The 10 - audit.gov.cn report of the 10th...of participating SAIs in ASOSAI history. ... Australia,...

The 10th ASOSAI Research Project Report

Audit to Detect Fraud and CorruptionEvaluation of the Fight against Corruption and Money Laundering

2015

iii

Contents

Acknowledgement.....................................................................................................................1

I.Research Background & Methodology...................................................................................... 3

1. Background......................................................................................................................3

2. Project Objectives.............................................................................................................5

3. Research Approach..........................................................................................................6

4. Summary of Findings........................................................................................................8

5. Limitations and Recommendations.................................................................................12

6. Definitions.......................................................................................................................13

II. Evaluation of the Current Situation of Corruption and Money Laundering..................................15

1. Objective and Structure of the Survey.............................................................................15

2. Respondents to the Survey.............................................................................................15

3. Survey Results Current Situation of Corruption...............................................................15

4. Survey Results Current Situation of Money Laundering................................................. 23

5. Conclusions.................................................................................................................... 28

III. Evaluation of the Current Situation of Anti-Corruption and Anti-Money Laundering.................. 30



3. Survey Results - Current Situation of anti-corruption..................................................... 31

4. Survey Results - Current Situation of Anti-Money Laundering.........................................38

5. Conclusions.................................................................................................................... 46

IV. Role of Audit to Detect Corruption and Money Launderng......................................................49



3. Survey Results on the Role of Audit to Detect Fraud and Corruption............................ 50

4. Survey Results on the Role of Audit to Detect Money Laundering..................................82

5. Conclusions.................................................................................................................... 94

Contents

The 10th ASOSAI Research project reportiv

V. Summary of Typical Audit Practices in Combating Corruption and Money Laundering................97

1. Background....................................................................................................................97

2. Methodology for Selecting the Typical Audit Practices.................................................. 97

3.Typical Examples of Anti-Corruption and Anti-Money Laundering.................................98

4.Best Practices in Preventive Role of Anti-Corruption.....................................................100

5.Best Practices in Preventive Role of Anti-Money Laundering....................................... 116

6.Best Practices in Performing an Anti-Corruption Detective Role..................................121

7. Best Practices of SAI Role in Detecting Money Laundering........................................ 133

8.Best Practices in Reporting and Follow up on Anti-Corruption work............................139

VI. Measures to Improve the Audit Function in Detecting and Preventing Corruption and Money Laundering ...........

............................................................................................................................................148

1. Objective and Structure of Survey.................................................................................148

2. Lessons Learned from Literature Review......................................................................149

3. Improved Measures at the International Level..............................................................150

4. Improved Measures at the National Level.....................................................................154

5. Improved Measures at the Organization Level.............................................................157

Appendix: Country Papers....................................................................................................171

1. Australia........................................................................................................................172

2. China............................................................................................................................183

3. India..............................................................................................................................208

4. Indonesia......................................................................................................................224

5. Iran...............................................................................................................................242

6. Iraq...............................................................................................................................268

7. Korea............................................................................................................................280

8. Malaysia........................................................................................................................295

9. Philippines....................................................................................................................319

10. Russia.........................................................................................................................333

11. Thailand......................................................................................................................362

12. Turkey..........................................................................................................................378

Contents

1

Acknowledgement

The 10th Research Project of ASOSAI on “Audit to Detect Fraud and Corruption: Evaluation of the Fight against Corruption and Money Laundering”was approved at the 45th Governing Board Meeting of ASOSAI held in Jaipur, India in March 2012. A total of 22 member SAIs joined this research, comprising the largest number of participating SAIs in ASOSAI history. The participating SAIs were: Armenia, Australia, Bangladesh, Bhutan, China, Georgia, Indonesia, India, Iran, Iraq, Israel, Jordan, Korea, Malaysia, Myanmar, Pakistan, Papua New Guinea, Philippines, Russia, Thailand, Turkey, and Vietnam. SAI China led the research project as the Chair of the research team over the 3-year period.

The members of the research team met 7 times over the period from December 2012 to December 2014 in order to discuss the scope of the research project, draft the questionnaires and discuss the research progress.

The research team would like to express its sincere appreciation to those participating SAIs and relevant institutions which responded to the questionnaires requesting information for this research project. The team would also like to thank the heads of participating SAIs who provided valuable assistance in the research,

Activity Date & Place

1st Research Meeting December 11-13, 2012Shenzhen, China

2nd Research Meeting April 24-26, 2013Ho Chi Minh, Viet Nam

3rd Research Meeting August 28-30, 2013Bangkok, Thailand

4th Research Meeting November 12-14, 2013Moscow, Russia

5th Research Meeting April 22-24, 2014Kuala Lumpur, Malaysia

6th Research Meeting August 27-29, 2014Ankara, Turkey

7th Research Meeting December 16-18, 2014Tehran, Iran

Presentation of the final report of Research Project at the 13th Assembly of ASOSAI

February 10-13, 2015Kuala Lumpur, Malaysia

Acknowledgement

The 10th ASOSAI Research project report2

including the administrative support to host 7 subsequent research meetings, and to those who helped complete country papers which supplement this project report.

The team members of the 10th research project were as follows:

China (Chair)

Wang Xiaosheng (Project Coordinator) Xing Jianfeng Li Min Li Haodi Bei Xiang Liu Yan Liu Haiwen Deng Yaqin

India Kulwant Singh Praveen Kumar Tiwari

Indonesia Iman Santoso Oktarika Ayoe Sandha

Iran Abdoullah Safaeinasab Khosro Zibakerdar Mahdi Rezaei (Sub-group Ⅱ Leader)

Iraq

Farouk A. Hallem Al-Alobaldy Ayad Jasim Al-Saadi Ikram A. Al-Shammari Ammar Subhi AL-Mashhadani

Jordan Yahya Abdelrahem Alkhalailah Marwan Gammoh Walid Alrahahleh

Korea Min Chul Shin Na Young Kim

Malaysia William Yapp Thou Kiong (Sub-group Ⅰ Leader)

Philippines Alexander Buan Juliano (Sub-group Ⅲ Leader)

Papua New Guinea Joan ChuwigoArni

Australia Thomas Edmund Clark

Bangladesh Md. Masih-ul Hasan Zubair Ahmed Khan Md. Nazrul Islam

Russia Kamolov Sergey Terekhina Olga (Sub-group X Leader) Kulazhin Oleg

Thailand Sutthi Suntharanurak (Sub-group IX Leader) Sariya Krisanaruxpanee Ekachai chaiyajit

Turkey Musa Kayrak Taha Akgun Ahmet Topkaya

Vietnam Dao Thi Thu Vinh Le Minh Tam Ba Pham Tra Uyen

3Research Background & Methodology

I. Research Background & Methodology

1. Background

To encourage and promote research in auditing and related fields, pursuant to Section 2, Article 2 of the Asian Organisation of Supreme Audit Institutions (ASOSAI) Charter, ASOSAI has conducted several research projects since 1985. As an important platform for the member SAIs of ASOSAI to share information and exchange experiences, these research projects have made great contributions to capacity building, the development of auditing theory and methodology, not only for SAIs in the ASOSAI community but also for SAIs in other regions.

Over the past 3 decades, these research projects have covered various audit fields, such as environmental audit, IT audit, audit of public works, and internal audit , and have produced constructive results including Performance Audit Guidelines, Guidelines on IT Audit, Guidelines on Audit Quality Management System, and Guidelines on Conducting Environmental Audit. The final reports of these research projects have been sent to International Organisation of Supreme Audit Institutions (INTOSAI) and the European Organisation of Supreme Audit Institutions (EUROSAI) for their reference.

Corruption is recognized to be one of the world’s greatest challenges. It is a major hindrance to sustainable development, with a disproportionate impact on poor communities and is corrosive on the very fabric of society. Fraud and corruption issues can take many forms and they pose serious risks to the public sector. Money laundering is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legitimate source. One of the potential sources is corrupt activity of the public sector. The impact on the private sector is also considerable - it impedes economic growth, distorts competition and represents serious legal and reputational risks.

Corruption prevention has been a common and important issue at all times and in all countries. In the age of information, corruption tends to be increasingly hidden,


complicated and crafty, posing particular challenges for audit institutions. As a result of the variety in patterns of corruption, there are problems in evaluating the current diversity of corruption and anti-corruption efforts; many advocate a single universal strategy to fight corruption. SAIs in Asia have recognized the situation, and have actively responded to this challenge. SAIs have played an important role in combating corruption, and have accumulated rich experience and many good practices.

1.1 The 10th research project

At the 45th ASOSAI Governing Board Meeting (GBM) in March 2012, “Audit to Detect Fraud and Corruption: Evaluation of the Fight against Corruption and Money Laundering” was selected as the topic for the 10th Research Project of ASOSAI.

This topic is of significance at this time, as Asian countries generally still rank low on the Transparency International Corruption Perception Index. The ASOSAI Research Project has sought to help to tackle fraud and corruption more effectively and to raise greater awareness of fraud and corruption throughout the three-year period of in-depth research.

1.2 SAIs’efforts in anti-corruption and anti-money laundering

Corruption is a highly complex phenomenon. Most corruption takes place in an informal manner and under the cover of isolated contacts. Auditors, whose profession requires them concentrate on documentary or physical evidence, often find it hard to gather such evidence in relation to corruption. However, they can find clues to potential corruption and help in preventing corruption by pointing out areas where opportunities for corruption exist.

SAIs are the leading public sector audit organizations in a country. They play an effective role in promoting transparency, governance and accountability. According to the stipulations of laws and regulations related to audit, each SAI in its own


country could carry out a range of audit tasks including, for example, Financial Audit, Procurement Audit, and Performance Audit. Their principal task is to examine whether public funds are spent economically, efficiently and effectively in compliance with existing rules and regulations. Well-functioning SAIs can play an important role in confirming that controls are operating effectively, identifying waste and suggesting ways in which government organizations can operate better. SAI activities has the potential to enhance the effectiveness of a country’s strategies to prevent and punish corruption, and consequently, SAIs have become an important force in anti-corruption.

Money laundering, which is intrinsically linked to corruption offences (such as bribery or theft of public funds), is the process of concealing illicit gains that were generated from criminal activity. In recent years, money laundering has gained increasing attention from both international communities and national authorities, and solid progress has been made in combating money laundering acts and related criminal activities. However, the continued abuse of some offshore financial centers, the proliferation of on-line Internet banking and Internet gambling have further enhanced the need to scrutinize new technologies to combat money laundering schemes.

2. Project Objectives

This study aims at, improving the audit capability of ASOSAI member countries in combating fraud, corruption and money laundering through joint reseach and the exchange of information and experience, including:

• Assessing the current situation of corruption and money laundering in ASOSAI member countries;

• Exchanging the experiences, theories, technology and methodology of audit on anti-corruption and anti-money laundering; and

• Emproving the audit capability of ASOSAI member countries in detecting corruption and money laundering.


To achieve the aims described above, the project was framed in several parts, which include: an assessment of the overall situation of corruption and money laundering; an assessment of measures taken by responsible anti-corruption and anti-money laundering institutions; consideration of the role and mandate of each SAI in fighting against corruption and money laundering; typical examples of SAIs’ in performing their duties; and identification of measures that could be developed to enhance SAIs’ ability in combating corruption and money laundering.

3. Research Approach

The project’s methodology combined theoretical research and empirical study, including designing and implementing questionnaires, and conducting roundtable discussions and interviews with relevant agencies and individuals.

Documentary research

The project team commenced the research by assembling and reviewing key documentation and data of corruption and money laundering. The intention was to help the project team to understand the character and current status of the institution related to corruption and money laundering. Information collected by SAIs included: relevant research theories and existing literature relating to anti-corruption and anti-money laundering; and internationally accepted standards developed by groups such as INTOSAI.

The research project combined theoretical research and empirical study. The rationale behind the combination was that both approaches can provide a conceptual structure and framework which enables the integration of the theoretical and methodological elements something that ultimately will help to improve anti-corruption and anti-money laundering activities for all SAIs.


Surveys

There are a number of agencies and organizations, both nationally and internationally that play an important role in dealing with corruption and money laundering. The project team identified these agencies and conducted interviews as well as designed questionnaires for collecting detailed information systematically.

A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. The research team designed several kinds of questionnaires and selected experts that have worked in specialized government departments, companies, banks and other government agencies devoted to anti-corruption and anti-money laundering actions, to provide their judgment on the questionnaire design.

The questions were a mix of closed and open ended options. Respondents could decide which questions to answer, and/or reply with the information which was not included in the choices. For some questions, respondents were given the opportunity to provide answers in accordance with their own ideas.

Based on the questionnaires and comprehensive analysis of the survey results, an overall situation of the fight against corruption and money laundering was assessed and concrete measures developed to facilitate the role of audit in supporting or conduction anti-corruption and anti-money laundering actions.

Case studies

In the case studies, SAIs have focused on tools and approaches adopted in audit of corruption and money-laundering by describing some typical cases and examples. The goal was to describe a range of efficient and feasible solutions. Base on the theoretical research, the case studies were conducted on the patterns of corruption, fraud, and money-laundering, and the practices of certain SAIs member in anti-corruption and anti-money laundering.


4. Summary of Findings

4.1 Research report

The research project spanned a period of three years. The scope of this research was restricted to the area of anti-corruption and anti-money laundering at the country level. Each member SAI was responsible for the organization and composition of relevant parts of the research over the whole period. As a result, the overall research report is supported by individual country reports from each participating SAI.

The questionnaires drafted by all participants were distributed to the specialized government departments, companies, banks and other government agencies of 22 ASOSAI member countries. Based on the questionnaires and comprehensive analysis of the survey results, an overall situation of the fight against corruption and money laundering was assessed and effective measures were developed to facilitate audit capability in anti-corruption and anti-money laundering. The respective country reports allow SAIs to contribute to the stored global experience by taking into account the national situation that will improve the efficiency of SAIs in anti-corruption and anti-money laundering.

4.2 Key findings

After analyzing the above audit experience and methodologies, we have identified several ways in which SAIs can be assisted in combating corruption and money laundering.

At the international level, we believe a greater exchange of information would also ensure a better transfer of know-how and enable the creation of a data and information pool that can be used to develop better strategies to deal with corruption and money laundering. Measures could be taken in the following aspects:


• Disseminating knowledge and share experience regarding the fight against corruption, through for example, organizing conferences and seminars where SAIs and international organizations may share best practices, limitations and areas for improvement.

• Launching joint and parallel audits in relation to transparency and implementation of national anti-corruption strategies in coordination and collaboration with international organizations.

• Establishing an intelligence, data and information sharing system among SAIs and international agencies.

• Arranging workshop on significant findings of anti-corruption and anti-money laundering activities with the member SAIs of neighboring countries or countries of regional or sub-regional group.

• Developing a framework/checklist based on international best practices regarding anti-corruption and anti-money laundering measures along with audit strategies on these two aspects around the world compiling strategies, functions, policies of SAIs and international bodies in these aspects. With this framework or checklist any member SAI can assess it’s position and take necessary steps regarding auditing of issues related to corruption and money laundering.

• Cooperating with international bodies, peer SAIs and also international donor agencies by sharing knowledge of corruption and also developing relationship with organization to be audited to enhance the awareness against corruption.

At national level, it is necessary to strengthen audit functions aimed at detecting organization-wide corruption and money laundering early by, among other things, enhancing the systems to utilize information provided by them, and following up on reliable external information. Measures could be taken in the following aspects:

• Strengthening the investigative powers in SAI’s mandate with respect to anti-


corruption and anti-money laundering.

• Strengthening cooperation with other competent anti-corruption and anti-money laundering authorities and financial institutions (both public sector and private sector).

• Transfering suspicious cases to competent agencies in a timely manner and closely monitoring follow up activities.

• Strengthening communication and cooperation with civil society, media, NGOs and other voluntary organizations in order to increase awareness against corruption and money laundering among mass people.

• There should be close link, free and frequent communication and sharing of information regarding issues related to money laundering and its updates among the accountability organizations (e.g. SAI, Anti Corruption Commission, and Information Commission,etc.). As money laundering takes place through export and import, therefore SAI, National Board of Revenue or equivalent institutions,Central Bank and Ministry of Finance should take integrated and cooperated approach to combat corruption and money laundering.

• As state owned enterprises, nationalized banks, sector corporations are being audited by the Charted Accountant (CA) firms as per Company Act and the statutes of those organizations, accordingly it is required to formulate a standard norm or checklist or guidelines for auditing of issues related to money laundering by those CA firms. In the audit report of the CA firms separate comments should be incorporated regarding issues related to money laundering.

At organizational level, we identified a number of measures which could strengthen audit techniques to detect corruption and money laundering, focusing on four dimensions: (1) planning; (2) formulating the audit program; (3) application of audit techniques and methods; and (4) utilization of audit findings.


• At the planning stage, measures could be taken to emphasize the high risk areas such as public procurement, public fund management and revenue collection; and analyze corruption related money laundering.

• At the stage of formulating the audit program, it is important to create “red flags” or fraud indicators of corruption. Red flags were seen as first line indicator of potential corruption and the triggering of the flags can be grounds for further investigation. Some SAIs developed corruption indicators while applying normal auditing procedures during regular audit or fraud examination by being alert for situations and environment conducive for fraud. For formulating money laundering audit cases, it is vital to first assess institution’s anti-money laundering (AML) strategy and management, as well as monitor the implementation of AML regulations and instructions.

In order to better apply audit techniques and methods, SAIs identify that the following should be further strengthened:

- Improving anti-corruption and money laundering complaint mechanisms and whistle blowing systems. Some SAIs propose ways to strengthen whistle blowing systems by: enhancing the education of the auditors, improving and strengthening efforts in the announcement and disclosure of audit results to the general public; providing rewards as incentives for whistleblowers to report corruption.

- Improving investigative audit capabilities. Investigative audits can play an important role in combating corruption and money laundering and allow auditors to focus on certain issues or institutions/individuals for in-depth analysis. However, some SAIs are not able to launch full-fledged investigations given the available audit mandate, and audit resources (budget and human resources).Some SAI believe that they should be given broader investigative powers and to use evidence discovered from audits as inputs to such investigations.

- Developing audit ability through training, seminars and providing guidance.


Most of the SAIs emphase the importance of training courses or seminars provided to auditors and, based on this, some SAIs have developed theory of inquiry techniques, and guidance in conducting interview in investigative audit techniques. As for anti-money laundering, competent auditors and expertise are also of great importance for SAIs to effectively detect money laundering activities, but the current situation is not satisfactory and has room to improve.

- In order to improve the utilization of audit findings, SAIs believe that audit reports, which are prepared and made public in accordance with the international standards play a deterrent role in coping with corruption. Such audit reports may highlight certain corruption-prone areas and help auditees take necessary measures to prevent future cases. Finally, SAIs also emphasized that we could utilize audit findings for anti-corruption through lesson learned in case studies to better fulfill audit responsibilities.

- SAI should establish a specialized wing or cell regarding the issues related to corruption and money laundering with the officials of having specific skill and training on auditing of corruption and money laundering. That group of officials can play a vital role in auditing issues related to corruption and money laundering.

5. Limitations and Recommendations

5.1 Limitations

In some cases, SAIs lack the authority, skills and resources to carry out corruption audits. Fighting corruption requires a multi-pronged attack. It requires the government to attach great importance to the task of anti-corruption and anti-money laundering, and to take actions to punish and effectively prevent corruption. At the same time, it requires reforms, inter alia, in public administration, judiciary, public information, and cultural values of the society. Therefore, the recommendations we propose as improvement measures may not achieve desired results without support from, and collective effort of, all the above related agencies.


With respect to money laundering, although it is a key phenomenon that has close link to corruption, we found that due to the absence of an authority for most SAIs to conduct audit in this field, there were fewer samples on which to conclude on the roles and methodologies in anti-money laundering. Only three SAIs shared their experiences in fighting money laundering. This limitation suggests that we may wish to review our roles in the future in order to better combating this type of activity, however as a result, we find insufficient audit cases that provided a connecting point between anti-corruption and anti-money laundering.

5.2 Recommendations

In the longer-term, the research team proposes that the following points be considered:

Since the research report summaries the current situation and methodologies used by participating SAIs, and proposes concrete improvement measures to enhance SAIs ability in this field, the appropriateness and accuracy of the conclusion and recommendations should be periodically reviewed and updated.

We also would like to further explore the development of specific auditing guidance and standards on anti-corruption and anti-money laundering. This will also require further work to collaborate with INTOSAI Working Group on Fighting against Corruption and Money Laundering, as well as other related international organizations.

6. Definitions

Corruption

Corruption is an action to (a) secretly provide, (b) a good or a service to a third party, (c) so that he or she can influence certain actions which, (d) benefit the corrupt, a third party, or both (e) in which the corrupt agent has authority. Corruption is defined in the Independent Commission Against Corruption (ICAC)


Act 1988, as the dishonest or partial exercise of official functions by a public official. In broad terms, corruption is the abuse of public office for private gain. It encompasses unilateral abuses by government officials such as embezzlement and nepotism, as well as abuses linking public and private actors such as bribery, extortion, influence peddling, money laundering and fraud. Corruption takes place in the form of bribery, kickbacks, commissions, or other benefits without leaving any trace in the official records.

Money laundering

Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activity, allowing them to maintain control over the proceeds and, ultimately, providing a legitimate cover for their sources of income.

15Evaluation of the Current Situation of Corruption and Money Laundering

II. Evaluation of the Current Situation of Corruption and Money Laundering

1. Objective and Structure of the Survey

This section seeks to provide background information on corruption and money laundering, to identify and analyze the corruption and money laundering phenomena particularly their types and patterns, red flags, areas of occurrence, causes, effects and mechanisms. It highlights the research finding from the perspectives of the government supervisory and enforcement agencies, government institutions, financial institutions and non-financial corporations.

2. Respondents to the Survey

A total of 13 countries namely Australia, China, India, Indonesia, Iraq, Malaysia, Pakistan, Philippines, Russia, Korea, Thailand, Turkey and Vietnam responded to the questionnaire on corruption. The number of respondents for each of the paragraphs may differ as some of the respondents selected more than 1 answer from the given options and some respondents opted not to answer certain questions. The questionnaires were completed by the competent authority or agency such as National Anti-Corruption/Anti-money laundering Commission, Anti-Corruption/Anti-money laundering Agency, Ministry of Justice, Department of Special Investigation, Inspection Board, Central Bank, Ministry of Finance, Financial Institutions, the Board of Audit or the Account Chamber in their respective countries.

3. Survey Results Current Situation of Corruption

3.1 Prevalence of Corruption

According to the survey results, corruption is serious and pervasive in most sectors for 4 out of 13 respondent countries (31%). Corruption is moderately prevalent and widespread among some of the public sectors for 5 countries (38%) whereas 1


respondens (8%) stated that the prevalence of corruption is moderate. Meanwhile, Australia, Philippines and Turkey which represented 15% of the respondents, answered that the prevalence level of corruption is low.

When evaluating the current prevalence of corruption in their respective countries compared with previous years, 4 out of 13 respondent countries (31%) answered that the current prevalence of corruption is much or slightly higher than previous years. 5 respondents (38%) indicated that the current prevalence of corruption in their respective countries remained the same compared with previous years. 3 respondent countries had seen a slight decrease of corruption than previous years. Only Turkey identified that corruption prevalence is much lower than in previous years.

3.2 Transparency International’s – Corruption Perception Index

Corruption is omnipresent and continues to ravage societies all around the world. Two thirds or 117 out of 176 countries ranked in the 2012 Transparency International’s – Corruption Perception Index (CPI) scored below 50. This is quite an extraordinary high figure and indicates that corruption in the public sector is systemic and, in some areas, institutionalized. The results from our survey showed that 7 out of 13 respondent countries (54%) agreed that the ranking fairly reflects the reality of corruption in their countries. 6 out of 13 respondent countries (46%) did not agree that their countries’ ranking in Transparency International’s CPI fairly reflects the reality of corruption in their respective countries.

3.3 Global Integrity Index

In addition to the CPI, Global Integrity Index (GII) assesses the existence, effectiveness, and citizen access to key national-level anti-corruption mechanisms used to hold governments accountable. About the question whether the score of GII fairly reflects the reality of corruption in their respective countries, 7 out of 13 respondent countries (54%) stated that their countries’ score of the GII fairly reflects the reality of corruption. Meanwhile,6 respondent countries (46%) stated


that the score of GII did not fairly reflect the reality of corruption in their countries.

3.4 Tolerance Level Towards Corruption

Corruption will reign over a nation if people and government are tolerant of it. A very good example in the fight against corruption is the transformation of Hong Kong from one of the most corrupt region in the world to one with a clean government,due to the intolerance of Hong Kong’s people who could no longer bear the abuse of power.

As for the tolerance level of the country’s population towards corruption, 10 out of 13 respondent countries (77%) stated that the populations are moderately intolerant towards corruption, while 3 respondent countries (23%) indicated strong intolerance.

About the governments’ political will to implement initiatives and measures in the fight against corruption, 3 out of 13 respondent countries (23%) affirmed that the steps taken are moderately strong, and 3 respondent countries (23%) answered that the steps taken by the government against corruption are strong. The other 7 respondent countries (54%) indicated that the steps initiated by the government are weak.

3.5 Pattern of Corruption

Patterns of corruption vary in diversity and complexity, thus making it hard to assess, predict or evaluate. 6 out of 13 respondent countries (46%) stated that corruption dealings are moderately predictable and can be seen from certain patterns whereas 3 respondent countries (23% ) reported corruption patterns as highly predictable. 1 respondent (8%) identified that patterns of corruption dealings were unpredictable but benefitting few top leaders, while the remaining 3 respondents (23%) stated that corruption dealings are unpredictable.

Concerning the occurrence of corruption (whether it occurs most frequently in


the public or private entities), 6 out of 13 respondent countries (46%) stated that corruption occurs most frequently in public entities, while another 6 respondent countries (46%) replied that corruption occur equally in the public and private entities. One country, Australia (8%) has little comparable data on the incidence of corruption in the public and private sectors.

3.6 Types of Corruption

There are several types of corruption that occur in various sectors of public and private entities. Some are more common than others, and more prevalent because interactions between private individuals and officials happen at greater levels of intimacy and frequency. Types of corruption pertaining to money, such as bribery, extortion, embezzlement, and graft are more likely to happen in the public sector. Other types of political corruption include nepotism and patronage systems.

Based on the feedback received from the respondents in 13 countries surveyed, petty corruption was ranked top as the most prevalent type of corruption, and the top 3 most common types of corruption are abuse of position or power, bribery, and kickback, and followed by influence peddling, criminal breach of trust, embezzlement, nepotism, forgery and extortion.

Of the sectors most vulnerable to corruption, customs is the most vulnerable. This is followed by law enforcement/police, local government, taxation enterprise, public service delivery, state-owned enterprise, health, energy, education, judiciary, environment, legislature and, lastly, the least vulnerable is the agriculture sector.

The areas at the government level where are most at risk of corruption are procurement contracts, followed by licensing, revenue (taxes) collection, public fund disbursement procedures and electoral irregularities.


3.7 Petty Corruption

Small scale or petty corruption is everyday corruption that takes place where public officials meet the public. It can be as damaging as grand corruption if left unchecked. Petty corrupt behaviors may include bribing public officials, billing personal calls to a company, padding expenses and even cheating on time cards. Despite being petty in nature, it may affect a nation’s attitude towards larger ethical problems.

According to the survey results, 6 out of 13 respondent countries (46%) answered that the prevalence of petty corruption is high in their respective countries, another 5 respondent countries (38%) acknowledged it as moderate. The remaining 2 respondent countries (16%) indicated the prevalence of petty corruption as low.

In terms of personnel most likely to be involved in petty corruption, 46% of the respondents (6 out of 13 respondent countries) stated rank and file employees as most likely to be involved in petty corruption, followed by medium management/supervisors (29%, 4 respondents) and high-level management. Another 3 respondents (23%) indicated the public as most likely to be involved in petty corruption.

The main patterns of petty corruption in each surveyed countries are:

• Respondents from China indicated collective and trade monopoly where petty corruption might take place. There is a rather perturbing and interesting response which suggested the legalization of corruption by legal means.

• For India, petty corruption is prevalent in delivery of public services for expediting services. Bribes are paid through middlemen and touts for avoiding harm or punishment, for example. policemen or tax authorities. Responses from Pakistan revealed the practices of giving gifts to bureaucrats and award of contracts to favorites as one of the patterns in petty corruption. This is done to access public services or to bypass the law.


• According to the respondents from Korea, teachers and builders are offenders in the petty corruption.

• Lastly, respondents from Thailand indicated conflict of interest as a pattern in petty corruption. It is a situation whereby public official who contrary to the obligation and absolute duty to act for the benefit of the public or a designated individual, exploits the relationship for personal benefit, typically for pecuniary gain.

• From this study, we also noticed that many respondents identified other patterns of petty corruption relating to conflict of interest (COI), self dealing, post-employment, outside employment or moonlighting, using inside information, and pork barreling.

3.8 Grand Corruption

Grand corruption usually takes place at the policy formulation phase where policies and rules are formulated. It is also known as “State Capture” when a small entity is able to bend laws, policies and regulations to its advantage through corrupt transactions, massive illicit and non-transparent provision for the benefits of public officials and politicians.

Regarding the prevalence of grand corruption, 7 out of 13 respondent countries (54%) replied high in their respective countries, while 4 respondents (31%) acknowledged the prevalence as moderate and 2 indicated low.

As for the category of personnel most likely to be involved in grand corruption, 8 out of 13 respondent countries (62%) reported that elected officials and their personal favorites is the most likely recipient of grand corruption, while 4 respondents (31%) stated powerful government officials as the next most likely to be involved in grand corruption, with 1 respondent (8% ) indicating that business entrepreneurs are most likely.


3.9 Corruption at Budgeting Level

9 out of 13 respondent countries (69%) agreed that corruption during budget formulation is primarily grand or political corruption and is influenced by the distribution of budgetary powers between the executive and legislature.

12 out of 13 respondent countries (92%) agreed or strongly agreed with that “unchecked and excessive discretion in the budget process tends to create opportunities for political corruption. Politician or senior level bureaucrats are able to provide subsidies or favorable tax treatments to favored citizen group or allocate budget resources to projects areas based on political connection”.

Survey respondents were asked if they agree with this statement that “Public Financial Management System of administrative corruption during budget execution weakness during budget formulation can increase the risk of administrative corruption during budget execution.” Results from the survey showed positive answers with 11 out of 13 respondent countries (85%) agree or strongly agree and the other 2 (15%) stated as neither agree nor disagree with the statement.

3.10 Root Cause of Corruption

With the exception of one’s deliberate intention, corruption can occur when three of these criteria exist namely opportunity, motivation and rationalization. According to the latest forensic research, a fourth criteria that could influence a person to commit fraud are the capabilities of the individual.

Weaknesses/failure in regulatory and legal systems to fight corruption were ranked top out of 8 selections of root causes of corruption. This was followed by complicated and cumbersome administrative procedures; culture, customs and habits of giving bribes to get things done; low salary levels; unclear rules and loopholes for manipulation; lack of financial rules and procedures; the desire to become rich as quick as possible and lastly, rapid population and economic growth.


Survey respondents were asked if they agree with the statement that the main cause of corruption and petty corruption is derived from the patronage-client system. Results from the survey showed half respondent countries (53% ) agree with the statement. 4 respondent countries (31%) answered neither agree nor disagree.

Survey respondents were asked if they agree with the statement that weak accounting practices, including lack of timely financial management are conditions favorable for corruption. According to survey results, 11 out of 13 respondent countries (86% ) answered agree or strongly agreed.

3.11 Consequences of Corruption

Corruption has a cascading effect and can be seen in all segments of the political, economic and social sphere. In the political sphere, corruption impedes democracy, reduces interest in political participation and contributes to political instability. Economically, it can lead to a depletion of wealth and an increase to the cost of living. In the social sphere, corruption discourages people to work together for common good. Giving and accepting bribe might become a tradition. This could result in social inequality and widened gap between the rich and the poor.

Our survey results were rather mixed, although the underlying tone is still serious. In regards to the damage caused by corruption to government’s budget, 3 out of 13 respondents (23% ) answered that damage caused by corruption to government’s budget is very serious. 6 respondent countries (46%) acknowledged damage caused by corruption as extremely serious whereas 2 respondents (23%) indicated the damage is serious. Additionally, 2 respondents (15% ) replied the damage as somewhat serious.

The questionnaire also sought to determine the extent of damage caused by corruption to the private sector. Ten out of 13 respondent countries (77%) stated that corruption caused serious damage to the private sector. 3 respondents (23%) indicated that the damage was somewhat serious.

In terms of how much damage corruption causes to citizens in their respective


countries, 5 out of 13 respondent countries (38%) answered that it was serious. 6 (46%) stated that the damage inflicted by corruption to the citizens can be very or extremely serious. 2 respondents (15%) stated that it was somewhat serious.

3.12 Management of Complaints

According to the survey results, complaints about corruption or fraud from the public are both essential and highest priority for 10 respondent countries (43%); 2 respondents (15%) answered low priority.

Respondents were asked about the importance of whistle blowing in the reporting of corruption. Results from the survey showed a positive tone as 12 of 13 respondent countries answered very important or extremely important Thus, it can be concluded that whistle blowing plays an important role in the fight against corruption. All respondent countries agreed it as an effective or very effective way of alerting authorities to corrupt activities.

4. Survey Results - Current Situation of Money Laundering

4.1 Basic concepts and characteristics of money laundering

Money laundering generally involves a series of multiple transactions used to disguise the source of financial assets so that those assets may be used without compromising the criminals who are seeking to use the funds. These transactions typically fall into three stages: (1) Placement, the process of placing, through deposits, wire transfers, or other means, unlawful proceeds into financial institutions; (2) Layering, the process of separating the proceeds of criminal activity from their origin through the use of layers of complex financial transactions; and (3) Integration, the process of using an apparently legitimate transaction to disguise the illicit proceeds. Through this process the criminal tries to transform the monetary proceeds derived from illicit activities into funds with an apparently legal source.


4.2 Severity and trends in Money Laundering

Based on the survey of 13 countries, 46% of research countries (6 out of 13) deemed that the condition of money laundering activities is serious, Indonesia, Pakistan and Thailand indicated very serious, and Russia stated the situation of money laundering is extremely serious. Only the respondent from Malaysia indicated that the money laundering situation is at a manageable level.

In addition, the majority of the respondents agree or partially agree with the statement that the situation of money laundering has tended to increase, and to be more sophisticated in recent years.

However, in some countries, with the continuing effort of competent authorities, the situation of money laundering has been mitigated. For example, Iran recognized that, with regard to the related laws and regulations, available infrastructure, an operational Financial Intelligence Unit (FIU), receipt, analysis and dissemination of Suspicious Transaction Reports to the competent authority, the fight against money laundering has been improved.

4.3 Patterns of Money Laundering

Corruptive practices through money laundering are mainly observed both in the public and private entities, as indicated by 53% of the responding countries (7 out of 13 respondents). 23% of the respondents observed the above activities mostly in private sectors. Thailand and Vietnam found most of these practice in public entities.

4.3.1 High occurrence areas

As the main channel of facilitating money laundering activities, the finance and banking industries were identified as having the highest risk (61%, 8 out of 13 respondents), followed by real estate, trade and construction sectors. Other areas such as: money transfer and remittance services (Australia), Money Service


Business (Malaysia) were also deemed as high rank of occurrence.

4.3.2 Most common methods

Based on the survey results, business transactions and cash transactions through financial institutions are the most often used methods for money launderers. Other common methods of money laundering were through the stock market, projects and real estate transactions. Some countries elaborate the method of laundering process as follows:

• “Visible money laundering is predominantly carried out using the regulated financial sector, particularly through the use of false identities and false name bank accounts facilitated by forged documents to structure and transact funds. Money launderers often move funds offshore by using international funds transfers. Launderers also move funds through smaller or informal service providers such as alternative remittance dealers. Australian authorities have also identified other methods that served as money laundering vehicles: cash smuggling into and out of Australia, gaming and gambling activity, and the use of legitimate businesses to mix proceeds of crime with legitimately earned income/profits. Law enforcement has also recognized a growing trend in the use of professional launderers and other third parties to launder criminal proceeds (Australia)”.

• “According to the data of the Central Bank of Russia and the Federal Financial Monitoring Service, for the latest three years, about 7.5 billion US dollars have been moved out from Russia through the securities market to the offshore companies’ accounts with foreign banks. Most often laundered in Russia are the budgetary funds allocated to public companies and corporations and stolen in the course of ‘spending the budget’. The budgetary funds are most commonly moved abroad from the housing services and public utilities sphere, energy sector, construction, and defense complex. The public companies in those sectors are literally ‘hanged’ with the numerous interconnected offices, through which the public money first are fluently withdrawn into the shadows and then legalized as a private capital. As


usual, the money is laundered through banking transactions and the stock market. Small and medium-sized broker companies are most often act as “a laundry (Russia).”

• “Usual style of money laundering include:(1) Bank account or assets registered under the name of persons other than the perpetrator, (2) Charity using illegally acquired monies (Indonesia).”

4.3.3 Environmental conditions that favor money laundering

or transfer of illegal money and is associated with several offences to make it look legitimate. Our results were rather mixed but corruption topped the list of 5 given selections, and was chosen by 77% of the research countries (10 out of 13); drugs for 61% of the respondents (8 out of 13); embezzlement for 46% of the respondents (6 out of 13); production, buying and selling of illegal goods for 36% of the respondents; and terrorism for 30% of the respondents. Australia identified drug trafficking, importation, and financial fraud are also closely associated with money laundering.

Use of cash and illegal money transfer was the dominant favorable f actor f or money laundering; followed by inadequate supervision/control system of bank and other financial institutions. Other factors like an unsound legal system, and international economic integration was equally chosen by 15% of the respondents.

4.4 Offences Associated With

Money laundering

Money laundering is the conversion

Internation economic integrating(15%)Bank and financial institutions do not have suitable supervision system to anti money laundering(31%)Use of cash and illegal money transfer is dominant(39%)Legal system is not enough(15%)


However, it should be noted that:

• Different countries may have different definition of the term “money laundering”. Some jurisdictions differentiate these for definition purposes, and others do not. For example, in addition to the above offences, Korea also reported that tax evasion has become challenging issue, that is, utilizing tax havens and paper companies to evade tax and illegally move the asset overseas. Korea’s AML mechanism plays important role in deterring overall corruption, tax evasion, and smuggling as offences associated with money laundering.

• Some jurisdictions define money laundering as obfuscating sources of money, either intentionally or by merely using financial systems or services that do not identify or track sources or destinations. Therefore, some jurisdictions define money laundering to include money from activity that would have been a crime, even if it were legal where the actual conduct occurred. This broad sphere of applying the term “money laundering” is particular the case in China. For example, in addition to the crime of money laundering and its related criminal activities, the AML agency also aims at detecting and combating financial activities by “illegal banks” and “illegal fund raising”.

4.5 Root Causes and Consequences of Money Laundering

4.5.1 Root Causes of Money Laundering

Transferring into lgitimate (or apparently legal) money is the main reason for conducting money laundering, indicated by almost all countries. 46% (6 out of 13) of the research countries also stated that hiding illegal accumulated wealth was a cause of money laundering; Australia, Malaysia, Turkey and Korea pointed out other reasons such as avoiding prosecution, evading taxes and increasing profit.

4.5.2 Consequences of Money Laundering

The majority of the research countries (85%) agreed that money laundering will


facilitate the increase of crime and corruption; 46% of the respondents indicated it will reduce government tax revenue and weaken government control over economy; 5 out of 13 countries also considered money laundering will weaken the financial institutions as well as compromise economy and private sectors. Iraq, Malaysia, Russia, and Pakistan also indicated that foreign investment will be negatively impacted.

4.6 Impact and seriousness

53% of the research countries (7 out of 13) believe money laundering will cause serious negative impact on national security, international reputation and weaken the economy as well as economic reform; whereas 38% (5 out of 13) of respondents indicated that the impact will be very serious. Respondents from Iran deemed the consequence will be extremely serious. In addition, all of the respondents believe money laundering will cause serious or even worse impact on the economic and social area.

5. Conclusions

• According to the survey, corruption is a major problem in many parts of the world, particularly Asia, where efforts to stamp it out seem less than successful.

• Although corruption is a common phenomenon in Asian societies, the tolerance level of the population is quiet low in these countries, which formed a positive social culture background for the anti-corruption actions. Corruption occurs more in public sectors, while its occurrence in private sectors cannot be ignored.

• The types of corruption are varied and the sectors which invaded are large and covered a lot of government activities. Petty corruption and grand corruption are both epidemic and very damaging to society.

• Corruption causes great damage to both private and public sectors and also


inflicts serious harm on citizens.

• Complaints, especially whistle blowing are important and effective ways to locate corruption.

• As a frequent way of concealing illegal activities, money laundering is perceived to be serious, and is tending to increase in recent years and get more sophisticated over the years. Money laundering is observed both in the public and private sector. Business transactions, finance and banking industry, real estate, trade and construction have the highest risks of money laundering.

• Money launderers tend to use diverse and complicated method to disguise the nature of the money. Business transactions and cash transactions through financial institutions are most common ways of achieving this goal. In some countries, there are small or informal financial service providers that act as professional channels to facilitate laundering activities.

• Offences closely associated with money laundering are notably identified in corruption, others may include drug dealings, embezzlement, production, buying and selling of illegal goods and terrorism. Criminals, by conducting laundering activities, mainly seek to legitimate illegally gained money, hide illegaly accumulated wealth, avoid prosecution and evade taxes.

• The use of cash and money transfers creates the most favorable environmental conditions for money laundering activities. In addition, inadequate supervision/control system of bank and other financial institutions is also identified as important factor.

• In general, most of the responsible authorities consider money laundering causes serious consequences to the country’s security, international reputation and weakens the economy system including economic reform, government control over economy and financial institutions.


III. Evaluation of the Current Situation of Anti-corruption and Anti-money Laundering


The aim of this part is to assess and evaluate the current situation of anti-corruption and anti-money laundering in ASOSAI member countries. This section highlights the research findings from the perspectives of the government supervisory and enforcement agencies, government institutions and financial institutions. Results gathered from the feedback of the respondents will help SAIs identify and analyze the overall situation of anti-corruption and anti-money laundering particularly aspects of national anti-corruption strategies and action plans, anti-corruption/anti-money laundering agencies, legal framework supporting anti-corruption/anti-money laundering efforts, international cooperation and promoting awareness and other matters in the subject of anti-corruption/anti-money in ASOSAI member countries, which SAIs can develop to improve methods and tools in the fight against corruption.


14 countries, namely Australia, China, Indonesia, India, Iran, Iraq, Malaysia, Myanmar, Pakistan, Philippines, Russia, South Korea, Thailand, and Turkey responded to the questionnaire on anti-corruption. The number of respondents for each of the paragraphs may differ as some of the respondents selected more than 1 answer from the given options and some respondents opted not to answer certain questions. Also in some cases, responses from some countries didn’t reflect the dominant view of experts in related organizations and in some cases, it was hard or even impossible to summarize the answers. The questionnaire on current situation of anti-corruption and anti-money laundering was completed by the competent authority or agencies such as National Anti-Corruption Commission, Anti-Corruption agency, Ministry of Justice, Department of Special Investigation, Inspection Board, Central Bank, Ministry of Finance, Financial Institutions, the Board of Audit and the Account Chamber in their respective countries.

31Evaluation of the Current Situation of Anti-corruption and Anti-money Laundering

3. Survey Results – Current Situation of anti-corruption

3.1 National Anti-Corruption Strategy and Action Plans

Virtually all forms of corruption are proscribed by all countries, yet many countries have found it hard to reduce corruption. If countries have trouble fighting corruption, it may be because of insufficient will or insufficient capacities. These capacities include having proper strategies and structures (including incentive structures) that inhibit corruption. Sometimes efforts are constrained by costs,by a lack of know-how, or by the fact that some countries have not yet thought about strategies against corruption. It is clear that defining a strategy plays a critical role in having successful anti-corruption activities.

3.1.1 The survey showed that majority (78%) of the respondent countries, including China, Iran, Iraq, Indonesia, Malaysia, Pakistan, Philippines, Russia, Korea, Thailand, and Turkey have a “stand-alone anti-corruption program or anti-corruption strategy”, 6% of the respondents have an “umbrella document with separate programmes for sectors or ministries”, also the next 6% of the respondents stated that their anti-corruption strategy and action plans is a section in another policy document, for example, national development or investment programme. In the Philippines, strategies are embodied in Anti-corruption Laws and specific laws, courts, and prosecutors dedicated to government anti-corruption. For Malaysia, the programme cut across various sectors and ministries and is detailed in the government transformation programme roadmap which is made available to the public.

3.1.2 In relation to the contents of anti-corruption documents, 10 countries cover objectives and priority areas , 9 cover public participation / education and prevention and criminalization / law-enforcement measures. Also, 6 anti-corruption documents cover monitoring and assessment mechanism and criteria, background chapters on levels and trends of corruption and assessment of previous anti-corruption efforts and Level of implementation of previous strategy. In Russia, specified chapters include General Provisions, Purpose and objectives of


the National Strategy, Fundamental principles of the National Strategy and Main directions of the National Strategy and Implementation of the National Strategy. Our survey results show that the situation is fair but a complete anti-corruption document should be comprehensive, and all aspects should be considered. All of the respondent countries have an action plan in their anti-corruption strategy.

11 countries, including China, India, Iran, Iraq, Malaysia, Pakistan, Philippines, Russia, Korea, Thailand and Turkey, have specific institutions which are responsible for the implementation of each anti-corruption measure, 9 of them have specific measures for each objective in their anti-corruption action plan. 8 countries have institutions which are responsible for co-ordination, implementation and reporting on the action plan, and 7 have concrete time-frame for implementation. Only 5 countries have budget specifically allocated for the implementation of the anti-corruption action plan in their countries and 4 of them have defined specific criteria for assessing implementation.

3.1.3 In terms of publicizing the relevant documents, all respondent countries have publicized their anti-corruption documents and action plans.

3.1.4 About the measures employed in fighting corruption, the commonly identified measures were: declaration of assets and income; openness and transparency in the operation of agencies; administrative reform and development and enforcement of a code of conduct and a code of professional ethics. The next most commonly identified measures were regulation of gifts received by public officials; development and implementation of entitlements, norms and standards; forms for heads of the agencies to complete in case of the occurrence of corruption; and salary payment via bank accounts.

3.2 Anti-corruption Agency

The survey showed that the majority (11 out of 14 respondents) have an anti-corruption agency (ACA) or a specialized authority for anti-corruption. For example, there is an advisory body in Russia, the Presidential Council on anti-corruption is dedicated for this purpose. In Australia, anti-corruption activity


is shared between several agencies, including Australian Commission for Law Enforcement Integrity, Australian Transaction Reports and Analysis Centre, Australian Crime Commission, Commonwealth Fraud and Anti-Corruption Centre in the Australian Federal Police, Inspector-General of Intelligence and Security, Australian Public Service Commission, Commonwealth Ombudsman and Commonwealth Anti-Corruption Unit in the Attorney-General’s Department. Also in Turkey, several institutions play role in the anti-corruption mission.

Concerning the main responsibilities/functions, most of the ACAs have the following functions: identify the causes of corruption and propose to the competent authorities measures to help eliminate it and conduct investigations; monitor and evaluate the implementation of the anti-corruption strategy; disseminate knowledge on anti-corruption activities and raise public awareness about the fight against corruption; and research and analysis on corruption. However, other functions such as preparing a risk map of corruption or anti-corruption screening of legal acts should alos be considered.

Results showed that in order to employ appropriate measures to mitigate corruption, half of the respondents countries, including China, Indonesia, Iraq, Malaysia, Philippines, Russia, Korea and Thailand, periodically evaluate the relevant bodies/ areas/ activities. One third of the respondents stated their ACAs do the evaluation on an occasional basis. 17% of ACAs never evaluate their bodies/ areas/ activities.

In terms of citizen complaints, most ACAs (86%) have set up a hotline or website to facilitate citizens complaints about corruption.

3.3 Legal Background

The survey results showed that 9 respondent countries, including Australia, China, Indonesia, Iran, Iraq, Philippines, Russia, Korea and Myanmar, have various laws with certain provisions concerning corruption. In 8 respondent countries, the criminal law supports their legal activities and 7 stated that they have criminalized different types of corrupted activities by a special law on anti-corruption.


In terms of areas which need to enact new legislation to better prevent and detect cases of corruption, more than half of the respondent countries sepecified “nepotism” and “influence peddling”. New legislation on “criminal breach of trust” , “abuse of position/power”, and “kickbacks” were also identified as necessary additions. This statistic shows that respondent countries have paid more attention to preventive policies and measures against some forms of corruption, but less attention to other corruption types or other ways to fight corruption such as detective and punitive actions against corruption.

In relation to laws and regulations governing the financing of their political parties, code of ethics of public officials and declaration of assets by public officials, 9 out of 14 respondent countries, including Australia, China, Indonesia, Myanmar, Pakistan, Philippines, Russia, Korea and Thailand, have relevant laws or regulations. All respondent countries have laws and regulations governing code of ethics of public officials and declaration of assets by public officials.

In terms of accounting and auditing standards, the survey shows that all of respondent countries have “accounting and auditing standards” for both public and private sectors.

The questionnaire also explored the existence of legal obligation for public officials to report corruption-related offence. The majority (11 out of 14) respondents stated that their public officials have legal obligation to report corruption-related offences. But 3 of respondents (including India, Philippines and Thailand) stated that their public officials do not have a legal obligation to report corruption-related offences. For those countries, we suggest them considering this subject and enact laws and regulations for legal obligation to public officials to report corruption-related offences.

Based on the survey results, the majority of respondents (74%) rate the implementation of the rules / regulation in combating corruptions as good or fair. But 26% of respondents stated that the situation was not good. 21% of respondents, including Iraq, Russia and Philippines, believe that the implementation of the rules / regulation in combating corruption is very poor.


3.4 International Cooperation

International cooperation can help individual countries to some degree in combatting corruption. The aim of this part was to evaluate the current situation of international cooperation in respondent countries in the fight against corruption. According to survey results, all of respondents stated that they ratified United Nations Convention against Corruption (UNCAC) in their countries and the majority of respondents (11 out of 14) begun the UNCAC peer review process. One of the respondents stated that they have a scheduled peer-review process and in Myanmar and Philippines, it is not planned yet.

The survey also showed that the majority of respondent countries (more than 77%) are member of other anti-corruption conventions, initiatives or international projects (such as the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; and GRECO), while 23% of respondent countries do not play an active role in international anti-corruption projects.

In some countries, international cooperation of anti-corruption actions works well in areas like mutual legal assistance, cooperation with law enforcement authorities and between national and international authorities and cooperation between national authorities and the private sector and international cooperation. But in general, we saw low success in international cooperation, especially in areas of extradition and cooperation with national authorities and the private sector and international authorities. Respondent countries should seek to boost the effectiveness of their international cooperation for combating corruption.

3.5 International Awareness Promotion and Other Matters

By resolution 58/4 of October 31, 2003, the UN General Assembly designated December 9 as International Anti-Corruption Day. This decision aimed to raise people’s awareness of corruption and of the role of the United Nations Convention against Corruption in combating and preventing it. The assembly urged all states


and competent regional economic integration organizations to sign and ratify the United Nations Convention against Corruption (UNCAC) to ensure its rapid entry into force. UNCAC is the first legally binding, international anti-corruption instrument that provides a chance to mount a global response to corruption. People’s awareness is one of the most powerful tools in anti-corruption activities.

38% of respondents stated that, to some extent, the media has helped the public to recognize the real situation of corruption, however, the reporting was inaccurate and un-objective. 29% of respondents consider that, to some extent, media have helped public to recognize the real situation of corruption, whereas 24% of respondents stated that media have had good effect of helping the public to recognize the real situation of corruption and the need to promote anti-corruption. 9% respondents believe that media exaggerate the corruption situation.

Majority of respondent countries (over 53%) consider that society, including socio-political organizations, socio-professional organizations, citizens, participate in tackling corruption actively but not effectively. 21% of respondents consider that society participates in tackling corruption actively and effectively. 16% of respondents consider that society participated rather actively, whereas 10% of respondents believe that society does not participate in tackling corruption at all.

Based on the answers, 44% of respondents consider that the current level of anti-corruption efforts is much higher than previous years. 39% of respondents believe that these efforts are slightly higher than previous years, whereas 11% of respondents could see no change in these efforts. The Philippines did not have statistical data with which to base the response. These results show that in 17% of respondent countries, there was no visible progress in anti-corruption efforts and this subject needs more consideration in those countries.

Respondents identified various educational / training programs for the public. For instance, 12 of respondent countries (including Australia, China, Indonesia, India, Iran, Iraq, Malaysia, Pakistan, Philippines, Russia, Korea and Turkey) have anti-corruption educational / training programs for public officials. 7 respondent countries have educational / training programs for business associations and


private companies. 6 respondent countries have these programs for general public. 5 respondent countries have educational / training programs for NGOs and 4 respondent countries perform these programs in schools and media. In the Philippines, for some agencies there is anti-corruption training but not all public officials are given training. In Malaysia, they also have anti-corruption educational / training programs for Members of Parliament and politicians.Respondent countries should pay more attention to anti-corruption educational / training programs for business associations and private companies, general public, schools and media.

According to survey results, 11 respondents consider that corrupt people are not severely punished. 9 respondents think that the collusion between law enforcers and corrupt people inhibits the result of the fight against corruption. 7 respondents believe that authorized officials lack commitment, and are “afraid of retaliation and victimization” and also the “lack competent and experienced staff to handle corruption cases”. 6 respondents think that the lack of capacity and financial resources of anti-corruption agencies and some superiors who cover up for their subordinates, inhibits the result of the fight against corruption. The remaining 6 respondents also noted that they “have not mobilized well people’s and media’s participation” or identified “other” choices.

Based on the survey, more than half (59%) of respondents believe that the result of the current fight against corruption in their countries is positive and 41% of respondents stated that these efforts have not had evident impact nowadays but will have in the future.

In the last question of this questionnaire, survey respondents were asked about the role of citizen participation in the fight against corruption.Most respondent countries (12 out of 14) indicated that citizens have a role in “promoting public sector transparency and accountability” and have access to a “complaint system/ Whistle Blower, and Denunciation” arrangements. 8 out of 14 respondents stated that they give the role of “engaging civil society in corruption prevention efforts” to their citizens.


4. Survey Results - Current Situation of Anti-money Laundering

4.1 Evaluation of anti-money laundering

Among all research countries, money laundering is deemed as a criminal offence, and each country has developed specific laws and regulations in dealing with this phenomenon. The majority of respondents, namely Australia, Indonesia, India, Iran, Malaysia, Myanmar, Pakistan and Turkey considered those laws and regulations could cover all money laundering aspects, whereas China, Iraq, Philippines and Korea believed that some inadequacies still exist. Also, almost all countries (excluding Turkey) have updated relevant rules and other information about the process of AML. In terms of the level of implementation of AML laws, 64% of the respondents believe that the process is in a good (including Australia, China, India, Malaysia, Philippines, Russia, Korea and Turkey) or very good (for Iran) situation. Malaysia, Pakistan and Thailand indicated a fair level.

4.1.1 AML Board /Authority Boards /Authorities and Basic function

A Financial Intelligent Unit (FIU) has been established in many countries (13 countries) and functions as national center for the collection, analysis, and dissemination of information regarding potential money laundering offences.

In addition, all countries have an official authority / board in their jurisdiction dealing with anti-money laundering activities. The top three main measures being effectively taken by these agencies include: reporting, providing and saving money laundering information (in all countries); gathering, treating and transforming information about anti-money laundering (10 countries), as well as identifying customer and updating customer information (8 countries).


More specifically, the majority of AML authority / boards have the following responsibilities: - Developing policies and improving legislation - Data collecting, analyzing, evaluation - Money laundering supervision - Conducting research, and sector-based studies - Requesting information and documents from public institutions and

organizations, natural and legal persons, and unincorporated organizations; - Exchanging information and documents with counterparts in foreign countries

Other functions such as raising awareness in the public, carrying out examinations or investigations on the cases, coordination, are also within some AML authorities’ realm of duty. In addition, in all except one research country, it is possible for citizens to inform the country’s AML authorities on a suspected case of money laundering via official website or via letters.

By performing the above functions, the AML authorities are considered to be most effective in developing preventive measures and policies (indicated by 7 countries), and detective measures (indicated by 4 countries).


4.1.2 Independency

4.2 The Role of Financial Institutions

In recent years, most financial institutions (including relevant non-financial institutions) have been required to identify and report transactions of suspicious activities to the FIU in their respective country. For example, a bank must verify a customer's identity and, if necessary, monitor transactions for suspicious activities. This is often termed as the “know your customer” procedure and helps to better know the identity of a customer and understand the kinds of transactions in which the customer is likely to engage. Thus, financial institutions can identify unusual or suspicious behaviors, anomalies, which could be indications of money laundering activities.

4.2.1 AML &KYC Procedures

At present, financial institutions in all research countries have the obligation to comply with anti-money laundering (AML) and Know Your Customer (KYC) procedures. These legal obligations include:

In relation to independence, the ma jority of research countries indicated that the AML authorities enjoyed functional (in all countries) and legal independence (all except one); half of the respondent countries, the AML authorities were financially independent; but only 4 countries considered that the AML authorities enjoy independence in recruitment of employees.


• Apply to all countries: - Thorough client identification - Identification and reporting of suspicious activities to the appropriate

authorities - Employee training programs regarding AML

• Apply to majority of research countries (over 10 countries): - Risk focused assessment of the customer base and their transactions - Creating and regularly updating a list of red flags concerning AML - Establishing internal controls and procedures to comply with regulatory

framework concerning AML - Monitoring program for suspicious or unusual activities - Policy prohibiting accounts/relationships with shell banks - Designating an anti-money laundering officer - Prohibition of anonymous accounts

• Other measures taken by some financial institutions(fewer than 10 countries): - Independent audit/compliance function - Policies covering relationships with politically exposed persons consistent

with industry best practices - Policy of protecting employees who report any suspicious transactions

Customer identification

Collecting information& Assessing

Screening against sanction lists

During the process of client due diligence, most of the countries stated that financial institutions are obligated to establish systems for the identif ication of its customer (including customer information in the case of recorded transaction, account opening); collecting inf ormation and assessing its customer’s AML policies and practices; as well as screening its customer’s information against sanction lists issued by the government or international bodies.


4.2.2 Suspicious Transactions

In most cases, financial institutions have the obligation to report suspicious transactions or other activities that might be related to money laundering as required by laws & regulations. The most common type of these transactions in research countries is unusual large cash transactions, accounting for 33% of suspicious transaction reports (STR) f rom f inancial institutions. Other important types of STRs

are “refusals to show identification”, “unusual account activities”, “inconsistencies with the financial profile of the customer or account” and “financial transactions involving the person(s) considered in the high risk category”.


.


Anti-money laundering guidelines come into prominence globally as a result of the formation of the Financial Action Task Force (FATF) and the promulgation of an international framework of anti-money laundering standards. Under FATF’s recommendation, an effective AML program requires a jurisdiction to have criminalized money laundering, given the relevant regulators and police the powers and tools to investigate; be able to share information with other countries as appropriate; and require financial institutions to identify their customers, establish risk-based controls, keep records, and report suspicious activities.

Australian Experience

Under the Australian Anti Money Laundering/Counter Terrorism Financing (AML/CTF) framework:1. Financial institutions in Australia have client due diligence obligations

including customer identification and verification (“know your customer”) and ongoing customer due diligence.

2. In certain circumstances (e.g. correspondent banking relationships) financial institutions may collect information about a correspondent bank’s AML policies and practices and/or the AML/CTF regulation applied in another country.

3. In certain circumstances financial institutions may screen customers against sanctions lists. Under the AML/CTF Rules reporting entities need to take into account the ML/TF risk posed by various things such as customers.

The Australian Transaction Reports and Analysis Centre (AUSTRAC) produces annual typologies and case studies reports to assist reporting entities to fulfil their anti-money laundering and counter-terrorism financing obligations.(Source:http://www.austrac.gov.au/typologies.htm)


and Turkey) stated that their organization’s ability to cooperate and exchange financial information at international level was good. Iraq, Myanmar, Pakistan and Thailand rated it in fair level. The Philippines, Australia and India considered the cooperation ability to be at very good level.

Presently, 11 countries, including Australia, China, Indonesia, India, Iran, Malaysia, Pakistan, Philippines, Russia and Korea have cooperation agreements or protocols among the local institutions to share financial information and financial transfers if it may be involved with money laundering. In Turkey, memoranda of understanding are signed with foreign FIUs.

4.4 Education, Awareness and Other matters

Governments need to establish systems that create an internal environment or culture in which people are aware of their responsibilities under the anti-money laundering regime. This serves as one of the most powerful tools in combating money laundering activities.

4.4.1 Citizen participation

Among research countries, the most prominent role given to citizens in participating AML activities is through “Complaints, Whistle Blower, and Denunciation” arrangements (12 out of 13 countries), followed by “Promoting

At present, financial institutions in all research countries stated that they are obliged to comply with FATF recommendations and they are in a good situation.In terms of their AML organization’s ability to cooperate and exchange financial information at international level, half of the research countries (including China, Indonesia, Iran, Malaysia, Russia, Korea


public sector transparency and accountability and citizen participation” (9 countries). 7 countries has made efforts in engaging civil society in anti-money laundering activities, for example, by involving civil society organizations in formulating of anti-money laundering policy, and research funding about anti-money laundering, dissemination of knowledge.

4.4.2 Punishment of money laundering incidents

In Russia, sanctions are not very serious. Iraq considers that they have inappropriate penalties and Thailand believes that the punishment should be revised in order to be suitable for money laundering situation.

4.5 Obstacles to anti-money-laundering actions

4.5.1 Inhibiting Factors

A range of factors that inhibit the fight against money laundering activities were identified by respondents. Among these, “the lack of competent and experienced staff to handle money laundering cases” and “limitation of citizen’s knowledge about money laundering criminals” was identified by most countries (8 out of 12). In addition, obstacles such as: lack of capacity and financial resources of anti-money laundering agencies, collusion between enforcement officers and that

I n 9 c o u n t r i e s , i n c l u d i n g Australia, Indonesia, India, Iran, Myanmar, Pakistan, Philippines, and Turkey, the punishment of money laundering offences are considered to be appropriate, while 3 countries, namely China, Malaysia and Korea, believed that th penalties are too light.


money laundering criminals are not being severely punished were also identified by some countries (6 countries each).

In addition, all respondent countries considered that systems of control are the keystone and deterrent for fighting against money laundering.

4.5.2 Educational & training programs

Also, all research countries have training workshops for employees of controlling agencies about methods to detect money laundering.

5. Conclusions

• The survey results show that strategies for fighting corruption need more consideration in respondent countries. Having a stand-alone anti-corruption program or anti-corruption strategy will help set clear goals for effective anti-corruption activities.

• A comprehensive anti-corruption action plan should cover all related subjects and respondent countries should give closer consideration to a budget specifically allocated for the implementation of the anti-corruption action plan and to defining specific criteria for assessing implementation.

• An effective anti-corruption agency should cover all related subjects. For

AML Training programs for financial institutions, such as banks are undertaken in all research countries. In addition, 11 countries have educational / training programs for public officials. 7 respondent countries have these programs for business associations and private companies. 4 countries have training programs for NGOs.


example, countries should consider preparing a “risk map of corruption in the country” and “anti-corruption screening of legal acts”.

• Results show that in 50% of respondent countries, the subject of evaluation of bodies / areas / activities in ACA’s is not performed regularly. This problem increases the risk of inefficiency and lack of effectiveness in these organizations.

• Respondent countries should pay more attention to the legal structure for criminalizing different types of corrupt activities. For example, respondent countries should consider enacting new legislation to better prevent and detect “nepotism”, “influence peddling”, “criminal breach of trust” and “abuse of position/power” to achieve a better position in the fight against corruption.

• Respondent countries should pay more attention to the subject of preventive policies and measures against corruption. But they should not ignore other ways to fight corruption, such as detective and punitive actions.

• To improve the fight against corruption, respondent countries should consider enacting specific laws and regulations governing the financing of political parties and obligations on public officials to report corruption-related offences, if they have not done so.

• Respondent countries should pay more attention to the effectiveness of their international cooperation efforts for combating corruption, and deliver anti-corruption educational / training programs for business associations and private companies, the general public, schools and the media.

• Respondent countries should pay more attention to the independence of their anti-money laundering board / authority in aspects of financial independence and recruitment of employees.

• Some respondent countries should reconsider the appropriateness of the punishment of money laundering incidents.


• The fight against money laundering is inhibited by the lack of competent and experienced staff to handle money laundering cases and also limitations of citizens’ knowledge about money laundering.

• Most countries, namely Australia, China, Indonesia, India, Iran, Malaysia, Pakistan, Philippines, Korea, and Turkey believe that anti-money laundering efforts have had positive impact and contributed to prevent money laundering in their countries. However, Myanmar, Iraq and Thailand, stated that these efforts have not had evident impact nowadays but will have in the future. Russia stated that result of the current fight against-money laundering is not effective.

49Role of Audit to Detect Corruption and Money Laundering

IV. Role of Audit to Detect Corruption and Money Laundering


Fraud, corruption and money laundering are global issues that cannot be ignored as they hinder the development and growth of a nation by diverting the funds intended for improving social and economic conditions of the society. These can take many forms and pose serious risks to the public sector. The potential damage extends well beyond financial losses, and the threats to organizational integrity are a constant challenge for public sector management.

The questionnaires were designed to collect data on the role of audit to prevent and detect corruption and money laundering. The questionnaire for fraud and corruption was divided into five (5) parts: Part I – Legal Status, Structure and Mandate of SAI; Part II – Role of SAI in the Prevention and Detection of Corruption; Part III – Assessment of SAI’s Performance and Integrity; Part IV – Audit Limitations; and Part V – Cooperation among SAIs and Anti-Corruption Agencies (ACAs). While for money laundering, the questionnaire was divided into five (5) parts: Part I – Organizational Structure and Mandate of SAI; Part II – Role of SAI to Detect Money Laundering; Part III – Assessment of SAI’s Performance and Integrity; Part IV – Audit Limitations; and Part V – Cooperation among SAI and Anti-Corruption Agencies (ACA).


12 countries, namely; Australia, China, Indonesia, India, Iran, Iraq, Malaysia, Philippines, Russia, Korea, Thailand, and Turkey responded to the questionnaire on the role of audit to detect fraud and corruption. As regards money laundering, only 11 SAIs responded to the questionnaire. SAI Turkey discontinued its participation in the study for money laundering for the reason that it has no mandate either in their Constitution or law to investigate money laundering.


The number of respondents for each of the paragraphs may differ as some of the respondents selected more than one answer from the given options, and some opted not to answer certain questions. Also in some cases, responses from some countries did not reflect the dominant view of experts related organizations and in some cases, it was hard or even impossible to summarize the answers. The questionnaire on the role of audit to detect fraud and corruption and money laundering was completed by the competent authority of the SAI in their respective countries.

