertainment or other inducements. When dealing with suppliers, staff need: to ensure that value for money is achieved

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 to comply with the law and the organisations internal rules and procedures, e.g. public procurement legislation, regulations of a tender board and purchasing and technical standards to ensure quality standards are met and procedures followed, and be diligent in ensuring that suppliers comply with the standards specified and to pay for supplies within the time agreed.

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3. Organisational Structures and Processes

INTRODUCTION 3.1 Parliament has the responsibility to hold government and its organisations accountable for the management of their financial affairs and for the effective use of resources entrusted to them. The permanent secretary and senior managers should establish effective organisational structures and processes to ensure: proper accountability for public money and performance clear communication with stakeholders and clarity about roles and responsibilities of key players, and in particular the relative roles and responsibilities of ministers, permanent secretaries and other senior managers. ACCOUNTABILITY FOR PUBLIC MONEY AND PERFORMANCE 3.3 Permanent secretaries should establish appropriate arrangements to ensure that public funds and resources are properly safeguarded and are used economically, efficiently, effectively and in accordance with the statutory or other authorities that govern their use. Accountability can be interpreted as a means of making public sector organisations (politicians and officials) accountable to the public. This needs to be distinguished from political accountability, whereby politicians are accountable directly to the public (e.g. through an election), and managerial accountability, whereby officials are accountable to their superiors through the hierarchy up to the political head or minister.

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Accountability to the public addresses: the stewardship of assets and resources entrusted the financial performance, that is, the use of those assets and resources and the incurrence of liabilities in the delivery of services and non-financial aspects of performance, including accountability for the organisations priorities and the quality of services provided.

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Accountability for public money will be secured by having clear organisational objectives, by the establishment of an effective framework of internal control, and discharged by means of timely, objective, balanced and understandable reporting to stakeholders. Accordingly, each permanent secretary has specific responsibility for ensuring that appropriate advice is given to their minister and Parliament, for keeping proper financial records and accounts, and for maintaining an effective system of internal control. COMMUNICATION WITH STAKEHOLDERS

3.7

Ministers and permanent secretaries should make an explicit commitment to openness and transparency in all the activities of the organisation, subject only to the need to preserve confidentiality in those specific circumstances where it is proper and appropriate to do so. Most public sector organisations affect the lives of citizens in a wide range of social and economic activities, and therefore citizens have the right to know what government intends to achieve in a specified period of time, and what it actually accomplished during that time. Therefore, a public sector organisation needs to account to its stakeholders on its intentions, objectives and strategies and the actual results achieved. Openness is more than structures and processes. It is also an attitude and belief among key players, politicians, public servants and other stakeholders that information is to be shared and is not owned by any particular organisation it is a public resource.

3.8

3.9

22

3.10

There is a presumption that as much information as possible about the activities, including policy decisions and actions, of public sector organisations needs to be in the public domain, with information only being withheld when it falls within strictly defined criteria. Many countries have in place legislation designed to improve transparency and protect the publics right to information. Public sector organisations should ensure there are procedures in place to comply with any such legislation and should aim to provide positive and timely responses to any reasonable request for information. However, the confidentiality of personal and commercial information needs to be respected at all times. In some countries the confidentiality of such information is backed up by data protection legislation. Public sector organisations should have a clear policy of openness and take steps to ensure that the public is aware of its provisions. Communication to stakeholders should be open, balanced, honest, accurate, understandable, transparent and timely. The quality of the information needs to be based on the concepts of openness and substance over form. Reporting usually addresses material matters of significant interest to stakeholders. Reports should present a balance between the positive and negative aspects of the organisation. In any communication with the stakeholders, permanent secretaries should ask themselves the following four questions. Is the communication open, honest and transparent? Is it relevant and substantial or merely a communication of form? Is the communication prompt and clear? Does it fairly set out the position?

3.11

3.12

3.13

To ensure openness and transparency, the permanent secretary may also institute periodic external reviews of the organisation and establish consultative groups with key stakeholders. The non-financial aspects of the activities should be subject to external review of the extent that: the organisation fulfils the obligations imposed on it in statute and or regulation

23

 the conduct of its affairs complies with appropriate standards of conduct and its delivery of services is satisfying predetermined levels of quality. 3.14 Permanent secretaries should establish: clear channels of communication with their stakeholders on the organisations mission, roles, objectives and performance and appropriate procedures to ensure that such channels operate effectively in practice. 3.15 To improve effective communication with stakeholders, public sector organisations may: publish formal predetermined standards and measures of performance, and report actual performance against them in reports that are public documents these standards of performance usually relate to key financial and non-financial objectives (also see paragraphs 5.135.18) inform stakeholders of their rights to services and information, and how, if necessary, to complain inform stakeholders of contracting and partnership arrangements and how to become involved develop and publish formal procedures for both internal and external enquiries and complaints, and ensure that enquiries and complaints are dealt with promptly and effectively where relevant, establish mechanisms to investigate external complaints, where routine complaints procedures have failed to deal with them to the satisfaction of the complainant

24

and set in place clear procedures (whistle-blowing policy, for example, see the Annex to Appendix 3 of this Guide) for staff to voice concerns or complaints about maladministration, breaches of the law or ethical concerns, in an environment where they will be supported and protected from reprisals. ROLES AND RESPONSIBILITIES Balance of power and authority 3.16 There needs to be a clearly defined division of responsibility at the head of public sector organisations to ensure that there is a balance of power and authority between Parliament, the minister and the permanent secretary. No one person should have complete power within an organisation. In terms of political accountability, the Executive (ministers/Cabinet of a government) usually carries a collective responsibility for its decisions. Individual ministers are usually politically accountable to Parliament for the operation of their departments in terms of the powers vested in them. In the ECSAFA region some very powerful central agencies, for example the Treasury, Public Service Commission and Office of Prime Minister may wield more power than individual ministers or permanent secretaries. Where necessary, steps should be taken to balance the respective powers, responsibilities and accountabilities of all the individuals and entities concerned to stakeholders. Heads of departments (permanent secretaries) are usually operationally accountable for the discharge of the responsibilities and commensurate authorities delegated to them by their minister or cabinet. In these terms, ministers may be considered responsible for the outcomes of the programmes under their charge, while heads of departments/organisations are responsible for the outputs achieved. Permanent secretaries should establish clear channels of communication with their stakeholders on the organisations mission, roles, objectives and performance, and appropriate procedures to ensure that they operate effectively in practice.

3.17

3.18

25

3.19

Distinguishing between political accountability and operational accountability is a helpful device to consider the different roles of ministers and permanent secretaries. However, in practice it may be difficult to separate political accountability from operational accountability. For example, a government may decide to introduce a policy to provide housing to low-income earners. The housing department is assigned responsibility for implementing this policy. A critical part of implementing this policy will be determining the criteria to decide who are low-income earners and therefore who will be eligible to apply for the low-income housing. The housing department may have the responsibility for developing the criteria (operationally accountable). Because the eligibility criteria are central to the policy, however, the Cabinet or responsible ministers are also likely to be concerned with the criteria and be held politically accountable for those developed. There are two reporting levels at which a government is normally held accountable. Firstly, at the level of individual departments/ organisations, and secondly, at the level of the government as a whole. The former is usually the responsibility of the line ministers and the head of the department/organisation as discussed above. The latter is usually the responsibility of the Prime Minister (or President and/or the Cabinet). Areas of accountability should be clearly defined. The information to satisfy this accountability may substantially be derived from legislation requiring annual reports that include annual financial statements and performance information. Some central governments have recently entered into new governance arrangements such as government partnerships and/or contracts with other governments or the private sector to deliver their programmes or services. Through these arrangements, traditional delivery of government services has shifted to outside organisations. The government, ministers and the permanent secretary should ensure that proper accountability, performance reporting, transparency and protection of public resources in such arrangements are adequate. The governance recommendations in this Guide may be used as a guideline in evaluating such governance arrangements.

3.20

3.21

3.22

26

Permanent secretary 3.23 Every public sector organisation needs to be led by an effective permanent secretary to manage and control the organisation, and to monitor the senior managers and other staff. The permanent secretary is, in the first instance, accountable to his or her minister, but he or she is also accountable to Parliament for the operational aspects of his or her public sector department/organisation. A permanent secretary may thus be called to give evidence before the Public Accounts Committee (see paragraph 1.24), on the basis of reports from the Auditor-General (see paragraphs 5.245.30 and Appendix 5 to this Guide). Appointment as a permanent secretary includes responsibility for the overall organisation, management and staffing of the body and for its procedures in financial and other matters. The essence of a permanent secretary's role (as an accounting officer) is personal responsibility for the functions entrusted to them. When a permanent secretary fulfils the role of the accounting officer, his or her responsibilities normally include appropriate arrangements to ensure that public funds and resources are properly safeguarded and are used economically, efficiently, effectively and in accordance with the statutory or other authorities that govern their use. The permanent secretary is responsible for how results are achieved taking into account due process and observance of proper procedures. Thus, it is not good enough to deliver a specific set of outputs; they need to be delivered in an appropriate way. The permanent secretary needs to establish effective arrangements to ensure compliance with all applicable statutes and regulations, and other relevant statements of best practice.

3.24

3.25

3.26

27

Accountability for public resources 3.27 The permanent secretary is responsible for: the adoption of a strategic planning process within the policy and resources framework laid down by Parliament and/or ministers which includes: - developing and defining the annual, and longer-term, objectives of the organisation and agreeing suitable plans to achieve these - overseeing the delivery of planned results by monitoring performance against agreed strategic objectives and targets, and ensuring corrective action is taken when necessary and - maintaining a forward looking perspective ensuring that procedures are followed, and that all applicable statutes and regulations and other relevant statements of best practice are complied with the appointment, development and succession of senior managers ensuring senior managers have access to all relevant information ensuring that key and appropriate issues are discussed by senior managers in a timely manner ensuring that there is an effective process of review of the performance of senior managers and, if necessary, appropriate disciplinary steps are taken and ensuring that the organisation has and maintains an effective, efficient and transparent system of internal control, including internal audit and risk management

28

 ensuring the effective, efficient, economical and transparent use of the financial and other resources of the organisation concerned ensuring arrangements for safeguarding assets, and the management of the liabilities of the organisation taking effective and appropriate steps: to collect all revenue due to the organisation concerned to prevent wasteful expenditure, losses resulting from criminal conduct, and expenditure not complying with legislation and ensuring the quality of services provided by the organisation. Relationships between ministers, permanent secretaries and senior managers 3.28 To strengthen the accountability of permanent secretaries to their minister or the Cabinet, there should be a performance agreement with the permanent secretary. The agreement needs to identify the key accountabilities to which the permanent secretary will add value to meet the objectives of the organisation. Ministers may be able to dismiss permanent secretaries, but this will often be subject to review by another body or person, and the permanent secretary will typically have rights of appeal for unfair dismissal. Where responsibilities have been delegated by the permanent secretary, there is a need to ensure that individual responsibility for management decisions can be established, and that such responsibility is made properly accountable so far as the individual is concerned. Every employee needs to be accountable for his or her expected contribution towards the successful delivery of outputs. The permanent secretary should also enter into performance contracts with his/her senior managers. These contracts will be similar to performance agreements between the minister and the permanent secretary, but will be more limited in scope, as they will only apply to that part of the organisations operations for which the senior managers

3.29

3.30

29

are responsible. They should be linked to the objectives of the organisation set out in strategic and business plans. An assessment of performance of other staff will ensure that the individual performance is linked to the operational plan of the organisation. 3.31 If implementation of any directive by a minister (or other executive authority) to the permanent secretary is likely to result in noncompliance with legislation (e.g. overspending) or could infringe the requirements of integrity or objectivity, the permanent secretary will usually be responsible unless he or she has informed the minister in writing of the likelihood of that non-compliance. Any decision of the minister (or other executive authority) to proceed with the implementation of such a directive, needs to be in writing, and the permanent secretary needs to file a copy of this decision with the Auditor-General or equivalent. Delegation and reserved powers 3.33 Permanent secretaries should establish and maintain an up-to-date framework, of delegated or reserved powers, that includes a formal schedule of those matters specifically reserved for themselves. Clearly, permanent secretaries cannot do everything. Therefore, to the extent permitted by legislation and other provisions governing the organisation, responsibility for day-to-day management matters is usually delegated to senior managers. This scheme of delegation should be clear, agreed and in writing. There will be matters that permanent secretaries specifically reserves for their own decision, however, to safeguard against misjudgements and possible illegal practices. These matters are likely to include issues of strategy, key strategic objectives and targets, major decisions involving the use of financial and other resources, and personnel issues, including key appointments and standards of conduct. Again, responsibilities and accountability need to be balanced so that a productive relationship exists between permanent secretaries and their senior managers.

