In Need of Sexing Up: Audit

The art of defenestration.

Sidney J. Mussberger did not want to talk about the Audit.

We’ve said before that some of the most important issues in development are the least romantic and photogenic. One of the issues missing a glass slipper is audit. Let’s be frank for a moment: audits are boring. They are boring to do, boring to read about (except in the rare occasion that they bring to light spectacular mismanagement of funds) and they are boring to talk about, except in their most condensed forms. I have never been the most patient meeting attendee, but two things are guaranteed to have me pining for the release of defenestration: macroeconomic data reconciliation meetings and audit meetings.

Yet, I actively seek out both. Beneath the stolid veneer of number crunching, these are the areas where the Government’s intentions for economic management and the use of public funds are best revealed in their most unforgiving light. After the complaints, arguments and counterarguments that the Lancet article about resource management brought up, this is a timely point to make. The only really legitimate argument that can be made against Governments substituting aid money for their own spending in a sector is if the allocation of funds by Government is grossly inappropriate – otherwise the complaints make a mockery of good budget management and the concept of local ownership of development processes. Yet for all the cry and hue, it’s interesting that no-one has actually looked and examined how many of the countries ‘guilty’ of reallocation have been audited.

If a Government is audited, it should be relatively clear where money has gone. Once this is the case, the whole fungibility argument becomes obsolete: it doesn’t matter what money facilitates bad spending. Bad spending should be minimized regardless. If this is done and reveals no horrorshows, then fungibility of aid is not an issue: all spending is at least justifiable, with no money spent on a new Range Rover for the Minister of Finance’s nephew or a shopping expedition to Paris for the First Lady. The role of donors here is crucial, because it must be played very carefully. A donor that bullies the Government into submitting to an audit by auditors appointed by the donors will face a serious backlash: it is not their Government or money to audit (they can of course audit their own programmes) and they are infringing upon the sovereignty of the state in question. Any canny politician can easily spin this as a case of ‘modern imperialism’ and reject the audit findings, however well-intentioned they were.

Rather, a donor can only advocate for an audit to be initiated by a third party, following legal procedures put into law by the Government. The donor’s role here is to remove all excuses for not holding the audit: to train the supreme audit body, to make sure they have the equipment they need, to provide the legal experts to make sure that the laws governing audit are drafted adequately. This is all fairly obvious and very common. But this is of course only half the story. If the audit is released without any explicatory documents and very little press, its impact outside a small coterie of finance geeks and development agencies will be minimal. The power of audit is to stimulate accountability, and a Government should be accountable to its electorate, those who pay tax to fund it and expect services in return.

This is the insight that lies behind the recent increase in interest in demand-side accountability. Essentially, the idea here is to give civil society groups the ability to scrutinise the myriad information that a Government can produce and to articulate the demands of the electorate better. Again, this is a tricky role for donors to play, because it leaves them open to charges of political partiality. What they must do, therefore, is focus on providing skills to all parties that desire them – and not advice. In Tanzania and Malawi, I have noticed an upswing in this kind of work, and initial signs that NGOs and CSOs are engaging more with budget processes, audit and the like are encouraging. This is probably the one area where I think donors tend not to spend enough time working with non-Government actors.

Naturally, audit will not remove debates about how money should be spent: the question of whether an extra road should be built in the Northern region or money should be spent on the development of a trade marketing board, or on training new teachers remains. This is an argument about rates of return, political imperatives and more nebulous concepts like rights, entitlements and so on. The donors have a role to play here, too: advocating, arguing and so on. But once it’s been established that spending is legitimate (i.e. developmental in intention, as opposed to personal consumption using state funds) then the decisions should be out of donor hands. They advocate, but must be prepared that the final decision goes against their advice. This is meaning of Ownership, one of the central pillars of the Paris Declaration and Accra Agenda for Action. Ultimately, the final decisions should be taken between a Government and the civil society groups that advocate on behalf of the population. Donors should remain on the sidelines.

None of this actually works this way. Audits tend to be produced with a great delay – often one or two years after the financial year in question, and sometimes even after the Government audited has passed out of power. Donors frequently fail to strike the balance between empowering civil society and remaining impartial, either doing too little or too much. And once policy decisions on aid are made, even on legitimate expenditures, donors throw their weight around and use their money to undermine the Government’s own vision of how development should be pursued.