3. Survey Results on the Role of Audit to Detect Fraud and Corruption

3.1 Legal Status, Structure and Mandate of SAIs

3.1.1 The SAI’s legal status, structure and mandate are vital to determine the role they can play in the prevention and detection of fraud and corruption in the public sector. Their capacity to be effective is also related to their independence from political and external influences. The survey shows that 11 out of 12 (92%) SAIs enjoy a permanent legal status as they were established by virtue of their Constitution. SAI Australia was established through a law and its existence depends on the pleasure of the Parliament.

3.1.2 The SAIs of Australia, India, Iran, Iraq, Malaysia and Russia described their organizational structure as “Westminster” model which is also known as the “Anglo-Saxon or Parliamentary” model where the Office of the Auditor General is an independent body that reports to the Parliament.

The SAIs of Indonesia, Korea and Philippines described themselves to be a “Board or Collegiate” model where the audit board is composed of an Audit Commission which functions as the decision making body. SAI China described itself to be an administrative model being one of the ministries under the State Council. SAI Turkey, on the other hand, described itself to be a “Judicial or Napoleonic” model where it functions like an audit court.

The organizational structure of SAI Thailand appears in the Constitution of


Thailand and State Audit Office Act. Under the Constitution of the Kingdom of Thailand, B.E. 2550 (2007), the State Audit Commission is an independent organizations in Constitutional Organization (Chapter XI).

3.1.3 The survey identified that the Head or Members of the Committee/Board of all SAIs have a fixed term under the Constitution or law.

3 of the 12 (25%) SAIs further illustrated how the officers of their SAI are appointed. Malaysia’s Auditor-General (AG) is appointed by the King on the advice of the Prime Minister and after consultation with the Conference of Rulers representing 13 States of Malaysia. To enhance the AG’s independence, provisions regarding his remuneration and security of tenure have been provided in the Federal Constitution and Audit Act 1957. His remuneration which is charged on the Consolidated Fund is fixed by law and cannot be altered to his disadvantage and his removal from office is similar to the Federal Court.

SAI Philippines stated that a Chairperson and two Commissioners comprised the Commission Proper or Audit Board. They are appointed for a term of seven years without reappointment by the President with the consent of the Commission on Appointments composed of members of Congress. In no case shall any Member be appointed or designated in a temporary or acting capacity. The Commissioners cannot be removed from office except through impeachment by the Congress.

And finally, SAI Thailand elaborated that under their Constitution, the State Audit Commission consists of the Chairperson and six other members who have expertise and experience in state audit, accounting, internal audit, finance and other fields. The Members of the State Audit Commission are appointed by the King and shall hold office for a term of six years for one term only.

3.1.4 With regard to the relationship of the SAI with other departments/ministries of the state, 9 out of 12 (75%) the SAIs of India, Indonesia, Iraq, Malaysia, Philippines, Russia, Thailand and Turkey described themselves to be independent of the executive, legislative and judicial departments of the state. SAI Korea was established under the President, but retains an independent status in performing


its duties. SAI Australia advises that the Auditor General is an Officer of the Parliament but cannot be directed or controlled by the Parliament. On the other hand, SAI China is under the supervision or control of the executive department while SAI Iran is under supervision or control of the legislature.

3.1.5 With respect to SAI’s financial independence, 8 (67%) SAIs, namely Australia, China, India, Indonesia, Iran, Korea, Malaysia and Thailand stated that their yearly budget undergoes the scrutiny and review process of the Budget Department and the Parliament or Congress, and the proposed budget could be reduced or increased by them. For SAI Philippines, its budget is subject to automatic release but undergoes the scrutiny of the Department of Budget and Congress and the proposed budget could be increased or decreased by them.

SAIs of Iraq and Russia disclosed that their budget is subject to automatic release based on a fixed percentage of the annual state budget which cannot be diminished or reduced by the Parliament or Congress. The Turkish Court of Accounts (TCA) enjoys financial independence without any intervention from the Ministry of Finance although the TCA is within the scope of the general budget. The TCA prepares its own budget independently and does not have to follow the general budgeting procedures for other public administrations under the general budget. Under Article 62 of the Law on the TCA, The Presidency of TCA shall submit its budget directly to the Turkish Grand National Assembly (TGNA) and forward one copy to the Ministry of Finance. While the Ministry of Finance does not have any control over the budget of the TCA, the TGNA has the final say on the budget of the TCA. However, in practice, the TCA does not face any budgetary limitation imposed by the TGNA.

3.1.6 As far as the Constitutional or legal mandate is concerned, all SAIs have jurisdictions to audit their central or national government agencies, bureaus, offices, instrumentalities and local government units at all levels. Except for SAI Indonesia, the other 10 SAIs have also authority to audit State-owned and controlled corporations, universities, colleges and enterprises. Of the 12 SAIs, only 6 have authority to audit social undertakings that enjoy financial support from the state. SAI Australia’s authority specifically mentioned audits of Government


Business Enterprises, and State (regional) governments and private sector entities under certain circumstances.

Notably, the Accounts Chamber of the Russian Federation (ACRF) also carries out audit of any enterprises and the organizations irrespective of accessory and forms of ownership if they use means and property of the federal budget. SAI Malaysia has also audit authority over companies registered under the Companies Act 1965 receiving grant or loan from the Federation or State and where more than half of its paid-up share capital is held by the Federation, State or public authority and State Government and its agencies, and Islamic Religious Council.

3.1.7 According to the survey results, the most frequent types of audit services are value for money audit, financial audit, compliance audit and performance audit, and all 12 SAIs rendered these audit types. Other audit types include environmental audit, IT audit, forensic audit and real time or priori audit. SAI Australia further elaborated that its audit approach integrates matters such as Value for Money considerations, compliance requirements, IT audit activity and others into two core business units: financial statement audit and performance audit.

3.2 Role of SAIs in the Prevention and Detection of Corruption

3.2.1 The 12 respondents were asked if there are specific articles either in the Constitution or law regarding their role in anti-corruption. 7 SAIs reported that they have a stand-alone anti-corruption strategy, while 5 of them do not.

• SAIs of Australia and India have no specific article either in the Constitution or law regarding their role in anti-corruption.

• SAIs of China and Malaysia stated that their role is not specifically indicated in the Constitution, law or regulation creating the SAI, but it is impliedly embedded within its articles. The roles and responsibilities of SAI Iran on anti-corruption has been considered in the articles of “health promotion of administrative activities” law ratified by parliament.


• SAI Indonesia stated that upon discovery of fraud indicators, the auditor reports to law enforcement authorities.

• SAI Iraq mentioned No. 31, Article 16 of the FBSA’s law which requires the Board to report to the General Prosecution, Commission of Integrity, or the relevant investigative authorities, each by its jurisdiction, on every financial irregularity detected if it was recognized as an offence.

• SAI Korea has exerted strong control over all public entities by inspecting the operations and duties of the government and its officials.

• SAI Philippines, under its Constitution, has exclusive authority to define the scope of its audit and examination, establish the techniques and methods required thereof, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties (Article IX-D, 1987 Philippine Constitution).Upon discovery in audit of a shortage in the accounts of any accountable officer and upon finding of a prima facie case of malversation of public funds or property, the SAI may place under constructive distraint personal property of accountable officer who is obligated to preserve the property intact and unaltered and not to dispose the same in any manner (Section 47, Presidential Decree (PD) No. 1445). The auditor may seize the office of the local treasurer when the cash examination discloses a shortage in cash (Section 46, PD 1445). The SAI has investigatory and inquisitorial powers; and power to punish for contempt. The Chairman or any officer authorized by the former in writing shall have the power to summon parties, issue subpoena ducestecum and ad testificandum, and take testimony in any investigation or inquiry within the jurisdiction of COA (Section 40, PD 1445).

• SAI Thailand noted that under State Audit Act 1999, in case from the audit result, if it appears to the Commission a circumstance believably amounting to corruption or illegitimate exercise of powers and duties thereby resulting in the loss or impairment of money or properties of the State, the Commission


shall notify the Inquiry Official for the purpose of initiating legal proceedings, and the Commission shall also notify such audit result to the audited agency official or the responsible Ministry, the superior or the person supervising or taking charge of the audited agency, as the case may be, for taking action in accordance with the laws or rules laid down in the government service or by the audited agency for applicability to the officials in charge (Section 46).

• SAI Russia, according to Article 5 of the Law on ACFR, is tasked to provide measures for anti-corruption within its competence. However special emphasis is put on control of the transparency of budget planning and implementation as one of the fundmental way to prevent corruption in federal budget financing.

• SAI Turkey stated that the Constitution and the law on the TCA are not directly linked with the tasks of the TCA in the fight against corruption. However, Article 78 of the law prescribes the detailed steps to be taken by the auditors and the Court in the event of encountering corruption in the course of audits and examinations. Furthermore, the Regulation on TCA Audit involved detailed articles concerning the cases of corruption such as evidences and documents to be collected, examination methods, format for written communication with the Presidency of the TCA, responsibilities of the Chambers, etc.

3.2.2 With regard to the implementation of SAI’s own “anti-corruption strategy” in accordance with the national anti-corruption strategy, 9 out of 12 (75%) of the SAIs have their own “anti-corruption strategy” except for China and Australia.

• SAI India promotes accountability and transparency to ensure that the public funds are being used efficiently and for intended purposes.

• According to SAI Iraq, the FBSA is a key partner in the fight against corruption and work within the national strategy to combat corruption; furthermore it is also an active member in the Anti-corruption Joint Council formed by the Council of Ministers.


• SAI Korea stated that it has anti-corruption strategy but did not elaborate.

• Under the Government Transformation Programme 2.0 of the New Key Results Area for Corruption, SAI Malaysia was assigned with four (4) initiatives: (i) Fast Tracking Access To Auditor General’s (AG) Performance Audit Report. The AG’s Report used to be tabled once a year in October, which prevented any action to be taken against a person until the date has passed, and increased the chance of evidence be tampered with and made investigation difficult. This initiative calls for the AG’s Performance Audit Report to be fast-tracked so that it can be tabled every time Parliament sits or at least thrice yearly. It would enable follow-up action to be taken by the enforcement agencies at an earlier stage and the once-a-year AG’s Report containing an overwhelming amount of information will be reduced. (ii) Action Committee. This initiative calls for the establishment of an Action Committee chaired by the AG’s office and be conveyed after every Performance Audit Report (PAR) is tabled. This committee enables sharing of information between AG and Malaysian Anti-Corruption Commission, Ministry of Treasury, Attorney General, Royal Malaysia Police and Public Service Department so that decisions on cases involving misappropriation, extravagance and wastage of fund can be made quickly and decisively. Information provided by the AG can help to enhance the efficiency of investigation process by the enforcement agencies. (iii) Auditor General’s Online Dashboard. Generally, public is unaware of the follow-up of recommendations made in the AG’s Report. The dashboard is essentially a status report on outstanding cases that are yet to be investigated, currently undergoing investigation and solved cases using a Traffic Light system. It is updated and maintained by a division working continuously and full time throughout the year. This reflects the aggressiveness of follow-up on Audit findings by the National Audit Department of Malaysia.(iv) Putrajaya Inquisition. The need of an Inquisition Committee chaired by the Prime Minister and other relevant ministries and agencies is due to the large backlog of cases reported by the AG. It is believed that under the oversight of the Prime Minister, it will create an impetus to various agencies to consider recommendations seriously and take the necessary plan. The main goal is to clear backlog of cases and the AG’s office is the secretariat of this Inquisition.


• SAI Philippines implements the (1) involvement of citizens in the audit process through the Citizens Participatory Audit Program; (2) permanent representation in the Inter-agency Anti-Graft and Corruption Coordinating Council which studies policy issues against graft and corruption; (3) permanent representation in the Internal Working Group on the 21 Point Agenda of the United Nations Convention on Anti-Corruption for 2013-2018; and (4) the systematic coordination with the Office of the Ombudsman, Department of Justice and National Bureau of Investigation on prosecution of cases as a result of fraud/special audits.

• SAI Thailand referred to Section 46 of the State Audit Act of 1999 as its anti-corruption strategy.

• SAI Russia has its Anti-corruption Plan adopted according to the National Anti-corruption Strategy. The mandate of the Accounts Chamber in this field is defined in the Plan.

3.2.3 The survey disclosed that 10 of 12 (83%) SAIs have a specific Strategic Plan on anti-corruption, except Australia.

• SAI China promotes the construction of anti-corruption system.

• SAI India promotes accountability, transparency and good governance through high quality auditing and accounting to provide independent assurance to stakeholders.

• SAI Indonesia promotes capacity building for forensic audit.

• SAI Iraq assists and coordinates with anti corruption agencies and actively participates in activities and assignments of the national strategy and the United Nations Convention on Anti-Corruption (UNCAC).

• SAI Malaysia stated that under the second focus of the Strategic Plan (2011-2015), it is embarking into new areas of audit such as forensic auditing


by establishing Subject Matter Expert Team on fraud. The National Audit Department of Malaysia and Malaysian Anti-Corruption Commission signed a Memorandum of Understanding on the 29th of May 2012, to implement a cross-fertilisation program by attaching officers from both agencies. The aim is to strengthen the ability and capacity in terms of techniques to detect existence of malpractice, corruption, irregularities and violations of systems and procedures. As of October 2013, 3 series of exchange programs involving 7 officers from each agency have been attached for six months in the respective agencies.

• SAI Philippines Strategic Plan includes: adoption of Risk Based Audit Approach and Unified Audit System to capture high risk accounts, projects, programs and activities; unified instruction to audit units to focus on transactions, programs, projects and activities which have been identified under the agency risks assessment to be vulnerable to fraud and corruption or found to be irregularly implemented during a special audit; validation of corruption complaints of whatever form; and conduct of fraud audit on high profile cases of corruption when warranted by initial evidence.

• SAI Russia promotes the efficiency building of a settlement of conflict of interests as well as the ensuring observance by the Federal civil servants of Code of Ethics, and also responsibility for its violation; identification and systematization of the cause and conditions of corruption in the Accounts Chamber, monitoring of corruption risks and their elimination; Accounts Chamber interaction with civil society institution and citizens, ensuring availability of the information on activity of the Accounts Chamber; and the anti-corruption activity, taking into account the specifics of activity of the Accounts Chamber.

• SAI Thailand noted that in its State Audit Strategy for 2011-2014, the action plans of fighting corruption consists of strengthening investigative audit in order to prevent fraud and corruption. Additionally, OAG Thailand sets the action plan to develop efficiency of investigative system.


• SAI Turkey (TCA) stated that The Strategic Plan of the TCA (2014-2018) mentions the fight against corruption as a crucial task in accordance with the National Anti-corruption Strategy of Turkey which specifies four separate tasks for the TCA. To this end, the TCA decided to prepare the Anti-corruption Strategy of the TCA as one of the actions set out in the Strategic Plan of the TCA (2014-2018).

3.2.4 Of the 12 SAIs, 7 (58%) stated that detecting corruption is focus of the audit services being rendered by them, while 4 mentioned that same is merely incidental and not an audit focus. SAI Australia clarified that it does not seek to directly detect corruption through its audit services. Instead, the focus is on providing assurance that management controls within audited arrangements provide appropriate assurance that the risk of corruption is well managed, and that anti-corruption strategies and agencies are performing appropriately.

3.2.5 Only 4 out of 12 (33%) SAIs have special departments, offices or units within the SAI with specific functions and/or powers in the prevention, detection and investigation of corrupt activities and transactions.

• SAI Indonesia has the Forensic Audit Unit.

• SAI Thailand created the Investigative Audit Office for fighting fraud and corruption and it has 15 regional offices which served for anti-corruption mission especially in the local governments.

• SAI Korea has established the “Special Investigation Bureau” to investigate the government officers by inspecting and examining whether they violate the laws or work in illegal manners.

• SAI Philippines has two special offices with specific functions, the Fraud Audit Office and Special Audit Office.

• SAI Australia does not have any since it does not seek to directly detect corruption through its audit services. Instead, the focus is on providing


assurance that management controls within audited arrangements provide appropriate assurance that the risk of corruption is well managed, and that anti-corruption strategies and agencies are performing appropriately.

• SAIs China, Iran, Malaysia, Russia and Turkey stated that all departments, offices or units conducting audit are mandated to prevent, detect and/or investigate corrupt activities and transactions.

3.2.6 The special departments, offices or units responsible for combating corruption have been in place for 5-10 years for SAIs of Thailand and Indonesia, while more than 20 years for Korea, Iraq and Philippines.

3.2.7 SAIs of China, Iran, Indonesia, Philippines and Thailand have very few personnel who have adequate training in combating corruption. On the other hand, SAI India commented that all its personnel have been sufficiently trained; SAI Malaysia has 283 trained personnel; SAI Russia has over 200 personnel with adequate skills; and SAIs of Iraq, Korea and Turkey have sufficient personnel with special training and skills but did not specify the number. However, as already mentioned, SAI Australia does not seek to directly detect corruption through audit services. Consequently, having specific skills in directly detecting corrupt activities and transactions in the government is not a priority.

3.2.8 In accordance with an annual training program, 11 (93%) SAIs, with the exception of SAI Australia, provide anti-corruption or anti-fraud regular trainings to auditors to ensure that auditors possess appropriate skills, knowledge, and abilities to identify and assess any potential irregularities, as follows:

• China conducts Seminar for Economic Criminal Cases;

• India has induction training and training in in-service at various periodic intervals;

• Indonesia conducts training on Fraud Awareness, Fraud Auditing and Fraud


Assessment;• Iran conducts training workshops and review of related case studies on

combating money laundering, fraud and corruption issues;

• Korea conducts training for auditors about fraud and corruption detection in public officials regularly in the audit training center;

• For SAI Malaysia, officers are sent to attend courses locally and abroad on Fraud & Anti-Money Laundering, Fraud on National Feedlot Corporation and Port Klang Free Zone, Combating Fraud In Government, Business & Civil Society, Cross-Fertilization Program Between National Audit Department Malaysia and Malaysian Anti-Corruption; Fraud Bribery& Corruption, Forensic Auditing and Fraud Investigation, Combating Fraud in Government, Forensic Auditing, Procurement Fraud Investigation, Detection of Fraud in Key Business Functions, IT Fraud and Forensic, Fraud Risk Management, Anti-Fraud & Money Laundering, Fraud & Financial Crimes, Corruption Prevention and Risk Management in Public Sector, Anti-Corruption Summit, Fraud Auditing Guideline, Fraud Investigation and Forensic, Fraud Prevention and Detection Techniques, East Asia Financial Crime Prevention and Anti-Corruption, Fraud Investigations & Forensic, Protect Organisation Against Corporate Fraud, Detective and Preventing Measures on Financial Fraud, Anti-Fraud Strategies, Digital Evidence, Fraud & Security, Fraud & Management Audit, Fraud Detection & Development Workshop, Strategic Management of Corruption Program, Managing Internal Investigation & Corruption, Workshop on Fraud Prevention, Fraud and Abuse in Corporation, Forensic Accounting for Fraud Detection, Detecting and Preventing of Corporate Fraud, The Culture of Corporate Fraud;

• Philippines has been conducting regular training on Corruption Detection and Investigation, Certified Fraud Examination, Fiscal Accountability of Public Officials, Risk Based Audit, Forensic Accounting, Fraud Audit and Legal Evidence and other special trainings on fraud investigation offered by partner agencies;


• Thailand provided international training for auditors about anti-corruption.

• This training course involved Fraud and Public Corruption Investigation with the Internal Revenue Service of US government (IRS) as trainer;

• Russia conducts regular training according to the Corruption Counteraction program; and

• SAI Turkey’s two year vocational training for assistant auditors consists of courses on several subjects such as Procurement Law, Accounting, Personnel Law, Social Security System and hands-on training helping auditors detect suspicious cases of corruption.

3.2.9 Preparation of specific manuals or guidelines on anti-corruption or anti-fraud that helps auditors prevent and/or detect corrupt activities and transactions in the government, are summarized in the table below:

Specific manual or guideline SAIs use on anti-corruption or anti-fraud that helps auditors prevent and/or detect corrupt activities and transactions in the government

SAI Manual/Guideline

Australia a guideline for auditors if they encounter potential corruption fraud or wrongdoing in

their audit activities

China no specific manual on anti-corruption

India Auditing Standards of SAI

Indonesia Investigative Audit Manuals, Fraud Awareness Manual, Initial Information Assessment

Manual, Interviewing Technique Manual, Non Verbal Communication Manual

Iran fraud audit manual and fraud auditing guidelines

Korea “Fraud Audit Manual”

Malaysia Fraud Auditing Guidelines

Philippines

four manuals, namely; Integrated Risk Based Audit Manual and Fraud Audit Manual,

Certified Fraud Examination Manual, Manual on Fraud Investigation and Legal

Evidence

Iraq “Fraud Audit Guide”


3.2.10 The survey showed that 8 SAIs employ both proactive and reactive approaches such as China, Indonesia Korea, Malaysia, Philippines, Russia, Thailand and Turkey. SAIs of Iraq and India use proactive method through a risk based audit approach aimed at detecting red flags or symptoms of corruption. SAI Iran’s approach, on the other hand, is limited only to detecting red flags or symptoms of corruption which will be referred to the anti-corruption agency for the conduct of necessary investigation.

3.2.11 Upon discovery of red flags or symptoms of corruption during a regular audit, SAIs shall take the following course of actions:

• China, Indonesia, Iraq and Korea shall refer the red flags to the special department, office or unit of the SAI for the conduct of a full blown investigation;

• Australia, China, India, Iran and Philippines shall refer the red flags to the anti-corruption agency for the conduct of a full blown investigation;

• The office or department of SAI of Korea, Malaysia and Thailand which discovered the red flags will conduct a full blown investigation. Aside from conducting a full blown investigation, Malaysia shall report the red flags to the management during the course of audit, pre-exit conference, exit conference and final audit report with recommendations for improvement. Upon tabling of the AG’s Report, tell-tales of fraud will be picked up by the anti-corruption agency for further investigation. SAI will assist by providing information and documentations;

• Russia stated that information on corruption violations and risks goes to prosecutor’s office and other law enforcement agencies for scrutiny and investigation;

Russia 2013 Procedure: control by Accounts Chamber of the Russian Federation of the anti-

corruption measures

Thailand the Regulation of Investigative Audit of 2006


• For the Turkish Court of Accounts (TCA), in the event of encountering an action involving guilt in the course of audits and examinations; the evidence shall immediately be identified and the case shall be reported to the Presidency of TCA by the auditor. As a result of the investigation to be carried out within fifteen days by the chamber assigned by the Presidency of TCA, if the collected initial evidence is qualified as subject of public prosecution, the file shall be sent to the Chief Prosecutor of TCA either to be handed over to the responsible official’s public administration for the necessary action to be taken, or to be sent directly to the Public Prosecution Office for an investigation in accordance with the nature of the offence; and

• Iraq’s course of action is limited only to detect red flags or symptoms of corruption which will be referred to the anti-corruption agency for the conduct of necessary investigation.

3.2.12 SAIs’ facilities or mechanism available to promote and intensify prevention and detection of corrupt activities and transactions are summarized as follows:

• China, Iran, Iraq Korea, Philippines, Russia Thailand and Indonesia have hotlines devoted solely to corruption complaints;

• Korea, Philippines, Malaysia, Russia and Thailand have corruption alert section on the SAI website;

• India, Iraq, Korea Philippines and Indonesia have put up citizens help desk that caters corruption complaints in whatever form;

• 9 of 12 SAIs have conducted anti-corruption research except for Australia and Indonesia;

• China, India, Indonesia, Iran, Korea, Philippines and Russia have anti-corruption educational/training programs;

• Citizens Participatory Audit Program is encouraged in Australia, Korea and Philippines;


• Of 12 SAIs, 11 have accounting and auditing rules, except Indonesia;

• Declaration of assets and liabilities of public officials is a mechanism instituted by India, Iraq, Philippines, Russia, Turkey and Indonesia;

• Indonesia, Iran, India, Korea, Malaysia, Philippines and Turkey have their Governing Code of Ethics for Government Accountants and Auditors;

• Iran, Korea, Philippines, Thailand, Indonesia and Turkey have Public Information Office with linkages to all sorts of media;

• Australia, China, India, Malaysia, Philippines, Thailand, Indonesia and Turkey update publication of audit reports through the website;

• Both Philippines and Korea provide legal and financial assistance to auditors; Korea also extends the assistance to witnesses and whistle blowers; and

• On top of the above facilities, Russia has anti-corruption expert review of the government Acts and Regulations (expertise) and Methodological support of anti-corruption.

3.2.13 The regular audit tools and techniques in detecting corrupt activities and transactions in the government include: risk analysis, check of government procurement; screening of complaint/letter under investigative criteria; risk assessment, data mining, data matching; cross control of data obtained especially from different sources, regular audit, third Party confirmation and data collection.

As summarized in the chart below, the survey showed that SAIs have sufficient mandate, tools and techniques to detect relevant cases of corruption:

• Most of the SAIs have sufficient mandate, tools and techniques to detect abuse of power and position, fraud, criminal breach of trust, illegal gratuities, embezzlement, forgery, illegal activities public procurement procedure;


• Some SAIs (around 5 SAIs)have sufficient mandate, tools and techniques to detect bribery, extortion, kickback, nepotism, online frauds or frauds using the computers and illegal activities related to financing of political parties or candidates in the national and local elections;

• Only very few SAIs have sufficient mandate, tools and techniques to detect conflict of interest, or asset misappropriation.

3.2.14 Based on SAI’s experience, the audit services (ranked according to importance) which are most instrumental in the detection and prevention of corruption is shown in the table below:

Moreover, SAI Australia mentioned that each of the audit services is instrumental in providing assurance that management controls within audited arrangements provide appropriate assurance that the risk of corruption is well managed, and that anti-corruption strategies and agencies are performing appropriately.

SAIs ranking of the most instrumental audit service in the detection and prevention of corruption (1

being the highest)

SAI

Audit Services

Com

plia

nce

audi

t/reg

ular

ity a

udit

Fra

ud/fo

rens

ic a

udit

Per

form

ance

aud

it

Fin

anci

al a

udit

IT

audi

t

Eco

nom

ic a

ccou

ntab

ility

Rea

l Tim

e or

a p

rioiri

aud

it

Env

ironm

enta

l Aud

it

Ris

k-ba

sed

audi

t

Val

ue-f

or-M

oney

aud

it

Aud

it in

the

sphe

re o

f gov

ernm

ent

Pub

lic p

rocu

rem

ent

Australia China 1 2 3 4 India 2 1 3 Indonesia 3 1 4 2 Iran 1 4 2 3 5 Iraq 3 1 4 2 5 Korea 3 1 4 5 2 Malaysia 2 1 3 4 Philippines 2 1 4 3 Russia 3 2 4 Thailand 3 1 Turkey 1 3 2 4


SAI Thailand also noted that for investigative audit, its anti-corruption role is the one involved in the suppression functions.

Overall, the most instrumental and common audit services in the detection and prevention of corruption are Compliance or Regularity Audit, Performance Audit, Fraud or Forensic Audit and Financial Audit.

3.2.15 As to the tools and techniques in detecting corrupt activities and transactions in the government, SAIs listed the following according to its order of effectiveness which shows that the risk analysis, data mining and analysis/screening/validation of complaints and referrals received ranked 1st, 2nd and 3rd respectively as summarized in the table below:

SAI

Tools and techniques in detecting corrupt activities & transactions

Ris

k A

naly

sis

Dat

a m

inin

g

Ana

lysi

s/sc

reen

ing/

valid

atio

n of

com

plai

nts a

nd re

ferr

als r

ecei

ved

Dat

a ga

ther

ing

tool

s suc

h as

inte

rvie

win

g, o

bser

vatio

ns

Ana

lysi

s of a

dmin

istra

tive

deci

sion

s of g

over

nmen

t bod

ies

Dat

a an

alys

is

Ana

lysi

s of a

dmin

istra

tive

deci

sion

s of g

over

nmen

t bod

ies

APh

ysic

al o

bser

vatio

n/in

spec

tion

and

tech

nica

l eva

luat

ion

Che

ck o

f gov

ernm

ent p

rocu

rem

ents

Dat

a M

atch

ing

Net

wor

k an

alys

is

Aud

it m

anua

ls &

che

cklis

t

Che

ck o

f leg

ality

of u

se o

f bud

geta

ry fu

nds

Reg

ular

Aud

it

Ana

lytic

al re

view

Australia China 1 2 Indonesia 2 1 3 Iran 2 1 3 Iraq 2 1 3 Korea 2 1 3 Malaysia 1 3 4 2 5 Philippines 1 2 4 3 5 Russia 4 3 5 1 2 Thailand 1 Turkey 3 4 1 2


3.2.16 The most high profile corruption case(s) that SAIs have uncovered and the best audit practices that led to detection are elaborated below:

• CNAO found that, during year 2009 to 2011, some contractors of China High Speed Rail Projects obtained the project funds illegally and through fictitious expenditures. The funds were transferred to companies controlled by the same businesswoman in the name of bidding service charges. CNAO found the case clues and referred to Central Commission for Discipline Inspection of the Party. After investigation, the Central Commission found that former Minister of Railways Mr. Liu Zhijun was related to these cases. In July 2013, Liu was given a suspended death sentence in July for accepting bribes and abusing power.

• For SAI Indonesia, the most high profile corruption cases were: Hambalang infrastructure case; Century bank bailout and Procurement of Police driving.

• For SAI Iraq, the most difficult cases to detect are those dealing with subcontractors and also money laundering through transfers of monies by initiating fake contracts with local suppliers, and accordingly letters of credit will be opened to supply goods they already possess. The best audit practice is field visit.

• SAI Malaysia stated that one of the biggest financial scandal discovered by audit is the construction of Port Klang Free Zone (PKFZ) in which according to the Price Waterhouse Coopers position review report could potentially end up costing the Malaysian taxpayer US$ 4 billion.

• For SAI Philippines, the audit of the Priority Assistance Fund and the Malampaya Funds were the most high profile cases as it involves billions of pesos. The implementing government agencies which were supposed to implement the programs, projects and activities contracted out the same to the Non-Governmental Organizations (NGOs) which were found to be fictitious entities. The projects either turned out to be ghost projects or implemented with substantial deficiencies or deviations from work program and purpose


of appropriation of funds. The audit practices that led to its detection were network analysis; whistle blowing; confirmation with third parties and regulatory agencies; observation and technical inspection; analysis of legality of funds sources and tracing where the money has gone; validation of the legal existence of NGOs and suppliers, and actual receipt of goods and services by intended beneficiaries; substantive testing of disbursement vouchers and supporting documents; analysis of contracts, agreements, work financial plan.

• For SAI Russia, the audit of the organization “Oboron service” resulted in the investigation of 25 criminal cases. Specialists of the Accounts Chamber revealed and stopped the large-scale violations connected with the order and illegal realization of the state properties and lands of the Ministry of Defence of the Russian Federation. Violations of law were revealed in providing armies with the food and energy resources. Preliminary estimates show that the damage was about 7 billion rubbles (about 220 million US dollars). After the discovery of the large-scale plunders in the Ministry of Defence, Minister of Defence Anatoly Serdyukov was dismissed. Check of government procurements and legality of the budgetary funds used led to its detection.

• SAI Thailand did not provide any specific case but emphasizes that it has developed and implemented the proactive audit approach for all types of audit to prevent losses or damages from corruption.

• The TCA has uncovered tens of suspicious cases of corruption in the area of public constructions such as public buildings, roads etc. and sent them to the Office of Public Prosecutor for necessary judicial actions. Those cases were mostly related with the crime of fraud during the fulfillment of contractual obligations and auditors have revealed those cases through physical observations during site visits. Moreover, in some cases, auditors could ask for the assistance of expert witnesses and experts to get a better view of the situation in accordance with the provisions of the Law on the TCA.

3.2.17 When asked about the manner of reporting of any encountered or detected corrupt activities and transactions in the government, SAIs of China, Malaysia,


Russia and Turkey reported that they do not issue a special audit report but the corrupt activities and transactions encountered and/or detected will be incorporated in the regular audit report. The respective SAI of India, Iraq, Korea, Philippines and Thailand issue a special audit report specifying the audited corrupt activities and transactions, the pecuniary loss suffered by the government, the persons responsible/liable and the laws and rules violated.

SAI Australia noted that the focus of their work is on financial management and administrative performance. Potential cases of corruption are referred to the appropriate law enforcement agency for investigation. SAI Malaysia likewise noted that a stand-alone or special audit report will be issued to the relevant agency or ministry upon the completion of an investigation based on complaints received from the public. SAI Iran reports the cases to the Attorney General of Supreme Audit Court who refers the cases to the judiciary.

3.2.18 8 SAIs submit their report containing findings of corruption to entity’s management; 6 submit to the legislative body; 5 SAIs submit to the executive body; 7 submit to law enforcement agency; and SAI Iraq also submits report to the judiciary.

3.2.19 With regard to the legal action that SAI can initiate against perpetrators of corruption, 6 mentioned that their role is purely recommendatory; 6 can impose administrative sanctions; 4 can initiate criminal action; SAIs of China and Iran can impose civil forfeiture and seizure of the proceeds of corruption; and 2 can initiate civil suits for the recovery of the government funds and property.

3.2.20 SAIs adopt the following mechanisms to ensure that the audit findings and recommendations are acted upon by the concerned body:

• For SAI Australia, more serious financial statements audit findings are published bi-annually (see Interim Phase of the Audits of the Financial Statements of Major General Government Sector Agencies for the year ending 30 June; and Audits of the Financial Statements of Australian Government Entities for the Period Ended 30 June). All performance audits are presented


to the Parliament and published on the ANAO website. Progress against all audit findings is monitored through each audited agency’s audit committee (the ANAO is represented on each audit committee).

• SAIs of China, Indonesia, and Iraq process results of feedback mechanism.

• SAI India stated that in accordance with Article 151 of the Constitution, the Reports of the Comptroller and Auditor General of India relating to the Accounts of the Union are submitted to the President, who causes them to be laid before each House of the Parliament. These Reports stand referred to the two Parliamentary Committees: Public Accounts Committee and the Committee on Public Undertakings for further consideration. The Secretaries of the Ministries concerned are required to intimate to the Committees the remedial action taken by them on the cases of irregularities, frauds, loss, mismanagement of resources, brought out in the Audit Reports. As per the agreed timeframe, such remedial “Action Taken Notes” must be submitted by the Secretaries within four months of the tabling of the Audit Reports in the Parliament.

• For SAI Iran, the Supreme Audit Court Report is provided in form of the GAO report and is read in the parliament, and after that, the report will publish for public.

• SAI Malaysia was assigned with four initiatives under the Government Transformation Programme (GTP 2.0), namely; (1) Fast Tracking Access To AG’s Performance Audit Report; (2) Action Committee; (3) AG’s Online Dashboard; and (4) Putrajaya Inquisition. Soon after each series of the AG's Report is tabled, outstanding issues will be reviewed by the Action Committee chaired by the AG and includes Attorney General, Malaysian Anti-Corruption Commission, Royal Malaysian Police and a number of relevant agencies. This committee will ensure quick and decisive decision be made against a case, to facilitate greater sharing of information between agencies and to improve the efficiency of investigation process. At the same time, the status of follow-through recommendation and responds from the relevant agencies


will be uploaded and displayed in the AG’s Online Dashboard for public dissemination. Lastly, any long outstanding or unsolved issues will be tabled in the Putrajaya Inquisition and chaired by the Prime Minister. With the oversight of the Prime Minister, it will create an impetus to various agencies to consider recommendations seriously and take the necessary action.

• SAI Philippines adopts an aggressive monitoring of the implementation of audit recommendations. Prior year’s recommendations which have not been implemented are reiterated in the current year’s annual audit report. Sanctions may also be imposed such as in the case of misappropriation of funds, the SAI may order the withholding of salaries and other benefits of the concerned official or employee.

• SAI Russia stated that by the results of control events, the Accounts Chamber is authorized to send to public authorities, other government bodies, heads of audited entities the recommendations for taking measures to eliminate of the revealed violations and shortcomings, to compensate the damage to the state and taking to the accountability of the officials guilty of a violation of the law of the Russian Federation.

• SAI Thailand stated that the audit findings will be submitted to the investigative audit. The investigative team will consider sufficient evidence in order to raise fraud and corruption behaviour.

• SAI Turkey clarified that in regularity audits, audit teams conduct follow-ups of previous years’ audit results so as to ensure the appropriate implementation of audit findings. In compliance audits, the judicial reports (writs) of the TCA are also delivered to the Ministry of Finance for administrations within the scope of the general budget so that the Ministry can execute the writs in accordance with provisions of the laws in force. Furthermore, all audit teams are obliged to control the execution of the writs of the TCA and take it into account in their report if the writs of previous years are not executed. Finally, the TCA has the power to initiate financial, administrative and judicial sanctions to the public officials who do not follow up the execution and fulfill


the requirements of the writs of the TCA. To illustrate, those public officials who do not fulfill the requirements written in the judicial report shall subject to salary cut off by relevant public administrations upon the demand of TCA.

3.3 Assessment of SAI’s Performance and Integrity

The survey showed that 9 SAIs contribute best through preventive actions by providing recommendations to improve entity’s anti-corruption and internal control system and sharing best practices and benchmarking information to assist decision-makers while SAIs of China, Indonesia and Korea contribute best on detective actions through the conduct of fraud or forensic audits and timely reporting of audit results to the Prosecution Department. As a result, majority of the SAIs responded that preventive actions ranked No. 1; detective actions ranked No. 2 for 6 SAIs; and punitive action ranked No. 3 for 4 SAIs.

Respondent SAIs were asked to rate their performance in combating corruption and state the reason. 5 (47%) SAIs rated their performance fair, while 5 (47%) SAIs rated themselves good and the other 2 SAIs gave themselves a very good rating. Their ratings as well as the reasons for the rating are summarized below:

SAI RATING REASON FOR RATING

Australia Good

Within the scope of the ANAO’s mandate and role, our performance has been good. Evidence to support this assertion includes the ongoing low levels of known (and estimated) corruption in Australian Government entities.

China FairAnti-corruption is not the main goal of government audit; the corruption practices are complicated to detect.

India Very GoodNone. All high riks organizations are convered in audit. Audit professionals are adequeatley trained.

Indonesia Fair None

Iran Good

Based on the health promotion of the administrative system of Iran, the Legislature, Executive and the Judiciary has assigned organizations as below: in the Judiciary, the General prosecutor and General Inspection Organization are responsible. In the Legislature SAI Iran and the Committee on the Article 90 of the constitution are responsible for this issue. In the Executive, the ministry of Information is responsible for the issue.


Iraq GoodThrough conduct of regular audit and effective involvement with other control agencies within the national strategy for combating corruption.

Korea GoodThe inspection function of Korea SAI discloses misconducts and draws problems of statutory and institutional, or administrative contradictions for promoting anti-corruption environment.

Malaysia Very Good

Set up a unit to monitor news portals, websites and blogs on a daily basis. Any comments made in relation to the AG or its reports in these sites are reported to the AG. Any unfavorable or distorted statement will be dealt and responded in a proper and professional way. Based on the postings and comments made in these sites, the public seldom criticize but put high confidence that the audit institution has performed its responsibility with high integrity, independent, competent, professionalism and trusted. The AG’s Report is much awaited by the public and is received with much enthusiasm, even by the ministers of the respective ministries. All shows great concern over reported issues of wastage, negligence, malpractices and even minister has indicated his willingness to appear before the Public Account Committee.

Philippines GoodCriminal cases have been filed against high ranking/top public officials showing that fiscal and public accountability equally applies to all government employees regardless of rank.

Russia Good

The Accounts Chamber of the Russian Federation has high rates of anti-corruption work; the most high-profile and resonant corruption criminal cases are revealed by the Accounts Chamber of the Russian Federation.

Thailand Fair None

Turkey Good

In 2010 the New Law on the TCA which broadened the audit mandate of the Court and introduced regularity audit has helped the TCA enhance transparency and accountability in the public sector. The recent changes in the audit methodologies of the Court have provided a huge impetus to improve the knowledge and skills of the auditors in the areas such as data analysis, accounting, internal control systems, risk assessments, use of information systems in the financial workflows. The TCA has been considered successful in public opinion in preventing and detecting the cases of corruption.


The methods used by SAIs to obtain objective information about the effectiveness of its anti-corruption policy and performance are mainly by in house research and studies and third-party satisfaction suverys. SAI Iraq also has the tools of cross audit, field survey and media peer review.

SAIs of Australia, China, India, Iran, Korea, Philippines, Thailand and Turkey stated that they have not implemented a self-integrity assessment, particularly the “IntoSAINT Methodology” mentioned in the exposure draft of ISSAI 5700. Russia indicated that ISSAI 5700 has not been adopted yet by the INTOSAI Governing Board and INCOSAI but the Accounts Chamber of the Russian Federation has taken part in the elaboration of this ISSAI Draft.

• SAI Malaysia clarified that three Task Force teams have been formed to review the adoption of ISSAI on financial, performance and compliance audit. It is found that most of the auditing standards in ISSAI have been incorporated in existing financial, performance and compliance auditing guidelines. Currently, it is reviewing the practicality of new standards in ISSAI to be adopted into existing guidelines. The new guidelines incorporating ISSAI will be launched in Nov 2013. As for the self-integrity assessment which put emphasis on code of conduct and integrity of SAI, it has implemented its own Code of Ethics for Public Sector Auditors (Revised March 2011). It is designed and tailored in accordance with the Code of Ethics issued by INTOSAI and ISSAI 30-Ethics.

• SAIs of Indonesia and Iraq responded in the affirmative, the latter use in-house survey.

3.4 Audit Limitation

3.4.1 The survey shows that there are certain types of controls which do not have a sufficient level of maturity to ensure the integrity and competence of the participating SAIs in the field of anti-corruption, which mainly are organizational culture, administrative organization and internal control, accountability system, legal framework and management attitude.


3.4.2 Respondents were asked if there must be changes in the legal framework and organizational structure of the SAI to better address growing demand for anti-corruption activities, the following SAIs responded in the affirmative:

• SAI Indonesia says a permanent unit dealing with investigative audit unit (previously forensic audit unit) should be established.

• Iran’s Supreme Audit Court proposed to amend the Commerce Act, Public Audit Act, the Planning and Budget Act and recommend to the Parliament and the Commission, technical issues in parliament reviewing the proposals.

• SAI Korea mentioned full access to bank records of government officials and private individuals involved needed for detecting misconduct or frauds in public sector.

• SAI Malaysia stated that in order to ensure continued independence of the Auditor General’s Office, the AGO is currently reviewing the need for it to be a service commission. The Audit Act 1957 is being reviewed as to enhance its authority and effectiveness to meet expectation of stakeholders.

• SAI Philippines thinks that to be insulated from political pressure and influences, the Commissioners should not be subjected to confirmation by the Commission on Appointments which are composed of legislators. The SAI’s budget must be based on a fixed percentage of the national budget without undergoing the political budget review process of Congress and the executive department. SAI should be empowered to look into bank deposits of individuals if there are evidence of their involvement in corrupt activities. SAI should also be given the power to execute final and executory Notices of Disallowances/Charges through levy of properties and garnishment of bank accounts.

• OAG Thailand is preparing draft changes of some sections in the State Audit Act 1999 especially on anti-corruption management which it views to be a long process and with complexity such as overlapping functions of the Anti


Corruption Agencies (ACAs). The management inefficiency has increased the cost of anti-corruption activities. On the other hand, the higher cost of anti-corruption could reduce indirectly the cost of corruption of corrupt officials. Under the wrongdoer’s perception, he/she could decide easily to perpetrate corruption when the benefit from corruption is higher than cost of corruption. Therefore, State Audit Act should be designed to reduce the cost of anti-corruption.

3.4.3 The survey showed that the relevant laws, rules and regulations guarantee some rights and privileges to auditors conducting fraud/forensic audits. 6 SAIs have immunity from harassment suits; 2 are insulated from political pressures; 7 have power to issue compulsory processes to command submission of required documents; only 2 are exempted from the secrecy of bank deposits; 8 have access to government offices’ accounting records, financial statements, contracts and other legal instruments; 3 have investigatory and inquisitorial powers such as power to punish for contempt;and 4 provide legal and financial assistance to auditors acting as witnesses in a corruption case.SAI Australia noted that the auditor general and his staff are independent and audit reports attract Parliamentary Privilege (thereby conferring immunity from prosecution). Auditors have free access to all relevant records and Australian Government premises.

3.5 Cooperation among SAIs and Anti-Corruption Agencies

3.5.1 With regard to the role of the SAI towards creating awareness and promoting good governance among ministries and departments, the following are the SAIs responses:

• Australia expressed that through financial audits and program of performance audits, and Better Practice Guides, the ANAO takes the lead role in promoting good governance among Australian Government agencies. Its audits and Better Practice Guides are published on the ANAO website, and attract strong parliamentary and media interest. The ANAO works closely with audited agencies to promote the outcome of its audit activity, particularly through liaison with senior agency management and through its role on the internal audit committees for each agency.


• CNAO focused on the audit of major government investment projects, and more than 300 hundred corruption cases were referred to anti-corruption agencies. Subsequently, series of laws and regulations were strengthened.

• SAI India strives to be a global leader and initiator of national and international best practices in public sector auditing and accounting and recognized for independent, credible, balanced and timely reporting on public finance and good governance. It promotes accountability, transparency and good governance through high quality auditing and accounting and provide independent assurance to our stakeholders, the legislature, the executive and the public, that public funds are being used efficiently and for the intended purposes.

• SAI Indonesia focuses on preventive actions regarding fraud or corruption that : (1) promote fraud control system as a tool of fraud prevention; (2) recommend improvements on internal control; (3) uphold personal ethics and integrity; and (4) detect red flags (fraud indications) and bring perpetrators of corruption to law enforcement agencies.

• The Supreme Audit Court of Iran prepares the report and audit findings on performance of government agencies and reports it to legislature and the public; it plays a role in promotion of transparency in the financial performance of state agencies, in order to achieve good governance.

• SAI Iraq has developed quarterly and annually audit plans in the legality control; and enjoys good coordination and cooperation between the three control agencies (FBSA, COI, IGO’s) despite of some weakness in the IGO’s performance.

• For SAI Malaysia, good governance demands an overall high ethical behavior, integrity, accountability and it is about doing the right thing. Auditors can add value and reinforces good governance in government agencies through its oversight, insight and foresight roles as follows: (1) Oversight - SAI can assist decision makers by assessing, evaluating and reporting whether funds for the


intended purpose are well spent, comply with laws and regulations and the success or failure of the financial and performance of the programs. Oversight by auditors also includes detection and deterrent of fraud, inappropriate or abusive acts, misuse of power and resources entrusted to public officials; (2) Insight-Auditors can provide insight to decision makers by assessing programs or activities which are feasible and performing, share of best practices and bench marking information. Programs can be assessed horizontally across the agencies or individually; and (3) Foresight-An auditor assists agencies to look forward by identifying trends and bringing attention to challenges before it become a crisis such as demographic trends, economic conditions or changing security threats, identify risks and opportunities arising from the changing environment of society, technology and nature of economy. By using risk based auditing approach, the audit focuses on identifying the risks and recommends measures to manage the risks to the agencies.

• For SAI Philippines, the tone at the top plays a vital role in the promotion of good governance. If the Head of the State exhibits a strong stance against corruption, the head of the ministries and departments will follow suit. The President has been so serious in the government’s fight against corruption and the SAI has been his strong partner in this endeavor. The SAI has been instrumental in rendering audit reports with findings of irregularities/anomalies that led to the filing of cases against high profile individuals. This has sent strong signal to other departments and ministries that public accountability equally applies to all regardless of rank or position.

• For SAI Russia, the principles of good governance aren’t enshrined in the Legislation of the Russian Federation. Nevertheless, the Accounts Chamber of Russia (ACR) carries out the work on introduction of the good governance in Russia. Moreover, the Constitution of the Russian Federation states that its citizens have the right to participate in the state administration as directly as well as through their representatives. The ACR, as the body formed by the President and Parliament is also a representative of citizens. Thus, the ACR controls the efficiency of activity of the Government on behalf of all citizens, thereby introduces the principle of the good governance.


• For SAI Thailand, under good governance concept, SAI should focus on the proactive audit approach by using the risk based audit or risk assessment technique; should publish audit report broadly which some audit reports might be related to fraud and corruption behavior. The publication could raise citizens’ awareness about anti-corruption. However, where information is too politically sensitive, a report might not be published; the reactive approach should be emphasized and the efficiency of complaint system or denunciation; and OAG Thailand will give good governance award for volunteer local governments which have attempted to declare their transparency in public administration.

• SAI Turkey (TCA) is considered as the most indispensable actor in the implementation and betterment of the new public financial management and control system of Turkey which is in accordance with international standards and best practices. The most invaluable contribution of TCA to good governance is to ensure the accountability and transparency with sound financial management in public sector through their auditing, reporting and judicial functions. The TCA sends its audit reports to the Turkish Grand National Assembly and publishes them on its website. This, above all, strengthens good governance in the Turkish public sector.

3.5.2 Insofar as cooperation with foreign counterparts on anti-corruption, only SAIs of Australia, Korea and Malaysia (except Working Group and Research Project within ASOSAI and INTOSAI) do not have an international ant-corruption cooperation program, and 9 others cooperate as follows:

• SAI China jointly hold seminars with foreign counterparts;

• SAI India did not elaborate on the issue;

• SAI Indonesia has cooperation with the United States Agency for Development (USAID), ASOSAI and INTOSAI Working Group on Fighting Against Corruption and Money Laundering (WG FACML);


• SAI Iran, Iraq and Philippines through the UNCAC;

• SAI Russia through joint audit with the SAIs of Norway, Latvia, Ukraine, Belarus, Kazakhstan, etc. aimed at identification of corruption facts;

• SAI Turkey (TCA) has participated in several international projects, workshops and trainings organized in the field of anti-corruption by UN, INTOSAI, ASOSAI or other SAIs. In addition to this, the TCA has contributed to the initiatives for good governance, transparency and accountability organized by GRECO in Turkey.

3.5.3 Except for the SAIs of Australia and India, Korea, and Malaysia, other SAIs have legal instruments that provide for a joint cooperation between the SAI and anti-corruption agencies.

• SAI China has a joint meeting for Economic Accountability Audit paticipated by Discipline Commission, Organization Department of the CPC Central Committee, Ministry of Human Resources and Social Security and Ministry of Supervision.

• SAI Indonesia has Agreement or Memorandum of Understanding with law enforcement agencies.

• SAI Iran through membership in the Council of regulators (Compound of the Inspector General, Ministry of Information, the Supreme Audit Court, Audit agency and Court of Administrative Justice). Shared commitment between the Supreme Audit Court and other anti-corruption agencies for the prevention, detection and reporting of corruption and punishing the perpetrators, have been provided.

• SAI Iraq has Anti-corruption Joint Council in the General Secretariat for the Council of Ministers, which is composed of: COI, IG’s, Supreme Judicial Council, Central Bank of Iraq’s Monetary Laundering Reporting Office.


• SAI Philippines through the Inter-agency Anti-graft and Coordinating Council (IAGCC).

• SAI Russia through the Standard of Accounts Chamber of the Russian Federation “Carrying out the joint audit with Law enforcement and other government bodies of the Russian Federation ” .

• SAI Thailand has several Anti-Corruption Laws and Regulations. However, the Organic Act on Counter Corruption B.E. 2542 (1999) is the main anti-corruption Law. Meanwhile, other relevant laws such as the Special Investigative Cases Act B.E. 2547 (2004), Act on Administrative measure for prevention and suppression corruption B.E. 2542 (1999) and the Organic Act of State Audit B.E. 2542 (1999) are related to prevention, detection, reporting of corrupt behavior.

• Turkey has been in a process of continuous reformations in the public financial management and control system. The pace of change and improvement gained a huge impetus in the first decade of the 21st Century due to willingness, contributions and initiatives both public sector and civil society. Thanks to the National Anti-corruption Strategy of Turkey officially approved by the Council of Ministers in 2010 and published in the Official Gazette, the collaboration among all public institutions with responsibilities in this field including the SAI Turkey has significantly enhanced in accordance with the action plan of the Strategy.

4. Survey Results on the Role of Audit to Detect Money Laundering

4.1 Organizational structure and legal mandate of SAIs

4.1.1 Legal mandate

The organizational structure and mandate of SAI are vital to determining the role they can play in the prevention and detection of money laundering.


The survey results show that out of 12 respondents SAI, only SAIs of Iran and Iraq have mandate according to their Constitution, laws, rules and regulations on money laundering. In Iran, money laundering activities is prohibited under Article 49 and Article 55 of its Constitution, and its Supreme Audit Court monitors spending of the government budget. Iraq has the Money Laundering Act No. 93 of 2004, Central Bank of Iraq Law No. 56 and Iraq Bank Law No. 94.

While no specific law, rule or regulation confers SAIs of China and Indonesia a role on the prevention and detection of money laundering, it is noted that whenever there are findings or indications of illegal acts or law violations during the audit, reports are made to law enforcement bodies pertaining to such activities.

SAIs of Australia, India, Indonesia, Korea, Malaysia, Philippines, Thailand and Russia have no law, rules or regulation containing provisions about their roles or responsibilities on the prevention and detection of money laundering. As a natural consequence, these SAIs have no anti-money laundering strategy. For example, SAI Australia advised that: “It is not the role of the ANAO to directly detect money laundering. This is the function of the specialist FIU – the Australian Transactions and Analysis Centre (AUSTRAC). The ANAO provides assurance as to the effectiveness of AUSTRAC’s administration through the conduct of financial statements audits of the entity and performance audits of its operations”.

4.2 Anti-money laundering strategy

At present, only 3 SAIs have their anti-money laundering strategy implemented in accordance with the national anti-money laundering policy.

• SAI China has the responsibility to combat financial crimes, including crimes related to money laundering, CNAO constantly keeps track of suspicious bank accounts activities through auditing, detecting potential money laundering behaviors, and summarizing new characteristics in time.

• SAI Iran reviews the performance of executive agencies in the fight against money laundering by using audit checklists; monitors the implementation of


these measures; and discloses the findings in the audit reports. • SAI Iraq has its own strategy based on coordination with anti-corruption joint

council for the period 2010-2014.

Although without anti-money laundering strategy, SAI Philippines, however, has an ongoing coordination with the Anti-Money Laundering Council (AMLC) for possible signing of a Memorandum of Understanding (MOU). It is also a signatory to the MOU of the Inter-Agency Anti-Graft Coordinating Council (IAGCC) which encourages reporting of anomalous transactions including money laundering.

Audit concern/focus

SAIs of China and Iraq expressed that detection of money laundering is an audit focus or a primary concern. However, for SAIs of India, Indonesia, Iran and Korea, money laundering is but merely incidental to the audit services being rendered and not really an audit focus. As for the rest of the respondents, detection is not their concern but of other independent agencies such as the anti-corruption agencies in the Philippines, Russia and Thailand, and by the anti-money laundering agencies in Australia, and by the Central Bank of Malaysia for SAI Malaysia.

The survey revealed that SAIs of Australia, Korea, Malaysia, Philippines, Thailand and Russia do not deal with preventing, detecting and investigating money laundering. SAIs of Russia, Malaysia and Korea stressed further that their duties are merely confined in the evaluation of internal control system and providing recommendations for improvements.

• For the SAIs of Iraq and India, all departments, offices or units conducting audit are mandated to prevent, detect and investigate money laundering. Interestingly, SAI Iraq has specialized team works and workshops in the follow up and audit money laundering cases.

• For SAI Iran, a special audit unit identified as anti-money laundering department works under the direct supervision of the President of SAI. This unit has been in place for less than five years.


• For SAI China, although not mandated by law, all its departments can conduct an audit in relation to preventing and detecting money laundering.

Organizational Structure and Legal Mandate of SAI

Respondents

Have legal mandate according to constitution,

laws, rules and regulations on money laundering

Have anti-money laundering strategy SAI audit focus on anti-money laundering

Yes None Yes None express incidental not concern but of other independent agencies

Australia X X X

China X X X

India X X X

Indonesia X X X

Iran X X X

Iraq X X X

Korea X X X

Malaysia X X X X

Philippines X X X X

Russia X X X X

Thailand X X X

SAI's different approaches in detection and

investigation of money laundering

No mandate, Australia,

India, Indonesia, Korea, Malaysia

& Thailand

both Proactive and Reactive,

Iraq Proactive, China & Iran

Limited only to detecting red flagsandreferred to the AML agencies, Malaysia, Philippines,

On the approaches of SAIs in the detection and investigation of money laundering, SAIs of China and Iran adopt a proactive approach through a risk based audit aimed at detecting red flags or symptoms of money laundering; SAI Iraq is more

4.3 Role of SAI in the detection and investigation of money laundering

4.3.1 Roles & Approaches

focused as it has both proactive and reactive approaches against money laundering. On the other hand, the role of the SAIs of Malaysia, Philippines and Russia is limited only to detecting red flags or symptoms of money laundering which will be referred to the anti-money laundering agency for the conduct of necessary investigation. Other SAIs, namely Australia, India, Indonesia, Korea, Malaysia and


Thailand expressed that detecting or investigating money laundering activities is not included in their mandate.

Upon discovery of red flags or symptoms of money laundering during a regular audit, SAIs of Australia, China, Philippines, India, Indonesia, Iraq, Malaysia, Thailand and Russia will refer the matter to the anti-money laundering agency. For SAI Iran, the office or department which discovered the red flags will conduct a full blown investigation. As far as SAI Korea is concerned, the red flags will be referred to the special department, office or unit of the SAI for the conduct of a full blown investigation.

Other than the mandate to conduct direct detection or investigation of money laundering, SAIs have available facilities or mechanism to promote and intensify detection of money laundering such as:

• Governing code of ethics for majority of SAIs, namely Australia, China, India, Iran, Iraq, Indonesia and Korea;

• Updated publication of audit reports through its website for SAIs of Australia, China, India, Iran, Korea, Malaysia and Thailand;

• Promulgation of accounting and auditing rules for SAIs of Australia, India, Iran and Iraq;

• Education and training, and anti-money laundering researches for SAIs of China, Iran and Iraq;

• Legal and financial assistance to auditors and witnesses and whistle blowers for SAIs of China, and Iraq;

• SAI Australia promotes citizen’s participatory audit, and SAI Iraq promotes declaration of assets and liabilities of public officials and citizens help desk that caters anti-money laundering complaints.


4.3.2 Detection role of Money laundering

Since the majority of SAIs have no mandate on anti-money laundering detection, they do not have audit tools and techniques to detect money laundering.

SAIs of Iran and Iraq do have such a mandate under their respective law. For example, SAI Iraq (FBSA) law contains specific articles about roles and responsibilities on the prevention and detection of money laundering. Detecting money laundering is already embedded in the regular audit services.

Only SAI China (CNAO) has sufficient mandate, tools and techniques to detect the integration phase of money laundering. Integration is the final stage in the laundering process. In this stage the money is integrated back into the economy in a way that makes it appear to be a legitimate business transaction.


4.4 Audit manual or guideline

SAIs of China and Iran have specific manual or guideline on anti-money laundering that helps auditors prevent and/or detect and investigate money laundering incidents. SAI China incorporates anti-money laundering audit in regular guidelines and manuals such as in Commercial Bank Audit Manual.

4.5 Personnel & Training

With regard to the adequacy of the number of audit personnel that have specific skills in the detection and investigation of money laundering, SAIs of China, India, Indonesia, Iran, Iraq, Korea, Malaysia and Russia expressed that they have very few personnel who have adequate training in the detection and investigation of money laundering. For other countries, since the role of SAIs do not extend to directly detect money laundering, specific skills in directly detecting money laundering are not a priority. Likewise, the personnel of SAI Philippines and Thailand do not have technical skills of detecting money laundering.

SAIs of Iran, Iraq, Malaysia and Thailand provide trainings to their personnel about anti-money laundering. SAI Thailand noted that the Anti-Money Laundering Office (AMLO) had invited the Office of the Auditor General (OAG) Thailand to join in the course about anti-money laundering and anti-corruption. This course

SAI’s audit tools and techniques and availability of audit manual

RespondentsSAI audit tools and techniques to detect anti-money

laundering

have specific manual or guideline on anti-money

launderingsufficient limited not applicable Yes None

Australia 　 X X China X 　　 X 　 India 　 X X Indonesia 　 X X Iran 　 X X 　 Iraq X 　 X Korea 　 X X Malaysia 　 X X Philippines 　 X X Russia 　 X X Thailand 　　 X 　 X


was supported by US Embassy in Thailand and the Internal Revenue Service (IRS). For SAI Malaysia, the training is not on a regular basis but more on exposure and awareness.

4.6 Audit report and actions

As to reporting of encountered and/or detected money laundering incidents, SAIs of India, Indonesia, Iran, Korea, Malaysia and Russia do not issue a special audit report but money laundering incidents encountered and/or detected will be incorporated in the regular audit report. For SAI Australia, any concerns about potential money laundering would be referred to the appropriate law enforcement agency or to AUSTRAC. SAI Thailand only informs irregularity cases to the Anti-Money Laundering Office (AMLO).

On the other hand, SAIs of China and Iraq issue a special audit report specifying the detected money laundering incidents, the pecuniary loss suffered by the government, the persons responsible/liable and the laws and rules violated. This is also true with SAI Philippines if it incidentally uncovered in audit cases of money laundering.

SAIs of China, Iran, Korea and Philippines submit their report to the executive body; the same SAIs including Indonesia, Iraq, Malaysia and Thailand submit their report to the law enforcement agency; and SAIs Australia, China, India, Iran, Philippines and Russia submit their report to legislative body.

With regard to the legal actions that SAIs can initiate against the perpetrators, SAIs of Australia, China, India, Indonesia, Malaysia, Philippines and Thailand stated that their role is purely recommendatory in nature. SAI Russia cannot initiate any legal actions against the perpetrators of money laundering. 3 SAIs have powers to initiate actions against perpetrators. SAI Iran can initiate administrative sanctions, civil forfeiture and seizure of the proceeds of money laundering as well as civil suits for recovery of the government funds and properties. SAI Korea can initiate administrative sanctions and criminal prosecution. SAI Iraq can initiate civil suits for recovery of the government funds and properties but its role is purely


recommendatory in nature informing the Inspector General Office and Commission of Integrity on incidents of money laundering.

Where do SAIs submit audit reports?

Respondents Executive body Law enforcement agency Legislative body

　

Entity’s Management

　 Australia 　 X 　 China X X 　　 India 　 X 　 Indonesia X 　　 Iran X 　 Iraq X 　　 Korea X X 　　 Malaysia X 　 X Philippines X 　 X 　 Russia 　 X 　 Thailand X 　　　 5 out of 12 8 out of 12 6 out of 12 　

Country

Skills in detection and investigation

Conducts regular

trainings

Reporting Initiating legal actions against perpetrators

few personnel no skills

issues special audit report special audit report

do not

issue audit report

referred to appropriate law

enforcementagency

agencyappropriate law enforcement

agencyappropriate law enforcement

agency

hasauth-ority

noauthor

authorityrecommendatory in

nature

Australia 　 X 　 AUSTRAC X

China X 　　 X 　 X India X 　　 X 　 X Indonesia X 　　 X 　 X Iran X 　 X X 　 X 　

Iraq X 　 X X 　 X 　

Korea X 　　 X 　 X 　

Malaysia X 　 X X X Philippines 　 X 　 X 　 X Russia X 　　　 X 　

Thailand 　 X X 　　　　 X


4.7 Assessment of SAIs’ performance and integrity in the detection and

investigation of money laundering

Majority of the SAIs (7) expressed that they contribute best in preventive actions by providing recommendations to improve entity’s anti-money laundering and internal control system and sharing best practices and benchmarking information to assist decision-makers. This is especially the case for SAIs do not have a mandate to directly detect money laundering activities. In comparison, detective role of conducting audit investigations and timely transferring results to the prosecution department, punitive role of implementing criminal, civil and administrative/disciplinary sanctions were ranked 2nd and 3rd respectively. Relative to this issue, the response of SAIs of Korea and Thailand were both none of the above.

SAIs were asked to rate their performance in combating money laundering and explain the methodology used to gauge the performance and the reasons for the rating. The responses show that SAIs of China, Iran and Iraq rated themselves Good. SAI Korea rated itself Poor while India with Fair rating.

• Ensuring financial security and combating financial crimes has always being one of CNAO’s top priorities. In recent years, fruitful results as been achieved by CNAO in: detecting potential money laundering activities through auditing by filtering suspicious accounts; tracking unusual transactions, and analyzing interrelations among selected entities; referring valuable crime clues to the AML agency (Central Bank) in recent years;

In addition, in order to obtain objective information about the effectiveness of its anti-money laundering policy and performance, SAIs of China, India, Indonesia, Iran Korea and Philippines use in-house research and studies. SAIs of Australia, Malaysia, Russia and Thailand have none while Iraq employs third party satisfaction survey.


4.8 Audit limitations in the prevention and detection of money laundering

4.8.1 Access to bank records

In connection with anti-money laundering efforts, only SAIs China, Iraq and Thailand are allowed by their law, rules and regulations to have full access to bank records of government officials and private individual who has/had transactions with the government.

In China, upon discovering suspicious activities in which government officials are involved, CNAO is granted (under strict permit procedure) authorities to check/ monitor relevant bank accounts for in-depth research.

For SAI Thailand, Section 42 of Organic Act on State Audit B.E. 2542 (1999) authorized OAG Thailand to have full access to essential information; however, it is not easy to access bank records of government officials and private individuals because it involves confidential and private right. If auditors would like to access essential information as bank records, they must request permission from the bank. This authority appears in Anti-Money Laundering Act B.E. 2542 (1999).

4.8.2 Audit limitations

There are factors that hamper the SAI’s role in the fight against money laundering.

• SAIs of Australia, Malaysia, Thailand and Russia expressed that they have no mandate or role in anti-money laundering.

• SAIs of China, Indonesia, Korea, Philippines and Thailand identified the lack of competent staff to handle money-laundering.

• SAIs of China, Indonesia and Philippines stated the lack of capacity and financial resource. SAIs of Indonesia, Iraq and Thailand mentioned that authorized officials lack commitment.


• SAIs of India, Iraq and Philippines indicated that some of the corrupt people are not severely punished; SAI Iran believes that SOME of the corrupt people not all of them are severely punished.

• SAIs of Iraq and Philippines mentioned collusion between law enforcers and corrupt people and fear of retaliation and victimization.

4.8.3 Suggested actions

7 SAIs believe that there is a need for professional training to improve the skills of the auditors; 6 SAIs expressed that there is a need for a change in the laws, rules and regulations to give the SAI sufficient mandate against money laundering (namely China, Malaysia, Indonesia, Korea, Iran and Iraq); and 5 SAIs feel the need of a reorganization to devote necessary resources, auditors and budget, to the fight against money laundering.

4.9 Cooperation among SAIs and anti-money laundering agencies

With regard to exchange of information and experience with other SAIs towards enhancing the capabilities and methodology of audit in detecting money laundering, China, Iran and Iraq have the necessary facility. SAI Iran has been involved in ASOSAI and INTOSAI research projects while SAI Iraq’s exchange of information and experience is confined to Commission of integrity and inspector general offices. For majority of the SAIs, there are no legal instruments that provide for a joint undertaking among the SAI and anti-corruption agencies relative to the prevention, detection, reporting and prosecution of money laundering. 7 SAIs have no legal instruments. However, it is possible for SAI Malaysia to undertake such an exercise.

