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Principle THREE –

A sufficiently broad mandate and full discretion to discharge SAI functions

A SAI should have a sufficiently broad mandate and full discretion to discharge its functions.

It is expected that a SAI will have:

  • a sufficiently broad functional mandate to discharge its functions; and  

  • a sufficiently broad coverage mandate to discharge its functions.

A SAI should be fully independent to perform its functions and be free from direction or interference from the Legislature or Executive in the:

  • selection of audit issues;

  • planning, conduct, reporting, and follow-up of audits; and

  • enforcement of decisions made in the exercise of the mandate.

Ideally, the legal framework should also ensure the standards and methodology for the SAI’s work are set by the SAI or other independent body rather than by the Executive. This is an important element of independence in functional terms.

Legislative examples of mandate and discretion

Functions (Auditor-General Act 1996 – Australian Capital Territory)
10(1) In addition to the functions given to the auditor-general by this Act, the auditor-general has the following functions:
(a) to promote public accountability in the public administration of the Territory;
(b) to audit annual financial statements of the Territory, directorates and territory authorities under the Financial Management Act;
(c) to audit the accounts and records in relation to any person, body or thing ascertained in accordance with the regulations;(d) to conduct performance audits in relation to any person, body or thing ascertained in accordance with the regulations;(e) any function given to the auditor-general by or under any other law of the Territory;
(f) to do anything incidental or conducive to any of the auditor-general’s functions.

Auditor General’s duties and Performance Audit (Public Audit Act 2007 – Tonga) 
10(1) The Auditor General shall, without limiting any other statutory provisions undertake an audit programme, in accordance with section 13(2), to examine transactions, books and accounts, and other financial records of Ministries and Government agencies.
(2) The Auditor General shall undertake an audit programme to review and approve the audited accounts of public enterprises and may conduct audits of any public enterprise that has not had its financial statements audited by a private firm of auditors. Where the Auditor General does not approve the audited financial statements of a public enterprise, he shall commence an independent audit of the public enterprise within 31 days of rejecting the private audit report.
(3) The Auditor General shall undertake an audit programme to audit and examine transactions, books and accounts and other financial records associated with any project, programme, or other activity receiving funding in whole or in part from public money, including public money received by a non-profit organisation (including relevant international organisations)

10A(1) The Auditor-General may at any time examine—
(a) the extent to which a Government agency, Ministry or public enterprise is carrying out its activities effectively and efficiently;
(b) any act or omission in order to determine whether waste has resulted or may have resulted or may result; and
(c) any act or omission showing or appearing to show a lack of probity or financial prudence by a Government agency, Ministry or public enterprise or one or more of its members, office holders, and employees

Functions of Auditor-General (Constitution of the Republic of Fiji)
152.—(1) At least once in every year, the Auditor-General shall inspect, audit and report to Parliament on—
(a) the public accounts of the State;
(b) the control of public money and public property of the State; and
(c) all transactions with or concerning the public money or public property of the State

Special duties to act to prevent fraud, waste and abuse in the collection and expenditure of public funds (Public Auditor 40 PNCA – Palau)
224 (a) The Office of the Public Auditor shall specially act to prevent and detect fraud, waste and abuse in the collection and expenditure of all public funds. The Public Auditor may audit any transaction involving the procurement of supplies or the procurement of any construction by agencies of the Republic and the procurement of any supplies and services in connection with such construction.
(b) The Public Auditor may conduct audits and inspections, when necessary, relating to programs and operations involving expenditure of public funds. He may review legislation and regulations relating to programs and operations involving expenditure of public funds and may make recommendations concerning the effect of such legislation or regulation on the prevention and detection of fraud, waste and abuse. He may recommend policies which will assist in the prevention or detection of fraud, waste and abuse. The person in charge of, or the governing body of any agency of the Republic, involved in the expenditure of public funds for the purpose of procurement of supplies or construction, and the services and supplies in connection therewith, may request the assistance of the Office of [the] Public Auditor with respect to implementation of any suggested policy

Audit (Constitution Act 1964 – Cook Islands)
71(1) The Audit Office of [the Cook Islands] shall be the auditor of the Cook Islands Government Account and of all other public funds or accounts, and of the accounts of all Departments and offices of executive government and of such other public, statutory, or local authorities or bodies as may be provided by law.
(2)The Audit Office shall, at least once annually, forward to the Speaker of [Parliament] for presentation to [Parliament] a report containing such information as is required to be submitted by any enactment, together with such other information relating to the Cook Islands Government Account or other funds or accounts which under this Constitution or under any other enactment are required to be audited by the Audit Office as that Office considers desirable

Reports not to question policy objectives (Audit Act 1994 – Victoria)
63(1) The Auditor-General must not in a report prepared under this Act or any other Act question the merits of policy objectives of the Government.

