Feasibility Report

1. General information on the administrative territorial structure and the public financial management system. The Special Committee reviewed different models of public audit systems, cooperation frameworks between SAIs and regional audit institutions, challenges and directions for the future development of audit at the local level.
2. SAI’s mandate in auditing local governments. The Special Committee examined the legal basis of public sector auditing at the local level, structure and supervisory powers of SAI’s regional offices, outcomes and follow-up mechanisms of regional auditing.
3. For countries with the independent local audit institutions the Special Committee analyzed mechanisms of their establishment, types of audit engagements and cooperation frameworks between SAIs and local audit institutions, between regional and municipal audit institutions.
4. Based on the research results Special Committee determined the objectives, functions, composition and scope of work for the proposed Working Group.

This report provides a comprehensive perspective of how the public audit system is structured at the local level in the countries – members of the Special Committee. Both Qualitative and Quantitative Research Methods were used in the process of the Feasibility Study preparation. It provided a holistic approach combining and analyzing the statistical data with official documents screening and contextualized assessments.

To collect primary data a detailed questionnaire was developed together with the Committee members (62 questions grouped into six thematic blocks). 14 SAIs were asked to provide information on the legal and regulatory framework of the public auditing, institutions involved in local auditing and their mandates.  Collected answers serve as a source for this Report.

All answers received were analyzed with the focus on finding trends in organizing public auditing at the local level, audit reporting and follow-up control. Conclusions made were enriched by INTOSAI and other international organizations insights. To gain an in-depth understanding of a specific case or context Questionnaire data was supplemented by materials presented during the Special Committee expert webinar on SDG Auditing at the Regional Level.

On May 14, 2024, an expert webinar on SDG Auditing at the Regional Level was held within the framework of the Special Committee on Establishing ASOSAI Working Group on Regional and Municipal Audit under the leadership of the Accounts Chamber of the Russian Federation.

The event was attended by 164 representatives of Supreme Audit Institutions of the Special Committee member countries and the ASOSAI Working Group on SDGs, as well as Control and Accounts Authorities of the constituent entities of the Russian Federation. Participants discussed best practices of SDG auditing at the regional level. Experts from SAIs of China, Indonesia, Kazakhstan, Philippines, Russia and Thailand shared their national experience in transport infrastructure modernization, fighting hunger and redaction of stunting prevalence, creating a comfortable urban environment, solid waste management.

It is important to acknowledge the limitations of this research. These theoretical and empirical shortcomings concern national cases presented as well as the subject area of research.

• Tight deadlines. Given the time constraints, we were unable to reach the entire ASOSAI community. To draw sound conclusions and policy recommendations more national practices are needed. WGRMA plans to continue collecting national experience and in the future to cover the entire ASOSAI community.
• Methodological constraints. Audit guidelines developed by international organizations, including INTOSAI professional pronouncements, relate to public audit at the national level and support in principle the effective functioning of Supreme Audit Institutions. The amount of materials that directly address local auditing issues is limited. Regional Audit Institutions mainly tailor SAI practices and INTOSAI underlying frameworks to the local context.
• Cross-sectional study design. As noted, the Feasibility Study doesn’t investigate the specific subject or types of audits. The key priority is to study the organizational features of public audit at the regional level. At the same time the absence of thematic limits leads to further overlapping with areas of responsibilities of other ASOSAI working and special groups. While acknowledging the critical importance of multisectoral approach, WGRMA will work in close cooperation with all ASOSAI institutions aims to add value by focusing on issues related to public auditing at the local level.

In presenting and interpreting the Feasibility study findings, the aim is not to formulate general guidelines for the development of local audit in ASOSAI, but to take a snapshot of its current state, to draw attention to the regional audit issues and to suggest starting points for deliberating possibilities to strengthen regional audit institution capacities.

The study results will be incorporated in the Special Committee Report and proposed for approval at the 60th Governing Board Meeting and the 16^th ASOSAI Assembly, scheduled to be held in India in September 2024. Based on its findings, the final approval for the establishment of the Working Group on Regional and Municipal Audit shall be granted at the Assembly.

Organization and Сonduct of the Local Audit

• Administrative and Territorial Structure. Public Audit System is determined by the administrative and political characteristics of the country. Countries with a multi-level federal structure are mostly characterized by a decentralized audit system with broader powers of Regional Audit Institutions. In unitary states, regional audit bodies are representative offices of Supreme Audit Institutions.
• Legal and Regulatory Framework. The audit mandates for SAIs and their Regional Offices derive from Constitution and State Laws. In cases where Regional Audit Institutions have greater autonomy and independence, legal framework on local auditing can be supplemented and outlined by local legal provisions and standards.
• Public Sector Audit Organizations. Public audit at the local level is carried out either by the SAIs through its regional offices and authorized audit teams or by the Regional Audit Institutions. RAIs’ responsibilities and audit rules are set out in compliance with International Standards on Auditing (ISA), International Public Sector Accounting Standards (IPSAS), INTOSAI professional pronouncements and Guidelines developed by SAI.
• Audit Types and Outcomes. All SAIs (inter alia Regional Offices) and Regional Audit Institutions conduct financial, performance and compliance audits. Some audits combine financial and compliance aspects. Depending on the authority and organizational resources, special audits are performed (information technology audit, impact audit, investigation audit, etc.). Audit Reports are submitted to oversight bodies (mainly to legislative) and law enforcement agencies if needed.
• Quality Management System. Adoption of ISSAI standards and capacity building activities are considered as a foundation for high-quality audit practices. Audit quality is also maintained through structured audit planning, risk assessment and monitoring of the audit recommendations implementation and follow-up control.
• Follow-up Audit. Audit reports are submitted to the Parliament or local legislative branches. Audited entities must respond to audit recommendations (generally within 60 days), while SAIs or RAIs monitor their implementation. Audited entities prepare performance report detailing remedial measures, which are then submitted to SAI and legislative scrutiny.

