The International Standards of Supreme Audit Institutions, ISSAI, are

INTOSAI GOV 9160 issued by the International Organization of Supreme Audit Institutions,
INTOSAI. For more information visit www.issai.org
1

INTOSAI Exposure draft

Enhancing Good Governance

for Public Assets

Guiding Principles
for Implementation

Warsaw, 23 May 2013

Comments are requested to be sent to:

WGFACML@nik.gov.pl
and Jacek.Koscielniak@nik.gov.pl
by 19 August 2013

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 2

IN TO SA I Pr o fe s si on al S tand a rd s C o mm itte e
PSC-Secretariat
Rigsrevisionen • Landgreven 4 • P.O. Box 9009 • 1022 Copenhagen K • Denmark
Tel.:+45 3392 8400 • Fax:+45 3311 0415 •E-mail: info@rigsrevisionen.dk

INTOSAI

EXPERIENTIA MUTUA
EXPERIENTIA MUTUA
OMNIBUS PRODEST
OMNIBUS
PRODEST

INTOSAI General Secretariat - RECHNUNGSHOF

(Austrian Court of Audit)
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AUSTRIA
Tel.: ++43 (1) 711 71 • Fax: ++43 (1) 718 09 69

E-MAIL: intosai@rechnungshof.gv.at;
WORLD WIDE WEB: http://www.intosai.org

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1 Enhancing Good Governance for Public Assets
2 Guiding principles for implementation

3 (Exposure draft)
4
5 Introduction
6 1. Basic Terms
7 A. Accountability
8 B. Assets (and Public Assets)
9 C. Governance
10 D. Good Governance
11 E. Integrity
12 F. Stakeholder
13 G. Transparency
14 2. Roles and Responsibilities of Stakeholders in Enhancing Good Governance for Public Assets
15 3. Assessment of the Standards of Good Governance for Public Assets
16 • Asset Management Framework
17 • Risk Assessment and Risk Analysis
18 • Internal Auditing
19 • Activity Reports
20 • Website and Newsletter of Public Information
21 • Complaints and Requests
22 4. The Role of Supreme Audit Institutions in Enhancing Good Governance for Public Assets
23 5. The role of Supreme Audit Institutions in Promoting Good Governance in Public Procurement
24 • Risk in Complex Government Procurement of Public Assets
25 • Performance Measurement
26 • Value for Money in Procurement
27 6. Laws and Regulation
28 7. Annex: Examples of Supreme Audit Institutions’ Evaluation Experience
29

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1 Introduction
2 The International Organization of Supreme Audit Institutions (INTOSAI) is an autonomous,
3 independent, professional, and nonpolitical organization, which provides a forum for government
4 auditors from around the world to discuss issues of mutual concern and keep abreast of the latest
5 developments in auditing and other applicable professional standards and best practices1. To achieve its
6 mission, INTOSAI organizes its work around four strategic goals: (1) Accountability and Professional
7 Standards, (2) Institutional Capacity Building, (3) Knowledge Sharing and Knowledge Services, and (4)
8 Model International Organization.
9 Since Supreme Audit Institutions (SAIs) play a major role in auditing government accounts and
10 operations, and in promoting sound financial management and overall accountability in their
11 governments, INTOSAI encourages SAIs cooperation, collaboration, and continuous improvement
12 through the exchange of ideas and experience, which represents knowledge sharing, including providing
13 benchmarks, conducting best practice studies, producing audit guidance material, and performing
14 research on issues of mutual interest and concern. This is the essence of the Strategic Goal 3
15 “Knowledge Sharing and Knowledge Services”, in which the Working Group on the Fight Against
16 Corruption and Money Laundering (WGFACML) is established.
17 This Working Group’s objective is to promote a proactive role and international cooperation between
18 INTOSAI and its members, in reference to the fight against corruption and money laundering in a
19 manner consistent with the competencies and authorities of SAIs, and independent requirements of
20 INTOSAI. This responsibility includes the identification, designing and sharing of relevant policies and
21 strategies.
22 Hence, the endeavors of the WGFACML support one of the INTOSAI strategic priorities: “Further the
23 Fight against Corruption”, as it is recognized a pervasive global problem that threatens public finance,
24 legal order, and social prosperity; endangers social security, and impedes the reduction of poverty.
25 Taking into account that the main task of SAIs is to examine whether public funds are spent
26 economically and efficiently in compliance with existing rules and regulations, their contribution to the
27 fight against corruption is leading by example and fulfilling their responsibility to ensure transparency
28 and prevention through government audit. Supreme auditing creates transparency, makes risk visible,
29 and strengthens internal controls to contribute to the prevention of corruption, in line with the spirit of
30 the United Nations Convention Against Corruption.
31 To effectively prevent and fight corruption, INTOSAI and the anti-corruption network require strong,
32 independent, and multidisciplinary SAIs. To achieve this goal, and to encourage good governance,
33 INTOSAI provides and maintains an up-to-date framework of professional international standards that is
34 relevant to the tasks and needs of its member SAIs and stakeholders.

1
INTOSAI (October 2010). Strategic Plan 2011-2016.

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1 A reference is made to the framework of professional international audit standards and implementation
2 guidelines for Supreme Audit Institutions (ISSAIs Framework2), to which the WGFACML makes
3 hereby a contribution.
4 Enhancing Good Governance for Public Assets: Guiding Principles for Implementation is a document
5 that has been developed by the Working Group on the Fight Against Corruption and Money Laundering,
6 in the light of the impact of the global financial crisis and after recognizing the need for implementation
7 of guidelines related to the role of SAIs in enhancing integrity, transparency, accountability and good
8 governance for public assets in public entities.
9 Every day, public officers and policymakers make decisions, which have a direct impact on the
10 economic units that operate on the market, and indirectly affect the activity, behavior and perception of
11 the citizens. Therefore, all decisions should be taken in a sense of ensuring the public interest, while
12 promoting the Rule of Law and taking into account the required measures to guarantee the country’s
13 long-run social and economic sustainability.
14 The core concept of “good governance” implies a precondition for sustainable development of societies
15 and nations. It means competent management of a country‘s resources and public tasks in a manner that
16 is right, transparent, accountable, equitable and responsive to people’s needs. Thereby, implementation
17 of good governance establishes an environment that does not favor or enable corruption, or other types
18 of wrongdoing. Although governments have a major responsibility for creating such an environment,
19 governance issues vary from country to country, and solutions to governance problems must be tailored
20 individually, while each SAI has a key role to play as an advocate of good governance.
21 In this regard, assets management is an essential component of good governance in both public and
22 private sectors, and should be aligned to, and integrated with, an entity's strategic, corporate and
23 financial planning.
24 This is a particular aspect of public activity when national bodies try to reduce corruption, which is
25 widespread in the public and private sectors, by preparing privatization of the state’s enterprises, or by
26 using the international funds, e.g. during the implementation of projects co-financed from the World
27 Bank’s funds and by meeting the budgetary requirements.
28 It can be presumed that there is a need to increase the skills of managing public resources in order to
29 make an appropriate use of public assets.
30 Drawing from international experience, the WGFACML has identified some broad guiding principles in
31 order for SAIs to enhance good governance for public assets. These principles are addressed in this
32 document, which also explains how SAIs could implement them.
33 The aim of the guideline is to assist SAIs in implementing the INTOSAI Strategic Plan with regard to
34 the fight against corruption, by identifying basic requirements, issues arising from them, and various

2
Further information could be found at www.issai.org.

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1 options available to SAIs as they develop and implement their audit approach, which helps both (1) to
2 assess strengths and weaknesses of the current governance practice regarding public assets management,
3 and (2) to identify alternatives to improve it.
4 The guideline consists of six chapters. In the first chapter, “Basic Terms”, the relevant concepts are
5 defined for an appropriate reference to the core topic. Additionally, the scope and principles of good
6 governance are described.
7 The second chapter, “Roles and Responsibilities of Stakeholders in Enhancing Good Governance for
8 Public Assets”, identifies all the parties involved and their main roles. In this section, a reference is
9 made to the required coordination and cross-communication among official stakeholders. It assesses
10 their strengths and weaknesses, and also elaborates on their limitations and competences, pointing out
11 their relevant future challenges.
12 The third chapter introduces the reader to different mechanisms available or potential activities that
13 could be used by the relevant stakeholders when assessing and trying to enhance the core characteristics
14 or principles of good governance for public assets. Thus, this chapter also provides information on how
15 to make audited entities accountable and to engage them into further participation before their
16 stakeholders.
17 The fourth chapter identifies a number of SAIs’ specific roles and responsibilities in enhancing integrity,
18 transparency, accountability and other relevant principles of good governance for public assets. The
19 excessive discretion by public officers and the management of conflicts of interest are also addressed in
20 this chapter.
21 The fifth chapter describes in general terms the issues concerning of the role of SAIs in promoting good
22 governance in public procurement.
23 Finally, the sixth chapter briefly discusses the approach to national laws and regulations as accepted for
24 the needs of the Guidelines.
25 A state-conducted surveillance of the observance of best practices by private corporations that provide
26 services to citizens is one pending topic of utmost significance that the Working Group will seek to fully
27 address in complementary guidelines.
28 The Guidelines are focused on creating a common front against corruption by efficiently promoting
29 institutional awareness, standards, policies and best practices with due consideration to the mandate,
30 authority and capacities of Supreme Audit Institutions. This represents a framework for SAIs to
31 implement supreme auditing actions bearing in mind the public entities’ ethical standards or code of
32 conduct, as well as their social responsibilities, with the understanding that each public institution should
33 be held fully responsible for its own public assets management.
34 The Guidelines are a result of the joint effort of the WGFACML members, and it has been developed
35 with reference to the following international conventions, laws, regulations and good practices, without
36 seeking to duplicate the codes and guidance already existing and applicable to some specific type of
37 organizations:

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 1 • UN Convention Against Corruption, United Nations, New York 2004:
2 i. Legislative Guide for the Implementation of the United Nations Convention
3 Against Corruption.
4 ii. Technical Guide to the United Nations Convention Against Corruption.
5 iii. Resource Guide on Strengthening Judicial Integrity and Capacity.
6 iv. Mechanism for the Review of Implementation of the United Nations Convention
7 Against Corruption — Basic Documents.
8 • The INTOSAI Framework of Professional International Auditing Standards (ISSAIs),
9 including:
10 i. The framework on promoting and communicating the value and benefits of SAIs.
11 ii. ISSAI 1: The Lima Declaration.
12 iii. ISSAI 10: Mexico Declaration on SAI Independence.
13 iv. ISSAI 20: Principles of Transparency and Accountability.
14 v. ISSAI 21: Principles of Transparency and Accountability. Principles and Good
15 Practices.
16 vi. ISSAI 30: Code of Ethics.
17 vii. ISSAI 1240: The Auditor's Responsibilities Relating to Fraud in an Audit of
18 Financial Statements.
19 viii. ISSAI 1250: Consideration of Laws and Regulations in an Audit of Financial
20 Statements.
21 ix. ISSAI 1265: Communicating Deficiences in Internal Control to Those Charged
22 with Governance.
23 x. INTOSAI GOV 9100: Guidelines for Internal Control Standards for the Public
24 Sector.
25 • International Public Sector Accounting Standards (IPSASs), developed by the IFAC
26 International Public Sector Accounting Standards Board (IPSASB), specifically:
27 i. IPSAS 1: Presentation of Financial Statements.
28 ii. IPSAS 2: Cash Flow Statements.
29 iii. IPSAS 3: Accounting Policies Changes in Accounting Estimates and Errors.
30 iv. IPSAS 24: Presentation of Budget Information in Financial Statements.
31 • IIA Guidance on Fraud.
32 • The Manual for Self Assessments on Integrity for Supreme Audit Institutions, The
33 Netherlands Court of Audit, 2011.
34 • OECD Convention on Combating Bribery of Foreign Officials in International Business
35 Transactions.
36 • European Governance. A White Paper, Commission of the European Communities,
37 Brussels 2001.
38 • Better Practice Guide on the Strategic and Operational Management of Assets by Public
39 Sector Entities: Delivering agreed outcomes through an efficient and optimal asset base,
40 Australian National Audit Office, September 2010.

