THIRTY YEARS OF PERFROMANCE AUDITING IN PAKISTAN

CHALLENGES AND PROSPECTS

By

Muhammad Akram Khan

makram1000@gmail.com

____________________________________________________________________---History and evolution

1. The Bhutto government in early seventies undertook mass scale nationalization. Gradually, the Government felt need for evaluation of public enterprises. At that time, in other parts of the world ao, there was a wave of evaluation activities. The socialist governments around the globe were spearheading the movement for evaluation of public enterprises. For example, Yugoslavia had a well-developed centre for evaluation of public enterprises. During early days of Zia regime, Ghulam Ishaq Khan was the champion of evaluation of public \enterprises. He asked the Auditor General to undertake the evaluation of public enterprises. The AGP did not have the expertise. With help of EAD and FO, the Dutch assistance became available in 1980.

2. The AGP’s department created Performance Evaluation (PEC). The Department posted bright officers in the Cell. The methodology for evaluation was developed by BMB consultants financed by the Dutch Technical Assistance. The PEC reports were of high quality and were acclaimed both by the executive departments as well as PACs.

3. Encouraged by the experience, the AGP decided to expand the activity to development projects. With this performance auditing was born in the AGP’s department. With some efforts, the Dutch government agreed to finance the development of methodology, train auditors and kick-start the work on performance auditing in the department. The BMB consultants again got the contract to implement the project.

4. The first BMB-implemented project (1981-1986): This project trained a large number of auditors (exact figure not available) and 12 volumes of PA Guidelines. There was a second project also that was for three years 1990-93. In the second project, nine more volumes of PA Guidelines were developed besides revision of the four earlier volumes. The two projects, spanning over 8 years of Dutch Technical Assistance aimed at training performance auditors, developing methodology and helping make PA as a going concern.

Unfortunately, these volumes are almost non-existent now. You may be able to find some volumes here and there and in possession of some individual officers. I tried to obtain copies of these volumes but could not get them from PAW and AATI. The AATI library does have a master set which I personally donated in 2009 from my personal library. Besides that, there are no stocks of these volumes for the officers of the department.

The glory that once was

The AGP encouraged and supported a lot of intellectual and change management activity in the department. A flurry of activity took place with the Dutch assistance project: training of auditors; workshops and seminars; agenda items in the AGs conferences. Several workshops and seminar at capital cities and Railway Accounts Academy Quetta every year. Other significant activities were as follows:

o National seminar on PA in Pakistan (1986)

o International seminar on PA in Pakistan held by Dutch Government in the Hague (1986)

o ASOSAI-supported seminar in collaboration with OAG Canada in which 26 countries participated (1993) on PA of foreign aided projects

o Pak-China seminar (1995) on PA of state-owned enterprises

o Pak-China seminar (1998) on PA of Foreign Aid

o Pak-Bangladesh Seminar (1999) on PA as an aid for public administration

o Ist ECOSAI Training Seminar on PA (2002)

o Pak-China Seminar on PA (2002)

o ASOSAI-sponsored seminar on PA of revenue agencies (2003) in which 35 countries participated.

Publication of guidelines: Twelve volumes plus 9 volumes in two projects funded by Dutch government. The largest set of guidelines ever published by any SAI. It is an encyclopedic work.

Publication of Performit, a quarterly journal started. It evolved from a simple newsletter to a refereed journal. Perhaps a first ever and the only journal exclusively devoted to PA

Officers of department contributing papers to INTOSAI, ASOSAI and other professional journals, like the Internal Auditor. Mr. AR Arif got INTOSAI award for contributing a paper on PA of HRM

Several countries invited us to send trainers. We conducted training in China, Malaysia, Saudi Arabia, Macao and Botswana on performance auditing. Pakistan became a global champion in imparting training.

International ITPs: Many countries sent their auditors for training in PA in our department. This is still going on.

Six officers of the department went to Canada for training in PA. This is the largest number from any one country. Canadians were impressed by the work being done by the department.

The establishment of ECOSAI: Assembly of 11 SAIs of ECO states. First assembly was held in Pakistan. AGP was in chair. It was, mainly, the initiative of Pakistan for sharing of knowledge and expertise in PA.

Present scenario

Performance evaluation cell has been closed down. No evaluation activity for the government owned enterprises. The excuse is that most of the public enterprises have been privatized. The excuse is not wholly true.

PAW is largely a training outfit and imparts training courses for local auditors as well for international auditors. During 2005-2010, it held 20 courses (@ 4 a year) and trained 262 local and 76 foreign auditors. Pakistan still have remnants of its past glory visible in the form of ITP course.

