GAO Gives Government Credibility

The Perspective
Atlanta, Georgia
January 26, 2007

The Art of Audit—or the Science of Audit—is a bulwark for social change, economic development, political maturity and fiscal accountability of responsible, people-centered governments. Also, the auditing process lends enormous credibility and integrity to governments from its own people and the international community, especially international financial institutions and donors.

John Morlu, II
Auditor General of Liberia

Today, this is especially true for Liberia , a nation that is frantically struggling to revive itself after 14 years of self-destruction. Liberia , with all intents and purposes, needs a political powerhouse that will celebrate accountability and guide against the misuse and misapplication of scarce resources. Such ideal political entity, even if it exists now, can be further strengthened by an auditing office that will help to instill fiscal discipline in the government, a situation that will bring stability, win people’s admiration and earn the respect and help of our international partners, particularly the European Union, ECOWAS, UNMIL, Africa Union and America .

Liberia must not only seem to feed on rhetoric and pronouncements when it comes to accountability in government. It must act in practical ways. Government must support the entity that will give it a clean bill of approval for its effective use of the country’s meager resources. Commitment to the General Auditing Office requires resources and support to strengthen the institution as well as make it viable, independent and functional.

The GAO must be seen as the only institution that will justify government’s claims that, this time—unlike previous times—it is truly working to bring about the desired social change and lift the country out of poverty and decadence. Fiscal indiscipline germinates underdevelopment and social unrest. It drives away people’s zeal and commitment, and creates a nation of faked patriots and lip-servants.

Other nations—be they developed or underdeveloped—are developing a new mindset that pits them against corruption and misappropriation of public funds. They now resolve that the public property is sacred and cannot be taken for granted. Fraud, waste and abuse must be tackled on all fronts!

Canada , a developed country in North America , is a case in point. Like other developed countries, Canada has a strong system of accountability as epitomized by the Office of the Auditor General. Five years ago, its report of the federal government’s management of the sponsorship program landed key political players in prison and undermined the ruling party’s credibility to manage public funds. This created a dent in the ruling party’s credibility, which made it lost many parliamentary ridings, and subsequently saw it defeated at the polls.

That landmark audit report was politicized as it was scrutinized by politicians. But the audit withstood the test of time. It was meticulous, professional and honest. Such achievement by any auditing entity requires the support and commitment of the government totally interested in financial probity, advancing the cause of its people and eradicating corruption.

Liberia is not beyond such a goal. All we need is to change our attitude this time round. We must treat our country as a personal fiefdom; we must see Liberia as our immediate family, so that we care for it dearly. We must not see the country as an avenue for egotistic achievements; as a springboard for amassing wealth; as a single place for “entrepreneurship.”

Successful nations always see the bigger picture; they put their countries first and foremost. They bask in public service to leave a lasting, impressive legacy. This is why their accountability mechanisms are sound-proof, supported and independent, which in turn germinate respect, honor and trust for their countries and governments. Ghana is a case in point! So is Mozambique ! So is Botswana ! So is South Africa! So is Cape Verde !

The Office of Auditor General of Liberia is pleased to bring you a reflection of the Office of the Auditor General of Canada headed by Sheila Fraser on a landmark audit conducted in 2002 as published by INTOSAI, the International Organization of Supreme Audit Institution, a United Nations sponsored organization for all auditing institutions in the world. “AG Frasher talks, the world listened,” lamented a Canadian Profession of Accountancy. But like any individual heading a front-line institution to defend and promote the public interest, her institution was questioned and tested, but with share honesty, dedication and competent work, she and her team were able to weather the storm against public scrutiny.

We want Liberians to read this reflection and think about the valuable lessons contained therein, and how we can benefit from such experience and exercise, as we embark on a new course to build an accountable governing system that will withstand the test of time.