Availability of legal instruments that provides for a joint undertaking among the SAI and anti-corruption agencies relative to the prevention,

detection, reporting and prosecution of money laundering

No comment on this matter (2 out of 12)

no legal instrument(3 out of 12)

with legal instrument(7 out of 12)

Malaysia mentioned that it is possible to undertake such an exercise. For example, the setting up of “Operation of RM3 Billion Task Force” headed by the Attorney General Office and members consisting of the National Audit Department of Malaysia, Customs, Malaysian Anti-Corruption Commission, Central Bank of Malaysia and Inland Revenue Board. The mission is to detect and investigate loss of revenue, money trail and money laundering for which SAI of Malaysia plays its role in auditing and analyzing documentations leading to trail of money


For example, the setting up of “Operation of RM3 Billion Task Force” headed by the Attorney General Office and members consisting of the National Audit Department of Malaysia, Customs, Malaysian Anti-Corruption Commission, Central Bank of Malaysia and Inland Revenue Board. The mission is to detect and investigate loss of revenue, money trail and money laundering for which SAI Malaysia plays its role in auditing and analyzing documentations leading to trail of money.

Only 3 SAIs have legal instrument such as SAI Iran through Membership in the Council of regulators; SAI Iraq through exchange of information and experience confined to Commission of integrity and inspector general offices; and SAI Philippines through membership in the Inter-Agency Anti-Graft Coordinating Council.

Finally, only SAIs of China, Iran and Iraq have close cooperation and attachment of officers with other enforcement agencies to acquire investigative skill, knowledge and experience in the fight against money laundering.

5. Conclusions

• The survey shows that, the legal status, structure and mandate of SAI are strongly influenced by the political system. In 14 respondent countries, half of them are Westminster Model, 3 are “Board or Collegiate” model, 1 is administrative model and 1 is “Judicial or Napoleonic” model. The difference in their political model decided the difference in their structure and mandate, even the type of audit they performed.

In terms of Role of SAI in the Prevention and Detection of Corruption, only 7 SAIs’ role is specifically illustrated in Constitutions or laws, while most of them have their own anti-corruption strategy and strategic plan on anti-corruption. Detection of corruption is audit focus of 7 SAIs, while 4 mentioned that same is merely incidental and not an audit focus. Only 4 SAIs, namely Thailand, Korea, Iraq and Philippines, have set up special units committed to the prevention and detection of corruption.


• Only half of SAIs have enough audit personnel who have skills in the detection of corrupt activities and transactions. To ensure that auditors possess appropriate skills, knowledge, most SAIs held annual training workshops or seminars. Also, 7 SAIs have developed specific manual or guidelines on anti-corruption areas, which provide concrete steps for auditors to follow.

• Upon to discovery of red flags or symptoms of corruption, some SAIs will transfer them to special department, office or units of SAIs for a full blown investigation, while some will refer them to the anti-corruption agencies.

• SAIs’ facilities or mechanism available to promote and intensify prevention and detection of corrupt activities and transactions are: Hotlines, websites, citizen help desk, anti-corruption research/educational or training programs and citizens participatory audit programs, public information office, publication of audit reports through websites, providing legal and financial assistance to auditors, witnesses and whistle blowers.

• In terms of reporting channels, SAIs can report findings of corruption to entity’s management, or submit it to the legislative body, executive body, or law enforcement agency; or even the judiciary. To ensure that the audit findings and recommendations are acted upon, the audit findings may be read in the parliament, published for public, and followed up through feedback mechanisms and reconsideration of prior year’s recommendations which have not been implemented in the current year’s annual audit report.

• Less than half SAIs rated their performance in their anti-corruption role as fair, while half rated themselves good and very few gave a very good rating.

• To better address growing demand for anti-corruption activities, some SAIs proposed changes in the legal framework and organizational structure of the SAI.


In relation to money laundering:

• The mandate and authorities is limited in most countries, for example, only 3 SAIs have the legal authorities to detect money laundering activities. In addition, Iran and Iraq have special units or teams that conduct audits on money laundering. Other SAIs have no legal authority or provisions about their roles or responsibilities on the issue of money laundering. , Korea and India could play a role to detect money laundering but it is merely incidental to the audit services being rendered.

• For SAIs who do not have the legal mandate to detect money laundering, their actions are mainly confined in providing recommendations to improve entity’s anti-money laundering and internal control system or sharing practices and benchmarking information to assist decision-makers (preventive actions). For SAIs that do have the mandate, the tactics and role of SAI is largely focused on detecting the suspicious activities.

• SAIs of China, Iran and Iraq have close cooperation and attachment of officers with AML and other enforcement agencies to acquire investigative skill, knowledge and experience in the fight against money laundering. 2 other SAIs have experience in undertaking joint efforts or information sharing with AML agencies (Philippines, Malaysia).

• Education, training, and expertise of AML is deemed important but inadequate. The majority of SAIs identified that there are few personnel who have adequate training and knowledge in the detection and investigation of money laundering.

97Summary of Typical Audit Practices in Combating Corruption and Money Laundering

V. Summary of Typical Audit Practices in Combating Corruption and Money Laundering

1. Background

This part summarises typical examples of each SAI’s audit on anti-corruption and anti-money laundering. The template consisted of four sections. The first section shows the basic information of each SAI which focused on the mandate of anti-corruption and anti-money laundering. The second to fourth sections explored three main roles of SAI to anti-corruption and anti-money laundering, that is, preventive, detective, and reporting and following up roles. Each role is illustrated with the objective, benefit, and typical examples or case studies. In addition, lessons learned from each example are identified.

2. Methodology for Selecting the Typical Audit Practices

The method for selecting typical audit practices consisted of three stages. In the first stage, we collected results from 10 SAIs, that is, China, India, Indonesia, Iran Iraq, Korea, Malaysia, Philippines, Turkey, and Thailand. After that, we reviewed

Box1Research in part 5: Introduction of typical examples

Ⅰ . In this part, based on the results from part 4, countries in which audit played an important role in anti-corruption and anti-money laundering actions will be selected. The types, features and achievements of their audit will be introduced and recommended. In this part case study will be used to make research on best practices.

Ⅱ . The main contents for each country’s part may include:• The types of audit;• Major achievements in detecting corruption and improving anti-corruption

and anti-money laundering mechanism.(Source: Outline of Research Proposal of the 10th ASOSAI Research Project.)


all results in order to understand a whole picture of typical audit practices in each role. We summarized all practices in form of summary tables. For the second stage, we categorized the best practices in each role in tables. This category was used to develop our results for the part 6 (Measures on improving audit’s function in detecting fraud and corruption). Finally, we selected interesting cases studies and we discussed and analyzed these practices under anti-corruption and anti-money laundering frameworks1.

As a requirement of the methodology of this part, SAIs were requested to present only the best practices which have the most valuable and distinctive features and could help SAI community better develop its knowledge and experience in the fight against corruption. The fact that a best practice was presented by only one SAI but not others does not necessarily mean that other SAIs do not have similar practices. Rather, it means that some SAIs give more priority or devote more importance to a specific best practice than other SAIs due to their own perspectives and understanding of anti-corruption and anti-money laundering.

3.Typical Examples of anti-corruption and anti-money Laundering

Initially, we might classify 5 roles of SAI to anti-corruption and anti-money laundering under their mandates as follows; (1) ensuring transparency and accountability or concept of good governance, (2) promoting financial management system, (3) strengthening internal control, (4) detecting corruption through various types of audit, and (5) reporting and following up suspected corruption cases.

These mandates seem to be coincided with the conclusion of Borge (1999: 4) that most of SAIs believe that their main contribution as regards the prevention and detection of fraud and corruption lies in improving overall transparency and accountability, supporting an environment that restricts the opportunity of corruption behavior, and creating a climate of good governance. Though he confirmed that SAIs normally do not have the powers to prosecute acts of

1We would like to give credit for Musa Kayrak from SAI Turkey for his valuable recommendation about the concept of analysis.


corruption, investigative power should be practical. In practice, results from the SAIs’ audit works are not designed to verify the public servant’s improper behavior. However, the investigative authority might be expanded from the usual audit authority to collect evidence of improper behavior. In addition, he noted that SAI could maintain close collaboration with anti-corruption agencies (Borge, 1999: 5).

Additionally, Musa Kayrak (2008) discussed the theoretical framework for involvement of SAIs in anti-corruption struggle and their contributions in practice. He found that active participation of SAIs which has financial, organizational, operational, and functional independence and audit mandate guaranteed by constitutions and laws is essential in order to deter corruption by promoting accountability, openness and good governance in public financial management. Meanwhile, it seems that most SAIs can detect some suspicious cases of corruption, even though most of them have no power to investigate those cases. Musa identifies 7 roles of SAIs in contributing to the anti-corruption struggle. The first role is to promote transparency, accountability and good governance in public financial management. However, he viewed that the second role should be to strengthen the financial management system. He explained that SAIs should provide the opportunity to discover the weakness and loopholes in internal controls, ineffective and ineffective use of public resources and any other corruption-prone environment in public finance. The role of citizen participation is another main role of SAIs which he focused on, in terms of improving public awareness. Kayrak referred to the INTOSAI Auditing Standard on SAI reporting, which allows an SAI to signal findings related to corruption and fraud so as to attract the attention of the public.


4.Best Practices in Preventive Role of Anti-Corruption

From collecting typical examples of best practices role in anti-corruption, there are 27 typical examples from 10 SAIs. These typical examples could be categorized in eight best practices.

Eight best practices from typical examples in preventive role of anti- corruption

Best Practices Typical Examples SAI

1. Set up anti-corruption strategy or strategic program

A strategic approach to the fight against corruption: Anti-corruption strategy and action plan of the TCA (2014-2016)

Turkey

Set up a strategic initiative program Indonesia

2. Promote good governance or anti-corruption in law and regulation

Economic Accountability Audit in Place China

Health Promotion of Administrative Activities Act Iran

Promoting good governance Malaysia

Regulation on the Professional Code of Ethics TurkeyObservers in the bidding processes under Government Procurement Act

Philippines

3. Strengthen internal control systems

Study and evaluate the reliability of internal control

India

Enhance internal control systematically and consistently

Iran

Promote effective internal controls Thailand

4. Emphasize the proactive strategy or preventive audit approach

Whole process tracking audit or interim audit that intervenes early in audit activities

China

Conduct a range of measures which can be considered within the preventive role of corruption in government contract

Iraq

Surprise Inspection MalaysiaEmphasize proactive strategies Thailand

5. Utilize E-system E-audit System China, Indonesia


4.1 The first best practice is to set up an anti-corruption strategy or strategic

program of SAI to combat corruption.

• SAI Turkey (TCA) has prepared its Anti-corruption Strategy and Action Plan. Overall, such a strategic approach with a list of comprehensively scrutinized actions is expected to make an invaluable impact on the preventive function of the TCA in anti-corruption efforts by providing a well-designed perspective for the way forward. The objective of this strategic plan is to enhance the capacity of the TCA to fight against corruption in order to facilitate the culture of accountability and transparency in the public financial management. This strategy is composed of 23 actions (See Box 2).

8. Raise public awareness

Raise public awareness through release of audit results

China

Strengthen public awareness to prevent corruption Indonesia

Operate a Corruption Complaints Hotlines Korea

Coordinate with the media and civil society on anti-corruption

Thailand

Sources: ASOSAI researchers summarized from results of 10 SAIs

Audit Management System of the TCA (SAYCAP) Turkey

eNGAS (e-New Government Accounting System) Philippines

6. Develop innovative tools or databases

Establish database of public officials vulnerable to corruption and set up monitoring system in which inspection information of high ranking officials are collected.

Korea

Carry out activit ies to address structured corruptionF i n a n c i a l M a n a g e m e n t A u d i t t h r o u g h Accountability Index (AI) Malaysia

7. Create networks with ACAs or international agencies

Cooperate with the corruption eradication commission IndonesiaCooperate with international agenciesBe elected as member of the Integrity and Governance Committee (IGC)

Malaysia


Box2

23 Actions of the Anti-Corruption Strategy of the Turkish Court of Accounts (TCA)

1. Preparing the audit strategic plans and annual audit programs by considering the areas with high risk of fraud and corruption

2. Preparing questionnaires, publishing them on their agency’s webpage, and using the results in the processes of audit planning and reporting in order to consider the public expectations in the preparation of audit strategic plans and annual audit programs in accordance with Article 31 of the TCA Law

3. Evaluating the news regarding fraud and corruption that appear in the press 4. Preparing the Manual on the Fight against Fraud and Corruption5. Reviewing the audit guidelines of the TCA within the framework of

principles of fraud and corruption mentioned in ISSAIs 6. Adding “the audit procedures for preventing and detecting fraud and

corruption” to the SAYCAP audit pool 7. Conducting IT audits 8. Including the observations regarding possible areas open to fraud and

corruption in the evaluations made while forming the opinion of the TCA on draft laws and regulations

9. Conducting regular trainings on the subject of accounting errors and fraud 10. Conducting trainings for the professional staff on the subject of fighting

against fraud and corruption 11. Training expert auditors specialized on the subject of fighting against fraud

and corruption 12. Ensuring that the staff members attend to the certification programs related

to forensic accounting and auditing 13. Compiling the national legislation, international agreement and other

documents related to fighting against fraud and corruption, translating the basic documents to Turkish, and publishing them on our webpage

14. Building an IT application for complaints 15. Publishing TCA decisions on agency’s webpage within an acceptable

period 16. Making it possible for the responsible parties to follow the trial stages via

TCA webpage 17. Making the process of follow-up of findings operational


• SAI Indonesia (BPK) sets up the strategic plan from 2011-2015. BPK has a particular program, or strategic initiative, which focuses on enhancing the capacity of BPK’s auditors in investigative audits. The initiative includes three activities as recruitment of additional investigative auditors, training, certification, and workshops for investigative auditors, and restructuring BPK’s investigative audit unit. By conducting these activities, it is expected that BPK will be able to better respond any request from stakeholders and to monitor the follow-up actions taken by Law Enforcement Agencies on BPK’s investigative audit result.

4.2 For the second best practices, 5 SAIs gave examples of their efforts to

promote good governance or anti-corruption in law and/or regulation.

• SAI China (CNAO) has created a system of economic accountability that has put in place to supervise major leaders of organs and SOEs to be audited in accordance with the Audit Law of China (See Box 3).

18. Monitoring and reporting on the results of the execution of writs 19. Organizing collaboration activities for ensuring an exchange of ideas

between the auditors and members of the TCA and the jurisdiction members on the subject of fraud and corruption in order to increase the effectiveness of denunciation mechanism

20. Developing communication and collaboration with the international organizations working in the field of fighting against fraud and corruption

21. Organizing conferences on the works of entities (such as Prime Ministry Inspection Board, Ethics Committee, Financial Crimes Investigation Board, General Directorate of Security, inspection boards and internal audit units) for preventing fraud and corruption and evaluating other opportunities of collaboration

22. Implementing INTOSAINT to improve the internal aspect of transparency and accountability

23. Establishing an ethics committee

(Source: Results from Part 5 of SAI Turkey)


Box3

CNAO and Economic Accountability Audit

Presently, National Audit Office of People’s Republic of China (CNAO) conducts the economic accountability audit in place. In 2010, the Central Government published the Guidelines on conducting economic accountability audit of major leaders, in which the principle, audit scope, limits of authority were established. Each year, thousands of leaders are audited for their economic responsibilities by audit institutions at different levels.

As power is one of the incentives for corruption, abuse of power is a form of corruption. The normalization of economic accountability audit not only detects corruption, but also rings alarms to the persons in high position. With the fast development of economic accountability audit, nowadays leaders of state organs and SOEs all have the shared sense that they will be audited within or after their expiration, and in some places, leaders will be told of their economic accountabilities before they officially take position. In this way, leaders will be careful when utilizing their power, and try not to abuse it.

• SAI Iran has attempted to address the annual audit to the executive in relation to the Health Promotion of Administrative System Act which emphasizes the internal control systematically and consistently reduce risks of corruption.

• SAI Malaysia (NADM) has promoted good governance through its roles of oversight, insight and foresight (See Box 4).

Box4

Promoting good governance of NADM

National Audit Department Malaysia (NADM) promotes good governance through its oversight, insight and foresight roles as follows:

1. Oversight: by auditors also includes detection and deterring fraud, inappropriate or abusive acts, misuse of power and resources entrusted to public officials.

2. Insight: auditors can provide insight to decision makers by assessing programs or activities, sharing of best practices and benchmarking.


• SAI Turkey promulgated its own regulation on “the Professional Code of Ethics for the TCA Auditors” which was ratified and published in Official Gazette on 11th of December, 2011. The Regulation determines the principles regarding independence, objectivity and impartiality, integrity, equality, conflict of interests, professional competence and due care, professional and organizational awareness, not using the profession for personal interests, professional secrecy, courtesy and respect. It also regulates responsibilities of the senior management concerning the implementation of the regulation. Any cases of violation of the principles laid down by the Regulation shall be conveyed to the Board of Promotion and Discipline of Professional Personnel to launch a disciplinary prosecution in compliance with the provisions of the TCA Law on Disciplinary and Penalty Affairs.

• SAI Philippines (COA) serves as an observer in the bidding processes of the Philippine government of Republic Act No. 9184 or known as Government Procurement Act which strictly defines the means and methods of government procurement. As a preventive anti-corruption measure under the law, COA is an observer in the bidding processes in the opening of the bids. As an observer, the COA representative prepares a memorandum noting any irregularity observed during the bidding.

4.3 All SAIs consider effective internal control systems to have an inhibiting effect on potential perpetrators. Evaluating the soundness of financial management and internal control is performed regularly as an integral part of audits (Borge, 1999: 9). Hence, the third best practice is to strengthen the internal control system. 3 SAIs specifically mentioned examples of how they enhance or promote the internal control system.

3. Foresight: an auditor assists agencies to look forward by identifying trends and bringing attention to challenges before it becomes a crisis. By risk based auditing approach, the audit focuses on identifying the risks and makes recommendations to the agencies on how best to manage the risks.


• SAI India (CAG) explained the best practice preventive role in anti-corruption is to strengthen entity’s internal controls and strategic risk management to enable them to minimize the risk of corruption. Auditing Standards of SAI India prescribe the norms of principles and practices, which auditors are expected to follow in the conduct of audit. They provide minimum guidance to the auditor that helps determine the extent of auditing steps and procedures that should be applied in the audit and constitute the criteria or yardstick against which the quality of audit results are evaluated. As per the Auditing Standards (2nd Edition, 2002 – Chapter 3, paragraph 6) the auditor, in determining the extent and scope of the audit, should study and evaluate the reliability of internal control (See Box 5).

• SAI Iran referred to the Health Promotion of Administrative System Act which could reduce corruption chances through the effective internal control.

• SAI Thailand (OAG) has promoted the effective internal control since 2001 through the regulation of SAC in the determination of internal control standard B.E. 2544 (2001). The aim of this regulation is to set the scope and extent of concept of internal control in order to enhance value for money and reduce corruption opportunities in audited entities.

Box5

The Study and Evaluation of internal control by CAG

The Office of the Comptroller and Auditor General of India (CAG) focused on the study and evaluation of internal control which should be carried out according to the type of audit undertaken. In the case of regularity (financial) audit, study and evaluation are made mainly on controls that assist in safeguarding assets and resources, and assure the accuracy and completeness of accounting records. In the case of regularity (compliance) audit, study and evaluation are made mainly on controls that assist management in complying with laws and regulations. In the case of performance audit, they are made on controls that assist in conducting the business of the audited entity in an economic, efficient and effective manner, ensuring adherence to management policies, and producing timely and reliable financial and management information.(Source: Results from Part 5 of SAI India)


4.4 The fourth best practice is to emphasize the proactive strategy or preventive audit approach. The benefit of proactive strategy is to create an unfavorable environment for corrupt activities. 4 SAIs specifically provided examples of proactive strategies or preventive approaches.

• SAI China outlined a “whole process tracking audit”, or interim audit, that undertakes real-time auditingof important projects (See Box 6).

•

Box6

Interim Audit or Whole Process Tracking Audit

Experience from CNAO

On 12 May 2008, Sichuan Province was ruined by the Wenchuan Earthquake. In order to make sure government relief funds and supplies could go to victims’ hands properly and efficiently, CNAO initiated its 1st tracking audit. Over 300 auditors were sent to the stricken area immediately after the earthquake to supervise the whole procedure of allocation. Subsequently, CNAO published its Guidance on Further Strengthened Tracking Audit on Post-quake Reconstruction, which specified the audit aim, scope and focus. It took over 2 years for 11648 auditors from CNAO and other audit institutions at provincial and municipal levels to undertake the audit, in which about 27902 reconstruction projects were audited with 767.8 billion RMB involved.

The audit results were made public with 6 audit announcements published. According to the results, irregularities in usage of fund, policy implementation, project management and ecological restoration were found, but compared to the large basis, the ratio is relatively low.

It has become a common practice that CNAO carries out whole process tracking audit on implementation of large investments on people’s livelihood, special resources exploitation and environment protection issues, significant public events and major national policies. e.g., audit of construction of low-rent housing, high speed railways, etc.(Source: Results from Part 5 of SAI China)


Box7

FBSA and Fighting Corruption in Public Procurement

SAI Iraq, Federal Board of Supreme Audit of Iraq (FBSA), conducted a range of measures which can be considered within the preventive role. One of the main problems that have had a deep impact in the fight against corruption is a government contracts. FBSA obligates all departments concluding contracts that exceed 150 million dinar to submit all required documents to verify the feasibility study of the project and allocations, quantity table, announcement of project, bids received and project referral before signing the contract. At the implementation phase of the contract, FBSA shall perform ex-post audit on disbursements of the contract. (Source: Results from Part 5 of SAI Iraq)

• SAI Iraq (FBSA) plays a preventive role against corruption in public procurement especially at the contract award stage (See Box 7).

• SAI Malaysia implements the Surprise or Spot Check (SC). It is hoped that head of agencies will always adhere to rules and regulations in their financial management and stand guard of any eventuality that they audited anytime without being informed. The audit covers the inspection of collection, petty cash and valuables, delegation of authority, investment, stamps, safe/vault and payment. The audit is completed in one day and observations will be raised within the same day.

• SAI Thailand emphasized proactive strategy, especially a preventive audit approach. In this strategy, SAI Thailand will focus on the preventive audit approach in order to prevent damage before it occurs. The preventive audit approach is a proactive strategy which is aimed at preventing corruption and sustaining public accountability.


4.5 The fifth best practice is to utilize E-systems in preventing fraud and corruption. 4 SAIs specifically identified examples of the use of electronic systems, in

their anti-corruption work.

• SAI China and SAI Indonesia have developed E-systems for facilitating audit. In case of China, in 2002 CNAO started to construct its information system known as the Golden Auditing Project which includes audit applications and an intranet security system. Based on the Golden Audit Project, CNAO developed its E-Audit system to collect financial information of all agencies within CNAO’s audit scope. Using these data, auditors can perform preliminary analysis for upcoming auditing. Moreover, some agencies whose servers are connected and financial data can be updated in real time; auditors can detect irregularities at that time. In this way, the E-system is intended to reduce opportunities of corruption.

• SAI Turkey (TCA) improved audit capacities through the use of information technology. The TCA has developed its own Audit Management System (SAYCAP) in order to conduct and manage its regularity audits with a systematic approach to enhance overall effectiveness of the audits (See Box 8).

Box8

SAYCAP of TCA

Outcomes of Audit Management System

SayCap or Audit management systems are systems that are used for planning, managing, documenting, indexing, connecting, reviewing, reporting, recording audits in a computerized environment. Audit management systems, whether package programs or tailor-made products, play vital roles in managing the auditing functions of SAIs or other audit organizations. The objective of the TCA is to carry out regularity audits in accordance with rules and regulations in force, audit manuals and ISSAIs in an efficient and effective manner. The main outcomes of using SayCap are as follows:1. Conducting General Risk Assessment: The module for general risk

assessment allows the Audit Planning and Reporting Group to go through


the same set of questions and risking matrix to determine the risk levels of all institutions in the audit registry. The auditees with higher levels of risk are included in the Annual Audit Program of the TCA upon the final decision of the Board of Auditing, Planning and Coordination.

2. Better Planning of Audit Resources3. Automation of Audit Procedures: The SAYCAP allows for automation of

all audit procedures and helps auditors decide and implement the necessary audit procedures at any phase of audits. SAYCAP has an audit pool (i.e. database of audit questions) of procedures mainly consisting of control tests and substantive tests. Additionally, any action which requires completing working paper is considered as a procedure according to the logic of the application.

4. Automation of Working Papers: SAYCAP simplifies creation, approval, monitoring and archiving of working papers in a systematic way.

5. Automation of Findings: The findings can be classified according to the categories (errors related to accounting, compliance and internal control weaknesses) and report types (audit report, the external audit general evaluation report, financial statistics evaluation report, local government evaluation report or other reports) as well as the nature (systematic or single error/irregularity) and impact of errors (low to high). Furthermore, the SAYCAP is able to embed approved audit findings into the draft and

6. Providing Management Information: The SAYCAP provides a wide range of management information such as planned cost of each audit, progress of audits at any particular time, a comprehensive analysis of audits on the basis of audited entity, sector, budget and institution type etc. Reports can be extracted on a regular basis or upon request.

• SAI Philippines designed and implemented the New Government Accounting System (NGAS) and eNGAS which simplified government accounting that conforms to international standards. The eNGAS is accounting software developed by COA to promote correctness, reliability, completeness and


timeliness of recording financial transactions and to generate financial reports in accordance with the procedures and policies of the NGAS. The eNGAS generates periodic and relevant financial reports for better monitoring of performance. Its major beneficiary is the auditee management, for example, ensuring more efficient operations and effective control, serving as tool for sound management decision making, and ensuring speedy processing and recording of voluminous government financial transactions.

Audit Management System or SayCap of the TCA

4.6 The sixth best practice is to develop innovative tools or databases for anti corruption work. SAI Korea and SAI Malaysia advised that they have created useful tools for their anti-corruption work.

• SAI Korea (BAI) has established a database of public officials vulnerable to corruption and set up a monitoring system in which inspection information of high ranking officials is collected. Furthermore, the BAI also carried out activities to address structured corruption (See Box 9).


• SAI Malaysia played an effective preventive role in anti-corruption by implementing various type of audit. In 2007, NADM introduced an Accountability Index (AI) as a performance measure to be benchmarked on yearly basis. It is an initiative through which NADM attempts to enhance accountability and integrity of public fund management in all government ministries, departments and agencies at the federal and state levels (See Box 10).

Box9

BAI approach to the audit of embezzlement case

1. Simple and easy approach by utilizing data of external agency → To Review on data of Payments and delinquency in relate to 4 insurances such as national health insurance, teachers deductions, various bills such as phone and electricity, income tax withholding, refunds and commissions by Public Procurement Service, Court dividends and deposit

2. Systematic and scientific approach using IT audit techniques → The BAI detects corruption and illegal behaviors of public officials through regular inspections by analyzing relevant DB: D-brain (Budget accounting system), E-Saram (HR-Payroll System).

(Source: Results from Part 5 of SAI Korea)

Box10

FMAI: New innovation of NADM

Financial Management Accountability Index (FMAI) or AI is an innovation for enhancing accountability and integrity of public fund management. Through an objective and transparent star rating system, National Audit Department Malaysia (NADM) expects that agencies will be sufficiently induced to take corrective actions on the weakness on timely basis. As a benchmarking mechanism, AI can assist auditees to measure the progress of their financial management over the years.AI covers a wide spectrum of nine activities, that is, (1) organizational management control, (2) budgetary control, (3) receipts control, (4) expenditure


Box11

MOU between BPK and KPK

The cooperation between BPK and Corruption Eradication Commission (KPK) has five dimensions, as follows.1. Information Exchange→The KPK and BPK share information regarding

indications of corruption.2. Personnel Assistance→Either BPK or the KPK can give personnel

assistance to each other in any effort necessary for combating corruption.

control, (5) trust fund/ trust account and deposit account management, (6) asset and inventory management, (7) investment management, (8) loans management and (9) preparation of financial statements.

For each of category audited, an overall score of the weighted marking will be given. Marks will be given according to the agency’s performance in financial management and will be translated into star ratings, as follows:4 stars→ Excellent (90%-100%)3 stars → Good (70%-89%)2 stars → Satisfactory (50%-69%)1 star → Not Satisfactory (49% and below)

4.7 The seventh best practice is to create networks with Anti-Corruption Agencies (ACAs) or international cooperation. SAI Indonesia and SAI Malaysia advised that they have developed networks with ACAs specifically to facilitate their anti-corruption work.

• SAI Indonesia has signed a memorandum of understanding with the Corruption Eradication Commission (KPK) in order to enhance cooperation between two institutions in combating corruption (See Box 11). Likewise, BPK actively participated in international activities related to corruption combat. Currently, BPK has taken part in INTOSAI research activities to help SAIs enhance their efforts in fighting against corruption and money laundering.Through this working group, the participating SAIs have tried to develop concepts and best practices through knowledge sharing, training, and manual development.


This may also include providing assistance required by one institution when handling corruption cases.

3. Education and training→BPK and The Commission can have joint trainings or workshops in order to enhance competence of their human resources.

4. Research→Both institutions also may conduct joint research regarding fraud and corruption particularly within public finances.

5. Coordination →Both institutions are expected to hold regular meetings to monitor and to evaluate their cooperation.

(Source: Results from Part 5 of SAI Indonesia)

• SAI Malaysia joined the Integrity and Governance Committee (IGC). The Auditor General and some senior officers of NADM were elected as a member of the IGC. The purpose of IGC is to coordinate all initiatives which relate to the purpose and mission of government policy against corruption in order to provide a united, consistent and coherent approach.

4.8 The eighth best practice is to raise public awareness in anti-corruption. All SAIs have emphasized the importance of raising awareness of anti-corruption efforts. 4 SAIs provided particular examples to show how they were strengthening public awareness actively and enhancing citizen participation to prevent corruption.

• SAI China actively raises public awareness to prevent corruption through releasing audit results, including those doubtful corrupt activities that have been transferred to judicial organs. This could form a two way interaction between the audit agencies and the public.

• SAI Indonesia actively disseminates audit results and encourages society to report any condition susceptible to corruption. Such disseminations are delivered to stakeholders such as students, civil servants, and parliament members.

• SAI Korea has a “Corruption Complaints Hotline”, operated by Audit Requests


Investigation Bureau, in which reporters are rewarded.

• SAI Thailand has coordinated with the media and civil society to anti-corruption. Since 2013, OAG has coordinated with the media and civil society in order to report suspicious corruption cases. The TV program is the column number 7 to anti-corruption which was established by OAG, TV Channel 7 and Anti-Corruption Organization of Thailand (ACT). This program will be broadcasted on TV Channel 7 in every week. Presently, previous clips are uploaded on OAG website (See Box 12).

Box12

OAG Thailand and coordination risk with media in preventing corruption

Presently, OAG has concerns about the risk of failure in citizen engagement under preventive role. Though citizen participation is one approach to reduce corruption chances, OAG still faces many challenges. For example, in August 2013 Mr. Sompoch Toraksa a reporter of the TV program, the column number 7 to anti-corruption, was accused of libeling the local governor. This TV program attempts to investigate and report irregular behavior or suspicious cases in public spending. However, the whistle blower might be exposed to danger after whistle blowing. In case of Mr. Sompoch, he reported about alleged budget-use irregularities in the SamutPrakarn Provincial Administrative Organization (PAO). His report raised the questions regarding the local administrative organization’s Bt 800 million budget for subsidizing temples. After his report, the chief executive of SamutPrakarn PAO sued him for defamation. This case shows the risk of failure in citizen engagement unless SAIs can protect whistle blowers. Currently, OAG and the Anti-Corruption Organization of Thailand (ACT) have sought to support and protect Mr. Sompoch by hiring a lawyer. Likewise, OAG is trying to find concrete measures to support citizen engagement for combating corruption together with OAG. For example, OAG has a plan to encourage the regulation for whistle blower with OAG in order to protect people who provide legitimate information to public control agencies.


5.Best Practices in Preventive Role of Anti-money Laundering

5.1 Summary of Basic Information

Since money laundering is considered a secondary crime, the aim of the measures taken to prevent money laundering is to eliminate the primary source of crime to ensure healthy cash flow and transparency of economic activity.

Summary of Basic Information

Name of SAI SAI Model Mandate which relatedto anti-corruption/anti-money laundering

National Audit Office of People’s Republic of China (CNAO)

One of the ministries

of the State Council,

directly under the leadership of the premier.

Mandate related to anti-money laundering includes: 1) Detecting doubtful money laundering acts during regular audit projects; 2) Conducting internal control system audit official institutions according to relevant AML provisions; 3) Reporting or transferring suspected money laundering activities to the relevant administrative department, judicial organs and departments and organs under the State Council.

Office of the Comptroller & Auditor General of

India (CAG)

Westminster Model

Note: The result is

referred from Part 4.

There is no direct mandate. It is only limited to sharing information about the presumptions if any, raised during field audit and co-operating with the Anti-Money Laundering Agencies of the country.

The Audit Board of

Republic of Indonesia

(BPK)

Board ModelIncidental detective role, and could report to law enforcement authorities.

Supreme Audit Court of Islamic

Republic of IRAN

Westminster or Parliamentary

model

Money laundering activities are prohibited in Article 49 of the constitution and in Article 55 of the constitution. The supreme audit court monitors spending of the government budget.Detecting money laundering is already embedded in the regular audit services but is merely incidental to the audit services being rendered and not an audit focus.A special audit unit , the anti-money laundering department, was established and this unit works under the direct supervision of the President of SAI. Based on the Iranian Law, all government organizations, public corporations and government institutions and the non-governmental public bodies are under the audit of SAI Iran (based on articles 44 and 45 the Constitutions) and are audited by SAI Iran.


Federal Board of Supreme

Audit (FBSA) of Iraq

Westminster Model

Note: The result is


Pursuant to article 103 of the constitution, the Board shall be a financially and administratively independent body with a judicial personality, which provides adequate support to fight against corruption and money laundering. Article 6 of law 31 for the year 2011 provides the authority in the fight against corruption and money laundering.

The Board of Audit and Inspection of Korea (BAI)

Board ModelNote: The result is


Officially, the BAI does not have the role and responsibility on the prevention and detection of money laundering. However, if a red flag is discovered during the audit process, the BAI will conduct a full investigation (only for public areas). In case of serious one, the BAI will submit the report to the law enforcement authorities as well as entity’s management and could request punishments and administrative sanctions.

National Audit Department

Malaysia (NDAM)

Westminster Model

SAI Malaysia does not have mandate to detect or fight money laundering as it revolves within a web of complex placement, layering and integration of illegal money in the financial and banking industry. However, SAI Malaysia has been acting as a whistle blower whereby suspected cases of money laundering identified during the course of auditing will be reported to the relevant agencies.

Office of the Auditor General of Thailand (OAG)

Board ModelNote: The result is


The OAG mandate mentions to the anti-corruption or anti-money laundering in process of auditing report in the Section 46 of the State Audit Act B.E. 2542 (1999). The main issue of this section is as follows: In the case where there appears, from the audit result, to the Commission a circumstance believably amounting to corruption or illegitimate exercise of powers and duties thereby resulting in the loss or impairment of money or properties of the State, the Commission shall notify it to the inquiry official for initiating legal proceedings, and the Commission shall also notify such audit result to the audited agency official or the responsible ministry, the superior or the person supervising or taking charge of the audited agency, as the case may be, for taking action in accordance with the laws or rules laid down in the government service or by the audited agency for applicability to the officials in charge.

The Australian National

Audit Office (ANAO)

Westminster Model

It is not ANAO’s role to actively seek to prevent or detect money laundering through its audit activities.

The Commission on Audit of Philippines

Board ModelSAI does not deal with preventing, detecting and investigating money laundering. The role of detecting money laundering is with the Anti-Money Laundering Council and not with our SAI.

Accounts Chamber of the Russian Federation

Westminster Model


5.2 The major approaches

Several SAIs have been undertaking activities to prevent money laundering:

Best Practices Typical Examples SAIs

Strengthen public institutions’ internal

control systems.

SAI China (CNAO)’s effort in preventing money laundering activities is to help improve and strengthen the effectiveness of both FIU and financial institutions’ internal control systems which, in the end, will improve China’s governing ability and push forward the modernization of governing system. CNAO performs its responsibility by conducting compliance and performance audits as well as accountability audits.

China

SAI Korea (BAI) also carries out a preventive role indirectly by monitoring operations of institutions. The BAI audits and inspects internal control and review systems of public entities by monitoring anti-money laundering activities performed by Korea Financial Intelligence Unit (FIU) indirectly.

Korea

SAI Australia (ANAO) has limited mandate on anti-money laundering. Instead, the focus is on providing assurance that management controls within audited entities provide appropriate assurance that the risk of corruption and money laundering is well managed, and that anti-corruption and anti-money laundering strategies and entities are performing appropriately.

Australia

Build network between SAIs and anti-money laundering agencies.

For SAI Thailand and Malaysia, the objective of their preventive role is to create anetwork between the SAI and the anti-money laundering agency/enforcement agencies.

ThailandMalaysia

SAI Iran, in the fight against financial crime, anti-money laundering measures and auditing, is the focal point of Technical Assistance of Economic Affairs and infrastructure (as the chief representative of SAI Iran). SAI Iran has not have a direct duty to undertake anti-money laundering activity, however, the main objective of preventive role is to create the network between SAI Iran and anti-money laundering agency (FIU).

Iran

To avoid transferring illegal funds.

SAI Iraq has being making efforts in the process to avoide giving legitimacy to illegal money obtained, as well as avoid transferring funds illegally aboard or inboard to suspicious bank accounts that may be used in financing terrorist activities.

Iraq


5.3 Examples of SAIs in taking preventive actions:

• SAI China (CNAO) has the authority to deliver an opinion on the performance of the systems of state-owned financial entities (including commercial/policy banks, security companies, insurance companies and other financial intermediaries, etc.) For example, in one information letter, CNAO pointed out that some provincial financial institutions lacked competent experts and knowledge to fully accomplish the responsibility of timely and complete reporting of doubtful and large transactions to the central bank.

• For SAI Iran, money laundering activities are prohibited in Article 49 of the constitution, and Article 55 of the constitution gives it authority to monitor spending of the government budget. Furthermore, the training courses of the United Nations on anti-money laundering (UNDOC AML/CFT) was provided to all members of the Committee of Anti-Money Laundering in SAI Iran. All staff of this committee have passed this course.

• SAI Iraq: During auditing foreign currency auctions, FBSA has noticed differences in the size of imports that fund transfers. Our SAI Regulations and instructions have been set by and central bank of Iraq to monitor private sector imports against the sold money through a network installed between central bank of Iraq, customs and general commission for taxation.

• SAI Malaysia: Although NADM has no specific role or responsibilities to prevent and detect money laundering, it still play preventive and detective role through joint exercises with other enforcement agencies, such as the Central Bank of Malaysia, Malaysian Anti-Corruption Commission, Inland Revenue Board, Attorney General Office and Customs. “Operation of RM3 Billion Task Force” is a typical example of a successful joint exercise which aims to detect and investigate loss of revenue, money trails and money laundering. SAI Malaysia plays its role in auditing and analyzing documentation leading to the trail of money. For NADM, the main objective of this preventive role in anti-money laundering is to enhance cooperation and networks with other agencies.


5.4 Main approach and methodology used by SAIs:

• Conducting audit on financial institutions’ implementation of necessary AML proceduresand systems as stated by law (China).

• Announcing cases of money laundering crimes discovered or transferred by CNAO to responsible agencies (that is, AML bureau of central bank, judicial organs, etc.) through the official website or publications (China).

• Auditing internal control systems of public entities (KOREA).

• Establishing a close relationship with the Supreme Council of anti-money laundering (Iran).

• Improving knowledge about anti-money laundering and promoting good governance (Iran).

5.5 From the experience of the above SAIs, achievements and lessons

identified include:

• Enhancing public awareness;

• Increasing reliability in the banking system;

• Improving financial institutions’ AML systems and enhancing the effectiveness of current regulatory systems;

• Closer relationships and networks between Supreme Council of Anti-money laundering in order to combat money laundering;

• Protecting national income and gross national product from smuggling money abroad. Protecting the lives of citizens by preventing the flow of money used in terrorist operations.


5.6 Difficulties and Limitation

SAIs identified a range of difficulties and limitation in performing their duties. For example: “SAIs cannot determine the size of staff needed because each case has its nature and materiality. SAIs need to examine and evaluate the case and see the qualification of auditors needed before determining resource requirements.” In some cases, SAIs also lack robust Information systems for conducting field audits. For example, “According to the old tax system of the country and the lack of a comprehensive system of tax information, most of the economic activities of individuals are not registered in the system. This problem can increase the risk of failure in the preventive actions of regulatory bodies” (SAI Iran); “Lack of information and instructions of foreign currency auctions for the shareholders is the great threat, also the loopholes that can be used for money laundering (Iraq)”.

6.Best Practices in Performing an Anti-Corruption Detective Role

21 examples (from 10 SAIs) of best practices in performing a detective role of anti-corruption were identified, falling into six categories (see table 2).

Six Best practices from typical examples in detective role of anti-corruptionBest Practices Typical Examples SAIs

1. Develop audit techniques

Apply computer auditing techniques ChinaUse data mining, risk analysis, audit checklist and audit manual to detect corruption

Iran

Analyze data on corruption vulnerable areas by using IT including data matching, applied computer techniques and data mining

Korea

Analyze relevant DB, E-Saram, and E-audit system KoreaUtilize physical observation and site visits TurkeyCross audit all employee names, retirees and grantees of all kinds

Iraq

Risk- based audit Malaysia

2. Emphasize investigative auditing

Establish an investigative audit unit IndonesiaDevelop an investigative manual à Audit Methodology IndonesiaDevelop investigative units for combating corruption Thailand

Facilitate investigative audit by formalising the OAG regulations forinvestigative audit procedures

Thailand

Establish a special audit office and fraud audit office Philippine


4. Utilize general risk assessment

General Risk Assessment methodology Turkey

5. Uncover corruption and communicate with judicial institution or law enforcement agencies

Communicate fully with judicial institutions China

Uncover corruption that has taken place by auditing and reviewing of financial statements and bank reconciliation

Iran

Form a Joint Investigation Team (JIT) between COA auditors and personnel of the Ombudsman

Philippine

3. Create the red flags Red flagsIndia

Malaysia

6. Knowledge Sharing

Communicate fully with judicial institutions China

Uncover corruption that has taken place by auditing and reviewing of financial statements and bank reconciliation

Iran

Form a Joint Investigation Team (JIT) between COA auditors and personnel of the Ombudsman

Philippine

Enhance knowledge sharing and training of auditors ChinaDevelop a Fraud Auditing Guideline to enhance fraud detection

Malaysia

Develop guideline on role of audit in relation to case of fraud and corruption

India

Citizen participatory audit Philippine

Sources: ASOSAI researchers summarized from results of 10 SAIs

6.1 The first best practice in the detective role for audit in combating corruption is to develop audit techniques. 6 SAIs specifically reported developing such audit techniques.

• SAI China applied computer audit techniques. By analyzing these data, audit institutions could expand their audit coverage and work more efficiently in detecting corruption. CNAO auditors obtained and crosschecked data by using computer audit techniques.

• SAI Iran utilized data mining, risk analysis, audit checklists and audit manuals to detect corruption. In addition, they attempted to uncover corruption that has taken place by auditing and reviewing financial statements and bank reconciliation.


Box13

• SAI Korea analyzed data on corruption in vulnerable areas such as accounting and contracts by using IT including data matching, applied computer techniques, and data mining. Likewise, they analyze relevant databases, for example, D-Brain (Budget accounting system) or E-Saram (HR-Payroll system). In 2012, BAI reported that the Special Investigations Bureau had conducted IT audits in order to detect corruption. They found 8 cases that involved embezzlement, misuse and fraud which worth $13 million. In particular, profile analysis of paymasters (tenure, age, check whether plural offices of accountancy) was undertaken and then the database was analysed to check the details of expenditure of payroll systemically.

• SAI Turkey used physical observation and site visiting to detect irregularities and suspected corruption cases especially in the procurement processes (See Box 13).

Box13Physical observation and site visits (TCA)

TCA utilizes physical observation and site visits especially in auditing public procurement processes. Auditors make physical observation and site visits so as to be sure that goods, services and construction works are carried out in accordance with administrative and technical specifications, in line with payment documents and contracts. Auditors make physical observations and site visits to public constructions and carry out substantive tests to review the type, quality, amount etc. of the work to examine whether they meet specifications and requirements determined in the corresponding official documents.

Article 236 of the Turkish Penal Code defines the financial crime called “involvement in fraudulent act during fulfilment of obligations” which can only be undertaken against a public institution or corporation, or professional organization in the statute of public institution, companies incorporated with the participation of public institutions or corporations, or foundation operating within this frame, associations or cooperatives serving for public interest. Following performances are regarded as involvement in fraudulent act during


• SAI Iraq conducted a cross audit of all employees’ names, retirees and grantees of all kinds. In 2008, they conducted an advertising campaign in the media urging citizens to stop receiving duplicate salaries and grants. In 2009, they cross-audited most employees’ in a database. After that, in 2010, the results showed a series of irregularities for about 15 475 violators. This work was continued by issuing reports about the same subject during 2011-2012. Finally, they reported that the number of discovered irregularities reached 22 921 irregularities. The total recovered amounted to 4 billion Iraqi dinar.

• SAI Malaysia and Russia developed a Risk-Based Audit which is a methodology to detect fraud in the auditing process. This technique supports the identification of high risk areas. NADM auditors go through three stages of the audit process, namely, planning, execution, and reporting. The probability of fraud is identified during the planning and implementation of the audit process.

fulfilment of obligations.• Delivery or acceptance of goods different from those for which the

description is given in the tender decision and contract;• Delivery or acceptance of goods at a quantity less than that defined in the

tender decision or contract;• Consideration whether claimed fulfilment of obligations within the period

specified in the tender decision or contract, is correct. • In construction tenders, acceptance of works or material which do

not comply with the conditions, quantity or quality set-forth in the specifications or contract,

• Consideration of an obligation in the nature of a service as to have been completely fulfilled although it is not fully rendered or supplied partially according to the tender decision or contract.

(Source: Results from Part 5 of SAI Turkey)


1. Evaluate Risk of Fraud in General

PLANNING 1.1 Discuss how and where fraud could easily happen

1.2 Get information to identify risk of fraud 1.3 Identify potential risk of fraud 1.4 Identify material misstatement 1.5 Evaluation on prevention of fraud2. Fraud Indicators For High Risk Activity

IMPLEMENTATION3. Analysis of Fraud Assessment Results4. Further Examinations of Fraud5. Documentation of Fraud6. Reporting REPORTING

NADM and Key Auditing Processes to Detect Fraud

6.2 A second practice identified by some SAIs is to emphasize investigative audits. Some SAIs consider that specific investigative authority is unnecessary since the responsibility for investigation and prosecution lies within the sphere of other specialized public bodies, or within the management of the audited body itself (Borge, 1999:5). Evan (2008), mentioned in the study of Musa Kayrak (2008), stated that further investigation of such cases is generally passed to the police or specialist anti-corruption agencies. However, 3 SAIs gave examples of their role in conducting investigative audits.

• SAI Indonesia has established an investigative audit unit to detect fraud and corruption. The roles of the investigative audit unit are to assess any indications of corruption, to conduct investigative audits including state loss examination, and to disseminate fraud-awareness to auditors. Investigative audits can be developed either from regular audit (when the audit finding shows a corruption indication) or from external party request. Before a decision for an investigative audit is taken, BPK makes an initial case assessment to make sure there are sufficient reasons to conduct an investigative audit (see Appendix 6: BPK and Investigative Audit of Public Service Advertisement Overpayment Case). Furthermore, BPK (in its research and development department) has developed investigative audit manuals for supporting their auditors (for example: the investigative audit on corruption indication manual, manual on fraud awareness, manual in interviewing technique, and manual on non-verbal communication.)


• SAI Thailand has developed investigative units for combating corruption. They have attempted to facilitate investigative audits by formulating the OAG regulation of Investigative audit procedures B.E. 2549 (2006) . This regulation is the fraud and corruption audit standard for investigative auditors. It is always improved in order to investigate and detect corruption cases flexibly. Additionally, it is consisted of stages of investigative audit of OAG Thailand which developed from auditors’ experience (See Box 14).

• SAI Philippines has established the Special Audit Office and the Fraud Audit office which specializes in the investigation of fraud and corruption in government. They have opened the flood gates to more reports of corruption from the public to be investigated upon immediately. High profile corruption cases involving high ranking officials have been uncovered.

2OAG has attempted to develop the investigative audit since 1974. However, in normal audits, when the auditor

found irregularities or suspicious corruption cases, the investigation was only stage of collecting sufficient

evidences and reporting suspicious corruption cases. Thus, during 1974-2001 OAG auditors used the investigative

audit manual to carry out anti-corruption mission. Nevertheless, in 2002 OAG promulgated the OAG regulation

of investigative audit procedures B.E. 2545 (2002) in order to develop the investigative audit.

Box14Eight steps of investigative audit of OAG Thailand

• Identify irregularities or issues of corruption behavior in order to set accusations;

• Consider the components of guilt under law enforcement and set as criteria;• Collect sufficient evidence, for example, physical and documentary

evidence in order to support accusations;• Identify involved persons for witness purposes;• Interview the witness and the accused;• Record the testimony of witness and accused in order to provide admissible

evidence;• Consider admissible evidences as facts by comparing law enforcement and

decide upon a course of action.


6.3 The third best practice is the use of the General Risk Assessment Methodology (nominated by SAI Turkey). The main goal of the General Risk Assessment is to determine the annual audit programs by taking risk into account. The benefit of this tool is to employ objective criteria in risk assessment process.

6.4 The fourth best practice is to uncover corruption and communicate with judicial institutions or law enforcement agencies. This practice is in line with the conclusion of Borge (1999) and Evans (2008). The study of Evan clarified that SAIs should cooperate closely with law enforcement agencies such as the police and anti-corruption agencies, which could enhance SAIs capacities to detect corruption. (Evan 2008: 6) Three SAIs specifically mentioned their role in uncovering corruption and communicating with judicial institution or law enforcement agencies, as follows.

• SAI China seeks to communicate fully with judicial institutions. The Supreme People’s Procuratorate and Ministry of Public Security signed an MOU with CNAO on the transfer of illegal cases and strengthening cooperation. In the first 6 months of 2013, CNAO transferred 38 illegal cases to judicial institutions. As the cooperation become deeper and closer, CNAO and the Ministry of Public Security put joint efforts in training auditors in pre-judging, analyzing a potential corruption cases and collecting sufficient evidence to support the chance of detecting corruption.

• SAI Iran has set three main objectives in its detective role, as follows; (1) assessing the chances of corrupt behavior in audited entities; (2) investigating sufficient evidence to support the assessment; and (3) reporting suspicious corruption cases directly to the anti-corruption agencies. For the last objective, auditors attempted to uncover corruption cases which have taken place by auditing and reviewing of financial statements and bank reconciliation. Thus, SAI Iran plays a vital role in assisting other anti-corruption agencies especially their investigative roles.


• SAI Philippines has established a Joint Investigation Team (JIT) which comprises COA auditors and personnel of the Office of the Ombudsman. The JIT assists in the technical evaluation of evidence and case build-up.

6.5 The fifth best practice involves knowledge sharing which could support both auditors and citizen engagement. In the case of citizen participation, SAI could share knowledge for facilitating the involvement of civil society organizations (CSOs) in engaging with anti-corruption efforts. Zyl, Ramkumar and Renzio (2009) proposed some initiatives that SAIs can undertake to invite greater assistance from legislatures and CSOs. For example, SAIs should support CSOs to understand the technical nature of audit reports. They explained that SAIs might produce glossaries of technical terms and non-technical summaries of reports. Further SAIs should indicate the priority of audit findings (Zyl, Ramkumar and Renzio 2009:22).Four SAIs specifically referred to knowledge sharing, as follows.

• SAI China has enhanced knowledge sharing and training of auditors. Enhancing knowledge sharing and capacity building is a fundamental way to enhance audit institutions’ detective role (see case study). There are some measures taken by CNAO in this respect: outstanding audit projects are selected each year, and these good examples are publicised within the whole

• SAI Malaysia has issued a Fraud Auditing Guideline (which includes detailed

Case StudyTypical auditing technique of CNAO in anti-corruption

In order to control floods in the Yangtze River, the government allotted special funds to construct river embankments. Among them, the Yangtze River levees project was listed as a national construction project, which was supported by the national bonds fund. This project involves four provinces along the river, with a budget of 6.5 billion RMB (around 1 billion USD), covering 2,000 km of coastline. The works mainly comprised levees, culvert crossing, dike building, foundation seepage treatment, and under water riprap solid bases. Most of these facilities were beneath the surface or underground, so it is termed “hidden works”.

In front of large sum of money, there are always people—who are daring; have


no sense of law while in position of power; and fabricate false works, or non-existent projects to take special funds for themselves. Casting stones underwater to make a solid foundation is one of the effective measures to control flooding, but since it is underwater, it is hard to measure how much stone has been thrown. So some people use this to create a riprap X square—“we put in this huge amount stone, with X saying it paid millions”. Auditors visited the site, and faced the surging river, and deliberately scattered stones on the river bank. This posed questions as to how to check the project.

The first step is to audit a “mountain”. According to the stone source the manager offered, auditors visited the mountain that was said to provide stone for the project, revealing that it did not “feed” the project, and the expert estimated that, even if all the stones of the small hill were consumed, it would not be enough for the stone said to be thrown under water. This was one of the fundamental audit evidence, but not enough.

The “stone supplier” was tens of kilometers away for the project site, and the only way to take all these stones to the site is via a vessel.The auditors then checked the “vessels”. They obtained all local cargo statistics and calculations showed that the overall capacity of local cargo carriers simply could not transport X squares stone consumed. This is a large step further, but auditors were not satisfied.

The final point was to audit the “weather”. The auditors collected weather data from the meteorological system, cross checked with the working records, and it turned out the a large proportion of the works were done in days of heavy rain, indicating obviously fake records that had been fabricated later.

Where were so much stones from? How did you transport? How did you work in heavy rain? The manager had to admit the truth that he had fabricated the project. After investigation, three dozen people were put into jail. (Source: Results from Part 5 of SAI China)


Box15Ikwenta: The Bridge for citizen engagement of COA Philippines

The Citizens Participatory Audit (CPA) or Ikwenta is another mechanism embarked by COA to involve citizens (Civil Society Organizations, private sector, academic groups) in the conduct of joint audits to make the government more effective, transparent and accountable. The CPA is intended to increase the awareness and knowledge of the citizens on the operation of the government, strengthen ownership of public funds like the taxes paid by them, and allow citizens to participate in government decisions and improved public service delivery.

system; outstanding audit cases are selected and assembled into a book, from which that auditors could learn; seminars are held frequently, enabling auditors to communicate with others in different audit fields.

• SAI Malaysia has issued a Fraud Auditing Guideline (which includes detailed audit strategies, procedures and techniques) to enhance their auditors’ skills in fraud detection.

• SAI India has developed a guideline of the Standing Order on Role of Audit in Relation to Case of Fraud and Corruption. This guideline, published in 2006, clarified the examination of systems for detection and prevention of fraud and corruption by CAG. It provided the content of fraud examination in each audit type, for instance, considerations of fraud in audit of financial statement, consideration of fraud in performance audits, and considerations of fraud in receipt audit. This will be useful for CAG auditor when examining fraud and corruption risks in all regularity audits.

• SAI Philippines launched the Citizen Participatory Audit or Ikwenta in order to share knowledge about basic auditing especially anti-corruption. This initiative program is the typical practice in knowledge sharing for citizen engagement (See Box 15).


Citizens can take part in the audit by giving feedback, and build awareness through public dialogue. This provides mainstream access to government/public information, strong citizen/public support in audit advocacies, involvement in the monitoring of the implementation of audit recommendations, and transmission of relevant COA findings to government officials who are in a position to act on them. A CPA can be an advocate by creating integrity circles composed of respected men and women from local communities to provide suggestions to government consultations. The CPA can also help provide higher-level policy pressure such as “conditionalities” linked to policy lending or budget support. Moreover, a citizen can provide funding to support the conduct of participatory audits and fund raising activities.(Source: Results from Part 5 of SAI Philippines)

6.6 The sixth best practice is the use of benchmarks (Accounts Chamber of the Russian Federation):

When assessing a corruption risk, it is necessary to take into account the following factors and attributes that create the opportunity to commit acts of corruption and (or) to take corrupt decisions, and which contribute to creating conditions for corruption:

• a high degree of freedom to make decisions caused by the specific nature of work;

• intensity of contacts with citizens and organizations;

• powers associated with the distribution of substantial financial means;

• obtaining unjustified tax privileges and preferences by legal entities affiliated with a state official and (or) his/her relatives;

• increase in expenditure or decrease in income, which is not provided by regulations;


• lack of: implementation of results of R&D (including marketing studies) or measures to implement them; procedures and rules for the use of budgetary funds due to the shortcomings of legal regulation; departmental orders to establish the rates of contributions from the net income to the federal budget; regulations for persons who take decisions on the use of budget funds; regulatory documents governing the procedure of coordination (approval), as well as transactions with state-owned property; administrative regulations for performance of state functions (provision of state services).

When auditing a governmental entity or institution, areas having high level of corruption risks should be assessed with regards to:

• public procurement of goods, works and services;

• formation, execution and control of execution of the budget;

• management and disposition of public property facilities, including issues of leasing, privatisation and other disposition of these facilities;

• management and disposition of land plots owned by the state;

• management and disposition of the housing fund;

• provision of state guarantees, budget loans, subsidies, subventions;

• settlements, approval of financing amounts, distribution and control of expenditure of inter-budgetary transfer resources;

• adoption of regulatory legal acts;

• issuance of licenses, permits to certain types of work;

• appointment to state positions, including certification, qualification exams of civil servants, competitions to fill vacancies in state civil service positions, and


including state civil servants in the personnel reserve.

7. Best Practices of SAI Role in Detecting Money Laundering

7.1 Examples of SAIs in taking detective actions:

• China: The main procedure of CNAO to detect money laundering activities is as follows.

Preliminary auditing process: applying quantitative/qualitative analysis to locate suspected transactions/institutions.

Determine the types of activities which require special attention and in-depth investigation.

Collect sufficient evidence and evaluate the possibility of doubtful activities involving crime of money laundering.

Best Practices Typical Examples SAIs

Detect doubtful activities

CNAO identified doubtful money laundering activities by analyzing accounts, transactions and business information preserved by financial institutions or other external entities using technical methods, based on field experience.

China

For SAI Iraq, the aim is to avoid using such money in suspicious activities and suing perpetrators, as well as the possibility of recovering such money and illicit funds transferred from abroad through international assistance.

Iraq

Monitor AML measures of executive agencies

SAI Iran reviews the performance of executive agencies in the fight against money laundering, by using audit checklists and monitors the implementation of these measures and discloses the findings in the audit reports. In addition, detecting money laundering is already embedded in regular audit services and detected money-laundering cases will be incorporated in the regular audit report. After detecting the red flags of money-laundering, the office or department which discovered the red flags will conduct a full blown investigation.

Iran

Increase reliability in the banking system

This represents one of the main pillars of the economic policy of the country. Iraq


As the evidence accumulates and reaches threshold value of Auditors’ standards of confirming a money laundering activity, CNAO will deliver an audit information letter and transfer the case to the responsible institutions of AML or judicial organs.

• CNAO’s audit experience: Auditing a stated-owned commercial bank (also incorporated in CNAO country report)

During the project of auditing a state-owned commercial bank, auditors used data programming techniques to analyse the banks’ payment and settlement system. The auditors detected large and frequent transactions within several institutions’ bank accounts, with regular transfer patterns. Based on this, the auditors collected further information about these institutions (e.g. clients’ identity/registration information, etc.) and found they were anonymously established or controlled by the same individuals, using a deliberately fabricated business background to receive money from upstream entities (for example in the name of “goods/service purchase, consultant fees, etc).

As a result, auditors concluded that these institutions bore the characteristics of a “Shell Company” and served as an “Underground bank”, which may closely relates to money laundering activities. CNAO will forward this information to the AML responsible agency for further investigation.

• Iran: (example of exploratory actions taken against money laundering)

Auditing foreign trade companies under a holding company's subsidiaries had been placed in the customs audit plan by the audit committee, before news was released of embezzlement in the bank networks. The initial investigation considered the value of customs import declarations. The audit team reviewed the Bureau of Customs and explored the possibility of the declared value of doods being worth more than the real value. After this exploration, the audit team reviewed all customs declarations by this holding company. The declared value of a large number of imports was discovered to have been falsified. The audit team explored the issue of over declaration taking place in new areas of


auditing activities, and discovered hidden areas and complex finance violations.

SAI Iran-Laws & Regulations on Anti-Money Laundering Compliance Checklist (SAI Iran-For Banks & Financial Institutions)

• Iraq: (example of mediation in buying foreign currency for exchange offices)

The main branch of bank (X) has accepted checks being withdrawn in foreign currency on the same day by the same person before their amount was credited into the account. An authorized foreign currency company had deposited forged checks drawn from an account opened in the name of general trade company (for food stuffs) at Rafidain Bank. The account was also false. The company’s authorizer withdrew the forged check’s amount from his current account at the agriculture bank on the second day after its deposit. The audit office, during auditing the customer’s current account in the bank mentioned above, found that a number of forged checks (offset credit) had been accepted from the other bank that had deposited such checks before verifying that the amount being collected. The customer withdrew the amount to fund his activity, especially buying currency.

No. Example checklist Y N Ref.

1.Does the auditee take action to initially identify the customer at the time of providing all kinds of services and conducting monetary and financial operations?

　　　

2.

Does the auditee, in addition to initial, at the time of providing basic services (in particular, when opening bank account), take action for full identification of the customer and to estimate the customer’s anticipated level of return in his area of activity?

　　　

3.Does the auditee have transparent policies and procedures consistent with the framework of the prescribed laws, and regulations and review the same annually?

　　　

4. Does the auditee, fully identify foreign natural and legal persons, complete the annexed forms and send them to the AML Unit?

　　　

5.

Does the auditee send a letter by registered mail to the postal address of customers and inform them that only by providing that letter in an on-site visit to the financial institution or bank, can customers receive the relevant deeds and documents.

　　　


Audit program of money laundering operations (SAI Iraq)

The auditor shall confirm that the bank’s compliance with anti-money laundering policies, availability of appropriate policies and the efficiency of internal control system, as shown below:

7.2 Main approach and methodology used by SAIs in detecting money

laundering activities:

• Risk based approach aimed at detecting red flags for money laundering, for example:

MeasuresName

of auditor

Signature

Auditing rate

Work paper

number

1.

Audit cases of large cash deposits that look abnormal and are carried out by an individual or company whose commercial activities occur through checks or other payment instruments

2.

Audit large and sudden increases in cash deposits to any customer or company accounts for no apparent reason, particularly when these deposits have been converted in a short period of time

3. Scrutinize customers who frequently deposit cash in small amounts

4. Scrutinize the accounts of companies that make “deposits or withdrawals” in cash rather than other payment methods

5.Check customers who convert money consistently from small bills to large bills without giving any clear explanation

6. Check large financial transfers under cash sales instructions

7.Check clients who maintain a number of accounts that are not required for their work type, especially if the transactions occur with different and infrequent names

8.Scrutinize clients who have multiple accounts with different banks within one area and then transfer the balances of those accounts into one account and then to a foreign party

9. Check accounts where a large number of people deposit their money without an adequate explanation

10. Check recurrent requests for export or deposit of foreign currency transfers


For SAI Iran, after detecting the red flags for money-laundering, the office or department which discovered the red flags will conduct a full blown investigation. For better effectiveness, the SAI Iran has prepared anti-money laundering audit checklists for different sectors.

For SAI China, CNAO has three approaches, first is to analyze the data or information provided by financial institutions’ AML systems (for example. large and doubtful transactions, etc.). The second is to conduct investigations on information provided by whistle-blowers. The third way, which is used frequently, is to conduct direct computer-based (both quantitative and qualitative) analysis of business and financial data to locate doubtful activities.

• Consider various internal and external information (other than institutions’ account transaction information) to assist its judgment, including financial status, registration information, Commercial Registration information, tax payment history (China).

• Addressing weaknesses in the internal control systems of banks, and proposing recommendations to banks for the purpose of strengthening internal control systems and identifying gaps and weaknesses in laws and regulations(Iraq).

• Strengthening regulations and instructions set by SAI and AML agencies (for example, for the central bank of Iraq to monitor suspicious cross border transactions (Iraq).

• Establishing facilities and mechanisms to promote and intensify detection of money laundering including: Hotlines, website alert sections, AML research, AML educational and training programs, promulgation relevant accounting and auditing rules and regulations, governing Code of Ethics for Government Accountants and Auditors and establishing Public Information Offices with linkages to all sorts of media.

• Initiating legal actions. SAI Iran can initiate legal actions such as civil forfeiture and seizure of the proceeds of money laundering, civil suits for


recovery of the government funds and properties and administrative sanctions against the perpetrators of money laundering.

7.3 Achievements and Lessons

From the experience of above SAIs, achievements and lessons learned include:

1. effectively identifying doubtful activities by applying quantitative and qualitative analysis;

2. screening or assessing money laundering risks through investigative audit;

3. reducing the level of banking risks through the development of solutions in the banking systems and addressing the weaknesses in the internal control systems of banks;

4. increasing the trust of the community in banking transactions.

7.4 Limitations

A number of limitations were identified in relation to the detection of money laundering:

1. Insufficient authority. For example, the relevant laws, rules and regulations do not authorize SAI Iran to have full access to bank records of government officials and private individuals who have/have had transactions with the government. In some cases, corrupt people are not severely punished and the lack of human resources of SAI Iran hampers the organization's role in the fight against money laundering.

2. Timeliness. The major risk for CNAO is that in some cases, during the process of auditors collecting sufficient evidence on the suspected money laundering activities, the CNAO might miss the best moment to forward the information to responsible agencies, or even fail to punish the activities of money laundering.


