Supreme Audit Office SAO Afghanistan Value of Audit

|Supreme Audit Office (SAO) Afghanistan

|Value of Audit – Measuring and Challenges SAO Afghanistan – Assurance on donor assisted projects and meeting benchmarks for incentive based financing

Overall Framework ü INTOSAI ISSAI 12 – The Value and Benefits of Supreme Audit Institutions Independent and Model Organization Strengthening accountability, transparency and integrity Relevance to citizens, legislature and stakeholders 10/29/2020 3

UN Resolution A/RES/66/209, 2012 Overall Framework 10/29/2020 improving the efficiency, accountability, effectiveness and transparency of public administration conducive to the achievement of national development objectives and priorities as well as the internationally agreed development goals 4

Measuring Value of Audit – Perceptive/Qualitative/Formal and Quantifiable ü Perceptive /Qualitative /Formal – Assurance Independent, objective and high quality assurance 10/29/2020 Contribution to public financial management’ s accountability, transparency and good governance. These may also include role of audit in identifying and alerting on frauds and corruption Watchdog for citizens’ welfare, efficient and effective service delivery, achievement of national priorities and internationally agreed development goals (e. g. , the Millennium/ Sustainable Development Goals (MDGs/SDGs). 5

Measuring Value of Audit – Perceptive/Qualitative/Formal and Quantifiable ü Quantifiable / countable measures – Expense Quantitative or monetary benefits realized by identifying public financial irregularities, frauds and embezzlemen ts through audits and recovery of those assets and resources. 10/29/2020 Revenue maximization realized by identifying weak or non-compliant revenue administration, leakage of revenue or revenue foregone due to inefficiency in revenue administration and cost reduction in revenue administration. 6

Measuring Value of Audit – Perceived and Quantifiable ü Quantifiable or Countable – Performance • Performance deficit or performance improvement in delivery of services and goods including public goods by identifying uneconomic, inefficient and ineffective operations, administration and processes by audit. Jurisdictional • Values and benefits with jurisdictional mandates, e. g. , those exercised by SAIs in Court of Accounts model, or those which enjoys quasi-judicial authorities or those which conduct hearings from bidders in procurement process or those which exercise supplementary audit against the audit of statutory aud 10/29/2020 7

Measuring Value of Audit – Public Audit in Afghanistan ü The Supreme Audit Office of Afghanistan is striving to demonstrate the value of public audit in terms of – Perceptive / Qualitative / Formal indicators Quantifiabl e indicators 10/29/2020 8

Measuring value of Audit – Afghanistan’s context ü Measuring value of public audit in Afghanistan has additional dimensions, e. g. – Assurance on donor assisted projects Meeting benchmarks for incentive-based financing This might be the case in all similarly placed countries conflict or post-conflict situations, maximising international and bilateral assistance for the benefit of their citizens and struggling to seek equitable development while fighting corrupt practices. 10/29/2020 9

Measuring Value of Audit – Afghanistan’s context ü In addition to the mandated responsibilities as per the Audit Law, the SAO is responsible for financial audit of all the World Bank grants projects’ (about 40 -46) financial statements, which entails – Assurance on financial statements 10/29/2020 Assurance on utilization of assistance for the purpose for which donor’s funds are made available and the level of utilization Assurance on compliance with the terms of their financing for roll over or continuity of the financing 10

o g c e tc h th c h p tu ie ro e d o re v o ja , e n e lw m o c e a e r tn ln s s ft d a a p o n u rf d d ie ts io a h t trn e a a id o k s tc b e w o y jh e m p e o lrm c l lo u td a n g ie s riv r fa te s im y s b n s m a o a e n t n rd s h c , v ti is a n a c u rq ls e g u , ts e a c , t a l o is i m n Measuring Value of Audit – Afghanistan’s context ü Assurance on donor assisted projects, also entailing examination and assurance on – 10/29/2020 11

Measuring Value of Audit – Afghanistan’s context ü Meeting benchmarks financing. for incentive-based ü In addition to normal route grants and supports, the donors assisting Afghanistan, have incentive-based financing. ü The incentive-based benchmarks for financing include fixed tranche eligibility criteria (general conditions) as well as variable tranche eligibility criteria (performance based) criteria for financing. ü These apply to Government agencies and certain cases, to the SAO Afghanistan also. ü Criteria and benchmarks are as agreed to and set under various bilateral and multilateral 10/29/2020 12 arrangements.

