Mitigating the Global Financial Crisis Impact: The Role of Government Auditors, May 2011

8/6/2019 Mitigating the Global Financial Crisis Impact: The Role of Government Auditors, May 2011

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Mitigating theMitigating theGlobal FinancialGlobal Financial

Crisis ImpactCrisis ImpactThe Role of Government AuditorsThe Role of Government Auditors

Richard F. Chambers CIA, CGAP, CCSARichard F. Chambers CIA, CGAP, CCSA

President and CEOPresident and CEO The Institute of Internal AuditorsThe Institute of Internal Auditors


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Overview

Global Financial Crisis: Impact on

Governments Worldwide

Government Auditors: An Overview

Mitigating GFC Impacts: Five Ways

Government Auditors can Add Value

Conclusions


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We All Know the Problem

Revenues from sales tax, property tax, income tax,

and fees have declined

Citizens need higher levels of government services intimes of financial difficulty

Most OECD countries are running significant budget

deficits

State/local governments must run balanced budgets

This means difficult and painful choices.

This means difficult and painful choices.


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Budget Squeeze

Sales tax revenues down

Property taxes down

Income taxes down

Investments down

Fee income down Increased use of social

programs

Economic stimulus

programs Automatic triggers

(unbudgeted)


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h


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Recent Austerity Measures

Country Austerity Measures

Czech

Republic

Cut public sector wages up to 43%; taxes on pensions of high

earners

Greece Raise VAT from 19% to 23%; raise pension age; cut publicsector bonuses; freeze salaries/pensions; raise retirement age

Ireland Cut public sector wages 5%; cut 24,750 jobs; cut minimum

wage; reduce social welfare and child benefits; increase capital

gains, capital acquisition, and carbon taxes; new water tax

United

Kingdom

Raise VAT from 17.5% to 20%; reduce government department

budgets by average of 19%; raise pension age; cut 490,000public sector jobs; reduce unemployment benefits

Source: Limiting Central Government Budget Deficits: InternationalExperiences, Congressional Research Service, 2011


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The Status Quo is Unacceptable

Rising public expectations for demonstrable

results and enhanced responsiveness

Government performance/ accountability andhigh-risk challenges

Additional resource demands due to

economy, healthcare costs, terrorism


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Government Auditors:

Work for good government

Help improve performance and assure accountability

Help identify and mitigate risks

Maintain independence to make difficult decisions

With light comes heat, and with heat comes action, andaction is what we want. How can we make governmentwork better? By improving the economy, efficiency, andeffectiveness of government.

T - The Honorable David M. WalkerFormer Comptroller General of the United States

With light comes heat, and with heat comes action, andaction is what we want. How can we make governmentwork better? By improving the economy, efficiency, andeffectiveness of government.

T - The Honorable David M. WalkerFormer Comptroller General of the United States


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Audit and the Financial Crisis

Two potential solutions:

Control costs

Traditional audit sweet spot

Grow revenue

Potential audit opportunities

With change comes risk Increases need for audit


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Mitigating GFC Impacts: Five Ways

Government Auditors can Add Value

1. Providing assurance on the accuracy of financial

reporting

2. Providing assurance that government resources arebeing used efficiently and effectively

3. Fostering accountability by government officials

4. Identifying opportunities for cost reduction and

containment5. Fostering greater public trust


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1. Providing Assurance on the Accuracy of

Financial Reporting

Generally accepted accounting principles

Adequacy and accuracy of disclosures

Privileged and confidential information

Report distribution

Five Ways Government Auditors can Add Value

In todays economy, financial reportsare under intense scrutiny by publicofficials, legislators, and citizens.

In todays economy, financial reportsare under intense scrutiny by publicofficials, legislators, and citizens.


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Financial Reporting

Financial audits include determining whether:

Financial information is presented in accordance

with established or stated criteria, Entity has adhered to specific financial compliance

requirements, or

The internal control structure over financial

reporting and/or safeguarding assets is suitablydesigned and implemented to achieve control

objectives.