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 1 • Checklists for use in Financial and Compliance Audit of Public Procurement, The
2 Contact Committee of the Supreme Audit Institutions of the European Union.
3 • Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005
4 on the prevention of the use of the financial system for the purpose of money laundering
5 and terrorist financing.
6 • FATF Forty Recommendations, The Financial Action Task Force (FATF), 2003.
7 • The Good Governance Standard for Public Services, The Independent Commission on
8 Good Governance in Public Services, Office for Public Management Ltd., The Chartered
9 Institute of Public Finance and Accountancy, London, UK 2004.
10 • The conclusions of the Visegrad Group’s Workshop “The role of the auditor in detecting
11 and preventing fraud and corruption”, Ljubljana, Slovenia 2011.
12 • Best practices of the Polish SAI3.
13 • OLACEFS Declaration of Principles of Accountability, presented at the XIX OLACEFS
14 General Assembly in Asunción, Paraguay, October 2009.
15 The Guidelines should be viewed as a living document, which over time should be further developed
16 and refined to embrace the impact of new developments.
17 This document includes general guidelines as a basic and common reference to develop tailor-made
18 standards, according to each national circumstance. The guideline does not provide detailed policies,
19 procedures, and practices for enhancing integrity, transparency, accountability and good governance for
20 public assets. It is each SAI’s responsibility, considering its corresponding mandate or legal framework,
21 as well as the cultural context, to further develop a specific policy to strengthen its audit work and to
22 contribute to fight against corruption when it comes to public assets management.
23 When developing these Guidelines, the Working Group clearly took into account that not all SAIs have
24 the same competences and, in some countries, there may be certain restrains actually hindering the
25 fulfillment of SAIs’ mandates when it comes to enhancing good governance for public assets. Therefore,
26 the document has been prepared considering a relevant premise: the proposed principles stated in this
27 document are at a certain extend broad, so as to make reference to general competences and actions
28 applicable to all SAIs, but challenging enough in order to encourage that each INTOSAI member builds
29 on their capacities and promotes the referred good international practices to positively fight against
30 corruption.
31 SAIs serve as important pillars of their national democratic systems and play a crucial role in enhancing
32 public sector performance, emphasizing the importance of the principles of good governance,
33 transparency, and accountability. Taking into account the increased interest from external and internal

3
The results of the Polish SAI's audits: post-audit statements sent to auditees, pronouncements on audit results submitted to
the Parliament and other authorized state bodies, annual reports on the activity of the SAI of Poland, and cross-sectional
studies concerning the corruption hazard in the light of the Polish SAI's audits, presented to the Parliament and public
opinion.

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1 stakeholders and the widening range of audit services provided by SAIs, INTOSAI and the Working
2 Group on the Fight Against Corruption and Money Laundering recognize the need to increasingly
3 demonstrate the value and benefits that SAIs provide. Since this helps to promote public trust in the
4 SAIs, we are confident that these Guidelines will support SAIs in their actions to regularly evaluate their
5 value and benefits in terms of how they contribute to enhance good governance for public assets, and
6 consequently to fight against corruption.
7

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1 1. Basic Terms
2
3 In many countries, public expenditure has been increasing continually and exceeding billions in national
4 currency. The way this money is spent and the quality of services it provides is an important issue to all
5 of us, as users of public services and simultaneously as taxpayers. Users of public services, unlike
6 clients in the private sector, usually have little or no option to go elsewhere for services, or to refuse to
7 pay for bad quality services. Simultaneously, providers of public services have fewer direct financial
8 incentives than private firms to improve consumer satisfaction. Because of that, we all need governance
9 for the appropriate provision of public services and particularly the sound management of public assets.
10 Supreme Audit Institutions do play a role in enhancing good governance for public assets, but a better
11 understanding of the way SAIs could implement the broad guiding principles addressed throughout this
12 document to foster integrity, transparency, accountability and good governance for public assets within
13 the public entities, could be feasible after an appropriate explanation of the basic terms related to the
14 subject matter.
15 Therefore, this section is focused on providing a comprehensive definition of the following basic terms:
16 accountability, assets, governance, good governance, integrity, stakeholder, and transparency. Chapter
17 One also aims at clarifying why each of the concepts defined below is relevant to the core topic. Finally,
18 an emphasis is put on the concept of “good governance”, so that we also include reference to their key
19 principles.
20 A. Accountability
21 Accountability can be considered as the concept that individuals, agencies and organizations (public,
22 private and civil society) are held responsible for executing their powers properly. Stemming from this
23 broad definition, two conceptions should be taken into account4:
24 • Accountability as the process whereby public service bodies and the individuals within them are
25 held responsible for their decisions and actions, including their stewardship of public funds and
26 all aspects of performance.
27 • Accountability as a duty imposed on an audited person or entity to show that he/it has
28 administered or controlled the funds entrusted to him/it in accordance with the terms on which
29 the funds were provided.
30 Therefore, in the public arena and referring to the core topic, accountability could be better defined as
31 the obligations of persons or entities, including public enterprises and corporations, entrusted with
32 public resources to be answerable for the fiscal, managerial and program responsibilities that have been
33 conferred on them, and to report to those that have conferred these responsibilities on them5.

4
INTOSAI GOV 9100: Guidelines for Internal Control Standards for the Public Sector, INTOSAI.
5
Ibidem.

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1 In theory, according to the Anti-Corruption Plain Language Guide, developed by Transparency
2 International 2009, there are three forms of accountability: diagonal, horizontal and vertical.
3 • Diagonal accountability is when citizens use government institutions to elicit better oversight of
4 the state‘s actions, and in the process engage in policy-making, budgeting, expenditure tracking
5 and other activities.
6 • Horizontal accountability subjects public officials to restraint and oversight, or checks and
7 balances‘ by other government agencies (i.e. supreme audit institutions, courts, ombudsman,
8 central banks) that can call into question, and eventually punish, an official for improper
9 conduct.
10 • Vertical accountability holds a public official accountable to the electorate or citizenry through
11 elections, a free press, an active civil society and other similar channels6.
12 In this regard, Supreme Audit Institutions constitute a key mechanism in the horizontal system, oriented
13 to auditing the legality of activities of public officials and institutions responsible for public assets
14 management.
15 B. Assets (and Public Assets)
16 This concept refers to any items of economic value owned by an individual or corporation. The assets
17 are a resource controlled by the entity as a result of past events, and from which future economic
18 benefits are expected to flow to the entity. Assets can take a variety of forms: financial, physical or
19 intangible. Whatever form assets take, there are generally two guiding features which determine what
20 constitutes an asset: it will have a value, and it will provide benefits from its use over the period of its
21 useful life.
22 Structured assessment of an entity’s asset(s) seeks to ascertain performance information such as its/their
23 utilization and functionality. Decisions taken by the decisions makers after an analysis of the results of
24 audit are factored into the assets management strategy.
25 All assets are recognized in the balance sheet when it is probable that the future economic benefits will
26 flow to the entity. Assets have a cost and value that can be measured reliably.
27 Based on the above, public assets are also financial, physical or even intangible resources, from which
28 future economic benefits are expected, but their relevance is different to any private asset. This is
29 because public assets incorporate the management by a jurisdictional party (i.e. a municipal, state,
30 provincial or federal party), as well as the citizens’ expectations. It clearly entails the concept of public
31 interest.

6
The Anti-Corruption Plain Language Guide, Transparency International 2009. See also National Endowment for
Democracy, Institutionalizing Horizontal Accountability: How democracies can fight corruption and the abuse of power.

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1 Permits, licenses, code enforcement, right-of-way, among others, are examples of land-focused public
2 assets managed by the government. They also occupy location just as in-the-ground or above-ground
3 public assets do, so their appropriate register and management should be within SAIs’ auditing mandate.
4 C. Governance
5 Governance is the process of decision-making and the process by which decisions are implemented.
6 When talking about governance, the government is just one of the formal and informal actors, others
7 being the media, companies, non-governmental organizations7, research institutes, religious associations,
8 financial institutions, political parties, the international donor community, multinational organizations,
9 and the military, and depending on the level of government.
10 The characteristic of governance is the interactive approach to solving different problems, with valid
11 application to several contexts such as corporate, international, national and local governance, or to the
12 interactions between other sectors of society.
13 D. Good Governance
14 Good governance can be defined as the exercise of power or authority – political, economic,
15 administrative or other – to manage a country's resources and affairs. It comprises the mechanisms,
16 processes and institutions through which citizens and groups articulate their interests, exercise their legal
17 rights, meet their obligations and mediate their differences8.
18 It is characterized by the following paradigm: the public sector, especially public administration, is an
19 important part of society and is in interaction with the actors of the society through appropriate
20 participatory process with stakeholders. This approach is characterized by the involvement of
21 stakeholders, disclosure and transparency, equality, non-discrimination in the use of public services and
22 accountability of decision-makers.
23 The relevance of this concept relies on the foundation that the role of public organizations in today‘s
24 world, and their involvement in the implementation of the public interest is significant. Public
25 administration, whose activities are financed by taxpayers, is an important complement to the
26 constitutional authorities, holding to the auxiliary functions of these bodies, providing services for them,
27 taking part of their executive powers, and solving common public problems. Public assessment of
28 government activities is not only focused on socio-economic program which was offered to citizens, but
29 also on how public authorities carry out their tasks9. Public administration must therefore be efficient in
30 their operation, and that means, among others, the ability to effectively solve specific social problems.
31 This efficiency can be achieved by moving away from the imperative approach to problem solving and

7
The Anti-Corruption Plain Language Guide, Transparency International 2009.
8
Good governance. Guiding principles for implementation, Commonwealth of Australia 2000.
9
Z. Dobrowolski, Naczelne organy kontroli państwowej w krajach członkowskich Unii Europejskiej. Ciągłość i zmiana.
Studium porównawcze, Wydawnictwo Uniwersytetu Zielonogórskiego, Zielona Góra 2008, p. 2-15.

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1 the integration of different stakeholders in the process of initiating and carrying out the tasks and the
2 process of assessing their effects.
3 Moving away from treating citizens as voters and only as consumers of public services, to treating them
4 as co-makers, and co-creators of the public interest, is the essence of good governance10. Therefore, the
5 concept of good governance goes beyond the traditional notion of government to focus on the
6 relationships between leaders, public institutions and citizens, including the processes by which they
7 make and implement decisions.
8 Good governance is characterized as being participatory, accountable, transparent, efficient, responsive
9 and inclusive, respecting the rule of law and minimizing opportunities for corruption11. Hence, it entails
10 competent management of a country‘s resources and affairs in a manner that is open, transparent,
11 accountable, equitable and responsive to people‘s needs12. Therefore, it all leads to good management,
12 good performance, good stewardship of public money, good public engagement and, ultimately, good
13 outcomes13.
14 At this point, it is necessary to address the key principles14 of good governance, which include:
15 accountability, coherence, consensus-oriented, efficiency, equity and inclusiveness, participation,
16 responsiveness, rule of law, and openness15.
17 a) Accountability – as previously stated, it encompasses the responsibilities of individual
18 institutions for conducting public policies, which allow for well-established and effective
19 democratic mechanisms and for making an objective assessment of the effectiveness, efficiency
20 and economy. It also means ensuring a clear division of competence in the performance of their
21 tasks when managing public assets.
22 b) Coherence – integration management of various public policies, as well as among the different
23 levels of public authorities (in the framework of the multilevel system of governance), the
24 consistency of their risk, requiring the construction of coordination mechanisms.

10
H.C. Boyte, Reframing Democracy: Governance, Cicic Agency and Politics, Public Administration Review No 5,
American Society for Public Administration 2005.
11
The Anti-Corruption Plain Language Guide, Transparency International 2009.
12
Good governance. Guiding principles for implementation, Commonwealth of Australia 2000.
13
The Good Governance Standard for Public Services, The Independent Commission on Good Governance in Public
Services, Office for Public Management Ltd., The Chartered Institute of Public Finance and Accountancy, London, UK
2004.
14
European Governance. A White paper, Commission of the European Communities, Brussels 2001.
15
From the perspective of an individual public organization, other principles of good governance include: focusing on the
organization’s goals and outcomes; performing efficiently in clearly defined functions and roles; promoting and putting the
values of good governance for the whole organization into practice; having and using good quality information, objective
advice and support, assuring a transparent decision process and an effective risk management system in operation; making
sure that top management have the skills, knowledge and experience they need to perform well, and assuring an appraisal and
performance review of individual top management and as a group, and making accountability real.