3.32

3.34

3.35

30

Financial officer/Director of finance 3.36 A senior manager should be made responsible for ensuring that appropriate advice is given to the permanent secretary, minister and Parliament on all financial matters, for keeping proper financial records and accounts, and for maintaining an effective system of internal financial control. The responsible financial officer should be a qualified accountant and a member of a recognised accountancy body. Membership of such a body will require compliance with professional (ethical and technical) standards over and above any requirements imposed by statute and regulations, and other relevant statements of best practice. REMUNERATION POLICY 3.38 Public sector organisations should establish a formal and transparent procedure for developing policy on the remuneration of senior managers. No staff should be involved in deciding their own remuneration. In many countries, the salaries of permanent secretaries, senior managers and other staff are set centrally by the public service commission or equivalent. However, some public sector organisations may be authorised to set the salaries of their own staff. To avoid potential conflicts of interest, permanent secretaries may set up remuneration committees of independent advisers. Such committees may make recommendations to the permanent secretary, within agreed terms of reference, on the organisations framework of remuneration for senior managers and its cost; and to determine on their behalf specific remuneration packages for each senior manager, including pension rights and any compensation payments. Where applicable, public service regulations should be adhered to. DISCLOSURE 3.41 The annual report of a public sector organisation needs to contain a statement on the remuneration policy and details of the remuneration of senior managers.

3.37

3.39

3.40

31

3.42

The permanent secretary should report to his or her minister and Parliament each year on organisations policy on staff remuneration. The report should form part of, or be annexed to, the organisations annual report. Separate and full disclosure should be made in the annual report of: the total remuneration package of the permanent secretary, including house, car and any pension contributions and the total remuneration package of the senior managers within the organisation.

3.43

3.44

Separate figures should be shown for salary, fees, other benefits and other performance-related elements. The basis on which performance is measured (for performance-related remuneration) also needs to be explained. Recently, good practice has increased the level of detail of salary and other remuneration that is disclosed. It is now considered good practice for the organisation's annual report to contain details of the remuneration of the minister, the permanent secretary and each of the organisation's senior managers.

3.45

32

4. Control
INTERNAL CONTROL 4.1 Permanent secretaries should ensure that a framework of internal control is established, and operates in practice, and that a statement on its effectiveness is included in the organisations annual report. Internal control has been broadly defined by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) in Internal Control - Integrated Framework, as: a process, effected by an organisations board of directors, management and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations reliability of financial reporting and compliance with applicable laws and regulations. 4.3 The Criteria on Control Board of the Canadian Institute of Chartered Accountants (CoCo) and the internal control Working Party of the UK Institute of Chartered Accountants (Turnbull) have similar definitions of internal control. Both refer to internal and external reporting, rather than just financial reporting, however, and to compliance with internal policies, as well as with laws and regulations. While internal control is a process, its effectiveness is a state or condition of the process at one or more points in time. Internal control systems operate at different levels of effectiveness. Control is effective to the extent that it provides reasonable assurance that the organisation will achieve its objectives reliably. Internal control can be judged

4.2

4.4

33

effective in each of the three categories respectively, if the permanent secretary and senior managers have reasonable assurance that: they understand the extent to which the organisations operational objectives are being achieved published financial statements are being prepared reliably and applicable laws and regulations are being complied with. 4.5 In reporting on the effectiveness of the organisations framework of internal control, permanent secretaries should include, in the annual report, a statement to the effect that the framework of internal control they have established is both appropriate to the nature of the organisation and effective in practice. The statement should outline the arrangements that they have established to enable them to make the required statement. These may take the form of a review of the various systems, risks and opportunities, as well as monitoring of the key control processes and procedures. The criteria against which the system is measured are thus identified, as well as the date on which the conclusion is made. Care needs to be taken to provide staff with the skills required to implement and maintain an adequate internal control process, and to ensure that staff responsible for securing major changes in the process are suitably experienced (also see paragraphs 4.21 4.25 below). Objectives change over time and therefore management needs to assess periodically the effectiveness of control in the organisation and communicate the results to the permanent secretary. Procedures and control activities should be revised from time to time to ensure their continuing relevance and reliability, especially at times of major change. The effectiveness of internal control needs to be reviewed and tested regularly. These reviews should cover all control activities, including those related to finance, operations, budgetary control, compliance and risk management. They may be undertaken by the organisation's Internal Audit section (see paragraphs 4.26 4.32 below). However, responsibility for internal control should remain with management, specifically with the permanent secretary.

4.6

4.7

34

BUDGETING AND FINANCIAL MANAGEMENT 4.8 Permanent secretaries should ensure that that effective and efficient budgeting and financial management procedures are in place. Budgeting 4.9 Parliament is usually responsible for sanctioning the overall public sector budget and for authorising the executive to incur expenditures within the overall level of expenditure (see also paragraph 1.17 above). The permanent secretary of a public sector organisation usually approves a budget or financial plan, within the overall approved level of expenditure, to provide authorisation for the acquisition and use of financial resources, and is responsible for overseeing and monitoring the implementation of the approved budget or financial plan. Budgeting is an essential element of the financial planning, control and evaluation processes of public sector organisations. By its nature it is a means of allocating resources to achieving the objectives of a public sector organisation. It is a management tool for planning, and also a means of controlling funds to ensure that the stated objectives can be met. Budgeting is most successful if it is linked to a medium-term framework (a plan that usually covers a period of about three to five years) containing measurable statements of the objectives of the public sector organisation, policies and priorities, strategies for achieving the objectives, and a resource framework (projections of revenues and ceilings) to plan for the period. It is often impossible to achieve the objectives within one year, thus it is necessary to plan ahead to ensure the best use is made of resources. Emphasis needs to be placed on identifying objectives, priorities and activities (or outputs and outcomes). The format of the budget documents should provide a clear explanation of the rationale for the proposed allocation of resources. Where possible, public feedback is taken into account in the formulation of the budget. To be effective, budgeting needs to be integrated with accounting. If a similar basis of accounting is adopted for budgeting purposes and financial reporting, it will provide a framework of accounting

4.10

4.11

4.12

4.13

35

information to provide a more rational basis for planning and controlling expenditure and for decisions about its financing. Cash flow budgeting is an essential element of effective cash management, and therefore a forecast of the timing of cash inflows and outflows will always be needed. 4.14 Regular monitoring of actual financial performance against the budget is vital. The figures for revenue or expenditure reported against budgets should be reliable and readily available for discussion and management action, and projections revised where necessary. The World Bank Publication, Financial Accounting Reporting and Auditing Handbook (FARAH), 1995, states that the budget problems in developing countries relate to: a lack of appropriate feedback systems a failure to integrate budgeting with accounting and cash management functions a lack of comprehensive coverage, i.e. certain programmes/agencies may be excluded from the budget a focus on one year rather than multi-year classifications or budget categories not being fully useful for expenditure planning and control a lack of focus on goals and programmes lack of clarity and accuracy in defining recurrent and development expenditures and over-emphasis on sophisticated programmes beyond realistic capacity.

4.15

36

Financial management 4.16 The objective of a financial management system in the public sector is to support management in their deployment of limited resources, with the purpose of ensuring economy and efficiency in the delivery of outputs (i.e. services and/or goods produced by organisations in terms of quantity, quality, cost and time) required to achieve desired outcomes (effectiveness) that will serve the needs of the public. Financial management embraces daily cash management as well as the formulation of medium and long-term financial objectives, policies and strategies, in support of the operational plan of the organisation. It includes the planning and control of capital expenditure, working capital management, and funding and performance decisions. It supervises the supporting financial and management accounting functions, and the internal control environment, as well as supporting financial information systems. Financial management will be more effective if it has strong high-level support that is complemented by: medium term contracts, supported by performance agreements, for permanent secretaries and other senior managers clearly defined objectives and specified outputs for each department clearly defined responsibility for the permanent secretary and other senior managers for resources committed to outputs produced strategic planning and operational plans and central regulations are reduced to the minimum and are replaced with guidelines. Permanent secretaries need to have:

4.17

4.18

37

 flexibility in the use of resources discretion to determine cost allocations and full responsibility to determine staffing requirements and remuneration. It is vital that: risk management principles are followed incentives are created to ensure improved efficiency and non-financial measures for outputs in terms of quantity, quality and timeliness are introduced and used together with financial measures in the evaluation of performance. 4.19 A sound financial management system needs to be supported by appropriate legislation, regulations, instructions and systems. Trained and competent staff are essential, informed by an efficient management information system. There should be guidelines, manuals or instructions setting out the procedures and regulations with which public sector financial management and reporting must comply. The Ministry of Finance may specify financial regulations with which public sector organisations are required to comply. These documents should be reviewed every two or three years (or when major change has occurred) and updated accordingly. The permanent secretary and senior managers should have useful and reliable information in order to evaluate the operations of the organisation. The information system and its operators should ensure full and proper records are kept of the affairs of the public sector organisation. Information systems should be designed in such a way as to measure costs and the key performance indicators considered essential by the permanent secretary, and other senior managers, in their assessment of the organisations success or failure. The accounting system that produces the financial statements needs to be

4.20

38

integrated with other management systems (e.g. cash, budget, treasury and debt management). STAFF TRAINING 4.21 Permanent secretaries should ensure that training programmes are in place so that all staff are competent to perform their work. Sound recruitment policies, acceptable conditions of employment and appropriate training programmes can contribute to competent staff. The quality of management in a public sector organisation is directly related to its ability to obtain and retain experienced managers, accountants and other specialist staff. Salary levels in public sector organisations should be sufficient to attract and retain staff of the right calibre. Public sector salaries are usually set centrally by the Public Service Commission or equivalent. Public sector managers should be proficient in the following areas: strategic planning formulation of output objectives, performance measures and operational plans organisation (people and structure, operational processes and technology) performance measurement, financial and performance reporting management of funds, working capital and other assets managing reliable and relevant accounting and information systems procurement and contracting for goods and services and management and motivation of staff.

4.22

4.23

39

4.24

An assessment of the performance of staff should ensure that individual performance is linked to the operational plan of the public sector organisation. Incentives should be given for good performance to ensure continued improved efficiency, and sanctions should be instituted for non-performance or sub-standard performance. Staff should be appropriately supervised and their performance evaluated against an appropriate profile. Training should be tailored to fit the immediate requirements and career aspirations of staff. The training programme needs to integrate formal training with on-the-job training. Management training opportunities should be provided to all staff to ensure that they perform competently. Staff with specialised responsibilities require appropriate additional training. INTERNAL AUDIT

4.25

4.26

Permanent secretaries should ensure that an effective internal audit function is established and maintained as part of the organisation's framework of internal control. Acceptable standards should be applied by the internal audit function, in particular relating to independence, professional proficiency and audit approach. The East and Southern African Association of Accountants General (ESAAG) has developed a set of Guidelines on Internal Auditing with a commentary and explanatory notes. The Guidelines are reproduced at Appendix 4 to this Guide. The Institute of Internal Auditors' Standards for the Professional Practice of Internal Auditing may also be a useful reference. The head of Internal Audit should gain the respect and co-operation of the permanent secretary, other senior managers and the audit committee (see also paragraphs 4.334.38 below). The Internal Audit section should have unrestricted rights of access to all personnel, records (both electronic or otherwise) and assets, and be able to obtain such information and explanations as the head of Internal Audit considers necessary for the proper fulfilment of its responsibilities Internal Audit needs to be objective, and, as far as possible, operationally independent of the organisation's management. It is the responsibility of the audit committee to ensure that conflicts of interests do not arise and that its objectivity and independence are not compromised. The head of Internal Audit should report directly to a