2. Reporting to Anti Corruption Agencies (ACAs)

Transfer suspicious cases to authorized institutions China

Report large scale cases to the State Council illegal cases China

Follow up corruption cases delivered to investigators and justice system Iraq

Transmit the case of an individual’s corrupt behaviors to the prosecutor’s office or bring a criminal charge against involved person

Korea

Enact reporting and follow up processes in the State Audit Act and the OAG regulation of investigative audit procedures Thailand

3. Developing tools for facilitating reporting system

MOU with Attorney General Office IndonesiaMOU with National Police Department IndonesiaCooperation in State Loss Examination IndonesiaExpert witness IndonesiaAction Committee and Putrajaya Inquisition Malaysia

4. Initiating a modern pattern of reporting and follow up processes

Posting and revealing audit and inspection results on website Korea

Fast Tracking Access to Auditor General’s Performance Audit Report (FTA) and Auditor General’s Online Dashboard Malaysia

Specific Reporting on Fraud Malaysia

COA Legal Information Archive (COA-LIA) Philippines

8.Best Practices in Reporting and Follow up on anti-corruption Work

Four best practices from typical examples in reporting and follow up

Best Practices Typical Examples SAI

1. Create good reporting system

To report in a form which is easy to understand and free from vagueness or ambiguity, including only information which is supported by competent and relevant audit evidence, and be independent, objective, fair and constructive

India

Collect documents and records for auditing of corruption cases quickly and send to the judiciary in a short time Iran

Reporting suspected cases of corruption in accordance with the steps clearly defined in the law and relevant regulations Turkey


8.1 The first best practice

The first best practice of reporting and follow up roles is to create a good reporting system. 3 SAIs described their reporting system.

• SAI India explained that the concept of good reporting system should be in a form which is easy to understand and free from vagueness or ambiguity, and include only information which is supported by competent and relevant audit evidence, and dependent, objective, fair and constructive.

• SAI Iran showed that the typical example of reporting system should allow quick reporting to the judiciary in a short time. Currently, SAI Iran is developing electronic surveillance and monitoring capabilities to allow comprehensive online financial supervision in assessing and strengthening internal controls in firms. The development of automated controlling and reporting systems to explore the objectives of the crime is a major factor in the fight against corruption.

• SAI Turkey (TCA) does not conduct an investigation on suspected cases of corruption. Instead, it carries out a preliminary review of such cases to collect sufficient evidence so as to reach a satisfactory conclusion. If the case is considered as an act involving guilt, it will be reported to responsible official’s public administration and/or to the Public Prosecution Office in accordance with the steps defined in the TCA law and relevant regulations.

8.2 The second best practice

The second best practice is to report to Anti-Corruption Agencies (ACAs).

• SAI China has transferred suspicious cases to authorized institutions under a cooperation relationship that has been established between CNAO and judicial and other authorized institutions. Suspicious cases would be transferred to these institutions once the evidence is considered sufficient. In return, CNAO should be informed of further information or results of these transferred


cases. Furthermore, CNAO has reported to the State Council on large scale cases. Once the illegal or irregular cases are of a significant scale or amount, an important information letter would be sent to the State Council from the CNAO to arouse senior leadership’s attention.

• SAI Iraq showed the role of following up corruption cases that delivered such cases to investigators and the justice system. The justice system, ministry of justice or other specialized ministries will judge and execute the sentences against perpetrators, such as imprisonment or financial penalties. The reporting on corruption could have a positive effect, since these cases arouse particular interest. However, there can be cases of malicious reporting that result in a wasted effort by the auditors. As for follow-up, all the results of this role are positive for the community.

• SAI Korea shall transmit the case of an individual’s corrupt behaviors to the prosecutors’s office or bring a criminal charge against involved person.

• SAI Thailand enacted the reporting and following up processes in the State Audit Act and the OAG regulation of investigative audit procedures. The expected outcome of reporting is to assist the anti-corruption process by collecting sufficient evidence in suspicious corruption cases. The other anti-corruption agencies could utilize the investigative audit report for the prosecution process. Likewise, OAG Thailand could monitor the response of audited entities and other agencies through the follow up process which is enacted in the OAG’s mandate.

8.3 The third best practice

The third best practice is to develop tools for facilitating the reporting system. SAI Indonesia and SAI Malaysia gave examples of how they have created a means to facilitate the reporting system.

• SAI Indonesia has signed a memorandum of understanding (MOU) with the Attorney General’s Office regarding BPK’s Investigative Audit Results.


The objectives of this MOU are: (1) to optimize the work and function of each institution in a government which is clean and free from corruption, collusion, and nepotism; (2) to have a quick, complete, and proper law enforcement of BPK’s audit results; and (3) to enhance coordination in combating corruption. Through this cooperation, should BPK’s auditors find any corruption indication, they shall present or explain the indications to investigators from the Attorney General’s Office. The investigators will then conduct an investigation based on BPK’s audit results and the Attorney General’s Office reciprocally shall inform its investigation work to BPK within the following two months. Likewise, the BPK has signed an MOU with National Police Department in order to immediately execute necessary law enforcement processes based on BPK’s audit results and to inform BPK about the progress of statues of the processes. According to the MOU, BPK’s auditors shall present to the National Police investigators audit results which are considered to amount to corruption to the National Police investigators. BPK’s auditorsconduct a discussion with the Police to determine whether or not BPK’s audit results are sufficient to be the initial evidence for the Police investigation. Should the audit result be sufficient, the investigators will then continue with the investigative process (pro justitia). For BPK Regional Offices, the process can be performed with their corresponding local Police offices. The Police can also request an expert from BPK to make a testimony in the court according to his or her expertise. The Police will inform BPK the progress their investigation regarding BPK’s audit result every six months. Therefore, MOU is an important tool for collaboration between SAI Indonesia and other agencies in order to combat corruption. SAI Indonesia has also introduced cooperation in State Results and expert witnesses (see Box 16).

• SAI Malaysia identified the Putrajaya Inquisition as an innovative tool for a follow up process. The Putrajaya Inquisition is chaired by the Prime Minister and other relevant ministries and agencies as its members. This committee will clear backlog of old cases reported by previous AG’s reports. The AG’s office is the secretariat of the Putrajaya Inquisition.


8.4 The fourth best practice

The fourth best practice is to initiate a modern pattern of reporting and follow up processes.

• SAI Korea will post and reveal audit and inspection results on its website, particularly after BAI has carried out a Specific Audit, such as a corruption check on a vulnerable sector related to financial leakage, and a corruption check on accounting irregularities of vulnerable areas of leading organizations. The Safety Executive has conducted a large-scale audit task by utilizing audit agency of local government across national units under the influence of inspection results: media reports on embezzlement of a large number and misappropriation of government funds. However, there is a risk when audit and inspection results on corruption are disclosed to the public through the website, as it may discourage the public to have confidence in the public sector.

• SAI Malaysia is a role model in developing innovation in reporting and follow up processes. The first tool is the Fast Tracking Access to the Auditor General’s

Box16State Loss Examination and Expert witness of BPK

BPK has been frequently requested by the Attorney General’s Office and Corruption Eradication Commission to assist them in examining state losses which are needed for their investigations. A State loss examination is performed under the methodology of investigative audit so that it is regarded an audit assignment as well. There are two objectives of state loss examination: (1) to decide whether an indication of state loss exists and (2) to calculate the amount of state loss when it exists. BPK is expected to report the progress of this activity within the following two months. Following result of a state loss examination, the law enforcement agencies can ask BPK to provide an expert witness in the court referring to the state loss.


Performance Audit Report or FTA. NADM expecs that FTA will support the tabling of the AG’s Performance Audit Reports every time Parliament sits or at least thrice yearly. This will help reduce the elapsed time from completion to tabling to just two months. In addition, NADM created an innovation in the follow up process through the Auditor General’s Online Dashboard (AGD) which serves as a platform to disseminate information on audit issues and follow up. This tool uses a traffic light system (see Box 17 ).

Box17

FTA and AG’s Online DashboardInitiatives of NADM in reporting and follow up processes

NADM has initiated the Fast Tracking Access To Access General’s Performance Audit Report (FTA). Under this initiative, the Auditor-General’s Performance Audit Report will be fast-tracked whereby it can be tabled every time Parliament sits or least thrice yearly. This initiative will reduce time lapse of tabling to just two months. The aim of FTA is to: (1) promote transparency; (2) induce pressure on the relevant authorities to act on outstanding issues; (3) tackle the issue of delays arising from reports that are tabled only once a year; and (4) enable follow up action to be taken by enforcement agencies at the earlier stage. FTA will reduce the chance of evidence being tampered with, which would make investigation by other enforcement agencies difficult. NADM has implemented this initiative effectively by establishing a Follow-Up Division (FUD). On the work process, each audit team is responsible to update issue and status of the audit into the Follow-Up tab of the Audit Management System. Each audit sector need to send these issues and status online to the FUD. These issues and status will be scrutinized and summarized by FUD before being submitted to the Auditor General for approval. It will be uploaded and published in the AG’s Dashboard one hour after the Auditor General Report (AGR) is tabled in the parliament. Any action or feedback received after the tabling in parliament will be monitored and updated by FUD until the issue is settled.


No action taken by the auditee

Auditee is taking action on the audit findings raised in AGR

Findings highlighted in AGR is solved as actions has been taken by auditee.

• SAI Philippine launched “COA Legal Information Archive” (COA-LIA), a simplified digital repository of COA issuances, resolutions, and decisions, as well as key legislations and jurisprudence affecting COA. The new website includes user-friendly navigable design and layout, highly-interactive and accessible pages, a domain-wide research, an in-page or sub-section search, and side-by-side preview of pages on separate sites, among others. (www.lia.coa.gov.ph).

Three Level of Status in AG’s Online Dashboard

(Source: Results from Presentation of SAI Malaysia)

In the follow up role, the Auditor General’s Online Dashboard (AGD) is an initiative which is related to the FTA. AG’s Online Dashboard will be shown in a traffic light system. In the past, the public was not aware of audit follow up of the recommendations made in the Auditor-General’s Report. Therefore, the AGD serves to; (1) update the public on outstanding issues in the Report; (2) promote transparency; and (3) improve public perception.

NADM applied the concept of traffic light system in order to simplify presentation for the public. Issues that are yet to be taken action are shown in red color, under action in yellow color and solved in green color. It is updated and maintained by FUD. (Source: Results from Part 5 of SAI Malaysia)


8.5 Main actions in reporting and follow-up of anti-money laundering work

The main actions in the reporting and follow-up of anti-money laundering work is to urge/suggest the relevant organs to conduct further investigation on suspected cases and to confirm whether they constitute crime of money laundering, Also, SAIs could help increase social awareness by protecting public funds and mitigate the negative effect of money laundering has on citizens’ lives.

8.6 Examples of SAIs in taking follow-up actions:

• Iran: all relevant agencies performed a coordinated action with respect to the implications of sharing information and intelligence sharing. The outcome of this cooperation was clearance the aspects of cases in the least time possible. In this regard, regulatory cooperation in the field of information exchange can be recommended as best practices. The cooperation between the Judiciary, Ministry of Information, Ministry of Economic Affairs and Finance, Central Bank, SAI, and Internal Audit Office of bank, uncovered a major corruption case and specific hidden aspects of the case. Auditors of the SAI—along with other institutions—were charged with the task of reporting cases of money laundering and suspicious cases to the Supreme Council of Anti-Money Laundering as the highest governance body to combat money laundering. However, to combat financial crimes, the SAI Iran can also audit the provisions of the law dealing with the subject and issue a judicial pronouncement.

• China: CNAO performs its responsibility of helping crack down financial crimes by reporting and transferring suspected cases identified to these agencies in the form of audit information letter. In addition, for all the transferred cases, CNAO requires to be informed of the further information or investigation result of the cases from responsible agencies.

• Iraq: FBSA will follow up the actions of money laundering reporting office and provide specialized staff, if necessary, to provide technical support to affiliated bodies as well as monitor and audit the activities of private banks with central bank of Iraq.


8.7 Achievements and lessons learned:

• Transfer suspected cases to responsible or judicial organs in a timely manner.

• Requirement for the SAI to be informed of updated information on the transferred cases.

• When necessary, if similar types of money laundering cases occur and the phenomenon is common enough or not being effectively punished, CNAO will report to the state council and ask for enforcement actions (China).

• Audit reports must have regard to the relevant AML check list. The reporting framework for auditing in the SAI, commenting on money laundering and compliance with relevant laws and regulations enforced by the unit under audit and an audit report is not complete without a comment on this article (Iran).

• Follow-up and implement recommendation arising from detected cases will help eliminate this phenomenon by enacting regulations and laws to prevent and oblige relevant agencies to apply the recommendations.


VI. Measures to Improve the Audit Function in Detecting and Preventing Corruption and Money Laundering

1. Objective and Structure of Survey

For this part, we concentrated on identifying measures to improve the audit function in detecting corruption and money laundering. ASOSAI researchers from 9 SAIs3 designed questions in order to answer research problems which involved developing measures for anti-corruption under each SAI’s mandate.

The research methodology focused on measures to improve the audit function in detecting corruption and money laundering. We developed a questionnaire in 3 parts, The first part involved improved measures at the international level which should be relevant to SAIs as international organizations. The second part is related to improved measures at the national level, in which SAIs coordinate with Anti-Corruption agencies and Anti-Money Laundering agencies. The last part focused on the organizational level in four dimensions, namely: planning stage, formulating the audit program, audit techniques and methods, and utilization of audit findings.

This chapter consists of four parts. The first part discusses recommendations for strengthening SAI’s in relation to anti-corruption, based on a literature review about SAIs and anti-corruption efforts. The second part explains the relationship between SAIs and improving anti-corruption measures at the international level. The third part deals with improving anti-corruption measures at the national level. Finally, the last part focuses on improving anti-corruption measures at the organizational level.

3SAIs of China, India, Indonesia, Iran, Korea, Malaysia, Philippines, Thailand and Turkey

149Measures to Improve the Audit Function in Detecting and Preventing Corruption and Money Laundering

2. Lessons Learned From Literature Review

Awareness of the role of the SAI in fighting corruption appeared first in the 16th

INCOSAI meeting which held in Montevideo, Uruguay in 1998. Kenneth Dye (2007) noted that this meeting was devoted partly to preventing and detecting fraud and corruption. Especially, the meeting focused on (a) the role and experience of SAIs in preventing and detecting fraud and corruption and (b) methods and techniques for preventing and detecting fraud and corruption. The conclusion of Uruguay conference was the Uruguay accords which proposed 12 recommendations for SAIs to fight against fraud and corruption. One of the key recommendations was that SAIs should take a more active role in evaluating the efficiency and effectiveness of financial and internal control systems and aggressively follow up on SAIs recommendations. Likewise, SAIs should focus audit strategy more on areas and operations prone to fraud and corruption by developing effective high risk indicators for fraud or red flags. The Uruguay accords provide a conceptual framework for SAIs and anti-corruption work.

On the other hand, the study of Kenneth Dye (1999) was the first attempt to explain the role of SAI and anti-corruption. Dye mentioned that SAIs should strengthen their investigative power as well as establishing forensic audit capability. Moreover, he suggested that SAI should support and encourage with Anti-Corruption Agencies (ACAs) and civil society organization (CSOs), such as Transparency International.

The recommendations of Dye are similar to the conclusion of Magnus Borge (1999b) which focused on preventive and detective roles. In terms of prevention, Borge suggested that SAIs should evaluate internal control structures to identify and correct weakness in order to maintain a preventive environment. Meanwhile, the detection role should be relevant to identify fraud indicators.

In case of detective roles, Modena (2005) and Evan (2008) advocate that SAIs should create specialized units for detecting fraud and corruption. Similarly, Musa Kayrak (2008) pointed that investigating corruption and focusing audit on high risk areas was a main strategy to detect corruption. Furthermore, he proposed that


SAIs should utilize IT audit as a tool for preventing corruption.

It is obvious that the functions of SAIs are relevant both in terms of preventing and detecting corruption. However, the extent to which an SAI should have a direct role in detecting corruptionis controversial in terms of the role and powers of SAIs. Khan (2006) stated that the power of an SAI was essential for detecting corruption. For example, Khan recommended that SAIs should have the power to audit the accounts of individual tax payers, where an audit of tax administration suggests possible collusion between the tax payer and tax staff. Likewise, in case of large public works, SAIs should have the right to audit the payments received by the contractors from government. Khan (2006) categorized his 20 recommendation into 7 issues, that is, (a) independence of SAI, (b) power of SAI, (c) participatory auditing, (d) implementation of audit recommendations, (e) review of procedures and training of auditors, (f) code of ethics, and (g) cooperation and coordination. Additionally, he proposed guidelines for preparing the auditors for fight against corruption.

From a review of the literature, we found that these recommendations could be categorized in both preventive and detective roles. Both roles relate to a SAI’s mandate with regards to anti-corruption. From the results in previous chapter, we found 21 typical examples in detecting role in anti-corruption. However, we concluded these examples constitute 6 best practices as follows; (a) develop audit techniques; (b) emphasize investigative audit; (c) create red flags; (d) utilize general risk assessment; (e) uncover corruption and communicate with judicial institutions or law enforcement agencies; and (f) develop knowledge sharing in detection techniques.

3. Improved Measures at the International Level

The objective of this part is to discuss measures on the relationship between SAIs and international organizations in anti-corruption and anti-money laundering. SAIs proposed their opinions for improving measures at the international level as follows:


3.1 For anti-corruption

SAI China suggested the cooperation with international agencies in jointly supervising global financial institutions, to track suspicious activities as a whole, to eliminate blind legal areas and to prevent risk transferrance. Meanwhile, SAI should explore establishing intelligence, data and information sharing systems because they could save SAI’s energy in the process of negotiating judicial assistance.

Similarly, SAI India considers that SAIs should encourage bilateral and multilateral exchanges of views. They should cultivate a permanent exchange of information and experience. Also SAI should develop a network relationship with other enforcement agencies for sharing information and training of personnel on reciprocal basis.

SAI Philippines provided examples about coordination between SAI Philippines and other international organizations. For example, the cooperation of SAI Philippines and World Bank which developed and adopted the Integrated Results and Risk Based Audit (IRRBA). Furthermore, SAI Philippines joined the project of Integrity for Investments Initiative (i3) which contributed to inclusive growth by reducing costs of corruption on investments and trade and also promoted open and fair competition. This project will work together with anti-corruption agencies such as the Office of the Ombudsman (OMB), Commission of Audit, Civil Service Commission (CSC), Securities and Exchange Commission (SEC) and the Governance Commission for Government–Owned and Controlled Corporations (GOCCs).

SAI Indonesia reported initiatives to strengthen the relationship between SAIs and international organizations for detecting corruption as follows: (a) by having a MOU between/among SAIs to share each other knowledge and experiences and promote capacity building to fight against corruption; (b) by actively joining international professional organizations like the Association of Certified Fraud Examiners (ACFE); (c) by actively joining international organization for SAIs such as INTOSAI or ASOSAI; and (d) by having cooperation with donor institutions to


enhance the SAI’s capacities in detecting corruption. Likewise, SAI Malaysia has signed MOUs as a tool for bilateral cooperation with international organizations. For instance, SAI Malaysia signed a MOU in the field of auditing, training and research with SAI Afghanistan, Iran, Swaziland, Kyrgyzstan, and United Arab Emirates. Additionally, they have joined working groups, research project, and workshops of INTOSAI, ASOSAI and ASEANSAI.

Since 2012 SAI Iran has been a member of the INTOSAI Working Group on the Fight against Corruption and Money Laundering. In addition, Iran signed the UN Convention against Corruption (UNCAC) in 2009. Likewise, Iran has cooperated with the World Bank and IMF in fighting against corruption and money laundering. Both the World Bank and IMF have promoted measures to counter the flow of illicit funds into the financial systems of countries and aspects of corrupt actions. Meanwhile, SAI Korea has cooperated with INTOSAI for over 50 years. Recently, SAI Korea and UN DESA have reviewed existing literature on the role of SAIs in the fighting corruption (A UN-INTOSAI Joint Project: Collection of Important Literature on Strengthening Capacities of Supreme Audit Institutions on the Fight against Corruption).

SAI Turkey recommended various possible approaches for coordination and cooperation between and among SAIs and international organizations. The first suggestion was that SAIs should set up mechanisms for communication and collaboration among all actors in anti-corruption. The second was to disseminate knowledge and share experience regarding the fight against corruption, for instance, organizing conferences and seminars where SAIs and international organizations may share best practices, limitations and areas for improvement. Additionally, SAIs could carry out international research projects together with academics and theoretical or empirical results could be shared with participants. Furthermore, a database including the corruption cases detected by SAIs could be set up to assist other SAIs and international organizations. Finally, SAIs could launch joint and parallel audits in relation to transparency and implementation of national anti-corruption strategies in coordination and collaboration with international organizations. However, SAI Turkey viewed that international efforts should not be restricted solely to detect corruption. Instead preventing corruption


need to be paid attention by SAIs as well when discovering possible ways of promoting international cooperation.

In conclusion, all SAIs have been cooperating with international organizations especially INTOSAI and ASOSAI. Most have joined these organizations as members. Additionally, SAIs have participated in anti-corruption activities through working groups, research projects, seminars and workshops. SAIs have utilized MOUs as tools for cooperation with international agencies.

3.2 For anti-money laundering

A greater exchange of information at an international level would also ensure a better transfer of know-how and enable the creation of a data and information pool that can be used to develop better strategies to deal with money laundering.

SAI Iran strongly supports and encourages the government to fight against money laundering through appropriate means, especially through implementing its international commitments.

• The INTOSAI Working Group on Fight against Corruption and Money Laundering: SAI Iran has been a member of the (WGFACML) since 2012, and attended the 6th meeting of WGFACML in Poland.

• The World Bank and International Monetary Fund: Iran as a member of the World Bank and IMF cooperates with both institutions in fighting against corruption and money laundering. These bodies promote measures to counter the flow of illicit funds into the financial systems of countries and all aspects of corrupt actions. Both institutions monitor the utilization of loans to Iran in order to make sure the loans are being used for the predetermined projects and programs.

SAI China believes that there are several aspects that may have room to improve:

• The first is enhancing the SAI’s cooperation with international agencies in


jointly supervising global financial institutions, to track suspicious activities as a whole, to eliminate blind legal areas and to prevent risk transferrance.

• The second is exploring opportunities to establish intelligence, data and information sharing systems. Due to legal barriers, it is hard to obtain information of institutions/individuals’ doubtful overseas activities, therefore, an information sharing system could save SAI energy in the process of negotiating judicial assistance etc.

SAI Iraq believes that affiliated organizations (such as the World Bank, International Monetary Fund, International Chamber of Commerce) could play a positive role in the fight against corruption and money laundering.

Therefore, SAIs should consider creating a coordinating framework with international organizations such as the World Bank, IMF, Transparency International, and ACFE. The role of the framework should emphasize:

• Dissemination of knowledge and sharing of experience regarding the fight against corruption. For instance, organizing conferences and seminars where SAIs and international organizations may share best practices, limitations and areas for improvement;

• Launching joint and parallel audits in relation to transparency and implementation of national anti-corruption strategies, in coordination and collaboration with international organizations; and

• Establishing intelligence, data and information sharing systems among SAI and international agencies.

4. Improved Measures at the National Level

The objective of this part is to discuss measures for enhancing SAIs mandate, especially the role of detecting corruption and money laundering. SAIs provided a number of options for improving measures at the national level, as follows:


4.1 Strengthening investigative powers in SAI mandate on anti-corruption

and anti-money laundering

Opinions on the issue of introducing strengthened investigative powers in SAI mandates were mixed. SAIs of China, Indonesia, and Philippines agreed that SAI should have strengthened investigative powers in their mandates. SAI Korea noted that their mandate already covers investigative powers. Likewise, SAI Malaysia has sought to improve their capacity in investigative audit by setting up a Subject Matter Expert Team on Fraud. However, SAI Iran and Turkey noted that even if auditors identify suspected cases of corruption, they are not able to investigate those cases in detail. Likewise, SAI Philippines identified that an obstacle to enhancing investigative audit was the lack of audit skills, especially no experience, training or skill in fraud awareness, detection and investigation.

The mandate of most SAIs is limited to documents related to the accounts of auditees, and they cannot directly investigate the public behaviors, political affiliations, changes in lifestyle and secret meetings of officials. Beside the lack of necessary mandate, some SAIs would not be able to launch full-fledged investigations given available audit resources (budget and human resources). For these reasonsmost SAIs pass suspected cases of corruption on to the relevant authorities. However, SAI Turkey suggested a concrete measure that if an SAI has the mandate to investigate suspected cases of corruption, establishing a “forensic audit unit” would help the SAI develop a systematic and methodological approach in order to better investigate corruption indicators of suspected cases. In addition, most SAIs explained that their role did not include developing anti-corruption standards for public servants or codes of conduct for business communities.

To better assist SAIs’ work in detecting money laundering cases, investigative audit could also play an important role in combating money laundering, in that auditors could focus on certain issues or institutions/individuals for in-depth analysis, for example, high risk areas, and reported indicators.

• SAI China believes that auditors will benefit from using a variety types of resources, which covers commercial banks, industrial and commercial


bureaux, tax bureaux and law enforcement agencies. By constructing an early warning system, auditors could monitor the process of targeted suspicious activities in real time, and thus change the traditional audit process of post-audit to proactive audit.

• SAI Iran could play the vital role in screening and assessing money laundering risksthrough investigative audits.

• SAI Iraq also emphasized that SAI should be given broader investigative powers for the purpose of broadening the audit function and to use evidence discovered from audits as inputs to investigations until the case is completed and transferred to the judicial authorities.

4.2 Establishing a Cooperation Framework with other Anti-Corruption and

Anti-Money Laundering Agencies, particularly to develop the detective

capacity of auditors.

4.2.1 Strengthened cooperation with other competent authorities

SAI China considers that there would be benefit in joining as a member of their anti-money laundering conference. CNAO is not yet member of the anti-money laundering joint conference, which is a main channel for related organizations to be informed of the latest progress in AML activities. By joining this conference as a formal member, the SAI could better perform its duties. A second actions would be to promote the use of the “audit platform and data system of Commercial banks”. Since 2008, when the financial institution audit department commenced this project, this system has been introduceded in over 8 state-owned commercial banks. Through an authorization process, auditors can gain remote access to the banks’ databases to obtain the necessary information to analyze suspicious activities (e.g. doubtful transactions, bank loans information, etc.)

SAI Malaysia has utilized a MOU as a tool to cooperate with the Malaysian Anti Corruption Commission. In addition, the SAI can strengthen the government’s anti-corruption system by using performance audits, such as are used by SAI


Indonesia.

Also, SAI Philippines has joined with the Office of Ombudsman to establish the COA-OMB Joint Investigation Team which gives priority to the investigation and prosecution of selected high profile cases.

4.2.2 Timely Transfer and proper follow up work

FBSA will follow up the actions of the money laundering reporting office and provide specialized staff, if necessary, technical support to affiliated bodies, as well as monitoring and auditing the activities of private banks with central bank of Iraq.

CNAO delivers several types of audit findings related to money laundering: regular audit reports, special reports on certain issues, and letters containing evidence of suspicious or potential money laundering activities to relevant agencies for further investigation. CNAO periodically conducts follow-up work after the issuance of audit reports, to guarantee the audit opinion and recommendations are seriously treated or implemented. When necessary, CNAO has held bilateral or multilateral talks and meetings with relevant agencies in order to obtain the latest information and progress.

5. Improved Measures at the Organization Level

The aim of this part is to find the measures which strengthen SAI’s detective performance, particularly in developing audit techniques. In this part, we focused on four dimensions:(1) planning ; (2) formulating the audit program; (3) audit techniques and methods; and (4) utilization of audit findings.

5.1 Improved Measures for Audit Planning

5.1.1 Emphasis should be given to high risk areas such as Public Procurement,

Public Fund Management and Revenue Collection

• SAI Thailand emphasized the importance of auditing public procurement,


which could detect corruption in this area. SAI Thailand explained that auditing public procurement consisted of three methods, that is, document verification, tendering observation, and physical observation. Furthermore, they have developed audit techniques to detect corruption in public procurement by using a guideline on audit screening in public procurement projects. The aim of this guideline is to facilitate the audit of public procurement projects using a risk assessment method.

• SAI Malaysia clarified that the use of a risk assessment should narrow down the areas of highest risk. Additionally, they focus on the evaluation of internal controls as another tool for detecting fraud and corruption.

• Similarly, SAI Turkey suggested physical observation and site visits.

• Meanwhile, SAI Indonesia has applied techniques to audit in public procurement area, for example, documentation, physical examination, confirmation, analytical review, inquiries of the auditee, reperfomance, observation. In addition, they apply investigative techniques, such as data mining, data recovery, net worth method and expenditure method.

• Furthermore, SAIs of India and Philippines referred to the use of red flags in public procurement as a tool for detecting corruption in this area.

• Beyond the public procurement area, SAI Iran pointed out that revenue collection and payment facilities in banks were other sectors which appeared high corruption areas. For their audit techniques, they verify the actual proceeds of figures and statistics by audit checklists. SAI Iran also assesses internal controls and the proper implementation of the law by the revenue collection agency.

• Likewise, SAI China considers public fund management to be the highest area of corruption, which they have assessed using their detection techniques. In the first instance, auditors will assess auditee’s compliance with laws and regulations, as well as the robustness of the internal controls and reporting


systems. After that, they will collect irregularity information about the auditee and the industry from law enforcement agencies, public media and whistle blowers. An important step is to screen out suspicious activities and preparing material for further investigation. In the last step, auditors will access external information.

• In addition, SAI Korea emphasized their risk assessment analysis, which is conducted by Audit and Inspection Research Institute (AIRI) and related team. Every year SAI Korea selects the main fraud risk areas and also makes a fraud control plan for the risk areas. Based on their plan, they accumulate corruption related information and monitor entities on a regular basis.

5.1.2 Create Anti-money laundering strategy

SAI with the relevant legal mandate could improve performance by preparing a strategy for combating money laundering and other related types of irregularities. One of the most important elements of the SAI program of combating money laundering should be strengthening relevant public institutions, especially those that are the key elements of the national integrity system. SAIs should analyze corruption related money laundering phenomena-occurrence, causes, areas and mechanisms-during each audit.

5.2 Improved Measures for Formulating the Audit Program

5.2.1 Creating red flags or indicators of corruption:

• SAIs of India, Iran, Indonesia, Korea, Philippines and Thailand specifically mentioned the role of red flags in formulating their audit programs. SAI Thailand explained that red flags of corruption were one tool being utilized by many international organizations, for example, the World Bank, Asian Development Bank and Transparency International. Red flags are seen as a first line indicator of potential corruption and the triggering of the flags are presented as grounds for further investigation (Kenny and Musatova 2010). Use of the red flag approach for anti-corruption is especially useful in the


public procurement sector. Initially, specific red flags for each sector should be considered, for example, red flags for corruption in the construction sector or public works, red flags for corruption in the health sector, and red flags for corruption in the defense sector. SAI Indonesia gave an example of red flags for each stage in the public procurement area, as following table 6-1.

• SAI Iran explained that their planning department will create red flags for anti-corruption according to scientific studies and practical experience and external reports, previous reports that were prepared during previous audits and the results of previous studies, and also cases suggested by audit committees. Likewise, SAI Korea clarified that the headquarters for inspection (about 150 members) will create red flags for corruption and will conduct a full blown investigation.

• In addition, SAI Malaysia pointed out that fraud indicators adopted from INTOSAI, ASOSAI and International Auditing Standards have been incorporated into the National Audit Department Fraud Auditing Guidelines to guide and assist auditors in detecting fraud. Currently, compilation of fraud cases detected by auditors is being booked and this includes fraud indicators for various types of audit. It will serve as a guideline for auditors to detect fraud more effectively.

• Beyond red flags, SAI India has developed fraud indicators while applying normal auditing procedures during regular audit or fraud examination by being alert for situations and environments conducive for fraud. For example, control weaknesses, inadequacies in record keeping, errors and unusual transactions and results, could be indicative of fraud and corruption. In addition, they focus on detecting improper expenditure and lack of probity; and by focusing audit strategies on the areas and operations prone to fraud and corruption by developing high risk indicators for fraud.

• Meanwhile, SAI Iran has created fraud indicators within their framework of the “Health promotion in the context of administrative system” Law and its related by-laws. On the other hand, SAI Indonesia does not have fraud


No Stage Red Flag

1. Planning

a. Inadequate needs assessment

b. Lack of data and information about the potential supplier

c. Senior employee/ management involvement without any proper reason

d. Large amount of disposal

e. A very specific requirement (but not really important) that only can be fulfilled by certain supplier

2. Bidding

1. Unclear goods specification

2. Small number of proposals from suppliers

3. Inadequate publication for “request for proposal”

4. High variation in price from suppliers

3. After bidding

a. Contract amendment causing high cost increase

b. Inadequate contract change without proper explanation

c. Complaints about goods received

BPK and Red Flags in Public Procurement

5.2.2 Assessment of financial institutions’ AML strategy and monitoring the

implementation of AML regulations/instructions

The assessment of audited entities’ compliance with law and regulations, as well as the robustness of the internal control and reporting system related to money laundering is important. Generally, SAI should conduct assessments with emphasis on the existence of some or all the following:

• Establishment of anti-money laundering compliance programs by financial institutions. At a minimum, each program must include: policies procedures

indicators but they do have a fraud awareness manual to guide auditors to develop their awareness in finding and analyzing red flags for fraud. They have also provided a lot of training to develop their auditor’s capabilities to detect corruption.


and controls; designation of a compliance officer; training; and an independent audit function.

• Implementation of customer identification procedures and due diligence for new accounts.

• Establishment of a highly secure network for electronic filing of reports.

• Based on this, auditors can identify high risk areas for money laundering, and then construct indicators and red flags; screening for suspicious activities and prepare material for further investigation.

5.3 Improved Audit Techniques and Methods

5.3.1 Improving anti-corruption and money laundering complaint mechanisms and

whistle blowing systems

All SAIs have anti-corruption complaints mechanisms. SAIs utilized hotlines, websites or on-line systems as a channel to report suspicious cases. For anti-money laundering, websites, hotlines, letters/emails, are also important channels for people to report suspicious money laundering related activities. Although most of these reports are anonymous, the system is an important supplement for SAIs in detecting money laundering acts.

SAI India mentioned that public authorities are under the purview of the Right to Information Act – 2005, wherein any citizen can ask for any information about audit processes or administration within the SAI. Meanwhile, SAI Malaysia has developed the “Message to Auditor General”— a platform for the public to lodge complaints about fraud in the NADM’s website. This link has provided the NADM with another source of information from the public to detect fraud and corruption. Complaints received from the public will be investigated and informer will be responded to within 15 working days. Similarly, SAI Philippines has a Public Information System that was designed to efficiently respond to requests. COA has managed this Helpdesk using a support ticket system. Every support request is


assigned a unique ticket number as reference for tracking concerns. Every request requires a valid email address.

SAI Indonesia explained that they have both external and internal complaint mechanisms. For public complaints (external), citizen can access www.bpk.go.id. Besides the external complaints channel, they also provide an internal complaints channel. BPK’s employees can lodge complaints through their intranet web. However, SAI Thailand indicated that even though they had the mandate to receive complaint letters from citizens, all complaint or anonymous letters should be screened under the regulation regarding investigative audit. Meanwhile, SAI Turkey explained that all denunciation letters gathered via different channels are sent to the audit groups and the audit teams responsible for the audit of public institutions mentioned in those letters.

In terms of strengthening whistle blowing systems, SAI China suggested that education of auditors was important to protect whistle blowers and the confidentiality of related information and materials. Also auditors should strengthen efforts in the announcement and disclosure of audit results to the general public. In addition, they should develop an online complaints and feedback system to increase the transparency of the audit work which can be accessed by whistle blowers. SAI Iran made similar suggestions including applying new technologies (information and communication technologies) to develop and strengthen the public reporting systems.

SAI Korea has offered rewards as incentives for whistleblowers to report corruption. Generally, the whistle blower concept is relevant for citizens’ participation in anti-corruption efforts, which SAI Philippines considers was an excellent example. They support citizens’ participation so that a citizen can report a case or volunteer to be a citizen auditor in Ikwenta program (See figure 5). In participatory audits, citizens (civil society, academic groups, community members, private sector) and the COA work together to audit the processes of delivering public services and government programs. As a result, transparency and accountability in the way government performs its functions is enhanced.


SAI Turkey explained the benefit of complaints systems as follows: (a) better knowledge creation and management regarding complaints by complying with the legal requirements of confidentiality and security, (b) producing regular or on-request management reports, (c) analyzing complaints and assessments of the auditors so as to create fraud indicators and/or red flags for the future audits, and (d) better meeting the expectations of external stakeholders.

5.3.2 Improvement of forensic audit and investigative audit units

SAI Philippines has established a Fraud Audit Office which conducts audits of government agencies with probable fraudulent transactions to safeguard government assets against abuse and fraud, and to respond to the increasing public demand for fidelity in the use of government funds and property. It is a multi-disciplinary office with staff composed of lawyers, Certified Fraud Examiners, engineers and Certified Public Accountants. It has a Forensic Auditing Manual developed under the Integrity Project contracted by the Management Systems International and funded by the USAid. The SAI has also issued Guidelines in the Conduct and Reporting of Fraud. In addition, they developed the Audit Manual on Forensic Auditing. Meanwhile, SAI Korea has established “a Headquarters for Inspection of Public Officials” that coordinates the activities of the Special Investigation Bureau, Audit Request Investigation Bureau, Inspection Information Group, and Internal Audit Support Group (about 150 members).

In the case of SAI Malaysia, investigative audit is part of regular auditing. In the course of an audit, indications of fraud are investigated by the team that conducts the audit. On an ad-hoc basis, the Auditor General will instruct the Special Audit Division in the Special Audit and Research sector to undertake investigation of alleged fraud received through the website or complaint letters to the department.

SAI Indonesia has developed an investigative audit task force (ad hoc). Similarly, SAI Thailand has attempted to develop its investigative audit capacity since 1974. In normal audits, when the auditor finds irregularities or suspicious corruption cases, the investigation is only conducted up to the stage of collecting sufficient evidence and reporting suspicious corruption cases. Between 1974-2001 OAG


4This idea was adopted from Randolph Ivan Young (2011) who studied about the Establishing an Effective Forensic Audit Function at OAG Belize. This study was individual research of CCAF-FCVI Fellow during 2010/2011 by OAG Canada.

auditors used the investigative audit manual to carry out their anti-corruption mission. In 2002 OAG Thailand promulgated the OAG regulation of investigative audit procedures B.E. 2545 (2002) in order to develop investigative auditing. OAG Thailand stated that the aim of investigative audit was to examine facts and collect evidence in suspected cases of fraud or mistaken regulation. In 2006, OAG Thailand established a Procurement and Investigative Office (PIO) in order to conduct investigative audits directly. SAI Thailand has established a forensic audit unit or FAU4.

SAIs of China, India, Iran, and Turkey do not have both forensic audit and investigative auditunits. SAI India explained that investigative audits were part of regular auditing procedures. Likewise, SAI Iran viewed that the General Inspection Organization of Iran (GIO) performed the task of investigative auditing. This organization operates under the judicial system of Iran. In addition, SAI Turkey clarified that they did not have a separate forensic audit unit and did not have a plan to establish one in the future. If auditors encountered with a suspected case of corruption, they carried out a preliminary review to gather sufficient information and evidence to be able to find out whether the case concerned can be regarded as an act involving guilt.

5.3.3 Develop audit capability through training, seminars and guidance

Many SAIs have sought to develop investigative audit through training, seminars, and providing guidance to staff, especially in inquiry techniques for corruption cases.

SAI China provides training seminars in the theory of inquiry techniques and scenario simulation. Likewise, SAI India delivers continuous capacity building of the human resources within the SAI. They provide continuous training to audit personnel in investigative auditing techniques and procedures.


SAI Indonesia has developed audit guidance in conducting interviews in investigative auditing. In addition, they have developed audit guidance on understanding the nonverbal communication spoken by the auditee, and also provided training to develop inquiry skills for auditors conducting investigative audits. During the training, staff watch a real interview conducted in an investigative audit and then are asked to evaluate the interview process.

SAIs of Iran, Korea, Malaysia, Philippines also emphasized the importance of staff training. For example, the BAI of Korea constantly trains and educates their staff members on investigation skills and techniques through the “Audit and Inspection Training Center”.

Similarly, auditors of SAI Malaysia attend courses, such as forensic accounting, at which techniques of inquiry, investigating and interviewing are taught. A Guideline on Interviewing is an upcoming project of the office’s Subject Matter Expert Team on Fraud. SAI Philippines has introduced a General and Sector Specific Fraud Awareness Training course, which was conducted on 30 July 2014. The training focused on understanding fraud, detecting and addressing fraud, assessing and preventing fraud and investigating fraud. Also included in the training was infrastructure fraud awareness. SAI Philippines also supports Certified Fraud Examination Training which provides COA personnel with continuous development of their skills and competence. Moreover, they have implemented anti-corruption cross-agency training along with Anti-Corruption Agencies and the ADB.

SAI Thailand noted that even though OAG Thailand has established investigative units in order to carry out anti-corruption mission, they still needed to develop their investigative techniques for corruption cases. They proposed investigative corruption techniques drawn from the Hong Kong Independence Commission Against Corruption (ICAC). ICAC is widely regarded as a successful model in fighting corruption. However, the OAG considers that they have to tailor these techniques in order to suitable for their mandate.

All SAIs stated that they have fraud auditing standards; broadly falling into two


groups. The first group of SAIs referred to INTOSAI or ASOSAI standards. This group consisted of SAIs of China, India, Indonesia, Iran, Malaysia, and Turkey. SAI Turkey highlighted the use of ISSAI 1240 “The Auditor’s Responsibilities Relating to Fraud in the Audit of Financial Statements”. On the other hand, the second group had created their own fraud auditing standards, for example, SAIs of Indonesia, Korea, Philippines, and Thailand.

SAI Indonesia has developed audit guidance as a fraud auditing standard. Similarly, SAI Korea has a fraud audit standard, known as the “Inspection Regulation” and other guidelines and manuals such as “Methods of Affairs Inspection”, “Guidelines on Case of Fraud Audit”.

SAI Philippines has developed an Audit Manual on Forensic Auditing. SAI Thailand has promulgated the OAG Regulation of Investigative Audit Procedures B.E. 2549 (2006) as a fraud auditing standard consisting of main five chapter in 69 sections. The first chapter involves to receive the complaint letters and screen cases for forwarding to investigative audit. The second chapter and subsequent chapters are about the processes of investigative audit.

As for anti-money laundering, competent auditors and expertise are also of great importance for SAIs to effectively detect money laundering activities. However, the current situation is not satisfactory at the SAI organizational level and there is room to improve. For example, Iran’s SAI considered they have very few personnel with adequate training in the detection and investigation of money laundering, and they have made an effort in introducing a training and education program. Iran’s SAI provide training workshops and reviews of related case studies to combat money laundering, fraud and corruption issues, so that auditors possess appropriate skills, knowledge, and abilities to identify and assess potential irregularities.

5.3.4 For SAIs that do not have a direct AML function

For SAIs that do not have mandate to detect money laundering activities, such as India, Australia, and Malaysia, efforts could still be made in one or all aspects of


the following areas:

• Considering the extension or change of laws and regulations to give the SAI powers to perform this function.

• Ensuring that anti-money strategies and control measures within AML agencies and financial institutions are properly developed.

• Ensuring that screening standards and reporting systems relating to AML are effectively established and implemented.

Therefore, although the majority of SAIs do not have direct competencies or responsibilities (and related powers) in the fight against money laundering, they have different resources at their disposal that allow them to play an important role in preventing, and deterring money laundering activities while carrying out their tasks. These objectives can be achieved by: using standards, guidelines and procedures for financial and performance audits to provide reasonable assurance that money laundering activities will be detected; conducting risk analysis to identify specific risks; and reporting to the Parliament or any other appropriate institution (according to national legislation) on the audit findings.

5.4 Improve Utilization of Audit Findings

SAI Turkey explained that the utilization of audit results in the planning of future audits can be of great help to the fight against corruption. Analyses of risks (both inherent and control risks) and audit findings involving a certain amount of public loss and corruption cases detected during regular audits should be carried forward and results of these analyses should be taken into account in the following year when deciding which public entities will be audited, or the subjects to be focused upon. In addition, audit reports which are prepared and made public in accordance with the international standards play a deterrent role for corruption risk. Such audit reports may highlight certain corruption-prone areas and help auditees take necessary measures to prevent future cases. Likewise, SAI Thailand considers that auditors should develop audit findings for red flags in each sector, especially


audit findings in high risk areas. Additionally, audit findings should be collected and categorized in order to establish concrete measures for anti-corruption in the future. Meanwhile, SAI Indonesia focused on weaknesses in internal controls from which they can learn the cause of typical audit findings, especially findings of state loss. Perceived weaknesses will be tested through investigative audit. Based on that, BPK can propose improvements to internal controls related to such business processes. Information that comes either from non-investigative or investigative audit can be used to improve government internal control. From investigative audit, they can have deeper analyses in fraud risk assessment not just the internal control.

On the other hand, SAI Malaysia noted that Auditor General’s Report can be utilized as an anti-corruption mechanism, particularly if reports are easily assessable, user friendly and are made available in a timely manner. Currently, the General Auditor’s Report on Performance Audit is tabled in the Parliament 3 times a year and can be viewed by the public an hour after being tabled through the Auditor General’s Online Dashboard. Previously, the Report was tabled once a year and it prevented any action being taken against a person until the date had passed. This increased the chance of evidence being tampered with, and made investigation difficult. Now, follow-up action can be taken by the enforcement agencies at an earlier stage.

SAI Philippines will send their reports with findings of fraudulent acts discovered in audits/investigations to the Office of the Ombudsman with recommendation to file appropriate cases against persons liable/responsible. In case of SAI Iran, they clarified the utilization of audit finding for anti-corruption at three levels: (1) international governmental and non-governmental anti-corruption organizations/agencies; (2) cooperation and coordination of the SAI with international anti-corruption bodies in detecting corruption; and (3) SAI involvement in improving international measures on anti-corruption. SAI China also suggested an online system which could be accessed by the accountable institutions to provide feedback on follow-up work after the issuance of audit reports, to guarantee the audit opinion and recommendations are treated seriously and implemented. When necessary, CNAO has held bilateral or multilateral talks and meetings with relevant


agencies to obtain the latest information and progress.

Finally, SAIs emphasized the use of audit findings for anti-corruption efforts through lesson learned in case studies. For example, SAI India explained that important audit reports and audit findings are presented as case studies to various wings of the SAI for educational purposes and to raise awareness of audit teams to the possibility of such cases in their audit domain. Likewise, SAI Korea explained that it is useful to collate corruption-vulnerability information in an audit database and cooperate with law enforcement and anti-corruption agencies. Furthermore, SAI Thailand suggested that interesting cases could be the subject of academic research in order to find causes and solutions to prevent them from occurring in the future.

171Australia

Appendix

Country Papers


1. Australia

Australia – Background and Context

Australia is a medium-sized advanced economy (approximately 12th largest economy in the world, in terms of GDP). While Australia is large geographically, its population is relatively small (approximately 24.5 million) and generally affluent (GDP per capita is around 5th in the world). Australia’s economy relies primarily on the export of resources (minerals), primary produce, and services.

Politically, Australia is a constitutionally-based parliamentary democracy, with federal structure that divides power between the national government and eight provincial (“state”) governments. These governments are modelled on the Westminster parliamentary tradition.

The Australian National Audit Office (ANAO)

Audit offices are embedded in the structure of the Australian governmental system. Each state government, as a sovereign body, has its own Auditor-General, and the Australian Government established the Australian National Audit Office (ANAO), as the fourth act of the Australian Parliament, in 1901.

• The ANAO is a small entity with a budget of $78 million per year and around 350 staff.

• The ANAO is subject to the rules applying to all Australian Government entities, and its budget forms part of the annual budget cycle.

• The Auditor-General is a statutory office holder, appointed for 10 years (non-renewable).

• The Auditor-General Act 1997 provides very strong authority in terms of gathering of information and accessing government premises.

173Australia

The primary role of the ANAO is to provide assurance to the Parliament, about the effective management of Australian governmententities, and to improve public administration, though the conduct of financial statements audits and performance audits. All Australian government entities have their financial statements audited by the ANAO, and there is a rolling program of around 50 performance audits conducted annually. While the Auditor-General must conduct his or her financial statements program of audits, he or she has complete discretion as to the number, focus and scope of his or her performance audit program.

In keeping with the Westminster tradition, the ANAO’s audit approach is recommendatory rather than inquisitorial or judicial in nature. The ANAO cannot compel agencies to implement recommendations, nor can it levy or impose penalties on individuals.

The results of all audits, financial or performance, are made public through the Australian Parliament, which may also hold its own inquiries into matters raised in ANAO audit reports. All performance audits are also published on the ANAO’s website (www.anao.gov.au). The publicising of all audit findings and conclusions aids transparency and enhances the impact of audit activity on public sector administrative performance.

As an aid to transparency and to assist members of the Australian public to engage with ANAO performance audits, the ANAO has established a citizen’s input facility. This facility, accessible through the ANAO’s website (http://www.anao.gov.au/Publications/Contribute-to-an-Audit-in-Progress), allows members of the public to contribute to all performance audits while they are in progress. Contributions may be made anonymously and their confidentiality is protected by law. The facility not only serves to promote closer engagement between the ANAO and the public, it also is consistent with broader policies to encourage more open and transparent government, in which the public better informs policy, and can better access government information.


Corruption and Money Laundering in Australia

Official corruption-incidence

Australia is generally regarded as having relatively low levels of official corruption. The latest (2014) Transparency International rankings place Australia at 11th in the world5. In terms of rankings this result is lower than the rankings for 2013 and 2012 (7th), but is the same as 2001. The assessed score for 2014 (80) is little different from previous years, indicating that the driver for the change in ranking is more to do with changes in other countries’ results rather than changes in Australia’s results.

• Analysis of the Transparency International data for the period 1995-2014 shows that the ranking for Australia has varied in a narrow band over that time;

• There is a noticeable pattern to the variation – a sudden drop, followed by slow recovery. The sudden drops are closely correlated to the Australian electoral cycle, although not all election years are associated with a drop in perceive corruption.

Key findings of our research

1. While the Transparency International data is useful, it only reflects respondent’s perceptions. Reliable data on the actual incidence and types of official corruption in Australia is sparse. What data there is suggests that most official corruption occurs at the provincial (state) government and local government levels. These are the levels of government most responsible for land management and resources management decisions, where most cases of serious corrupt conduct are identified.

5http://www.transparency.org/cpi2014/results.

175Australia

2. At the national level, the risk of official corruption is greatest in the areas of procurement, grants administration, and border control. Incidents of known corruption in these areas of government activity are rare, but as there is no system of mandatory reporting or common standards for assessing alleged corruption, there is some uncertainty as to the precise incidence and materialitythe corruption risk.

3. The Australian community is generally intolerant of official corruption.

Money laundering-incidence

Australia is generally regarded as having relatively moderate levels of money laundering.


4. Money laundering in Australia is becoming increasingly sophisticated and is mostly associated with organised crime: drug trafficking and financial fraud and scams, with the amount of money involved in each type estimated to be in excess of US$100 million.

5. Money laundering has both a domestic and international dimension. That is, organised crime both located within Australia and outside of it, seeks to use Australia’s open economy to launder the proceeds of crime.

6. There are four key behaviours associated with money laundering: intermingling of legitimate and illegitimate financial activity; use of professionals (accountants, lawyers) to conceal illicit activity; use of specialist money laundering syndicates; and use of connections between domestic and overseas organised criminals.


Institutional Structures

Anti-corruption institutions

Corruption offences have been included in the Australian criminal code, at both the state and national government levels. Most Australian states have established specific anti-corruption agencies, separate from law enforcement agencies, with varying mandates and responsibilities.


7. At the national government level, there is no specific anti-corruption agency. Instead, responsibility for anti-corruption activity is shared between several agencies6. All government agencies must maintain guidelines for preventing and reporting crimes or risk facing liability for corrupt acts by employees.

8. Consistent with the low perceived risk of widespread official corruption, the focus of the Australian government’s anti-corruption activity has been on prevention, through the implementation of effective control regimes, than on the detection of corruption.

9. Separately, there is also a well-established fraud control regime in place that covers all Australian Government entities. This regime is supported by enforceable whole of Government rules, supported by policy guidance.

10. Australia is active in the international fight against official corruption7.

6 These agencies include: Australian Commission for Law Enforcement Integrity; Australian Transaction Reports and Analysis Centre; Australian Crime Commission; Commonwealth Fraud and Anti-Corruption Centre in the Australian Federal Police; Inspector-General of Intelligence and Security; Australian Public Service Commission; Commonwealth Ombudsman and Commonwealth Anti-Corruption Unit in the Attorney-General’s Department. 7 Australia is active engagement in a range of regional and international forums and initiatives including: the United Nations Convention Against Corruption (UNCAC) (ratif ied by Australia on 7 December 2005); the United Nations Convention Against Transnational Organised Crime (ratified by Australia on 27 May 2004); the G20 Anti-Corruption Working Group and Action Plan; the Organisation for Economic Co-operation and Development (OECD) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention) (ratified by Australia on 18 October 1999); the Asia-Pacific Economic Cooperation Anti-Corruption and Transparency Experts Task Force; participating in the Asian Development Bank OECD

177Australia

11. In 2013, the Australian government announced a proposal to develop a National Anti-Corruption Plan. The key purpose of the Plan was to provide a strategic framework to coordinate and guide the Australian Government’s anti-corruption efforts and to ensure that the appropriate systems are in place to monitor and respond to emerging corruption risks. The proposed plan included mandatory reporting of official corruption, as well as a defined role for the Auditor-General, along with other ‘integrity’ institutions.

12. Following the 2013 national election, the new government ceased work on the National Anti-Corruption Plan. To date, no decision has been announced as to if, or when, work will recommence.

Anti-money laundering institutions

Money laundering is a criminal offence covered by national laws. Australia has a Financial Intelligence Unit, the Australian Transaction Reports and Analysis Centre (AUSTRAC), which has specific responsibility for implementing Australia’s anti-money laundering regime.


13. Unlike anti-corruption activity, anti-money laundering activity is much more centralised and systematised, and is integrated with Australia’s counter-terrorism financing arrangements. These arrangements cover financial institutions and remittance providers, gold and bullion dealers, the gambling sector, and some professional services (particularly lawyers and accountants).

14. While AUSTRAC has highly regarded detective abilities in respect of money-laundering, the most effective measures are considered to be preventative rather than detective in nature.

15. Australia is regarded as a world leader in the fight against money laundering.


Current Role of the ANAO

Responding to corruption risks

As a Supreme Audit Institution (SAI) under the Westminster model of government, the ANAO provides assurance to the Parliament as to the effectiveness of Australian government entities’ anti-corruption control arrangements and the legislated standards for the conduct of Australian government officials.


16. The ANAO does not have a role in actively detecting or investigating official corruption, but rather, has a role in providing assurance that the established anti-corruption agencies and entity anti-corruption control arrangements are working efficiently and effectively. As such, the focus of the ANAO’s financial statements and performance audit activity is on assurance and prevention, rather than detection and investigation (which is the role of other agencies).

17. The ANAO has sufficient powers to carry out its current role, but is subject to the inherent risk of insufficient resources being made available to enable the full exercise of its powers.

18. The ANAO conducts regular performance audits of fraud control arrangements in the Australian public sector8, and for its financial statements audit activity, has adopted Auditing Standard ASA 240 “The Auditor’s Responsibilities Relation to Fraud in an Audit of a Financial Report” 9.

8see: is ANAO Report No.3 2014–15 Fraud Control Arrangements. See: http://www.anao.gov.au/Publications/Audit-Reports/2014-2015/Fraud-Control-Arrangements.

9 See: http://www.auasb.gov.au/admin/file/content102/c3/Nov13_Compiled_Auditing_Standard_ASA_240.pdf . This standard was adopted by the Australian Auditing and Assurance Standards Board (AUSB) for all auditors in Australia (public and private sector). The Australian Auditor-General has exercised his power under the Auditor-General Act 1997 to adopt this standard for the conduct of audits by the ANAO.

179Australia

19. The mandate of the ANAO does not extend to the business community, unless the business is expending government money.

20. The ANAO has established arrangements for members of the public to contribute to audit activities anonymously. More generally, there is a regime that provides protection for whistleblowers under Australian law.

Responding to money laundering risks


21. The ANAO does not have a role in directlypreventing, detecting and investigating money laundering. The ANAO’s role does include undertaking financial and performance audits of Australia’s anti-money laundering entity to provide assurance to the Parliament that the entity is being appropriately managed to achieve its intended outcomes10.

10 See ANAO Report No. 47 2012–13 AUSTRAC’s Administration of its financial intelligence function (http://www.anao.gov.au/Publications/Audit-Reports/2012-2013/AUSTRACs-Administration-of-its-Financial-Intelligence-Function). The audit concluded that AUSTRAC’s financial intelligence was highly valued by partner agencies for its contribution to their operations and management of risks. For example, in relation to Australia’s taxation systems, AUSTRAC’s intelligence contributed to the investigation of more than 2700 cases in one year, resulting in savings of more than $255 million. While administrative arrangements were generally sound, the audit concluded that AUSTRAC could strengthen its arrangements to monitor access to data provided to partner agencies, workload management, and performance reporting.


Considerations on Developing Future Audit Responses to Corruption and Money Laundering Risks

Australia’s national anti-corruption and anti-money laundering arrangements, as they are currently structured, are working reasonably well.

• Rates of known and estimated official corruption are very low in Australia, by global standards.If there is a major weakness, it is in there not being reliable data about the incidence, and severity of official corruption in Australia. For this reason, a national strategic anti-corruption plan would be desirable, however decisions on such a plan are, ultimately ones for Government to make.If introduced, such a strategy must, at a minimum:

- define corruption and specify the measures being employed to counteract it;

- define the specific roles for all of the agencies involved in fighting corruption, including anti-corruption agencies, law enforcement bodies and integrity agencies (including SAIs, Ombudsmen etc.);

- specify the measures taken to promote integrity and anti-corruption by individual agencies and to foster a culture among individual public servants and citizens that is intolerant of corruption; and

- include performance (success) measures and reporting arrangements, including mandatory reporting of all suspected or proven cases of corruption, and an evaluation process.

In respect of money laundering, Australia’s institutions are regarded as world-leading and highly effective.

181Australia

SAI Responses to Official Corruption and Money laundering

The ANAO considers that the response to official corruption and money laundering by each SAI should be:

• proportionate to the risk;

• appropriate to its context; and

• realistic in its expectations.

Australia is a Westminster-style democracy with highly developed institutions of governance with a defined assurance/recommendatory role for the SAI (the Australian National Audit Office (ANAO)). At present, there is no perceived pressing need to change the ANAO’s legislative mandate or to develop greater in-house detection and investigation capabilities in respect of corruption or money laundering. Without a substantial event that creates a sense of “crisis” there is unlikely to be parliamentary support for changes to the ANAO’s legislation/mandate or financial support for substantially increased audit activity in this regard.

Within this context, the key issue for the ANAO is to use existing financial statements and performance audit activity to assess the current state of anti-corruption and anti-money laundering activity within Australia, and if concerning trends emerge, to draw these to the attention of the Parliament.

See ANAO Report No. 47 2012–13 AUSTRAC’s Administration of its financial intelligence function (http://www.anao.gov.au/Publications/Audit-Reports/2012-2013/AUSTRACs-Administration-of-its-Financial-Intelligence-Function). The audit concluded that AUSTRAC’s financial intelligence was highly valued by partner agencies for its contribution to their operations and management of risks. For example, in relation to Australia’s taxation systems, AUSTRAC’s intelligence contributed to the investigation of more than 2700 cases in one year, resulting in savings of more than $255 million. While administrative arrangements were generally sound, the audit concluded that AUSTRAC could strengthen its arrangements to monitor access to data provided to partner agencies, workload management, and performance reporting.


As a result of participating in this ASOSAI research project, the ANAO now includes modules relating to management of corruption risk in all audits of certain subjects (such as foreign aid)11 and is proposing to undertake a program of performance audits that specifically target domestic anti-corruption activities at both the individual agency and whole of government levels12.

Finally, it is important to bear in mind that each SAI is part of a wider political, social and economic system. A key responsibility for the SAI, in this context, is to work within the system, and within its mandate, to strengthen the system against the risks posed by corruption and money laundering. Significant changes to audit arrangements, where considered necessary, should be accompanied by considered and realistic expectations as to the achievable outcome. Without a realistic and considered approach, there is a risk that thepublic may form an expectation that exceeds the capacity of the SAI to consistently meet in respect of detecting and investigating corruption and money laundering risks. Any changes should be accompanied by measures to monitor the effectiveness of the SAI in implementing the new arrangements and in contributing to improved outcomes13 for the public sector. In this regard, SAI Australia would urge ASOSAI to consider a “recap” in 2-3 years’ time for member SAIs to report back on the impact that this research project has had in their respective jurisdictions.

11 See for example ANAO Report No. 39 2012–13 AusAID’s Management of Infrastructure Aid to Indonesia (http://www.anao.gov.au/Publications/Audit-Reports/2012-2013/AusAIDs-Management-of-Infrastructure-Aid-to-Indonesia), which noted that while AusAID had incorporated controls to reduce opportunities for fraudulent or corrupt behaviour in the design of its program, but that AusAID’s approach to calculating and reporting aid funds lost to corruption left considerable scope for misinterpretation by the public. The current audit of the Management of Australian Aid to Vanuatu, is explicitly examining the effectiveness of arrangements to manage the risks of fraud and corruption in that program. 12 For example, the ANAO Audit Work Program, July 2014 (http://www.anao.gov.au/About-Us/Audit-Work-Program) identifies a potential audit topic of the implementation of staff integrity measures in the Australian Customs and Border Protection Service. This audit is yet to commence. In planning the Audit Work Program for July 2015, consideration will be given to undertaking a whole-of-government performance audit on the effectiveness of Australia’s arrangements to manage the risk of corruption in the Australian Public Service. 13 It is noteworthy that the Australian example, with its comparatively modest detection and investigation role for the SAI, yet low levels of known official corruption and money laundering risk, illustrates that there is no obvious, simple, causal connection between the presence, or absence, of an explicit detective/investigatory role for the SAI and the levels official corruption or money laundering. The relationship is, rather, more complex and subtle. Importantly, the introduction of strengthened detection and investigatory powers for a SAI is likely to be a reflection of failures, or perceived failures, in the broader anti-corruption and anti-money laundering arrangements. In considering the merits of broadening their mandates, SAIs must guard against adopting role that may compromise their independence, or perceived independence.

183China

2. China

I. Introduction

According to the Corruption Perceptions Index (CPI) released by OECD in 2012 and 2013, China scored 39 and 40 (ranked 80 in the world), indicating the seriousness of corruption. Corruption tarnishes the public sphere, negatively affecting ordinary people, as well as the political sphere and business alike. It is clear that more action is required. The Chinese government has always been attaching great importance to the task of anti-corruption, taking resolute punishment and effective prevention of corruption as the important measures in national governance. China has achieved positive results in improving the system of punishing and preventing corruption with equal importance attached to education, system-building and supervision. In years, the audit institutions in China have been performing their duties in accordance with the law, continuously enhancing the capacity of effectively preventing and resolutely punishing corruption, and has become an important force in anti-corruption.

Money laundering is the process by which large amounts of illegally obtained money is given the appearance of having originated from a legitimate source. One of the likely sources is corrupt activity of the public sector. From 2003 to 2013, China’s anti-money laundering efforts have witnessed rapid development and significant progress. in terms of criminal legislation, preventive measures, institutional arrangements and international cooperation, based on this country’s national situation and reference to the relevant international standards. As a result, a basic framework of anti-money laundering legislation, regulation and organization of China has been established, as well as fairly complete anti-money laundering regimes.


II. Evaluation of Current Situation of Corruption and Money

Laundering

1. Evaluation of Current situation of Corruption

This research purpose aimed to assess the current situation of corruption and money laundering in China, exchange the experiences, theories, technology and methodology of audit on anti-corruption and anti-money laundering with other Asian countries, and recommended ways to improve the anti-corruption and anti-money laundering.

According to the survey results, the current prevalence of corruption in China was moderate, and it was similar compared with previous 3 years. Most of respondents thought it was moderately intolerant towards corruption, which meant that fight against corruption in China received a welcome basis. Corruption occurred most frequently in public entities in China. The prevalence of petty corruption was moderate in which the high-level management most easy to be involved, and the prevalence of grand corruption was high in which the powerful government officials most easy to be involved.

Corruption is manifested in many ways. Abuse of position/power was the most common type of corruption, and the rest types were influence peddling, bribery, and kickback in turn. Corruption is both a governance and economic problem, and it is multi-secter which is manifested in all development and service delivery sectors. Local government/municipality was the most vulnerable sector to corruption, and custom, education, energy, health, judiciary, law enforcement/police and local government/municipality were also the vulnerable sector to corruption in turn. At the government level, most of respondents chose that procurement contract was the most frequent field which has the greatest probability of occurring corruption, and the other fields were licensing, and revenue (taxes) collection in turn. For monies and assets gained from corruption, they were always used in investing in real estate, bank deposits, acquiring assets, leisure, and social activities. There are many factors that contribute to and facilitate corruption. The absence, weaknesses or failure in regulatory and legal systems, or the culture,

185China

customs and habits of giving bribes to get things done was the most important cause of corruption in China.

Corruption in China remains one of the top problems threatening economic growth and democratic development. the most significant and impressive incidences of corruption (both petty and grand corruption) that took place in the past 5 years, from 2007 to 2012, listed as below. (1) The corruption of China’s Railway Minister Liu Zhijun, (2) The corruption of Shenzhen’s Mayor Xu Zongheng, (3) The corruption of the Chairman of the CPPCC Guangdong Provincial Committee Chen Shaoji, (4) The corruption of former Deputy Finance Minister Zhu zhigang, (5) The corruption of Hangzhou’s Deputy Mayor Xu Maiyong, (6) The corruption of the former Chairman of Oil Giant Sinopec Chen Gonghai, and (7) The corruption of Politburo Member Bo Xilai.

2. Evaluation of Current situation of Money Laundering

Money laundering is always accompanied by criminal activities generating economic gains. Money laundering not only destroys the fairness and equality principle of market economy, disturbs orderly competition, damages reputations and normal operations of financial institutions, threatens the soundness and safety of financial systems, but also becomes the source of corruption and erodes the social fundamental institutions.

In the respondents’ opinion, 44.4 percent of persons (4 out of 9 respondents) indicated that the situation of money laundering in China was not serious. Individually, 33.3 or 22.2 percent of respondents thought that the situation was serious or very serious.

To the highest risk of money laundering, 55.6 percent of respondents (5 out of 9 respondents) indicated that trade was the highest risk field, rank 1. At the same time, At the same time, 22.2 percent of respondents individually showed that the third highest risk field was finance and bank, construction, or trade.

The types and levels of corruption in a society are largely affected by both


situational opportunities and obstacles. 7 out of 9 respondents individually described that the most favorable environment for money laundering was bank and financial institutions do not have suitable supervision/control system to anti money laundering use of cash and illegal money transfer is dominant, and legal system for anti money laundering is not enough, and 4 out of 9 respondents chose that the most favorable environment was international economic integrating.

44.4 percent respondents (4 out of 9 respondents) individually showed that the first top offence was embezzlement, or corruption. At same time, 11.1 percent respondents thought that the first top offence was production, buying and selling of illegal goods.