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1 c) Consensus-oriented – there are several actors and many viewpoints in a given society. Good
2 governance requires mediation of different interests in society to reach a broad consensus on
3 what is in the best interest of the whole community and how this can be achieved. It also requires
4 a broad and long-term perspective on what is needed for sustainable human development and
5 how to achieve the goals of such development. This can only result from an understanding of the
6 historical, cultural and social contexts of a given society or community.
7 d) Efficiency – good governance means that processes and institutions produce results that meet the
8 needs of society while making the best use of resources at their disposal. The concept of
9 efficiency in the context of good governance also covers the sustainable use of natural resources
10 and the protection of the environment. In other regions, key elements of good governance are
11 defined similarly16.
12 Evidently, this principle entails the improvement of administrative capacity (state capacity) for
13 smooth implementation of the objectives of public policies.
14 The criterion of good governance includes two additional rules:
15 (1) the principle of proportionality, which assumes that the implementation of public policies
16 should be proportional to the objectives, and therefore carried out in an optimal manner;
17 (2) the principle of subsidiarity, whereby the operation of the higher levels of the administration
18 is only secondary to activities carried out at lower management levels.
19 e) Equity and inclusiveness – a society‘s wellbeing depends on ensuring that all its members feel
20 that they have a stake in it and do not feel excluded from the mainstream of society. This
21 requires that all groups, but particularly those most vulnerable, have opportunities to improve or
22 maintain their wellbeing. The concept of equality of government and stakeholders in realization
23 of public interests needs to be clarified. Normative acts differentiate the responsibility for the
24 performance of public duties. Public organizations are required to carry out such tasks for all
25 citizens. Tasks realized by other stakeholders, such as non-governmental organizations, may be
26 addressed to specific groups and are not mandatory. Public organizations are responsible for
27 supporting the activities of the stakeholders in the delivery of public services, as well as
28 monitoring and evaluating the implementation of these tasks.
29 f) Openness – public administration institutions should be transparent, which means that the public
30 should have the widest access possible to information on their performance.
31 g) Participation – participation of the public in the works of public administration authorities at all
32 levels (multilevel partnership), and at all major stages of the realization of public policies (i.e. in
33 the course of programming, implementation and monitoring). The Commission stresses, among

16
See: Good governance. Guiding principles for implementation, Commonwealth of Australia 2000.

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1 others, the importance of the participation of non-governmental organizations (the so-called civic
2 dialogue) and representatives of employers and trade unions (social dialogue).
3 h) Responsiveness – good governance requires that institutions and processes try to serve all
4 stakeholders within a reasonable timeframe.
5 i) Rule of Law – good governance requires fair legal frameworks that are enforced impartially.
6 Impartial enforcement of laws requires an independent judiciary and an impartial and
7 incorruptible police force.
8
9 E. Integrity
10 Integrity can be defined as the quality or state of being of sound moral principle; uprightness, honesty
11 and sincerity; the desire to do the right thing, to profess and live up to a set of values and expectations17.
12 Integrity is not a simple concept to define. Many overlapping and distinct definitions are used. The term
13 integrity refers to virtue, incorruptibility and the state of being unimpaired. Integrity is closely related to
14 the absence of fraud and corruption, but it also entails common decency. In this way it is a positive and
15 broad concept that is related to ethics and culture18.
16 Since it is a wide definition, it could be considered in five different scenarios:
17 • As the public entity’s responsibility for integrity.
18 • As a precondition for government authority and public confidence.
19 • As a moral responsibility and not only a provision established within a law or rule.
20 • As a preventive, and not only repressive, measure included within an institutional policy.
21 • As a continuous commitment to be fulfilled by public institutions and officers.
22
23 F. Stakeholder
24 The term stakeholder refers to the entities19 which may affect the company and remain under the
25 influence of its activities.
26 Stakeholders in strategic management are the persons or institutions whose activity may affect the
27 success of the company, organization, projects. These include the owners of the company, employees,

17
INTOSAI GOV 9100: Guidelines for Internal Control Standards for the Public Sector, INTOSAI.
18
Court of Audit of the Netherlands (2011). Manual for Self Assessments on Integrity. Pp. 9 & 10.
19
Individuals, communities, institutions, organizations, offices, parliament or legislative bodies, government organizations or
executive bodies, audited entities, media, interest groups including civil society organizations, general public or citizens,
academic and public policy organizations, and professional and standard setting bodies.

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1 customers, local communities and others. Therefore, decision making requires an analysis of interests,
2 including, for example, drawing up maps of interest or scenarios of their behavior.
3 Stakeholders in project management are persons who are not directly involved in the project, but are
4 keenly interested in the successful or failed completion of the project, as its results are significant to
5 them. For this reason, stakeholders (and their reviews) must be taken into account by both the project
6 manager and the sponsor. According to a broader definition, the term stakeholder includes all persons,
7 units or institutions that are interested in the completion of the project or the lack thereof.
8 G. Transparency
9 Transparency can be defined as characteristic of governments, companies, organizations and individuals
10 of being open in the clear disclosure of information, rules, plans, processes and actions. As a principle,
11 public officials, civil servants, the managers and directors of companies and organizations, and board
12 trustees have a duty to act visibly, predictably and understandably to promote participation and
13 accountability20.
14 In the public arena, the notion of transparency refers to an SAI’s and any public entity’s timely, reliable,
15 clear and relevant public reporting on its status, mandate, strategy, activities, financial management,
16 operations and performance. Particularly in the context of supreme auditing, it includes the obligation of
17 public reporting on audit findings and conclusions and public access to information about the SAI21.
18

20
The Anti-Corruption Plain Language Guide, Transparency International 2009.
21
INTOSAI (2010). ISSAI 20: Principles of Transparency and Accountability. P4.

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1 2. Roles and Responsibilities of Stakeholders in Enhancing Good Governance for
2 Public Assets
3 All members of the personnel of a public organization, while performing public tasks, are obliged to be
4 participatory, accountable, transparent, efficient, responsive and inclusive, to respect the rule of law and
5 to combat corruption, money laundering and other types of wrongdoing.

6 Since governance is the process of decision-making and the process by which decisions are
7 implemented, an analysis of governance focuses on the formal and informal actors involved in decision-
8 making and implementing the decisions made, and the formal and informal structures that have been set
9 in place to arrive at and implement the decision.

10 The government is one of the actors in governance. Other actors involved in governance vary
11 depending on the level of government that is under discussion. All actors other than government and the
12 military are grouped together as part of the "civil society."

13 The government directs the work of government’s bodies and has control over them. The task of the
14 government is effective, efficient and economical use of public resources, taking care of the national
15 economy, ensuring internal and external security of the state and ensuring the safety of the financial and
16 economic circulation. The task of the government is the execution of the Budget Act, and ensuring
17 conditions for sustainable economic development. The government also exercises oversight over local
18 government’s activity.

19 The government is also responsible for coordinating the work of ministries and special investigation
20 agencies, militarized units, providing internal and external security. The government is also responsible
21 for the fight against organized crime – combating corruption, money laundering and other types of
22 wrongdoing.

23 In order to protect public assets, the government may establish specialized departments or bodies
24 responsible for the actions listed above.

25 FIUs: Financial Intelligence Units are the national centres for the receipt and request (as permitted) of
26 financial information disclosures, as well as for the analysis and dissemination of financial
27 information22, which may have a link to possible proceeds of criminal activity related to corruption.
28 National FIU should address the study of the course of the financial transactions carried out by banks
29 operating in the country and abroad.

22
Egmont Group FIU definition 1995 (amended 2004).

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1 This unit should be a specialized body involved in the fight against money laundering. In addition to the
2 analysis of financial transactions, it should also address the course of the study, indicate transactions
3 suspected of money laundering, and it should be able to block suspicious transactions and block bank
4 accounts used in the scheme.

5 This unit should have the powers associated with the possibility of investigation and analysis of the
6 course of operations used to finance terrorism. Its role should be cooperation with international
7 institutions involved in the prevention of the introduction into the financial circulation of property values
8 derived from illegal or undisclosed sources and counteracting the financing of terrorism. It should also
9 contribute to prevention activities – control, with particular reference to training courses held in
10 financial institutions, banks, insurance companies, local and central government offices, prosecution
11 offices and other institutions engaged in the financial market.

12 Managers are directly responsible for all activities of a public organization, including designing,
13 implementing, supervising the proper functioning of, maintaining and documenting the realization of
14 public tasks in accordance with the principles of good governance.

15 Their responsibilities vary depending on their function in the organization and the organization’s
16 characteristics.

17 Internal auditors examine and contribute to the ongoing effectiveness of the internal control system
18 through their evaluations and recommendations, and therefore play a significant role in effective internal
19 control. However, they do not have the management’s primary responsibility for designing,
20 implementing, maintaining and documenting internal control. An internal control system should assure
21 integrity, transparency, accountability and other principles of good governance for public assets.

22 Staff members contribute to internal control as well. Internal control is an explicit or implicit element
23 of each staff member’s duties. All staff members play a role in effecting control and should be
24 responsible for reporting problems with operations, non-compliance with the code of conduct, or
25 violations of policy which result in a lack of integrity, transparency, accountability and other principles
26 of good governance for public assets.

27 External parties also play an important role in the process of enhancing integrity, transparency,
28 accountability and other principles of good governance for public assets. They can contribute to
29 achieving the organization’s objectives, or provide information which can be useful in effecting
30 decisions. However, they are not responsible for designing, implementing, proper functioning,
31 maintaining or documenting of the organization’s operations.

32 Supreme Audit Institutions encourage and support performance of public tasks in accordance with the
33 principles of good governance. The assessment of the organization’s operations is made during SAIs’
34 compliance, financial and performance audits. SAIs communicate their findings and recommendations

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1 to interested stakeholders. Through their daily work, SAIs helps build integrity, transparency and
2 accountability of public life.

3 External auditors audit certain government organizations in some countries. They and their
4 professional bodies should provide advice and recommendations on the organizations’ operations.

5 Audit committees should be regarded as part of an internal audit function. An independent audit
6 committee fulfills a vital role in corporate governance. The audit committee is a critical component in
7 ensuring the integrity of integrated reporting and financial controls, the proper identification and
8 management of financial risks and the integrity of the reporting practices.

9 Legislators and regulators establish rules and directives regarding the organization’s operations. They
10 should contribute to the realization of public tasks in accordance with the principles of good governance,
11 through assuring the quality of legislation. Legislators and regulators may use Parliamentary Standing
12 Committees of Public Accounts or similar committees to review audit work related to corruption and
13 money laundering in order to enhance good governance and accountability.

14 Other parties interact with the organization (beneficiaries, suppliers, etc.) and provide information
15 regarding the achievement of its objectives.
16

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1 3. Assessment of the Standards of Good Governance on Public Assets
2 Assessment of the standards of good governance on public asset plays an important role for an SAI in
3 conducting audits to seek best value for money on how government is managing public assets. A general
4 framework on how public assets are being managed is critical to help auditors to better assess the
5 performance of public asset to meet entities’ goals and objectives and end-user needs. The framework
6 sets standards for the role of SAIs in promoting good governance for public assets, as well as for the
7 way SAIs and SAI officers plan and manage audits on public assets management.

8 The asset register is very important in entities. This is a tool to record in detail what assets are owned
9 and controlled by an entity and can be used to determine the following: the current condition of assets,
10 when assets need to be replaced, asset locations and asset custodians, asset maintenance programs and
11 asset value.

12 Asset Management Framework

13 Asset management is maintaining a desired level of service for what you want your assets to provide at
14 the lowest life cycle cost. Lowest cycle cost refers to the best appropriate cost for rehabilitating,
15 repairing or replacing an asset23.

16 The principles of asset management are the following24:

17 1. asset acquisition, disposal and life-cycle management decisions are integrated into an entity’s
18 strategic and organisational planning;

19 2. asset planning decisions are based on the evaluation of alternatives, which assesses risks and
20 benefits, and applies the Government’s core procurement principle of value for money across the
21 asset’s life-cycle;

22 3. an effective control structure is established for asset management;

23 4. accountability is established for asset condition, use and performance; and

24 5. disposal decisions are based on analysis of the methods which achieve the best available net return.

23
Asset Management: A Best Practice Guide, United States Environmental Protection Agency.
24
Better Practice Guide on the Strategic and Operational Management of Assets by Public Sector Entities: Delivering agreed
outcomes through an efficient and optimal asset base, Australian National Audit Office, September 2010.

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1 The principles of asset management derive from practical experience and reasoning, and inform both
2 strategic asset management and its practical application to the asset life-cycle.

3 Asset management decisions should not be made in isolation from the broader decision-making and
4 financial management of an entity. Within asset management (best practice), an entity is part of the
5 overall framework of decision-making of the organization, integrating its asset portfolio within the
6 entity’s strategic goals. Asset management is most effective when it is aligned to delivery of the entity’s
7 outcomes and programs. The six phases of the asset life-cycle, which are described in table below,
8 provide a structure to incorporate the entity’s asset requirements into its broader strategic and corporate
9 planning documentation.