4.27

4.28

4.29

40

senior manager, with direct access, as necessary, to the permanent secretary and chair of the audit committee (or equivalent). 4.30 An effective internal audit function needs to cover the systematic review, appraisal and reporting of the adequacy of the systems of managerial, financial, operational and budgetary control and their effectiveness in practice, including, at a minimum: the adequacy of established regulations, guidance, policies, plans and procedures the appropriateness of organisational, personnel and supervision arrangements the extent of compliance with the above the adequacy of accounting for assets and interests and the extent that these are safeguarded from losses of all kinds arising from waste, extravagance, inefficient administration, poor value for money, fraud or other cause the appropriateness, reliability and integrity of financial and other management information and the means used to identify, measure, classify, report and act upon that information the economy and efficiency with which resources are employed the integrity of computer systems, including systems under development and the follow-up action taken to remedy previously identified weaknesses. 4.31 The Internal Audit section should have relevant documented procedures (e.g. an audit charter and manuals) and other guidelines. In several countries, internal audit has a direct role to play in the authorisation of payments through the pre-audit process. Permanent

4.32

41

secretaries may consider that this is a necessary role for Internal Audit. However, Internal Audit will be more effective in a wider role. This would include the following changes: Internal Audit should change focus, from being a control to being an independent review of internal controls under the direction of an audit committee Internal Audit should be clearly defined as a management rather than as a financial tool there must be management support for Internal Audit and the creation of a climate where managers and those responsible for Internal Audit co-operate for their mutual benefit and Internal Audit should develop a constructive role: as an aid to risk assessment and a pro-active approach to contribute to good management and effective internal control. AUDIT COMMITTEES 4.33 Permanent secretaries should establish an audit committee, comprising independent members, with the responsibility for independent review of the framework of control and of the external audit process. To be effective, the audit committee should be independent of the organisation's senior management. To achieve this: it is established as a high level committee, and its members are given written terms of reference that deal adequately with their membership, authority and duties the majority of members of the committee are not employed by the organisation; they may include senior managers from other public sector organisations or from the private sector; members of the audit committee are named in the annual report the permanent secretary, responsible finance officer or director of finance, the head of Internal Audit and the Auditor-General

4.34

42

normally attend meetings of the audit committee and have direct access to this committee at any time; other senior managers may also attend as required the head of Internal Audit and the Auditor-General bring all significant findings arising from audit activities to the attention of the audit committee the audit committee has discussions with the head of Internal Audit and the Auditor-General at least once a year, without the permanent secretary and other senior managers being present, to ensure that there are no unresolved issues of concern and the committee has explicit authority to investigate any matters within its terms of reference, the resources it needs to do so, and full access to information. The committee is able to obtain outside professional advice and if necessary, invite outsiders with relevant experience to attend its meetings. 4.35 The effectiveness of the audit committee will depend on its having a capable chairperson who has the confidence of the permanent secretary, the organisation's head of Internal Audit and the AuditorGeneral. The quality of its other members will also be important. The chairperson of the audit committee should be independent of senior management of the organisation. The chairperson of the audit committee should not be the permanent secretary and should neither fulfil a management role within the organisation nor any other role that may conflict with his or her role as chair of the audit committee. Members of the audit committee should be appropriately qualified, and receive appropriate information, advice and training to enable them to carry out their roles effectively. Members should have experience of managing organisations of a similar size and complexity. At least one members of the audit committee should be an experienced financial manager, preferably a qualified accountant.

4.36

4.37

43

4.38

The terms of reference of the audit committee should be written and confirmed by the permanent secretary. The functions of the audit committee include: reviewing the extent to which managers implement and maintain an adequate internal control process reviewing, with management, the adequacy of policies and practices to ensure compliance with relevant statutes, directions, guidance and policies reviewing, with management, the latters ability to monitor compliance with relevant standards or codes of governance reviewing, with management, the adequacy of the financial information they rely on to manage the organisation reviewing, with senior managers, the latters relationship with the Auditor-General (see also paragraphs 5.195.23 below) ensuring that the Internal Audit function is properly resourced and has appropriate standing within the organisation recommending or approving the hiring or removal of the head of Internal Audit and, where appropriate, the Auditor-General. In many countries the appointment of the organisation's external auditor is made by the Parliament or a separate audit regulator and may not be within the remit of the audit committee of the organisation reviewing the activities of the Internal Audit function, including its annual work programme, co-ordination with the Auditor-General, the reports of significant investigations and the responses of senior managers to specific recommendations where relevant, reviewing the scope and results of both Internal Audit and the Auditor-General and their cost effectiveness, and the independence and objectivity of the auditors; where the Auditor-General also supplies a substantial volume of non-audit services to the organisation, the committee needs to keep the

44

nature and extent of such services under review, seeking to balance the maintenance of objectivity and value for money monitoring, on behalf of the permanent secretary, all aspects of the organisations relationship with the Auditor-General; this includes reviewing the audit report and other communication with management, as well as actions taken by management on recommendations included in previous communications reviewing any non-audit work proposed to be carried out by the Auditor-General and ensuring that adequate safeguards are in place to prevent possible conflicts of interest and guard the Auditor-Generals independence providing advice to the permanent secretary and/or relevant accounting officers on the above aspects of their work and holding formal meetings as required; this will usually be at least four times a year. RISK MANAGEMENT 4.39 Permanent secretaries should ensure that effective systems of risk management are established as part of the framework of control. Risk can be defined as the chance of something happening that will have an impact on the achievement of objectives. It can be expressed in terms of consequences and likelihood. Risk can have either a beneficial or a detrimental impact on the achievement of objectives. Risk management can be viewed as a process of:

4.40

4.41

45

 understanding the organisational objectives identifying the risks associated with achieving the objectives assessing the risks, including the likelihood and potential impact of specific risks developing and implementing programmes/procedures to address identified risks and monitoring and evaluating risks and the programmes/procedures in place to address them. 4.42 The permanent secretary and other senior managers should identify internal and external risks so they can react to (or initiate) changes in an appropriate and timely manner. Other staff should also know what risks are acceptable to the permanent secretary and other senior managers. In turn, the permanent secretary needs to understand what risks are acceptable to the minister, Cabinet and the President/Prime Minister. Risks that have been accepted by the organisation should be documented and communicated to senior managers and relevant staff. ANTI-CORRUPTION COMMISSION 4.44 Permanent secretaries should ensure that they and their staff support the work of the national anti-corruption commission, if one exists. They should also regularly consider the extent to which the work of their department can be co-ordinated with that of the anti-corruption commission to ensure that fraud and corruption are minimised. Several ECSAFA member countries have established, or are establishing, anti-corruption commissions. The creation of such an effective and credible watchdog organisation has been identified as a key pillar for sustaining or restoring national integrity. Permanent secretaries should support the creation of a national anti-corruption commission where such an organisation does not yet exist.

4.43

4.45

46

4.46

These organisations usually investigate cases of alleged fraud or corruption, provide advice on how to reduce corruption and also play an educational or campaigning role. Their success is seen as being dependent on the extent to which they have been able to involve civil society organisations in their work. The functions of an anti-corruption commission may include: investigating any complaints or allegations of serious fraud or corruption in any public body assisting any law enforcement agency in the investigation of serious offences involving dishonesty or cheating of the public revenue reviewing the practices and procedures in public bodies in order to facilitate the discovery of corrupt practices and making recommendations to reduce the risk of corrupt practices occurring in future advising permanent secretaries of changes in practices or procedures, compatible with the effective discharge of their duties, which the commission thinks necessary to reduce the likelihood of the occurrence of corrupt practices educating the public against the evils of corruption by providing information on its harmful effects and enlisting and fostering public support in combating corruption.

4.47

4.48

The anti-corruption commission may hold workshops in government departments and other institutions to raise awareness of the problems of corruption and ways of reducing its occurrence. Perhaps the most important aspect of the work of anti-corruption commissions has been their public education role. Activities in this area have included: talk and phone-in shows on television and radio

4.49

47

 posters and pamphlets press releases, newspaper articles and advertisements and talks and presentations to various civil societies and other groups.

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5. External Reporting
ANNUAL REPORTING 5.1 Permanent secretaries should publish promptly an annual report (including financial statements), presenting a balanced and understandable account of the organisations performance, achievements, financial position and prospects. To discharge their accountability for public resources, permanent secretaries should ensure that they publish an annual report within a reasonable time after the end of the financial year. The report should include: audited financial statements and the Auditor-Generals report a statement of the aims and objectives of the organisation, the performance measures against which future years performance will be judged and a comparison of the actual performance achieved in the year covered by the annual report with the performance measures as determined in the previous financial year a statement of the organisation's remuneration policy for the permanent secretary and other senior managers (see also paragraphs 3.383.45 above) and a statement that presents an objective, balanced and understandable commentary on the organisations financial performance and position, its non-financial performance, and on its future ability to meet liabilities and commitments. 5.3 The usefulness of financial statements is impaired if they are not made available to users within a reasonable period after the reporting date. International Public Sector Accounting Standards 1 Presentation of Financial Statements (IPSAS 1) provides guidance that an organisation should be in a position to issue its financial statements within six months of the reporting date. The IFAC Public Sector Committee and

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ECSAFA encourage the issue of financial statements within three months at the end of the reporting period. 5.4 Permanent secretaries should include in their annual report a statement on whether or not they have adopted specific standards or codes of governance. To demonstrate their commitment to high standards of governance, permanent secretaries should include in their annual report a statement that they have complied with relevant standards or codes of governance. This statement should identify the standards or codes adopted as well as those standards or parts of codes with which they have not complied; should disclose for what part of the period such non-compliance continued; and give reasons for such non-compliance. The permanent secretary needs to include in his or her annual report a statement explaining (at a minimum) the responsibility for: approving the budget to provide authorisation for the acquisition and use of financial resources providing financial statements that fairly present the state of affairs of the organisation as at the end of the financial year and the results of the operations for that year maintaining an effective framework of internal control ensuring the consistent use of appropriate accounting policies, supported by reasonable and prudent judgements and estimates and ensuring adherence to applicable accounting standards. 5.7 The annual report should also include a statement explaining the Auditor-Generals responsibility for reporting on the organisations financial statements. The annual report should be made available to staff, users of the organisation's services and the general public.

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USE OF APPROPRIATE ACCOUNTING STANDARDS 5.8 Permanent secretaries should ensure that the financial statements are prepared in accordance with an authoritative and recognised set of accounting standards, and applicable legislation. Accounting standards are authoritative statements of how particular types of transactions and other events should be reflected in the financial statements. Accordingly, compliance with accounting standards will normally be necessary for financial statements to give a fair presentation. In addition, compliance with accounting standards should promote the reliability, consistency and transparency of financial information. The notes to the organisation's annual financial statements should clearly state the accounting standards that have been followed and any exceptions to these standards that were considered necessary. The IFAC Public Sector Committee establishes recommended accounting standards for public sector organisations, referred to as International Public Sector Accounting Standards (IPSASs). Copies of the IPSASs are available on the IFAC website: www.ifac.org. In some cases there may be a conflict between the reporting requirements set out in the accounting standards and certain Parliamentary reporting requirements. While the Parliamentary requirements should take precedence in this situation, it may mean that the organisation will not be able to state that it complies with the accounting standards in question. PERFORMANCE MEASURES 5.13 Permanent secretaries should establish and report relevant performance measures to demonstrate that all resources have been procured economically and are utilised efficiently and effectively. The public sector is under intense pressure to improve its operations and deliver its products and services more efficiently and at the least cost to the taxpayer. Performance measurement is a useful tool in this regard, since it formalises the process of tracking progress toward

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established goals and provides objective justifications for organisational and management decisions. 5.15 To improve performance, it is also necessary to measure performance in non-monetary terms. Without information about what is being delivered (outputs), what it is costing (inputs), and what is achieved (outcomes) it is impossible to make efficient resource allocations within the public sector. Performance measures should include responding to accountability requirements, improving service delivery, and reducing costs while maximising output and increasing productivity in the organisation. Performance measures usually work best when those people involved in the activity being measured have themselves been involved in creating the measures. A basis of comparison is needed for performance measures. The most usual bases are: comparisons with previous years comparisons with similar organisations and comparisons of actual results with targets. 5.17 Where comparisons over time are made by a particular organisation, then a consistent basis of measurement should be used. Performance measures usually assess: economy this refers to the acquisition of the appropriate quality and quantity of financial, human and physical resources at the appropriate time and place, and at the lowest possible cost efficiency this refers to the use of resources so that output is maximised for any given set of resource inputs, or input is minimised for any given quantity and quality of output provided effectiveness this refers to the extent of the achievement of set or predetermined outcomes, objectives or other intended effects of programmes, operations, activities or processes