Public Scrutinizes Canada Audit Practices

By Sheila Fraser, Auditor-General , Canada

Sheila Fraser
Auditor-General of Canada

In 2002, when the Office of the Auditor General of Canada (OAG) agreed to audit the federal government’s management of three contracts that had been awarded to a communications agency 7 years earlier, no one could have envisioned the consequences. The initial audit took only 8 weeks from the start to the final report, but the findings about the program that awarded the contracts dominated the Canadian political agenda for 4 years. Unexpected results included a public judicial inquiry prompted by the audit findings—the first in the OAG’s 128-year history—criminal prosecutions, and jail terms for a few key players. In the process, the Auditor General of Canada ’s working papers were subpoenaed and its methodology was challenged. The lessons learned from this experience of intense public scrutiny and the changes made to the OAG’s practices as a result may be useful to other SAIs .

Background

In March 2002, the then Minister of Public Works and Government Services asked the OAG to audit three contracts totaling 1.6 million Canadian dollars (1.1 million euros) that had been awarded to a communications agency in the late 1990s for advertising services designed to increase the visibility of the government of Canada. That audit report, presented to Parliament in May 2002, revealed significant shortcomings at all stages of the contract management process. Because of the nature of the findings, we referred the government’s handling of the three contracts to the Royal Canadian Mounted Police (RCMP), our national police service. We also decided that we would undertake a governmentwide audit of the sponsorship program and advertising activities of the government of Canada .

Sponsorships were intended to increase the visibility of the federal government in the province of Quebec by associating the government with popular sports and cultural events and organizations. In exchange for government funds, organizations agreed to provide visibility to the government by, for example, using the Canada wordmark and the Canadian flag at their events and on promotional material. Communications and advertising agencies acted as intermediaries between the government and the events organizations and received production fees and commissions.

Audit Findings on the Sponsorship Program

Our audit found that Parliament had not been informed of the program’s objectives or the results it achieved and was misinformed as to how the program was being managed. Those responsible for managing the program broke the government’s contracting rules in the way they selected advertising firms and awarded contracts to them. We found significant shortcomings at all stages of the contract process: in making the decision to contract the work, developing the contract specifications, selecting the contractor, and ensuring that the government received the contracted goods or services before paying the contractor.

There was a lack of transparency in decision making. No written program guidelines provided clear criteria for eligibility, and no written objectives indicated that the program had been part of a national unity strategy. Moreover, a lack of documentation prevented us from determining why an event was selected for sponsorship, how the dollar value of a sponsorship was determined, or what federal visibility the sponsorship would achieve. Furthermore, there was little oversight of financial activities, and fundamental principles of control were violated. Roles and responsibilities were not segregated to eliminate opportunities for fraud or an override of controls by management. There was little evidence of analysis to support the expenditure of more than 250 million Canadian dollars (173 million euros) from 1997 to March 2003. Over 100 million Canadian dollars (69 million euros) of that was paid to communications agencies as production fees and commissions.

In some cases, sponsorship funds were transferred to Crown corporations using highly questionable methods that appeared to have been designed to provide significant commissions

to communications agencies while hiding the source of funds and the true nature of the transactions. Some payments were based on false invoices and contracts. Appearing before the Standing Committee on Public Accounts, I informed parliamentarians of the appalling lack of regard for rules and regulations that we saw in the way contracts were managed. Equally disturbing was that it happened in the very department, Public Works and Government Services, that is supposed to ensure prudence, probity, and fairness in contract management throughout the government. The problem was not a lack of rules but the failure to observe existing rules.

Our audit revealed that the government had run the sponsorship program in a way that showed little regard for Parliament and its financial administration legislation. Controls and oversight mechanisms that should have been in place had collapsed. Moreover, politicians and senior bureaucrats were reluctant to recognize their responsibilities and to be accountable for their actions.

The Gomery Commission

Our governmentwide audit report on the sponsorship, advertising, and public opinion research activities of the Canadian government was tabled in the House of Commons on February 10, 2004. A few days later, the government announced the creation of a Commission of Inquiry into sponsorship and advertising activities. It also hired a special counsel to recover funds that might have been improperly received through the sponsorship program. The government cancelled the sponsorship program in December 2003, several months before we tabled our audit in the Canadian legislature.