Publication of auditing standards (Public Audit Act 2001 – New Zealand)
23 (1) The Auditor-General must publish, by way of a report to the House of Representatives, the auditing standards that the Auditor-General applies, or intends to apply, to the conduct of audits and inquiries, and the provision of other auditing services, under this Part.
(2) A report under subsection (1) must be prepared at least once every 3 years.

Notes

It is important for a SAI to have both functional and coverage mandates.

Functional mandate

The functional mandate refers to the type of audit work a SAI can undertake. For example, audit opinions on financial statements and accounts, assurance on management reporting systems, compliance audits and performance audits.   

There has been an international trend to broaden the type of audit work a SAI can undertake that extends beyond the SAI’s traditional role of financial audits. For example, SAIs are increasingly undertaking performance audits into the efficiency and effectiveness of government department operations. 

Undertaking new functions can be risky for a SAI and it is important that a SAI’s reputation for high-quality work is preserved. Accordingly, before undertaking new areas of work a SAI should ensure it has the necessary skills to do so. 

Some jurisdictions allow the Executive to direct the SAI to undertake an audit or investigation, but this may be a threat to SAI independence as, in these circumstances, the SAI could be regarded as acting for and on behalf of the Executive. Accordingly, a SAI should be cautious about any move to give a power of direction to the Executive.

It is usual, and appropriate, for any matters relating to government policy to be outside a SAI’s functional mandate. This is because policy is essentially a political activity which a SAI should stay away from. This matter is most relevant to a SAI’s performance audit function that often examines an organisation’s non-financial performance.

In recent years there has been an increased government focus on identifying and prosecuting bribery, fraud, and corruption. Traditionally, the primary responsibility for these matters has been with government organisations such as the police, serious fraud offices, anti-corruption commissions, and Ombudsman offices, rather than SAIs.    

However, the public has considered that SAIs seek to detect bribery, fraud and corruption which is not the case. In some jurisdictions this has led to a public expectation gap between what the public thinks a SAI does and what it actually does.

It is important that SAIs address this expectation gap. They could do this by making the separation of responsibilities between auditors and law enforcement agencies clear. Also, mandates permitting, SAIs should consider if they can play a greater role in improving public sector governance standards and ethical behaviour in the public sector. 

Coverage mandate

Coverage mandate refers to the type of organisation or entity a SAI can audit. 

Historically, a SAI’s coverage mandate has been limited to “core” public sector entities such as government departments. However, governments are now funding and delivering public services through a variety of different legal entities such as State-Owed Enterprises, Crown entities, and Trusts. It is important that SAIs have a sufficient “coverage” mandate to audit a broad range of entities to ensure they are accountable for what they do.

It may be inappropriate for a SAI’s full functional mandate to apply to all entities. For example, some jurisdictions limit a SAI’s mandate for State-Owned Enterprises to auditing the financial accounts on the basis that the Board of Directors of the State-Owned Enterprise is responsible and accountable for its non-financial performance.

Some SAI mandates allow the SAI to “follow the money” which gives the SAI authority to investigate a matter concerning public funding regardless of the legal nature of the recipient of the funding. This means the SAI could, potentially, examine a non-public sector entity to determine if its funding was applied for the purposes it was given. 

Independence in giving effect to its mandate (full discretion to discharge its functions)

A SAI should also have full discretion about how to give effect to its mandate, both in terms of selecting audit issues and planning, conducting, reporting and following up audits, and in applying standards and methodology. A SAI should be free from direction or interference from the Legislature or Executive in these matters.

That said, a SAI should not determine its work programme in a vacuum. There should be scope for the SAI to discuss its intended work programme with the Legislature, and for the SAI to be open to considering requests for particular audits or areas of emphasis. But it is important that decision-making about audit work rests with the SAI, and there is the ability to say “no” to requests from politicians or others where there is good reason to do so. Ideally, this would be clear in the legal framework, with a provision along the lines that a SAI/Head of SAI is free from direction from any person or body in selecting and reporting on audits.

Independence in relation to mandate should also extend to audit standards and broader audit methodology. In some systems, the Executive sets the accounting standards for the government’s financial reporting. It would not be appropriate for the Executive to also set the standards for auditing the financial reports, as this would be inconsistent with auditor independence. Better options are for the SAI Head or an independent body to set the auditing standards, preferably with reference to international standards with a power to adjust for local circumstances. In either case, the standards should be publicly available.

The SAI should also be free to determine its own broader audit methodology, and to set standards and expectations for how its staff will conduct themselves.

Principle eight also addresses the autonomy of the SAI to allocate resources to audit activity as necessary.