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and appropriateness that is, whether the objectives or outcomes of programmes, operations, activities or processes address the real needs of customers. EXTERNAL AUDIT 5.19 Permanent secretaries should ensure that an objective and professional relationship is maintained with the Auditor-General. An audit committee (see paragraphs 4.33 to 4.38 above) should be responsible for monitoring the relationship between the organisation's senior management and the Auditor-General. In most countries, the Auditor-General has a wider range of responsibilities for reporting on the activities of public sector organisations than do auditors working in the private sector, covering not only the financial statements, but also compliance audits, value-formoney audits and public interest issues. In monitoring the organisations relationship with the Auditor-General on behalf of the permanent secretary, the audit committees responsibilities should include: considering, where relevant, the appointment of the external auditor, the audit fee, and any questions of resignation or dismissal considering the objectives and scope of any non-financial audit or consultancy work proposed to be undertaken by the AuditorGeneral, and reviewing the remuneration for this work discussing with the Auditor-General before the audit commences the scope of the audit and the extent of reliance on the Internal Audit section and other review agencies discussing with the Auditor-General any significant issues arising from their review of the financial statements (in the absence of

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senior managers where necessary) and any other work undertaken or overseen by the audit committee reviewing and considering communication between the AuditorGeneral and the organisation's senior manages and reviewing progress on accepted recommendations from the Auditor-General. 5.23 Generally, the Auditor-General should only be contracted to carry out non-audit work where the audit committee is satisfied that there are no conflicts of interest and the auditors independence will not be compromised. Such work may be prohibited in some countries. Independent assurance function of external auditors 5.24 In most countries, public sector external auditing is well established, usually in the form of the Auditor-General's Office. There are exceptions, where private sector auditors conduct the audit of public sector organisations, often on behalf of the Auditor-General. Most Auditor-Generals are members of the International Organisation of Supreme Audit Institutions (INTOSAI). The Lima Declaration of INTOSAI is reproduced as Appendix 5 to this Guide and contains a comprehensive list of goals and issues relating to government auditing. Relevant, reliable and audited financial statements are a key aspect of good governance and accountability. Public sector organisations should prepare their own financial statements. The Auditor-General provides assurance through the expression of an independent opinion on whether these statements provide a true and fair view of the financial affairs of the particular organisation (financial audit). This opinion is usually provided to Parliament and may also include an opinion on the overall accounts of the government. The Auditor-General should follow generally recognised auditing standards when undertaking external audit. For this reason auditing standards may be developed for the Auditor-General's Office from

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recognised international auditing standards and guidance or from local private sector auditing standards. The Auditing Standards Committee of INTOSAI has developed INTOSAI Auditing Standards. Although these standards do not have mandatory application, they reflect a best practice consensus among Auditors-General. 5.28 In addition, the International Auditing Practices Committee of IFAC issues International Standards on Auditing (ISAs), which may contain a Public Sector Perspective (PSP). The ISAs set out basic principles and related practices and procedures that apply to audits of financial statements. The application of certain ISAs may need to be clarified or supplemented to accommodate public sector circumstances, particularly as they relate to the audit of public sector organisations, and this is done with the inclusion of a PSP. Where no PSP is included, the basic principles and related practices may be applied in the public sector circumstances without further clarification or supplementation. The financial statements of public sector organisations may include information that is different from, or additional to, that contained in the financial statements of private sector organisations, for example, comparison of expenditure in the period with limits established by legislation. In such circumstances, appropriate modifications may be required to the nature, timing and extent of audit procedures, and the Auditor-Generals report. The Auditor-General may also be required to report on whether or not: expenditure has been applied for authorised purposes and conforms to the authority that governs it (regularity auditing/compliance auditing) and due regard has been paid to securing economy, efficiency and effectiveness (performance auditing/value for money auditing).

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Appendix 1 Good Governance: A Checklist for Permanent Secretaries

This checklist is intended to assist permanent secretaries to identify potential strengths and weaknesses in governance arrangements. Where the checklist uncovers weaknesses in the governance arrangements, the permanent secretary will need to give further consideration to the specific areas identified. STANDARDS OF BEHAVIOUR Leadership 1 Has the permanent secretary taken steps to ensure that the organisations members exercise leadership by conducting themselves in accordance with high standards of behaviour? Codes of conduct 2 Has the organisation adopted a formal code of conduct defining the standards of behaviour that all employees of the organisation are required to follow? Does the permanent secretary periodically review adherence to the code of conduct? Objectivity, integrity and honesty 4 Has the permanent secretary established appropriate mechanisms to ensure that senior managers and other employees of the organisation are not influenced by prejudice, bias or conflicts of interest?

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ORGANISATIONAL STRUCTURES AND PROCESSES Accountability for public money and performance 5 Has the permanent secretary established appropriate arrangements to ensure that public funds and resources are: properly safeguarded? used economically, efficiently, effectively, appropriately and with due propriety? used in accordance with the statutory or other authorities that govern their use? Communication with stakeholders 6 Has the permanent secretary made an explicit commitment to openness and transparency in all the activities of the organisation? Roles and responsibilities 7 Is there a clearly defined division of responsibilities at the head of the body to ensure a balance of power and responsibility between Parliament, the minister and the permanent secretary? Does the permanent secretary effectively lead and exercise control over the organisation? Does the permanent secretary monitor senior managers and other members of staff? Has the permanent secretary established and maintained an up-to-date framework of delegated or reserved powers that includes a formal schedule of those matters specifically reserved for him or herself? Has a senior manager been made responsible for ensuring that appropriate advice is given to the permanent secretary, minister and Parliament on all financial matters, for keeping proper financial records and accounts, and for maintaining an effective system of internal financial control?

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Has the organisation established a formal and transparent procedure for developing policy on the remuneration of senior managers. Are any staff involved in deciding their own remuneration? Does the annual report of the organisation contain a statement on its remuneration policy and details of the remuneration of senior managers? CONTROL Internal control

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Has the permanent secretary taken steps to ensure that an effective framework of internal control: is established? operates in practice?

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Does the permanent secretary include, in the organisations annual report, a statement on the effectiveness of its framework of internal control? Budgeting and financial management

15

Has the permanent secretary ensured procedures are in place to ensure effective and efficient budgeting and financial management? Staff training

16

Has the permanent secretary established training programmes to ensure that staff are competent to perform their work? Internal audit

17

Has the permanent secretary taken steps to ensure that an effective internal audit function is established as part of the framework of internal control?

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Audit committees 18 Has the permanent secretary established an audit committee, comprising independent members with responsibility for the independent review of the framework of control and of the external audit process? Risk management 19 Has the permanent secretary taken steps to ensure that effective systems of risk management are established as part of the framework of internal control? Anti-corruption commission 20 Does the permanent secretary ensure that he or she and all staff support the work of the national anti-corruption commission, if one exists? Does the permanent secretary also regularly consider the extent that the work of their department is co-ordinated with that of the anticorruption commission, to ensure that fraud and corruption are minimised? EXTERNAL REPORTING Annual reporting 22 Does the permanent secretary publish promptly an objective, balanced and understandable annual report? Does the annual report contain a statement on whether or not the organisation has adopted specific standards or codes of governance? Does the permanent secretary ensure that the organisation's financial statements comply with a recognised set of accounting standards?

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Performance measures 25 Does the permanent secretary institute and report on relevant performance measures? External audit 26 Has the permanent secretary taken steps to ensure that an objective and professional relationship is maintained with the Auditor-General?

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Appendix 2 Code of Conduct for Public Officials

INTERNATIONAL CODE OF CONDUCT FOR PUBLIC OFFICIALS APPROVED BY THE UNITED NATIONS GENERAL ASSEMBLY, 28 JANUARY 1997. General principles 1 A public office, as defined by national law, is a position of trust, implying a duty to act in the public interest. Therefore, the ultimate loyalty of public officials shall be to the public interests of their country as expressed through the democratic institutions of government. Public officials shall ensure that they perform their duties and functions efficiently, effectively and with integrity, in accordance with laws or administrative policies. They shall at all times seek to ensure that public resources for which they are responsible are administered in the most effective and efficient manner. Public officials shall be attentive, fair and impartial in the performance of their functions and, in particular, in their relations with the public. They shall at no time afford any undue preferential treatment to any group or individual, or improperly discriminate against any group or individual, or otherwise abuse the power and authority vested in them. Conflict of interest and disqualification 4 Public officials shall not use their official authority for the improper advancement of their own or their family's personal or financial interest. They shall not engage in any transaction, acquire any position or function or have any financial, commercial or other comparable interest that is incompatible with their office, functions and duties or the discharge thereof. Public officials, to the extent required by their position, shall, in accordance with laws or administrative policies, declare business,

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commercial and financial interests or activities undertaken for financial gain that may raise a possible conflict of interest. In situations of possible or perceived conflict of interest between the duties and private interests of public officials, they shall comply with the measures established to reduce or eliminate such conflict of interest. 6 Public officials shall at no time improperly use public moneys, property, services or information that is acquired in the performance of, or as a result of, their official duties for activities not related to their official work. Public officials shall comply with measures established by law or by administrative policies in order that after leaving their official positions they will not take improper advantage of their previous office. Disclosure of assets 8 Public officials shall, in accord with their position and as permitted or required by law and administrative policies, comply with requirements to declare or to disclose personal assets and liabilities, as well as, if possible, those of their spouses and/or dependants. Acceptance of gifts or other favours 9 Public officials shall not solicit or receive directly or indirectly any gift or other favour that may influence the exercise of their functions, the performance of their duties or their judgement. Confidential information 10 Matters of a confidential nature in the possession of public officials shall be kept confidential unless national legislation, the performance of duty or the needs of justice strictly require otherwise. Such restrictions shall also apply after separation from service. Political activity 11 The political or other activity of public officials outside the scope of their office, in accordance with laws and administrative policies, shall

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not be such as to impair public confidence in the impartial performance of their functions and duties.

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Appendix 3 Staff Code of Conduct (Example)

If you are unsure about any of the information contained in this code or you require further guidance regarding conduct then you should talk to your supervisor or line manager. You are required to comply with this code and managers are required to support the code through the supervision of staff. Principles and general conduct 1 You have a duty to work towards the aims of the Department and to implement its decisions promptly and efficiently. You: should discharge your responsibilities honestly, efficiently and effectively at all times are responsible for your own actions and actions taken under your direction by staff under your management should at all times act in accordance with the principles of public life and thus avoid conduct likely to bring the Department into disrepute are responsible for compliance with the Departments financial regulations and for the efficient use of any resources over which you have influence or control; and for managing any staff under your control to ensure that such regulations and procedures are followed are responsible for ensuring that the Department has available to it the information which it needs to take sound decisions in each member of staffs area of responsibility and that it receives reports on the activities of its committees and the use of delegated authorities and

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 should ensure that in describing the Departments actions, you provide information which is as accurate as possible in order not to mislead those with an interest in the Departments business, subject to the requirements of confidentiality. Gifts and hospitality 2 You should treat with caution any offer or gift, favour or hospitality and have a responsibility to ensure that you comply at all times with the Department's rules covering the acceptance of gifts, hospitality and fees. Your behaviour in accepting gifts and hospitality should be governed by the general guidance in this Code. Your conduct should not foster the suspicion of a conflict of interest. You should always have in mind the need not to behave so that the impression might be given that you are influenced by any gift or consideration to show favour or disfavour to any person or organisation whilst acting for the Department. You must not, directly or indirectly, accept any gift, reward or benefit from any member of the public or organisation with whom you have been brought into contact by reason of your duties. If you are responsible for the purchase of supplies or equipment, or for letting contracts on behalf of the Department, you should take particular care to ensure that there can be no criticism that unequal treatment has been given to any specific supplier. In certain circumstances you may accept a gift when offered in return for your contribution as part of your duties to particular events, for example prize-givings, opening of a new building, speaking engagements, etc. In these circumstances, the receipt of the gift should be reported to your line manager. Fees 6 You may not personally receive any fee from another body for work related in any way to your employment with the Department. You may accept reasonable fees from profit-making bodies on behalf of the Department, in which case the cheque should be made payable to the Department and sent to the Finance Team. If a fee is paid without a

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prior offer being made, the fee should either be returned or surrendered to the Department Finance Team with an explanatory note. Private interests 7 You are required as a condition of your employment by the Department not to hold any paid post, office, profession or employment that could conflict with your Department duties. You should ensure that this is so by obtaining written agreement from the permanent secretary before taking on any paid outside responsibility. This could also apply to activities of your spouse, partner or close family that may conflict with your duties to the Department. If such interests are material, you should not take part in decisions or discussions relating to that business, either informally or formally. Application for employment at an institution funded by the Department 9 If you apply for employment at an institution funded by the Department you are also required, in certain circumstances, to declare this in confidence, in order to protect the reputation of the Department. Resolution of difficulties 10 If at any time you have difficulty in complying with this code, you should discuss the matter with your line manager, your director or the permanent secretary. If you consider that the Department's codes are being disregarded or have concerns about the actions of the Department you may make a complaint on a confidential basis in accordance with the Departments Whistle-blowing procedure (see annex A). Overseas travel 12 The permanent secretary's authorisation is required before you may undertake overseas travel on Department business.