10 Table: Phases of the asset life-cycle

11
Activity Supporting documentation
Planning An asset management strategy is an integral element of an entity’s
corporate planning and it is based upon life-cycle methodologies. Assets
usually exist only to support the entity’s program delivery.
Capital A capital management plan consolidates the initiatives, objectives and
Budgeting strategies underlying the current and future management of an entity’s
asset base. It sets out a projected long-term outlook and details the asset
budget funding strategies for asset acquisitions as well as projected
financial impacts on the entity’s financial reports.
Acquisition As an element of an asset management strategy, the acquisition plan sets
out a rationale for the acquisition or replacement of assets and feeds into
the capital management plan.
Accounting A comprehensive asset management policies and procedures guide is
important in identifying requirements for compliance with relevant
legislation and accounting standards. An effective risk-based internal
control structure will ensure that assets are safeguarded against loss,
damage or misappropriation.
Management Asset management is integrated into the organizational planning and
strategic outlook. Asset performance indicators are applied to the non-
financial asset base to establish the condition of an asset and the necessary
level and frequency of maintenance. Required standards reflect the quality
levels required for optimum asset efficiency and management.
Disposal A disposal plan establishes the rationale for, and timing of, asset
disposals, and considers the optimal strategy for disposal.

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1 The framework, the five principles of asset management, including the phases of asset life-cycle above,
2 could be used as a framework for an SAI to better assess and improve Public Assets Management
3 Framework designed by the government.
4 A good starting point to better assess the asset management framework in government entities is by
5 using the five core questions framework for asset management25. This framework walks you through all
6 of the major activities associated with asset management and can be used at the level of sophistication
7 reasonable for a given system. These five core framework questions provide the foundation for many
8 asset management best practices. Several asset management best practices are listed for each core
9 question
10 1. What is the current state of my system’s assets?
11 The first step in managing your assets is knowing their current state. Because some of this information
12 may be difficult to find, you should use estimates when necessary. Over time, as assets are rehabilitated,
13 repaired or replaced, your inventory will become more accurate. Auditors should ask:
14 a. What does the entity own?
15 b. Where is it?
16 c. What is its condition?
17 d. What is its useful life?
18 e. What is its value?
19 2. What is my required “sustainable” level of service?
20 Knowing required “sustainable” level of service will help auditors to better assess an asset management
21 program and communicate to stakeholders what entities are doing. Quality, quantity, reliability, and
22 standards are elements that can define the level of service and associated system performance goals,
23 both short- and long-term. Auditors can use information about public demand, data from utility
24 commissions or boards, and information from other stakeholders to develop the level of service
25 requirements. The level of service requirements can be updated to account for changes due to growth,
26 regulatory requirements, and technology improvements. Auditors should ask:
27 a. What level of service do the stakeholders demand?
28 b. What do the regulators require?

25
Asset Management: A Best Practice Guide, United States Environmental Protection Agency.

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1 c. What is the actual performance?
2 d. What are the physical capabilities of the assets?
3 e. Best practices include:
4 3. Which assets are critical to sustained performance?
5 Because assets fail, how the entities manage the consequences of failure is vital. Not every asset presents
6 the same failure risk, or is equally critical to the system operations. Therefore, it is important to know
7 which assets are required to sustain the entities performance. Critical assets are those the entities decide
8 have a high risk of failing (old, poor condition, etc.) and major consequences if they do fail (major
9 expense, system failure, safety concerns, etc.). Entities can decide how critical each asset is and rank
10 them accordingly. Auditors should ask:
11 a. How can assets fail?
12 b. How do assets fail?
13 c. What are the likelihoods (probabilities) and consequences of asset failure?
14 d. What does it cost to repair the asset?
15 e. What are the other costs (social, environmental, etc.) that are associated with asset failure?
16 4. What are my minimum life cycle costs?
17 Asset management enables a system to determine the lowest cost options for providing the highest level
18 of service over time. Entities want to optimize the work O&M crews are doing, where they are doing it,
19 and why. An asset management program helps make risk-based decisions by choosing the right project,
20 at the right time, for the right reason. Auditors should ask:
21 a. What alternative strategies exist for managing O&M, personnel, and capital budget accounts?
22 b. What strategies are the most feasible for the entities?
23 c. What are the costs of rehabilitation, repair, and replacement for critical assets?
24 5. What is my best long-term funding strategy?
25 Sound financial decisions and developing an effective long-term funding strategy are critical to the
26 implementation of an asset management program. Knowing the full economic costs and/or revenues will
27 enable entities to determine the system financial forecast. Entities system financial forecast can help to
28 decide what changes need to be made to your system long-term funding strategy. Auditors should ask:

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1 a. Do entities have enough funding to maintain our assets for our required level of service?
2 b. Is the rate structure sustainable for long-term needs?
3 Furthermore, to help SAIs find the best solutions and apply the best public assets management practices,
4 the above mentioned strategic framework for the role of SAIs in promoting good governance for public
5 assets, as well as for the way SAIs and the SAIs’ officers plan and manage audits on public assets
6 management needs to be elaborated as follows:
7 1. a framework overview of public assets management describing the objectives, principles and key
8 elements of the framework and setting out the public assets management, as well as its correlation
9 with the fight against corruption and money laundering;
10 2. a set of guidelines on the role of SAIs in promoting good governance for public assets articulating
11 the minimum standards, as well as policies and processes, for public assets management and its
12 correlation with the fight against corruption and money laundering; and
13 3. a range of practical tools of how the role of SAIs in promoting good governance for public assets
14 such as technical guidelines, sample documents, templates and manuals, should be developed and
15 refined over time to support efficient, accountable capital management.
16 Risk Assessment and Risk Analysis
17 Human activity is carried out in conditions of a high degree of variability in ambient progressive
18 changes in the economy and changing laws that cause the risk of not achieving the desired objectives.
19 The idea of good governance is the ability of the governing bodies to the implementation of the
20 objectives of the public.
21 Therefore the governing bodies should:
22 1. act in the interests of the society as a whole, and not in the interest of the currently governing
23 politicians (the risk of rent-seeking),
24 2. ensure the long-term implications of the implementation of their policy (the risk of short-
25 terminism),
26 3. avoid over-regulation (the risk of red tape),
27 4. create an appropriate structure of incentives for market operators (the risk of actions of
28 dissuasion, the risk of disincentive effects), and
29 5. be resistant to lobby and other pressures of interest groups (the risk of electoral pressure).
30 Therefore, good governance means the use of such institutional solutions which reduce the irregularities
31 in the functioning of the market (market failure) and, on the other hand, restrict the inadequacies of the
32 state (government failures).

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1 Public organizations face a wide range of strategic, operational and financial risks, from both internal
2 and external factors, which may prevent them from achieving their objectives. Risk management is a
3 planned and systematic approach to identifying, evaluating and responding to risks and providing
4 assurance that responses are effective.
5 Risk management is a continuous process, concerning the activities of the entire unit, which should be
6 included in the strategy of an action. Its implementation must be engaged in the management and its
7 employees. This process should take into account all the risks connected with the outside of the body, its
8 activities in the current and future reporting periods.
9 The objective of risk management is to identify potential risks which may have an impact on the
10 activities of the unit, keeping the risk at fixed limits and reasonable to ensure the implementation of the
11 objectives of the unit.
12 A risk management system should consider the full range of the organization’s activities and
13 responsibilities, and continuously check that various good management disciplines are in place,
14 including:
15 • strategies and policies are put into practice in all relevant parts of the organization,
16 • strategies and policies are well designed and regularly reviewed,
17 • high quality services are delivered efficiently and effectively,
18 • performance is regularly and rigorously monitored and effective measures are put in place to
19 tackle poor performance,
20 • laws and regulations are complied with,
21 • information used by the organization is relevant, accurate, up-to-date, timely and reliable,
22 • financial statements and other information published by the organization are accurate and
23 reliable,
24 • financial resources are managed efficiently and effectively and are safeguarded,
25 • human and other resources are appropriately managed and safeguarded.
26 Risk management planning is undertaken at the stage of planning the venture/project and aims primarily
27 to establish a coherent strategy and methodology of action against emerging threats.
28 In the process of risk assessment, the management should focus on the following elements:
29 • identification of risk – a form of descriptive use of the acquired knowledge and experience, and
30 the results of expert analyses,
31 • analysis of the quality of risks to chain the according impact on mileage and achieved objectives
32 of the project,

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1 • qualitative and/or quantitative analysis of risks – in order to determine the likelihood of the
2 occurrence of risks,
3 • planning a response to the prevailing risk-selection strategy and taking action to
4 minimize/increase the chance,
5 • monitoring and control of risks.
6 A risk management system also supports the annual statement on internal control that many public
7 organizations have to produce. Appropriate responses to risk will include implementing internal
8 controls, insuring against the risk, terminating the activity that is causing the risk, modifying the risk or,
9 in some circumstances, accepting the risk.
10 Internal Auditing
11 Internal auditing is an independent, objective assurance and consulting activity designed to add value
12 and improve an organization's operations. It helps an organization accomplish its objectives by bringing
13 a systematic, disciplined approach to evaluate and improve the effectiveness of risk management,
14 control, and governance processes26.
15 Internal auditing is conducted in diverse legal and cultural environments; within organizations that vary
16 in purpose, size, complexity, and structure; and by persons within or outside the organization. While
17 differences may affect the practice of internal auditing in each environment, conformance with The
18 IIA’s International Standards for the Professional Practice of Internal Auditing (Standards) is essential in
19 meeting the responsibilities of internal auditors and the internal audit activity.
20 If the Standards are used in conjunction with standards issued by other authoritative bodies, audit
21 communications may also cite the use of other standards, as appropriate. In such a case, if
22 inconsistencies exist between the Standards and other standards, internal auditors and the internal audit
23 activity must conform with the Standards, and may conform with the other standards if they are more
24 restrictive.
25 All auditors must pay attention to the possibility of suspicious transactions related to money laundering,
26 and, in this connection, the possibility of accounting fraud and other illegal activities. In the framework
27 of preparatory operations, the auditors should estimate the risk of this type of irregularities and the rules
28 of conduct while performing the audit used for this purpose, inter alia, the standard “IIA Guidance on
29 Fraud”. Because fraud and other types of wrongdoing negatively impact organizations in many ways —
30 financial, reputational, and through psychological and social implications — it is important for
31 organizations to have a strong fraud program that includes awareness, prevention, and detection
32 programs, as well as a fraud risk assessment process to identify risks within the organization.

26
The Institute of Internal Auditors.

Page 26 of 54
1 In particular, attention should be paid to the following elements27:
2 • fraud/corruption awareness (e.g. reasons for and examples of fraud and potential fraud
3 indicators),
4 • fraud/corruption roles and responsibilities,
5 • internal audit responsibilities during audit engagements (e.g. execution responsibilities and
6 communicating with the board),
7 • fraud and corruption risk assessment (e.g. identifying relevant fraud risk factors and mapping
8 existing controls to potential fraud schemes and identifying gaps),
9 • fraud/corruption prevention and detection,
10 • fraud/corruption investigation,
11 • forming an opinion on internal controls related to fraud and corruption.
12 The guide also includes reference material, questions to consider, and a fraud risk assessment template.
13 Activity Reports
14 An SAI should attach great importance to its informational role. Through timely and public disclosure of
15 its audit findings, an SAI heightens public awareness of public threat. It helps to foster accountability.
16 One of the main elements of national audit bodies activity is to develop an annual summary of their
17 work and to draw up an annual report. Such a report is a compendium of knowledge about the activities
18 of an independent national audit authority, and it should be submitted to the highest legislative body in
19 the state, should be analyzed, discussed and then publicized.
20 This document should contain information on the annual activity of the audit body, the major findings,
21 the results of audits, analyses, suggestions, the effects of financial results and also legislative proposals
22 arising from the implementation of post audit recommendations.
23 One of important elements of such a report should be a chapter dedicated to the activity of the SAI in the
24 fight against fraud, corruption, money laundering and other types of wrongdoing. This chapter should
25 describe what actions the audit authority takes, what findings it has made, present information about
26 financial losses, post audit recommendations, and remedial actions taken by the audited entities.
27 It should also describe the methodology used to determine areas of anti-corruption activities, risk
28 exposure and present an overview of the results of the audit/inspection that revealed the threat.
29 Particular attention should be paid to the issue of individual criminal liability resulting from
30 irregularities.