Seminars and workshops on PA have almost come to an end. The last such event took place in 2002.

Gradually, the interest and motivation among officers of the department has died down. It is considered drudgery and ‘a bad posting’.

The guidelines are non-existent or out of print. The younger officers who joined the department are not even aware of this monumental work.

Performit, a refereed journal has stopped publications.

I could not get consolidated information on the number of performance audits, percentage of financial resources spent on PA and number of trained persons available in the department to conduct PA,etc despite my access to the highest echelons of the AGP’s department.

What went wrong?

Supply driven efforts:

1. The Audit Act does not give the AGP specific authority to conduct performance auditing.

2. The parliament never discussed this issue. No parliamentary commission or committee to deliberate on the subject. There is no political interest or awareness about the concept and benefits of PA among the political leadership. The parliamentarian have never demanded performance audit of any public organization.

3. There is no awareness or interest among the executive departments for PA. No demand from the executive departments.

4. The supply did not create its own demand. The Say’s law in classical economics did not work here. Our PA reports did not generate any interest among the stakeholders.

Audit Management

5. The department created PAW parallel to PEC. However, there was difference. The PEC was a field audit office. The PAW was not. The PAW was supposed to provide training, develop methodology and also to provide advice on quality of audit reports. The strategy failed for following reasons:

a) The methodology was not yet firmed up. The audits took too long to conclude. The supervisors were unsure of the quality.

b) The FAOs did not accept the ownership of PA reports. They forwarded whatever reports their audit teams generated without any examination. It resulted in delays, jams and backlogs in PAW. PAW was made the scapegoat for all this.

6. The revised strategy made the FAOs responsible for PAs and their reports. This also did not work well for following reasons:

a) The FAOs did not have trained manpower.

b) They did not have a detailed manual for conducting PA.

c) They did not get any technical support from the department. Each office was on its own. There was no sharing of knowledge and experience and nowhere to go if you are stuck with a difficult audit.

7. Actually, it is not fair to blame anyone for all this. The performance auditing is an audit service and its standards have not been developed even up to this day. The INTOSAI has set up a Task Force to develop these standards but have not as yet

issued them. Some SAIs, like Australian NAO, have issued their own standards for PA1. It is not fair to compare auditing practice in Pakistan with other developed countries. There were no norms for PA practice at that time. Even now, after thirty years, these norms are still in a formative stage.

Quality of reports

8. The quality of reports did not generate any enthusiasm or interest among PACs, executive departments or even among auditors.

9. The reports focused only on cost-benefit analysis and did not have a broad-based canvas.

Culture of the department

10. Tone at the top influences the pace of change. During years when the department head had a commitment to promote PA, it did get a boost. However, we had the experience of having those AGPs who were not very keen on PA. Perhaps, they were more concerned about the traditional audit work that also required attention. They focused on compliance auditing as a priority. PA moved to back benches.

11. The culture of the department did not promote performance auditing. Posting in performance auditing became a stigma.

12. We created silos of performance auditing in all offices where you could be condemned for some years.

13. The auditors did not get any guidance in this difficult arena.

14. Motivation of auditors was poor. The department did not make any efforts to generate interest by linking work in PA with future promotions, foreign training, foreign assignments or even better PERs.

Guidance on PA

15. The set of guidelines focused only on cost-benefit analysis but did not cover methodology of performance auditing. These guidelines were written by non-auditors. There was some guidance on undertaking PA (volume 2, for example), but that is out of sync with professional practice in the world. It was written by non-auditors.

16. One of the recent developments in public administration is application of risk management concepts and risk mitigation strategies. PA now has started using these

1 Australian Government and Australian Assurance Standards Board jointly issued ASAE 3500 “Performance Engagements” in October 2008 and implemented from 1 January 2009.

concepts in practice. At the time the PA guides were developed these concepts were not in vogue.

Knowledge management

17. The department did not try to manage its knowledge base. The work done in field offices remained buried in files and was not shared with broader audience. There was no forum to cross-fertilize ideas and thinking on the subject. Seminars, workshops and discussion forums were absent. No effort to update the knowledge. No seminars or lectures; no discussion forum. No sharing of knowledge at the level of FAOs.

18. The guidelines once developed remained sitting in bookshelves. Now they are not even available in shelves. The young generation does not have even awareness of this effort. The department did not make any effort to disseminate the knowledge in the guidelines.