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Staff indemnity 13 You are required to adhere to the principles and general conduct for staff. In circumstances where a third party was given advice or guidance by you and subsequently legal proceedings were instigated, those proceedings would usually be brought against the Department. However, very occasionally, proceedings may be brought against you, alone or in conjunction with the Department. If you have not acted negligently and have acted in accordance with your designated role as a Department employee, the Department will fully and effectively indemnify you against, and in respect of, legal proceedings. Where the claim is against you alone, this will be conditional upon you not making an admission or entering into negotiations with the third party without the Departments consent. If proceedings are brought jointly against yourself and the Department, then the Department reserves the right to conduct proceedings on behalf of both parties. Providing indemnity against legal proceedings will not prejudice the Departments right to apply its disciplinary or poor performance procedures for your acts or omissions. Access to information 14 Whilst much of the information within the Department is readily available for those with an interest in the Department or its work, you may, in the course of your duty, have access to information which is, and should remain, confidential. If you are requested to supply information and are in any doubt as to whether that information is confidential, of if you require further guidance regarding the Departments Code on Access to Information, you should contact your line manager.

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Appendix 3 (Annex) Confidential Reporting Policy (Whistle-blowing)

Introduction 1 All employees at one time or another have concerns about what is happening at work. Usually these concerns are easily resolved. However, when they are about unlawful conduct, financial malpractice, health and safety risks to the public or to other employees, damage to the environment, possible fraud or corruption, or any other unethical conduct, it can be difficult to know what to do. You may be worried about raising such issues or may want to keep the concerns to yourself, perhaps feeling it is none of your business or that it is only a suspicion. You may feel that raising the matter would be disloyal to colleagues, managers or to the Department. You may decide to say something but find that you have spoken to the wrong person or raised the issue in the wrong way and are not sure what to do next. You may also fear that you could be harassed or victimised. The Department is committed to the highest possible standards of openness, integrity and accountability. It expects that its employees who have serious concerns about anything that is happening in the Department will come forward and raise those concerns. The Department, however, recognises that employees need to be supported and have confidence that any concerns will be treated appropriately. The purpose of this policy is to enable you to raise your concerns about such malpractice at an early stage and in the right way. The Department would rather that you raised the matter when it is just a concern rather than wait for detailed proof to be produced. The policy is intended to apply not only to staff, both permanent and temporary, but also to contractors working for the Department on Department premises. It also covers suppliers and those providing services under a contract with the Department in their own premises.

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Safeguards 5 The Department is committed to good practice and high standards and wants to be supportive of employees and others doing work for the Department. The Department recognises that the decision to report a concern can be a difficult one to make. If you raise a genuine concern under this policy you should have nothing to fear because you will be doing your duty to your employer and those for whom you are providing a service. The Department will not tolerate any harassment or victimisation (including informal pressures) and will take appropriate action to protect you when you raise a concern in good faith. This could include maintaining confidentiality wherever possible or taking positive action to deal with any harassment or victimisation. Any investigation into allegations of potential malpractice will not influence or be influenced by any disciplinary or redundancy procedures that may affect you. All concerns will be treated in confidence and every effort will be made not to reveal your identity if you so wish. At the appropriate time, however you may need to come forward as a witness. You should, whenever possible, put your name to your allegation, as concerns expressed anonymously are much less powerful. The Department will exercise discretion in considering anonymous allegations if the issue raised is sufficiently serious (for example, involving individual or public safety or fraud, irregularity or corruption, waste or other impropriety) and credible, and there is a likelihood of confirming the allegation from other sources. If you make an allegation in good faith but it is not confirmed by the investigation, no action will be taken against you. If, however, you make an allegation frivolously, maliciously or for personal gain, disciplinary action may be taken against you. How to raise a concern 10 Concerns should normally be raised first with your immediate team leader, line manager or your director. However if the matter is of an extremely sensitive or serious nature or you believe management to be

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involved you should approach the permanent secretary's secretary who is .. telephone .. or the director of finance's secretary .. The permanent secretary's secretary will be able to provide you with advice and guidance on how to pursue matters of concern. 11 Concerns may be raised verbally or in writing. It would be helpful if you could make a written report in which you include the background and history of the concern with relevant dates and the reasons why you are particularly concerned about the situation. You will need to demonstrate to the person contacted to raise your concern that there are reasonable grounds for your concern. You may be accompanied at any meetings or interviews in connection with the concerns you have raised by your trade union or other representative or a friend. How the department will respond 13 Once you have raised your concern, it will be looked into to assess initially what action should be taken. As appropriate, matters raised may: be investigated by management, the permanent secretary, of the head of Internal Audit, through the disciplinary process or investigated through the Department complaints procedures be referred to the police and form the subject of an independent investigation commissioned by the Department. 15 In deciding how to deal with the concern raised, the overriding principle that the Department will have in mind is the public interest. Some concerns may be resolved by agreed action without the need for investigation. If urgent action is required this will be taken before any investigation is conducted.

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Within 10 working days of a concern being raised, the person with whom you have raised the concern will write to you acknowledging that the concern has been received and indicating how the Department proposes to deal with the matter. If there is an ongoing investigation, the person responsible for that investigation will provide you with updates on how the matter is progressing and inform you of the outcome of the investigation, subject to any legal constraints. The Department will take steps to minimise any difficulties that you may experience as a result of raising a concern. For instance, if you are required to give evidence in criminal or disciplinary proceedings, the Department will arrange for you to receive advice about the procedure and any support and counselling you may require. The responsible officer

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That officer maintains a record of concerns raised and the outcomes, in a form that does not endanger your confidentiality, and will report as necessary to the Department. External contacts

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While the Department hopes this policy gives you the reassurance you need to raise such matters internally, it recognises that there may be circumstances where you can properly report matters to outside bodies, such as the Auditor-General's Office, the Anti-Corruption Commission or the police.

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Appendix 4 Internal Auditing Guidelines East and Southern African Association of Accountants General
INTRODUCTION These Internal Auditing Guidelines were developed and adopted by the East and Southern African Association of Accountants General (ESAAG) in 2001. They are recommended to all government institutions in ESAAG member countries. These may include Ministries, Departments, Regions, and other public sector organisations, where appropriate. The Guidelines are prepared in compliance with the Standards for the Professional Practice of Internal Auditing developed by the Institute of Internal Auditors and international best practice in public sector Internal Audit. The guidelines are intended to provide best practice principals rather than specific guidance on Internal Audit procedures and techniques. Each professional Internal Auditor should hold the general skills and knowledge of Internal Audit practice.

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GUIDELINE ONE: NATURE, OBJECTIVES AND SCOPE OF INTERNAL AUDIT 1 Nature of Internal Audit: Internal Auditing is an independent objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. The effect of Internal Audit should be continual improvements and refinements to the internal control system as a contribution to proper, economic, efficient and effective use of government resources. Objectives of Internal Audit: Internal Audit has two main objectives. These are to: (a) ensure that internal control and risk management systems are continually being improved and optimised in response to an ever changing environment and (b) provide reasonable assurance to the relevant accounting officer and the audit committee that significant risks in the public sector organisation are being appropriately managed, with an emphasis on the role of internal controls.

The way that these objectives are achieved will vary between countries and organisations. This leads to a variety of different approaches to Internal Audit. This subject is covered in the Guideline below on Approaches to Internal Audit. The head of Internal Audit should be consulted when the accounting officer wishes to change the system of internal control. The head of Internal Audit should be required to co-ordinate inter-ministerial or departmental issues concerning control. If internal auditors are used to investigate potential fraud or irregularity they will need specialist knowledge and experience. An expert team should be created to investigate cases of actual or potential fraud and irregularity.

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Internal control: internal control has been defined by the Committee of Sponsoring Organisations of the Treadway Commission (COSO) in Internal Control Integrated Framework, as: A process, effected by an organisations board of directors, managers and other personnel (people), designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations; (basic operational objectives, performance goals and safeguarding resources) reliability of financial reporting and compliance with applicable laws and regulations.

Internal control is a management tool used to provide reasonable assurance that the public sector organisation's objectives are being achieved efficiently. Internal control covers the whole system of controls, policies and procedures established by management to meet their targets and objectives. The responsibility for the adequacy and reliability of internal controls rests with management. The relevant accounting officer has overall responsibility for the establishment and maintenance of internal controls within their area of responsibility. The accounting officer of each public sector organisation should ensure that proper internal controls are introduced, reviewed, and updated to keep them effective. An audit committee can assist with this role. Scope of Internal Audit: the potential scope of Internal Audit is the whole system of internal control established by a public sector organisation. This may include controls over all the organisation's activities, not just controls over financial accounting and reporting. Internal Audit should review all significant operational and management controls, including policies and procedures for the management of risk. However, Internal Audit should concentrate its efforts on the high risk areas and the most important internal controls.

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10

The accounting officer and audit committee should not restrict Internal Audit to work on financial systems or checking that assets are safeguarded. Internal Audit work should go beyond the accounts to check that public officials and others entrusted with public resources are: (a) complying with applicable laws and regulations and (b) achieving government objectives and desired services or benefits established by the public sector organisation.

11

The audit committee and the accounting officers should ensure that Internal Audit has the widest scope to ensure that internal controls across the whole public sector organisation may be subject to review by Internal Audit. Internal Audit should have unrestricted access to all the people, systems, documents and property it considers necessary for the proper fulfilment of its responsibilities. GUIDELINE TWO: INTERNAL AUDIT INDEPENDENCE

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Internal auditors should be objective and, as far as possible, operationally independent of the management of the public sector organisation. Internal Audit independence should permit it to provide impartial and unbiased judgements that are essential for its proper function. Internal Audit independence should also ensure that the head of Internal Audit can report without 'fear or favour' to all levels within the public sector organisation. Internal Audit independence can be ensured through status and objectivity. It is the responsibility of the accounting officer and the audit committee to ensure that conflicts of interest do not arise and that Internal Audits objectivity and independence are not compromised. If the independence or objectivity of Internal Audit is impaired, in fact or appearance, the details of the impairment should be disclosed to the accounting officer and the audit committee.