Challenges and Responses

SAIs and Regional audit bodies struggle with institutional and capacity constraints, which affect their ability to audit.

The respondents identified the following problems:

• Limited organizational and financial resources
• Uncertainty of legislative regulation (when introducing new types of audits)
• Low compliance of Regional Audit Institutions practices with SAI Standards
• Lack of effective mechanism to monitor audit recommendations
• Inadequate development of digital infrastructure
• Low level of staff training
• Security issues.

Study results show that the expert role of SAIs in relations to Regional Offices and Regional Audit Institutions is strengthening. SAIs continuously seek to enhance audit efficiency and quality of audit reports by improving institutional mechanisms and running capacity building programs. Key performance enablers are:

• Support in ISSAI standards adaptation
• Improving audit methodology
• Conducting internal training or assisting in participation in external educational programs
• Digitalization and using Big Data analytics in auditing.

Good Governance is a basic prerequisite for successful and long-term development. In order to effectively respond to the current challenges and improve the well-being of citizens, government institutions, including SAIs and Regional Audit Institutions, are recommended to review management methods and constantly improve the efficiency of their activities.

Based on the SAIs experience on cooperation development within community, outcomes of INTOSAI knowledge-sharing events and the Feasibility Study results, the following priorities can be identified for the enhancing of the audit at the local level:

• Harmonization of the legal field on public audit at all levels of government. It includes adoption of a regulatory framework that provides a clear, consistent and relevant set of guiding principles of regional and municipal audit bodies activities.
• Development of unified methodological approaches. Regional and municipal audit bodies differ in their mandates and working conditions. This enhances the guiding role of SAIs in facilitating the activities of local audit institutions in accordance with INTOSAI’s Framework of Professional Pronouncements.
• Use of advanced audit approaches, especially data analytics and artificial intelligence tools. SAIs manage to quickly respond to changing conditions and take advantage from technological opportunities instead of local audit institutions that have limited human, financial and technical resources for digital transformation. SAIs should support regional and municipal partners through sharing-knowledge and capacity building activities.

A performance check: what steps to take to improve local audit capacity?

Many local audit institutions are constantly strengthening their institutional potential, through capacity building programs, digital transformation, knowledge-sharing with colleagues and partner institutions. Embedding changes takes time, positive outcomes depend on many factors: clear goal setting and performance evaluation, organizational health, provision of necessary financial and human resources, management quality etc.

Furthermore, the experience of the international audit community shows that strengthening institution capacity is not a one-time action, rather a long-term complex process. It requires constant evaluation of the current level of capacity, setting tailored goals and priorities, developing comprehensive strategy and systematic control over its implementation.

There is no universal fast track to performance improvement. However, there’s a framework that acts as a strategic roadmap for SAIs developed by INTOSAI Capacity Building Committee (“Strengthening Supreme Audit Institutions. A guide for improving performance”). This guide adopts a consolidated SAI transformation approach and focuses on institutional, organizational and professional development. While many local audit institutions operate in collaboration with or under the direction of SAIs this guide could also be used to reach their full potential.

As noted earlier, one of the first and most important steps is the ongoing performance measurement. Based on the CBC Gide, Special Committee mapped out a list of reference questions (red flags) to help identify areas for further action.

• Do the local audit institutions have internal regulations that determine the procedure for organizing and exercising their powers?
• Do the internal regulations of local audit institutions comply with the national public audit legislation?
• Do the local audit institutions have organizational and functional independence?
• Are the local audit institutions guided by international and national standards in the field of public audit?
• Have methodological documents on the implementation of public audit at the local level been approved?
• Are the results of the conducted audits submitted to the legislative (representative) authorities?
• Are local audit institutions provided with the necessary information resources (access to state information systems)?
• Do local audit institutions participate in anti-corruption activities?
• Does the staff of local audit institutions comply with the established requirements (in terms of qualification and anti-corruption requirements)?
• Is the qualification certification of employees carried out?
• Are activities carried out to improve the professional competencies of employees?
• Are the results of the activities of local audit bodies published?
• Have long-term planning documents for the activities of the local audit institutions been approved?
• Do the local audit institutions interact with the SAIs in terms of capacity building?