27
Managing the Business Risk of Fraud: A Practical Guide (The Institute of Internal Auditors, AICPA, ACFE).

Page 27 of 54
1 For the legislative authority (the parliament), on the basis of the findings of audits carried out, an SAI
2 should develop a risk corruption and fraud analysis which potentially can occur in different areas of the
3 activity of the state.
4 Website and Newsletter of Public Information
5 In the information society, the internet is an essential element of communication with citizens. Internet
6 users can access information about the institution, its organization and activities.

7 SAIs, by using the internet, should reach public opinion with information about the functioning of the
8 state, including irregularities it observes, audit findings and conclusions.

9 Complaints and Requests

10 SAIs should regularly keep records of complaints and requests – from citizens, central offices and other
11 public authorities.
12 The material collected should be subject to analysis, and then, on its basis, SAIs should decide whether
13 or not to take action.
14 An established way of classifying issues should allow for separation of areas in which signals of
15 irregularities are particularly intense. It is especially important, from the point of view of existing
16 threats, to find out how complaints and applications can be helpful in targeting the audit on the given
17 matter.
18 Therefore, threats which are considered important and have been confirmed in other sources of
19 information may be qualified to perform an audit, e.g. an ad hoc audit. When the scale of the
20 phenomenon is significant, it may be eligible to be audited in the framework of planning system.
21

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1 4. The Role of Supreme Audit Institutions in Enhancing Good Governance for
2 Public Assets
3 The important role SAIs play in promoting good governance typically results from their special position
4 in relation to the government. For example, in many countries the SAI is the supreme body of state
5 audit, independent in relation to the executive and judicial branches, and subordinate to the legislative
6 branch. Having broad audit mandates, SAIs evaluate the functioning of the whole government system of
7 combating wrongdoing, including money laundering. From such a broad perspective they can advise
8 how to strengthen public institutions28.
9 The implementation of good governance requires an environment that does not favor or enable
10 corruption, money laundering and other types of wrongdoing. Although the negative economic effects of
11 money laundering on economic development are difficult to quantify, it is clear that such activity
12 damages the financial sector institutions that are critical to economic growth. Money laundering impairs
13 the development of financial institutions for two reasons. Firstly, money laundering erodes financial
14 institutions. Within these institutions, there is often a correlation between money laundering and
15 fraudulent activities undertaken by employees. Secondly, money laundering erodes customer trust in
16 financial institutions, not only in developing countries but worldwide. Customer trust is fundamental to
17 the growth and stability of sound financial institutions, and the perceived risk to depositors and investors
18 from institutional fraud and corruption is an obstacle to such trust. Aside from money laundering's
19 negative effect on economic growth through its erosion of countries' financial sectors, money laundering
20 has a more direct negative effect on economic growth in the real sector by diverting resources to less-
21 productive activity, and by facilitating domestic corruption and crime, which in turn depresses economic
22 growth29.
23 Corruption, which facilitates money laundering and vice versa, also generates some categories of costs:
24 (1) costs caused by the loss of revenues from taxes, customs duties, privatization, and costs generated by
25 corruption in public procurement;
26 (2) reduced productivity of investments and economic growth, including through abuse of regulatory
27 powers;
28 (3) burden for the society, including through excessive taxation, low quality of services; and (4) loss of
29 trust in public institutions, which may undermine the respect for public order and security, and even the
30 idea of the State30.

28
Z. Dobrowolski, Promoting Security and Stability through Good Governance. The activity of Polish Supreme Audit Office
as an example of interagency co-operation in the fight against corruption, money laundering and other types of wrongdoing,
20th OSCE Economic and Environmental Forum, Organization for Security and Co-operation in Europe, Prague 2012, p. 1-4.
29
Ibidem; B.L. Bartlett, The Negative Effects of Money Laundering on Economic Development, International Economics
Group Dewey B Ballantine LLP, 2002, p. 1.
30
Z. Dobrowolski, Korupcja w państwie. Przyczyny, skutki, kierunki przeciwdziałania, PWSZ Sulechow 2005, p. 22.

Page 29 of 54
1 In order for an SAI to successfully realize its tasks in the area of enhancing good governance, the
2 following are required:
3 1. In accordance with its mandate, an SAI should create a comprehensive strategy of combating
4 corruption, money laundering, and other types of wrongdoing. One of the most important elements of an
5 SAI program of combating wrongdoing is the work it does in strengthening public institutions, which
6 are the elements of the national integrity system. Each public institution, within its statutory powers,
7 supports this national integrity system like pillars that support the roof of a building. Sound governance
8 in such a system is based on integrity, transparency and accountability31.
9 It is worth mentioning that public sector governance aims at ensuring that the public organization
10 achieves its overall outcomes in such a way as to enhance confidence in the organization, its decisions
11 and its actions. Good governance therefore means that the organization’s leadership, its staff, the
12 Government, the Parliament and the citizens can rely on the organization to do its work well and with
13 full probity and accountability.
14 Good governance generally focuses on two main requirements of organizations:
15 • performance, whereby the organization uses its governance arrangements to contribute to its
16 overall performance and the delivery of its goods, services or programs; and
17 • conformance, whereby the organization uses its governance arrangements to ensure it meets the
18 requirements of the law, regulations, published standards and community expectations of
19 probity, accountability and openness.
20 Risk management should underpin the organization’s approaches to achieving both performance and
21 conformance objectives.
22 SAIs should evaluate whether an integrated risk management system develops the control environment,
23 which provides reasonable assurance that the organization will achieve its objectives with an acceptable
24 degree of risk.
25 2. An SAI’s efforts to enhancing good governance should be multifaceted. It includes but is not limited
26 to:
27 1) incorporating good governance issues in an SAI’s routine audit work;
28 2) heightening public awareness of significance of ongoing integrity, transparency and accountability
29 within the government;
30 3) improving methods and tools of combating wrongdoings;

31
Z. Dobrowolski, Promoting Security and Stability through Good Governance. The activity of Polish Supreme Audit Office
as an example of interagency co-operation in the fight against corruption, money laundering and other types of wrongdoing,
20th OSCE Economic and Environmental Forum, Organization for Security and Co-operation in Europe, Prague 2012, p. 1-4.

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1 4) providing a means for whistleblowers to report instances of wrongdoing;
2 5) cooperating with other institutions in the fight against corruption and other wrongdoings and
3 enhancing the principles of good governance.
4 3. During the planning and execution of audits, an SAI should take into account international
5 agreements, INTOSAI standards, its own rules and regulations, the best auditing methods, and the
6 criteria of good governance, which helps to assess the strengths and weaknesses of an auditee’s activity
7 during the audit, and to improve this activity.
8 4. An evaluation of an auditee’s activity performed by an SAI should go far beyond traditional aspects
9 of certified financial audits that provide opinions on such matters as financial statements and internal
10 control over financial matters.
11 An SAI should conduct assessment of whether the auditee provides value for money, based on the
12 tripartite principle of spending less (economy), spending well (efficiency) and spending wisely
13 (effectiveness).
14 An SAI should also take into account other principles of good governance.
15 4.1 The principle of equality means equal treatment of citizens by settling uniform, objective criteria. It
16 also means an opportunity for stakeholders to present their views, arguments, as well as an opportunity
17 to assess the activity of the public administration. The above-mentioned principle is applied in the public
18 debate, which is necessary to ensure openness and transparency of the public administration,
19 accountability of decision-makers, and stakeholders involved in the implementation of public tasks.
20 Public debate, which is understood as the process of selecting and interpreting the most important issues
21 of public interest, is necessary in public governance. The quality of public debate depends on the
22 reliability of information and clarity of communication. Public debate is a tool for structuring
23 stakeholder preferences and ratings. This in turn is a prerequisite for rational expectations about the
24 behavior of others. It is a tool to generate common knowledge (knowledge about the knowledge of
25 others). Clear and accessible rules are the basis for the legitimacy of actions taken by public bodies.
26 An equal access to reliable information is necessary in the public discourse. The information should be
27 understandable to citizens. Only then it is possible to formulate, in a responsible way, not only requests
28 to the public authority to solve specific problems, but also how to make accurate assessments of public
29 tasks32. SAIs should therefore not only review and evaluate the accuracy of the information, but also
30 evaluate whether the information provided to the public is understandable. SAIs should also evaluate
31 whether public organizations develop civic involvement in public tasks.

32
Z. Dobrowolski, Kontrola współpracy instytucji publicznych z organizacjami pozarządowymi na przykładzie Najwyższej
Izby Kontroli [in] J. Babiak, W. Sługocki (ed.), Rola organizacji pozarządowych w kształtowaniu społeczeństwa
obywatelskiego. Doświadczenia i wyzwania, Instytut Konsultantów Europejskich, Warszawa-Kalisz 2009, p. 78-99.

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1 Participation of the media in the communication between stakeholders can be a positive factor in the
2 shape of public debate. The media facilitate citizens' contacts with public organizations, as well as detect
3 irregularities in the activities of these organizations. They can report about ongoing anti-corruption
4 efforts and unveil cases of corruption. Moreover, the media can act as an interpreter of the reality, not
5 only by creating a picture of the debate, but also by making selection. Therefore there is a threat to the
6 structure of the public debate, especially by organized entities associated in lobby groups.
7 Ensuring the media’s independence (through legislation and ownership structures likewise), and the
8 protection of their sources is important to their work and should be ensured by governments. Civil
9 society organizations also need to enjoy independence and freedom to engage in their activities. SAIs
10 should evaluate whether the government policy related to the issues mentioned above is properly
11 realized.
12 The use of the internet is changing the way of communication between stakeholders. It creates an
13 opportunity for a direct contact between the citizens and public organizations as a subject of public
14 debate structuring space. The internet creates a new supra-regional and transnational space in which
15 debate can take place any time without any territorial restrictions.
16 However, in addition to the undoubted benefits of the use of IT tools in the communication between
17 stakeholders, it is necessary to identify possible threats. One of them is the ability to manipulate the
18 public opinion by interest groups via social networks or incomprehensible information transfers.
19 Another threat is a theft of data from public organizations which can undermine public confidence in the
20 organization. These potential risks generate new tasks for SAIs, such as, e.g. a review and evaluation of
21 actions taken by public authorities to protect virtual information resources to prevent intentional
22 destruction or distortion.
23 4.2. SAIs should help build a civic consensus regarding the importance of public sector integrity. Public
24 sector integrity has to be part of broader societal and legal norms. The compliance of public officials
25 with behavioral standards and rules greatly depends on the broader normative and procedural
26 framework. Behavioral standards for public officials, such as codes of conduct, need time to be
27 assimilated and to become part of daily bureaucratic routine. Increasing the awareness of public officials
28 regarding the importance of their integrity, not only for adequate public service delivery, but above all
29 for enhancing citizens’ trust in public institutions, is therefore crucial. In this context, SAIs should
30 evaluate the activity of public organizations related to training and other efforts aimed to prevent ethical
31 collapse in public organizations. SAIs should take steps to encourage public organizations to develop
32 and update codes of conduct for public officials.
33 Monitoring mechanisms of public sector integrity need to be constantly strengthened. This is particularly
34 true for conflicts of interest and asset declaration regimes.
35 4.3. Transparency in public sector procedures should be fostered by SAIs.
36 Transparency is of utmost importance for the efficiency and effectiveness of public institutions.
37 Introducing a high degree of transparency in public sector procedures reduces an individual’s margin of
38 discretion and reduces the risk of undue influence.