44.4 percent respondents showed that the second top offence was embezzlement. At same time, 33.3 or 22.2 percent respondents thought that the second top offence was corruption, or production, buying and selling of illegal goods. 55.6 percent respondents indicated that the third top offence was drug. At same time, 33.3 or 11.1 percent respondents thought that the third top offence was production, buying and selling of illegal goods, or terrorism.

In the respondent’s opinion, the condition of money laundering in China is not serious and controllable, The government has paid more and more attention to money laundering.

The three-dimensional anti-money laundering regulatory system has been established in recently years.

The government strengthened the prediction and combat to money laundering, enacted the Anti-Money Laundering Act. The Center Bank established Anti-Money Laundering Bureau, and the China Anti-money Laundering Monitoring Center was established in 2004. However, the current anti-money laundering work still cannot fully adapt to the changes in the economic situation. The main reasons are as follow: the construction of anti-money laundering regulations lags behind the international practice, the anti-money laundering for non- financial institutions should be strengthened, etc.

187China

As the process of international economic integration, the situation of money laundering will become more and more serious. The styles of money laundering will become diverse and complicated. All financial institutions will face the increasing pressure of anti-money laundering. So anti-money laundering should be strengthened in various fields of the society as a whole.

III. Assessment of Current Situation of anti-corruption and Money

Laundering

The aim of this research is to collect current information of anti-corruption and anti-money laundering in China. Results gathered from the feedback of the respondents should help relevant institutions identify and analyze the anti-corruption and anti-money laundering overall situation particularly in aspects of National anti-corruption strategy and action plans, anti-corruption agencies, legal background of anti-corruption efforts, international cooperation and promoting awareness and other matters in China, which CANO can develop or improve methods and tools in the fight against corruption and money laundering. 4 specialized departments including both Party and government functional bodies were selected to indicate their expert judgment.

China has established the stand-alone anti-corruption strategy by setting up and perfecting a system of punishment and prevention of corruption, which includes a Leadership System and Working Mechanism, Legal Framework, Power Restraint and Supervisory System, Education, in order to combat corruption and build a clean government. In 2010, the State Council released the first anti-corruption white paper titled China’s Efforts to Combat Corruption and Build a Clean Government. China attaches great importance to enacting the national strategy. On one hand, it emphasizes investigate and punish all violations of the law and discipline, especially concerning leading officials. On the other hand, it is making great efforts to improve laws and systems, and launch series of reforms in various areas on combating corruption.

At the same time, the anti-corruption strategy had an action plan. The specific measures, specific institutions for implementation, and institution responsible for


co-ordination, implementation and reporting are necessary elements of the anti-corruption plan. The time frame, criteria, and budget are of great importance but not key factors to carry out the action plan effectively.

China has publicized a series of laws, regulations and other documents related to the anti-corruption issue, such as The Guidelines of the Communist Party of China for Party-member Leading Cadres to Perform Official Duties with Integrity, The Regulations on the Executives of State-owned Enterprises for Performing Management Duties with Integrity, etc. all the above documents play a vital role in combating corruption.

The National Bureau of Corruption Prevention of China (subordinate to the State Council), is an organ that the Chinese government has specially set up to carry out the work of corruption prevention. Other major functional bodies include Party's organs for discipline inspection, judicial organs of the state, supervisory and auditing organs of the government, etc.

The responsibilities of NBCP cover all the mentioned areas, with monitoring and evaluating the implementation of anti-corruption strategy as the core, all other tasks being carried out simultaneously. It also performs the duty of coordinate and directs the work of corruption prevention in enterprises, public institutions, social organizations, and take charge of international cooperation.

Since the beginning of the 21st century, China has made great efforts in improving the mechanism of the anti-corruption strategy. Through actively re-evaluating the major fields and activities likely to breed corruption, series of improvements and reforms have been made and has yield notable results. In addition to the regular organs of handling letters and calls of complaints, China has opened up hotlines and set up websites to take reports of misconduct and complaints from the people, and stipulates that information about the informants must be kept confidential.

China attaches great importance to the laws and regulations to fight against corruptions. In the case of criminalizing corruptions, The Criminal Law of China defined several corruption-related crimes, such as embezzlement, bribery,

189China

dereliction of duty, holding a huge amount of property with an unidentified source, etc., which makes it the legal basis in punishing corruption. In addition, there are other laws and disciplines working together with criminal law, such as Disciplinary Sanctions of the Communist Party of China.

With China’s efforts in deepening the reforms of the fiscal management system, several laws and regulations were made in order to better govern the financing and expenditure of political parties, such as, separated management of revenue and expenditure, included revenues from administrative fees into budget, etc. All these measures increased the transparency of fiscal funds.

One major responsibility of the National Audit Office of China is to supervise through auditing revenues and expenditures of all departments under the State Council, local governments, and other state organizations, and to guarantee the enforcement of the law. China has established comprehensive accounting and auditing standards for both public and private sectors.

There are several codes of conduct and ethical rules for Party members and leading officials to prevent corruption activities. For example, in 1997, China enacted the Guidelines Of The Communist Party Of China For Party-Member Leading Cadres To Perform Official Duties With Integrity; in 2007, China released Regulations of the Central Commission for Discipline Inspection of the Communist Party of China on the Strict Prohibition of Seeking Illegitimate Gains by Misuse of Office, etc. To further regulate leading official’s performance of duties, China has enacted the Regulations on Leading Cadres’ Report of Relevant Personal Matters, which requires leading cadres to honestly report their incomes, housing and investment owned or made either by themselves or together with their spouses and children living with them.

To promote international exchanges and cooperation in combating corruption, China acceded to the United Nations Convention against Corruption in 2005. In order to fulfill its obligations China established an inter-department coordination group consisting of 24 government departments to organize and coordinate the implementation of the convention in China and the integration of Chinese laws and the convention.


As for money laundering, In 2001 and 2006, China amended the Criminal Law twice and specified money laundering related clauses, including “Crime of Money Laundering”, “Crime of Disguising or Concealing Income from Crime or Proceeds from Income of Crime” and “Crime of Sheltering, Transferring or Concealing Drugs or Booty Drugs”.

As for laws and regulations, in 2006, China launched The Anti-Money Laundering Law of the People’s Republic of China, which signaled the establishment in law of China’s anti-money laundering administration system, and clarified the AML responsibilities and functions of the competent authority of the State Council, relevant agencies and organizations under the State Council, as well as the obligation of financial institutions. Other than The Anti-Money Laundering Law, The People’s Bank of China and other concerning government has enacted a range of regulatory documents to deal with money laundering.

In order to better perform AML responsibilities, the central bank established an Anti-Money Laundering Bureau and the China Anti-Money Laundering Monitoring and Analysis Center (CALMAC), which has realized network transmission of data with most financial institutions and formed an anti-money laundering monitoring and analysis network which covers all over the financial industry of China.

The People’s bank of China (Anti-money laundering Bureau and China Anti-Money Laundering Monitoring and Analysis Center (CALMAC) undertakes the AML supervision and management responsibilities according to law. It also established and improved the 23-member inter-ministerial anti-money laundering joint conference mechanism and the anti-money laundering coordination mechanism for financial regulatory authorities.

All respondents agreed that the 4 listed measures are carried out productively by China Anti-money laundering Bureau, including customer identification, information report, data gathering and analyzing, and temporary measures. Some respondents also indicated other effective measures, such as International cooperation and Public communication.

191China

As for the independency of AML authority, most of the respondents (80 percent)agreed on its functional independency, followed by its legal status(60 percent). Half of the respondents indicated there are financial and recruitment independencyIn terms of the functions performed by Anti-money laundering Bureau, The Anti-Money Laundering Law specified its responsibilities including 1) conducting studies on and establishing anti-money laundering rules and policies for financial institutions; 2) engaging in international cooperation on anti-money laundering; 3) consolidating and analyzing information on suspicious payment transactions; 4) assisting the judiciary departments in the investigation; 5) ensuring proper security arrangement for the PBC system, etc. Thus, all respondents pointed out that the 10 specified functions are covered under the current laws and regulations.

The Anti-Money Laundering Law and other regulations clarified institutions obligation, coordination mechanism, and other preventive measures. The China Anti-Money Laundering Monitoring and Analysis Center, and the inter-ministerial anti-money laundering joint conference mechanism play an important role in detecting and punishing money laundering related acts. According to the results, 80 percent (8 out of 10) of respondents considered the preventive measures are most effective, only 1 respondent considered it least effective. The choices of detective and punitive measures are pretty close, with 70 percent of respondents considered the former one the most and second effective, and 60 percent for the latter one. The least effective rankings for the two measures are 10 percent and 30 percent, respectively.

According to The Anti-Money Laundering Law, financial institutions are required to establish a sound anti-money laundering internal control system, and implement a customer identification system.

Under the current laws and regulations, financial institutions have the obligation to comply with all the mentioned requirements, including customer identification and due diligence, internal operational procedures and control, specialized unit for AML task, report system, AML training and disseminating, investigation in dubious transaction, etc.


In the process of customer due diligence, financial institutions are obliged to establish a sound identification assessment system, they are also required to screening suspicious customer’s information for government or international bodies use.

6 Respondents gave their choice and ranking about common types of suspicious transaction reports from their perspectives. Result shows that the transaction inconsistent with financial profile, unusual account activities, cutting large transaction into pieces, suspicious activities linked with a transfer, and Inconsistency between the declaration of the customer and documents were more common than other activities, with all respondents chose them (or some of them)as the top 3 common types. Correspondingly, the Refusals to show identification and Avoiding reporting obligations were least two common types according to the results.

As for the citizen participation, the majority of the respondents indicated that citizens have played an important role in promoting public sector transparency, enhancing AML activities and uncovering money laundering related crimes by means of complaining, reporting, etc.

China has established comprehensive measures to preventing and punishing money laundering acts/crimes while focusing on the former. As a result, 44 percent of respondents thought the punishment of money laundering incidents was appropriate, while 56 percent of them thought the punishment was too light.

There are some training workshops for the employees of controlling agencies provided by high institutions, but it not the main channel for them to acquire related knowledge in combating money laundering.

For the overall comments on China’s AML campaign, 90 percent of respondents considered it has yielded notable results, and contributed to prevent money laundering activities, only 1 respondent thought the result was not evident right now but will play important role in the future.

193China

IV. Evaluation of Role of Audit to Detect Fraud and Corruption

Government audit institutions in China have attached great importance to the full play of the role of supervision through auditing in combating corruption. Over twenty years, catering to the need of fighting corruption of the State, audit institutions at all levels have strengthened the supervision through auditing over key areas, key institutions and key funds, and about 25,000 clues of economic crime cases have been detected and referred to judicial authorities.

In 2003, ex-Auditor General Li Jinhua presented the annual audit report to the Standing Committee of the National People's Congress. He openly disclosed the severe irregularities committed by many ministries and other government agencies. This report was posted to the official website of the NAO. It was the first time that the audit report was published to the public. This received significant public attention and was labeled as “audit storm”. The term of “audit storm” was coined in 2003 for the NAO’s audit report of that year. This year, Premier Li Keqiang stressed on several occasions, National audit office should a sword against corruption and National Audit Office is now putting more and more effort in anti-fraud areas.

Audit institutions in China are subordinated to the people’s governments as a part of the executive branch of the state. As the supreme audit institution of China and one of the ministries of the State Council, CNAO, directly under the leadership of the Premier, organizes and administers audit work of the whole country and reports its work to the State Council.

The legal status of auditing and supervision in China has been explicitly written in the Constitution of the People’s Republic of China. Article 91 of the Constitution stipulates that: The State Council shall establish audit institution who will take charge of auditing revenues and expenditures of public finance of departments of the State Council and local governments at various levels, revenues and expenditures of state banking institutions, state enterprises and undertakings. The audit institution shall be under the direct leadership of the Premier of the State Council and exercise its power of supervision through auditing independently in


accordance with the law and subject to no interference by any administrative organ or public organization or individual.

The Constitution also stipulates that, the Auditor General shall be a member of the State Council. The Auditor General shall be nominated by the Premier and, subject to approval by the National People’s Congress or its Standing Committee, shall be appointed or removed by the President of the State. So, our audit general has a fixed term of five years.

As for the major types of audit, CNAO mainly carry out the following type of audit: real time or a priori audit, performance audit, compliance audit, financial audit, environmental audit, value for money audit and economic accountability audit.

In Constitution, law or regulations, although it did not indicate specifically CNAO’s roles and responsibilities on anti-corruption, it is well embedded within Article 2 of the Audit Law. There is also no specific “anti-corruption strategy” implemented in accordance with the national anti-corruption strategy, however, promotion of the construction of national anti-corruption system is clearly set as one of the strategic goals of CNAO. Detection of the corruption will be embedded in the regular audit service, normally it will be an audit objective stated in audit programme and all departments conducting audit are mandated to prevent, detect and investigate corrupt activities and transactions. Both proactive and reactive approach will be adopted to detect corruption. Before the field audit, high risk areas of corruption will be targeted and major works will be implemented in these areas. Whistle-blowing is also an important source of criminal clues. After the discovery of the red flags or symptoms, National Audit Office will conduct further investigation before referring to other agencies. Available facilities or mechanism to promote and intensify prevention and detection of corrupt activities and transactions in the government including: hotline devoted solely to corruption complaints, anti-corruption researches, anti-corruption educational/training programs and updated publication of audit reports through the CNAO’s website.

As for the reporting mechanism, CNAO will not issue special audit report

195China

specifying the audited corrupt activities and transactions. But vital corruption cases will be sent directly to the Premier in a special form of report, named “Significant Audit Findings”, which include the corrupt activities and transactions, the pecuniary loss suffered by the government, the persons responsible/liable and the laws and rules violated. Then this report will be referred to different executive and law enforcement bodies according to the ranks of the responsible person and losses they caused. CNAO has the result feedback mechanism to ensure the audit findings and recommendations contained in the audit reports are properly acted upon by the concerned body.

The anti-corruption action of CNAO has achieved fair performance based on our in house research and studies. In recent years, CNAO focused on the audit of major government investment projects, and more than 300 hundred corruption cases were referred to anti-corruption agencies. Subsequently, series of laws and regulations were strengthened. In recent five years, CNAO has referred more than 15 thousand fraud cases to other agencies, and more than 780 billion Yuan was saved.

Although CNAO has achieved fair good performance in anti-corruption area, it still has to face limitations. Firstly, CNAO do not have a sufficient level of maturity in organizational cultures, administrative organization and internal control, vulnerability/risk analysis, audit and monitoring and accountability. Secondly, there are also lots of factors which hampers our role in the fight against corruption, such as some superiors covering up for their subordinates, lacking of competent and experienced staff to handle corruption cases and lacking of capacity and financial resources.

Ensuring financial security and combating financial crimes has always being one of CNAO’s top priorities. In recent years, fruitful results as been achieved by CNAO in: detecting potential money laundering activities through auditing by filtering suspicious accounts; tracking unusual transactions, and analyzing interrelations among selected entities; referring valuable crime clues to the AML agency (Central Bank) in recent years.


V. Introduction of Typical Audit Practices

1. Best Practices of Preventive Role in Anti-Corruption and Anti-

Money Laundering

1.1 Objectives of Best Practices of Preventive Role

The primary goal of CNAO in preventing corruption and money laundering activities is to help improve and strengthen the effectiveness of public institutions’ internal control systems which, in the end, will improve china’s governing ability and push forward the modernization of governing system. CNAO perform its responsibility by conducting compliance & performance audit as well as accountability audit.

1.2 Typical Examples or Case Studies of Best practices in Preventive Role

(a) Anti-Corruption

Currently, the following 4 mechanism in place/measures taken are considered as good practices in preventing corruption:

(a-1) Whole Process Tracking audit or Interim Audit that intervene early in audited activities

The 1st Whole Process Tracking Audit dates back to 2005 when China started its construction for 2008 Beijing Olympics. It took 3 years for CNAO to follow the whole process, from stadium construction to it’s ultimately held.

Another project made tracking audit better known by the public. When China’s Sichuan Province was striken by the Wenchuan Earthquake on May 12. 2008, in order to make sure government relief funds and supplies could go to victims’ hands properly and efficiently, CNAO initiated its 1st tracking audit. Over 300 auditors were sent to the stricken area immediately after the earthquake to supervise the

197China

whole procedure of allocation.

In September, CNAO published its Guidance on Further Strengthen Tracking Audit on Post-quake Reconstruction, specified audit aim, scope and focus. It takes over 2 years for 11648 auditors from CNAO and other audit organs at provincial and municipal levels to finish the audit, in which about 27902 reconstruction projects were audited with 767.8 billion RMB involved. The audit results were made public with 6 audit announcements were published in all. According to the results, irregularities in usage of fund, policy implementation, project management and ecological restoration were found, but compared to the large basis, the ratio is relatively low.

It has become a common practice that CNAO carries out whole process tracking audit on implementation of large investments on people’s livelihood, special resources exploitation and environment protection issues, significant public events and major national policies. e.g., audit of construction of low-rent housing, high speed railway, etc.

(a-2) E-Audit System

In 2002, CNAO started to construct its information system called Golden Auditing Project, in which audit applications, intranet security system etc. were built. As the project became mature, CNAO started to build the E-Audit system based on Golden Auditing Project. The system collects financial information of all agencies within CNAO’s audit scope, thus enables auditors to perform preliminary analysis for the upcoming auditing. For some agencies whose servers are connected and financial data could be updated at real time, auditors could detect irregularities at first time, and reduce the opportunities for corruption.

(a-3) Economic Accountability Audit in Place

A system of economic accountability has put in place to supervise major leaders of state organs and SOEs to be audited in accordance with the Audit Law of China. In 2010, the Central Government published the Guidelines on conducting economic


accountability audit of major leaders, in which the principle, audit scope, limits of authority were established. Each single year, thousands of leaders are audited for their economic responsibilities by audit organs at different levels.

As power is one of the incentives for corruption, abuse of power is a form of corruption. The normalization of economic accountability audit not only detect corruption, but also ring an alarm to the person in high position.(with the fast development of economic accountability audit, nowadays leaders of state organs and SOEs all have the common sense that they will be audited within or after their expiration, and in some places, leaders will be told of theirs economic accountabilities before they officially take position, in this way, leaders will be careful when utilizing their power, try best not to abuse it. Which is rightly the preventive role that accountability audit plays.)

(a-4) Raise Public awareness through release of audit results

CNAO actively raises public awareness to prevent corruption through releasing audit results, including those doubtful corrupt activities transferred to judicial organs. Thus could form the two way interaction between the audit agencies and the public.

(b)Anti-Money Laundering

The systems as stated above have became the basic systems in the business operation of financial institutions. CNAO has the authority to deliver an opinion on the performance of these systems of state-owned financial entities (including commercial/policy banks, security companies, insurance companies and other financial intermediaries, etc.)

For example, in one information letter of CNAO, it pointed out that some provincial financial institutions lacking competent experts and knowledge to fully accomplish the responsibility of reporting doubtful and large transactions timely and completely to central bank.

199China

3. Best Practices of Detective Role in Anti-Corruption and Anti-Money

Laundering

3.1 Objectives of Best Practices of Detective Role

(a)Anti-Corruption

CNAO has incorporated in its regular audit projects the aim of anti-corruption.

• The main objective of detective role is consisted of :

• To access the possibilities of corruption behavior in audited entities;

• To identify potential corruption behavior in audited entities;

• To investigate and collect sufficient evidence for supporting the chances of corruption behavior;

• To report and transfer the suspicious corruption cases to judicial organs or administrative organs that related.

(b) Anti-Money Laundering

The objective of detective role of CNAO is to find doubtful money laundering activities by analyzing accounts, transactions and business information preserved by financial institutions or other external entities using technical methods, based on the field experience, CNAO find the following three types of doubtful activities significantly related to (or has much higher possibility than other type) crime of money laundering.


3.2 Typical Examples or Case Studies of Best Practices in Detective Role

(a) Anti-Corruption

Currently, the following practices/measures are considered good practice in detecting corruption:

(a-1) applying computer audit techniques

With the development of information system, both audit organs and audited agencies are doing better in keeping financial and operational information. By analyzing these data, audit organs could expand its audit coverage and work more efficiently in detecting corruption.

An example is when CNAO carried out the audit of Affordable housing project: the auditors looked to not only the fund raising, management and usage, but also the construction and distribution of the house. It’s an important policy linked directly to vulnerable groups’ well being, so one of the audit project’s aim is to make sure the houses are distributed to those that are qualified, while there were rumors that some rich people got these houses.

However, to review the application of each beneficiary would be time consuming, random selecting could only keep a low coverage. Auditors analyzed the qualifications for beneficiary, in which stated that people own housing property and luxury car would be unqualified.

Auditors obtained property and vehicle registration system from vehicle and property management department, respectively, and crosschecked data with the data of affordable housing distribution, then quickly found out cases that violates the regulation. It was later confirmed that some people who gained these houses irregularly were relatives or close friends to the person in charge of the local affordable housing project.

(a-2) communicating fully with judicial institutions

201China

CNAO has established close cooperation ties with judicial institutions. The Supreme People’s Procuratorate and Ministry of Public Security signed MOU with CNAO on transfer of illegal cases and strengthening cooperation. In the first 6 months of 2013, CNAO transferred 38 illegal cases to judicial institutes.

As the cooperation become deeper and closer, CNAO and the Ministry of Public Security put joint efforts in training auditors in pre-judging, analyzing a potential corruption cases and collecting sufficient evidence to support the chance of corruption. One or two seminars are held each year based on specific cases transferred to MPS, which would enable auditors working more efficient and targeted.

(a-3) enhance knowledge sharing and training of auditors.

Besides reasonable institutional arrangement, talent is the basis of all. All cases detected relies on auditors’ rich experience and professional judgement. To enhance knowledge sharing and capacity building is the fundamental way to enhance audit institutions’ detective role. There are some measures taken by CNAO in this respect:

• Outstanding audit project are selected each year, and these good examples are popularized within the whole system.

• Outstanding audit case are selected and assembled into a book, so that auditors could learn from.

• Seminars are held often, enabling auditors to communicate with others in different audit field.

4. Best Practices of Reporting and Following up Roles in Anti-

Corruption and Anti-Money Laundering

(a) Anti-Corruption(a-1) transfer suspicious cases to authorized institutions


Cooperation relationship has been established between CNAO and judicial and other authorized institutions. Suspicious cases would be transferred to these institutions once evidences are considered sufficient. And CNAO is ought to be informed of further information or results of these case transferred.

(a-2) report to the State Council illegal cases in large scale or amount

Once the illegal or irregular cases are in significant scale or amount that CNAO considered it’s necessary, an important information letter would be sent to the State Council to arouse senior leadership’s attention.

(b) Anti-Money laundering

Since CNAO is not the administrative agency of AML, it performs its responsibility of helping crack down financial crimes by reporting and transferring suspected cases identified to these agencies in the form of audit information letter. In addition, for all the transferred cases, CNAO requires to be informed of the further information or investigation result of the cases from responsible agencies.

V. Improving measures in detecting Corruption and money laundering

1. Improving anti-corruption and anti-money laundering measures in

international level

Although China has strengthen the efforts in cooperating with international organizations in order to better combating corruption and money laundering activities, from audit perspective, we believe that there are several aspects that may have room to improve:

The first is enhancing SAI’s cooperation with international agencies in jointly supervising Global financial institutions, to tracking suspicious activities as a whole, to eliminate blind legal area and to prevent risk transferring and deteriorating.

203China

The second is exploring to establish intelligence, data and information sharing system. Due to legal barriers, it is hard to obtain information of doubtful institutions/individuals’ overseas activities, therefore, an information sharing system could largely save energy of SAI in the process of negotiating, judicial assistance, etc.

2. SAI and improving anti-corruption and anti-money laundering

measures in national level

(1) Investigative audit is a typical audit tools used by CNAO, by conducting this type of audit, auditors focus on certain issues or institutions/individuals for in-depth analysis, e.g. high risk area, reported clues, etc.

(2) Investigative audit provide auditors to utilize a variety types of resources, which covers commercial banks, industrial & commercial bureau, tax bureau and law enforcement agencies.

(3) By constructing early warning system, auditors could monitor the process of targeted suspicious activities in a time flow sequence, thus change the traditional audit process of post-audit to proactive audit.

The development of anti-corruption standard or code of conduct is not a task of our office. They are developed by the Commission for Discipline Inspection of the Central Committee of the CPC and Supreme People’s Procuratorate.

However, we suggest the following measures to improve the anti-corruption role of our office in national level:

The first is to enhance the Joint Meeting for Economic Accountability Audit System.

By Now, the Joint Meeting for Economic Accountability Audit is anticipated by the Commission for Discipline Inspection of the Central Committee of the CPC, the Organization Department of the CPC Central Committee, the Central


Staffing Department, Ministry of Human Resources and Social Security and Ministry of Supervision and State-owned Assets Supervision and Administration Commission, coordinating with the audit planning, implementing and utilization issues. To further enhance this system, some law enforcement institutions, like the Procuratorate and Ministry of Public Security.

Secondly, keep close working relationship with the Commission for Discipline Inspection of the Central Committee of the CPC.The Commission for Discipline Inspection of the Central Committee of the CPC is now at the cutting edge of China’s anti-corruption. From 2012 July till now, a total number of 422 high-ranking officials are punished by the Commission. CNAO should closely follow the Commission’s Deployment and provide professional support.

Thirdly, strengthen the guidance and supervision of internal audit of government institutions and state-owned businesses.

The internal audit plays an important role in the anti-corruption areas within an institution. However, most internal auditors are lack of experiences and techniques in this area. CNAO should provide relevant guidance and supervision to enhance internal auditor’s capabilities in preventing and detecting corruptions.

The first is to actively participate in joint conference system. CNAO is not yet member of anti-money laundering joint conference, which is a main channel for related organization to get informed of the latest progress of AML, therefore, by joining this conference as a formal member, SAI could get more information and cooperation for our AML investigation.

The second is to extend the “Audit platform & data system of Commercial bank” program. Since 2008, the financial institution audit department initiated this program. Till now, this system has been established in over 8 state-owned commercial banks. Through authorization, auditor could gain remote access to banks’ database to obtain necessary information in analyzing suspicious activities (e.g. doubtful transactions, bank loans information,etc.) SAI’s ability and efficiency of detecting money laundering activities will be improved if this system

205China

could be extend to more financial institutions.

3. SAI and improving anti-corruption and anti-money laundering

measures in organization level

3.1 Planning and Formulating Audit Program stage

In current stage, the following five areas are of high risks based on our SAI’s experience:

• Public fund management

• Public works

• Releasing of bank loans

• Transfer of land and mineral resources

• Disposal of state owned assets and investment of state-owned businesses.

3.2 Detect corruption and money laundering activities in the highest risk

area

(1) assessment of auditee in compliance with law & regulations , as well as the robustness of the internal control & reporting system.

(2) collecting irregularity information about the auditee and the industry from law enforcement agencies, public media and whistle blowers.

(3) Screening out suspicious activities and preparing for further investigation.To identify suspicious activities, normally three ways will be taken:

• follow the fund flow: Tracking the flow of public fund, and find out whether the unqualified institutions or business enterprises got the fund, or public fund


is embezzled to private account.

• follow the transaction flow: Analyzing the transation processes and find out the irregularities.

• analyze the power using and accountability system of audittee to locate possible rent-seeking behaviors.

In order to fully reflect the process of suspicious activities, auditors usually obtain variety of external information to assist judgment, such as business registration information, tax payment records, household registration information, property registration information, and some cases even the personal accounts, etc.

3.3 Audit Techniques and methods

Website , hotline, report letters/emails, are typical channels for people to report suspicious corruption and money laundering related activities. Although most of them are anonymous, the system is becoming an important supplement for SAIs in detecting corruption and money laundering acts.

CNAO strengthened the system in the following ways:

• Education of the auditors the importance of protecting whistle blowers and confidentiality of related information & materials

• Strengthen efforts in announcement & disclosure audit results to the general public

• Development of an online complain and feedback system to increase the transparent of the audit work which can accessed by the whistle blower

CNAO does not have forensic audit unit or investigative audit units , and according to current organizational structure which approved by the State government, we do not have the authority to establish a formal units dedicated to forensic or

207China

investigative audit. However, in some resident offices, they established a virtue unit.Now days, more and more controls within an institution are embedded in the information system. To breach the rules, some insiders try to change the code or modify the data. The audit of information system is now must-to-do for anti-corruption purpose.

3.4 Utilization of audit findings

CNAO delivers several types of audit findings related to anti-corruption and money laundering, which are Regular audit report, Special report on certain issues, and Letters containing clues of suspicious corruption or money laundering activities to relevant agencies for further investigation. However, the follow-up of these reports are unsatisfied.

We suggest an online feedback system which could be accessed by the accountable institutions to feedback follow-up work after the issuance of audit reports, to guarantee the audit opinion & recommendations be seriously treated or implemented. When necessary, held bilateral or multilateral talks& meeting with relevant agencies to obtain the latest information and progress.


3. India

SAI India (Supreme Audit Institution) is the Indian Audit and Account Department. It acts as an instrument for ensuring accountability. The constitution of India has mandated SAI to function as Auditors to the nation. SAI has Comptroller and Audit General and The Indian Audit & Account Department as its constituents. The SAI India audits both central and state government and also maintains the accounts of state governments.

The Role of CAG

In the Indian system of governance, the policies are set by the parliament and the state legislators give the goals to be achieved through the public spending. These policies are the translated into program and then implemented by various department of government. For this, parliament sanctions the budget detailing the mode of collection, amount of collection and also for the purpose for it is to be spent and the government dept. are accountable for the quantity and quality of their expenditure to the parliament. CAG assists the parliament to enforce the said accountability of the Govt. Department. The constitution enables the independent and unbiased nature of audit by the CAG by providing:

• Appointment by the president of India• Special procedure for removal (like a supreme court judge)• Charging of Salary and Expenses (not voted)• holding of any other government office after expiry of term not permitted.

CAG’s DPC Act

The CAG’s DPC (Duties, power and Conditions of services) Act is a detailed legislation enacted by parliament in 1971. This Act lays down the service conditions to secure the autonomous nature of the CAG. It also mandate and puts almost every spending, revenue collecting or aid/grant receiving unit of government under CAG’s audit domain. Anti-Money laundering is not part of mandate under the constitution and DPC Act.

209India

The Organizations Subject to the Audit of SAI India are:

• All the Union and State Government department including the Indian Railways defense and Post & telecommunication.

• About 1500 public commercial Enterprises controlled by Union and state government.

• About 400 non-commercial autonomous bodies and authorities owned or controlled by the union or states.

• Bodies and authorities substantially financed from Union or State Finance.

How does Audit Take Place?

First of all every audit office prepares annual Audit plan detailing the units to be audited during the year after the risk assessment exercise is been done. The audit plan is carried out through Quarterly Audit program. The department to be audited is informed in advance and then Field Audit is done by Audit officers and Assistant Audit officer. These officers conduct local inspection of records. Then all operational and financial documents are checked. Next to it queries are made and reply is obtained through the respective departments.

What are Different Types of Audit?

Depending on the objective of Audit, audits are classified as follows:

• Compliance Audit• Financial Attest Audit• Performance Audit

Besides this there are other audits as well on Information technology and Environmental issues.


Compliance Audit

Compliance Audit is a transaction Audit in which some selected transactions of an entity for a particular financial year is chosen for examination for e.g. a purchase made by a medical officer, a contract made by the public works division for building a road or Tax assessmentby an Assessment Officer.

Financial Attest Audit

It’s a “supplementary audit” with the primary auditor usually being a chartered Accountant. It is used to certify how far the accounts are true and fair i.e. whether the financial statements are properly prepared, complete in all respects and are presented with adequate disclosures.

Performance Audit

The Performance Audits are seeks to establish at what cost and to what degree the policies, programme and projects are working. In addition to all the financial audit checks it assess whether a scheme or activity deploys sound means to achieve its intended socio economic objectives.

Information Technology Audit

It seeks to take up audit of computerized systems and e-governance initiatives.

Social Audit

The objective of Social Audit is to muster the local knowledge and competence of various civil society organizations for a better reach of the formal audit process and to evaluate the performance of government Scheme. It’s being carried out for social sector schemes such as health, education, rural employment and water.

211India

Environmental Audit

It’s a performance audit on various environmental issues and then to conduct research on environmental issue and sustainable development.

Audit Reports

It’s the final product of the entire audit process. It contains the final fully corroborated audit findings. It may be accepted by the department and/or proved factually and are material enough to be placed in legislature and then it is seek to determine the nature of inadequacies identified.

The Benefits of the Audit Reports

Audit Reports helps us in Quantitative as well as in Qualitative terms. The on-site audit is conducted annually and simultaneously issue inspection report in more 64000 units of the Union, State and Union Territory Government s across the country and abroad and audit 14.33 million vouchers and transactions. It helps to check the quantum of overpayments /under recoveries in the range of 15000 crore and recoveries upwards of Rs. 2750 crore in transactions. Qualitatively, Audit reports provide an in-depth analysis of the financial health of Union and State Government and facilitate them to take necessary corrective action in case of financial lapses and to alter law and policy if change is required.

The Advisory Role of SAI

• With the help of GASAB it frames Government Accounting Standard for greater transparency.

• It helps Finance commission to gain an informed opinion on State Government Finances

• Helps the Government department in in strengthening internal controls and improved financial management in the system.

• It organizes various workshops and seminars in Accrual Accounting etc for


state govt. dept.

SAI and Its Role in Anti-Corruption

Fraud, corruption and money laundering have increasingly become important concerns for countries around the world. The role of audit in addressing this concern has come under critical scrutiny. There is an increasing expectation that SAIs should, through concerted action, play an effective role in promoting a culture that values honesty, responsibility, and accountability in the exercise of authority and utilization of national resources. This expectation is embodied in the INTOSAI Auditing Standards.

With increased public consciousness, the demand for public accountability of persons or entities managing public resources has become increasingly evident so that there is a need for the accountability process to be in place and operating effectively. SAI India is continuously endeavoring through its audit work and reporting that necessary accountability framework is further strengthened.

International organizations encourage bilateral and multilateral exchanges of views as well as seminars at the regional level on the role of SAIs in fighting corruption and money laundering. International co-operation in the fight against corruption should be intensified within INTOSAI and the regional working groups as well within International organizations as well as SAIs.

SAI’s promote and cultivate a permanent exchange of information and experience as well as close co-operation with all international administrative agencies and institutions involved in the fight against corruption and mismanagement, and, in particular, with internal auditing services and is in continuous pursuit of developing a networking relationship with other enforcement agencies for sharing information and training of personnel on a reciprocal basis.

One of the effective tool of reducing corruption by SAI is its preventive role with the objective to minimize the risk of corruption. However under the Constitutional provisions, CAG do not have direct power to initiate proactive action against anti-

213India

money laundering, however, the main objective of preventive role is to create a network between CAG and anti-money laundering agencies of Government.

SAI India constantly promote the strong financial management systems through its preventive role. By promoting strong financial management systems based on effective financial reporting, strengthening the internal control for auditee entities and the disclosure of any deviations which has a dissuasive effect on those who might otherwise engage in corruption.

Role of Audit in Relation to Cases of Fraud and Corruption

The overall Responsibility for prevention & detection of fraud and error rests primarily with the management of audited entity.

Audit, however, evaluate and report on the adequacy of systems in place with the auditee to prevent, detect, respond and take remedial measure in relation to fraud & corruption. This is integral part of all kinds of audits. Further, fraud examination is a part of normal auditing procedure. Audit findings include the cases of presumptive and suspected frauds when the evidence is clear. Audit team put red flags which needs further investigations by appropriate agencies.

Audit teams do not make legal determinations of whether fraud has actually occurred. Audit teams maintain an attitude of professional scepticism (questioning mind and critical assessment of audit evidence) throughout the audit. Audit teams carry out independent risk assessment and prioritise audit planning. Based on risk assessment, they design the audit objectives & audit procedures so as to secure reasonable assurance of detecting material irregularities arising from fraud and corruption.

SAI India has a dedicated training institute as Centre of Excellence in “Audit of Fraud, Fraud Detection Techniques and Forensic Audit”. It acts as a repository of information on the subject through developing quality reading material, case studies research papers.


Audit Planning

The audit offices of SAI India carry out independent risk assessment and prioritizes their audit plan accordingly. The audit plan in relation to fraud and corruption essentially focus on high risk areas.

Awareness of the indicators /opportunity for corruption at the audit is assessed at the planning stage.Auditors carry out an independent risk assessment and prioritize/strategize their audit planning. This include consideration of any information received from public or media on suspected cases of corruption. The auditor keep in view that the risk of corruption could be higher in certain organizations in those involving the procurement of goods and services. Further, for example, the auditors need to be alert to some situations that are more prone to corruption as compared to others. Some of the common high risk areas (Illustrative) are contracts of service/procurement, inventory and asset management, sanctions/clearances, performance information, revenue receipts, cash management, general expenditure, grants , financial statements , operating information and other areas involving public-private interface.

Based on the risk assessment, the auditor develop audit objectives and design audit procedures so as to have reasonable expectations of detecting irregularities arising from presumptive cases of corruption.

At the commencement of each Audit, information about fraud and corruption awareness, adequacy of internal controls , detection and prevention policy and related environment (including any instances of fraud and corruption noticed since last audit and any action taken on such instances including further strengthening of internal control systems ) is collected from the audited entity management.

During the course of audit, the audit team/officers are vigilant (professional skepticism) and seek explanations/clarifications, if they come across possible fraud or corruption indicators.

Audit teams may also prepare a comprehensive list of “red flag” items in audit of

215India

various departments/sectors and establish procedures to ensure that such items are reckoned with while planning the audits, transparently documented and evidence of addressing all such items and their treatment are recorded and retained which becomes and input for audit planning for the next circle of audit.

Fraud Indicators

SAI India has fraud indicators which are developed while applying normal auditing procedures during regular audit or fraud examination by being alert for situations and environment conducive for fraud, control weaknesses, inadequacies in record keeping, errors and unusual transactions and results, which could be indicative of fraud and corruption, improper expenditure and lack of probity.

Anti-corruption Complaint Mechanism

SAI India hasavery robust anti-corruption complaint mechanism. Complainants can address their complaints directly to the Head of Audit formations in the Field offices or to the SAI India directly. Further, our website lists out details of the relevant authorities to home the complaints regarding anti-corruption can be addressed.

SAI India being a public authority is under the preview of Right to Information Act – 2005, wherein any citizen can ask for any information about the audit processes or administration within the SAI. This act gives immense powers to the common man to seek any information (unless specifically exempted) and strengthen the already existing complaint mechanism.

Further, SAI’s interaction with the stake holders at various levels; preliminary study & analysis of the audited entity, entry & exit conference level, building and sustaining professional working relationships with the audited entities, ensuring an effective interaction and involvement of the audited entities in the audit process etc. helps in further strengthening the anti-corruption complaint mechanism.


In essence, continuous two way interaction and strengthening and open communication environment between SAI and the audited entity at every stage —audit plan finalization, intimation of audit, entry Conference, field Audit, exit Conference, draft final report and other follow-up activities gives ample opportunity to strengthen anti-corruption complaint mechanism.

Any complaint so received or any information received which indicates towards red flags is considered to be material and is acted upon in a time bound manner. This is either taken care in a special audit or becomes a part of the risk assessment factor while planning for the next audit depending on its gravity.

Whistle Blowing

SAI India encourage whistleblowing system or receiving complaints for detecting corruption by welcoming such information and acting on them firmly, in the meanwhile keeping the identity of the source confidential.

Further SAI India also substantiates and establish the facts as provided by the whistle blower or complainant by corroborating it in the field audit. Thus the facts are established with a rigorous process of audit and are backed by key documents.

Forensic Audit

SAI India does not have forensic audit units however they are need based and specially constituted audit teams in case of detection of fraud/corruption.

Forensic investigator conducts an investigation to establish facts in relation to acts or actions/situations that may constitute a legal significance. The exact procedure to be followed in conducting investigations to uncover cases of frauds, misappropriations and defalcations varies according to the circumstances of the case. The Forensic auditor has to know, study and analyses, the nature of frauds, psychology of the persons involved in fraud, the transactions and the circumstances which are more prone to frauds and the steps involved in detecting such frauds.

217India

Forensic Auditor designs program of investigation in such a way to eliminate the various possibilities till the facts are established. He prepares working papers of the work carried out by him such as examining evidences, minutes of the discussions, relevant statements and supporting schedules for finalizing his report. His conclusions of the investigation should be clear and to the point with supported by evidences.

SAI India has a dedicated Regional Training Institute; one of the nine Regional Training Institutes situated throughout the country. This institute caters to the training requirements of Indian Audit & Accounts Department in some specialized courses viz. “Audit of Fraud, Fraud Detection Techniques and Digital Forensics”, this institute takes participants from all the corners of the country.

Investigative Audit

SAI India do undertake investigative audits. However, they are part of our regular auditing procedures. SAI India doesn’t have special or specific investigative units. As a part of continuous capacity building of the human resources within the SAI, we partake continuous training to our auditing personnel’s which help them train in the investigative auditing techniques and procedures.

Information Technology Audit – to Prevent Fraud and Corruption

IT fraud & corruption could involve the manipulation of a computer or computer data by whatever method in order to dishonestly obtain money, property or some other advantage of value or to cause loss. IT systems provide opportunities for their misuse for economic or financial gains. Computer networks can be used to commit crimes from geographically far off places. Frauds committed using computers vary from complex financial frauds to the simpler frauds where computer is only a tool to commit a crime. With some state governments, union government departments and public sector organizations going for e-commerce/e-payment systems in a large way possibility of electronic fraud requires attention.


IT assisted corruption or frauds are committed by insider’s outsider’s vendor’s competitors etc. Such frauds are committed by manipulation of input output or throughput of a computer system. Fraud can also be committed by hacking into the system for causing deliberate damage.

Since many records are produced by computers in the usual and ordinary course of work, we as auditors understand how to collect and handle those records as audit evidence. Collecting computer evidence requires careful planning and execution. Auditors examine whether appropriate controls are in place in order to ensure the authenticity of computer evidence.

The steps in prevention of frauds in computerized systems involve setting up of proper access controls both physical and logical. Physical access to computerized system and logical access controls prevent unauthorized access to data and software for its use and manipulation.

For auditors the most effective tool is data enquiry analysis and reporting software. Powerful interactive software like ACL and IDEA can quickly sift through voluminous electronic data and assist in the detection and prevention of fraud in an organization. They can be used to process normal data as well as exception reports and audit trails but demand flexibility and creativity on the part of the auditor. SAI India has a pool of IT auditors with the capability to revise and upgrade queries based on the findings from previous queries. Besides having auditing skills it is important that auditors have intimate knowledge of computerized system to understand the possible modes of fraud so that they can isolate all types of risks to the organization.

Increasing use of IT systems by auditees requires that the auditor should have access to reliable and verifiable system based audit trains to evaluate the internal control. The auditor has to be particularly aware of the audit trail of the checks and balances of IT systems of the levels of control and needs to also have a fair idea of how processing controls can be circumvented by the perpetrator of fraud and how data can be accessed and manipulated. It is particularly important for the auditor of the IT system to assess in his audit the level of security controls built in and if

219India

these are in tune with the sensitivity of data.

Qualification in Audit Opinion on Financial Statements

In case of financial audit instances of possible fraud and corruption may require making qualification in the audit opinion on financial statements depending upon the materiality of the audit findings. In other cases they may be reported to entity management in a special letter or in the regular inspection reports depending upon the circumstances.

When in the opinion of the auditor the financial statements include material fraudulent transactions or such transactions have not been adequately disclosed or the audit conducted by the auditor leads him to the inference that instances of fraud and or corruption have taken place and when the auditor has adequate evidence to support his conclusion he should qualify the audit certificate opinion and or ensure that his findings are adequately included in his audit report. However the term fraud or corruption may not be used in a conclusive sense unless such action is established in a court of law.

Fraud Auditing Standard

SAI India have Auditing Standards which are as applicable to fraud auditing as well. Our Auditing Standards prescribe the norms of principles and practices, which the Auditors are expected to follow in the conduct of Audit. They provide minimum guidance to the Auditor that helps determine the extent of auditing steps and procedures that should be applied in the audit and constitute the criteria or yardstick against which the quality of audit results are evaluated. The auditing standards of the International Organization of Supreme Audit Institutions (INTOSAI) have been suitably adapted with due consideration of the Constitution of India, relevant Statutes and rules for the auditing standards for the Supreme Audit Institution of India (SAI). The reporting standards for fraud are contained in the document on Auditing Standards – Second Edition 2002 / Chapter IV – Reporting Standards / No – 9.


Documentation

During the course of Audit, auditors should collect adequate documentation which may provide evidence during subsequent enquiries investigations court cases etc. The documentation should include inter alia:

a. The identified and assessed risks of fraud& corruption the overall response of the auditor to the assessed risk of fraud& corruption and the nature, timing and extent of audit procedures and the linkage of those procedures with the assessed risk of corruption and fraud;

b. The results of the audit procedures including those designed to address the risk of management override of controls;

c. Communications about corruption or fraud made to management etc.

The documentation should also be capable to proving that the audit personnel have discharged their functions with reasonable care and due diligence and should enable a review of working procedures and working papers.

Reporting to Investigating Agencies

Accountants General, Principal Directors of Audit, etc. carry out a quarterly review of the audit findings contained in the inspection reports, audit notes, etc. relating to different wings of their offices and bring specific material/ significant cases of suspected fraud or corruption.

Such cases should be forwarded to the vigilance or investigative authorities such as the central bureau of investigation, central and state vigilance commissions lokayuktaetc.through confidential letters drawing reference to earlier correspondence if any and with additional information that these cases have been included in the CAGs audit report to Parliament state legislature while forwarding such cases the Accountant general/Pr. Director should also send a brief write up

221India

of such cases with details of the names of individuals, firms, address etc. and any other necessary information available in field offices which are not mentioned in the audit report as per our reporting policy. It should be clearly stated in the communications that in view of the intent of audit to bring the matter to the notice of parliament/legislature strict confidentiality should be maintained about the matter to avoid any likely breach of privilege of parliament/legislature.

The communication to vigilance or investigative authorities should clearly indicate that the audit evidence is obtained from the original documents of the audited entity. They should also indicate that the audit findings are based on the test check carried out and the information and records received from the audited entity. The investigative agency should use information given by us as a lead and make their own examination of the primary/original records which are available with the audited entity/ department.

Reporting and following up

The field audit offices have institute mechanism for recording the case of fraud and corruption (including possible indicators of fraud and corruption) noticed during the course of audit in separate registers maintained for the purpose. Such cases are to be followed up vigorously with the concerned audited entity and with higher executive authorities and should not be settled in a routine manner. All significant cases are followed up with the Secretary of the Administrative Department concerned.

In following up on reported cases of fraud and corruption the auditor determine whether the necessary action is being taken with due regard to urgency that the situation demands and become aware of the changes in the systems and procedures which could be validated through subsequent audits.

The Accountant General send annual confidential letters to the Secretaries of the concerned Administrative Departments (in cases where the Inspection Reports, Audit Notes, etc. throw a pattern of fraud across the Department) indicating the details of the important cases of suspected fraud and corruption. It should


be noted that once a matter has been referred to the investigative or vigilance agencies, the responsibility and scope of audit is to provide the information and assistance sought by them in accordance with the extant instructions. The matter, may, however be followed up through discussions in formal meetings with the investigative or vigilance agencies.

The cases of suspected fraud/corruption are reported confidentially to the controlling authority with the approval of the Competent Authority. More serious cases are also confidentially reported to the Secretary of the Administrative Departments(where they are not the controlling officers) concerned and the investigative authorities like Central/State Vigilance Commission, Lok Ayukta etc. over the signature of the Accountant General or with his/her approval. Therefore, the establishing investigative audit unit is a typical example to represent the detective role of SAI in combating corruption.

The communications to vigilance or investigative authorities should clearly indicate that the audit evidence is obtained from the original documents of the audited entity. They should also indicate that the audit findings are based on the test check carried out and the information and records received from the audited entity. The investigative agency should use information given by CAG office as a lead and make their own examination of the primary/original records which are available with the audited entity/department.

Utilization of Audit Findings in order to Prevent Future Instances of

anti-corruption

When auditors detect fraud, illegal acts, or other noncompliance that are not of materials nature, they should communicate those findings to the auditee, preferably in writing and should refer to such communications in their report on compliance. Auditors should document in their working papers all communications to the auditee about fraud, illegal acts, and other noncompliance.Management is responsible for taking timely and appropriate steps to remedy fraud or illegal acts that auditors report to it. When fraud or an illegal act involves

223India

assistance received directly or indirectly from another government or agency, (for example Central Government Grants received by the State Government or a government agency including an autonomous body received a government grant) auditors may have a duty to report it directly (to the other government/agency) if management fails to take remedial steps.

Auditors should obtain sufficient, competent and relevant evidence (for example, by confirmation with outside parties) to corroborate assertions by management that it has reported fraud or illegal acts.

Auditors under some circumstances may be required to report promptly indications of certain types of fraud or illegal acts to law enforcement or investigatory authorities. When auditors conclude that these type of fraud or illegal act either has occurred or is likely to have occurred, they should ask those authorities and/or legal counsel if reporting certain information about that fraud or illegal act would compromise investigative or legal proceedings. Auditors should limit their reporting to matters that would not compromise those proceedings, such as information that is already a part of the public record.

Further, the important Audit Reports and audit findings are presented as case studies to various wings of SAI for education and awareness of audit teams to sensitize them about possibility of such cases in their audit domain. These case studies are also included as part of training programs of auditors in our training institutes.


4. Indonesia

1. Background

This report is presented as the research results of The Audit Board of Indonesia (BPK) in the10th ASOSAI Research Project – Audit to Detect Fraud and Corruption: Evaluation of the fight against corruption and money laundering. The objective of this project is to improve the audit capability of ASOSAI members in fighting fraud, corruption and money laundering in a comprehensive way through subject study and experiences exchange. Since BPK does not have mandate to audit money laundering, money laundering topic is excluded from the report.

1.1 Research Method

The method used for this research are as follows:

1. Survey

The questionnaires used for this survey are designed by the research leader and sub leader based on suggestions of other participating SAIs. Part II, III, and IV are using closed-question questionnaires. The Respondents of the survey is both internal and external parties of BPK. Part V and VI are using open-question questionnaires.

2. Case Study

Besides using questionnaire, part V and VI are also developed based on case study experienced by BPK.

1.2 Scope of the Research

Since BPK doesn’t have any mandate in money laundering, BPK limits its research only in corruption area. In addition, the result of this research is based on the study

225Indonesia

on 2013-2014. Some answers are repeated because sometimes some same certain answers are needed for each different part of the research.

1.3 Respondents

Respondents of the research are both internal and relevant external parties (ministries, anti-corruption agencies, Law Enforcement Agencies, Indonesia Financial Transaction Report and Analysis Center, States-owned Enterprises, and States-owned Banks).

1.4 Structure of the Research Report

This report consists of eight parts as mentioned below:

2. Evaluation of Current Situation of Corruption

The main point of this part is the evaluation of current situation of corruption in Indonesia. The result of the current situation of corruption is drawn from the survey result of government agencies representing National Police Department, Corruption Eradication Commission, Attorney General Office, Indonesian Financial Transaction and Analysis Center (PPATK), Ministries, Banks, and States-Owned Enterprises. Their answers are selected as the proxy of the research in this part. Below are the summary results of the research.

Part I Background

Part II Evaluation of Current Situation of Corruption

Part III Evaluation of Current Situation of Anti-Corruption

Part IV Evaluation of the Role of Audit to Detect Corruption

Part V Introduction of Typical Audit Practices: Case Study of BPK

Part VI Measures on Improving about Audit Function in Detecting Fraud and Corruption: Some Lessons Learned from BPK


2.1 Prevalence of corruption

The prevalence of corruption in Indonesia is in its serious and pervasive level. In addition, the level of occurrence is higher than previous years.

2.2 Transparency International-Corruption Perception Index (CPI)

Respondents agree with the transparency and integrity index, as this show the real situation of corruption in Indonesia.

2.3 Global Integrity Index

As the CPI, respondents also agree that this index fairly represent the real condition of Indonesia.

2.4 Tolerant Level towards Corruption

Respondents perceive that the society in Indonesia is moderately intolerant to corruption. In addition, respondents perceive that the level of steps taken by our government against corruption is weak.

2.5 Pattern of Corruption

The pattern of corruption in Indonesia is highly predictable, it can be seen from certain pattern and mostly happen in public entities.

2.6 Types of Corruption

The most types of corruption based on prevalence in Indonesia are grand corruption, petty corruption, and corruption at enterprise level. Meanwhile, the most common types of corruption are abuse of power and bribery. Sectors vulnerable to corruption in Indonesia are in Law Enforcement and Taxation.

227Indonesia

2.7 Petty Corruption

The prevalence of petty corruption in Indonesia is high, and mostly involving parties in medium management. Meanwhile, the main pattern of petty corruption in Indonesia is illegal charges. The society perceives it is alright to pay some illegal charges as long as it will make their business is done or problem is solved.

2.8 Grand Corruption

The prevalence of grand corruption in Indonesia is high, and mostly involving elected officials and their personal favorites.

2.9 Corruption at Budgeting Level

Respondents strongly agree that corruption during budget formulation is considered as grand or political corruption and the opportunities for such corruption comes from unchecked and excessive executive discretion in the budget process. In addition, respondents agree that public management system weakness during budget formulation can increase the risk of corruption during budget execution.

2.10 Root Cause and Consequences of Corruption

The root cause of corruption in Indonesia are the weakness and the lack of anti-corruption legal system, the patronage-client system, and weak accounting practices.

2.11 Consequences of Corruption

Corruption was considered to give serious impact to government budget as well as society.


2.12 Management of Complaints

Respondents perceive that the role of whistleblower is important in reporting corruption, and it is effective to lodge people complaints.

3. Evaluation of Current Situation of Anti-Corruption

The main point of this part is to describe the current situation of anti-corruption efforts in Indonesia. The answers drawn from some agencies, which are National Police Department, Corruption Eradication Commission, Attorney General Office, Indonesian Financial Transaction and Analysis Center (PPATK), and State-Owned Banks are selected as the proxy for this part. Below are the summary of the result.

3.1 National Anti-Corruption Strategy and Action Plan

In general Indonesia has a good anti-corruption infrastructure, including a National Anti-Corruption Strategy which has been defined into specific action plan, and has been publicly publicized. In addition, the strategy has employ all of the measures in fighting against corruption stated in the questionnaire (transparency, code of conduct, declaration of assets and income, etc).

3.2 Anti-Corruption Agency (ACA)

To strengthen its anti-corruption strategy, Indonesia also has a special anti-corruption agencies namely corruption eradication commission (KPK). Most of the answers available in the questionnaire serve as the main function of ACA (i.e. identify the causes of corruption and to propose to the competent authorities of measures to help eliminate it, monitor and evaluate the implementation of anti-corruption strategy, conduct investigations, disseminate anti-corruption knowledge, etc). In order to mitigate corruption, ACA in Indonesia has taken several actions such as: -regular evaluation on bodies/area/activities having high risk of corruption

229Indonesia

-set up a special hotline or website to accept complaint about corruption.


Indonesia has a special law of anti-corruption to criminalize corruption, law on political parties financing, public official code of ethics, and law in assets declaration of public official. Public official in Indonesia also has an obligation to report any corruption-related offences (Government regulation No53/2010 about public official discipline). According to the survey, Indonesia needs more specific law on nepotism and influence peddling. Related to accounting and auditing standard, Indonesia already has those standards both for public and private sectors. However, in current situation respondents perceive that the implementation rate of anti-corruption law in Indonesia is still in fair level.


On 2006, Indonesia has ratified the United Nations Convention against Corruption (UNCAC) through Law No.7/2006, and Indonesia has also become a member of international anti-corruption initiatives such as G-20. Regarding the success level in international cooperation, respondents think that it is still in low to moderate level.

3.5 Promoting Awareness and Other Matters

The result of the survey shows that media has a good effect of helping public to recognize the real situation of corruption and to promote anti-corruption. The society in Indonesia actively participate in tackling corruption, but unfortunately, according to the survey this effort is not effective. Respondents also perceive that current anti-corruption efforts in Indonesia is slightly higher than past years. To promote anti-corruption, Indonesia also has anti-corruption education for various communities such as school, public official, and also to general public. Even though anti-corruption efforts are quite popular, these efforts face so many obstacles. According to the survey, the most inhibiting factor is the collusion


between the law enforcers and corrupt people.

Regarding the result of anti-corruption efforts, respondents perceive that the current result of the fight against corruption have not had evident impact nowadays, but will have in the future. Lastly, giving the role to the citizen (in form of establishing whistleblower system and engaging society in corruption prevention efforts) also become an important step in fighting against corruption in Indonesia.

4. Evaluation on the Role of Audit to Detect Fraud and Corruption

This part mainly discusses the role of audit conducted by BPK to detect fraud and corruption. Respondents for this part are auditors in BPK. Their answers are selected as proxy for this part. Below are the summary of the result.

4.1 Legal Status, Structure, and Mandate of SAIs

The legal status of BPK is stated on 1945 Constitution (article 23E) which read as follows: To audit the management and accountability of state finance, there shall be a Supreme Audit Institution which shall be free and independent. BPK is among the State Institutions together with the President, Parliaments, and the Supreme Court. Holding this position, BPK gains a considerable level of independence from the executive as well as legislative powers to fulfill its duties. The organizational structure of BPK is Board, with its nine Board Members appointed by Presidential Decree.

Pursuant to the State Financial Management and Accountability Audit Act (Law No.15/2004) and BPK Act (Law No.15/2006), BPK conduct three types of audit: financial audit, performance audit, and special purpose audit (including investigative and environmental audit). Regarding to anti-corruption mandate, as mentioned in Law 15/2004 and Law 15/2006, BPK can conduct investigative audit to reveal any criminal act indication and/or state loss. In addition, BPK could appoint its auditor/s to become an expert witness before the court regarding the state loss examination.

231Indonesia

4.2 Role of BPK in the Prevention and Detection of Corruption

State Financial Management and Accountability Audit Act (Law No.15/2004, art 14 ) and BPK Act (Law No 15/2006, art 8) stated that “Should, in any audit, BPK finds any criminal offense, BPK should report that matter to the authorized institution in accordance to the stipulated law and regulation”. To fulfill this obligation BPK develop its own anti-corruption strategy. The implementation of its strategy is by establishing an Investigative Audit Unit (ad-hoc organization) on 2006, and promoting capacity building for investigative audit. Unfortunately, currently BPK only has a very few investigative auditors. In order to enhance its auditors’ skills in fighting against corruption, BPK regularly conducts training on Fraud Awareness, Fraud Auditing, and Fraud Risk Assessment. Besides conducting training, BPK already has developed Investigative Audit Manual on 2008.

Detecting corruption is embedded in BPK regular audit services, but it is only merely incidental to the audit services being rendered. Upon the discovery of red flags of corruption during a regular audit, auditor will refer the red flags to the Investigative Audit Unit for the conduct of a full blown investigation. Besides conducting investigative audit in such proactive manner (as mentioned above), BPK also conduct investigative audit based on reactive approach (ex: based on complaints received). In conducting investigative audit, some audit techniques used which are considered effective are data collection, risk assessment and analysis, data analysis, interview, and case analysis. For any detected corrupt activities in an audit, BPK will issue special audit report specifying the corrupt activities, the pecuniary loss suffered, the responsible person, and laws and rules violated to LEA. After reporting to LEA, BPK will do the coordination with LEA about the follow up of the case.

To promote its role in fighting against corruption, BPK also has some facilities in preventing and detecting corrupt activities and transactions such as hotline and citizen helpdesk to complaint corruption, anti-corruption educational/ training program, code of ethics, etc.


The Most High Profile Corruption Case Uncovered

1. Hambalang infrastructure case

BPK revealed the bid rigging case mainly by using re-performance audit technique. The amount of state loss is US$39.40 million. In this case, one minister and a director of state-owned company have been sentenced.

2. Century bank bailout

BPK revealed abuse of power case by using document analysis technique, especially in central bank regulation. Besides data analysis, auditors also conduct a lot of interview for this case. The amount of state loss is USD584. 60 million. In this case one central bank deputy director has been sentenced.

4.3 Assessment of SAI’s Performance and Integrity

In the field of anti-corruption efforts in Indonesia, BPK contributes a lot in detective actions through the conduct of fraud/forensic audit (also known as investigative audit in BPK) and timely reporting of the audit results to the LEA. However, according to the survey result, the rating of BPK performance in fighting against corruption is still in fair level.

4.4 Audit Limitations

According to the result of the survey, there are some limitations faced by BPK in preventing and detecting corruption both in internal and external environment. The internal limiting factor such as in management attitude, risk analysis, and recruitment and selection process. And, should it be any organizational changes, respondents perceive that BPK needs a permanent investigative audit unit. Meanwhile, the biggest external limiting factor in BPK’s role in fighting against corruption is collusion between law enforcers and corrupt people. In addition, there is also no guarantee by the law for the auditors to be immune from probable

233Indonesia

harassment cases related to the audit, no investigatory and inquisitorial powers such as power to punish for contempt, and no exemptions from the Secrecy of Bank Deposits law. All of these limitation narrowing the function of audit conducted by BPK to prevent and detect corruption.

4.5 Cooperation among SAIs and Anti-Corruption Agencies

Fighting against corruption cannot be done alone. BPK realizes that cooperation is a very important value to promote BPK’s role in fighting against corruption. The cooperation is established with ministries, anti-corruption agencies, and also with international organizations.

To the ministries, BPK actively promote fraud control system, and recommend improvement on internal control. The form of cooperation with ACA is by establishing Memorandum of Understanding (MoU) for information exchange related to corruption and capacity building for personnel either in BPK or in ACA. In international level, BPK having cooperation in anti-corruption field with United States Agency for Development (USAID), ASOSAI and Working Group on Fighting Against Corruption and Money Laundering (WGFACML) in INTOSAI, etc. The corporation is in knowledge sharing, joint research (such as in INTOSAI, ASOSAI), etc.

5. Introduction of Typical Audit Practices: Case Study of BPK

The role of BPK is much broader than simply preventing corruption. The most important one is that BPK is expected to ensure transparency and accountability of state finances which is of great importance for a stable national development. To actualize its role, BPK has an active role in every stage of fighting against corruption process which are preventive, detective, and reporting and follow up phase.


5.1 Preventive Role

5.1.1 Objectives of Best Practices of Preventive Role

Prevention is considered to be the most effective way to reduce corruption. In preventing corruption, BPK’s auditors assess fraud risk in each audit assignment, namely financial, special purpose (compliance), and performance audits. They also evaluate the effectiveness of internal control in each audited entity. By performing such assessment, the auditors can identify the control weaknesses and therefore can give necessary recommendations to improve the internal control. BPK believes that a better internal control will reduce fraud risks and lead to smaller opportunities for corruption.

5.1.2 Benefit of Best Practices of Preventive Role

By performing preventive role, BPK can possibly gain the following benefits.

1. Promote better management practice regarding state finances;

2. Raise awareness among management (executive) and public on the importance of prevention as the most efficient and effective way in combating corruption.

5.1.3 Typical Examples of Best practices in Preventive Role

1. E-Audit System

In 2010, BPK launched Electronic Audit (E-audit) System, a web-based electronic system in collecting and storing financial data from all agencies or entities of BPK’s audit scope. This system enables BPK’s auditors to perform preliminary analysis which can be useful for planning their audits. E-audit system is designed to synergize BPK’s information system with those of its audited entities.

By utilizing e-audit system, BPK’s auditors are able to perform audit assignment

235Indonesia

more efficiently and more accurately. Since the auditors can access financial data earlier, they can detect any irregularities earlier. The system also enables the auditors to increase their audit coverage and also to perform cross-agency analysis.

2. Strengthening Public Awareness to Prevent Corruption

BPK actively disseminate its role in fighting corruption and encourage society to report any condition susceptible to corruption. Such disseminations are delivered to stakeholders such as students, civil servants, and parliament members.

3. Cooperation with Corruption Eradication Commission

BPK signed a memorandum of understanding with Corruption Eradication Commission in order to enhance cooperation between institutions in fighting against corruption. The scopes of cooperation are information exchange regarding corruption cases, personnel assistance, training, research, and coordination.

4. Strategic Initiative Program

In its five years strategic planning from 2011 to 2015, BPK has a particular program, called strategic initiative on enhancing investigative audit capacity. The initiative includes recruitment of additional investigative auditors, training, certification, and workshops for investigative auditors.

5. International Cooperation

BPK actively participates in international activities related to fight against corruption. Currently, BPK takes part in INTOSAI Working Group of Fighting against Corruption and Money Laundering (WGFACML) whose objective is to help SAIs enhancing their efforts in fighting against corruption and money laundering. Through this working group, the participating SAIs try to develop concepts and best practices through knowledge sharing, trainings, and manual development. Joining10th ASOSAI research is another example of BPK’s participation in this field.


5.2 Detective Role

5.2.1 Objective of Detective Role

The objective of detective role are to reveal any indications of corruption. The sources of information could come either from regular audit finding (internal) or tips (external).

5.2.2 Benefits of Best Practices of Detective Role

By promoting this role, BPK can detect corruption at the earlier phase, and also hand in hand with LEA in fighting against corruption.

5.2.3 Typical Examples of Best Practices in Detective Role

Some examples of best practices done by BPK in promoting its detective role are as follows:

1. Establishing Investigative Audit Unit on 2006, with its main roles are to assess any indication of corruption and conduct investigative audit including state loss examination.

2. Developing some audit manuals for conducting investigative audit (i.e.: Investigative Audit Manual, Guidance on Fraud Awareness, Guidance on Initial Information Analysis, Guidance on Conducting Interview for Investigative Audit, Guidance for Non-verbal Communication).

5.3 Reporting and Follow up Role

5.3.1 Objective of Reporting and Follow up Role

The main objective of reporting role is to make sure that corruption indications

237Indonesia

found within BPK’s audit assignments are followed up by the authorized institutions (LEA).

5.3.2 Benefits of Best Practices in Reporting and Follow up Role

The benefit of having this role is to make sure the perpetrators of corruption get proper punishments, so that it will result in a deterrent effect. The deterrent effect of the punishment could reduce corruption in the future.

5.3.3 Typical Examples of Best Practices in Reporting and Follow up Role

Some examples of best practices done by BPK in promoting its role in reporting and follow up role are as follows:

1. Cooperation in State Loss Examination

One of the follow up steps from investigative audit is a request for a state loss examination from LEA. This state loss examination is conducted in order to obtain legal evidence related to a corruption case.

A State loss examination is performed under the methodology of investigative audit. It is regarded an audit assignment as well. There are two objectives of state loss examination, they are: (1) to decide whether an indication of state loss exists and (2) to calculate the amount of state loss when it exists.

2. Expert Witness

LEA can ask BPK to provide an expert witness before the court referring to the state loss examination report.


6. Measures on Improving about Audit Function in Detecting Fraud

and Corruption: Lessons Learned From BPK

The main point of this part is discussing what measures that SAIs better have to improve its role in fighting against corruption. The recommended measures are grouped into three level, those are for international level, national level, and within SAI itself (organizational level).