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Status: the head of Internal Audit should be responsible to an individual with sufficient authority to promote Internal Audit independence and to ensure the broadest Internal Audit coverage, adequate consideration of Internal Audit reports and appropriate action on Internal Audit recommendations. Internal Audit needs the support of top management officials so that they can gain the co-operation of officers and perform their work without interference. Internal Audit should have a direct reporting line to the accounting officer and the audit committee. The head Internal Auditor should report to the accounting officer and an audit committee. Terms of reference: Internal Audit should have written terms of reference (or charter) that are agreed by the accounting officer and the audit committee. These should clearly outline the nature, objectives, responsibilities and scope of Internal Audit. The head of Internal Audit should actively seek to develop and obtain approval of such terms of reference. The terms of reference should be reviewed and revised, if necessary, at least every three years. The terms of reference for Internal Audit should include the requirement for Internal Audit to have the access, to all personnel, records, assets and property that Internal Audit considers necessary for it to undertake its work effectively. The terms of reference for Internal Audit should be supported by a law, by-law or regulation that specifies the position of the internal auditor in the government hierarchy. Objectivity: The term objectivity includes the requirement on the part of internal auditors to have an independent mental attitude to the performance of their work. Objectivity should ensure that internal auditors have an honest belief in their work product and that no significant quality compromises are made. Internal auditors should not be placed in any situation where they feel unable to make objective professional judgements. Objectivity may be impaired through familiarity, with both systems and officers. This may be created by Internal Audit staff being involved with work assignments for too long a period of time. In order to maintain maximum awareness and motivation amongst Internal Audit staff, work assignments should be rotated on a planned basis. Transfers of Internal Audit staff between

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public sector organisations are to be recommended, every few years, where possible. 23 Internal Audit assignments should be undertaken in such a way that there is no potential or actual conflict of interest. Internal Audit staff should not undertake audits of systems if they worked in this area in the last year. Internal Audit staff should declare any conflict of interest that may arise. Recommending standards of control for new systems or reviewing procedures before they are implemented is part of Internal Audit work. However, designing, installing and operating systems is not an Internal Audit function. Performing such work is presumed to impair Internal Audit objectivity. Position: the position of Internal Audit should be categorised specifically as a Staff function as opposed to all Line functions. Internal auditors should not supervise or manage other sections or activities. If internal auditors perform non-audit work they are not functioning as internal auditors. Performance of such activities is presumed to impair Internal Audit objectivity. Therefore, the internal auditor should not undertake executive functions outside their divisional activities. The position of Internal Audit within the public sector organisation should be high enough to ensure that there is no impairment of Internal Audit scope. GUIDELINE THREE: MANAGING INTERNAL AUDIT 27 The head of Internal Audit should effectively manage Internal Audit to ensure it adds value to the public sector organisation and to ensure that: Internal Audit work fulfils its terms of reference resources for Internal Audit are used efficiently and effectively Internal Audit staff undergo suitable professional development

24

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 Internal Audit work conforms to approved standards and the morale of Internal Audit staff is developed and maintained. 28 The head of Internal Audit should submit periodic activity reports to the accounting officer and the audit committee. These reports should compare: actual performance with goals and Internal Audit plans and actual expenditures with financial budgets. The head of Internal Audit should explain major variances (positive or negative) together with action taken to address these. 29 The head of Internal Audit should ensure that Internal Audit staff are provided with a suitable audit manual, including written policies and procedures to guide them with their work. This guidance should also include programmes for particular Internal Audit assignments. The Internal Audit programmes should specify reporting lines at each level of management. The head of Internal Audit should ensure that the work of all levels of Internal Audit staff is effectively supervised from planning to conclusion. This supervision should include: provision of suitable instructions and guidance at the outset of an Internal Audit assignment and approving the audit programme seeing that the approved audit programme is carried out unless deviations are both justified and authorised ensuring that Internal Audit staff understand the work to be undertaken and obtain and document sufficient relevant and reliable audit evidence and

30

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 determining that Internal Audit objectives are being met. 31 Management review: all Internal Audit working papers and reports should be reviewed by Internal Audit management before the reports are released. This review should include: determining that audit working papers adequately support the audit findings, conclusions and report and making sure that audit reports are accurate, objective, clear, concise, constructive and timely. 32 Internal Audit working papers should show clear evidence of this management review. Quality assurance appraisals: there should be periodical reviews of Internal Audit performance to ensure that its performance and value to the management of the public sector organisation is maximised and to ensure compliance with appropriate standards and guidance. The head of Internal Audit should establish and maintain a quality assurance programme to evaluate the operations of Internal Audit. This programme should provide reasonable assurance that Internal Audit work conforms to relevant standards and these Internal Auditing Guidelines. It should also ensure that Internal Audit adds value by improving internal control. This quality programme should include: (a) (b) supervision internal review and (c) 35 external review.

33

34

Supervision of Internal Audit work should continuously ensure conformance with the Institute of Internal Auditors Standards, these Internal Auditing Guidelines, department policies and audit programmes.

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Internal reviews should be performed periodically by senior Internal Audit staff to appraise the quality of the Internal Audit work that is undertaken in all public sector organisations. External reviews should be performed to assess the quality of Internal Audit work against these Guidelines. These reviews should be performed by suitably qualified Internal auditors who are independent of the organisation and who do not have either a real or an apparent conflict of interest. The external reviews should be undertaken at least once every five years. On completion of such reviews, formal written reports should be issued to the relevant accounting officer and the audit committee. These reports should express an opinion on Internal Audit's compliance with these Internal Auditing Guidelines and, where necessary, should include recommendations for improvement. GUIDELINE FOUR: PROFESSIONAL PROFICIENCY

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Staffing: internal auditors should be appointed through free and open competition on the basis of merit. The criteria used to fill Internal Audit posts should be suitable and clearly documented. They should be developed after considering the level of required scope and responsibility. Deliberate attempts should be made to ensure the proficiency and qualifications of each prospective Auditor. Compliance with Codes of Conduct: Internal Audit staff should follow existing codes of conduct and ethics for their organisation. All professional Internal Audit staff should be members of the relevant accounting or Internal Auditing professional body and follow their code of conduct or ethics. All internal auditors should follow a professional code of conduct which calls for: (a) (b) high standards of honesty high standards of diligence and (c) high standards of loyalty.

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Knowledge skills and discipline: internal auditors should be required (individually) to possess the knowledge, skills and competencies essential to the performance of effective Internal Audit. Internal Audit staff should be required to possess the following skills: (a) (b) (c) proficiency in applying Internal Auditing Guidelines knowledge of techniques required to perform Internal Audit proficiency in accounting principles and techniques (especially government accounting) and (d) an understanding of management principles and administrative procedures to enable recognition and evaluation of the materiality and significance of deviations from good and acceptable practice.

42

Human relations and communication: internal auditors should possess the skills required to deal with people and to communicate effectively. They should cultivate harmonious relationships with officers and management. Internal auditors should be proficient in oral and written communication to enable effective reporting. Continuing education: training of internal auditors should be a planned and continuous process at all levels and should be designed to cover: (a) basic training providing the minimum level of skills and knowledge which all internal auditors should possess development training in audit skills, techniques and behavioural aspects to improve the effectiveness of those staff currently engaged as internal auditors management training for those auditors with responsibility for managing and directing audit teams, together with those staff members who show the potential for management positions and

43

(b)

(c)

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specialist training for those auditors responsible for a special field of audit work which requires specialist skills and knowledge, for example, computer auditing or performance auditing.

44

Internal auditors, as responsible government officers, should be responsible for continuing their education in order that they maintain their knowledge, skills and proficiency. They should keep themselves informed on changes and developments in their public sector organisation's activities and other government developments. Internal auditors also need to be aware of developments across the internal auditing profession. If there is an Internal Audit management unit in the Ministry of Finance, this unit should be responsible for the co-ordination of training requirements for all government internal auditors. The foundation, from which the assessment of training requirements of Internal Audit will be derived, should be the database of Internal Audit staff in all public sector organisations. Internal auditors should be aware of their responsibility for continuing their education on order to maintain their proficiency through participation in professional societies, conferences and seminars, college courses, in-house training and engage in research to identify new Internal Auditing developments. Due professional care: the term due professional care means and includes the application of the care and skill expected of a reasonable, prudent and competent Internal Auditor in the same or similar circumstances. In exercising due professional care, internal auditors should be alert to the following: the possibility of intentional wrong doing errors and omissions inefficiency, waste, ineffectiveness conflicts of interest

45

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47

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 conditions and activities likely to give rise to irregularities and inadequate control situations. 49 In exercising due professional care the head of Internal Audit is required to consider the following: the extent of Internal Audit work needed to achieve the Audit objectives the relative complexity, materiality or significance of matters to which Audit procedures are applied adequacy and reliability of risk management and control processes likelihood of material irregularities or non-compliance and the cost of Internal Audit work compared to the potential benefits or the risk of poor internal controls. GUIDELINE FIVE: RELATIONSHIPS 50 Internal Audits relations with other staff in the public sector organisation, the Auditor-General, stock verifies and other review agencies should be based on mutual confidence, understanding of each others needs and a reciprocal desire for co-operation. Management, at all levels should have complete confidence in the integrity, independence and capability of the Internal Audit unit. There should not be any form of rivalry or conflict between the internal auditors and staff in the Auditor-General's Office. Similarly, there should be a constructive relationship between internal auditors, stock verifiers and other review agencies.

51

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The head of Internal Audit should initiate action to ensure the development of co-ordination, effective working relationships and the avoidance of duplication of work with other review agencies. This could include: liaison meetings to discuss matters of mutual interest arranging for access to each others plans, system notes and findings arranging for consultation on plans and proposed visits reviewing training proposals to arrange joint training sessions where possible and dissemination of literature for discussion to promote understanding of techniques, methods and terminology.

53

Copies of Internal Audit reports should be made available to the Auditor-General for information and co-ordination. Internal auditors should be familiar with the legislation that defines the statutory responsibility, duty and rights of access of the AuditorGeneral. The head of Internal Audit should recognise the differences between the roles of Internal Audit and that of the Auditor-General. The staff of the Auditor-General's Office may review the effectiveness of Internal Audit as part of their evaluation of management control arrangements. This review should determine the extent that the Auditor-General's Office is able to rely on Internal Audit work. Internal Audit should not necessarily undertake special tasks at the request of the Auditor-General's Office. However, routine, planned Internal Audit work may be used by the Auditor-General's Office for their own purposes. The relationship between the Internal Auditor and the public sector organisation should be considered legally privileged. That is the Internal Auditor will be exempt from any legal liability from the proper undertaking of their work. Internal auditors should not release Audit

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findings or other information outside the normal reporting arrangements without the knowledge and permission of those concerned. 57 Internal auditors should normally consult and advise management when arranging Audit visits to their department. The exception to this rule would be for unannounced surprise visits. GUIDELINE SIX: INTERNAL AUDIT PLANNING 58 The head of Internal Audit should establish plans to carry out the responsibilities of Internal Audit consistent with the public sector organisation's goals and objectives. The Internal Audit planning process should include the following: identifying goals preparation of strategic Internal Audit plans establishing proper staffing plans and financial budgets and preparation of activity reports. 60 Internal Audit plans should: establish a list of systems that could be audited and prescribe a period within which it is desirable that each significant system should be examined define the tasks to be performed and assist in the direction and control of work by identifying critical areas, setting target dates and allocating resources. 61 To be effective, the head of Internal Audit should:

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 define audit needs taking into account the Internal Audit's terms of reference identify the staff and other resources needed and reconcile these with available, resources choose an appropriate time period for the audit plans record all plans in writing and monitor work against planned activity and revise plans as appropriate. 62 Internal Audit plans should be based on a risk assessment. The risk assessment process, to be conducted at least annually, includes an assessment of: relevant risks and their significance consideration of senior management, the accounting officer and the audit committee's professional judgement and identification of activities to be audited. 63 Internal Audit strategic plans should take into account the following factors: the date and results of the last Internal Audit assignment the estimated time required, taking into account the scope of the planned work and the nature and extent of audit work to be performed by others requests by management major changes in operations, programs systems, and controls

89

 staffing, planning and effective utilisation of financial budgets Internal Audit priorities and flexibility to cover unanticipated demands on the department. 64 Internal Audit plans and staffing and financial budgets should be developed from strategic plans, administrative activities, education and training requirements and research and development efforts. The head of Internal Audit should submit annually to the accounting officer and audit committee for approval a summary of Internal Audit's strategic plans, staffing plans and financial budgets. All significant amendments to these plans should similarly be approved by the accounting officer and audit committee. The head of Internal Audit should explain, if necessary, why the Audit needs are not being met. This should prompt the relevant accounting officer to take action to ensure that their public sector organisation is provided with sufficient Internal Audit resources. GUIDELINE SEVEN: AUDIT APPROACH 67 Internal auditors should ensure that their approach and methods enable them to discharge their responsibilities effectively. This will involve careful thought and discussion with the accounting officer, the audit committee and others on the most effective approach to Internal Audit given the particular circumstances of the public sector organisation. Internal Audit should assess and improve the public sector organisation's risk management, control and governance processes. The internal auditing activity should assist the public sector organisation in maintaining effective controls. Assistance can be provided by evaluating the public sector organisation's controls to determine their effectiveness and efficiency and by developing recommendations for improvement. Internal auditors should ensure that the costs of maintaining controls balances the potential benefits.