The public inquiry, headed by Justice John A. Gomery, a judge of the Superior Court of Quebec, had a double mandate: (1) to investigate and report on questions raised in our report and to make recommendations to the government of Canada based upon its factual findings and (2) to prevent mismanagement of sponsorship programs and advertising activities in the future. For the first time in the OAG’s history, all of our working papers were subpoenaed, and a written statement of evidence provided us with an opportunity to explain our audit methodology. My staff and I appeared before the Commission on two occasions, for a total of 4 days. Hearings were broadcast live on national television. The Gomery inquiry could have discredited our methodology and harmed our credibility. Any serious doubts about our facts or findings raised in the course of the public inquiry could have tarnished the confidence the public and Parliament have in our audit institution.

But our meticulous adherence to methodology and professional standards stood us in very good stead throughout the events. And the Gomery inquiry concluded its hearings without any serious challenge to the credibility of our report. Justice Gomery commended our work in his final report: “It became apparent to me throughout the hearings that, with virtually no exceptions, the conclusions of the Auditor General of Canada , expressed in Chapters 3 and 4 of her 2003 Report to Parliament have been confirmed.” Our audit of the sponsorship and advertising activities of the Canadian government and the ensuing activities of the Commission of Inquiry lasted over 4 years and put enormous pressure on our staff and resources. The credibility of our office was put to the test. Our practices and methodology were scrutinized as never before, and we had to respond to an unprecedented number of media inquiries. As a result of its investigation, the RCMP laid fraud charges against the senior bureaucrat who managed the program and three advertising executives. Thus far, the senior bureaucrat and two advertising executives have been found guilty and sentenced to jail terms.

Lessons Learned

Given that an audit had never been the subject of a public inquiry in Canada , we documented the events and lessons learned. Having our working papers subpoenaed for the public inquiry taught us that we could no longer assume that our working audit papers will remain confidential. We have since developed guidance for dealing with audits that have the potential of leading to public inquiries. One step we have taken is to involve senior management and communications staff early in the audit process.

We have also taken steps to further strengthen our audit evidence to ensure that it can withstand a vigorous challenge. For example, we have decided that interview notes should be signed by interviewees when the contents are evidentiary in nature. As soon as our report was tabled, the public discussion about it became extremely political as the government and opposition parties engaged in a political tug of war about who was responsible. When we saw how the public debate was evolving, we stopped giving media interviews. Despite this decision, we continued to be mentioned in news stories about the “sponsorship scandal,” as it was called by the media, for many months. The parliamentary Public Accounts Committee later commended our work, noting the following:

Efforts were made by some witnesses to discredit or refute certain elements of the Auditor General’s report [on the sponsorship program]. These efforts were generally self-serving and wholly unconvincing. From past experience, the

[Public Accounts] Committee is quite familiar with the audit methodology employed by the Office of the Auditor General and the vetting process the Office [SAI Canada] follows to confirm the findings that methodology produces. This process is painstaking and thorough.

The overwhelming weight of the evidence presented to the [Public Accounts] Committee has consistently confirmed and strengthened the observation and conclusions made by the Auditor General in her report [on the sponsorship program].

That our report withstood intense public scrutiny reflects well on the rigor of our audit work and the professionalism of the men and women who work at the Office of the Auditor General of Canada .

Finally, it was rewarding for me, as head of our supreme audit institution, to ascertain firsthand that Canadians and parliamentarians continue to hold our office in high regard and have great confidence in the quality of our audit work.

The Auditor General of Canada ’s report to the House of Commons on the sponsorship program is available online at: http://www.oag-bvg.gc.ca/domino/reports.nsf/html/20031103ce.html

Culled from International Journal of Government Auditing–January 2007, WWW.INTOSAIJOURNAL.ORG

Source: Sponsored by the General Auditing Office (GAO), Republic of Liberia .