6.1 International Level

In international level, BPK encourages active participation in bilateral and international cooperation (INTOSAI, ASOSAI, USAID, etc).

6.2 National Level

In national level BPK encourages strengthening the mandate of SAI in investigative audit, and the cooperation with LEA.

6.3 Organizational Level

In organization level, BPK encourages strengthening its audit capacity to enhance its function in fighting against corruption. The strengthening audit capacity effort are classified into four groups which are planning, formulating audit program, audit technique and method, and utilizing audit findings.

6.3.1 Planning

The improving measure in audit planning is the detection of the highest risk area of corruption. According to the survey, the highest risk area of corruption in Indonesia is in tax revenue, and followed by procurement. Since we have limitation in accessing information about taxation, we elaborate more on procurement area.

239Indonesia

6.3.2 Formulating Audit Program

The improving measure in formulating audit program is the detection of red flags. Below are some examples of red flags in procurement area.

6.3.3 Audit Techniques and Methods

Some improving measures in audit techniques and methods are as follow:

1. Establishing anti-corruption complaint mechanism

BPK has built whistle blowing system (WBS) on 2011, stipulated by General Secretary Decree No 507/2011 about Whistle blowing in BPK. It is part of our SAI Fraud Control System (FCS). The development of the WBS is incorporated to the BPK public service system that consists of:

a. Complaints on code of conduct breach by the BPK’s employee and management. This type of complaint can come either from external and internal sources (will be handled by Internal Audit Department).

No Procurement Stage Red flags

1. Planning a. Inadequate needs assessment

b. Lack of information about the potential suppliers

c. Senior employee/ management involvement without any proper reason

d. Big amount of disposal

e. A very specific requirement (but not really important) so that only can be fulfilled by certain supplier

2. Bidding a. Unclear goods specification

b. Fewer number of proposal from suppliers

c. Inadequate publication for “request for proposal”

d. High variation in price from suppliers

3 After bidding a. Contract amendment causing high cost increase

b. Inadequate contract change without proper explanation

c. Complaints on good received


b. Public complaints related to BPK’s work, audit results, and public aspiration channel to participate in selecting audit topic (will be handled by Public Relation Department to be processed by the related Working Unit).

People outside BPK can found the anti-corruption channel in BPK’s official website www.bpk.go.id. Besides “on line” mechanism BPK also has an off line Information and Communication Centre Office, located in BPK Head Office. There, people can directly come to submit their complaints about corruption. For provinces, people can come directly to BPK’s regional office and meet the Public Relation Officer in each regional office. In addition BPK also have a postal address for people to submit their complaint in PO BOX 4330 Jakarta 1004.

Internal anti-corruption channel can be found in BPK’s intranet website siska.bpk.go.id. BPK’s internal audit department operates this channel.

2. Establishing Investigative Audit Unit

As stated earlier, since BPK has a mandate in conducting investigative audit (Law No15/ 2004 article 13), BPK established its Investigative Audit Unit in 2006. For BPK, it becomes one of measures for improving its role in fighting against corruption.

3. Developing Investigative Audit Standards

In order to conduct successful investigative audit, BPK have developed some audit manual and guidance in investigative audit field.

4. Conducting investigative audit training

Besides having manuals, BPK also conduct regular training on investigative audit to its auditors’. As an example, training to develop the inquiry skill of auditors when they are conducting investigative audit. In the training we have a session to watch the real interview conducted in investigative audit and then we ask the participants to evaluate the interview process.

241Indonesia

6.4 Utilization of Audit Findings

Audit finding can be used as a lesson learned to improve the entities internal control. Based on that, auditors propose improvement of internal control related to such business process. Information that comes either from non-investigative or investigative audit can be used to improve government internal control. If BPK conduct investigative audit, it can be used as a material for deeper analyses in fraud risk assessment not just the internal control.


5. Iran

1. Research Background & Methodology

1.1 Background

Over the past 3 decades, these research projects cover various audit fields, such as the environmental audit, IT audit, audit of public works, and internal audit units, etc., and have produced constructive results including Performance Audit Guidelines, Guidelines on IT Audit, Guidelines on Audit Quality Management System, Guidelines on Conducting Environmental Audit, etc.

1.2 The 10th research project

At the 45th ASOSA GBM in March 2012, “Audit to Detect Fraud and Corruption: Evaluation of the Fight against Corruption and Money Laundering” was selected as the topic for the 10th Research Project of ASOSAI.

1.3 Project Objectives

This study aims at improving the audit capability of ASOSAI member in combating fraud, corruption and money laundering in a comprehensive way and playing a vital role in anti-corruption and anti-money laundering actions through subject study and experience exchange.

To achieve the aims described above, the project was framed by several parts, including an overall situation of corruption and money laundering; The assessment on measures taken by responsible organs; Role & mandate of SAI in fighting against corruption and money laundering, typical examples of SAIs’ in performing their duties; Measures that could be developed to enhance SAIs’ ability in combating corruption and money laundering.

243Iran

2. Evaluation of Current Situation of Corruption and Money

Laundering

2.1 Current Situation of money laundering in Iran

Money laundering is serious in Iran. It means that there are many risk areas in different sectors of public and private sector that can potentially harm the economic growths. These are should be identified as soon as possible so that necessary measures could be taken to take them. It should be noted that the money laundering in the country is not out of control yet.

Due to the fact that the Iranian government has been fighting money laundering through a couple of useful measure, fortunately money laundering has not tendered increase in recent years. In other words, it is under control.

Money laundering is being sophisticated year by year. As an example this year the methods of money laundering is more complex in comparison with 5 years ago. Today it is possible to transfer millions of dollars with one commuter click. This was much harder some years ago. The main pattern of money laundering could be observed in Iran both at public and private sectors. Indeed these two sectors are complementary and vital for every economy. In other words, the measures to tackle money laundering are not limited to public sector; the private sector is included as well.

The areas prone to money laundering could be as in the following from the most to least important: 1. Finance and banking, 2. Real estate, 3. Trade, 4. Construction projects. Regarding the most common method of money laundering in Iran from most to least, the following sectors could be named: 1. through financial institutions, 2. Money exchange, 3. Cash transaction, 4. Casino, 5. Real estate, 6. through internet and 7. Stock market.

Now coming to the environments favorable for money laundering, it could be said that bank and financial institutions do not have suitable supervision/control system


to anti money laundering. In addition to this, use of cash and illegal money transfer is dominant. Other environments are not much prone to money laundering risk.

Now let's talk about the offences closely associated with money laundering. The following items should be taken into consideration: Embezzlement, Corruption, and Production, buying and selling of illegal goods, terrorism, and Drugs. However the top three offences include: Drugs, Production, Buying and selling illegal goodsUnfortunately exact and reliable statistics on the approximate average amount of monetary involved for the top three offences mentioned above is not available. This information could be gathered in the next phases of the activities of government on money laundering.

As mentioned earlier, the main reason criminals launder money is that they want to make that money legitimate earned through legal ways. Moreover, they want to hide illegally accumulated wealth for future use.

As mentioned above, money laundering has some consequences that will affect national development, economic growth and will lead to social injustice. These consequences have manifested themselves in Iran as negative impact on foreign investment as well as reduced government tax revenue and weakened government control over the economy. There are other minor consequences as well. Unfortunately, the economic and social consequences that money laundering has caused in Iran has been extremely serious. In addition to the above consequences, money laundering has also had extremely seriously national security, international reputation and weakens the economy as well as economic reforms. As said earlier no reliable data in the form of incidents of corruption from 2007-2012 is not available.

2.2 Conclusion

With regard to the related laws and regulations, available infrastructure, operational FIU, receives and analyze and dissemination of STRs and CTRs to competent authority, we should say that the situation of Iran in fight against money laundering is being improved. Even if the threat is serious to both public and private sectors, it is under control.

245Iran

3. Evaluation of Current Situation of anti-corruption and anti-money

Laundering

This section identifies and analyzes the anti-corruption and anti-money laundering overall situation particularly in aspects of National strategy and action plans, responsible agencies, Legal background, International cooperation, promoting public awareness and other matters.

3.1 Evaluation of anti-corruption

Iran has Stand-alone anti-corruption strategy and programme. These following chapters, covered in the anti-corruption document in Iran: - Level of implementation of previous strategy. - Objectives and priority areas. - Chapters on prevention and criminalization / law-enforcement measures.

Iran’s anti-corruption strategy has an action plan. These following elements are contained in the Anti-corruption action plan in Iran: - Specific measures for each objective. - Specific institutions responsible for the implementation of each measure.

The following measures has employed in fighting corruption in Iran are: Administrative reforms, Development and enforcement of the code of conduct and the code of professional ethics, Penalty forms to heads of the agencies in case of occurrence of corruption, Salary payment via bank account, Declaration of assets and income and Regulation of returning gift by the public officials.

Iran has an anti-corruption agency (ACA) for anti-corruption. These are the


main responsibilities/functions of the ACA in Iran are Monitor and evaluate the implementation of the anti-corruption strategy, Collect, centralize and exploit the denunciations, Identify the causes of corruption and to propose to the competent authorities of measures to help eliminate it, and Anti-corruption screening of legal acts.

Iran criminalizes different types of corrupted activities by various laws with certain provisions concerning corruption. In the following types of corruption, Iran needs to enact new legislation to better prevent and detect the relevant cases of corruption in Influence peddling and Nepotism.

We rank from 1 to 3 (most to least) the following types of measures against corruption based upon our experience in Iran: (1) Preventive policies and measures, (2) Detective actions, (3) Punitive measure.

Iran has laws and regulations governing code of ethics of public officials and has laws and regulations governing declaration of assets by public officials.

Iran has “accounting and auditing standards” for both public and private sectors. In Iran, public officials have legal obligation for public officials to report corruption-related offence. We rate the implementation of the rules/regulation in combating corruptions in good level. The reason for this rating is that based on the health promotion of the administrative system of Iran, the Legislature, Executive and the Judiciary has assigned organizations as below: in the Judiciary, the General prosecutor and General Inspection Organization are responsible. In the Legislature SAI Iran the Committee on the Article 90 of the constitution, are responsible for this issue. In the Executive, the ministry of Information is responsible for the issue. That's why due to the above mentioned organizations and using their potentials, we evaluate our measures as good.Iran, has been ratified United Nations Convention against Corruption (UNCAC) and begun the UNCAC peer review process. Iran is one of the members of some

247Iran

anti-corruption conventions, initiatives or international project (OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions; GRECO etc.).

The effect of media in fighting corruption: To some extent, media have helped public to recognize the real situation of corruption.

In Iran, the societies (including socio-political organizations, socio-professional organizations, citizens…) are participating in tackling corruption, actively. The level of anti-corruption efforts in Iran at the present time in comparison with those in past years is slightly higher than past years. Iran provides anti-corruption educational/training programs for the Public officials and General public.

3.2 Evaluation of anti-money laundering

Money laundering is a criminal offence in Iran. There are specific laws and regulations in place covering anti-money laundering in Iran. We think that the law could cover all money laundering aspects to deal with this phenomenon. We rate the implementation of anti-money laundering law in very good level. There is a national Financial Intelligent Unit (FIU) functioning as national center for the collection, analysis, and dissemination of information regarding potential money laundering offences.

There is an official authority / board in Iran’s jurisdiction that takes in hand on anti-money laundering in Iran. These following measures of anti-money laundering that this agency applies effectively: - Identify customer and update customer information (identification of customer;

classification of customer based on risk level…) - Report, provide and save information (report on great value transaction; report

on suspicious transaction).


Iran’s anti-money laundering authority enjoys independence in legal, Financial and Recruitment of employees’ aspects.

Iran’s anti-money laundering board, performs Developing policies and improving legislation, Data collecting, analysing, evaluation, Supervision, Coordination, Carry out researches, conducting sector-based studies etc., Requesting any kind of information and documents from public institutions and organizations, natural and legal persons, and unincorporated organizations and Exchange information and documents with counterparts in foreign countries functions.

The effectiveness of the following types of measures concerning anti-money laundering based upon SAI’s experience in Iran from (most to least) is as follows: - Preventive policies and measures (regulations, internal control systems,

international cooperation for deterrence, raising awareness). - Detective actions (prospections, investigations, audits etc.).

- Punitive mesure (Implementing criminal and disciplinary sanctions etc.).

Iran’s AML board requires all financial institutions to have anti-money laundering (AML) & Know Your Customer (KYC) procedures.

It is possible for Iranian citizens to inform (denounce) the Iran’s AML Board about a suspected case of money laundering via website of the AML Board. There are updated rules and information about the process of anti-money laundering in Iran. Iranian financial institutions (banks etc.) have the following legal obligations to comply with concerning anti-money laundering law in Iran:

Internal controls and procedures to comply with regulatory framework concerning AML, through client identification, Having an anti-money laundering officer, Client due diligence procedures, Risk focused assessment of customer base and their transactions, Creating and regularly updating a list of red flags concerning AML, Prohibition of anonymous accounts, Employee training programs regarding

249Iran

AML, Independent audit/compliance function, Identification and reporting of suspicious activities to the appropriate authorities, Monitoring program for suspicious or unusual activities, Policies covering relationships with politically exposed persons consistent with industry best practices, Policy prohibiting accounts/relationships with shell banks and Policy of protecting employees who report any suspicious transactions.

We think that SAI’s ability to cooperate and exchange financial information at international cooperation is in good level. Iran has cooperation agreements and protocols to share financial information and financial transfers if it’s involved with money laundering.

We think that the punishments of money laundering incidents are appropriate.

Iran provides anti- money laundering educational/training programs for Public officials, NGOs, Financial institutions and Business associations and private companies. We think that the controlling systems are the keystone and deterrent for fighting against money laundering. We have high institutions providing training workshops for the employees of controlling agencies about methods to detect money laundering. As a result of the current situation in fight against-money laundering, we have had positive impact, contributed to prevent money laundering.

4. Evaluation of SAIs’ Roles in Detecting and Preventing Fraud,

Corruption and Money Laundering

This section analyzes the role of audit to prevent and detect corruption and money laundering, as well as indentifies the limitations which might present obstacle in detecting or reporting fraud related to corruption and money laundering.

4.1 Role of Audit to combat Fraud and Corruption

Iran’s Supreme Audit Institution is established by virtue of the Constitution and this organization enjoys a permanent legal status. Organizational structure of


SAI Iran is Parliamentary model where the Office of the Auditor General is an independent body that reports to the Parliament.

The members of the Audit Committee / Board or Head of SAI Iran has a fixed term under the Constitution or law who isolate them from the influence of politics.SAI Iran works under supervision or control of the legislature. SAI Iran’s yearly budget undergoes the scrutiny and review process of the Budget Department and the proposed budget could be reduced or increased by Parliament. SAI Iran has legal mandate and authority to audit Central or national government agencies, bureaus, offices, instrumentalities and local government units at all levels.

Types of audit services that SAI render includes: (a) Real Time or a priori audit , (b) Performance Audit, (c) Compliance Audit/Regularity Audit , (d) Financial Audit And (e) Environmental Audit.

It has been considered in the articles of “health promotion of administrative activities” law, ratified by parliament that contains specific articles about SAI’s roles and responsibilities on anti-corruption. SAI Iran has its own “anti-corruption strategy” implemented in accordance with the national anti-corruption strategy.

Detecting corruption already embedded in the regular audit services that Iran’s SAI has been performing but merely incidental to the audit services being rendered. Iran’s SAI’s duties are merely confined in the evaluation of internal control system and providing recommendations for improvements.

SAI Iran provides Training workshops and review of related case studies are held to combat money laundering, fraud and corruption issues to ensure that auditors possess appropriate skills, knowledge, and abilities to identify and assess any potential irregularities.

SAI Iran has Instructions of anti-corruption manual that helps auditors prevent and/or detect corrupt activities and transactions in the government. Approaches of SAI Iran, in detecting corrupt activities and transactions in the government, limited only to detecting red flags or symptoms of corruption which will be referred to the

251Iran

anti-corruption agency for the conduct of necessary investigation.

The discovered red flags or symptoms of corruption during a regular audit will be referred to the special department, office or unit of the SAI for the conduct of a full blown investigation.

SAI Iran has available facilities or mechanism to promote and intensify prevention and detection of corrupt activities and transactions in the government like “Hotline devoted solely to corruption complaints”, “Corruption alert section in the SAI website”, “Anti-corruption researches”, “Anti-corruption educational/training programs” , “Promulgation of accounting and auditing rules and regulations” , “Governing Code of Ethics for Government Accountants and Auditors” and “Public Information Office with linkages to all sorts of media”.

SAI Iran has sufficient audit mandate, tools and techniques to detect relevant cases of the following types of corruption as “Abuse of position/power” , “Conflict of Interest” , “Fraud” , “Bribery” , “Criminal breach of trust” , “Illegal gratuities” , “Extortion” , “Asset misappropriation” , “Embezzlement” , “Forgery” , “Influence peddling” , “Kickback” , “Nepotism” , “All types of Illegal activities in public procurement procedures” and “Illegal activities related to financing of political parties or candidates in the national and local elections”.

The audit tools and techniques, that SAI Iran performs to detect corrupt activities and transactions in the government are: “Data mining” , “Risk analysis” , “Audit checklists” and “Audit manuals”. An attempt to uncover corruption has taken place by auditing and reviewing of financial statements and bank reconciliation.

SAI auditors report the detected corrupt activities and transactions cases to the Attorney General of supreme audit court and he refers the Cases to the Judiciary for follow them. SAI Iran submits the audit reports findings on corrupt activities and transactions to the Judiciary.

The legal actions that SAI Iran initiates against the perpetrators of corrupt activities and transactions are as “Civil forfeiture and seizure of the proceeds of corruption” ,


“Civil suits for recovery of the government funds and properties” and “Administrative sanctions”. Supreme audit court report is provided in form of the GAO report and is read in the parliament, and after that, the report will publish for public.

Fields of the anti-corruption efforts of SAI Iran contributes best order of importance are: Preventive actions, Detective actions and punitive measures. We rate the performance of SAI Iran in combating corruption in good level. In Article 6 of supreme audit court law, the internal control evaluation is anticipated and SAI Iran uses this article to obtain objective information about the effectiveness of its anti-corruption policy and performance. SAI Iran didn’t implement a self-integrity assessment such as the “IntoSAINT Methodology” mentioned in the exposure draft of ISSAI 5700.

For making changes in in the legal framework and organizational structure to better address growing demand for anti-corruption activities, Supreme Audit Court proposed to amend in the Commerce Act, Public Audit Act, the Planning and Budget Act and ... to the Parliament and the Commission of technical issues in parliament reviewing the proposals.

The Supreme Audit Court prepares the performance of government agencies report and audit findings and reports it to legislature and public and plays a critical role in transparency in the financial performance of state agencies, in order to achieve good governance.

SAI Iran cooperated with foreign counterparts in fighting corruption through membership in the UN convention against corruption. (UNCAC).

Through membership in the Council of regulators (Compound of the Inspector General, Ministry of Information, the supreme audit court, Audit agency and Court of Administrative Justice) Shared commitment between the supreme audit court and other anti-corruption agencies have been provided to prevention, detection and reporting of corruption and punishing the perpetrators.

253Iran

4.2 Role of Audit to combat Money laundering

Money laundering activities prohibited in Article 49 of the constitution and in Article 55 of the constitution, The SAI, monitors spending of the government budget. In addition to this, Based on the Iranian Law, all government organizations, public corporations and government institutions and the non-governmental public bodies are under the audit of SAI Iran. In addition to this, every organization being considered as governmental (based on articles 44 and 45 the Constitutions are audited by SAI Iran. SAI Iran reviews the performance of executive agencies in the fight against money laundering, by using audit checklists, monitors the implementation of these measures and discloses the findings in the audit reports. Detecting money laundering already embedded in the regular audit services. In Iran’s SAI, a special audit unit identified as anti-money laundering department established and this unit works under the direct supervision of the President of SAI. This special audit unit has been in place less than 5 years.

The approach of SAI Iran in detection and investigation of money laundering is Proactive through a risk based audit method aimed at detecting red flags or symptoms of money laundering. Upon discovery of red flags or symptoms of money laundering during a regular audit, the office or department which discovered the red flags will conduct a full blown investigation.

SAI Iran has available facilities or mechanism to promote and intensify detection of money laundering as Hotline devoted solely to money laundering complaints, Money laundering alert section in the SAI website, Anti-money laundering researches, Anti-money laundering educational/training programs, Promulgation of relevant accounting and auditing rules and regulations, Governing Code of Ethics for Government Accountants and Auditors and Public Information Office with linkages to all sorts of media.

SAI Iran has Anti-money laundering audit checklists in different sectors that help auditors prevent and/or detect and investigate money laundering incidents.

SAI Iran provides regular trainings to auditors about anti-money laundering


in accordance with an annual training program to be sure that auditors possess appropriate skills, knowledge, and abilities to identify and assess any potential irregularities. Our SAI does not issue a special audit report, but the money laundering incidents encountered and / or detected, will be incorporated in the regular audit report.

Fields of the anti-money laundering efforts of SAI Iran contribute best order of importance are: Preventive actions, Detective actions and punitive measures. We rate the performance of Iran SAI in combating money laundering in Good level. Iran’s SAI uses In-house research and studies to obtain objective information about the effectiveness of its anti-money laundering policy and performance.

SAI Iran has exchange of information and experience with other SAIs towards enhancing the capabilities and methodology of audit in detecting money laundering through Cooperation in ASOSAI and INTOSAI research projects. The legal instruments in Iran that provides for a joint undertaking among SAI and anti-corruption agencies relative to the prevention, detection, reporting and prosecution of money laundering is Membership in the Council of regulators.

5. Introduction of Typical Audit Practices

This section identifies typical audit practices in Money laundering and corruption cases.

5.1 Best Practices of Preventive Role in Anti-Corruption and Anti-Money

Laundering

The first goal in the fight against corruption is criminalization of issues and it is determined in several cases of upstream documents, constitution and laws of the country. The administrative system of Islamic republic of Iran formed by the three branches of Executive, Legislative and Judicial; that in sequence, Ministry of Information, SAI Iran and Inspection office are working as eye-regulatory body of the country. The most important task of these organizations is to keep the treasury

255Iran

and discover the crime and fighting against fraud and financial malfeasce.

Since money laundering is considered a secondary crime, the aim of the measures taken to combat money laundering is eliminate the primary source of crime to secure and maintain social capital in order to ensure healthy cash flow and transparency of economic activity. Anti-Money Laundering High Council chaired by the Minister of Economy and Finance and membership of relevant Ministers and the Secretariat and Financial Information Unit (FIU) are monitor the formation and structures of monetary and fiscal systems.

Due to the inherent duties of the SAI Iran in the fight against financial crime, anti-money laundering measures and Auditing is in the focus point of Technical Assistance of Economic Affairs and infrastructure (as the chief representative of SAI IRAN).

Anyway, SAI Iran has not direct duty to anti-money laundering. However, the main objective of preventive role is to create the network between SAI IRAN and anti-money laundering agency (FIU).

Since money laundering is in the next stage of the initial crime; and criminals take advantage of the economic benefits of the crimes by money-laundering, Criminalization and the measures taken to combat money laundering led to discovery, identification, and providing the possibility to deal with the initial crime.

Anti-corruption and money laundering committee by establishing a close relationship with the Supreme Council of Anti-money laundering has been committed in SAI Iran in order to combat money laundering.

Concurrent with the discovery of the corruption cases, SAI Iran is attempting to address other aspects of the people and activities that will lead to the discovery of the new cases of criminal actions. Based on a comprehensive plan to address the annual audit of the executive in relation to “health promotion of administrative


system” Act, is on the agenda for all boards of audit in SAI Iran. It should be noted that internal controls systematically and consistently will reduce risks of corruption.

Under the preventive role, these kinds of information should be consisted:

• Internal control standards;

• Knowledge about anti-corruption and promoting good governance.

Both auditors and supportive staffs of SAI Iran (approximately 2000) required to play role in preventive actions.

In recent years, SAI Iran has attempted to anti-corruption continuously; however, the concrete measures seem to be represented since 2006.

The expected outcomes of preventive role are consisted of:

• To reduce corruption chances through the effective internal control and proactive strategy.

• To raise awareness in combating corruption through the government officers and citizen participation.

Improving knowledge about anti-Money laundering and promoting good governance are important things to be considered in preventive role.

100 years of history Legislation in Iran as an effort to combat corruption and the rule of law and transparency in the financial and administrative affairs of the country can be assessed. Several principles of the constitution refer to the prevention of financial and administrative corruption is as follows:

A series of civil, penal, financial and economic laws and regulations exists that refers to the prevention of financial and administrative corruption.

257Iran

Also the duty of the judiciary in the fight against crime is monitoring assets of leader, president, vice president, ministers and their wives and children before and after service is upstream of preventive law.

5.2 Some of laws and regulations that prevent corruption are as follows:

• Law of prohibition Ministers and members of Congress and staff about the intervention, adopted in 1998.

• Act adopted for prohibition of receiving commission on foreign transactions adopted in 1994.

• Law of Islamic Punishment Act adopted in 1997.

• Promote health administration and anti-corruption law passed in 2012.

SAI Iran through auditing and reporting framework in conjunction with the “Health Promotion of Administrative Activities Act” prepared a rich set of regulations, procedures, and guidelines, provides a framework to fight against corruption.

Determining agencies who responsible for combating money laundering, we have anti-money laundering law and 39 action plans dealing with finance and credit institutions, stock exchange, tax, customs, insurance, employment and financial rules that prepared by the Secretariat of the Supreme Council for combating money laundering. Because the inclusive and exclusive of the above regulations, appropriate measures have been taken in the area of prevention of money laundering crimes.

The training courses of the United Nations on anti-money laundering (UNDOC AML/CFT), held by all members of the Committee of Anti-Money Laundering in SAI Iran and all staff of this committee, has been passed this course.

Through membership in the Council of regulators (Compound of the Inspector General, Ministry of Information, the supreme audit court, Audit agency and Court of Administrative Justice) Shared commitment between the SAI Iran and


other anti-corruption agencies have been provided for prevention, detection and reporting of corruption and punishing the perpetrators.

In fact, SAI Iran auditors could play a vital role in assisting other anti-corruption agencies (ACAs) especially the role of corruption investigation role. However, the main objective of detective role is consisted of:

• To assess the chances of corruption behavior in audit entities;

• To investigate sufficient evidences for supporting the chances of corruption behavior;

• To report the suspicious corruption cases to direct anti-corruption agencies.

Detecting money laundering already embedded in the regular audit services and detected money-laundering cases will be incorporated in the regular audit report.

SAI Iran could play the vital role to screen or assess Money laundering chances under sufficient evidences through the investigative audit.

Currently, SAI Iran plays the detective role to anti-corruption as following approaches:

In Article 6 of supreme audit court law, the internal control evaluation is anticipated. Also it has been considered in the articles of “health promotion of administrative activities” law, ratified by parliament that contains specific articles about SAI Iran roles and responsibilities on anti-corruption.

SAI Iran usually renders Real Time (priori audit), Performance Audit, Compliance Audit (Regularity Audit), Financial Audit and Environmental Audit and detection of corruption is one of the viewpoints of these audits.We usually use data mining, risk analysis, Audit checklists and Audit manuals to detect corruption. And attempt to uncover corruption has taken place by auditing and reviewing of financial statements and bank reconciliation.

259Iran

SAI Iran provides regular trainings to auditors about anti-corruption or anti-fraud in accordance with an annual training program to ensure that auditors possess appropriate skills, knowledge, and abilities to identify and assess any potential irregularities. According to this point, in recent years, we had training workshops and review of related case studies are held to combat money laundering, fraud and corruption issues.

Also, for having a better legal background, SAI Iran proposed to amend in the Commerce Act, Public Audit Act, the Planning and Budget Act to the Parliament and the Commission of technical issues in parliament reviewing the proposals.

All of personnel that perform regular audit in SAI, should participate in detection activities to combat corruption.

Iran has been joined to United Nations Convention against Corruption in 2003 and SAI Iran tried to implement the audit according to Legislative Guidelines of this convention. (Fight against corruption).

SAI Iran tries to implement Detective actions through the conduct of fraud/forensic audits and timely reporting of the audit results to the Prosecution Department.

SAI Iran auditors, report the cases to the Attorney General of supreme audit court and he refers the Cases to the Judiciary to follow them.

Also, SAI Iran’s report is provided in form of the GAO report and is read in the parliament, and after that, the report will publish for public.

Training auditors to inform them about new types of corruption and money-laundering is necessary.

Also these types of controls should consider ensuring that the integrity and competence of SAI in the field of anti-corruption is in a good level:


√ Integrity legislation and regulations √ Administrative organization and internal control √ Vulnerability / risk analysis √ Accountability

The approach of SAI Iran in the detection and investigation of money-laundering is Proactive through a risk based audit approach aimed at detecting red flags or symptoms of money laundering.

After detecting the red flags of money-laundering, the office or department which discovered the red flags will conduct a full blown investigation and for better effectiveness, SAI Iran prepared anti-money laundering audit checklists in different sectors.

In recent years, SAI Iran has been prepared some facilities and mechanism to promote and intensify detection of money laundering as follows:

Hotline devoted solely to money laundering complaints, Money laundering alert section in the SAI website, Anti-money laundering researches, and Anti-money laundering educational and training programs, Promulgation of relevant accounting and auditing rules and regulations, Governing Code of Ethics for Government Accountants and Auditors and establishing Public Information Office with linkages to all sorts of media.

All of auditors should participate in detection activities to combat corruption.

Special audit unit identified as anti-money laundering department and works under the direct supervision of the President of SAI. This department has been formed less than five years and has a lot of works to do in the future to facilitate detecting money-laundering cases.

Detective actions take place through the conduct of investigations and the audit results will timely report to the Prosecution Department.

261Iran

SAI Iran initiates legal actions like civil forfeiture and seizure of the proceeds of money laundering, Civil suits for recovery of the government funds and properties and Administrative sanctions against the perpetrators of money laundering.

Anti-corruption and anti-money-laundering Laws and Regulations: - The United Nations Convention against Corruption. - Law of Health Promotion of administrative system ratified by parliament. - Promotion of administrative system program. - Anti-Money Laundering Act. - Executive By-Law of Anti-Money Laundering Act. - Combating Financing of Terrorism Bill.

SAI Iran intends to use the experiences of other Supreme Audit Institutions of the leading countries in the field of money laundering, and utilizing the latest achievements in the field of auditing, creates the conditions for transparency and insecurity for money laundering and in the next few years, it will be one of the top countries in fight against money laundering.

SAI Iran, based on laws and regulations, should prepare public reporting and responsible for this daunting task, and as a sign of wisdom to confront major corruption, SAI Iran is reporting and tracking the corruption cases.

Given a training program for all organizations and institutions involved in the fight against money laundering and corruption and public education through the media and the press, expected that the year of 2014 to be extremely unsafe for corrupters. As well as participation of SAI Iran in international research projects related to combating corruption, shows a bright future to fight against corruption.

The development of electronic surveillance and monitoring of comprehensive


online financial supervision in assessing and strengthening internal controls in firms is one of the main applications of the audit and facilitate the audit for SAI Iran. The development of automated controlling and reporting systems to explore the objectives of the crime is undoubtedly is a major factor in the fight against corruption.Potential risks for fight against corruption can be stated as follows:

Political Risks; Economic Risks; Cultural Risks; and Technical Risks.

6. Measures on Improving Audit’s Function in Detecting and

Preventing corruption and Money Laundering

This section identifies and describes measures on improving audit’s function in detecting and preventing corruption and money laundering.

6.1 The role of SAI Iran at the International anti-corruption organizations

Prevention and fighting against corruption has been stipulated in the constitution of the Islamic Republic of Iran as a major principle; separation of power and independence of the Judiciary has been guaranteed, and different mechanisms have been instituted to monitor and supervise the activities of executive and administrative bodies in order to prevent corruption and ensure their smooth functioning.

The Constitution of I.R. Iran has also conferred upon the Parliament the right to probe into and investigate in all affairs of the country. The Parliament is entitled to monitor all domestic and foreign cases of corruption and financial mismanagement. Accordingly the SAI Iran as the supervisory body of Parliament examines and audits all the issues suspicious to corruption either through the order of parliament or independently upon its own discretion.

SAI Iran is not mandated directly to fight against corruption but is it has the power to investigate in any matters related to corruption, financial mismanagement and

263Iran

waste of public funds. However, SAI Iran strongly supports and encourages the government to fight against corruption through appropriate manners especially through implementing its commitments internationally. In addition to this, SAI Iran has been a member of the INTOSAI Working Group on Fight against Corruption and Money Laundering (WGFACML) since 2012 when for the first time attend the 6th meeting of WGFACML in Poland.

Also SAI Iran is one of the members of 10th ASOSAI Research project that is about Audit to detect fraud and corruption.

Government of I. R. Iran especially the Ministry of Justice is a signatory to the most important international documents against corruption. The most important activities of government of Iran could be explained in the UN Convention against Corruption and The World Bank and International Monetary Fund.

6.2 Strengthen investigative powers in SAI mandate

Since the discovery of fraud and corruption usually conducted within the scope of inspections and SAIs do financial, compliance and performance auditing under the accounting and auditing standards and SAIs usually do not have fraud detection tools, the SAIs authority on the subject of detecting fraud and corruption is in the domain of financial documents that are reviewed during the audit.

SAI Iran is obliged by law to ensure about the accurate and timely collection of revenues and performing accurate cost by the government. In this regard, any corruption that leading to the loss of revenues or increase of costs in government should be investigated and traced by the SAI Iran. Thus, although auditing standards differ from the principles of inspection and exploring corruption is not in the auditing standards, so the General Inspection Organization of the Islamic Republic of Iran has duty to uncover corruption and SAI Iran is mandated to prevent corruptive activities by adopting proper administrative procedures. In addition, if during an audit of government agencies, SAI discovers corruption, fraud and money laundering, it will report the case to the Prosecution Office of SAI Iran for further investigation and follow up.


Developing anti-corruption standard for public servants:

According to the Law on fight against corruption in the public sector, SAI Iran, besides supplying a list of auditing procedures and audit checklists in accordance with international guidelines on combating corruption, fraud and money laundering, monitors internal control system in the auditees to ensure that the internal control system can detect and fight against corruption and money laundering.

Developing anti-corruption code of conduct for business communities:

In order to fight corruption, fraud and money laundering in the business communities, SAI Iran monitors these communities through direct and indirect ways:

(A) In issues related to the professional conduct of private rights, trade union rights and public issues, government agencies are responsible for directly overseeing the business communities.

(B) SAI Iran monitors the proper implementation of anti-corruption laws and indirectly effects on developing anti-corruption code of conduct for business communities.

The highest risk area of corruption:

The highest risk areas are revenue collection and payment facilities in banks.

The discovery of crime and corruption is not in the main audit functions and that’s why auditors can only investigate and report suspected cases to the relevant authorities.

In revenue collection area, SAI Iran verifies the actual proceeds of figures and statistics by audit checklists. SAI Iran also controls the mechanism of internal controls and proper implementation of the law by the revenue collection agency.

265Iran

The planning department creates red flags for anti-corruption according to scientific studies and practical experience and external reports, previous reports that prepared during the previous audits and the results of previous studies and also the suggested cases by the audit committees.

In relation to creating and developing fraud indicators, and in order to reduce the risk of corruption and fraud, SAI Iran created fraud indicators within the framework of “Health promotion in the context of administrative system” Law and its related by-laws.

Anti-corruption complaint mechanism:

Regarding the importance of public awareness of civil rights and the structure and nature of anti-corruption in Iran and the need to inform people about the negative consequences resulting from corruption, SAI Iran has a lot of different ways to convey information or complaints from citizens about the issues related to corruption in the governmental organizations and all sectors benefiting from the state budget, including recording a complaint or notification in website, hotline, SMS messaging system and submit written reports via visiting, mail or fax. In addition, public awareness through various media, websites and publications takes place.

In order to combat corruption, SAI Iran applies new technologies (information and communication technologies) to develop and strengthen the public reporting systems.

In implementing this type of audit, auditors in performing their legal duties, when dealing with cases of corruption, besides including them in the audit reports, they document cases of corruption and send them to the Court. After examining cases within the laws and regulations, SAI’s Court decisions are made. Cases beyond the powers of the Court of SAI Iran are investigated by other relevant bodies including the Judiciary.


According to financial laws and regulations, SAI Iran ensures the correct collection of state revenues, including tax and customs duties and punishes the corruption perpetrators in these cases with the authorities that given by Law.

Concerning the separation of powers in Iran, General Inspection Organization of Iran (GIO) does this significant task (investigative auditing). This organization operates under the Judiciary system of Iran. Due to Iran’s serious determination to fight against corruption and also signing memorandum of understanding between SAI Iran and other monitoring agencies, SAI Iran will report cases of corruption (non-financial) to the relevant agencies, including the Judiciary.

According to the mandate of Supreme Audit Court stipulated in constitution and the Supreme Audit Court ACT and considering the upstream documents, this organization not only audits relevance issues but also conducts an investigation as needed. However SAI Iran regularly holds common training courses and seminars in order to avoid task duplication and accumulate efforts of national monitoring agencies in fighting against corruption. In addition, there is a special international training center in the Iranian Ministry of Economic Affairs and Finance which fights against corruption and money laundering. This center was established in collaboration with the United Nation. Monitoring agencies nominated their staff for training at the same center. In this regard, some of SAI Iran experts obtained international certificates on anti-money laundering and corruption from the same center.

Fraud auditing standard:

SAI Iran has initiated the localizing of audit standards in order to take advantage of the international experiences and the guidance that developed by professional associations (INTOSAI and ASOSAI). Also SAI IRAN has localized the International Standard - No. 2400, entitled “The standard principles of transparency and accountability”. Accordingly, all auditors are required to follow the same standard. Also after ratification of “Health promotion in the context of administrative system” ACT, SAI Iran follows up and reports about implementation of this important law in the combating corruption. SAI Iran does this work by

267Iran

issuing guidance and preparing check lists. According to the constitution, SAI Iran is required to prepare annual reports and make it public through its official website. This is an effort to promote transparency and accountability.

6.3 Conclusion and Recommendations:Improving international measures on

anti-corruption by SAIs

The role of supreme audit institutions in fighting against corruption at global level is undeniable. Today SAI is already on the track of advising their governments to encourage and mobilize international efforts in fight with the most destructive phenomenon of Iran.

With the advancement of technologies, the methods of corruptive actions have also developed. Today with one computer click it is possible to transfer millions of dollars instantly while this proved to be very difficult in the past. For this reason fighting against corruption requires multilateral cooperation. No country will be able to fight corruption individually within its borders. Information and experience sharing among the world government is very crucial in reducing the scopes and level of corruptive actions in the world. SAIs should get involved in knowledge sharing on fight against corruption through INTOSAI Working Group on Fight against Corruption and Money Laundering. It is advisable that ASOSAI establishes similar body so that the efforts of Asian countries are harmonized. The information and experiences obtained out of such interactions could be transferred to national government by SAIs.

SAIs can also help the development or improvement of international standards for fighting against corruption. This measure aims to improve the effectiveness of the actions to be taken by the world government in the future.


6. Iraq

Introdution

Financial and administrative corruption and money laundering operations are one of the organized crimes that’s have negative impacts on society, economic, and security in communities. Furthermore, it’s a world wide problem that’s can cross boarders and terrorize other countries. For the elimination of this phenomena international cooperation required to reach comprehensive and effective measures against this phenomena.

Through reviewing questionnaires and case studies for the last two years of our RP, a report has developed to represent a summary of what have been done so far, and to be part of the final report of our RP, we have divided the report into the following:

Part one: FBSA background

The Federal board of supreme audit (FBSA) is the state’s leading institution with the mission of protecting public funds, detecting fraud and manipulations, combating financial and administrative corruption and effectively contributing to supporting the national economy. The board also plays a major role in building new Iraq resting for its governance, on financial and economic foundations as well as sound and established scientific and legal standards. The Board was established in 1927 and has passed through successive stages each one represented by issuance law of the laws of financial audit.

Board’s relations with regional and international supreme audit institutions:

A. The board has joined the International Organization of Supreme Audit Institutions (INTOSAI) in 1953.

B. The board is a member in the Asian organization of supreme audit institutions

269Iran

(ASOSAI) since the establishment of the organization in 1978.

C. The board has joined the Arab Supreme Institutions (ARABOSAI) in 1976.

D. The board has been elected as a member of the executive board to the Arab Supreme Institutions (ARABOSAI) in 2007.

E. During the 11th meeting of the general assembly, the board has been elected as a member of ASOSAI’s governing board.

Board’s relations on the local level:

1. SAI is an active member of the Joint Council for the fight against corruption, which formed in 2007

2. Participate in the development of the national strategy in the fight against corruption for years (2010-2014) that respond to the UN Convention against Corruption to serve as a comprehensive and detailed plan and manual work to combat corruption at all levels

3. Contributing with other control bodies, which is (the Integrity Commission and the offices of inspectors general) to refer reports that include indicators of corruption for the purposes of verification and investigation

4. Developing national indicators of corruption in Iraq and measure citizen awareness of corruption.

Part two: current situation of corruption and money laundering in Iraq

• The corruption is moderate and widespread among some public sectors.

• Corruption is slightly lower than past years and the score of the Global Integrity Index are not fair enough to reflect the reality of corruption in Iraq.


• Government reaction against corruption considered good and society do not accept this phenomena.

• Petty corruption is wide spread and caused by Medium Management/Supervisors and grand corruption in Iraq is moderate and Powerful government officials behind it.

• Bribery is the common type of corruption in Iraq and most vulnerable sector to corruption is custom.

• Money and asset gained from corruption is often used for bank deposits this because the complicated and cumbersome administrative procedures and Weak accounting practices.

• Monitoring situation of corruption in the country has high priority by FBSA.

• About money laundering, the situation of money laundering is serious and increased in recent years.

• Both public and private sectors are facing corruption, especially banking and financial sectors, where transforming illegal money to legal is prevailed.

• These phenomena will have serious consequences such as increasing crimes and corruption, weakened financial institutions, Negative impact on foreign investment and weakened government control over the economy.

Part three: Current situation of the fight against corruption and money

laundering

• SAI Iraq has its own national strategic plan for combating corruption and money laundering, were a work plan has been developed to achieve the strategic objectives on specific government institutions.

• To attain these goals the plan has circulated on institutions with rules to be

271Iran

followed, such as “opining, transparency, develop and implement rules, standards and programs, administration reformation, professional codes of conduct, financial disclosure”).

• Anti-corruption council has formed to monitor, assess and implement the anti-corruption strategy, conduct investigation, raise public awareness for fighting corruption and data base for annual statistic corruption cases, in addition develop assessments for ministries for indicators periodically.

• Corruption is considered a crime punished by law. The law have criminalizes this phenomenon and in place procedures to tackle corruption; such as investigation, punishment and precaution procedures. The level of international cooperation is moderate regarding suspicious turning over, assets recovery and cooperation with law enforcements. The level of anti-corruption efforts much higher than past years.

• Money laundering is considered a criminal offence in Iraq. And there are a specific laws and/or regulations in place covering anti-money laundering in Iraq.

• Existence of money laundering office in central bank of Iraq specialized in fighting money laundering operations by creating precaution procedures and detecting money laundering operations. There is cooperation between money laundry office and anti-corruption joint council.

• All financial institutions have legal obligation with anti-money laundering law. The most common types of suspicious transaction reports (STR) from financial institutions are Refusals to show identification, suspicious behaviors, unusual account activities, unusually large cash transactions and Inconsistencies with the financial profile of the customer or account.

• Factors that’s inhibit the results of the fight against money laundering are Money laundering criminals are not severely punished, Lack of competent and experienced staff to handle money laundering cases and Limitation of citizen’s


knowledge about money laundering criminal.

Part four: FBSA’s role in detecting corruption and money laundering

• FBSA established by virtue of the Constitution and enjoys a permanent legal status.

• The organizational structure of FBSA is parliamentary model and enjoys with a fixed term so as to isolate it from the influence politics.

• FBSA administratively independent from the executive, legislative and judicial departments of the state.

• FBSA’S yearly budget undergoes the scrutiny and review process of the ministry of finance and the Parliament.

• FBSA have legal mandate and authority to audit on Private entities, government and non-governmental organizations receiving loans, subsidy or grants from the state.

• Types of audit services our SAI render is Compliance Audit, Performance Audit…etc.

• Detecting corruption is already embedded in the regular audit services that our SAI performing.

• Numbers of employees whom have sufficient skills are moderate and our SAI has periodic training program for auditors.

• The most adopted approach to deal with corruption is interactive precaution approach were the suspicious cases be turned to affiliated bodies.

• FBSA has available facilities or mechanism to promote and intensify detection of corrupt activities and transactions in government such as Promulgation of

273Iran

accounting and auditing rules, regulations and Governing Code of Ethics for Government Accountants and Auditors.

• Compliance audit is the most effective tool in detecting corruption.

• FBSA initiation of legal prosecution against perpetrators and provide recommendations.

• Factors hamper our SAI’s role in the fight against corruption are corrupt people not severely punished and some superiors cover up for their subordinates.

• About money laundering, FBSA’S law contains specific articles about his roles and responsibilities on the prevention and detection of money laundering.

• Detecting money laundering already embedded in the regular audit services of our SAI and suspicious cases turns to affiliate bodies.

• FBSA do have citizens help desk that caters money laundering complaints and Promulgation of relevant accounting and auditing rules and regulations.

• Very few personnel have adequate training in the detection and investigation of money laundering.

Part five: best practices

Preventive role:

Preventive role is to avoid the occurrence of irregularities to get the optimal use of the state’s resources.

Benefits of Best Practices of Preventive Role: • Auditees performance improvement.


• Protect citizen lives. • • Increase the community's confidence in SAI. • • Disbursement of allocated funds wisely.

Examples of this role are government contracts and foreign currency auctions of the private sector.

Detective role:

Detecting corruption in the right time by SAIs can eliminate its negative effects, recovering such money, refer corruptors to justice and reduce the impact of such cases in the community to the lowest possible level.

Benefit of Best Practices of Detective Role:

• To express a neutral technical opinion in the financial statements.

• To protect public money from waste and misuse.

• To protect citizens from the negative effects of corruption.

• The role of detection is a future protective one through development of precautionary measures fore non-recurrence of such cases.

• Increase citizens’ confidence in the audit institutions.

Examples on this role are:

• Cross audit on government employee’s dual salaries

• grants from more than one institution

275Iran

• Depositing forging checks on an open account belong to one of the public companies in Rafidain bank.

Reporting role:

Reporting role objectives:

Making citizens aware of corruption cases, give motivation to report on any case of corruption and reporting has more benefits than detecting because these cases can be detected when the violation has committed and This social behavior can provide protection for public funds by considering society members as one of the other SAIs.

Examples on this role are:

• Existence of a hotline to receive calls and tips about corruption

• Reporting office in the central bank of Iraq to receive money laundering information.

Follow up role:

Follow up role objectives:

• The discovery of corruption and following up procedures are very important to achieve audit function and investigation objectives and recover corruption money and punish perpetrators will impact positively on the community.

• Benefits of this role are to reduce the effects of corruption and help to eliminate this phenomenon.

• FBSA role is to deliver these cases to judiciary and the role of following up will end at this point.


Part six: Measures to improve audit function in detecting and

eliminating corruption and money laundering

We can elaborate this part as following:

SAI’s measures on international level

• Sharing knowledge and experience and work on unify audit standards to be appropriate in all countries.

• Affiliated organizations could play positive role in fight against corruption and money laundering, such as “world bank, International Monetary Fund, International Chamber of Commerce, .etc.”

• These organizations could provide information to the SAIs about any red flags in the country concerned.

• Other technical and professional specialized organizations in auditing fields could play roles in development of SAIs by providing related researches and studies.

• Adopting peer review to evaluate audit institutions and work on strengthens its functions to cope with the development of communities and its environments.

SAI’s measures on national level

This part is the mandate of the SAIs in the fight against corruption and cooperation frameworks between the SAI and anti-corruption agencies with other local organizations. In addition to the laws that serve the fight against corruption, the cooperation between the agencies involved in combating corruption must be continuous, integrated and non-interference in the powers and duties.

277Iran

SAI’s measures on the organizational level

Measures should be taken regarding audit methodology and the possibility of developing such methodology in line with the fight against corruption and money laundering, noting that the development of audit methodology is an continuous process and coincides with the development and continuation of business community. We can enlist some of these measures as follows:

• Planning of an audit

• Methods and mechanism of an audit

• Using audit results

Part seven: conclusions

1. Corruption is moderate and widespread among some public sectors, slightly lower than past years and petty corruption is wide spread and caused by Medium Management and customs more vulnerable to corruption.

2. Situation of money laundering is serious on the economic, social and political level and continuously increases as technologies increased. We can numerate some of the reasons as follows:

• Give money legitimacy

• Hide the illegal wealth

• Increase Profits

3. The most common type of corruption that needs to enact special laws is the misuse of position or authority; this was associated with a lack of organizing the financing of political parties’ process laws. The level of international cooperation is average for the aspects of the (extradition, asset recovery).


4. The refusal to show the identity is the most types of suspicious transactions are in the financial institutions, as well as penalties does not fit with the nature of the offense.

5. Factors that’s inhibit the result of the fight against money laundering are criminals are not severely punished, covering some officials on their subordinates and Lack of competent and experienced staff to handle money laundering cases which is considered medium to the number of SAI staff.

6. FBSA’s law does not contain clear paragraphs showing the role and responsibility of the SAI in detecting and eliminating money laundering operation and number of qualified auditors are few compared with total number of the staff.

7. Prioritize detective role and not giving the same importance to the roles of the preventive, reporting, follow-up roles in our SAI, while these roles are almost integrated because, that’s because of legal restrictions on the SAI’s work and distribution of tasks with the rest of the anti-corruption agencies.

8. Cooperation on all international, regional and local levels should be established to eliminate the phenomena of corruption and money laundering, in other word everyone should realize that the impact of this phenomenon is beyond the limits of any State.

9. Provide legal and regulatory support for SAIs in the areas of investigation into suspicions of corruption, which provides integrated picture of those operations until it’s presented to the judicial authorities.

Part eight: recommendations

1. Undermine the phenomenon of corruption through the development of internal financial control systems of government institutions, which prevents middle administrations and staff from conducting suspicious acts as well as a focus on the most vulnerable sectors to this phenomenon, and prioritize the fight against

279Iran

corruption and money laundering.

2. enacting laws that’s restrain the abuse of position, emplace of deterrent penalties, international cooperation in the in the field of turning over perpetrators and assets recovery resulting from the corruption or money laundering through the development of international protocols states on this matter explicitly.

3. Adoption of transparency principle in the identification of bank’s customers in order to verify any suspicions of money laundering.

4. Develop severe punishments fit the offense committed perpetrators of corruption or money laundering in order to make them examples to others not to do any suspicious acts.

5. Involve auditors in training courses related to the field of corruption and money laundering for the purpose of providing qualified cadres to combat these phenomena.

6. Strengthen FBSA with laws and powers to perform his roles effectively (preventive, reporting and follow-up).

7. Unify the efforts and developing of protocols among all states for the purpose of cooperation to eliminate these negative phenomena.

8. Give broader investigative powers to FBSA for the purpose of complete audit function and to use evidence discovered from audits as inputs to the investigation until the image is completed and transferred to the judicial authorities.

9. Drafting a standard in the field of anti-corruption and money laundering that would be a guide to SAIs in their work and give this standard acceptance in the areas of audit and investigation.


7. Korea

1. Background

1.1 The Board of Audit and Inspection (hereafter referred to as the BAI), a Supreme Audit Institution for the Republic of Korea, is a constitutional agency whose functions, status, and organization are clearly stated in the Constitution. The reason why the Constitution contains explicit stipulations regarding the BAI is to guarantee, by laying the foundation for the independence and neutrality of the BAI, that the mandate and work scope of the BAI, or the supreme audit institution of the nation, are not changed by statues unscrupulously.

As the republic of Korea adhere to the principle of separation of powers under a presidential system, Article 97 of the Constitution states that the BAI shall be established under the jurisdiction of the President to clearly recognize the BAI as an agency under the President. However, the BAI retains an independent status in performing its duties.

The BAI is an organization with a council system in which the work is processed by the Council of Commissioners. The is to place greater emphasis on fairness instead of efficiency and expediency as the BAI perform quasi-judicial functions, such as making judgements on reparation liability.

Presently, the BAI conducts four type of audit:

1. Financial audit: the focus is on analyzing and evaluating the use and management of finances of the auditee and on providing recommendations for improvement. Financial audits are conducted on a regular basis to ensure sound and efficient use of financial resources, and also to provide useful information and analysis to the people and the National Assembly.

2. Management Audit: the purpose of management audit is to conduct a comprehensive analysis and evaluation of the management of the organization,

281Korea

human resources and budget to ensure that the auditee is carrying out its functions and duties properly. This is to ensure that the work regarding budget proceeds both appropriately and lawfully.

3. Performance Audit: by conducting a systematic diagnosis and analysis of the problems, whether regarding major policies, projects, systems or management, comprehensive and fundamental recommendations for improvement can be made. This audit provides that support needed to ensure that major policies, measures and projects can be carried out smoothly for optimum results.

4. Special Audit: the purpose of the special audit is to examine important social and economic issues or matters for which the people or the National Assembly has requested and audit. This type of audit is to be used in a flexible and timely manner as needed.

Historically, the Board of Audit and the Commission of Inspection were merged into the current BAI. So, besides its intrinsic function of verifying the accounts of revenues and expenditures of public areas, the BAI, as part of its major functions of anti-corruption, has exerted strong control over all public entities by inspecting the operations and duties of the government and its officials.

Board of Audit(Sep.4, 1948)

Commission of Inspection(Aug.28, 1948)

Commission of Justice(Nov.2, 1955)

Commission of Inspection(Mar. 28, 1961)

Board of Audit and Inspection(Mar.20, 1963)

Integration of audit and inspection agencies


1.2 The Methodology adopted in this research is a descriptive study utilizing a survey method. The survey aims to cover the qualitative and quantitative aspects of evaluating the fight against corruption and money laundering to assess the current corruption status. The questionnaires were filled by anti-corruption agency or related competent authority such as the BAI, Anti-Corruption and Civil Right Commissions, Ministry of Finance, Ministry of Justice and Financial Intelligence Unit. In addition, advice and support were received from the Audit and Inspection Research Institute of the BAI.

2. Evaluation of the Current Situation of Corruption and Money

Laundering in Korea

2.1 Current Situation of Fraud and Corruption

2.1.1 The responses on current fraud and corruption aspects in Korea revealed that corruption is moderately prevalent and somewhat widespread among some of the public sectors. According to the Global Integrity Index, such as CPI(Corruption Perception Index) by TI(Transparency International), Korea is perceived to higher level of corruption than other advanced countries and the corruption ranking does not change significantly over time.

2.1.2 According the survey, prevalence of the small scale or petty corruption is somewhat low, but teachers and builders are main offenders in this petty corruption. However, in the grand corruption, respondents acknowledged the prevalence as moderate.

2.1.3 Respondents believed that one of the most persistent problems for the past generation’s anti-corruption reform movement has been due to a lack of specific measurements and feedback.

283Korea

2.2 Current Situation of Money Laundering

2.2.1 The respondents perceived the situation of money laundering in Korea not to be a prevalent issue. However, the money laundering tends to increase and becomes more sophisticated over the years.

2.2.2 The money laundering is mainly observed in private entities, such as in the finance, banking industry, international trade, or foreign investments. They are considered to be most vulnerable fields. As indicated in the survey, among the most common styles of laundering money are evading taxes and stock price manipulation.

2.2.3 According to the surveys, what concerns most in Korea is to damage the national reputation and to weaken the financial system.

3. Evaluation of the Current Situation of Anti-Corruption and Anti-

Money Laundering in Korea

3.1 Evaluation of Anti-Corruption

3.1.1 In an attempt to fight the issue of corruption, the Korean government has anti-corruption strategy, but it has umbrella document with separated programs for sectors or ministries. Respondents specified the most populated measures employed in fighting corruption are declaration of assets and income, open and transparency in the operation of agencies and enforcement of the code of conduct.

3.1.2 In regards to the anti-corruption agency, the Anti-Corruption and Civil Rights Commission (ACRC) as the Korean government’s anti-corruption body is the specific anti-corruption authority which are responsible for the implementation of the anti corruption plans and for monitoring and evaluating the implementation of the anti-corruption strategy. Additionally, it is making efforts toward mitigating corruption in cooperation with related bodies, such as the BAI, the Prosecutors’


Office and the National Police Agency.

3.1.3 Based on the various laws with certain provisions concerning corruption, such as “Act on the Prevention of Corruption” (2001), “Act on Special Cases Concerning the Confiscation and Return of Property Acquired through Corrupt Practices” (2008), and “Act on Protection of Public Interest Reporters” (2011), Korea government criminalize different types of corrupted activities by a special laws on anti-corruption.

3.1.4 About areas which need to enact new legislation for better prevent and detect the relevant cases of corruption, respondents specified “nepotism”, “abuse of position” and “influence peddling”.

3.1.5 According to the survey, the majority of the respondents, based on their experiences, believed that preventive policies and measures play more critical roles in anti-corruption activities than detective or punitive actions. Also, they believed that the current level of anti-corruption efforts is much higher than the previous year.

3.1.6 Majority of Respondents stated that to some extent, media have helped public to recognize the real situation of corruption, but the provided information sometimes were inaccurate and un-objective. Also many of them believed that the society including socio-political organization, socio-professional organizations, citizens, participate in tackling corruption actively but not effective.

3.2 Evaluation of Money Laundering

3.2.1 In terms of money laundering, Korea has specific laws and regulations based on International recommendations (FATA, etc.). Korea’s anti-money laundering legislation consists of the Financial Transaction Reports Act (FTRA) and the Prohibition of Financing for Offences of Public Intimidation Act (PFOPIA).

285Korea

3.2.2

- Currently, the Korea Financial Intelligence Unit (KoFIU) under the Ministry of Finance and Economy is the official authority and take following responsibilities

- Data collecting, analyzing, and disseminating information to strengthen transparency and reliability in the financial sector.

- Supervision of money laundering and exchange information and documents

with counterparts in foreign countries.

3.2.3 Respondents believed that money laundering policies throughout the KoFIU have had somewhat of a positive impact by contributing to the prevention of money laundering.

3.2.4 However, the policies need to take on stronger punitive measures, as light penalties may be a possible cause in encouraging the occurrence of money laundering incidents.

4. Evaluation of SAI’s Roles and Measures in Detecting and

Preventing Fraud, Corruption and Money Laundering

4.1 Role of Audit to combat Fraud and Corruption

4.1.1 In anti-corruption, under the Constitution and the Board of Audit and Inspection Act, the BAI has authority to inspect the final accounts of public agencies and official functions of public institutions.

4.1.2 The inspection discloses misconducts and draws problems of statutory and institutional, or administrative contradictions for the purpose of the prevention corruption, including personal inspection (only for public-related officers) to be corrected and improved.


4.1.3 The BAI has established the 'Special Investigation Bureau' to investigate the government officers by inspecting and examining whether they violate the laws or work in illegal manners.

4.1.4 Presently, the BAI made an effort to build a cooperative relationship among other ACAs, such as law enforcement agencies (Police, Supreme Prosecutors’ Office and etc.), internal audit units (IAUs) in public sectors and ACRC (Anti-corruption and civil right commissions) by sharing information and exchanging staffs regularly.

1. Preventive Role: In order to minimize and control the occurrence of corruption, the BAI carries out preventive measures by collecting and analyzing data on corruptive behaviors of public officials, building a cooperative relationship with Internal Audit Units (IAUs), the prosecution and the police, and monitoring areas vulnerable to corruption.

• The BAI accumulates database on corruption-vulnerable fields, mainly targeting senior government officials, by continuously collecting information and monitoring suspicious officials pertaining to concealing his/her property by property change, ownership of a luxury car, habitual visits to gambling places, litigation over the payment of taxes, and military service and recruitment of their family or relatives.

2. Detective Role: The BAI has mainly inspected public officials susceptible to corruption in a strategic manner. The BAI plays a role as a control tower on detecting corruption by setting up the headquarter for the inspection of public officials, which incorporates the Special Investigations Bureau, the Audit Requests Investigation Bureau, the IT Audit Group, and the Internal Audit Support Group.

• First of all, the BAI has established the database of public officials susceptible to corruption on a regular basis, and set up a monitoring system in which the inspection information of high-ranking officials have been collected.

287Korea

• Secondly, it analyzes data on corruption-vulnerable areas including accounting, contract, etc., by using IT data matching or data mining skills. Additionally, the BAI also develops audit scenarios for each audit subject.

• Finally, in order to enhance its effectiveness, the BAI has developed whistle-blowing systems such as “Inconvenience of National & Corporation Complaint Center” and “Corruption Complaints Hotline” operated by Audit Requests Investigation Bureau of the BAI in which reporters are rewarded.

3. Reporting and Following up Role: The BAI is making efforts to provide the public with accurate information and to warn public officials by disclosing active anti-corruption activities and performances to the public on the website.

• When the BAI detects corruption, it can dispose adjudication for reparation directly if necessary. Then, the BAI shall transmit the case of individual’s corruptive behaviors to the Prosecutor’s Office to bring a criminal charge against involved persons.

4.2 Role of Audit to combat Money Laundering

4.2.1 The BAI does not directly investigate and analyze information on illegal behaviors including money-laundering. However, it carries out preventive measures indirectly and monitoring operation of the concerned institutions.

4.2.2 The BAI audits and inspects the internal control and review systems of public entities by monitoring anti-money laundering activities performed by KoFIU indirectly.

1. The BAI shall disclose the audit and inspection results on the website when corruption is detected to promote anti-corruption environment. When the corruption is verified, it is notified to the Prosecutor’s Office and the BAI reviews its results.


2. If necessary, the BAI makes a report to the President Office and the National Assembly.

3. The BAI makes efforts to prevent and administrate the recurrence of corruption through follow-up audit and inspection.

<Appendix> Best Practices of the BAI in Fight Corruption

1. The BAI’s Organizational Units for Inspection

Headquarters for Inspection of Public Service (5 divisions staffed with 70 personnel)

- Role of the control tower of national inspection activities exclusively working for the collection of information on corruption in the public service and investigations thereof, and support of internal audit and inspection units.

- Seconded expert staff from the National Police Agency, the National Tax Service, the Financial Supervisory Service, etc.

Headquarters for Inspection of Public Service

Special Investigations Bureau

Audit RequestsInvestigation Bureau

IT Audit Group Internal Audit Support Group

Inspection work including investigation of irregularities

and corrupt practices

Investigation and processing of audit requests and petitions

Collection and analysis of information on irregularities

and IT audit

Support of, and cooperation with internal audit units

289Korea

2. The BAI’s main Activities for anti-corruption

2.1 (High Ranking Officials’ Irregularities)

- Investigation of irregularities committed by senior government officials, and

heads of local governments and public entities

(Case 1) Senior government officials

- Unjust promotion without review process using the repealed special promotion

system - Free contract at higher price by unjustly intervening in the process of cost

calculation for service outsourcing

(Case 2) Heads of local governments - Construction completion certification for a defective construction project at

the request of the project contractor, and such irregularities as fabricating staff work performance documents

- Order to issue a preferential permit to a moneylender for a development

project in return for the moneylender’s payment of interests for others - Unjust order to issue a construction permit in the greenbelt area, and removal

from position the person in charge who refused to

(Case 3) Heads of Public Entities - Closed preferential recruitment of children of the relatives, violating the

relevant regulations - Sale of land in an industrial complex at lower price without an approval of the

board of directors


2.2 Special examination of irregularities in the daily life of people

- Examination of the practices of the public sector to place burden on the private

sector and to be unfair, and burden on the socially vulnerable

(Case 1) Practices of irregularities

- Habitual delay of administrative agencies in paying for construction works and

supplies - Local governments’ inaction regarding the non-payment of advances to

subcontractors - Local public enterprises’ practices of status change from contractual employees

to permanent employees through the expedient procedure

(Case 2) Neglect in care of the social vulnerable

- Inconvenience in tax payment due to tax office’s expediency in tax assessment

for the seriously handicapped (exemption from car acquisition tax) - Unjust assessment of non-tax contributions on small and medium enterprises

2.3 Examination of irregularities in risky areas such as accounting - Examination of risky areas following the results of periodic monitoring

(Case 1) Examination of irregularities in risky areas of accounting - Detection of embezzlements in central government departments, local

governments, and educational institutions - Detection of inappropriate execution of reception expenses in metropolitan/

provincial governments

291Korea

(Case 2) Examination of acts reducing public safety and trust

- Detection of safety-related irregularities, e.g., purchase by public entities of

low-performance equipment and CCTV sets

- Detection of fabrication of career confirmation letters and academic performance transcripts submitted for employment by the central government and public entities

(Case 3) Examination of irregularities in contracting

- Unjust reception by government officials of grant money for inhabitants

around power plants

2.4 Special examination of work discipline and competence appraisal of the

senior executive service

- Examination of work discipline and monitoring of the senior executive service

during risky periods

(Case 1) Special examination of work discipline

- Examination of operations and work discipline of administrative agencies to

prevent suspension of administration during risky periods such as government transition periods, and year-end and beginning of the year periods

- Disciplinary actions against relaxation of discipline cases, e.g., absence

without leave, and drinking during duty hours

(Case 2) Competence appraisal of the senior executive service

- Collection of information on work performance and attitudes of senior


government officials and public entities (Ministers, Deputy Ministers, and heads of public entities) for inspection purposes

(Case 3) Identification of model cases

- Looking for officials and agencies commendable for exemplary service

3. The BAI’s Strategic Planning for anti-corruption

3.1 Maturization and Advancement of Inspection Operations

(1) Conduct of systematic inspection focusing on important matters - Preventive inspection focusing on important matters based on prioritized

risky areas considering BAI’s corporate directions of operation, urgency, and importance

- Conduct of inspection operations not for simple one-time detection of

irregularities but for institutional improvement to resolve conventional and structured corrupt practices

(2) Strengthening IT-based information analysis competence - Accumulation of computerized data obtained during the audit process, and

establishment of a data utilization system - Expansion of inspection work by computerized analysis using audit scenarios

and IT audits - Concentration of manpower on highly risky areas prioritized by the analysis of

computerized data on the probability of incidence irregularities

(3) Strengthening support of and cooperation with internal audit units

293Korea

Support of efforts to strengthen the competence of internal audit by beefing up the internal audit review system and consulting services - Building a hierarchical work division system between the BAI and internal

audit units to avoid the blind spots of audit and inspection overlaps - Invigorating the consultative channels with internal audit units through the

conference of internal audit units, and expansion of provision of training for professionalism of internal units through the Audit and Inspection Research Institute

3.2 Complementation and Improvement of Inspection Infrastructure

(1) Advancement of the collection system of information on irregularities committed by high-ranking officials - Expansion of “high-level information channels” by building information

sharing arrangements with internal audit units, etc. , thereby obtaining internal accusations against high ranking officials and reports on irregularities

- Strengthening “manpower with expertise in information analysis” for

transforming audit data, civil complaints and petitions, and internal and external information into high-level inspection information

- Construction of the “DB on Risky High Ranking Officials” where information

on individual high ranking official is accumulated and analyzed - Beefing up “competence appraisal” by accumulating and testing such

information as media coverage, content of personnel hearings, disclosure of property, and other information on high ranking officials


(2) Expansion of collection and analysis of information gathered from the reception civil complaints, petitions, and reports on irregularities - Identification and provision of the list of problematic areas by selectively

analyzing civil complaints and petitions, and reports on irregularities, and collection by regional civil petitions centers (Daejon, Gwangju, and Busan) of information on irregularities committed by indigenous local power elites

- Strengthening the “compensation system for reporting on irregularities in

the public service” which was introduced in 2012 (increasing compensation money, publicity for the promotion of the submission of information)

(3) Beefing up cooperation arrangements with other inspection agencies including public prosecutions authorities, the National Intelligence Service, etc. - Expansion of cooperation arrangements with other inspection agencies

- Establishment of the foundation for cooperation by signing MOUs (2013)

with the Supreme Prosecutors Office and the National Police Agency in strengthening linkage with criminal investigation, personnel exchange, training support, and creation of a consultative meeting against corruption.