65

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System approach: Internal Audit should, where possible, adopt a systems approach. The systems approach aims to asses and helps to improve the control features that govern the system. This approach should provide reasonable assurance that existing controls will ensure that each systems objective is achieved. When undertaking systems audit an internal auditor should: document and analyse the internal control system across all public sector organisations and establish Internal Audit plans identify and evaluate the controls that are established in individual systems to achieve the public sector organisation's objectives in the most economic and efficient manner obtain and record relevant, reliable and sufficient audit evidence to support their findings and recommendations report findings and recommendations for each individual system that is Audited provide an opinion on the adequacy and reliability of the controls in the individual system under review and provide periodic assurance based on an evaluation of the whole internal control system across all public sector organisations.

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The use of the systems approach should enable Internal Audit to confirm the following: the official system whether it is operating according to agreed guidance and regulations whether the system is adequate and

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 whether the controls are reliable. 72 The system's adequacy should be used to ascertain the following: what should happen to achieve the systems objectives what could go wrong in view of the system's design and what has been done to stop things going wrong. GUIDELINE EIGHT: INTERNAL AUDIT REPORTING 73 The head of Internal Audit should report periodically to the accounting officer and the audit committee on Internal Audit's purpose, authority, responsibility, and performance relative to its plan. Reporting should also include significant risks and control issues, corporate governance issues, and other matters needed or requested by the accounting officer and the audit committee. The findings and recommendations arising from each Internal Audit assignment should be promptly reported to the accounting officer and others who are affected by the report. The final Internal Audit report including any comments from the accounting officer should be reported to the audit committee. The head of Internal Audit should have complete freedom in the way in which Internal Audit findings are reported and to whom each report is issued. The head of Internal Audit should review and approve each final Internal Audit report before it is issued. Internal Audit reports should contain all material facts known to the auditor concerning the system under review to avoid distortion or concealment of any unlawful or improper practice. Internal Audit reports should be regarded as confidential and exclusive to the public sector organisation concerned except for privileged external reviews by the Auditor-General and Permanent Secretary to the Treasury.

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The head of Internal Audit should submit monthly or periodic progress reports to the accounting officer and the audit committee and explain significant deviations from approved strategic plans, staffing plans and financial budgets. The head of Internal Audit should provide an annual report to the accounting officer and the audit committee. This report should include: the head of Internal Audit's opinion on the adequacy and reliability of the whole internal control system the extent that the Internal Audit needs of the public sector organisation have been met any significant Internal Audit findings where action appears necessary but has not been taken any systems within the public sector organisation where the internal controls are not adequate and reliable and a comparison of actual Internal Audit activity against the agreed annual plan.

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Communicating results: when communicating results of their work Internal Audit should: oral reports may be issued and should be confirmed in writing discuss conclusions and recommendations at appropriate ministerial, departmental or regional levels before issuing final written reports issue a signed written report after each Internal Audit assignment that is objective clear, concise, constructive and timely. give reports which clearly present the purpose, scope and results of the Audit

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 give reports with recommendations for potential improvement, suggestions of corrective action and acknowledgement of satisfactory performance obtain and include in the report the system management' views about the conclusions or recommendations and include the officer who is to implement each agreed recommendation and a target dates for its implementation. 81 Monitoring and follow-up: internal auditors should follow up their reports to ascertain that appropriate action is taken on agreed Internal Audit recommendations. Internal Audit should determine, with appropriate audit testing, that corrective actin has been taken and is having the desired effect. If the accounting officer does not agree with an Internal Audit recommendation or does not ensure that agreed recommendations are implemented they should accept the associated risks. The audit committee may advice the accounting officer to implement an Internal Audit recommendation if it considers necessary to achieve sound internal control. The Auditor-General may review and report on the extent that Internal Audit recommendations have been implemented. Internal Audit may also review the extent that recommendations made by the AuditorGeneral have been implemented.

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Appendix 5 External Auditing, The Lima Declaration, INTOSAI

FOREWORD When the Lima Declaration on Auditing Precepts was adopted by an acclamation of the delegates more than two decades ago in October 1977 at the IXth INCOSAI in Lima (Peru) there were great hopes, but no certainty, that it would achieve world-wide success. The experiences made with the Lima Declaration since that time have exceeded even the highest expectations and proven how decisively they influence the development of government auditing in the given context of each individual country. The Lima Declaration is equally significant for all Supreme Audit Institutions grouped in INTOSAI, no matter to what region they belong, what development they have undergone, how they are integrated into the system of government or how they are organised. The success of the declaration is above all due to the fact that it contains a comprehensive list of all goals and issues relating to government auditing, while simultaneously remaining remarkably significant and concise, making it easy to use, with its clear language ensuring that focus does not wander away from the main elements. The chief aim of the Lima declaration is to call for independent government auditing. A Supreme Audit Institution which cannot live up to this demand does not come up to standard. It is not surprising, therefore, that the issue of independence of Supreme Audit Institutions continues to be a theme repeatedly discussed within the INTOSAI community. However, the demands of the Lima Declaration are not satisfied by a SAI just achieving independence; this independence is also required to be anchored in legislation. For this, however, well-functioning institutions of legal security must exist, and these are only to be found in a democracy based on the rule of law.

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Rule of law and democracy are, therefore, essential premises for really independent government auditing and are the pillars on which the Declaration of Lima is founded. The precepts contained in the Declaration are timeless and essential values which have maintained their topicality since the years they were first adopted. The fact that it has been decided to re-publish the Declaration more than 20 years later indeed witnesses the quality and farsighted spirit of their authors. We extend our thanks to the International Journal of Government Auditing for their effort in publishing the new edition of the Lima Declaration, realising the great importance of this fundamental paper which quite rightly is held to be the Magna Carta of government auditing. We now know that the Lima Declaration will continue to be disseminated in future. Living up to its high ideals remains an ongoing task for us all. Dr Franz Fiedler Secretary General of INTOSAI Vienna, in the fall of 1998.

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PREAMBLE The IX th Congress of the International Organization of Supreme Audit Institutions (INTOSAI), meeting in Lima: whereas, to achieve this objective, it is indispensable that each country have a Supreme Audit Institution whose independence is guaranteed by law whereas such institutions become even more necessary because the state has expanded its activities into the social and economic sectors and thus operates beyond the limits of the traditional financial framework whereas the specific objectives of auditing, namely, the proper and effective use of public funds; the development of sound financial management; the proper execution of administrative activities; and the communication of information to public authorities and the general public through the publication of objective reports, are necessary for the stability and the development of states in keeping with the goals of the United Nations and whereas at previous INTOSAI congresses, plenary assemblies adopted resolutions whose distribution was approved by all member countries.

RESOLVES To publish and distribute the document entitled The Lima Declaration of Guidelines on Auditing Precepts.

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THE LIMA DECLARATION ON AUDITING PRECEPTS I. GENERAL Section 1: Purpose of audit 1.1 The concept and establishment of audit is inherent in public financial administration as the management of public funds represents a trust. Audit is not an end in itself but an indispensable part of a regulatory system whose aim is to reveal deviations from accepted standards and violations of the principles of legality, efficiency, effectiveness and economy of financial management early enough to make it possible to take corrective action in individual cases, to make those accountable accept responsibility, to obtain compensation, or to take steps to prevent or at least render more difficult such breaches. Section 2: Pre-audit and post-audit 2.1 Pre-audit represents a before the fact type of review of administrative or financial activities; post-audit is audit after the fact. Effective pre-audit is indispensable for the sound management of public funds entrusted to the state. It may be carried out by a Supreme Audit Institution or by other audit institutions. Pre-audit by a Supreme Audit Institution has the advantage of being able to prevent damage before it occurs, but has the disadvantage of creating an excessive amount of work and of blurring responsibilities under public law. Post-audit by a Supreme Audit Institution highlights the responsibility of those accountable; it may lead to compensation for the damage caused and may prevent breaches from recurring. The legal situation and the conditions and requirements of each country determine whether a Supreme Audit Institution carries out pre-audit. Post-audit is an indispensable task of every Supreme Audit Institution regardless of whether or not it also carries out pre-audits.

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Section 3: Internal audit and external audit 3.1 Internal Audit services are established within government departments and institutions, whereas external audit services are not part of the organisational structure of the institutions to be audited. Supreme Audit Institutions are external audit services. Internal Audit services necessarily are subordinate to the head of the department within which they have been established. Nevertheless, they shall be functionally and organisationally independent as far as possible within their respective constitutional framework. As the external auditor, the Supreme Audit Institution has the task of examining the effectiveness of Internal Audit. If Internal Audit is judged to be effective, efforts shall be made, without prejudice to the right of the Supreme Audit Institution to carry out an overall audit, to achieve the most appropriate division or assignment of tasks and co-operation between the Supreme Audit Institution and Internal Audit. Section 4: Legality audit, regularity audit and performance audit 4.1 The traditional task of Supreme Audit Institutions is to audit the legality and regularity of financial management and of accounting. In addition to this type of audit, which retains its significance, there is another equally important type of audit - performance audit - which is oriented towards examining the performance, economy, efficiency and effectiveness of public administration. Performance audit covers not only specific financial operations, but the full range of government activity including both organisational and administrative systems. The Supreme Audit Institutions audit objectives - legality, regularity, economy, efficiency and effectiveness of financial management basically are of equal importance. However, it is for each Supreme Audit Institution to determine its priorities on a case-by-case basis.

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II. INDEPENDENCE Section 5: Independence of Supreme Audit Institutions 5.1 Supreme Audit Institutions can accomplish their tasks objectively and effectively only if they are independent of the audited organisation and are protected against outside influence. Although state institutions cannot be absolutely independent because they are part of the state as a whole, Supreme Audit Institutions shall have the functional and organisational independence required to accomplish their tasks. The establishment of Supreme Audit Institutions and the necessary degree of their independence shall be laid down in the Constitution; details may be set out in legislation. In particular, adequate legal protection by a supreme court against any interference with a Supreme Audit Institutions independence and audit mandate shall be guaranteed. Section 6: Independence of the members and officials of Supreme Audit Institutions 6.1 The independence of Supreme Audit Institutions is inseparably linked to the independence of its members. Members are defined as those persons who have to make the decisions for the Supreme Audit Institution and are answerable for these decisions to third parties, that is, the members of a decision making collegiate body or the head of a monocratically organised Supreme Audit Institution. The independence of the members shall be guaranteed by the Constitution. In particular, the procedures for removal from office also shall be embodied in the Constitution and may not impair the independence of the members. The method of appointment and removal of members depends on the constitutional structure of each country. In their professional careers, audit staff of Supreme Audit Institutions must not be influenced by the audited organisations and must not be dependent on such organisations.

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Section 7: Financial independence of Supreme Audit Institutions 7.1 Supreme Audit Institutions shall be provided with the financial means to enable them to accomplish their tasks. If required, Supreme Audit Institutions shall be entitled to apply directly for the necessary financial means to the public body deciding on the national budget. Supreme Audit Institutions shall be entitled to use the funds allotted to them under a separate budget heading as they see fit.

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III. RELATIONSHIP TO PARLIAMENT, GOVERNMENT AND THE ADMINISTRATION Section 8: Relationship to Parliament 8.1 The independence of Supreme Audit Institutions provided under the Constitution and law also guarantees a very high degree of initiative and autonomy, even when they act as an agent of Parliament and perform audits on its instructions. The relationship between the Supreme Audit Institution and Parliament shall be laid down in the Constitution according to the conditions and requirements of each country. Section 9: Relationship to government and the administration 9.1 Supreme Audit Institutions audit the activities of the government, its administrative authorities and other subordinate institutions. This does not mean, however, that the government is subordinate to the Supreme Audit Institution. In particular, the government is fully and solely responsible for its acts and omissions and cannot absolve itself by referring to the audit findings unless such findings were delivered as legally valid and enforceable judgements and on expert opinions of the Supreme Audit Institution.