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1 It is worth mentioning the following feedback. Under conditions of uncertainty, proper implementation
2 of public tasks resulting from the complexity of decision-making, public employees who implement
3 decisions receive a discretionary power, which in turn may increase the uncertainty indicated above.
4 4.4. SAIs should evaluate whether the human resources management in public organizations is merit-
5 based.
6 Merit-based human resources management is a key element in enhancing good governance. To prevent
7 the undue influence of the public sector human resources management processes, selection and
8 promotion criteria and procedures need to be fair, predefined and clearly documented, so that the margin
9 of discretion and arbitration is limited. Appeal structures and mechanisms also need to be in place to
10 ensure effective means of remedy to candidates.
11 5. SAIs should constantly work in a systematic manner to improve their methodology, to identify and combat
12 wrongdoing and enhance integrity, transparency, accountability and other principles of good governance
13 for public assets.
14 6. SAIs should increasingly focus on the periodical training of their staff, knowing that the success of the
15 fight against wrongdoing depends not only on audit procedures and tools, but also on having staff with
16 appropriate skills, knowledge and abilities to identify and assess potential wrongdoings.
17 7. SAIs should strive to create a commitment to individual integrity not only in and through their own
18 staff. An SAI should be an institution to which whistleblowers from other institutions can provide
19 information about suspected or actual wrongdoing in the workplace. Individuals should submit
20 allegations of corruption, fraud, waste, abuse, or mismanagement of public funds and other types of
21 wrongdoing by sending written information to the SAI, contacting representatives of the SAI in person,
22 or making contact through the SAI’s ComplaintNET. All information gathered by the SAI’s
23 ComplaintNET should be transmitted over a secure connection, and the SAI should safeguard all
24 information provided by whistleblowers against unauthorized disclosure. Complaints obtained by the
25 SAI are a valuable source of information on the socio-economic situation of the country and can be used
26 to review and evaluate the activity of auditees. The number of complaints received from the citizens
27 may be considered as an indicator of the degree of public trust in the SAI33.
28 8. SAIs should assess, detect and propose changes in the binding regulations in their countries, having
29 identified mechanisms that increase the risk of corruption and other types of wrongdoing due to unclear
30 regulations or legal loopholes.
31 SAIs should attach great importance to the quality of legislation. In conducting audits in specific areas,
32 SAIs should frequently identify loopholes in regulations, lack of administrative rules, and unclear

33
Z. Dobrowolski, Promoting Security and Stability through Good Governance. The activity of Polish Supreme Audit Office
as an example of interagency co-operation in the fight against corruption, money laundering and other types of wrongdoing,
20th OSCE Economic and Environmental Forum, Organization for Security and Co-operation in Europe, Prague 2012, p. 1-8.

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1 regulations that contribute to irregularities. If needed, SAIs should propose a rectification of legislative
2 shortcomings. SAIs should continuously follow up the implementation of their proposals.
3 9. SAIs should foster and promote the existence of internal control systems (COSO) in the public sector since
4 incorporation of these standards constitutes an effective measure for enhancing accountability.
5 10. SAIs should strive to assess the existence of principles for setting mechanisms aimed at prevention of
6 conflicts of interest, unlawful benefits, misuse of confidential information, such as ignoring bans and
7 incompliance in performance of public functions.
8 11. SAIs should determine mechanisms that create conditions which encourage wrongdoings. These
9 mechanisms include, among others, the following:
10 11.1. Irregularities in the law-making process
11 SAIs should attach great importance to the quality of legislation, knowing that loopholes in regulations,
12 lack of administrative rules, and unclear regulations are the reasons for occurrence of irregularities.
13 Incompleteness, inadequate precision of formulation and incongruity of legislation lead to discretion in
14 the interpretation of the binding regulations and in the behavior of public officials.
15 11.2. Excessive discretion of public officials and conflict of interest
16 One of acceptable solutions in administrative procedures is leaving a margin of discretion in decision
17 making for cases where the actual solution depends on a given civil servant's approach and recognition
18 of the situation. The problem arises whenever discretion turns into excessive freedom, with servants
19 handling a case not by relying on verifiable criteria, but by following their own discretion.
20 This mechanism consists in the lack of transparent criteria for handling matters, as a result of which officials
21 can issue decisions in spite of a negative opinion of the consulting authorities; it stems from the opacity and
22 inaccuracy of the law and its too frequent changes.
23 In conclusion, in order to reduce the risk of corruption and the phenomenon of money laundering in the
24 activities of public bodies, newly introduced provisions, especially those governing the procedure for
25 taking decisions on behalf of the public interest, must be sufficiently precise and clear, so that to prevent
26 their different interpretation. SAIs should especially strive to define conditions that must be met by the
27 decision-making person, what documents must be submitted, the deadline for the decision and what is
28 the justification for the decision, whether negative or positive, especially when there are competing
29 entities.
30 There is the need for continuous review of current procedures for taking decisions and for proposing
31 their amendments, wherever the criteria are not quite accurate and provide room for discretion. In
32 addition, an essential instrument to prevent excessive discretion of executive authorities and existence of
33 a conflict of interest is the application of the so-called “rule of many eyes”, which means that persons
34 taking decisions related to public assets do not work on their own, but share powers with others.
35 An effective means for eliminating administrative discretion in the public assets management are wider
36 publicity and transparency of proceedings. First of all, the principle of equal access to information about

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1 the possibility of obtaining benefits within the framework of public expenditures should be complied
2 with. This applies not only to procurement, but also to privatization, sales and leases of assets, grants,
3 loans, etc. Each procedure regarding acquisition of public funds should be organized in such a way that
4 all those potentially interested can be easily informed that such a procedure exists.
5 During audits, SAIs focus their attention on the organization of work in the auditee’s office, the system for
6 verification of the decision-making process, and responsibilities at different posts. Difficulties concerning the
7 complexity of the decision-making process in the administration should be taken into account.
8 SAIs should carefully examine adverse effects of administrative decisions, both from the standpoint of the
9 effective management of public assets (financial implications) and of a conflict of interest between the official
10 and the other party.
11 11.3. Failure to apply the principle of transparency of decision-making procedures and public
12 procurement
13 The failure to apply the principle of transparency of decision-making procedures and public
14 procurement particularly concerns the right to full access to public information. Offices responsible for
15 handling particular matters do not always provide proper information to all those interested in existing
16 possibilities. In this way, only those aware of the existence of such possibilities can apply for them. This
17 leads to inequality in access to goods, services and public procurement, and, consequently, violates the
18 principle of equal treatment of citizens and entrepreneurs by public officials.
19 During audits, SAIs should focus attention on whether auditees have established procedures in their
20 activity that guarantee equal access to information about their operations to all parties concerned.
21 In some countries, governments use public aid as an economic tool for supporting entrepreneurs. If such
22 government activities take place, SAIs should evaluate whether public aid procedures are transparent
23 and accountable, whether entrepreneurs are treated equally in accordance with the binding laws and
24 regulations, and whether the principle of competition is not violated through favoring certain economic
25 activities, products or services.
26 Public procurement by its nature constitutes an area threatened with corruption. Winning an
27 advantageous contract for delivery of goods or services paid with public resources, whose value is
28 sometimes very high, can be, and frequently is, connected with a chance of making high profits by the
29 supplier.
30 The scope of public procurement is broad and incorporates a wide range of activities, including
31 acquisition of goods, works and services at an appropriate quality and quantity, outsourcing services and
32 establishing partnerships with suppliers. In all cases, a public body has to choose a supplier and pay for
33 the goods delivered or services provided.
34 Due to differences in audit mandates and activities of individual SAIs, they can examine public
35 procurement from various perspectives. For example, SAIs can examine the procurement function
36 within an audit of the accounts of a public authority. Alternatively, SAIs can be interested in examining
37 specific areas or procedures, and in considering efficiency, competition, fraud and corruption, regularity,

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1 compliance with objectives or value added. Some SAIs can strive to recommend good practices, while
2 others concentrate on matters of compliance and actions taken in response to identified irregularities.
3 Regardless of these differences, SAIs should evaluate the public procurement process with regard to
4 integrity, transparency and accountability, and promote other principles of good governance in the entire
5 procurement cycle, from needs assessment to contracting management and realization of the bid protest
6 procedure by competent entities.
7 11.4. Lack of accountability or its inadequate application
8 Another factor that encourages wrongdoing is non-application of the principle of accountability, which
9 stems from the lack of effective implementation of the internal control system and, consequently, in
10 poor execution of personal responsibility of public officials for public funds administering.
11 Accountability should comprise at least three aspects:
12 1) It should be external, being a control measure on the part of the person who is not a member of
13 the controlled body or institution.
14 2) Interaction at two levels at least, related to the demand to answer a question, an answer and
15 potentially a disclaimer.
16 3) It should constitute a right of a higher instance to demand an answer, together with rights to
17 obtain information and potentially to impose sanctions.
18 Accountability is diminished if it is understood as the principle of governmental transparency, applied
19 only in transmitting and receiving information, without indicating results of the interaction of the
20 provided information which should be assessed by SAIs34.
21 The principle of responsibility makes it necessary to apply specific standards of conduct, including no
22 tolerance for conflict of interest in the activity of public officials and avoidance of excessive powers in
23 the hands of a single public official.
24 SAIs should evaluate the effectiveness of the execution of personal accountability vis-á-vis public
25 officials and functionaries who can be blamed for having committed irregularities in their offices.
26 11.5. Weakness of internal controls and supervision
27 An efficient internal control system and supervision, which are important components of good
28 governance, make other key instruments for preventing corruption and other types of wrongdoing in
29 public organizations.

34
A paper developed for a technical meeting of the OLACEFS Commission of Accountability in Argentina, August 2008.

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1 The management of a public organization is responsible for ensuring that operations are carried out in a
2 way that permits the objectives of the public organization to be achieved. This is done by the
3 organization’s management through introducing and maintaining internal control of operations.
4 SAIs should examine and evaluate an auditee’s internal control, knowing that it is an integral process
5 affected by the management and personnel, designed to address risks and to provide reasonable
6 assurance in carrying out the entity’s mission.
7 SAIs should evaluate whether the following general objectives of the auditee’s internal control are being
8 achieved:
9 • executing orderly, ethical, economical, efficient and effective operations;
10 • fulfilling accountability obligations;
11 • complying with applicable laws and regulations;
12 • safeguarding resources against loss, misuse and damage.
13 Weak commitment to identify and correct problems, and to prevent future occurrences by supervisors,
14 should be considered by SAIs as a potential indicator of wrongdoing.
15 11.6. Weakness of the accounting system
16 Strengthening the auditee's accounting system by actively seeking to provide ongoing integrity,
17 transparency and accountability within the entity, and further within the government, will create a
18 preventive environment that does not favor fraud and corruption. An effective accounting system
19 imposes accountability by preparing and presenting complete and accurate information in a timely
20 manner, thus limiting the opportunities for irregularities, including fraud and corruption.
21 SAIs should examine the functioning of the accounting system and focus their attention, among others,
22 on accepted methods of valuation of inventory and reserves, liabilities and receivables, fixed assets
23 depreciation method, the management of capital and financial flows.
24 The most important source of information on the activities of an entity are financial statements. Through
25 the procedure of vetting and approving, financial statements are a reliable source of information for
26 policy makers, the public and various organs of the State. Taking into consideration the chronology,
27 financial statements are a secondary in relation to entries in the accounts unit. In addition, they contain
28 aggregated data on the state of the property, finance, and as a result of the activities carried out by the
29 unit.
30 Financial statements are an important source of information for investors and policy makers, both in the
31 private and public sectors. Indeed, they contain the data necessary to make rational decisions. The
32 purpose of carrying out a fraud is an intentional deception of customers and users of financial statements
33 by providing material and financial situation of the subject in a way different from the facts.

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1 The purpose of financial statements is to determine whether they are consistent with applied accounting
2 policies and fairly and clearly present the situation of the assets and financial units, as well as financial
3 results. Auditors should, in particular, determine whether the examined financial report:
4 • has been drawn up on the basis of properly conducted accounts;
5 • has been drawn up in accordance with the specific provisions of the law;
6 • presents fairly and clearly all information relevant to an assessment of the business.
7 Auditors should examine and determine whether the entity has illegitimate methods and techniques of
8 preparation of financial statements, and various methods of creative accounting.
9 In the area of a unit, the following should be investigated, inter alia:
10 • recognition of expenses and costs of business units in the respective periods of reporting,
11 • the rules for fixing and calculating the depreciation of fixed assets,
12 • creating impairment inventory and receivables,
13 • creating balance sheet reserves,
14 • managing the purchase and accounting recognition for being improved or fixed assets (this
15 includes upgrading and repairing of fixed assets),
16 • accounting recognition of purchase of leasing services.
17 In the case of revenue (income) from sales, the following areas must be focused on:
18 • the way in which records of sales are kept, with particular regard to the accelerated invoicing,
19 • a postponement of a sale of goods using the method of the "round robin" tax (including
20 extortions of tax on goods and services in the trade market system),
21 • accounting of a "fictitious" sale,
22 • resolving unjustified reserves.
23 These actions will permit, or at least will help, to determine whether there is corruption in this area, and
24 whether a suspicion of money laundering exists.
25 11.7. Non-application of the principle of documenting and reporting
26 Files are considered incomplete when decisions are based on incomplete and incorrect motions lodged
27 by the individuals concerned. The requirements related to documenting and reporting can be treated as
28 unnecessary bureaucracy, while in fact documenting and reporting frequently constitute the best
29 guarantee of transparency in administrative procedures or in transactions where public property is
30 involved. It is necessary to establish the principle that corrects documenting and reporting of all
31 activities in public organizations.