Measuring Value of Audit – Afghanistan’s context ü Agreed Frameworks for criteria and benchmarks - The EU’s State and Resilience Building Contract (EUSRBC). 10/29/2020 World Bank’s Fiscal Performance Improvement Support Project (FSP)’s Project Development Objectives (PDOs) / The Afghanistan Reconstruction Trust Fund’s Incentive Programme / Incentive Programme Plus (ARTF IP / IP +). The Geneva Mutual Accountability Framework (GMAF). 13

Measuring Value of Audit – SAO’s Benchmark / Performance Indicator Value additions (SAO) Description Public Financial Managemen t (PFM) [EUSRBC/WBFSP and PEFA] 10/29/2020 Performance audits in line with INTOSAI Standards (ISSAIs). Adds value by deepening coverage of audit by SAO and assessment of government’s performance (ministries / departments / agencies/State Owned Enterprises). Reporting the Implementation of Audit Recommendations – key government ministries implement the audit recommendations (baseline of 15% and increased implementation percentage starting 2018 to 2022 to 60%). Adds value by increasing effectiveness of audit and compliance by the auditees. SAO is to implement Audit Mgt Info System (AMIS) as systemic base for verified reporting. Professional capacities of the Adds value by enhancing trust Supreme Audit Office (SAO) in the SAO as professionally 14 audit staff – trainings, capacity competent institution.

Measuring of Value of Audit – SAO’s Benchmark / Description Performance Indicator Public Improved O&M Financial expenditure management. Management (PFM) [WB-FSP] Value Addition (SAO) Adds value by assurance through SAO’s performance audit of the piloting of the O&M policy and its effectiveness in expenditure management. Public availability of Adds value in transparency in Audit Reports – Audit reporting on budget and financial Report of the reporting including audit reports. Government’s financial Budget audit (audit report of Transparenc Qatia Accounts) y published. [EUProgress towards Adds value to the Afghanistan’s SRBC/WBincreased public commitment to the Open FSP] participation – Citizens Government Partnership (OGP) and participation in SAO's to SAO’s commitment to Civil 10/29/2020 15 audit process. Society’s participation in audit

Measuring Value of Audit – SAO’s Benchmark / Performance Indicator Description Value Addition (SAO) SAO is to undertake Law Revision and complete its Audit Law Revision. Adds value by strengthening the SAO as independent institution aligned with international best practices. Functional Review Adds value by enhancing SAO’s organization, functions and processes to be more effective institution. 10/29/2020 SAO is to undertake its function review. 16

Measuring the value of audit in special conditions ü The Government agency’s related benchmarks and indicators, amongst other, relate to – ü Public Policy, Macro-economic stability, Public Financial Management, Budget Transparency and reforms, Improving tax administration, Maximizing domestic revenue for self-reliance, Civil Service reforms ü Reforms in extractive industry, Improving business environment, Power utility reforms, Land governance ü Reduction of corruption and better governance, Better service to rural and urban population, Efficient and improving expenditure control ü Irrigation and agriculture policy reforms for livelihood ü Improved planning and appraisal of projects 10/29/2020 17

Measuring the value of audit in special conditions SAO Auditees Increased coverage and value of SAO’s works (performance audit). Assurance to stakeholders through financial and other audits. Value in terms of increased effectiveness of SAO (Law revision and Functional review). Finances accrued to the Government by meeting Increased systemic effectiveness benchmarks of the government through audit and O&M policy implementation review. 10/29/2020 18

Challenges in measuring the value of audit ü While quantifiable measures may be subject to a lesser degree of disagreement amongst stakeholders, perception-based measures may always be subject to debate. ü Even the quantifiable measures are subject to the capacity of the management to implement the related audit observations and recommendations, e. g. , recoveries, revenue maximization, or service delivery, etc. 10/29/2020 19

Challenges in measuring the value of audit ü Unless agreed to by the management for implementation and effectively guided by the legislative oversight, many of the recommendations of the audit would remain unimplemented due to management's disagreement. ü Hence, there would remain a gap between the perception of value and the actual value added by the audit. 10/29/2020 20

Challenges in measuring the value of audit ü Meeting the benchmarks are subject to third party review and hence their effectiveness is subject to external factors. ü Value of the audit is dependent upon the effective scrutiny of the legislative oversight. 10/29/2020 21

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