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IV. POWERS OF SUPREME AUDIT INSTITUTIONS Section 10: Powers of investigation 10.1 Supreme Audit Institutions shall have access to all records and documents relating to financial management and shall be empowered to request, orally or in writing, any information deemed necessary by the SAI. For each audit, the Supreme Audit Institution shall decide whether it is more expedient to carry out the audit at the institution to be audited, or at the Supreme Audit Institution itself. Either the law or the Supreme Audit Institution (for individual cases) shall set time limits for furnishing information or submitting documents and other records including the financial statements to the Supreme Audit Institution. Section 11: Enforcement of Supreme Audit Institution findings 11.1 The audited organisations shall comment on the findings of the Supreme Audit Institution within a period of time established generally by law, or specifically by the Supreme Audit Institution, and shall indicate the measures taken as a result of the audit findings. To the extent the findings of the Supreme Audit Institution are not delivered as legally valid and enforceable judgements, the Supreme Audit Institution shall be empowered to approach the authority which is responsible for taking the necessary measures and require the accountable party to accept responsibility. Section 12: Expert opinions and rights of consultation 12.1 When necessary, Supreme Audit Institutions may provide Parliament and the administration with their professional knowledge in the form of expert opinions, including comments on draft laws and other financial regulations. The administrative authorities shall bear the sole responsibility for accepting or rejecting such expert opinions; moreover, this additional task must not anticipate the future audit findings of the Supreme Audit Institution and must not interfere with the effectiveness of its audit.

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Regulations for appropriate and as uniform as possible accounting procedures shall be adopted only after agreement with the Supreme Audit Institution.

V. AUDIT METHODS, AUDIT STAFF, INTERNATIONAL EXCHANGE OF EXPERIENCES Section 13: Audit methods and procedures 13.1 Supreme Audit Institutions shall audit in accordance with a selfdetermined programme. The rights of certain public bodies to request a specific audit shall remain unaffected. Since an audit can rarely be all-inclusive, Supreme Audit Institutions as a rule will find it necessary to use a sampling approach. The samples, however, shall be selected on the basis of a given model and shall be sufficiently numerous to make it possible to judge the quality and regularity of financial management. Audit methods shall always be adapted to the progress of the sciences and techniques relating to financial management. It is appropriate for the Supreme Audit Institution to prepare audit manuals as an aid for its auditors. Section 14: Audit staff 14.1 The members and the audit staff of Supreme Audit Institutions shall have the qualifications and moral integrity required to completely carry out their tasks. In recruiting staff for Supreme Audit Institutions, appropriate recognition shall be given to above-average knowledge and skills and adequate professional experience. Special attention shall be given to improving the theoretical and practical professional development of all members and audit staff of SAIs, through internal, university and international programmes. Such

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development shall be encouraged by all possible financial and organisational means beyond the traditional framework of legal, economic and accounting knowledge, and include other business management techniques, such as electronic data processing. 14.4 To ensure auditing staff of excellent quality, salaries shall be commensurate with the special requirements of such employment. If special skills are not available among the audit staff, the Supreme Audit Institution may call on external experts as necessary. Section 15: International exchange of experiences 15.1 The international exchange of ideas and experiences within the International Organization of Supreme Audit Institutions is an effective means of helping Supreme Audit Institutions accomplish their tasks. This purpose has so far been served by congresses, training seminars jointly organised with the United Nations and other institutions, by regional working groups and by the publication of a professional journal. It is desirable to expand and intensify these efforts and activities. The development of a uniform terminology of government audit based on comparative law is of prime importance. VI. REPORTING Section 16: Reporting to Parliament and to the general public 16.1 The Supreme Audit Institution shall be empowered and required by the Constitution to report its findings annually and independently to Parliament or any other responsible public body; this report shall be published. This will ensure extensive distribution and discussion, and enhance opportunities for enforcing the findings of the Supreme Audit Institution. The Supreme Audit Institution shall also be empowered to report on particularly important and significant findings during the year.

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Generally, the annual report shall cover all activities of the Supreme Audit Institution; only when interests worthy of protection or protected by law are involved shall the Supreme Audit Institution carefully weigh such interests against the benefits of disclosure. Section 17: Method of reporting

17.1

The reports shall present the facts and their assessment in an objective, clear manner and be limited to essentials. The wording of the reports shall be precise and easy to understand. The Supreme Audit Institution shall give due consideration to the points of view of the audited organisations on its findings.

17.2

VII. AUDIT POWERS OF SUPREME AUDIT INSTITUTIONS Section 18: Constitutional basis of audit powers; audit of public financial management 18.1 The basic audit powers of Supreme Audit Institutions shall be embodied in the Constitution; details may be laid down in legislation. The actual terms of the Supreme Audit Institutions audit powers will depend on the conditions and requirements of each country. All public financial operations, regardless of whether and how they are reflected in the national budget, shall be subject to audit by Supreme Audit Institutions. Excluding parts of financial management from the national budget shall not result in these parts being exempted from audit by the Supreme Audit Institution. Supreme Audit Institutions should promote through their audits a clearly defined budget classification and accounting systems which are as simple and clear as possible.

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Section 19: Audit of public authorities and other institutions abroad 19.1 As a general principle, public authorities and other institutions established abroad shall also be audited by the Supreme Audit Institution. When auditing these institutions, due consideration shall be given to the constraints laid down by international law; where justified these limitations shall be overcome as international law develops. Section 20: Tax audits 20.1 Supreme Audit Institutions shall be empowered to audit the collection of taxes as extensively as possible and, in doing so, to examine individual tax files. Tax audits are primarily legality and regularity audits; however, when auditing the application of tax laws, Supreme Audit Institutions shall also examine the system and efficiency of tax collection, the achievement of revenue targets and, if appropriate, shall propose improvements to the Parliamentary body. Section 21: Public contracts and public works 21.1 The considerable funds expended by public authorities on contracts and public works justify a particularly exhaustive audit of the funds used. Public tendering is the most suitable procedure for obtaining the most favourable offer in terms of price and quality. Whenever public tenders are not invited, the Supreme Audit Institution shall determine the reasons. When auditing public works, the Supreme Audit Institution shall promote the development of suitable standards for regulating the administration of such works. Audits of public works shall cover not only the regularity of payments, but also the efficiency of construction management and the quality of construction work.

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Section 22: Audit of electronic data processing facilities 22.1 The considerable funds spent on electronic data processing facilities also calls for appropriate auditing. Such audits shall be systems-based and cover aspects such as planning for requirements; economical use of data processing equipment; use of staff with appropriate expertise, preferably from within the administration of the audited organisation; prevention of misuse; and the usefulness of the information produced. Section 23: Commercial enterprises with public participation 23.1 The expansion of the economic activities of government frequently results in the establishment of enterprises under private law. These enterprises shall also be subject to audit by the Supreme Audit Institution if the government has a substantial participation in them particularly where this is majority participation or exercises a dominating influence. It is appropriate for such audits to be carried out as post-audits; they shall address issues of economy, efficiency and effectiveness. Reports to Parliament and the general public on such enterprises shall observe the restrictions required for the protection of industrial and trade secrets. Section 24: Audit of subsidised institutions 24.1 Supreme Audit Institutions shall be empowered to audit the use of subsidies granted from public funds. When the subsidy is particularly high, either by itself or in relation to the revenues and capital of the subsidised organisation, the audit can, if required, be extended to include the entire financial management of the subsidised institution. Misuse of subsidies shall lead to a requirement for repayment.

23.2

23.3

24.2

24.3

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Section 25: Audit of international and supranational organisations 25.1 International and supranational organisations whose expenditures are covered by contributions from member countries shall be subject to external, independent audit like individual countries. Although such audits shall take account of the level of resources used and the tasks of these organisations, they shall follow principles similar to those governing the audits carried out by Supreme Audit Institutions in member countries. To ensure the independence of such audits, the members of the external audit body shall be appointed mainly from Supreme Audit Institutions.

25.2

25.3

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Appendix 6 Further Reading

Kenya Commonwealth Association for Corporate Governance (2000). 'CACG Guidelines Principles for Corporate Governance in Kenya and a Sample Code of Best Practice for Corporate Governance', www.ecgi.de/codes

South Africa The South African Institute of Chartered Accountants and The Eastern Central and Southern African Federation of Accountants (1996). 'Financial Accountability Checklist', www.saica.co.za King, Mervyn E., et al (March 2002). 'The King Report on Corporate Governance for South Africa', www.iodsa.co.za, The King Committee of the Institute of Directors in Southern Africa.

United Kingdom Cadbury Committee (1992). 'Report of the Committee on the Financial Aspects of Corporate Governance', (Cadbury Report), www.ecgi.de/codes National Audit Office (2000). 'Supporting Innovation: Managing Risk in Government Departments', www.nao.gov.uk The Institute of Chartered Accountants (1999). 'Internal Control: Guidance for Directors on the Combined Code', (Turnbull Report), www.ecgi.de/codes The London Stock Exchange (1998). 'The Combined Code: Principles of Good Governance and Code of Best Practice', www.ecgi.de/codes

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Committee on Standards in Public Life. 'Nolan Committee's First Report on Standards in Public Life', www.public-standards.gov.uk www.test.official-documents.co.uk/menu/bycaboff.htm

United States Committee of Sponsoring Organizations of the Treadway Commission (COSO) (1992, July 1994 edition). 'Internal Control Integrated Framework', available from the Institute of Internal Auditors, www.theiia.org or www.iia.org.uk United States General Accounting Office (1996). 'Executive Guide Effectively Implementing the Government Performance Results Act', www.gao.gov

International Kaufman, D., Kraay A., and Zoido Lobaton, P. (1999). 'Governance Matters', Working Paper 2196, The World Bank. www.worldbank.org/wbi/governance/pdf/govmatrs.pdf Commonwealth Association for Corporate Governance (1999). 'Principles for Corporate Governance in the Commonwealth Towards global competitiveness and economic accountability', www.ecgi.de/codes. The OECD Ad Hoc Task Force on Corporate Governance (1999). 'OECD Principles of Corporate Governance', www.oecd.org The World Bank. 'Indicators of Governance and Institutional Quality', www.worldbank.org/publicsector/indicators.htm The World Bank (1999) 'Corporate Governance: A Framework for Implementation', www.worldbank.org The IFAC Public Sector Committee (2001). 'Governance in the Public Sector: A Governing Body Perspective', www.ifac.org

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The IFAC Financial Management and Accounting Committee (1999). 'Study 8 Codifying Power and Control: Ethical Codes in Action', www.ifac.org The Institute of Internal Auditors (2000). 'Standards for the Professional Practice of Internal Auditing', www.theiia.org or www.iia.org.uk

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Appendix 7 Glossary of Terms

Accounting officer the head of a government ministry or department who is personally responsible for the management and internal controls of the ministry or department and any fraud or irregularity that may occur. Alternatively, an accounting officer may be appointed for a particular vote or budget line and will be accountable for any expenditure from this vote or budget line and the receipt of any associated revenue. The accounting officer may also be the permanent secretary for the organisation (see below). Auditor-General the head of the governments external audit service. The Auditor-General is responsible for certifying that the government accounts show a true and fair view, there has been a proper use of public funds and often for undertaking value for money reviews. Audit committee a high level committee, comprising, where possible, independent, nonexecutive members, with responsibility for overseeing the independent review of the framework of internal control, monitoring the Internal Audit function and the external audit processes. Internal Audit is an independent objective assurance and consulting activity designed to add value and improve an organisation's operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes. Internal control is a process, effected by an entitys board of directors, management and other personnel (people), designed to provide reasonable assurance regarding the achievement of objectives in the following categories:

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 effectiveness and efficiency of operations; (basic operational objectives, performance goals and safeguarding resources) reliability of financial reporting and compliance with applicable laws and regulations. Parliament a body that is composed of elected representatives to formulate and to agree national laws, the annual budget and to hold ministers and other members of the government accountable for implementing the government's policies. Public Accounts Committee a committee of members of Parliament that reviews reports from the AuditorGeneral and other bodies on behalf of Parliament. Public Sector Organisation types of public sector entities, for example, ministries, departments, regions or districts, as examples of the range of possible governmental entities that may exist. Permanent secretary the head of paid staff or most senior manager of a public sector organisation. The permanent secretary may also be appointed as the accounting officer (see above). Senior manager any person working for the organisation who reports directly to the permanent secretary or who has the rank of deputy or assistant director or above.

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