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Financial Reporting

Financial audits also evaluate:

Poor financial management systems

Corruption, fraud, fund diversions Use of reserves during unexpected events

Inadequate funding

Release of funds to Ministries/Departments/Agencies

Initiation of spending

Payment Recording of transactions

Production of accounting/budgeting reports



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2. Providing Assurance that Resources are

Being Used Efficiently and Effectively

We need to know whether or not government

programs operate economically and efficiently

We need to know which initiatives are showingresults and which are not

We need verifiable evidence of success


In todays economy, government

leaders need to know which programsare effective and which are not so they

can make tough choices.

In todays economy, government

leaders need to know which programsare effective and which are not so they

can make tough choices.


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2. Providing Assurance that Resources are

Being Used Efficiently and Effectively

During difficult economic times government auditors

can provide consulting services that will show if the

organization is conducting operations effectively

(meeting its goals) and efficiently (controlling costs)

Services might include management studies that identify

opportunities for enhancing the efficiency of operations



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3. Fostering Accountability by

Government Officials Public officials are responsible for:

Complying with applicable laws and regulations

Using resources efficiently, economically, and effectively

Establishing and maintaining effective controls to ensure thatappropriate goals and objectives are met

Officials and employees who manage government

programs need to render an account of their activities

to the public

Auditing provides objective evidence enabling us tohold management accountable for key responsibilities



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3. Fostering Accountability by

Government Officials

In the last analysis, of course, an oath will encouragefidelity in office only to the degree that officeholders

continue to believe that they cannot escape ultimateaccountability for a breach of faith.

- James L. Buckley

In the last analysis, of course, an oath will encouragefidelity in office only to the degree that officeholders

continue to believe that they cannot escape ultimateaccountability for a breach of faith.

- James L. Buckley


Government officials should abide by a Code of

Ethics/Conduct and establish a culture for

preventing, detecting and reporting fraud and

corruption


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4. Identifying Opportunities for Cost

Reduction and Containment

Lack of coordination among departments

Inadequate cost information

Substandard contract management Mission fragmentation/program overlap

Ineffective procurement controls

Poor planning

Burdensome legal mandates



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4. Identifying Opportunities for Cost

Reduction and Containment

Scrutinizing processes can identify opportunities for

increased efficiency

Encouraging adoption of performance measurementsystems can help departments focus their energies

and monitor quality and effectiveness.

Advocating rigorous, data-driven decision making

processes can lead to better outcomes



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5. Fostering Greater Public Trust

Auditing provides credibility to the information

reported by or obtained from management through

objectively acquiring and evaluating evidence

Audit of government reporting is an essential element

of public control


In todays economy, auditing provides

transparency to meet the growingdemand for objective information about

government programs and services.

In todays economy, auditing provides

transparency to meet the growingdemand for objective information about

government programs and services.


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5. Fostering Greater Public Trust

Citizens deserve to know that their state

government is spending their tax dollars

wisely on vital programs and services that

directly benefit them and make a measurable

difference in their lives.

- Edward G. Rendell

Two-term Governor of Pennsylvania

Citizens deserve to know that their state

government is spending their tax dollars

wisely on vital programs and services that

directly benefit them and make a measurable

difference in their lives.

- Edward G. Rendell

Two-term Governor of Pennsylvania



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Conclusions The status quo is unacceptable in times of global

financial crisis.

A fundamental review of government programs andpolicies is necessary to determine what the

government should do and how the government

should do business in the future.

In times of financial crisis, internal audit is key toassuring ongoing government efficiency,

effectiveness, and transparency.


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For more information, contact:

Richard F. Chambers

President and Chief Executive Officer

The Institute of Internal Auditors

[email protected]

Questions?

Mitigating the Global Financial Crisis Impact: The Role of Government Auditors, May 2011

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