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1 In this area, SAIs should focus on the fulfillment of reporting obligations by audited entities. SAIs should also
2 verify the accuracy of financial statements, review the books of the audited entities and eliminate cases of
3 manipulating with financial results and "creative accounting". External experts should make an in-depth
4 analysis, when necessary.
5 11.8. Excessive use of subcontracting and intermediaries
6 Excessive use of subcontracting and intermediaries takes place when a public institution hires external
7 consultancy and expert companies to perform its basic duties, also within property management or supervision,
8 which allows for obtaining private benefits.
9 SAIs should evaluate whether there is no excessive dependence of the public administration on external
10 companies, whether external entities do not carry out the tasks that an entity could perform on its own, and
11 whether such a system does not result in excessive influence on the entity’s management.
12 SAIs should focus on the necessity of the existence of guiding principles for contracting external consultants,
13 based on transparency, proportionality and defined priorities.
14 11.9. Failure to take specific anti-corruption steps through enhancing integrity, transparency,
15 accountability and other principles of good governance for public assets
16 One might expect that each public organization should develop a program of systemic activities
17 designed to eliminate or at least seriously reduce the risk of corruption. The issue of counteracting
18 corruption and other types of wrongdoing, through enhancing integrity, transparency, accountability and
19 other principles of good governance for public assets, should be the subject of internal discussions and
20 training courses.
21 Weak commitment to designing, implementing, supervising the proper functioning of, maintaining, and
22 documenting the anticorruption steps, adjusted to the organization’s needs, should be considered by
23 SAIs as a potential indicator of wrongdoing.
24 12. SAIs should asses the effectiveness of the application of sanctions for administrative responsibility by
25 public officials.
26 13. SAIs should closely cooperate with other state institutions in the process of enhancing good
27 governance.
28 It is well known that an organization’s ability to effectively cooperate implies that it possesses a
29 combination of features that are essential to the achievement of its organizational goals and its overall
30 success. One of important components related to cooperation is having mutual understanding of the
31 objectives and methods of operation among organizations that work together. Being aware that the
32 effectiveness of an SAI’s fight against different types of wrongdoing depends on the activity of other
33 stakeholders, the SAI should closely cooperate with other institutions. If needed the SAI should reach

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1 agreements with state institutions that facilitate pursuing an effective and efficient strategy of enhancing
2 the principles of good governance35.
3 14. SAIs should enhance good governance through individual officers.
4 Good governance is enacted through the behaviors and actions of staff at all levels as they contribute to
5 the efficient, effective and ethical delivery of their organization’s goals. The leadership provided by
6 public organization heads and other senior officers plays a critical role in determining how effective a
7 public organization will be in encouraging the behaviors that support good governance throughout the
8 organization.
9 Each and every officer needs to understand the legislation and performance standards relevant to the
10 exercise of his or her duties. Each officer needs to understand how his or her personal contribution
11 promotes good governance and, ultimately, the achievement of corporate goals.
12 Organizations should engage their staff and managers to the development, evaluation, monitoring and
13 receipt of the following key documents, and their effective implementation:
14 • a clear statement of the values, practices and behaviors expected of the organization’s
15 employees,
16 • a clear statement of the organization’s human resources policy, including the rights and
17 obligations it places upon supervisors and subordinates,
18 • concise, up-to-date and consistent information on the organization’s governance arrangements,
19 including the applicable legislative and policy framework, boards and committees, their charters,
20 membership and relationships with other governance bodies, audit and fraud control
21 arrangements, and whistleblower protection,
22 • a clear statement of the organization’s corporate goals, key performance indicators and business
23 plans, and
24 • the organization’s risk management approach, including methodology, scope and review
25 parameters.
26 Public organization leaders should provide to their staff and managers:
27 • a clear set of personal duties, delegations and performance targets related to the organization’s
28 corporate strategies and business plans,

35
Z. Dobrowolski, Promoting Security and Stability through Good Governance. The activity of Polish Supreme Audit Office
as an example of interagency co-operation in the fight against corruption, money laundering and other types of wrongdoing,
20th OSCE Economic and Environmental Forum, Organization for Security and Co-operation in Europe, Prague 2012.

Page 40 of 54
1 • regular information on the deliberations and decisions of the key board(s) or committee(s)
2 governing the organization,
3 • regular reports on the organization’s performance against its key indicators and/or targets, with
4 analysis that will assist the organization to learn from experience,
5 • encouragement at all levels to contribute to good governance, including exemplary leadership
6 from senior management.
7 SAIs should review and evaluate whether an organization realizes its good governance policy and
8 evaluate how effective it is in encouraging behaviors that support good governance throughout the
9 organization.
10

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1 5. The Role of Supreme Audit Institutions in Promoting Good Governance in Public
2 Procurement
3 The public administration is funded from the State budget, and is sustained by government procurement
4 of goods and services, which – in addition to government transfers and repayment of public debt –
5 constitute State expenditures. Government procurement of goods and services applies not only to the
6 expenditures on administration, but also on national defense, protection of public order, healthcare,
7 culture and science/research. The State invests in infrastructure development. Public agencies are
8 therefore important collective purchasers of goods and services on the market and there are many
9 businesses for which the sale of goods and services to the government is a significant or the sole source
10 of income. This gives rise to temptation to win a public contract by dishonest means, including by
11 corrupting officials or by fraudulent practices.

12 The Public Procurement Law lays down the rules and procedures for awarding public contracts, legal
13 protection measures, control of the award of public contracts, and the competent authorities with respect
14 to the matters addressed in this Law. The awarding entity is required to prepare and conduct the contract
15 award procedure in a manner ensuring fair competition and equal treatment of the bidders. Bidders also
16 have to meet certain conditions to compete for public contracts. Despite legal safeguards, unfair
17 practices in the course of the contract award procedure cannot be ruled out.

18 The incentives and techniques for such fraud in contract award procedures are numerous. The
19 perpetrator does not necessarily need to use fraudulent practices at the stage of competing for the
20 contract, but later on, following the execution of the agreement. During the performance of the contract,
21 there can be instances of theft, use of substitutes, inflated costs of task completion, accelerated
22 invoicing.

23 The implementation of the idea of good governance in public procurement means that public
24 procurement process should take into account the principles of good governance, including openness,
25 accountability, efficiency, transparency, equity. SAIs should review and evaluate the public procurement
26 system having regard to the above principles.

27
28

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1 The role of SAIs in enhancing the public procurement system is the following:

Legislative reform
Institution building

SAI

Enforcement capacity Function development

2
3 Fig. 1 The role of an SAI in promoting good governance in public procurement
4
5 SAIs should enhance the state’s regulatory framework through:
6 • support in drafting legislation,
7 • support in drafting guidelines / manuals for procurement officers.
8
9 SAIs should enhance institutional framework through:
10 • promoting unrestricted and free access to information on procurement opportunities,
11 • promoting e-Government and e-Procurement,
12 • promoting the use of standard terms of reference and technical specifications.
13
14 SAIs should enhance enforcement capacity through:
15 • supporting national procurement regulatory authorities.
16
17 SAIs should strengthen employee’s capacities through:
18 • promoting professionalism of procurement officers.

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1 SAIs, in particular, should attach great importance to the quality of legislation and propose the
2 rectification (reformation) of legislative shortcomings to strengthen the public procurement system.
3 While reviewing the procurement process, SAIs should take into account the risk of occurrence of
4 irregularities. Such approach helps SAIs to focus efforts on the main issues related to procurement.
5 Irregularity symptoms that can suggest a risk of corrupt or fraudulent practices in the public contract
6 award process, in addition to universal ones, i.e. those related not only to public contract award
7 procedures, such as ignoring the complaints received, ignoring reporting, arbitrary acting, or low ethical
8 standard among staff members, include:
9 • symptoms of irregularities at the stage of stating the requirement for products, services, works,
10 • symptoms of irregularities at the stage of contract preparation, including the specification of
11 essential terms of contract (SETC),
12 • symptoms of irregularities at the stage of bid selection,
13 • symptoms of irregularities at the stage of contract performance.
14 In analyzing the above-mentioned symptoms, it should be borne in mind that the mere fact that they
15 exist does not necessarily mean that corruption or fraud is involved every time. This is only a hint that a
16 specific activity should be carefully examined. It should be also borne in mind that isolated cases should
17 not be treated as typical ones. On the other hand, relatively minor irregularities should not be
18 downplayed.
19 Risk in Complex Government Procurement of Public Assets36
20 Risks arise because of uncertainty about the future. Risk exposure may arise from the possibility of
21 economic, financial or social loss or gain, physical damage or injury, or delay. It may also be caused by
22 changes in the relationships between the parties involved in the supply, ownership, operation and
23 maintenance of assets for public or private purposes.
24 Risk management provides a structured way of assessing and dealing with future risks of undertakings.
25 Traditionally, it has been concerned with the implications of events and changes in the future physical,
26 social and economic environment. The term ‘management’ implies that risks are to be treated in an
27 ordered fashion, rather than in a haphazard way.
28 Risk management processes are designed to assist planners and managers in identifying significant risks
29 and developing measures to address them and their consequences. This leads to more effective and
30 efficient decisions, greater certainty about outcomes and reduced risk exposure.
31 At the later stages of a project, the focus is on efficient and effective delivery. Risk management is

36
Capital Asset Management Framework Guidelines, British Columbia, May 2002.

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1 directed towards ensuring that more favorable and reliable outcomes are achieved in terms of the
2 timeliness, cost and quality of the project and the services that are provided.
3 Many organizations undertake projects involving significant capital outlays, or groups of related projects
4 that together make up large programs. Three aspects of large projects or programs make risk
5 management desirable:

6 1. Their size implies that there may be large potential losses unless they are managed carefully, and
7 conversely large potential gains if risks are managed well.

8 2. They often involve unbalanced cash flows, requiring large initial investments before meaningful
9 returns are obtained. In these circumstances, and particularly for assets with potentially long
10 lives, there may be significant uncertainty about future cash flows, due to changing economic
11 conditions, advances in technology, changing patterns of demand for products or services, new
12 competition, or varying operating requirements. For projects with significant social or
13 environmental implications, the benefits may not all be readily measurable in cash terms and
14 social values may change during the life of an asset. Factors like these must be assessed and
15 managed to ensure the capital investment is worthwhile.

16 3. Large public sector projects may involve a degree of private sector participation, either in the
17 form of direct private sector investment or involvement in the through-life operations of a
18 government-owned asset. This may require an additional focus on risk, particularly to identify
19 and manage any residual risks for the Government.

20 As part of the re-examination of how capabilities are provided by the Government and the roles of
21 public and private providers of services, many government agencies are contemplating or engaging in a
22 range of new or different activities outside their traditional scope. Risk management is a critical element
23 in strategic planning for all parties involved in the new relationships and patterns of service provision
24 that are evolving.

25 Risk management is an important part of the drive to improve the overall quality and standard of
26 government procurement activities. It is concerned with ensuring that potential risks are identified early,
27 the best options for managing them are selected and broad risk exposures are minimized. In this sense,
28 government objectives are closely aligned with those of the private sector – achieving better project
29 outcomes, more efficiently and more effectively, and with an appropriate structure of risk and reward.

30 In the government procurement arena, risk management is important in that it supports consistent and
31 justifiable public decision-making, generating an audit trail of the available information and a
32 documented method that demonstrates how this information was used to form effective decisions.

33 Project risk management is a topic of major current interest. It is being actively addressed by many
34 government agencies and most of the professional project management associations around the world,

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1 and many relevant standards are extant or being developed. Some examples from the many approaches
2 in use include:

3 1. Project Management Institute (PMI), USA (2003), Project Management Body of Knowledge,
4 Chapter 11 on risk management;

5 2. Association for Project Management, UK (1997), PRAM Guide;

6 3. AS/NZS 4360 (2004), Risk Management, Standards Association of Australia;

7 4. IEC 62198 (2001), Project Risk Management — Application Guidelines;

8 5. Office of Government Commerce (OGC), UK (2002), Management of Risk; and

9 6. Treasury Board of Canada (2001), Integrated Risk Management Framework.

10 The standards and the guides from the professional associations provide only an outline of the topics that
11 are essential for managing project risk, and they offer few insights into how the risk management
12 process works in practice. The approach adopted here follows the structure of AS/NZS 4360, one of the
13 first comprehensive risk management standards that could be applied readily to projects. Many of the
14 other approaches have a similar structure and are directly comparable and compatible.