295Malaysia

8. Malaysia

1. Introduction

Corruption has become an epidemic and a crime that has long become contagious affecting life of human societies all over the places. No country can claim to be free of corruption and can only be distinguished and differentiate in terms of seriousness and prevalence. It may manifest in similar ways across countries but the underlying causes can be different. It is alsoa subject most studied by various disciplines.Understanding corruption is the first step in fighting corruption. According Transparency International, it has been defined as abuse of entrusted power for private gain. It hurts everyone who depends on the integrity of people in a position of authority.

Just as the case of corruption, money launderinghappens in almost every country in the world. Money laundering, at its simplest, is the act of making money that comes from Source A look like it comes from Source B. It is a generic term used to describe the process of criminals disguise the original ownership and control of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. It involves 3 stages of placement, layering and integration.

1.1 Current Situation of Corruption and Money Laundering1

According to the Malaysian Anti-Corruption Commission (MACC), the incidences of corruption are moderate and widespread among public sectors. However, it is slightly lower than previous years and does not reflectthe reality of corruption as indicated in the Transparency International’s – Corruption Perception Index and Global Integrity Index. The country’s population is moderately intolerant towards corruption. The government is seen taking strong steps against corruption too.

1 Based on the answers of questionnaires officially replied by MACC and CBM.


Pattern of corruption is hard to predict as it occurs equally in the public and private sector. The most common type of corruption iscriminal breach of trust, bribery and kickback, abuse of position, influence peddling, nepotism and embezzlement. It happens mostly within the law enforcement agencies, customs, state-owned enterprise, local government and public service delivery. At the government level, procurement of contracts is considered as the most corrupted area, followed by licensing and public fund disbursement procedures. The prevalence of petty corruption involving rank and file employees is considered moderate while grand corruption involving business entrepreneurs and political group is low in Malaysia.

At the budgeting level, unchecked and excessive executive discretion in budget process will create opportunities for political corruption. On the cause of corruption, to become rich as quick as possible is ranked top, followed by unclear rules and loopholes for manipulation; culture, customs and habits of giving bribes to get things done; complicated and cumbersomeadministrative procedures and low salary levels. If left unchecked, it will cause very serious consequences to the government budget, private sector and citizens. It is recognized that the role of whistle blower as extremely important and effective avenue to lodge complaints of corruption.

On the situation of money laundering (ML) in Malaysia, the Central Bank of Malaysia (CBM) which is also the competent authority and regulator of anti-money laundering indicated that situation is at a manageable level.The common methods for ML include placement in banking system, using nominees of family members, setting up front companies and use cash transactions to conceal money trails. Money service business, finance, banking and real estate is the segment having the highest risk of ML. Embezzlement top the list as offence closely associated with ML, followed by corruption and drug dealings. It was indicated that avoiding prosecution, become legitimate, evade taxes and hide illegal accumulated wealth as the main reasons people launder money. If left unchecked, it will increase crime and corruption, weakened financial institutions, and impact foreign investment negatively. However, with effective Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) framework and countermeasures in place, money laundering in Malaysia is currently at manageable levels.

297Malaysia

2. Anti-Corruption and Anti-Money Laundering in Malaysia

Overall, the current level of anti-corruption and anti-money laundering efforts in Malaysia has been encouraging as the government is seriously committed and made many reforms to tackle these problems. Among encouraging steps taken is the enactment of Malaysian Anti-Corruption Commission (MACC) Act 2009 which came into effect on 1 Jan 2009 and replacing the Anti-Corruption Agency Act 1982. This led to the official establishment of MACC as an independent, transparent and professional body to effectively and efficiently manage the nation’s anti-corruption efforts. Other efforts includes the formation of Malaysia Institute of Integrity, New Key Results Area on Corruption, Guideline on Improving Governance in Public Service, Integrity Management Committees, My Procurement Portal, Corruption Offenders Database, Whistleblower Protection Act 2010, Integrity Pacts and Special Court Corruption. These are some of the efforts taken on anti-corruption and it is an on-going or continuous efforts.

However, the National Audit Department as the Supreme Audit Institution of Malaysia plays an important role in enhancing and promotes good governance and accountability in the financial management of public sector through independent, objective and value added audit. It also supplements the efforts taken by the other enforcement agencies in anti-corruption and anti-money laundering.

3. National Audit Department of Malaysia

3.1 Overview

The Auditor General’s institution has been in existence since the British colonial administration in the early 19th century. The nature of auditing during this era was mainly on certification of accounts and maintenance of records. When the Federation of Malaya attained its independence in 1957, the name of the audit institution was changed from Audit Institution to National Audit Department. It is modelled after Westminster which is also known as the Anglo-Saxon or the Parliamentary Model. It was first established under Article 97 of the Reid Commission Report and further stipulated in the Federation of Malaya Agreement


1948, followed by Article 105 of the Federal Constitution and finally expressed comprehensively through the Audit Act 1957.

3.2 Independence of the Auditor General

The Auditor General (AG) is appointed by the king on the advice of the Prime Minister and after consultation with the Conference of Rulers representing 13 states of Malaysia. The AG may at any time resign his office but shall not be removed from office except on the grounds as a judge of the Supreme Court. To enhance his independence, provisions regarding his remuneration and security of tenure have been provided in the Federal Constitution and Audit Act 1957. His remuneration which is charged on the Consolidated Fund is fixed by law and cannot be altered to his disadvantage.

In performing its statutory duties, the AG is not subject to the authority of any minister or the Executive body. This technical independence is reinforced by the Audit Act which allows the AG to carry out the audit in a manner as he may deem fit. However, as the head of a government department, he is subject to the rules and regulations in the administration of his department as any other Head of Departments. In terms of financial independence, the National Audit Department of Malaysia (NADM) yearly budget undergoes the scrutiny, review and approval process of the Ministry of Finance Malaysia and the Parliament. However once the budget is approved, it has full discretion to manage and make decisions on spending of the given allocations.

3.3 Role and Responsibilities of National Audit Department of Malaysia

Presently, the AG conducts four types of audit:

i. Financial Statement/Attestation Audit

To give an opinion as whether the Financial Statements of the Federal Government, State Government, Federal and State Statutory Bodies, Local Government, Islamic Religious Council and other public entities:

299Malaysia

• Show a true and fair view.

• Financial performance and cash flow are in accordance with the approved Malaysian Financial Reporting Standards.

• Accounting records are maintained properly and kept up to date.

ii. Financial Management (Accountability Index) Audit

• To evaluate whether financial management of the Ministries/Departments/Agencies of the Federal and State Governments is in accordance with the relevant financial laws and regulations.

• This evaluation covers elements of the organization management, budget, receipt, expenditure, Trust Fund/Trust Accounts and Deposits, asset and stores, investment and loans as well as financial statements.

iii. Performance Audit

• To evaluate whether programmes and activities of the Ministries/Departments/Agencies have been carried out economically, efficiently and effectively

• Achieve its desired objectives and goals

iv. Government Companies’ Management Audit

• To evaluate whether the Government companies/subsidiaries have been managed in a proper manner.

Commencing 2013, the AG conducts follow-up on actions taken by Ministries/Departments/Agencies on issues reported in the AG’s Report in a more structured approach. Apart from the above audit, the NADM also embark on real time (priori audit), value management audit, environment audit and IT audit.


4. Role of NADM in the Fight Against Corruption and Money

Laundering

The roles and responsibilities of NADM on anti-corruption were not indicated specifically. However, it well embedded within Section 6 of the Audit Act 1957 which require the Auditor General to examine and ascertain whether:

i. Reasonable precautions have been taken to safeguard collection and custody of public moneys;

ii. Payments are properly authorised, charged and supported by sufficient vouchers and documentations;

iii. Accounts and records are properly maintained;

iv. Funds applied to the purposes it was intended were carried out or managed in an efficient manner with due regard for economy, avoidance of waste and extravagance; and

v. Provisions of Federal Constitution, financial Procedure Act 1957 and any written law have been complied with.

Coupled with the above, Section 7 of the Audit Act 1957 further stipulated the power of the AG to conduct any inquiry, examination or audit and to report thereon to him.

As for anti-money laundering, the Malaysian Government has introduced the Anti-Money Laundering Act, 2001 (AMLA) on 15 January 2002. The Central Bank of Malaysia, Bank Negara Malaysia (BNM) has been appointed as the competent authority for the purpose of combating money laundering activities. On 6 March 2007, this Act was renamed as Anti-Money Laundering and anti-Terrorism Financing Act 2001 (Act 613) is to provide for the offence of money laundering, the measures to be taken for the prevention of money laundering and terrorism finances offences and to provide for the forfeiture of terrorist

301Malaysia

property. The Financial Intelligence Unit within the CBM is responsible for policy formulation of anti-money laundering measures. The Royal Malaysia Police also play an important role on anti-money laundering through its Commercial Crime Investigation Department.

NADM did not have mandate to detect or fight money laundering as it revolve within a web of complex placement, layering and integration of illegal money in the financial and banking industry. NADM has been acting as a whistle blower whereby suspected cases of money laundering detected during the course of auditing will be reported to these agencies.

4.1 Anti-Corruption Strategy

NADM has its own anti-corruption strategy implemented in accordance with the National Anti-Corruption Strategy, NADM Strategic Plan (2011-2015) and Memorandum of Understanding (MOU) with the Malaysian Anti-Corruption Commission (MACC).

Firstly under the National Anti-Corruption Strategy, the Government of Malaysia has embarked on a Government Transformation Programme (GTP) which is implemented into 3 phases; GTP 1.0 (2009-2012), GTP 2.0 (2013-2015) and GTP 3.0 (2016-2020) with each having its own focal points.

GTP 1.0 seeks to initiate immediate and big changes to the civil service, government structure and renew the faith of people with the government. Seven (7) National Key Results Area (NKRA) were implemented to address:

• Rising Cost of Living• Fighting Corruption• Reducing Crime• Improving Student Outcomes• Raising Living Standards of Low Income Households• Improving Rural Basic Infrastructure• Improving Urban Public Transport


GTP 1.0 has achieved many significant accomplishment and positive results during the four years of its implementation.The 2nd phase of the GTP was launched in 2013 and it builds on the successes of GTP1.0 by further deepening and broadening reforms to complete the transformation. It is under GTP 2.0 whereby the NADM was assigned with four (4) initiatives namely:

i. Fast Tracking Access to Auditor General’s Performance Audit Reportii. Action Committeeiii. Auditor General’s Online Dashboardiv. Putrajaya Inquisition

Secondly under the 2nd focus of the Strategic Plan (2011-2015), NADM is embarking into new area of auditing such as forensic auditing by establishing Subject Matter Expert Team on fraud. The Key Performance Indicator for this programme is to set up 1-2 new units or groups.

Thirdly on the 29th of May 2012, the NADM and MACC signed a Memorandum of Understanding to implement a cross-fertilization program by attaching officers from both agencies. The aim is to strengthen the ability and capacity of auditors in terms of techniques to detect existence of fraud, malpractice, corruption, irregularities and violations of systems and procedures. As of October 2013, three series of exchange program involving 7 officers from each agency had been attached for 6 months in the respective agencies.

4.2 NADM’s Role in Prevention of Corruption and Money Laundering

The 16th INCOSAI held in Uruguay in 1998 adopted an accord that SAIs should create an environment that is unfavorable to fraud and corruption. The theme of this accord points to prevention. For NADM, the main objective of preventive role is to minimize the risk of fraud and corruption. Perhaps, it is the most effective tool in reducing corruption and fraud as actual discoveries of corruption are comparatively low. This is not a surprising fact as finding of corrupt activities within the regular audit is mere incidental than an audit focus. However the deterrent effect of an audit carried out by NADM should not be underestimated.

303Malaysia

Similar to other SAIs, NADM as a professional and independent organization always endeavored to promote good governance. To achieve this objective especially in the audit of financial statement, NADM has continuously played a constructive roleby studying, evaluate reliability, promote and strengthening internal controls in the audited organizations.

In this aspect, NADM contributes an effective preventive role in anti-corruption by the various type of audit implemented as follows:

i. Financial Management Audit through Accountability Index

Accountability Index (AI) was introduced by NADM in 2007 as a performance measure to be benchmarked on a yearly basis. It is part of the initiative and continuing effort by NADM to enhance accountability and integrity of public fund management in all government ministries, departments and agencies at the Federal and State levels.

The rationale of implementing AI is to respond to the concern of the Government leaders and people over the instances of non-compliance and internal control weaknesses that were repeatedly highlighted in the annual audit reports. Through an objective and transparent star rating system, it is hoped that agencies will be sufficiently induced to take corrective actions on the weaknesses on a timely basis. Thus, it is hoped that AI will motivate heads of ministries, departments and agencies to walk the talk in ensuring accountability and integrity in their respective organizations. As a benchmarking mechanism, AI can assist auditees to measure the progress of their financial management over the years.

AI covers a wide spectrum of nine activities ranging from; Organizational management control Budgetary control Receipts control Expenditure control Trust Fund /Trust Account and Deposit Account management Asset and inventory management Investment management Loans management and Preparation of financial statement.


For each of these categories, there are established rules and regulations in which the Secretary Generals and the Director Generals are duty bound to comply and held accountable. For each of the category audited, an overall score of the weighted marking will be given. Marks will be given according to the agency’s performance in financial management and will be translated into star ratings as follows:

4 stars - Excellent (90%-100%)3 stars - Good (70%-89%)2 stars - Satisfactory (50%-69%)1 star - Not Satisfactory (49% and below)

This AI will be implemented every year for departments and agencies classified in the compulsory list, all ministries and the four main revenue-generating agencies at the federal level, namely the Royal Malaysian Customs Department, the Immigration Department of Malaysia, the Royal Malaysian Police and the Road Transport Department. As for the State Government, the compulsory list includes all State Treasuries, State Economic Development Corporations and all the state Islamic religious Councils. The rest of the departments and agencies including Federal and State Statutory Bodies will be assigned their AI once every three years.

Since the inception of AI in 2007, it has shown to deliver good results by the increasing number of auditees securing excellent or 4 stars rating and number of unqualified report given to the audited financial statements of government agencies.

Year 4 Stars Rating Unqualified Report

Qualified Report Adverse Disclaimer

2009 47 399 51 - -

2010 77 388 25 - -

2011 111 407 19 - -

2012 143 431 23 1 2

2013 194 435 20 0 0

305Malaysia

For example194 ministries, departments and agencies have been rated excellent or 4 stars in 2013, compared with 143 in 2012, 111 in 2011 and 77 in 2010.The spill-over of good effect of AI can be seen from the number of unqualified report given to the audited financial statements of government agencies for the year 2013. Compared to 2012, unqualified report has slightly increased with no adverse and disclaimer report.

ii. Surprise Inspection

Apart from the normal attestation of Federal and States Government Financial Statements and compliance audit, there are about 7,000 responsible centers that are involved in the financial management. It is almost an impossible task to conduct audit on all these centers simultaneous or even on a rotational basis.

Therefore, to overcome the problem of unable to perform audit of all these responsible centers and to instill a certain degree of audit presence, NADM implement Surprise Inspection (SI). SI is traced to be implemented since 1932 and still has been carried out till today. The importance of SI is reflected in the AG’s Key Performance Indicator as 540 agencies of the Federal and State Government level will be audited every year on a rotational basis.

It is hoped that head of agencies will always stand guard of any eventuality that they will be audited anytime without being informed and adhere to rules and regulations in their financial management. This audit covers the inspection of collection, petty cash and valuables, delegation of authority, investment, stamps, safe/vault and payment. Audit is completed within one day and observation will be raised the same day.

iii. Real Time Audit

NADM is entrusted to audit projects while under construction or during construction. One of the projects under this type of audit is the Mass Rapid Transit (MRT). During the tabling of 2014 budget, SAI Malaysiais empowered to audit projects valued more than RM100 million by auditing during


implementation of these projects. Audit presence during the construction will definitely induce proper implementation of projectin every stage.

iv. Value Management Audit

It has been made mandatory that all government projects costing RM50 million and above to undergo value management exercise. An independent panel will review scope, location and application of technology to minimize total project costs. NADM is involved in the value management review phase. This value management has proven to be an effective tool for government to secure value for money and savings. Indirectly, it helps to prevent wastage and unreasonable pricing.

v. Promoting Good Governance

Good governance is the best antidote to fraud and corruption. It is about doing the right thing when nobody is watching. It demands an overall high ethical behavior, integrity and accountability. To instill this antidote, NADMadds value and reinforces good governance through its oversight, insight and foresight roles as follows:

(a). Oversight

NADM assist decision makers by assessing, evaluate and report whether funds for the intended purpose are well spend, comply with laws and regulations and the success or failure of the financial and performance of the programs. Oversight by auditors also includes detection and deterrent of fraud, inappropriate or abusive acts, misuse of power and resources entrusted to public officials.

(b). Insight

Auditors can provide insight to decision makers by assessing programs or activities which are feasible and performing, share of best practices and

307Malaysia

bench marking information. Programs can be assessed horizontally across the agencies or individually.

(c). Foresight

An auditor assists agencies to look forward by identifying trend and bringing attention to challenges before it become a crisis such as demographic trends, economic conditions or changing security threats, identify risks and opportunities arising from the changing environment of society, technology and nature of economy. By using risk based auditing approach, the audit focuses on identifying the risks and recommends on how managing the risks to the agencies.

vi. Integrity and Governance Committee

The AG and some senior officers of the NADM were elected as member of the Integrity and Governance Committee (IGC). This committee is headed by the Minister in the Prime Minister Department and meeting is held once a month. Others members of the committee are representatives from the MACC, Malaysian Institute of Integrity and other agencies related to corruption.

The purpose of IGC is to coordinate all initiatives (whether short, medium or long term) relating to the purpose and mission of government policy against corruption in order to provide a united, consistent and coherent approach. Therefore, the involvement of NADM in IGC is very important as it can contribute towards formulation of anti-corruption policy based on weaknesses discovered during the audit.

As for NADM’s role in prevention and detection of money laundering, it has no specific role or responsibilities. However, it still play preventive and detective role through joint exercise with other enforcement agencies such as the Central Bank of Malaysia, MACC, Inland Revenue Board, Attorney General Office and Customs. “Operation of RM3 Billion Task Force” is a typical example of a successful joint exercise which aims to detect and investigate loss of revenue, money trail and


money laundering. NADM plays its role in auditing and analyzing documentations leading to trail of money. For NADM, the main objective of preventive role in anti-money laundering is to enhance cooperation and network with other enforcement agencies.

4.3 NADM’s Role in Detection of Corruption

Traditionally, primary responsibility for preventing and detecting corruption rests with the auditee and enforcement agencies such as police and anti-corruption agencies. SAIs are not seeing fraud and corruption busting as its main goal but rather on fostering an environment that is not conducive for fraud. Auditors are entrusted to review and provide assurance on the financial aspects of the organization to the management and parliament.

However in face of many shocking cases, the qualities of work carried out by auditors are always questioned. The increasing of fraudulent practices and corruption has raised concerns regarding the credibility of the audit profession. Public believes SAI should seek to detect fraud and corruption.

While the type and audit approach to prevent corruption may have been appropriate, it is becoming more apparent that more could and should be done to detect fraud and corruption. There is also a need to reduce the expectation gap between stakeholder and audit. For this matter, NADM is well positioned to support, supplement and enhance effectiveness of existing anti-corruption initiatives by the government and other enforcement agencies.

In NADM, most of the corrupt activities were detected through:

• Proactive approach through risk based audit by detecting red flags and symptoms of corruption. Amongst other audit tools and techniques applied to detect corrupt activities are evaluation of internal control such as administrative controls and accounting; data mining with the use of Computer-Assisted Audit Techniques (CAATs); data gathering tools such as interviewing, observations,

309Malaysia

questionnaires, checklists and sampling; and analytical review such as ratio analysis and variance analysis.

• Reactive approach based on complaints and referrals received.

4.3.1 Risk-Based Audit

Risk-based audit is the methodology used to detect fraud in the auditing process. It helps to identify aspects of high risk. Auditors need to go through 3 stages of the audit process namely planning, execution and reporting. The possibility of fraud can be identified during the planning and implementation stage of the audit process. Key methods of the auditing process for detecting fraud are shown in Table 1.

Table 1

Key Auditing Process to Detect Fraud

With application of this methodology:

• Auditors discuss and consider situation where external and internal factors could lead to fraud.

• Professional skepticism will be applied whereby a possibility of material misstatement due to fraud could occur regardless of any past experience and integrity of the entity.

1.Evaluate Risk Of Fraud In General

PLANNING

1.1 Discuss how and where fraud could easily happen

1.2 Get information to identify risk of fraud 1.3 Identify potential risk of fraud 1.4 Identify material misstatement 1.5 Evaluation on prevention of fraud 2.Fraud Indicators For High Risk Activity

IMPLEMENTATION 3.Analysis Of Fraud Assessment Results 4.Further Examinations Of Fraud 5. Documentation of Fraud 6. Reporting REPORTING


• Auditors will obtain sufficient information about the entity and environment in which it operates to evaluate fraud risk.

• Auditors need to consider if misstatements in financial statement is due to fraud or due to misuse of assets.

• Auditors should evaluate whether programs and controls that have been designed to prevent fraud is appropriate and functioning well.

After identifying high-risk activities, the auditors will conduct an in-depth study for indication of fraud activity. Auditors should be alert to signs of fraud, know how to study the situation and understand that signs of fraud do not necessarily indicate the existence of fraud in a high risk activity. Based on risk assessment, audit objectives and audit procedures will be developed to detect fraud. Analytical procedures should be performed if the results or expected outcome is material. If senior management is involved in the fraud, auditor should consider whether it is an indication of a larger problem. Proper documentation of fraud is most critical and important. Auditors should document all activities and results to support conclusions and for further reference. This documentation will be a significant reference to the auditor during follow up actions or if used as evidence in court. Auditors need to document the followings:

• Audit group discussions• Procedures to obtain information for identifying and assessing risks of fraud• Identification of fraud risks• Procedures implemented to address the risks• Communication with management and audit committee

Case Study–PortKlang Free Zone Scandal: The audit that led to its detection started with the Port Klang Authority’s (PKA) Financial Statement Audit for the year 2003 whereby qualified report of going concern was issued as it did not have sufficient financial resources to meet its obligation – “Contingent Liabilities of RM1.81billion (USD 600 million)”. Qualified report on PKA’s Financial Statement was given until 2005 for the same reason.

311Malaysia

In 2006, a special audit was performed by NADM and the findings were reported to the government. Subsequently in 2007, a joint investigation by the Attorney General, MACC and NADM was conducted. In October 2008, a forensic audit was carried out by Pricewaterhouse Coopers and according to the report issued on 3 February 2009, it could potentially end up costing the Malaysian taxpayer USD4 billion. In 2009 and 2010, specific charges to individuals involved were made and some are acquitted of the charges while the proceedings for the remains are still on-going.

4.3.2 Message to Auditor General

Apart the proactive approach of risk based audit to detect fraud and corruption, “Message to Auditor General” is another platform provided by NADM in its website for public to send enquiries, complaints against perceived irregularities and propose recommendations to improve transparency and accountability.

Through this reactive approach, complaints received from the public will be investigated and informer will be responded within 15 working days. This link has provided the NADM with another source of information from the public to detect fraud and corruption.

In 2013, a total of 69 emails were received through the “Message to Auditor General” link in the NADM website. Most of the complaints involved non-compliance of rules and regulations, misappropriation of fund, abuse of power, false claims and delays in projects. Apart from complaints, NADM received suggestions for improvement and congratulatory messages through this link too.

4.4 NADM’s Role in Reporting and Follow-Up Role

Auditors are responsible for obtaining reasonable assurance that the financial statements / activities are free of material misstatement. However, absolute assurance cannot be achieved and the auditor’s report does not reflect absolute certainty. Even with a good audit planning and well executed implementation, it


may not detect material misstatement. Any discovery after an audit is not indicator of auditors did not comply with the auditing standards.

Upon discovery of red flags or symptoms of corruption during a regular audit, an in-depth and full blown investigation will be conducted. After obtaining substantial evidence of fraud, auditors should discuss with senior management of NADM and notify the management or the audit committee during the course of audit, pre-exit conference and exit conference. Fraud involving senior management and fraud entity that causes a material misstatement to the financial statements or activity must be disclosed in the audit report.

Auditors should get the views of top management before bringing the matter to the knowledge of other agencies. Auditor may make recommendations to improve and further enhance the organization’s internal controls. Upon tabling of AG’s Report, issues with indication of fraud will be picked up by the anti-corruption agency for further investigation. SAI will assist by providing information and documentations.

4.4.1 Transformation in AG’s Report and Follow-Up

In recent years, the Auditor General’s Report (AGR) is much awaited by the public with keen anticipation and interest because of the media coverage on various shortcomings of the public service in managing public money. It is used to be an annual affair where the AGR is tabled soon after the presentation of budget. Naturally, the ensuing public reaction to audit revelation tends to be critical because of weaknesses highlighted and unawareness of the follow-up action taken by the relevant agencies.

However beginning 2013, AGR on performance audit will be tabled every time the parliament sits. This is made possible when the NADM was assigned with four initiatives under the Government Transformation Programme 2.0 (GTP). Under the National Key Result Areas (NKRA) On Combating Corruption, NADM was tasked as one of the agencies that can indirectly help to tackle the issue of corruption.

313Malaysia

4.4.2 Four (4) Initiatives on Reporting and Follow-Up

The Performance Management & Delivery Unit (PEMANDU) of the Prime Minister Department announced four new initiatives to transform the process of reporting and follow-up of the AGR as follows:

i. Fast Tracking Access to Auditor General’s Performance Audit Report (FTA)

AG’s Report used to be tabled once a year in October. There is a time lapse of 14 months after completion of an audit before the AGR can be tabled. It prevents any action to be taken against a person until the date has passed. This increase chances of evidence be tampered and make investigation difficult.

This initiative calls for AG’s Performance Audit Report to be fast-tracked so that it can be tabled every time Parliament sits or at least thrice yearly. It would enable follow-up action to be taken by the enforcement agencies at an earlier stage. Once-a-year AG’s Report containing an overwhelming amount of information will be reduced too.

The aim of FTA is to:

• Promote transparency• Induce pressure on the relevant authorities to act on outstanding issues• Tackle the issue of once-a-year AGR which contains an overwhelming amount

of information• Enable follow-up action to be taken by the enforcement agencies at an earlier

stage

To implement this initiative effectively, a revamp to the existing organization structure has been done with the establishment of a new division called Follow-Up Division (FUD). The functions and responsibilities of FUD are:


• Updating data and information of audit findings and feedback for 3 activities of the Federal Government, State Government and Federal Statutory Bodies according to three series of presentations.

• Secretariat for Action Committee meeting.• Secretariat Putrajaya Inquisition meeting.• Coordinate information related to punitive and corrective action of the Ministry

of Finance Malaysia, Attorney General Chambers of Malaysia, Department of Attorney General, Malaysia Anti-Corruption Commission, Public Service Department and the Royal Malaysia Police.

On the work process, each audit team is responsible to update issues and status of the audit into the Follow-Up Tab of the Auditing Management System. Each audit sector need to send these issues and status through online to the FUD based on 8 criteria as follows:

• Unreasonable pricing• Improper payment• Construction / Supplies does not comply with specifications• Unreasonable delays• Wastage• Weaknesses in revenue management• Weaknesses in management and maintenance of assets• Poor management of government-linked companies

Subsequently, these issues and status will be scrutinized and summarized by FUD before submitting to the Auditor General for approval. It will be uploaded and published in the AG’s Dashboard one hour after the AGR is tabled in the parliament. Any action or feedback received after the tabling in parliament will be monitored and updated by FUD until the issue is settled.

ii. Action Committee On the AG’s Report

The member of Action Committee (AC) consists of Ministry of Finance Malaysia, Attorney General Chambers of Malaysia, Public Service Department,

315Malaysia

Royal Malaysia Police and Malaysia Anti-committee commission. It has the responsibilities to:

• Determine the next course of actions to be taken by Ministries / Departments / Agencies on the issues raised in the AGR.

• Help Secretary General, Director General and Head of Department to address issues raised in the AGR.

Two types of actions that can be taken by AC are:

• CorrectiveImprovement of systems and procedures

• PunitiveIf there are elements of corruption or abuse of power, breach of trust and negligence that resulted in losses to the government

iii. Auditor General’s Online Dashboard

This initiative is partly related to the first initiative of Fast Tracking Access to Auditor General’s Performance Audit Report (FTA). Soon after the AGR on performance audit is tabled in the Parliament, issues and status of follow-up will be published in the AG’s Online Dashboard (AGD).

Prior to this initiative, public are unaware or have limited access to follow-through of recommendations made in the AG’s Report. Now, public can access the dashboard and its status is shown in a traffic light system; red color indicating action yet to be taken, currently under action in yellow color and solved in green color.


No action taken by the auditee

Auditee is taking action on the audit findings raised in AGR

Findings highlighted in AGR is solved as actions has been taken by auditee.

In short, AGD serves as a platform to disseminate information on audit issues and the follow-up actions. It has the benefits of:

(a) Updating the public on outstanding issues in AG’s Report

(b) Promote transparency

(c) Improve public perception

The dashboard is updated and maintained by a division working continuously and full time throughout the year. This reflects the aggressiveness of follow-up on audit findings by the NADM.

317Malaysia

iv. Putrajaya Inquisition

The need of an Inquisition Committee chaired by the Prime Minister and other relevant ministries and agencies is due the large backlog of cases reported by the AG. It is believed that under the oversight of the Prime Minister, it will create an impetus to various agencies to consider recommendations seriously and take the necessary plan. The main goal is to clear backlog of cases and the AG’s office is the secretariat of this Inquisition.

5. Guidelines on Auditing of Fraud

Fraud indicators are difficult to identify but generic indicators are almost present everywhere. To successful recognize these indicators, auditors must rely on their technical experience, professional judgment and good understanding of how fraud is committed. Audit strategy should be diverted on areas and operations prone to fraud and corruption by developing effective high risk indicators.

To enhance auditor’s skill on fraud detection, NADM has issued a Fraud Auditing Guideline whereby audit strategies, procedures and techniques are drawn out.

6. Capacity Building

Continuous training for audit staff is important to ensure auditing standards of the highest quality are maintained at all times. The National Audit Academy has conducted courses on auditing, accounting, performance audit, information communication and technology, management and fraud.

Between 2006 and 2013, a total of 283 audit staffs are given training on fraud, corruption and money laundering. Apart from in-house courses, NADM also seconded officers to the Big Four Audit firms for a period of 8 months to one year to gain auditing knowledge, experiences and best practices in the private sector. Auditors are given the opportunity to attend courses conducted by professional and auditing bodies locally and abroad. This includes active participation in working group organized by INTOSAI and ASOSAI such as INTOSAI Working Group on


Fighting against Corruption and Money Laundering (WGFACML).

On the 29th of May 2012, the NADM and Malaysian Anti-Corruption Commission signed a Memorandum of Understanding to implement a cross-fertilization program by attaching officers from both agencies. The aim is to strengthen the ability and capacity in terms of techniques to detect existence of malpractice, corruption, irregularities and violations of systems and procedures. This is a significant step forward to expose auditors to the latest concepts, methodologies and skills in the fight against corruption.

7. Conclusion

It is recognized that NADM did not havelegal mandate to prosecute corruption and money laundering perpetrators. However, NADMstill can contribute effectively by collecting evidences in the course of auditby pointing out suspected cases of corruption and money laundering, if possible to the appropriate authorities to take further action.

NADMalso recognized the need to develop competence and capacity so that they can assist the relevant authorities in pursuing their investigations.Steps towards this need have been taken with the signing of MOU with MACC on cross-fertilization program and the establishment of Subject Matter Expert Team on Fraud.

It is acknowledged that more need to be done. Currently NADM is studying the possibility of becoming a commission service or a board under the Department Transformation Plan. The transformation of the auditing process must have buy-in support from the Federal and State Government. Without this continuous support, the earlier AI and four initiatives of the NKRA Corruption will never get started.

To enhance independence, NADM is in the process of reviewing the Federal Constitution and Audit Act 1957. Among then proposed amendments include tenure of the AG, power to audit entities that receive government grant, power to recruit, power to promote and dismiss personnel, budget autonomy, power to impose surcharge on financial irregularities and immunity from liability.

319Philippines

9. Philippines

Part I – Assessment of Current Situation of Corruption and Money

Laundering

A. Situation of Corruption

In order to reasonably assess the current situation of corruption and money laundering in the Philippines, questionnaires were sent to the anti-corruption and anti-money laundering agencies such as the Office of the Ombudsman, Department of Justice, National Bureau of Investigation, Anti-Money Laundering Council and government and private banks.

The response shows that corruption is moderate but widespread among some public sectors. The pattern of corruption is moderately predictable and occurs equally in public and private sector although the prevalence is slightly lower than the previous years. Petty corruption which generally involves rank and file employees is the most common type followed by grand corruption involving elected and powerful government officials and their favourites.

The sectors most vulnerable to corruption according to their order of vulnerability are customs, taxation, legislature, local government, public service delivery, agriculture, state-owned enterprise, judiciary, law enforcement agency, education, environment and energy.

The most prevalent type of corruption in the public sector, according to their order of prevalence, are abuse of power, bribery and kickback, extortion, criminal breach of trust and nepotism. Corruption in procurement contracts has the greatest probability of occurring, followed by public fund disbursement procedures, revenue collection, licensing and electoral irregularities.

The absence, weaknesses or failure in regulation is viewed as most likely the root cause of corruption. Other contributors are complicated and cumbersome


administrative procedures; unclear rules and loopholes for manipulation; low salary levels; culture, customs and habits of giving bribes to get things done; lack of financial rules and procedures; eyeing to become rich as quick as possible; and rapid population coupled with slow economic growth.

The survey results affirm that the government has taken moderate steps to curb corruption. Anti-corruption agencies highly prioritize the monitoring of the current situation of corruption including the monitoring of fraud complaints from the public. The view is that the country’s ranking in Transparency International’s – Corruption Perception Index does not fairly reflect the corruption situation in the country. On the other hand, the Global Integrity Index (GII) fairly reflects the country’s real situation.

In conclusion, the prevalence of corruption in the country is serious though an effort to eradicate is improving.

B. Situation of Money Laundering

On the other hand, the situation money laundering is very serious. It tends to increase and becoming more sophisticated over the years. Its main pattern can be found in both public and private entities, and poses the highest risk in the field of banking and finance followed by real estate, trade and construction.

The most common methods of money laundering are made through cash transactions via financial institutions, business, money exchange and real estate. Deficient or weak legal system, the dominant use of cash, illegal transfer of money associated by offences in drugs, corruption and embezzlement are viewed to be the most favourable environments for money laundering. Of these offences, drug use and drug trafficking are most closely linked to money laundering.

There reasons associated why criminals launder money includes, among others, to avoid prosecution, evade taxes, hide illegal accumulated wealth, increase profit and become legitimate. The consequences are increased crime and corruption, weakened financial institutions, compromised economy and private

321Philippines

sector, negative impact on foreign investment, reduced government tax revenue, weakened government control over the economy, and damaged privatization efforts. Stated differently, money laundering has very serious negative impact on national security and international reputation, and weakens the economy as well as economic reforms.

The view is that money laundering which is commonly associated with drug/gambling lords, terrorists, smugglers, legislators and politicians, is prevalent because of weak enforcement of the law and very limited predicate offences.

Part II – Evaluation of the Fight against Corruption and Money

Laundering

A. Role of the Anti-Corruption Agencies

The country launched the “Philippines Development Forum” (PDF) where anti-corruption initiatives at the national level are comprehensively discussed, among others. The PDF is the primary mechanism of the government for facilitating substantive policy dialogue among stakeholders on the country’s development agenda. The Forum also serves as a process for developing consensus and generating commitments among different stakeholders toward critical actionable items of the Government’s reform agenda. After judicious deliberations, the Governance and Anti-Corruption Cluster recommended three broad areas for action in helping sustain reforms: build and empower constituencies for reform that will demand for and support good governance; strengthen monitoring and evaluation mechanisms, especially those related to public financial management and performance management systems; and give special attention to governance reform and institution building efforts in Mindanao within the framework of the President’s Social Contract, taking into consideration its development, humanitarian and peace building context. The conclusions derived show a need to further strengthen the links between government’s planning, budgeting and performance management systems to ensure that citizens feel the immediate and direct benefits of good governance. The bureaucracy’s capacity to more meaningfully engage with citizens, civil society, business, and other stakeholders


in open, transparent and accountable manner needs to be strengthened14.

The most vital function of the country’s anti-corruption agencies is to conduct investigations and provide a comprehensive analysis of the local situation with a solid understanding of the underlying causes of corruption. They regularly and periodically re-evaluate bodies, areas and activities which have high risks of corruption.

In terms of prioritization, detective actions and punitive measures are given high importance while preventive policies and measures are not taken for granted. Hotlines are established and maintained to facilitate citizens reporting of corrupt activities. These measures increase the probability for detection and punishment as well mainstreaming the anti-corruption measures throughout a country’s governance and integrity system.

B. Role of the Media, Citizens and NGOs

The survey shows that media plays a great role in fighting corruption. To some extent it has helped public recognize the real situation of corruption, however the provided information are sometimes inaccurate or not objective. The citizens’ participation in fighting corruption has also contributed well in terms of promoting public sector transparency and accountability. It has aided in unearthing irregularities and unlawful activities committed by many top-level officials. On the other hand, socio-political and professional organizations have actively participated but not effectively in anti-corruption campaigns.

To enhance and empower citizens’ participation, there is a need for an expanded anti-corruption portfolio with more programs which specifically target the everyday corruption, and educate the population about the ill effects of corruption. The oversight role of non-state actors such as the media through responsible journalism should also be strengthened for increased transparency, greater

14Summary Report on the 2013 PDF by the Co-Chairperson, Mr. Motoo Konishi, Country Director, Philippines, World Bank.

323Philippines

participation and involvement in anti-corruption activities.

C. Laws on Anti-Corruption

The Philippines criminalizes the different types of corrupt practices by special laws. The main anti-corruption law is Republic Act (RA) No. 3019 otherwise known as the Anti-Graft and Corrupt Practices Act. This law provides for the declaration of assets and liabilities of government officials and employees; criminalization of conflict of interest, nepotism, direct and indirect bribery and other circumstances which caused injury to another or gross disadvantage to the government, or by taking undue advantage of official functions, among others, and premature disclosure of valuable information of a confidential character acquired on account of his position. RA No. 1379 or an Act Declaring Forfeiture in Favor of the State any Property Found to have been Unlawfully Acquired by any Public Officer or Employee, provides for the forfeiture of illegally acquired or unexplained wealth in favour of the state. The Omnibus Election Code and its implementing rules and regulation govern the financing of political parties. RA No. 6713 governs code of ethics of public officials and employees. There are “accounting and auditing standards” for both public and private sectors. These laws and regulations increase the confidence and credibility of the country’s commitment in combating corruption specially when properly implemented and the crackdown on corrupt practices are exposed to the public. However, the view is that a new legislation focusing on “abuse of position/power and influence peddling” should be enacted to better prevent and detect the relevant cases of corruption.

D. International Cooperation

At international level, the country has ratified the United Nations Convention against Corruption (UNCAC) and its peer review process has already commenced. Mutual legal assistance with other countries is moderately successful.


E. Inhibitors to the Fight against Corruption

The current fight against corruption has a positive impact, and contributed well in the prevention and detection of corruption. However, there were identified factors that inhibit the fight against corruption, such as collusion between law enforcers and corrupt people; authorized officials lack of commitment; and afraid of retaliation and victimization.

Part III – Evaluation on the Role of Audit to Detect Fraud and


A. The Philippines Supreme Audit Institution

SAI Philippines or the Commission on Audit (COA) is an independent body whose existence is recognized by the present Philippine Constitution, thus, enjoys a permanent legal status. From having an Auditor General single-handedly leading the General Auditing Office under the 1973 Constitution, the 1987 Constitution provided for a three-man collegial body. This change aimed to strengthen the independence of the auditing office and improve the quality of its decisions, given the rationale that a three-man body was less susceptible to pressure than an office held by a single person. It worked as a built-in internal check within the COA and encouraged opposing views to surface thereby resulting in earnest consultation and better deliberation.The three-man board are appointed by the President of the Philippines and undergoes confirmation by the Commission on Appointments. Once confirmed, they will serve for a fixed term of seven (7) years, unless they are only serving the unexpired term of a predecessor. Within the tenure of their office, they can only be removed through impeachment by the Congress. Under the Constitution, the COA is independent of the executive, legislative and judicial departments of the state. It enjoys fiscal autonomy and its approved budget is subject to automatic release, although its proposed budget undergoes the scrutiny of the Department of Budget and Management and the Congress.

The COA has legal mandate and authority to audit the Central or national government agencies, bureaus, offices, instrumentalities and local government

325Philippines

units at all levels; government-owned and controlled corporations, state universities and colleges; private entities and non-governmental organizations receiving loans, subsidy or grants from the state under certain conditions; and privately-owned public utilities company, but limited to rate and franchise audit. The Constitution provides that no law shall be passed exempting any entity of the Government or its subsidiary in any guise whatever, or any investment of public funds, from the jurisdiction of the COA.

B. Mandate on Anti-Money Laundering

The COA has no direct mandate under the Constitution or law with regard to anti money laundering either on prevention or detection, as this mandate is conferred to the Anti-Money Laundering Council (AMLC) by virtue of Republic Act No. 9160 or the Anti-Money Laundering Act of 2001. Even so, COA coordinates with the AMLC for the execution of a Memorandum of Understanding (MOU) on sharing of information by the parties related to anti-money laundering. The COA is also a signatory to the MOU of the Inter-Agency Anti-Graft Coordinating Council (IAGCC) which encourages reporting of anomalous transactions including money laundering.

C. Mandate on Anti-Corruption

The COA’s mandate on anti-corruption is enshrined both in the Philippine Constitution and under Presidential Decree (PD) No. 1445, otherwise known as the Government Auditing Code of the Philippines. It has specific mandates both in the prevention and detection of corruption. The main thrust of the COA’s mandate on anti-corruption is the “prevention and disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties.” The COA has exclusive authority to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations (Article IX-D, 1987 Philippine Constitution). Upon discovery in audit of a shortage in the accounts of any accountable officer and upon finding of a prima facie case of malversation of public funds or property, the COA may place under constructive distraint


personal property of accountable officer who is obligated to preserve the property intact and unaltered and not to dispose the same in any manner. (Section 47, PD No. 1445). The auditor may seize the office of the local treasurer when the cash examination discloses a shortage in cash (Section 46, PD 1445). Also, the COA has investigatory and inquisitorial powers; and power to punish for contempt. The Chairman or any officer authorized by the former in writing shall have the power to summon parties, issue subpoena duces tecum and ad testificandum, and take testimony in any investigation or inquiry within the jurisdiction of COA. (Section 40, PD 1445)

D. Anti-Corruption Strategy

The COA implements its own “anti-corruption strategy” which is in accordance with the national anti-corruption strategy. One of its goals in the Strategic Plan for 2011-2014 is “to increase the public’s awareness and enhance inter-agency relations as regards COA’s role in ensuring transparency, accountability and good governance.” Under this goal, four objectives were set forth, viz:

• To enhance relations with the media, stakeholders and the public in general• To improve inter-agency relations of COA with regard to mutual assistance

and exchange of complete, necessary and timely information with other government agencies

• To strengthen COA’s efficiency in documenting / gathering legal evidence to ensure successful prosecution of cases

• To enhance citizen participation in the public audit process and institutionalize Citizens Participatory Audits (CPAs)

E. Role in the Prevention of Corruption

The COA contributes best in the prevention of corruption by providing recommendations to improve the audited agency’s internal control system. This reduces the opportunity of would be perpetrators to commit corruption, thus, eliminates one of the elements of the fraud triangle. Moreover, since COA is vested by the Constitution with exclusive authority to promulgate accounting rules

327Philippines

and regulations, it proactively prescribes guidelines to plug-in the loopholes in the public fund disbursement system as well as in the revenue collection system through circulars or resolution which all government agencies are bound to comply with. These resolutions or circulars have the effect and force of a law unless its constitutionality is challenged and subsequently declared by the Supreme Court as unconstitutional.

The COA made a remarkable contribution in the prevention of corruption by designing and implementing the New Government Accounting System (NGAS) and eNGAS which simplified government accounting that conforms to international standards. The eNGAS is an accounting software developed by COA to promote correctness, reliability, completeness and timeliness of recording financial transactions. The eNGAS generates periodic and relevant financial reports for better monitoring of performance. For the agency management, it ensures more efficient operations and effective controls; serves as tool for sound management decision making; pinpoints responsibility and accountability; and ensures compliance with regulatory requirements. For government oversight and regulatory agencies, eNGAS affords up-to-date monitoring of agency operations and facilitates responsive exercise of regulatory functions. For the general public, eNGAS provides transparent operations and well-defined accountability and speeds up delivery of services.

In the public procurement system, the COA acts as an observer in the proceedings of the Bids and Awards Committee, a mechanism prescribed by Republic Act No. 9184 or the Government Procurement Reform Act. By acting as a vigilant observer, the COA may prevent collusive or rigged bidding.

F. Role in the Detection of Corruption

COA employs both proactive and reactive approaches in detecting corrupt activities and transactions in the government. As a proactive approach, the COA adopts a Risk Based Audit Approach and Unified Audit System to capture high risk accounts, projects, programs and activities. Unified instructions are disseminated to all audit units to focus on transactions, programs, projects and activities


which were found to be of high risk during the agency risks assessment or when the result of fraud/special audit shows irregularities in the implementation of a certain programs, project or activity. Upon discovery of red flags or symptoms of corruption during regular audit, the audit unit/office usually refers the red flags to the special office of the COA or concerned anti-corruption agency for the conduct of a full blown investigation.

For the reactive approach, the COA conducts validation of corruption complaints in whatever form. Mechanism and facilities are made available to encourage reporting of corrupt activities and transactions in the government. The COA has a Citizens Desk which caters corruption complaints. To efficiently respond to the public, COA utilizes this Helpdesk under Public Information System in the official website by using a support ticket system. Every support request is assigned a unique ticket number as reference for tracking every concern. Each request requires a valid email address. Under the menu “Check Ticket Status,” COA provides archives and history of all current and past support requests complete with responses. The COA has also the I-Kwenta which is the citizens’ feedback portal where the public may also lodge their corruption complaints.

The Fraud Audit Office (FAO), a multi-disciplinary office composed of lawyers, Certified Fraud Examiners, Certified Public Accountants, Engineers and Special Investigators, and based in the Central Office monitors all corruption complaints nationwide. Initially, the corruption complaint will be referred to the auditor who has jurisdiction over the agency being complained of. The auditor shall be required to submit an Evaluation Report (ER) on each specific allegations of fraud with his/her comments on whether or not there is a necessity of conducting a full blown investigation. The ER shall be supported with relevant documents such as bidding documents, disbursement voucher, purchase request, purchase order, delivery receipts, official receipts, checks, etc., if available. The FAO will then evaluate the ER and supporting documents to determine if predication15 exists. If in the affirmative, the FAO will create a special audit team for the conduct of a

15The totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to

believe a fraud has occurred, is occurring, and/or will occur (The Association of Certified Fraud Examiners).

329Philippines

full-blown investigation aimed at gathering sufficient legal evidence to ensure the successful prosecution of cases as a result of fraud audit.

The Special Audits Office has made invaluable contributions in the anti-corruption efforts of the COA. It has been instrumental in uncovering one of the largest fraud in the Philippine government. The special audits of the Priority Assistance Fund and the Malampaya Funds were the most high profile cases involving billions of pesos. The implementing government agencies which were supposed to implement the programs, projects and activities contracted out the same to the non-governmental organizations (NGOs) which were found to be fictitious entities or with dubious track records. The projects either turned out to be ghost projects or implemented with substantial deficiencies or deviations from work program and purpose of appropriation of funds. The audit techniques that led to its detection were network analysis; whistle blowing; confirmation with third parties and regulatory agencies; observation and technical inspection; analysis of legality of funds sources and tracing where the money has gone; validation of the legal existence of NGOs and suppliers; validation of actual receipt of goods and services by intended beneficiaries; substantive testing of disbursement vouchers and supporting documents; analysis of contracts, agreements and work financial plan.

G. Citizens Participatory Audit (CPA)

In participatory audit, citizens (civil society, academic groups, community members, private sector) and the COA work together to audit the processes of delivering public services and government programs. The CPA is a priority program, founded on the premise that public accountability can prosper only with a vigilant citizenry. Through the CPA, audits are conducted with citizen representatives included in the team to educate citizens in the audit process and encourage vigilant participation in exacting government accountability. The audit is under the direct supervision and control of the COA. As a result, transparency and accountability in the way government performs its functions is enhanced. This joint COA-civil society project that audits government performance won the Bright Spots award at the Open Government Partnership (OGP) Summit held in London, Germany from October 31 to November 1, 2014.


H. Linkage with Other Anti-Corruption Agencies

The COA has a permanent representation in the IAAGCC which studies policy issues against graft and corruption as well as in the Internal Working Group on the 21 Point Agenda of the United Nations Convention on Anti-Corruption for 2013-2018. It systematically cooperates with the Office of the Ombudsman (OMB), Department of Justice and National Bureau of Investigation on investigation and prosecution of cases as a result of fraud/special audits conducted by the SAI. There is also COA-OMB Joint Investigation Team – a joint investigation team formed in 2012 to ensure the efficient and successful filing, investigation and prosecution of cases involving graft, corruption and violations of the ethical code of conduct for public officials and employees. The joint team gave priority to the investigation and prosecution of selected high profile cases.

I. Partnership with International Organizations

The World Bank sponsored the development of the Integrated Results and Risk Based Audit and Fraud Audit Manual for the use of COA. Subsequently, COA has developed the audit software. The IRRBAS is a computerized version of the Integrated Results and Risk-Based Audit which aims to integrate the different COA audit services such as: Financial and Compliance Audit; Agency-based Performance Audit; Government-wide and Sectoral Performance Audit; and Fraud Audit into a common audit approach. Among the objectives of IRRBAS are to provide a useful tool for the auditor in performing his/her interim and year-end audit using an integrated results and risk-based audit approach; meet the evolving developments in the public governance’s expenditure management, and promote the use of standard work papers/templates.

The United States Agency for International Development (USAid) sponsored the Integrity for Investment Initiatives (i3), one of the projects under the Partnership for Growth (PFG), to address the most serious constraints to economic growth and development in the Philippines. I3 will contribute to inclusive growth by reducing the costs of corruption to investments and trade, thereby promoting open and fair competition. The project team will work with anticorruption offices, primarily

331Philippines

the OMB, COA, Civil Service Commission (CSC), Securities and Exchange Commission (SEC), and the Governance Commission for Government-Owned and Controlled Corporations (GOCCs).

J. Capacity Building on Anti-Corruption

To enhance COA’s capability to address the increasing demands for fidelity in the receipt, custody and utilization of public resources, the SAI provides necessary trainings to its auditors such as Corruption Detection and Investigation, Certified Fraud Examination, Integrated Results and Risk Based Audit, Forensic Accounting, Fraud Audit and Legal Evidence, General and Sector Specific Fraud Awareness, and other special trainings on fraud investigation offered by partner agencies.

The fraud awareness training focused on understanding fraud, detecting and addressing fraud, assessing and preventing fraud and investigating fraud. Also included in the training is the infrastructure fraud awareness.

K. Reporting Role and Follow-up

Fraud/special audit reports with findings of fraudulent acts discovered in audit/investigation are transmitted by Head of SAI to the OMB with recommendation to file appropriate cases against persons liable/responsible. A special audit report is issued specifying the fraudulent transactions, the pecuniary loss suffered by the government, the persons responsible/liable, and the laws and rules violated. With regard to the civil liability by the persons responsible representing the pecuniary loss suffered by the government, a Notice of Disallowance (ND) will be issued directing the persons liable to return to the government the public funds irregularly/illegally disbursed. In case of under assessment, under appraisal or under collection of revenues, a Notice of Charge will be issued for the amount that should have been remitted to the government. However, the ND or NC is still subject to the appeals process.

Follow-up of the status of the transmitted reports can be made through the COA-OMB Joint Investigation Team.


L. Recommendations to Further Strengthen the SAI’s Role in Anti-

Corruption

Fraud and corruption are not only temporary issues that must be addressed by the SAIs. These surely become permanent issues of concern by the states, NGOs, international bodies, academe and all others concerned. Mechanism and facilities should be institutionalized within SAI framework to combat these negative phenomena, and if necessary, a change or improvement in the legislation should made to empower the SAI not only prevent fraud and corruption but also to detect and investigate them. Constant capacity building focused on fraud and corruption awareness, detection and investigation should be given outmost consideration.

333Russia

10. Russia

Chapter One: Research Background and Methodology

The Accounts Chamber of the Russian Federation is committed to continuous improvement of its arsenal of combating corruption. In this work we try to implement the best practices of our foreign colleagues and therefore take an active part in the work of key auditing international organizations.

Within the framework of the fight against corruption the integration of Russia into the international system of multilateral cooperation has gained particular importance. Challenges tied with anti-corruption are integral part of the Russian dialogue with the United Nations, the Council of Europe, APEC and other international forums and organizations.

1.1 Basic information of the research team

Sergey Kamolov. The head of reporting inspectorate for Industry, Space and Telecommunication of the Accounts Chamber of the Russian Federation.

Born in 1973 in Moscow. Graduated with Honor from Moscow State Institute of International Relations. PhD in Economics (1998). Associate Professor in Economics and Finance (2011). He has 20 years of international and multi-cultural experience both in banking and in public service. His areas of expertise comprise public governance, business development and cost reduction management. For the past decade his career has been tied with Odintsovo municipality of the Moscow region, the Government of Moscow region. Prior to joining the Accounts Chamber of the Russian Federation he served as the Deputy Prime Minister of the Government of Penza Region.

Olga Terehina. Senior Expert of the International Division of the Accounts Chamber of the Russian Federation.

Graduated from Diplomatic Academy of the Ministry for foreign affairs of the


Russian Federation. She has been working for the International Department of the Accounts Chamber of the Russian Federation for 4 years, regularly participating in number of the INTOSAI, EUROSAI and ASOSAI working groups and projects, including on the corruption and money laundering issues.

1.2 Research approach

The Report is based on extensive study of the current applicable legislation, domestic and international statistics and open data of the Accounts Chamber of the Russian Federation generated on the basis of its audits carried from 2011 up to present time.

1.3 Terminologies and definitions

The Paper uses generally accepted terminology contained in the Glossary of Auditing Terms of the INTOSAI.

Chapter Two: Evaluation of Current Situation of Corruption and

Money Laundering

Сorruption in Russia is not a simple threat to the security and stability of the country; it is a deterrent factor for the national economy growth which makes the social inequality to persist. Fighting corruption is a priority strategic task which requires a systematic and comprehensive approach, uniting efforts of the government and the society, everyday meticulous and focused work on the development of the government anti-corruption policy.

Performing the public governance functions, including those that are related to the use of public funds and the state property management can be exposed to corruption risks, that is to the circumstances provoking a state official to misuse its official position with a view to obtaining profit for itself or third parties, or illegally provide such profit to a state official or other individuals. The main causes of corruption risks can be grouped based on the following grounds: institutional, organizational and social.

335Russia

Risks Underlying Factors

Institutional corruption risks are associated with the regulation of the respective spheres of governance and operation of the authorized structures

lack of effective regulatory structure in public governance, nor administrative and official regulationslack of transparency in law making

insufficiently effective system of prohibitions and restrictions imposed on persons holding public office, and civil servants

provisions in the legal and institutional systems which contribute to the creation of administrative barriers

high level of secrecy in the work of state bodies and the imperfection of feedback mechanisms between citizens and supervisory bodies

lack of transparency in legislation

Organizational corruption risks

low efficiency of internal and external control over the activities of state bodies and their officials

sophisticated reporting system

ineffective personnel policy

absence of measures taken to prevent violations of legitimate rights and interests of citizens

Social risks

wage gap between workers in the public and private sectors

lack of material and non-material incentives

weak legal protection of public officials and persons assisting law enforcement bodies

The analysis of the findings of control activities showed that corruptogenic factors are largely identified that establish for a law enforcement official unreasonably wide discretion limits or an opportunity of unjustified application of exceptions to the general rules. The structured corruptogenic factors are represented in the table.

The enlisted indicators show that the largest number of corruptogenic factors are connected with the wideness of discretion powers (126, or 31.5%), adoption of a regulation outside the competence (86, or 21.5%) and determination of a competence according to the “entitled” formula (46, or 11.5%).

Transparency is the fundamental prerequisite to eliminate corruption. There is surely a very significant degree of correlation between Open Budget Index and corruption. As the result of comprehensive measures taken to fight corruption by increasing transparency Russia is recognized as the country with one of the most transparent budget in the world (Open Budget Index – 2012).


Corruptogenic factors The number of factors

Wideness of discretion powers - lack or ambiguity of time limits, terms of or grounds for decision making, availability of overlapping powers of government bodies or local self-government bodies (their officials);

126

Determining a competence according to the “entitled” formula: dispositive establishment of an opportunity for government bodies or local self-government bodies (their officials) to take actions in respect of citizens and organizations;

46

Selective change in the volume of rights: an opportunity to unreasonably establish exceptions to the general procedure for citizens and organizations at the discretion of government authorities or local self-government bodies (their officials);

11

Excessive freedom of sub-legislative rule-making: availability of blanket and reference rules causing the adoption of regulations infringing on the competence of a government body or a local self-government body, which has adopted the initial legal regulation;

10

Adoption of a regulation outside the competence: a violation of the competence of government bodies or local self-government bodies (their officials) when they are adopting regulations;

86

Filling legislative gaps by means of by-laws in the absence of legislative delegation of appropriate authority: the establishment of universally binding rules of conduct in a regulation in the absence of a law;

24

Lack of incompleteness of administrative procedures: lack of a procedure for government bodies or local self-government bodies (their officials) to take certain actions or one of the elements of such a procedure;

29

Rejection of tender (auction) procedures: securing an administrative procedure of granting rights (benefits); 1

Excessive demands to a person to enable him/her to exercise rights: establishing indefinite, difficult to comply with and burdensome requirements to citizens and organizations;

22

Abuse of the applicant’s rights by government bodies or local self-government bodies (their officials): lack of clear regulation of the rights of citizens and organizations;

4

Legal and linguistic uncertainty: the use of ambiguous terms and categories of evaluative nature. 41

337Russia

As we can see below, Russia’s budget transparency in 2006 was consistently below developed world standards, but by 2012 it was 10th out of 100 countries.

countries.


The OBI is an objective measure, drawn from tangible metrics, and that alone makes it superior to Transparency International’s CPI, which is a measure of corruption perceptions.

Chapter Three: Evaluation of Current Situation of Anti-Corruption and

Anti-Money Laundering

Russia is undertaking serious efforts to fight corruption. Combating corruption ranks among the top priorities for the President, the Parliament and the Government of the Russian Federation. Institutional and legal anti-corruption mechanisms are being developed, and mechanisms for cooperation among international organizations engaged in fighting corruption and financial irregularities are in place.

Anti-Corruption Fighting Milestones:

June 2002, Russia through its National Financial Intelligence Unit (Federal Service for Fiscal Monitoring) became a member of the Egmont Group.

June 2003, Russia became a full member of Financial Action Task Force (FATF).

March 2006, Russia ratified the UN Convention on Anti-Corruption.

June 2006 the Council of Europe’s Criminal Law Convention on Corruption was ratified.

February 2007 Russia joined the Group of States against Corruption (GRECO), established by the Council of Europe.

In 2008, the Anti-Corruption Council under the President of the Russian Federation was established.

The National Strategy for Combating Corruption setting out main directions of the government anti-corruption policy is in place. A large package of legal acts,

339Russia

including the basic federal law “On Combating Corruption”, defining goals, objectives and principles of the fight against corruption, has been adopted. National Anti-Corruption Plans are being accomplished.

The set of anti-corruption measures is comprehensive and very dynamic.

Based on the National anti-corruption strategy, the Federal Public Institutions are deliberately implementing the set of anti-corruption measures of organizational, economic, legal, IT and HR nature.

In order to eliminate the causes and conditions that give rise to corruption in the Russian society, the following tasks should be addressed in the course of implementation of the National Anti-Corruption Strategy.

The National anti-corruption strategy is streamlined as follows.

1. Legal Measures

The main regulatory act in the anti-corruption field is the Federal Law No. 273-FZ “On Combating Corruption” of December 25, 2008, establishing among other things notions of corruption and anti-corruption, regulatory legal acts of the Russian Federation, state (administrative) functions in management of an entity; conflict of interest and self-interest; prohibitions and restrictions imposed on respective officials and liability of legal entities and individuals for corruption offenses.

1.1 Updating Civil Law

Modernization of the civil law is one of the main directions of the National Anti-Corruption Strategy, implemented through regulatory acts of the Russian Federation, which regulate civil matters; it should contribute to the improvement of the legal system of the Russian Federation.

With a view to adopting an efficient applicable regulatory act, the modernization


of the legislation should be comprehensive and based on monitoring of the law enforcement after identification of legislation drawbacks in a given area.

1.2 Improving administration flow within the anti-corruption legal expertise

Corruptogenic regulatory legal acts are one of the corruption drivers. Federal Law “On Combating Corruption” has determined that conducting anti-corruption reviews for legal acts and their drafts is one of the measures to prevent corruption (Article 6). The National Anti-Corruption Strategy also states that the improvement of the organizational principles in conducting anti-corruption reviews of regulatory legal acts and draft regulatory legal acts and improving its effectiveness is one of the main directions of implementation of the Strategy (paragraph 8).

In accordance with the Federal Law mentioned, anti-corruption reviews of regulatory legal acts (draft regulatory legal acts) are carried out mainly (Article 3) by the Prosecutor’s Office of the Russian Federation and the Russian Ministry of Justice.

Prosecutors carry out anti-corruption reviews at the federal level of regulatory legal acts of bodies, public entities and their officials on the questions concerning: the human and civil rights, freedoms and duties; state-owned public service, the application of legislation (budgetary, tax, customs etc.); social guarantees for persons who hold (held) public positions, civil service positions.

The Russian Ministry of Justice conducts anti-corruption expertise at the federal level:

in case of conducting a legal expertise: draft federal laws, decrees of the President of the Russian Federation and the decisions of the Government of the Russian Federation, developed by federal government bodies;

in case of conducting a state registration: of regulatory legal acts of federal executive bodies, related to the human and civil rights, freedoms and duties.

341Russia

Federal government bodies carry out anti-corruption reviews in case of conducting legal examination and monitoring of the application of the regulatory legal acts (draft regulatory legal acts) they have adopted.

The number of anti-corruption reviews of the regulatory legal acts (draft regulatory legal acts), conducted by these federal government bodies in 2011 compared to 2010 increased from 10,591 to 12,815, or by 21.0%.

The institute of independent corruption prevention reviews, established by Article 5 of the Federal Law on Conducting Anti-Corruption Reviews is a novel of the Russian legislation and is designed to strengthen public control over the authorities, to implement the principle of openness and transparency of activities, primarily of the federal government bodies activities. As of January 1, 2012 the Ministry of Justice of the Russian Federation accredited over 1300 independent experts.

1.3 Increasing the efficiency of court decisions execution

In accordance with the National Anti-Corruption Plan for 2010 - 2011 years, the Russian Ministry of Justice has developed a draft long-term programme to improve the efficiency of enforcement of judgments. The improvement of the efficiency of judicial acts should be realized by means of improving the enforcement proceedings and legislation on enforcement proceedings and bringing it into line with international standards.

2. Economic Measures

Among the main activities of government bodies to improve the efficiency in countering corruption are economic measures aimed at improving the registration and use of state property, improvement of the mechanisms governing the public procurement, elimination of corruptogenic factors hindering the creation of favorable conditions for attracting investments, ensuring the proper standard of living in the country, the establishment of decent wages, social security.


2.1 Improvement of financial accounting in accordance with the International

Accounting Standards

In the field of accounting and financial (accounting) statements in 2010 - 2011 a legislative and regulatory framework was developed in accordance with international standards.

The Federal Law “On the Consolidated Financial Statements” (No. 208-FZ) adopted on July 27, 2010 provides the legal basis for the direct application of International Financial Reporting Standards (hereinafter - IFRS) by Russian companies in the preparation of the consolidated financial statements, as well as establishes the general requirements to the procedure of preparation, submission and publication of the consolidated financial statements in accordance with IFRS. Its adoption is an important step towards transparency and openness of Russian organizations and providing accurate and useful information to users of financial statements.

In order to develop accounting and reporting in the Russian Federation on the basis of International Financial Reporting Standards, by Order of the Russian Ministry of Finance No. 440 dated November 30, 2011 a Plan for 2012 -2015 years was adopted, envisaging measures to improve the quality and accessibility of information formed in accounting and reporting, improvement of the system of accounting and control of the quality of accounting (financial) statements, development of the profession, international cooperation.

IFRS recognition is an important step in ensuring transparency and openness of Russian organizations, increasing their investment attractiveness and competitiveness, reducing the cost of the borrowed funds attracted by them, as well in improving the general climate in the Russian financial market.

At the same time, in accordance with the implementation of the reform in the public sector, aimed at improving the efficiency and effectiveness of using the budgets of all levels, the Ministry of Finance of Russia carried out the work on the development of national accounting standards of the Russian Federation in the

343Russia

public sector on the basis of International Financial Reporting Standards of the public sector.

2.2 Improvement of the public property accounting and efficiency of use

evaluations

The activities on accounting of state property and improving the efficiency of its use were conducted by the federal government bodies in the first place in accordance with the decision of the Government of the Russian Federation No. 447 dated July 16, 2007 “On Improving the Accounting of Federal Property”.

In 2010 - 2011, the Russian Ministry of Economic Development and the Federal Property Management Agency (Rosimushchestvo) carried out the work on the transition to the modern methods of federal property accounting — that is keeping a federal property register as a federal information system with the presentation of information on the Internet. All the accounted information on the federal property is now digitalized.