19. No system of drawing upon the knowledge of the departing officers. It depends on individual efforts here and there.

20. No effort to synthesize the international knowledge into the department’s own methodology base.

Training

21. There was no conscious effort to determine the knowledge requirements for PA. By its very nature, PA requires different types of knowledge and skill requirement. The auditors trained in compliance or financial audit were not supposed to handle these assignments adequately. The department did not clearly lay down minimum knowledge and skill requirements for PA. That affected the training model of the performance auditors. It remained focused, more or less, on cost-benefit analysis, which in actual practice did not lead to meaningful conclusions.

22. The department never evaluated effectiveness of the training being imparted. The training is mostly class-room based. There is no on-the-job training although auditing is a skill and can be learnt only by doing.

23. The training is part of the system of competencies for future promotion that makes it obligatory to carry out performance audits.

Marketing efforts

24. The department does have a marketing strategy for PA. It has not made any effort in promoting the concept and its benefits. The legislators, the executive departments and

agencies are not even aware of the concept. The Head of a local agency in Lahore, for example, asked, its MD to submit before him a performance audit report of the multi-billion rupee agency employing hundreds of staff, within one week. It showed he had no awareness of what is performance auditing.

Future Strategy

Why we need a strategy for PA?

The public sector is expanding again.

The public sector is expanding again, though in a different format. Privatization, outsourcing of public services and supply of public goods by private sector on behalf of the government have increased the size of public spending, though in a different manner. The interest of citizens to know what is happening to their taxes and the debts that the government is contracting is increasing. Media debates on public administration and the way the government is managing its operations is attracting the attention of the enlightened public. The AGP cannot close his eyes on these debates and keep doing only traditional compliance audits.

PA in other SAIs

All SAIs around the globe are increasing their emphasis on performance auditing. SAIs of the SAARC region of which we are a member have also increased the resources on PA. The SAIs of developed countries are already much ahead in this aspect. For example, Australia has 148 full time performance auditors. 27 % of them are qualified in commerce and economics. ANAO delivers about 50 PA reports every year. ANAO was spending about $A 25 million every year on PA. The NAO UK deployed over 300 auditors, produced 60 PA reports at a cost of about 33 million pounds in 2008-09.

Global recognition of the benefits of PA

PA reports help improve public administration as they highlights areas where the management can take action for enhancing economy, efficiency and thus be more effective.

The resources being devoted to PA are increasing as a proportion.

Demand by legislators and executive authorities at an increasing scale

Legislative Support

Without legislative support, PA cannot be effective as the management would not provide information and records required by the auditors. The AGP should devote

his energies in getting the Audit Act modified so that the AGP gets proper authority for this type of audit.

The Tone at the top:

25. The AGP should issue a policy statement:

a) Policy statement by the AGP making it a compulsory activity for all FAO, linking promotion and prospects with actual work in the field.

b) Independent review of the PA work done by the field auditors for considering it suitable for future prospects. This would require development of evaluation criteria and evaluation instruments.

c) Competition among FAOs: Institute rewards for best FAOs and best auditors.

Earmarked funding for PA

26. The AGP budget should have a separate allocation for PA operations. The funding should include development as well routine operations clearly.

Centre of excellence:

27. The department should set up a centre of excellence. It is possible that the PAW assumes that role. As centre of excellence it should:

a) Synthesize all knowledge available in the department

b) Plan to accumulate the experience of audit offices in a structured manner

c) Make the experience of all FAOs available on its website for future audits. For this purpose:

d) Create a database of Best Management Practices and another Database on Performance Indicators

e) Database of audit plans, audit programs and audit reports

f) Revive publication of Performit.

g) Provide a discussion forum on PA by holding series of seminars and workshops around the year at all major stations

h) Once a sizeable amount of information becomes available, open its databases to other SAIs. AGP will get the recognition around the globe and emerge as a leader.

Marketing and communication strategy

28. The AGP should bring home that performance auditing encourages innovative and creative public administration that improves the quality of service delivery efficiently and economically. Such an encouragement dispels the perceptions of the public managers about auditors and would find it more interesting and stimulating to try PA.

29. Undertake marketing activities to persuade the legislators for amending the Audit Act.

30. Hold orientation seminars for executive departments and their top leadership to persuade them to demand for PA.

31. Scoring the point that PA aims at improving performance through better governance and better project management. These are pillars of effective public administration and PA can make a contribution in promoting these.

32. Develop a clear strategy for communicating with the media so that the workd done by the department gets due publicity. .

Training

33. Change the training methodology: from class-room to field work.

Audit management

34. Develop a series of supervision instruments for supervisors to play an effective role.

35. Devote a certain percentage of audit resources to PA every year.

36. Develop processes for audit planning, audit execution, report clearance, and follow-up.

17 May 2010