15 For a government procurement, there are likely to be additional requirements that must be addressed and
16 demonstrated explicitly, and that may be subject to external audit and oversight. They include:
17 1. value for money;
18 2. open and effective competition;
19 3. ethical behavior and fair dealing;
20 4. maximizing opportunities for local industry to compete;
21 5. environmental aspects;
22 6. quality assurance;
23 7. government sanctions against specified countries;
24 8. social justice policies.

25 The requirements may have different interpretations, depending on the organization’s business
26 objectives and the phase of the procurement cycle.

27 1. At the planning stages of a project, requirements are often related to broad policy and
28 performance aspects, expressed in general terms. They may also include some or all of the

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1 benefit and cost criteria used in the economic appraisal process. Risk analysis and risk
2 management planning are often undertaken at the same time as an economic appraisal.

3 2. At the bidding stages, value for money is critical, and ethical behavior and probity may be
4 important considerations, particularly for a public-sector entity.

5 3. Later, at the stage of delivery, operation and maintenance, criteria are likely to be more specific
6 and concerned with the most efficient completion of the project, the optimum provision of
7 products and services and the satisfaction of the users’ needs. In this case, demand levels,
8 revenues and expenses, schedule delays, and the quality of the product or service may be
9 appropriate measures. Although these criteria are used during the later stages of the project, they
10 are developed much earlier. They should be specified in the initial brief and a user needs analysis
11 – at the first stages of the requirements of the planning process.

12 Performance Measurement37

13 The Asset Management Framework is based, partially, on the principle of strong accountability in a
14 flexible, streamlined process. An integral part of this accountability involves performance measurement
15 – the process by which program, service, project and/or asset outcomes are measured against intended
16 objectives.

17 At the corporate level, performance measurement helps to ensure that:

18 1. the agency is managing within capital-related fiscal targets from year to year;
19 2. proposed strategies and projects are being implemented from year to year; and
20 3. broad asset management goals are being achieved (e.g. average age of capital stock, facility
21 utilization rates, and maintenance expenditure targets).

22 At the program or project level, performance measurement can be used to determine:

23 1. how effectively assets support service delivery objectives;
24 2. how well projects are managed, including whether they are delivered on scope, schedule and
25 budget and whether risks have been effectively managed; and
26 3. whether physical assets are meeting their technical performance objectives. The following
27 chapter offers guidance on both corporate and project level performance measurement, including
28 criteria for developing and using performance measures to support the culture of continuous
29 improvement.

37
Capital Asset Management Framework Guidelines, British Columbia, May 2002.

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1 Performance measurement should be a component of every public agency’s accountability framework.
2 The framework should include initial performance measures, and make allowance for their subsequent
3 monitoring, measurement, evaluation and revision.
4 1. Performance Measures
5 a. Clear Goals:
6 Objective service or project goals should clearly define what the agency plans to achieve, measure and
7 assess – and on what time line.
8 b. Strategies in Place to Meet Goals:
9 Strategies should be in place to support the agency’s program, project and corporate goals/objectives.
10 Related plans should set out clear, measurable performance targets and indicators.
11 c. Aligned Management Systems:
12 Management systems should support the achievement of the goals/objectives. Authority, responsibilities
13 and accountabilities should be clearly defined to ensure that decisions and actions are undertaken by the
14 appropriate people, with the necessary knowledge, skills and tools.
15 2. Monitoring, Measurement, Evaluation and Revision
16 a. Performance Measurement and Reporting:
17 Performance should be measured and reported against corporate, program and project objectives and
18 intended outcomes.
19 b. Real Consequences:
20 Agencies should evaluate performance results and take appropriate action – including the revision or
21 refinement of performance measures, as needed.

22 Value for Money in Procurement38

23 All public procurement of goods and services, including works, must be based on value for money,
24 having due regard to propriety and regularity. Value for money is not about achieving the lowest initial
25 price: it is defined as the optimum combination of whole life costs and quality. Goods and services
26 should be acquired by competition unless there are convincing reasons to the contrary. The form of
27 competition should be appropriate to the value and complexity of the procurement and barriers to the
28 participation of suppliers should be removed.

29 The complexity of procurement needs can make it more difficult to measure whether value for money is

38
Getting Value for Money from Procurement: How Auditors Can Help, National Audit Office, United Kingdom.

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1 being achieved. Agencies can be difficult about defining it precisely or may require considerable
2 feasibility work before a reliable specification can be drawn up; the work may be specialized with only
3 one or two potential suppliers making competition impracticable; and if the service is delivered over a
4 long term there is a need for regular monitoring of the quality.

5 Better value for money from procurement can be achieved in many ways, for example by:
6 • optimizing the cost of delivering a service or goods over the full life of the contract rather than
7 minimizing the initial price;
8 • getting an increased level or quality of service at the same cost;
9 • introducing incentives into the contract to ensure continuous cost and quality improvements
10 throughout its duration;
11 • avoiding unnecessary purchases;
12 • ensuring that user needs are met but not exceeded;
13 • aggregating transactions to obtain volume discounts;
14 • specifying the purchasing requirement in output terms so that suppliers can recommend cost-
15 effective and innovative solutions to meet that need;
16 • collaborating with other departments to obtain the best prices and secure better discounts from
17 bulk buying;
18 • sharpening the approach to negotiations to ensure agencies get a good deal from suppliers.
19 Agencies should act as intelligent customers by discussing with suppliers all the elements of the
20 contract price including level of service, timescale of the assignment, skill mix of the supplier's
21 team and how costs are to be enumerated;
22 • developing a more effective working relationship with key suppliers to allow both departments
23 and suppliers to get maximum value from the assignment by identifying opportunities to reduce
24 costs and adopt innovative approaches;
25 • reducing the cost of buying goods or services by streamlining procurement and finance
26 processes;
27 • reducing the level of stocks held.

28 Both external audit and internal audit are concerned that value for money is achieved, appropriate
29 controls are in place so that expenditure is reliably recorded; that it complies with all relevant accounting
30 requirements, authorities and regulations and that the risks of waste, impropriety and fraud are
31 minimized.

32 In designing control, it is important that the control in place and the cost of applying it is proportional to

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1 the risk. Apart from the most extreme undesirable outcome (such as loss of human life) it is normally
2 sufficient to design control to give a reasonable assurance of confining likely loss within the risk
3 appetite of the organization. Generally speaking, the purpose of control is to contain risk rather than to
4 obviate it.

5 External and internal audit can also make an important contribution by adopting a forward looking and
6 constructive approach to:
7 1. reviewing how agencies determine the need for goods and services and how they procure them to
8 identify how this might be done better;
9 2. supporting well managed risk taking and innovation that is likely to lead to sustainable
10 improvements in both the cost of procurement and the quality of the goods and services
11 purchased; and ensuring that agencies have overall organizational and management capability to
12 undertake large, novel and/ or contentious projects;
13 3. highlighting good procurement practices backed up by practical examples which might be more
14 widely applied;
15 4. ensuring that agencies have overall organizational and management capability to undertake large,
16 novel and/or contentious projects.

17 SAIs should develop the guidance on how to review and evaluate the public procurement process.
18

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1 6. Laws and Regulations
2
3 The INTOSAI family are too big to include reference to all national regulations, therefore the members
4 of the Working Group on the Fight Against Corruption and Money Laundering (WGFCML) have
5 decided not to present them, recognizing that national laws and regulations are the basis.
6
7 The Guidelines shall be used in accordance with national regulations with reference to international
8 standards, handbooks and guidelines.
9

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1 7. Annex: Examples of SAIs’ evaluation experience
2
3 Supreme Audit Office of Poland (NIK)
4 Fight against corruption is one of the priority tasks of NIK, therefore examination of corruption-prone
5 areas makes an indispensable element of NIK auditing.
6 As it transpires from the results of audits carried out in previous years, there are four areas in the
7 functioning of the state where the risk of corruption is relatively high: the functioning of local self-
8 governments, the public healthcare system, public procurement and changing the status of rural land.
9 What corruption prone mechanisms have been identified by NIK auditors in the functioning of local
10 self-governments? Not only do local authorities take decisions at their own discretion, but they disregard
11 regulations as well. Among the activities threatened with corruption there are the following: disposal of
12 municipal assets, municipal economic activity and recruitment of staff. The audited recruitment
13 processes failed to provide equal opportunities for all applicants and they did not guarantee selection of
14 the best candidates. In as many as 34 out of 45 public administration offices audited, recruitment
15 procedures were breached.
16 A large number of patients awaiting medical treatment make an area vulnerable to corruption, especially
17 among those responsible for deciding on the availability of medical services. NIK also indicates that
18 there are dangers with regard to sponsoring clinical hospitals and doctors by pharmaceutical companies.
19 Public procurement comes as another area prone to corruption. Excluding orders from tender procedures
20 and limitations on appeal proceedings can lead to irregularities. That is why NIK recommends that
21 supervision of public procurement procedures should be strengthened, especially at the internal level.
22 Rural land transformations are also not free from corruption. NIK has frequently indicated how crucial
23 the problem is, and presented proposals for reducing potential irregularities. However, audits conducted
24 in previous years revealed that the problem still exists and that it stems from loopholes in the binding
25 regulations, which leave too much room for discretion in the process of changing the status of farm land
26 from agricultural to residential.

27 NIK about the risks of corruption in activities of municipalities

28 Municipalities carry out economic activities outside the public sphere in violation of statutory
29 restrictions. This can lead to monopolistic practices, infringement of the competition rules, and even the
30 risk of corruption.
31 In each of the five towns in Lower Silesia audited at the end of 2009, businesses were conducted that
32 were not necessarily associated with the implementation of public tasks. However, such activities in
33 municipalities must always be justified by the implementation of the statutory duties and supported with
34 an important public interest. Violations of these rules, even leading to enrichment of local authorities,
35 have several negative consequences. Strictly commercial operations of municipal companies can lead to

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1 monopolistic practices, infringement of the principle of fair competition and move away from the
2 overarching principle of public utility. The regulations introduced in this area aimed at narrowing the
3 possibility of commercial operation of companies with local governments should protect the market and
4 the majority of municipalities against the threat of corruption.
5 NIK about the government’s investments co-financed by the EU
6 The audit of the investment projects co-financed by municipalities from the EU budget for 2004-2007
7 revealed other irregularities whose mechanisms can trigger corruption.
8 The audit revealed irregularities in the conduct and documentation of proceedings concerning public
9 contracts. These proceedings were carried out in an unreliable way and in violation of the rules, which in
10 six cases had an impact on the selection of the contractor and evaluation of corruption mechanisms.
11 Further irregularities consisted in extending unreasonably the deadlines for tasks by contractors, not
12 determining the penalties for missing the deadlines or establishing too low penalties, and failures to
13 enforce recovery procedures.
14 NIK about the mechanisms of corruption in hospitals and clinic
15 NIK has checked the activity of hospitals in conducting clinical trials. Many auditors have concerns as
16 for the organization of clinical trials conducted in teaching hospitals at the request of private companies,
17 especially pharmaceuticals. The audit results indicated a possibility of corruption mechanisms.
18 NIK negatively assessed the activities of clinical hospitals in purchasing medical equipment and
19 medicines.
20 The audit revealed the relationship between the share of income of doctors in clinical trials, their
21 participation in foreign conferences sponsored by private companies, and then providing these
22 companies with multi-million dollar contracts.
23 In most hospitals and clinics, there are no transparent rules governing employees’ participation in
24 conferences and workshops sponsored by private companies. The audit of procurement procedures in
25 hospitals and clinics revealed a number of irregularities. Some tenders were carried out in violation of
26 the rules of fair competition, in a way that favored selected companies.
27 For example, one of the doctors in the city of Białystok was involved as a member of three tender
28 procedures in the supply of medicines, and at that time he led clinical trials at the request of one of the
29 companies that took part in the tender. The company was awarded with contracts for the supply of two
30 medicines.
31 NIK warns that without effective control and clear procedures in hospitals and clinics corruption
32 mechanisms may exist. The lack of effective oversight could cost hospitals millions of zlotys. Directors
33 of hospitals and clinics do not have complete information about the number and scope of sponsored
34 clinical trials, nor reliable calculation of their cost, which does not allow for indicating the exact amount
35 of losses and irregularities.

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1 The Guidelines were developed in 2013 by a subgroup composed of the SAIs of the following
2 countries – members of the INTOSAI Working Group on the Fight Against Corruption and
3 Money Laundering: Austria, Columbia, Czech Republic, Egypt, Germany, Indonesia, Namibia,
4 Mexico, Peru, Poland (subgroup leader) and the Russian Federation.

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