2.3 Improvement of the public procurement procedures

Public procurement system is a sphere of high risks of corruption and the issue of a conflict of interests in the organization of tenders or auctions for procurement of goods, works and services for state needs is a key element of combating corruption.

From January 1, 2011, replacing the system of separate official websites (federal official site, official sites of constituent entities of the Russian Federation, official websites of municipalities) existing in previous years, a single official website of the Russian Federation has been operating in the information and telecommunications network Internet for posting information about placing orders for goods, works and services. Commissioning a single official site allows analyzing the information arriving at the portal on all orders placed in the territory of the Russian Federation, searching by all positions (by customers, by the type of


the product purchased, by the method of placing the order), giving the participants placing orders the opportunity to effectively protect their rights and legitimate interests.

Federal authorities are working on placing orders through auctions. Placing orders through an open auction on the procurement of goods, works and services held in an electronic form significantly reduces the likelihood of collusion of the participants placing orders, prevents manifestation of corruption in connection with ensuring the confidentiality of information about the party placing the order till the public auction results.

The analysis of open electronic auctions held by all federal authorities shows that there was a significant increase in their such auctions in 2011 — by 2 times more in comparison with 2010. In general, the development of the practice of public procurement through open auction in an electronic form will greatly expand the range of persons who can monitor public procurement in order to identify signs of corruption.

The increase in the share of placing orders through open auctions in electronic form is important, however, it does not solve the basic problems: selection of bona fide suppliers to achieve a good result at the end of the auction and elimination of corruption risks.

2.4 Elimination of corruption factors, impeding foreign investments

To assist in overcoming administrative barriers and attracting co-financing of promising commercial, social and infrastructure projects an autonomous non-profit organization “Agency of Strategic Initiatives to Promote New Projects” was created in 2011.

As the result, in the Doing Business study which is compiled annually by the World Bank and evaluates business conditions in 183 countries, Russia is steadily moving up from 124th place in 2010 to 62nd in 2014.

345Russia

3. Organisational Measures

3.1 Increasing the role of democratic institutions in the fight against

corruption

In order to attract citizens to participate in the implementation of public policies in different areas, in most of the federal authorities and their territorial divisions public councils were created, which include academics, NGOs, representatives of human rights and religious organizations, the creative community and the media. One of the main tasks in the work of public councils is the analysis and preparation of proposals to combat corruption and other offenses in the relevant field of the government bodies’ activity.

3.2 Increasing the efficiency of the public institutions

Measures are taken to implement the system of internal anti-corruption controls and to improve the supervisory functions:

• dedicated telephone lines for obtaining information on corrupt activities of ministries’ and departments’ employees were provided;

• special sections have been created on official government bodies websites for messages about wrongdoings of officials, where special legal information and contact information is placed;

• on the official websites of government bodies “electronic receptions” have been placed (citizens’ appeals are considered in the terms established by the Federal Law No. 59 dated May 2, 2006 “On the Procedure of Consideration of Appeals of the Russian Federation Citizens”), providing on-line counseling services, operating in real time.


3.3 Increasing effectiveness of the international cooperation in anti-

corruption

Cooperation with international anti-corruption organizations.

As part of the accession to the Organization for Economic Cooperation and Development (OECD), the work has been completed on the accession of the Russian Federation to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions dated November 21,1997, imposed on the Russian Ministry of Justice by Order of the President of the Russian Federation No. 371-rp dated June 7, 2011.

Within the framework of the Russian Federation in the Financial Action Task Force on Money Laundering (FATF), the Federal Service for Fiscal Monitoring initiated a series of anti-corruption measures.

Interaction with law enforcement bodies of foreign countries regarding the fight against corruption.

The Supreme Court of the Russian Federation has carried out the activities to implement the GRECO’s recommendations on the establishment of a federal system of administrative courts and the practical enforcement of the principles of independence and transparency of the judiciary.

The training courses in the Russian Federation for experts from other countries on organizing activities to combat corruption.

In pursuance of subparagraph “d” of paragraph 8 of the National Plan Against Corruption for 2010-2011, experts from the CIS member states were trained at the premises of the Ministry of Justice of the Russian Federation and an international seminar was held concerning “The Prevention of and Fight Against Corruption: International and National Experience” (October 2010).

347Russia

4. IT Measures

4.1 Putting innovations in place to increase objectiveness and transparency

of legal and decision-making procedures

Development and functioning of official websites of federal government bodies in order to implement the principle of publicity in their activities.

In 2010-2011, all federal government bodies, in order to implement the main principles of providing access to the information on their activities, registered their official websites in the Internet and keep maintaining their information content.

At the same time, the official sites of government bodies sometimes lack or fail to fully represent the following information on/of:

• how the government body uses budget funds allocated to it;

• results of audits carried out by the government body within the limits of its powers, as well as on the findings of audits carried out in this government body;

• the full name of the head of the unit or another official who is in charge to organize visiting hours for citizens, representatives of organizations and non-governmental associations, and ensure the consideration of their appeals;

• reviews of citizens, organizations and non-governmental associations appeals, as well as synopses on the outcome of the consideration of the said appeals and the measures taken.

Ensuring access to justice through the official website of courts of general jurisdiction and arbitration courts.

The Supreme Court of the Russian Federation has approved the Procedure for


placing the texts of judicial acts on the official website. The following components of the Automated Information System of the Supreme Court of the Russian Federation have been developed and introduced and are being maintained and improved:the subsystem “Placing information on the website in accordance with the requirements of Federal Law No. 262-FZ of December 22, 2008”;the databank on the activities of the Supreme Court of the Russian Federation;the subsystem “Registration, accounting, analysis and processing of citizens’ appeals received by the Supreme Court of the Russian Federation”;the module “Automated publication of the texts of the rulings of the Supreme Court of the Russian Federation with personal data removed”.

The statistics of visits to the official website of the Supreme Court of the Russian Federation shows: an average of 5,360 visits are recorded annually; 3,216,129 visits have been registered since July 1, 2010.

The following information is placed on the website of the Supreme Court of the Russian Federation: 56,050 documents with information on the activities of the Court, 41,487 documents with the texts of judicial acts received by the Supreme Court of the Russian Federation, information on 177,069 judicial cases and 2,134,997 complaints.

New services are placed on the website of the Supreme Arbitration Court of the Russian Federation: twitter of the Supreme Arbitration Court of the Russian Federation, video broadcast of the meetings of the Presidium of the Supreme Arbitration Court of the Russian Federation. More than 130,000 users visit the website monthly.

At present, the information published in the sections of the website of the Supreme Arbitration Court of the Russian Federation (“News of SAC RF”, “Resolutions of the Plenum of SAC RF”, “Resolutions of the Presidium of SAC RF”, “Information Letters of the Presidium of SAC RF”, “Draft documents of SAC RF”) is automatically published in the twitter “twitter.com/arbitr.ru”.

The portal for the publication of court judgments ensures the centralized data

349Russia

collection from the court proceeding automation system of all arbitration courts and their representation in the Internet in a fully automated regime; this portal is conditionally divided into several information systems (“Card Index of Arbitration Cases”, “Bank of Judgments of Arbitration Courts”, “Calendar of Court Sessions”, “Adjournments of Court Sessions”, the information service “Electronic Guardian”, “Mobile Card Index”).

The development of the system of interdepartmental electronic interaction of federal government bodies (and their local agencies).

Four basic services of the Federal Service for State Registration, Cadastre and Cartography (Rosreestr): registration of rights, issuance of information on registered rights, cadastral registration and issuance of information from the cadastral register, three services were converted into an electronic form and were provided via the official website of Rosreestr in the Internet. More than 1,3 million services in electronic form were provided in the Rosreestr Portal.

4.2 Legal Education of the Citizens

The legal education of citizens is one of the most important measures of direct anti-corruption enforcement and, at the same time, encourages the formation of a socially active individuals, which, in its turn, contributes to the development of the civil society. The legal education of citizens is aimed at prevention of offending behaviour and encouragement of good behaviour; development of citizens’ respect towards law; influence on law enforcement practice and law; fight against deformation of legal awareness (legal nihilism, anti-legalism). The most important role in this process is played by the media.

5. HR Measures

5.1 Improvement of HR services performance through:

• control over compliance with legally established restrictions and prohibitions


in respect of persons holding positions of public service of the Russian Federation;

• effective measures to prevent and settle the conflict of interests in the public service;

• raising the profile of committees for compliance with requirements to official conduct of state officials;

• improving the quality of training of specialists in the area of combating corruption.

Virtually all federal government employees included in relevant departmental lists provide information on income, property and property obligations (they are placed on official websites of government authorities).

During the checks of information on income and property submitted by employees of agencies, special attention is paid to fact sheets of state officials holding the positions with a high risk of corrupt practices. Major violations and deficiencies (apart from violations of deadlines for information submission and submission of knowingly false information) detected during the checks of information on income and property of state officials and their families:lack of information on the membership of state officials in the management bodies of commercial organizations, the grounds for the use of an apartment, the size of income of the spouses of state officials from participation in commercial organizations and from the ownership of shares, type of account and income from bank deposits.

In order to prevent corruption and other offenses, all agencies carry out checks in respect of documents and information submitted by candidates for positions of state officials, including the checks for criminal records and administrative offenses, validation of submitted documents on education, income and property, and others.

351Russia

5.2 Increased importance of commissions monitoring compliance with the

rules of professional conduct of state officials of the Russian Federation and

settling conflicts of interest.

In accordance with the provisions of the Decree of the President of the Russian Federation No. 821 dated July 1, 2010 “On commissions monitoring compliance with the rules of professional conduct of federal state officials and settling conflicts of interest”, commissions monitoring compliance with the rules of professional conduct of federal state officials and settling conflicts of interest have been established in all agencies. Commissions consider the following principal issues and materials:

• organization of the work on submission by state officials of information on income and property and violations of complies of information and deadlines for submission by state officials of information on income, property, securities held, paid work performed;

• information on state officials who are the founders of commercial and (or) non-governmental organizations and work in a management body of a commercial organization on a paid basis;

• facts of the failure to meet requirement to official conduct, the conflict of interest;

• permission for a citizen to hold positions in a commercial (non-commercial) organization before the expiration of the 2-year period after leaving government service, as well as information on state officials’ relatives employed in regulated organizations;

• attempts to persuade government officials to corruption offenses;

In 2010, Russia joined the countries—founders of the International Anti-Corruption Academy. Agreement on the establishment of the International Anti-


Corruption Academy as an international organization was signed in Vienna on December 29, 2010.

Chapter Four: Evaluation of SAIs’ Role in Detecting and Preventing


The Accounts Chamber of the Russian Federation was assigned a special role in the nationwide system for combating corruption.

On April 8, 2013, the President of the Russian Federation Vladimir Putin approved the new version of the Federal Law “On the Accounts Chamber of the Russian Federation”, which significantly expanded the powers of the SAI Russia. This law is harmonized with the international legal principles of independent audit stipulated in the Lima and Mexico Declarations of INTOSAI, as well as in the UN General Assembly Resolution adopted in December 2011 on “Promoting the efficiency, accountability, effectiveness and transparency of public administration by strengthening supreme audit institutions”.

The main anti-corruption vector in our country lies in the field of permanent supervision of lawful and effective use of the federal budget resources exercised by the Accounts Chamber of the Russian Federation.

The smooth co-operation with law enforcement bodies also contributes to the enhancement of the effectiveness of anti-corruption activities. Most of these violations are corruption-related crimes. As a rule, the vast majority of criminal cases initiated based on the materials provided by the Accounts Chamber of the Russian Federation, have wide public response.

No less important aspect of combating corruption for the Accounts Chamber of the Russian Federation is the prevention of corrupt practices. In the frame of this work, the Accounts Chamber of the Russian Federation actively participated in the preparation of the federal law on the procurement contract system, which will come into force as soon as on 1 January 2015.

353Russia

The Accounts Chamber of the Russian Federation prepared proposals for the development of legislation governing the management of public property. These are such issues as the improvement of the accounting of treasury property and its reflection in financial statements, the organization of proper recording and efficient use of intellectual property created at the expense of budget funds, the prevention of attempts to evade the payment of taxes.

Besides, the Accounts Chamber has developed proposals to create a system of indicators for the evaluation of efficiency of spending budget funds on ensuring the measures to combat corruption and form a unified system of state financial control. To a large extent, these and other initiatives of the Accounts Chamber of the Russian Federation were taken into consideration in the National Strategy for Combating Corruption.

The transnational nature of modern corruption is responsible for the importance of international interaction of supreme audit institutions, ongoing exchange of experience and the study of the best methods to counter corrupt practices. The understanding of this important aspect gave in due time quite a powerful momentum to our active international activity in the area of combating corruption. The Accounts Chamber of the Russian Federation stood at the origins of the INTOSAI Working Group on the Fight Against Corruption and Money Laundering; now, in the frame of the Working Group’s activities, it heads two major projects. We head the Task Force on Procurement Contract Audit, which was established with the general support of our initiative at the 64th meeting of the INTOSAI Governing Board in October 2014.

The Accounts Chamber of the Russian Federation came forward with an initiative to establish the INTOSAI Task Force on Procurement Contract Audit, which was unanimously supported by our foreign colleagues both at the 64th meeting of the INTOSAI Governing Board and during the XXI Congress of this international organization. It is necessary to note a very high level of interest of the SAIs of foreign countries in participation in the activities of this INTOSAI working body, which, in our opinion, proves the relevance and importance of the subject of the Task Force.


One of the latest developments of the Accounts Chamber of the Russian Federation is the Methodology of the Accounts Chamber of the Russian Federation to exercise control over the efficiency of anti-corruption measures (2013). It is intended to establish a unified approach to the organization and exercise of assessment of corruption risks in the use of budget funds, as well as general rules of control over the efficiency of implementation of programs to combat corruption16.

Control over the efficiency of implementation of programs to combat

corruption is among the priorities.

The objects of control over the efficiency of implementation of programs to combat corruption are as follows:

• the use of budget funds of various levels allocated purposefully for the implementation of measures to combat corruption;

• managerial solutions of government bodies in the area of combating corruption and their compliance with legislative acts and other regulations of the Russian Federation;

• the system of accounting of state property in government bodies, as well as the compliance of the financial accounting and reporting system with requirements of international accounting standards;

• public procurement carried out by federal and regional government bodies;

• interdepartmental electronic interaction of federal and local government authorities, other government bodies, as well as electronic interaction of the said authorities with citizens and organizations within the framework of public service provision;

• the activities of multi-functional centers for public service provision to citizens and organizations;

16There is a special government institution to conduct Anti-money Laundering policy

355Russia

• completeness, relevance of updating and reliability of information of official websites of government bodies in the Internet, including judicial bodies;

• public support of production, broadcast and distribution of TV and radio programs dedicated to the legal education of citizens;

• monetary allowance and pension provision of state officials;

• training and further professional education of state and municipal officials whose job description include participation in combating corruption;

• the activities of internal control units;

• the activities of commissions monitoring compliance with the rules of professional conduct of federal state officials and settling conflicts of interest;

• the activities of personnel units of federal executive authorities and other government bodies to prevent corruption and other offenses;

• the activities of structural units of law enforcement and other government bodies engaged in the issues of combating corruption;

• documents reflecting operations with the funds of the federal budget or the budget of a constituent entity of the Russian Federation and other public property, financial accounting documents, as well as other documents and materials, which could be a basis for a conclusion regarding the amount of and grounds for the use of budget funds allocated for measures against corruption;

• organization of the implementation of control over programs (plans) for combating corruption in federal executive authorities.


Chapter Five: Introduction of Typical Audit Practices

There are the following mechanisms to identify corruption risks:

• establishing a list of potentially corruptogenic areas of the body’s activities;

• identifying corruptogenic provisions in departmental regulations;

• analysis of the list of corruptogenic positions in the government body with respect to corruptogenic areas of the body’s activities;

• analysis of regulations related to the positions of state officials;

• analysis and identification of latent potential possibilities of the government system contributing to corrupt practices from the part of officials.

• When assessing a corruption risk, it is necessary to take into account the following factors and attributes creating the opportunity to commit acts of corruption and (or) to take corrupt decisions, which contribute to creating conditions for corruption:

• a high degree of freedom to make decisions caused by the specific nature of work;

• intensity of contacts with citizens and organizations;

• powers associated with the distribution of substantial financial means;

• obtaining unjustified tax privileges and preferences by legal entities affiliated with a state official and (or) his/her relatives;

• increase in expenditure or decrease in income, which is not provided by regulations;

357Russia

• lack of:

- implementation of results of R&D (including marketing studies) or measures to implement them;

- procedures and rules for the use of budgetary funds due to the shortcomings of legal regulation;

- departmental orders to establish the rates of contributions from the net income to the federal budget;

- regulations for persons who take decisions on the use of budget funds;

- regulatory documents governing the procedure of coordination (approval), as well as transactions with state-owned property;

- administrative regulations for performance of state functions (provision of state services).

To obtain an overall picture of potential conditions and factors for corrupt practices inherent in the auditee and to assess the risks of corruption, the following principal issues should be studied:

sufficiency of regulatory legal framework to exercise powers imposed on the audited institution;

• organizational structure for the exercise of powers;

• clarity of procedures for officials to perform their duties;

• professional training;

• areas of possible conflicts of interests;


• sufficiency of control and clearness of decision-making processes;

• factors preventing corrupt practices;

• information on the facts of corruption that have taken place;

• sufficiency of control over employees and the results of their work.

When auditing a governmental entity or institution, areas having high level

of corruption risks should be singled out:

• public procurement of goods, works and services;

• formation, execution and control of execution of the budget;

• management and disposition of public property facilities, including issues of leasing, privatisation and other disposition of these facilities;

• management and disposition of land plots owned by the state;

• management and disposition of the housing fund;

• provision of state guarantees, budget loans, subsidies, subventions;

• settlements, approval of financing amounts, distribution and control of expenditure of inter-budgetary transfer resources;

• adoption of regulatory legal acts;

• issuance of licenses, permits to certain types of work;

• appointment to state positions, including certification, qualification exams of civil servants, competitions to fill vacancies in state civil service positions, and including state civil servants in the personnel reserve.

359Russia

The domain of public procurement of goods, works and services has two important features, in particular, this domain belongs to those domains that are more corruption-prone. In addition, all bodies of state power engage in procurement regardless of the functions and powers which they are performing in the public governance domain.

Corruption in procurement may assume the following forms:

a. “corruption practices”— offer, gift, receipt or solicitation, direct or indirect, of something of value in order to influence the actions of a state customer in the course of selection procedures or execution of a contract;

b. “fraud practices”— misrepresentation or omission of facts in order to influence the procedures of contract selection or contract execution;

c. “collusive practices”— collusion or agreement between two or more parties with or without consent of the procuring entity, aimed at establishing prices at an artificial, noncompetitive level;

d. “coercive practices”— inflicting damage or expressing a threat to inflict damage, directly or indirectly, to persons or their property in order to influence their participation in the procurement process or affect contract execution.

Control, licensing, registration, and law-enforcement functions and powers of an audited entity and also its standard-setting functions need to be assessed for proneness to corruption. A list of corruption-prone positions is formed from the said potentially hazardous corruption-prone fields of activity of a state body and individual corruption-prone powers of a civil servant.

The fields of activity of an audited entity with a higher level of corruption risk (from medium to very high) should be made the subject of a more careful consideration and extensive scrutiny to reveal breaches of Russian Federation legislation.The corruption risk level by fields of activity of an audited entity may be rated as very high, high, medium, low, very low and missing.


Chapter Six: Measures on Improving Audit’s Function in Detecting and

Preventing Corruption and Money Laundering

The Chamber’s powers and functions provide a unique possibility for it to make a major contribution to the fight against corruption.

Due to its status, powers, and staff skills, the Chamber is an essential element in the national anti-corruption effort. Objectively, it focuses primarily on the prevention and identification of corruption and takes an active part in the formation of an anti-corruption culture in the community. The anti-corruption strategy – both at the level of the Chamber and nationwide should incorporate several key elements:

• cultivating an attitude of zero tolerance towards corruption both within the Chamber and among government bodies and the community;

• preventing corruption (may include conducting various control activities, for example, evaluating the performance of the organisations’ internal control systems in minimising the risks of fraud and corruption);

• deterring corruption (usually includes giving publicity to successes in anti-corruption as well as raising awareness about planned audits since the very fact of an impending audit may reduce the risk of corrupt actions);

• identifying corruption (e.g. through high quality independent inspections); and

• prosecution – the imposition of appropriate sanctions for those found guilty of corruption (including prison sentences and confiscation of assets14).

The Chamber can improve the effectiveness of anti-corruption efforts through working at two levels:

• externally in partnership with Parliament, government institutions and NGOs interested in anti-corruption; and

361Russia

• internally by improving its performance as well as its systems for preventing corruption in order to win wide recognition as a highly effective, efficient and corruption-free organisation and a leading example for other public sector organisations.

Beginning in September 2013 the Accounts Chamber of the Russian Federation has been applying the mentioned Methodology of Control of Effectiveness of Implementation of Anti-Corruption Measures. The methodology is designed to set unified approaches towards organising and conducting an evaluation of corruption risks when using budgetary funds, managing (concluding deals) public property, and general rules for controlling efficiency of anti-corruption program implementation.

While conducting a performance audit on the basis of findings, the management of the audited entity should be advised to adopt the necessary measures and approve the set of measures designed to reduce corruption risks. The most common among them are:

• the maximum possible depersonalisation of civil servants’ communication with citizens and organisations, for example, through the “single-window” mechanisms and electronic information exchange systems;

• detailed regulation of communication procedures with the regulated entities (consumers of public services) by having the audited entity to approve administrative regulations;

• splitting the administrative procedures into stages and assigning them to civil servants, who are not dependent on one another, to ensure mutual control.


11. Thailand

This report is represented main results of OAG Thailand which studied in the 10th ASOSAI research project – Audit to Detect Fraud and Corruption: Evaluation of the fight against corruption and money laundering. The objective of this study is to improve the audit capability of Supreme Audit Institutions to detect corruption in a comprehensive way and play a vital role in anti-corruption and money laundering.

This report is consisted of five parts. In the first part, we start to discuss about evaluation of current situation of corruption and money laundering in Thailand. After that, in part 2 we will evaluate the current situation of anti-corruption and anti-money laundering which we could understand anti-corruption system of Thailand. However, this paper will be focused on the role of audit to detect corruption which we clarify this role in part 3. In part 4, ASOSAI researchers designed the template in order to select best practices which Office of the Auditor General of Thailand (OAG) selected typical examples for each roles of anti-corruption and money laundering. Finally, we recommended measures on improving about audit function in detecting fraud and corruption which appeared in the last part.

Part 1 Evaluation of Current Situation of Corruption and Money

Laundering in Thailand

In this part, we discuss about evaluation of current situation of corruption and money laundering. Under evaluation of current situation of corruption, the author focused on results from four main Anti-Corruption Agencies (ACAs), that is, Office of the Auditor General of Thailand (OAG), Department of Special Investigation (DSI), National Anti Corruption Commission (NACC), and Office of Sector Anti Corruption Commission (PACC). For evaluation of current situation of money laundering, we selected the opinion from Anti Money Laundering Office (AMLO) as a proxy in this study.

363Thailand

Evaluation of Current Situation of Corruption

1. All ACAs viewed that the current situation of corruption in Thailand seems to be serious and pervasive in most or all sectors. They believed that the current situation is much higher than previously. (See Table 1)

2. However, they described that the tolerance level is moderately intolerant towards corruption. Meanwhile, the strength of steps taken by Thai government against corruption is at moderate level.

3. The first type of corruption based on perception of respondents is Grand corruption which it seems to be prevalence in Thailand. However, they still believed that the prevalence of petty corruption is at high level. Likewise, the pervasiveness of grand corruption is at high level, too. Since 1997 ACAs have been anti corruption both grand and petty corruption.

4. ACAs showed that common types of corruption seems to be the abuse of position/power and criminal breach of trust Interestingly, they viewed that local government or municipalities is the most vulnerable to corruption.

5. However, they ranked that the greatest probability of corruption occurred in procurement contracts sector. The root cause of corruption in Thailand had been derived from culture, customs and habits of giving bribes to get things done. About monitoring the situation of corruption, they viewed that it was essential. Likewise, they thought that it was essential to prioritize complaints of corruption or fraud from the public.

6. For reporting corruption, they emphasized the important role of whistle blower. Interestingly, they believed that the whistle bowling was effective to ensure complaints of corruption.

7. For the effect of corruption, they concerned seriously about damage of corruption to the government budget, private sector, and citizen. They agreed that corruption during budget formulation is primarily grand or political


corruption. Likewise, unchecked and excessive discretion in the budget process tends to create opportunities for political corruption.

8. ACAs gave their opinions about conflict of interest which is usual style of corruption in Thailand. Conflict of interest (COI) is a set of circumstances that creates a risk that professional judgment or actions regarding a primary interest will be unduly influenced by a secondary interest for Example of COI, Self Dealing, Post-Employment, Outside Employment, Using inside information, Using public property for private advantage, Pork barreling, etc.

9. Further, they mentioned to the policy corruption which involved to the public policy process. They explained that the policy corruption is related to both national and local politicians. It still involved to the budget cycle especially the budget formulation and approval budget.

Table 1 Statistical corruption and money laundering of ACAs in Thailand

Source: Results in part II of SAI Thailand

Evaluation of Current Situation of Money Laundering

1. In this study, AMLO is the direct agency which could evaluate current situation of money laundering. Initially, AMLO pointed that the current situation of money laundering in Thailand is very serious. Corruptive practices through money laundering mostly found in public entities. However, the highest risk of money laundering was appeared in finance and banking sector. Likewise, the

ACASNumber of corruption and

money laundering casesSources

OAG Thailand 349 OAG database (1999-2012)

NACC 1,056 NACC database (2000-2012)

DSI 85 DSI annual year report (2004-2011)

AMLO 426AMLO annual performance report (1999-2011)

365Thailand

most common method of money laundering was trough financial institutions.

2. AMLO explained the environment favorable for money laundering was that bank and financial institutions did not have suitable supervision/control system to anti-money laundering. However, it seems to be that drugs offences closely associated with money laundering.

3. The consequences of money laundering were to increase crime and corruption. Additionally, AMLO believed that money laundering impact negatively on national security, international reputation and weaken the economy as well as economic reforms.

4. Interestingly, during 2007-2012 grand corruption related to money laundering

which perpetrators moved their bribery to invest in stock market, transferred to foreign financial institution, and buying real estate. Also perpetrators converted bribery cash in term of land purchasing. After that they will mortgage this land in order to credit loan from Bank. However, under the Anti-Money Laundering Act 1999, the AMLO is empowered to temporarily restrain any transaction where there is evidence or probable cause to believe it may involve in commission of a money laundering offences.

Part 2 Evaluation of Current Situation of Anti-Corruption and Anti-

Money Laundering in Thailand

In part 2, the author selected National Anti-Corruption Commission (NACC) as a proxy to assess current situation of anti-corruption in Thailand because NACC is the main Anti-Corruption Agencies (ACAs). The main results are represented as follows.

Evaluation of Current Situation of Anti-Corruption

1. Presently, Thailand has an anti-corruption strategy; however, it is the stand alone anti-corruption program or anti-corruption strategy. Our anti-corruption strategy consists of 4 strategies as follows; (1) Inculcate awareness, values,


integrity, ethics, and discipline in all sectors; (2) Mobilize all sectors on anti-corruption ; (3) Strengthen anti-corruption agencies and (4) Develop professional anti-corruption personnel.

2. Almost government agencies have anti-corruption action plan which is consistency to the anti-corruption strategy. Most of government agencies will publicize their anti-corruption documents and action plan in their websites. Currently, Thailand has employed measures of declaration of assets and income to fight corruption. Likewise, regulation of returning gift by the public officials is another measure to combat corruption.

3. All ACAs established a hotline or website in order to facilitate citizens to complain corruption actions.

4. In Thailand, we have a special law on anti-corruption. Presently, the major law is the Organic Act on Counter Corruption B.E. 2542(1999). The first priority of measures against corruption is the preventive measures. Meanwhile, the detective action and punitive measure are important respectively. Further, we have most of laws and regulations for anti-corruption, for example, financing of political parties, code of ethics of public, governing declaration of assets by public officials.

5. However, NACC rated a fair level for implementation of the rules/regulations in combating corruptions.

6. Under International cooperation, Thai government ratified UNCAC on 9 Dec 2003. However, NACC viewed that the mutual legal assistance is in a high success level. Meanwhile, cooperation with law enforcement and between national and international authorities is low success.

7. In case of promoting awareness, NACC assessed the effect of media in fighting corruption that it could help public to recognize the real situation of corruption, however, it might provide information inaccurate. Likewise, the role of civil society organization (CSO) is actively but not effectively.

367Thailand

However, they viewed that the anti-corruption efforts in Thailand is better than in the past. Finally, they believed that the result of the current situation against corruption will have the impact or benefit in the future.

Evaluation of Current Situation of Money Laundering

1. In Thailand, money laundering is a criminal offence under Anti-Money Laundering Act of B.E. 2542 (1999). Currently, there are 8 predicate offences in the Anti-Money Laundering Act which the cheating and fraud on the public is one of them. AMLO assessed that the implementation of anti-money laundering law is in a fair level. Presently, AMLO serves as Financial Intelligence Unit and law enforcement agency.

2. AMLO viewed that identify customer and update customer information seems

to be applied effectively. Likewise, they ranked the first for the detective actions measure as the effectiveness of the types of measures. Also, AMLO established website for citizen participation to inform suspected case of money laundering.

3. Currently, financial institutions in Thailand are required AML Act to implement KYC/CDD procedures. AMLO ranked unusually large cash transactions as the most common types of suspicious transaction reports (STR).

4. Under international cooperation, AMLO is a member of the Asia/Pacific Group on Money Laundering (APG). Also it signed MOU with Egmont Group of Financial Unit in order to share financial information and financial transfer with FIU of other countries.

5. AMLO gives the role of citizen participation in fighting money laundering, for example, to invite the CSO in formulation of anti money laundering policy. However, the respondents viewed that the punishment should be revised in order to be suitable for money laundering situation.


Part 3 Evaluation of the Role of Audit to Detect Corruption and Money

laundering in Thailand

This part is focused on the evaluation of the role of audit to detect corruption and money laundering in Thailand. In case of detecting corruption, the author selected the Office of the Auditor General of Thailand (OAG) as a proxy of SAI to evaluate the role of audit to detect corruption in Thailand. Under descriptive analysis, we used both documentary research and interview. The author interviewed the Acting Auditor General and Deputy Auditor General who could explain obviously about current situation in the role of audit to detect fraud and corruption. The main results are represented as follows.

Evaluation of the Role of Audit to Detect Corruption

1. Presently, the legal status of SAI Thailand is established by the virtue of Constitution of the Kingdom of Thailand B.E. 2550 (2007) and enjoys a permanent legal status. Under Thai Constitution and the Organic Act on the State Office B.E. 2542 (1999), the organizational structure of SAI Thailand is mixed between Westminster Model and Board or Collegiate model.

2. Under Thai constitution, the State Audit Commission (SAC) is an independent agency which it has powers and duties to determine standards relating to State Audit and to provide opinions, suggestions, and recommendations for correction of faults in State Audit. For OAG Thailand, our legal status is under the Organic Act on State Audit B.E. 2542 (1999). The members of SAC and Auditor General have a fixed term, i.e., 6 years under Thai constitution and State Audit Act.

3. In addition, SAI is independent of the executive, legislative and judicial department of the state. However, our fiscal or financial is still under the scrutiny and review process of the Budget Department and Parliament/Congress and the proposed budget could be reduced or increased by them.

369Thailand

4. Currently, Section 46 of the State Audit Act 1999 is explained the role and responsibilities of SAI Thailand to anti-corruption17 . SAI Thailand has the anti-corruption strategy which appeared in State Audit Strategy 2011-2014. This strategy set the “investigative audit” as the main tool for anti-corruption. (See figure 1)

5. Presently, SAI Thailand has 5 Investigative Audit Offices for fighting corruption. These offices are located in headquarter, Bangkok. Meanwhile, there are 15 regional offices which served for anti-corruption mission especially in local government. However, SAI still has very few personnel for adequate training in combating corruption. This is another limitation in fighting corruption.

6. For a specific manual or guideline on anti-corruption, we issued the regulation of investigative audit in 2006 which regulated the procedure for investigative auditors. This regulation is our guideline on anti-corruption. Presently, our SAI detect the corrupt activities under both proactive and reactive approaches. Actually, during a regular audit the office or department which discovered the red flags will conduct a full blown investigation.

7. Nowadays, OAG launched anti-corruption website18 with an aim to support the country fight fraud and corruption. Additionally, this website could be raised public awareness to anti-corruption.

8. Based on our experience, we viewed that the Financial Audit is the best instrument in the detection and prevention of corruption. Meanwhile, the compliance audit is the second best which in Thailand we have focused on the public procurement audit. For the investigative audit, it is the suppression role.

17Actually, the strategic goal focused on the proactive approach in order to prevent losses or damages also under professional standard. In addition, the strategy attempts to create alliance among anti-corruption agencies such as NACC, AMLO and Ombudsman.18www.oaganticorruption.com


Figure 1 Section 46 of the State Audit Act 1999

9. The Best Audit Practices that led to its detection consist of: (1) proactive audit approach which emphasizes to prevent losses or damage from corruption and; (2) in State Audit Act 1999 the Budgetary and Financial Disciplines could prevent fraud and corruption behavior directly because it focuses on the state audit control system to proceed in an efficient and disciplined manner.

10. Under State Audit Act 1999, our SAI will issue a special report specifying the audited corrupt activities and transactions, the pecuniary losses suffered by the government, the persons responsible/liable and the laws and rules violated. SAI Thailand will submit the audit report which contains findings on corrupt activities to the entity management and law enforcement agencies like NACC.

11. The best efforts of anti-corruption is the preventive actions by providing recommendations to improve entity’anti-corruption and internal control system and sharing the best practices and benchmarking information to assist decision-makers. However, we rate our performance of combating corruption in a fair level.

12. Presently, we have attempted to improve the investigative audit in order

From the audit result, if we found the case which believably amounting to corruption or illegitimate exercise of powers and duties thereby resulting in the loss or impairment of money or properties of the state.

SAIwill report

The inquiry official for legal proceedings

The audited agencyThe responsible ministry

The superior or the person who take charge of the audit entity

National Anti-Corruption Commission (NACC)

371Thailand

to serve the role of anti-corruption. However, we don’t still implement IntoSAINT Methodology in a self-integrity assessment.

13. Currently, OAG Thailand prepares to change some sections in State Audit Act 1999 especially anti-corruption issue. We view that the anti-corruption management in Thailand has been long process and complexity. Additionally, many Anti Corruption Agencies (ACAs) has been still overlapping. The inefficiency management of anti-corruption has caused to increasing cost of anti-corruption. On the other hand, higher cost of anti-corruption could reduce indirectly cost of corruption of corrupt officials. Under the wrongdoer perception, he/she could decide easily to corrupt when the benefit from corruption is higher than cost of corruption. Therefore, the amendment of State Audit Act should be designed to reduce cost of anti-corruption. Additionally, we have attempted to cooperate among OAG and other ACAs that explained by the role of promoting good governance.

14. Finally, in Thailand we have several Anti-Corruption Laws and Regulations. However, the Organic Act on Counter Corruption B.E. 2542 (1999) is the main anti-corruption Law. Meanwhile, other relevant laws such as the Special Investigative Cases Act B.E. 2547 (2004), Act on Administrative measure forprevention and suppression corruption B.E. 2542 (1999) and the Organic Act of State Audit B.E. 2542 (1999) are related to prevention, detection, reporting of corrupts behavior.

Evaluation of the Role of Audit to Detect Money Laundering

1. Even though anti money laundering seems to be unrelated the role of SAI, the author selected both Anti Money Laundering Office (AMLO) and Office of the Auditor General of Thailand (OAG) as proxies to evaluate the role of audit to detect money laundering. Hence, the author reviewed the document and interviewed the AMLO officers and OAG auditors.


2. Under Thai Constitution and State Audit Act, SAI Thailand does not relate to anti-money laundering role. Therefore, we could not implement anti-money laundering strategy.

3. Currently, detecting or investigating money laundering activities is not included in the mandate of our SAI. However, during a regular audit the red flags will be referred by the SAI to the anti-money laundering agency for the conduct of a full blown investigation. Additionally, the money laundering alert section is in OAG website.

4. Audit personnel of SAI Thailand have no skills of detecting money laundering. In 2012 Anti-Money Laundering Office (AMLO) invited OAG Thailand to join in the course about anti-money laundering and anti-corruption. This course was supported by US embassy in Thailand and Internal Revenue Service (IRS). However, when we found irregularity behavior which might be involved money laundering, our SAI only informs irregularity cases to AMLO which some cases might be involved money laundering.

5. In Section 42 of Organic Act on State Audit B.E. 2542 (1999), it explains the authority of OAG Thailand to have full access to essential information; however, it might not be easy to access bank records of government officials and private individuals because it involves to confidential and private right. If our auditors would like to access essential information as bank records, we must request to permit from Bank. Actually, this authority is appeared in Anti-Money Laundering Act B.E. 2542 (1999). Furthermore, we viewed that authorized officials lack commitment is the key impede between SAI and AMLO in the fight against money laundering. However, in order to improve the role of SAI in the fight against money laundering, we need for professional training to improve the skills and expertise of auditors also need for professional training to awareness of auditors for anti-money laundering.

373Thailand

Part 4 Introduction of Typical Audit Practices: Case Study of OAG

Thailand

Before writing best practices, the author reviewed several literatures about the role of OAG Thailand and anti-corruption. After that we selected the typical examples in each role. However, we still surveyed data by using interviewing technique. Finally, the author wrote the best practices or typical examples in ASOSAI template. The main results are represented as follows.

Best Practices of Preventive Role in Anti-Corruption

1. The effective tool of reducing corruption is the preventive role. Thus, the main objective of preventive role is to minimize the risk of corruption.

2. The benefits of best practices of preventive role are as follows: (1) promoting strong financial management systems through preventive roles; (2) strengthening internal control for audit entities; and (3) raising public awareness to anti-corruption by using preventive role.

3. The author selected three typical examples of preventive role in anti-corruption, that is, (1) to promote the effective internal control, (2) to emphasize the proactive strategy, and (3) to coordinate with media and CSO in fighting corruption.

4. In case of promoting effective internal control, OAG established effective internal control through the regulation of SAC in determination of internal control standard B.E. 2544 (2001). The aim of this regulation is to set the scope and extent of concept of internal control in order to enhance value for money and reduce corruption opportunities in audit entities.

5. For emphasizing proactive strategy, OAG strategic plan 2010-2014 contained preventive approach and proactive strategy. OAG will focus on the preventive audit approach in order to prevent damage before it occurs. The preventive audit approach is the proactive strategy which aimed at preventing corruption


and sustaining public accountability.

6. OAG has moved forward to the model of integrity organization which we generate many integrity projects to enhance public accountability and reduce corruption chances. The proactive strategy is aimed at preventing corruption by promoting an overall fraud awareness culture in the public sector through network of anti corruption agencies (ACAs). There are four important projects which could promote OAG public accountability and reduce corruption chances. (See table 2)

Table 2 Promoting OAG good governance through main projects

Source: Results in part V of SAI Thailand

7. We represent that the expected outcomes of preventive role are consisted of: (1) to reduce corruption chances through the effective internal control and proactive strategy; and (2) to raise awareness in combating corruption through the citizen participation.

Best Practices of Detective Role in Anti-Corruption

1. The objectives of detective role in anti-corruption are as follows (1) to assess the chances of corruption behavior in audit entities; (2) to investigate sufficient evidences for supporting the chances of corruption behavior; and (3) to report the suspicious corruption cases to the National Anti-Corruption Commission (NACC).

2. OAG could play the first whistle blower to screen or assess corruption

Good Governance Main Projects

Transparency Public Procurement Watch with OAG

Accountability Promoting Budgetary and Financial Disciplines

Citizen Participation Open House with Provincial Audit Office OAG anti-corruption website

375Thailand

chances under sufficient evidences through the investigative audit. In addition, the detective role could reduce the cost of corruption suppression. The investigative audit could assist other ACAs to collect confidential evidences and point out the corruption chances.

3. The author selected two typical examples of preventive role in anti-corruption, that is, (1) to develop the investigative audit units for combating corruption mission; and (2) to facilitate the investigative audit by formulating the OAG regulation of investigative audit procedures.

Best Practices of Reporting and Following up roles in Anti-Corruption

The objective of best practice of reporting role is to report the fact about corruption behavior under sufficient evidences and law enforcement. Meanwhile, the objective of best practices of following up role is to monitor the audit entities whether they would follow OAG recommendations or not.

OAG plays as the first anti-corruption agencies to report the suspicious corruption cases. The benefit of following up role will be showed whether the audit entities would follow OAG recommendations or not. In case they could not follow these recommendations, they have to inform their limitations or arguments.

The expected outcome of reporting roles is to assist the anti-corruption process especially collecting sufficient evidences in suspicious corruption case. The other anti-corruption agencies could utilize the investigative audit report for prosecuting process. Likewise, we could monitor the responds of audit entities and other agencies from the following up process which is enacted in OAG mandates.

Part 5 Measures on Improving about Audit Function in Detecting

Fraud and Corruption: Some Lesson Learns from OAG Thailand

1. Under OAG Thailand’s experience, the highest area of corruption seems to be appeared in public procurement area. Thus, auditing in public procurement could be ensuring transparency in procurement processes also reducing risk of


corruption in public procurement.

2. Hence, since 2001 OAG Thailand has given the important of auditing public procurement because we viewed that public procurement is another main activity in public finance management. We always found audit finding which related believable corruption in public procurement. In 2006 we established Procurement and Investigative Offices in order to focus on auditing public procurement and investigative audit.

3. The auditing pubic procurement is based on concept of compliance audit. The main objective of auditing public procurement is to ensure that the procurement process of goods and services including public works have been conducted the public procurement law and regulations. Additionally, it could reduce risk of corruption in public procurement.

4. Normally, our audit methods in public procurement are consisted of three methods, that is, document verification, tendering observation, and physical observation. Nowadays, we develop our audit technique to detect public procurement area by using the guideline of audit screening public procurement projects.

5. In 2012, OAG Thailand published the guideline of audit screening project in public procurement projects. The aim of this guideline is to facilitate for auditor in screening public procurement projects as risk assessment method. In addition, this guideline is a tool for reviewing public procurement control.

6. In our view, we should create red flags for anti-corruption in public procurement sector. Initially, we should categorize red flags for each sector, for example, red flags of corruption in construction sector or public works, red flags of corruption in health sector, and red flags of corruption in defense sector.

7. Presently, OAG Thailand provides anti-corruption compliant mechanism which opened area for citizen to report irregularities cases or believable

377Thailand

corruption behavior in spending public expenditure. Meanwhile, OAG regulation of investigative audit procedures B.E.2549 (2006) seems to be the Fraud and Corruption standard for investigative auditor of OAG Thailand.

8. OAG Thailand has attempted to develop the investigative audit since 1974. However, in normal audits, when the auditor found irregularities or suspicious corruption cases, the investigation was only stage of collecting sufficient evidences and reporting suspicious corruption cases. During 1974-2001 OAG auditors used the investigative audit manual to carry out anti-corruption mission.

9. Nevertheless, in 2002 OAG promulgated the OAG regulation of investigative audit procedures B.E. 2545 (2002) in order to develop the investigative audit. The aim of investigative audit is to examine facts and collect evidence in the fraud suspected case or mistaken regulation. In 2006, OAG established Procurement and Investigative Office (PIO) in order to serve investigative audit directly.

10. OAG Thailand promulgated the OAG regulation of Investigative audit procedures B.E. 2549 (2006) as fraud auditing standard which consisted of main five chapter in 69 sections.

11. Finally, the author proposes three views which we could utilize audit findings as follows. Under macro view; we should collect audit findings and categorized them in order to establish concrete measures for anti-corruption in the future. Under micro view for auditor, we should develop these audit findings for red flags in each sector especially audit findings in high risk area. In case of interesting audit findings, we should study them under academic research in order to find causes and solutions to prevent them.


12. Turkey

1.Introduction

Corruption is a concept which dates back to the beginning of the social life and is based on a set of managerial, economic and social factors. Since corruption is a social phenomenon, it has been examined by many disciplines such as politics, public administration, sociology, anthropology, economics and law since its advent. Each discipline has made a separate definition for corruption within the framework of its own area of interest. The common aspect of these definitions is that corruption results from the abuse of powers by the individuals in order to ensure illegitimate private gain.

However, there is no generally accepted definition for the concept of corruption, which has been defined in different scopes and with different contents by academicians, experts and national and international organizations in the course of time. According to the World Bank, corruption refers to the abuse of public power for the aim of private benefits. According to the more comprehensive definition made by the Transparency International, the corruption, on the other hand, is not limited to the public power and refers to the abuse of any positions or powers for the purpose of private benefits.

The fight against corruption is a crucial prerequisite for the welfare and progress of the societies. According to the professional and academic studies in this field, corruption decreases the tendency to invest by leading to unforeseen additional costs on the part of the investors and for this reason; it affects growth in a negative manner and impoverishes the public investments. Due to these negative impacts of corruption, the fight against corruption is a comprehensive action, which needs to be taken at all stages ranging from the individuals to the international organizations and thus, requires cooperation and coordination.

In this context, Supreme Audit Institutions (SAIs) play an indispensable role in the fight against corruption. SAIs contribute to the development of accountability, transparency and sound public finance management and control understanding

379Turkey

by fulfilling their audit works in consistency with the legislation, national and international standards and audit manuals and constitute a deterrent force against corrupt activities.

The Turkish Court of Accounts (TCA), which is a supreme audit institution conducting audit on behalf of the Turkish Grand National Assembly (TGNA), is entrusted with the mandate of placing final judgment, and it is a constitutional entity that gets its objectivity from its independence. The TCA duly performs its duties regarding the fight against corruption, conferred bythe related regulatory framework and the “Strategy for Increasing Transparency and Strengthening the Fight against Corruption”, which is the official strategy of the Turkish Republic. It plays a significant role especially in preventing corruption and promoting a culture of openness and accountability in the public sector of Turkey. Despite the fact that the TCA has already established itself as an example in the field of anti-corruption in its region, it firmly believes in continuous improvement and is open to further improve itself in this field by taking the invaluable outcomes of the 10th ASOSAI Research Project into consideration.

2. Anti-Corruption Efforts in Turkey19

In general, the current level of anti-corruption efforts in Turkey is much higher than past years thanks to a series of steps taken as a part of reforms relating to the public financial management and control system and positively contributed to prevent corruption.The anti-corruption efforts in Turkey could be analyzed with four dimensions: “Strategic planning”, “institutional base”, “legal background” and “international cooperation”.

2.1 National Anti-Corruption Strategy

National anti-corruption strategies play a chief role in the fight against corruption.

19This section is preparedmainly on the basis of the “Questionnaire: Evaluation of Current Situation of Anti-Corruption” officially replied by the “Prime Ministry Inspection Board” of Turkey.


Turkey has already prepared and put into practice its “National Strategy for Improving Transparency and Strengthening Anti-corruption”, covering a period between 2010 and 2014. It was adopted by the decision of Council of Ministers and published in Official Gazette in February 2010. It is coordinated by the Prime Ministry Inspection Board (PMIB).

The strategy aims at removing the factors that prevent transparency and feed corruption and developing an understanding of governance that is fair, accountable, transparent and credible.The main components of this Strategy are categorized under three main areas: Measures for prevention, enforcement of sanctions, and raising awareness in society. The action plan of the strategy is composed of a total of 28 main measures in these three areas. Each of these measures are explained in detail in accordance with its objectives, sub-measures if available, specific institutions responsible for the implementation, coordination, and collaboration, and a time-frame for realization.

2.2 Anti-Corruption Agency

In Turkey, the Prime Ministry Inspection Board (PMIB) plays the leading role in this field in collaboration with other public authorities with anti-corruption mission such as the Financial Crimes Investigation Board, the Council of Ethics, Ombudsman and the Public Procurement Authority.Prime Ministry's Circular 2009/19 provides the legal basis for the PMIB to function as the coordination authority and based on that circular the PMIB;

• Cooperated with OECD, the European Union, GRECO, SIGMA and other international institutions;

• Provided expertise to the works of relevant Commissions of the Turkish Grand National Assembly; and

• Played a leading role in the preparation of “National Strategy for Improving Transparency and Strengthening Anti-corruption” and “Action Plan for Improving Transparency and Enhancing Effective Public Management in

381Turkey

Turkey”.

The main responsibilities and/or functions of the PMIB in the field of anti-corruption could besummarized as:

• Collect, centralize and exploit the denunciations;

• Conduct investigations;

• Raise public awareness about the fight against corruption;

• Identify the causes of corruption and propose to the competent authorities themeasures to help eliminate it;

• Draw a risk map of corruption in the country;

• Research and analysis the matter ofcorruption;

• Research and analysis the matter ofconflict of interest in the public management;

• Use a dedicated e-mail address so as to enablecitizens to complain of corruption actions; and

• Occasionally conduct reevaluations of areas and activities having high risk of corruption in order to employ appropriate measures to mitigate corruption.


While Turkey has a special law on anti-corruption, it is the Turkish Criminal Code that penalizes types of corruption such as abuse of position/power, fraud, bribery, criminal breach of trust, extortion, embezzlement, forgery, kickback, nepotism etc. Although punitive measures are very important, our experience shows that preventive policies and measures like improving transparency and


accountability etc. have a bigger role in anti-corruption. To this end, Turkey has put a series of laws and regulations into practice in the areas of the financing of political parties, code of ethics of public officials, declaration of assets by public officials, accounting and auditing standards for both public and private sectors, obligation for public officials to report corruption-related offence. The adoption of the National Anti-Corruption Strategy, the National Anti-Smuggling Strategy, the United Nations Convention Against Corruption, the Right of Information Act, the Prevention of Laundering Proceeds of Crime Act, the Public Procurement Law, the new Turkish Penal Code, the new Public Financial Management and Control Law and the new Law on the Turkish Court of Account are the examples of serious steps taken by Turkey.


Turkey eagerly has been taking part in international efforts to cooperate and collaborate in this field. To illustrate, Turkey:

• signed the “United Nations Convention against Corruption” in 2003 and ratified it in 2006 and planned to review at year 4;

• ratified the “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions” in 2000 and a party to is the OECD Working Group on Bribery;

• ratified the Council of Europe’s Civil and Criminal Law Conventions on Corruption in 2004;

• ratified the Council of Europe’s “Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime” in 2004;

• is a member of the Group of States against Corruption (GRECO) since 2004; and

• is a member of the Financial Action Task Force (FATF).

383Turkey

3. The Turkish Court of Accounts

3.1 Overview

The TCA, as the SAI of Turkey, conducts audits on behalf of the TGNA. Established by an imperial edict of His Majesty Sultan Aziz I on 29 May 1862, the TCA has been successfully continuing its duties and responsibilities for more than 150 years. Equipped with the task and power of taking final decision, it was set up on the basis of Judicial or Napoleonic model and performs its judicial power and functions through the Chambers.

The TCA has an indispensable role in the public financial management and control system of Turkey thanks to its auditing and judicial functions clearly stated in the Constitutions and related laws and regulations in force. Enjoying a high level of legal, institutional and personnel independence, it carries out that role with impartiality. The improvements in the public financial management and control system in the last decades have led to a series of new laws and regulations which has strengthened the role of the TCA. In line with these changes, the TCA has continued to improve its audit functions by complying with International Standards of Supreme Auditing Institutions (ISSAIs) and introducing new audit methodologies and techniques. In doing so, the TCA has been using the opportunities of information technologies with a view to enhance the quality and effectiveness of its audits.

The TCA, as a reputable member of the global SAI community, is an active member of the international and territorial organizations of SAIs, such as International Organization of Supreme Audit Institutions (INTOSAI), European Organization of Supreme Audit Institutions (EUROSAI), Asian Organization of Supreme Audit Institutions (ASOSAI) and Economic Cooperation Organization Supreme Audit Institutions (ECOSAI), and also takes part in the activities of United Nations (UN) and Group of States against Corruption (GRECO).


3.2 Constitutional and Legal Basis

3.2.1 The Constitution of the Turkish Republic

The TCA has a very strong constitutional base and took its place in the 1924, 1961 and 1982 Constitutions, the last of which is in force today. The Article 160 of the Constitution of the Turkish Republic provides the main constitutional base for the TCA including its judicial powers, while the Articles 164 and 165 also include provisions regarding the TCA.

According to the Article 160 of the Constitution:

“The TCA shall be charged with auditing, on behalf of the TGNA, all accounts related to revenues, expenditures and properties of the public administrations within the scope of central government budget and social security institutions, with taking final decisions on the accounts and transactions of those responsible, and with exercising the functions required of it by law in matters of examining, auditing and taking final decision. Parties concerned may file a single request for reconsideration of a final decision taken by the TCA within fifteen days of the date of written notification of the decision. No applications for judicial review of such decisions shall be filed in administrative courts.

Regarding taxes and similar financial obligations and duties, when there is disagreement between the decisions of the Council of State and the TCA, the Council of State’s shall prevail.

The TCA shall audit and take final decision on the accounts and transactions of the local administrations.

The establishment, functioning, audit procedures, qualifications, appointments, responsibilities and authorities, rights and obligations and other matters concerning the status of its members and guarantees of the President and the members of the TCA shall be regulated by law.”

385Turkey

3.2.2 Public Financial Management and Control Law No.5018

Enacted in 2003, the Public Financial Management and Control Law (PFMC Law) is considered as the main legal framework for the public financial management system in Turkey. The main aim of the PFMC Law is to regulate the structure and functioning of the public financial management, the preparation and implementation of the public budgets, the accounting and reporting of all financial transactions and financial control in general. The Article 68 of the PFMC Law describes the main principles of external audit.

3.2.3 The TCA Law No.6085

In accordance with the reformation in public financial management and control system in the last decades and enactment of the PFMC Law, change in the TCA Law and related regulations became inevitable so that the TCA could satisfactorily fulfill the requirements of the new system. Hence, the new TCA Law came into force in 2010 and revoked the previous Law No.832.

The purpose of the TCA Law No.6085 is to regulate the establishment of the TCA, its functioning, audit and judicial procedures, qualifications and appointments of its staff, responsibilities and competences, rights and obligations and other matters pertaining to personnel, the election and security of tenure of the President and members of the TCA.

Additionally, there are regulations, which provide detailed information on the functioning of the TCA in accordance with the TCA Law.

3.3 Mission, Vision and Fundamental Values

The Strategic Plan (2014-2018) of the TCA determines the mission, vision and fundamental values of the Court. The mission of the TCA is:

• to conduct audits in line with international auditing standards and to submit


reports to the TGNA and the public on behalf of which the TCA performs audits in order to ensure accountability and fiscal transparency in the public sector;

• to ensure that public administrations act in accordance with the financial management, performance management and reporting provisions of Law No.5018 and present reliable, timely and informative financial statements and other reports as required by the financial regulations, giving evidence of economy, efficiency and effectiveness in usage of public resources; and

• to take final decisions in a timely manner and on the basis of sound information and analysis on matters related to public loss caused by the financial transactions of the public administrations within the scope of general government.

In this context, the TCA has a vision of being a leading organization in the effective management of public resources and a model organization for other public entities in the field of institutional management.The TCA realizes its mission and vision by complying with the fundamental values of independence and objectivity; good governance and responsiveness to expectations; openness to innovation; and professional competency and acknowledging staff as the most valuable assets.

3.4 Independence of the TCA

Thanks to its sui generis position in the administrative system of Turkey, the TCA is independent of the executive, legislative and judicial branches. It owns a very strong framework for independence ensured by the Constitution and laws and regulations in force. Moreover, its independence not only comprises functional and institutional dimensions but financial provisions as well.

The main legal base for independence is the Article 3 of the TCA Law, which states that the TCA “shall have functional and institutional independence in carrying out its duties of examination, audit and taking final decision conferred by this Law and

387Turkey

other laws”.

In addition to this, the TCA enjoys financial independence without any intervention of the Ministry of Finance despite the fact that the TCA is within the scope of the general budget. That is to say, the TCA prepares its own budget independently and does not have to follow the general budgeting procedures as it is the case for other public administrations under the general budget. According to the article 62 of the Law on the TCA, the Presidency of TCA shall submit its budget directly to the TGNA and forward one copy to the Ministry of Finance. While the Ministry of Finance does not have any control over the budget of the TCA, the TGNA has the final say on the budget of the TCA. However, in practice, the TCA does not face any budgetary limitation imposed by the TGNA.

Finally, the TCA Law provides provisions to safeguard the independence of professional personnel of the TCA.First of all, the President of the TCA is elected by the TGNA and the term of service is five years with the possibility of being elected twice. Likewise, the members of the TCA are also elected by the TGNA until the compulsory retirement age. The procedures of election are determined by the relevant provisions of the TCA Law in detail. Last but not least, special disciplinary and penalty procedures are provided for the President, members and other professional personnel by the TCA Law.

3.5 Audit Area

Apart from the abovementioned Articles of the Constitution and the PFMC Law, the TCA Law provides the framework for the audit area of the TCA.

According to the Article 4 of the TCA Law:

1. Turkish Court of Accounts shall audit:

a. Public administrations within the scope of the central government budget and social security institutions, local governments, joint stock companies established by special laws and with more than 50% of its capital directly or


indirectly owned by the public sector and other public administrations (with the exception of professional organizations having a public status);

b. Provided that the public share is no less than 50%, all types of administrations, organizations, institutions, associations, enterprises and companies affiliated to, or founded by the administrations listed in point (a), or those of which the above mentioned administrations are directly or indirectly partners;

c. All types of domestic and foreign borrowing, lending, repayments, utilization of foreign grants received, giving grants, Treasury guarantees, Treasury receivables, cash management and other matters related to these, all transfers of resources and their utilization and the utilization of domestic and foreign resources and funds, including European Union funds;

d. All public accounts, including private accounts, funds, resources and activities regardless of whether these are in the public administrations budget.

2. Turkish Court of Accounts shall also audit the accounts and transactions of international institutions and organizations within the framework of the principles set out in the relevant treaty or agreement.

3. Audit of public institutions, organizations and partnerships within the scope of Article 2 of Law No. 3346 on Regulating the Audit of State Economic Enterprises and Funds by the Turkish Grand National Assembly, dated 02.04.1987, shall be performed within the framework of the procedures and principles indicated in this Law and other laws.”

3.6 Organization of the TCA

The Personnel of TCA consist of professional personnel (The President, Chairmen of chambers, members and auditors), the Chief Prosecutor and prosecutors, and supporting staff. Currently, the TCA has one President, two Deputy Presidents, 8 chairmen of chamber, 48 members, 901 auditors (including assistant auditors), one Chief Prosecutor, 12 prosecutors and 594 supporting staff members.

389Turkey

The bodies in the organization of the TCA involve the Presidency, Chambers, the General Assembly, the Board of Appeals, the Board of Chambers, the Board of Report Evaluation, the High Disciplinary Board, the Board of Promotion and Discipline of Professional Personnel, the Board of Auditing, Planning and Coordination, and the Office of the Chief Prosecutor.

4. Role of the TCA in the Fight Against Corruption

4.1 Overview

Turkey has been in a process of continuous reformations in the public financial management and control system, and the pace of change and improvement gained a huge impetus in the first decade of the 21st century thanks to willingness, contributions and initiatives of both public sector and civil society. The TCA is considered as one of the most indispensable actors in the implementation and betterment of the new public financial management and control system of Turkey. The most invaluable contribution of our SAI to good governance in the system is


to ensure the accountability and transparency with sound financial management in public sector through their auditing, reporting and judicial functions.

Firstly, the enactment of the TCA Law No.6085, which broadened the audit mandate of the Court and introduced financial audit, has helped the TCA enhance transparency and accountability in the public sector. The TCA implements regularity, performance and IT audits and report them to relevant stakeholders.

Secondly, the TCA reports to the TGNA, audited entities and public. Apart from the audit reports and judicial reports, the TCA prepares general reports and present them to the TGNA such as the External Audit General Evaluation Report, the Accountability General Evaluation Report, the Financial Statistics Evaluation Report, the Statement of General Conformity and other reports stated in the TCA Law. The fact that TCA Reports are discussed by the Committees within the TGNAand published on the TCA website reinforces the preventive function of the TCA.

Thirdly, the trial of accounts is one of the most important functions of the TCA thanks to the judicial powers granted by the Constitution and the TCA law. Basically, if a public loss is detected during TCA audits, auditorsare required to prepare judicial reports. The Chambers of the TCA examine and take decisions on judicial reports.TCA judgments bear four main results:

• Compliance of accounts and transactions with legislation in force;• Indemnification of public loss from those responsible;• Matters deemed necessary are communicated to relevant public authorities;

and• Cases sent directly to the Public Prosecution Office for an investigation when

discovered acts involving guilt.

There are legal mechanisms to ensure the proper execution of the judicial decisions of the TCA. First of all, the judicial reports (writs) of the TCA are also delivered to the Ministry of Finance for administrations within the scope of the general budget so that the Ministry can execute the writs in accordance with provisions of the

391Turkey

laws in force.Furthermore, all audit teams are obliged to control the execution of the writs of the TCA and take it into account in their report if the writs of previous years are not executed.Finally, the TCA has the power to initiate financial, administrative and judicial sanctions to the public officials, who do not follow up the execution and fulfill the requirements of the writs of the TCA. To illustrate, those public officials who do not fulfill the requirements written in the judicial report shall be subjected to salary cut off by relevant public administrations upon the demand of the TCA.

4.2 Preventive Role

The TCA primarily plays a preventive role in the fight against corruption by improving the culture of transparency and accountability in public sector and strengthening the sound public financial management. To this end, the TCA carries out its auditing, reporting and judicial functions in line with its regulatory framework and ISSAIs as well and makes use of up-to-date knowledge and skills in such areas as data analysis, accounting, internal control systems, risk assessments etc.

4.3 Detective Role

As a watchdog agency, the TCA puts less emphasis on detecting the suspected cases of corruption due to the fact that SAIs are not primarily designed to detect and reveal suspected cases of corruption. The lack of power to investigate those cases comprehensively or the extent of audit evidence gathered by the auditors can be considered as the main restrictions towards the detective function of the SAIs in the fight against corruption. In the case of fraud, auditors are expected to maintain the professional skepticism and be alert to the possibility of fraud throughout the audit process since they express an opinion as to whether the financial statements arefree from material misstatement due to fraud or error in financial audits.

Still, the TCA is well-equipped to play a considerably significant role in detecting certain cases of corruption such as conflict of interest, asset misappropriation, embezzlement, forgery and a wide variety of illegal activities in public


procurement procedures etc. The cross control of data obtained especially from different sources, physical observation and site visits, risk analysis and analysis of complaints and referrals received can be acknowledged as examples of the tools and techniques employed during the course of TCA audits. The compulsory two year-long vocational training for assistant auditors and in-house trainings on a variety of subjects, which contribute to knowledge on anticorruption, help auditors enhance their skills to combat corruption.

4.4 Reporting Role

As it is the case in most SAIs, the TCA does not investigate suspected cases of corruption, which auditors detect during the course of TCA audits. Instead, auditors carry out a preliminary review to gather sufficient information and evidence to be able to find out whether the case concerned can be regarded as an act involving guilt. At this point, what is unique for the TCA is that chambers play a critical role as a consequence of the judicial power granted to them. Due to the fact that some matters that initially appear suspicious may have reasonable explanations, the final decisions of the Chambers are vital to avoid involving the legal authorities unnecessarily.

The reporting function helps the TCA initiate administrative sanctions (when cases are sent to the responsible officials’ public administrations for necessary actions to be taken) or criminal prosecution (when cases are sent to the office of public prosecutor for necessary actions to be taken) against the perpetrators of suspected corrupt activities and transactions. Each year approximately 30 suspicious cases of corruption are detected by the auditors and those cases are sent to responsible officials’ public administrations and/or the Public Prosecution Office.

4.5 Best Practices of the TCA

The TCA has a series of best practices concerning anti-corruption such as developing strategic approaches; better use of technology to enhance its audit capacity and effectiveness; focusing on ethics; conducting general risk assessment methodology; making use of physical observations and site visits and reporting

393Turkey

suspected cases of corruption in accordance with the steps clearly defined in the TCA Law and relevant regulations.

5. Future Perspectives

SAIs need to improve their anti-corruption capacity in order tobetter fulfill their roles and responsibilities in this field.To this end,following suggestions could be made:

1. It is important for SAIs to establish mutually beneficial ways of cooperation among themselves or with international organizations. To this end, INTOSAI, ASOSAI and EUROSAI may serve as excellent platforms to discover the aspects of corruption which go beyond the national borders and require regional or global actions to fight against. The main tool to disseminate knowledge and share experience regarding the fight against corruption is to organize conferences, seminars and other types of meetings where SAIs and international organizations may share best practices, limitations and areas for improvements.

2. Considering that different countries have their own administrative systems, one unique suggestion regarding the strengthening of the investigative power of SAIs could not be made. Again, it should be kept in mind that most SAIs do not directly fight against corruption because of the nature of supreme audit function, and the lack of investigative powers should not be considered as a detriment to the supreme audit function. However, all things considered, SAIs should be competent enough to conduct a sufficient initial review of a suspected case so that they would not involve judicial or other authorities unnecessarily in the case.

3. SAIs could use the following techniques in detecting corruption in the highest risk areas:

• Risk analysis;• Analysis of complaints and referrals received;• Cross control of data obtained especially from different sources;• Physical observation and site visits.


4. SAIs could determine fraud indicators by considering the following sources:

• Analysis of the inherent and control risks determined by audit teams during the planning phase of regularity audits;

• Main issues highlighted in denunciation letters;• Hot topics or alleged cases of corruption in the media regarding the subjects or

public institutions under the audit mandate of SAIs;• Suggestions to be made by the auditors;• Legal conflicts which involve auditees of SAIs.

5. SAIs could develop a dedicated web-based complaint system by the help of a robust business process and document management system. In this context, denunciation and complaint letters could be automated and auditors would be able to prepare working papers and make evaluations regarding each complaint. This complaint system will have the following benefits for SAIs:

• Better knowledge creation and management regarding complaints by complying with the legal requirements of confidentiality and security;

• Producing regular or on-request management reports;• Analyzing the complaints and assessments of the auditors so as to create fraud

indicators and/or red flags for the future audits; and• Better meeting the expectations of external stakeholders.

6. The utilization of audit results in the planning of the future audits could be a useful tool in the fight against corruption. To this end, developing audit management systems may enable SAIs to perform general risk assessments and help them prepare audit strategies and annual audit programs in line with a prospective risk analysis. Such IT systems not only help SAIs focus on high risk areas and take red flags into account but also provide an appropriate platform for knowledge creation and management relating to all kinds of audits.

The 10 - audit.gov.cn report of the 10th...of participating SAIs in ASOSAI history. ... Australia,...

Documents

Transcript of The 10 - audit.gov.cn report of the 10th...of participating SAIs in ASOSAI history. ... Australia,...