Yet these problems are simply an argument for a redoubling of efforts. If audits are late or non-existent, aid can legitimately be withheld. If donors are finding it difficult to engage directly with civil society, a new framework can be developed, in which CSO skills requirements are addressed through demand-driven interventions and donors fund external skills development processes without getting involved in their content or management. The hardest issue to address is when donors bully Governments into making choices. The Paris and Accra agreements have targets and resolutions that aim to limit these, but ultimately aid recipients have no power of sanction over donor agencies. Owen Barder suggests marketizing aid can resolve this, but I don’t know if this will stop donors from engaging in brinkmanship or carrot-and-stick inducement to distort Government spending plans. Some kind of Ombudsman for donors may be helpful, but this will be dismissed as more bureaucracy in the aid community. The answer isn’t obvious, but we need to keep looking.

6 thoughts on “In Need of Sexing Up: Audit

  1. Sam Gardner

    May 3, 2010 at 6:01pm

    You touch the central question on all “new”aid modalities: what with accountability?

    When money is spent within a budget line, you could expect there should be annual reports on the expenditure, evaluation and audits. This budget line approach could be called a “project approach”. As it fits completely in the recipients’system, full ownership is possible, and the accountability is rather straightforward too. However, where the accountability and control falter, the project might end op focusing on improving accountability instead of throwing good money after bad. Indeed, improving the systems might be the main issue at a certain level.

    By aggregating all budget lines in a sectoral approach or even in general budget aid, the accountability gets aggregated and thus diluted. indeed, how many unsatisfactory budget lines in your general budget is “good enough”?

    In the current situation donors are party to all the political, strategical decisions at the higher level, but consider they should never “micromanage”, wile improvements of the oversight system in fact happen piecemeal at the field level.

  2. Justin Kraus

    May 4, 2010 at 3:12am

    An optimistic post. Thats good. But de-politicizing donor support/demand for audit won’t be easy, even with your third party-side step suggestion. Nor will ensuring the credibility of audit findings. Can you really imagine a Malawian government agency, even assuming that it knew how and had the resources, auditing the government’s involvement in the president’s recent wedding?
    This isn’t an argument against providing audit training, but simply a caution, that absent the right political incentives, audits either won’t happen, or won’t be worth much.

  3. Ranil Dissanayake

    May 4, 2010 at 4:52am

    Thanks for the insightful comments, both.

    Justin – you’re quite right. But I don’t see how the incentives can be changed (are the incentives for the UK Government really any better as far as auditing goes? Absent audits, no expenses scandal, for example). That’s why I mention the legal code. One Government has to take the altruistic step of coercing themselves and all Governments to audit, and then civil society, donors, opposition and everyone else needs to gang up and make sure it happens.

    Sam – You’re missing the ownership point there – it’s not about ‘satisfactory’ and ‘unsatisfactory’ spending it’s about legit or illegitimate spending. If it’s developmental spending rather than personal consumption, then the donor needs to but out. It can withdraw aid of course, but if it has signed the PD or AAA, then it has already agreed not to meddle in allocation decisions. This is the cost for the donor of ‘ownership’.

  4. Justin Kraus

    May 4, 2010 at 6:48am

    Thats the tricky thing about development. You don’t know where to start. Its all chicken and egg problems. But I would say that audits don’t happen anywhere in the world, because governments are altruistic, but because they have constitutions (and abide by them) that allow opposition parties to be strong enough to demand them. In that regard the UK or the US (though perhaps not Greece) are probably “better” though with all the mess during of the past couple years the distinction is admittedly less than I once naively believed.

  5. Artful Aid Worker

    May 13, 2010 at 5:39pm

    For obvious reasons this very poignant piece brought to mind the dreaded Paris Declaration on Aid Effectiveness. I have always baulked at the inexplicable desire of donors to park their programmes under Government- managed structures citing the jingoistic UNese of the Paris Principles . It never fails to induce a bout of cringing. God yes! Let’s subsume taxpayer funds under the very same structures that we know for a fact to be riddled with coruption, gross inertia, and absurdly incompetent bureaucrats not in the least bit interested in equitable development, equal opportunity, integrity and all the other other values that kind of matter in the aid/development sector! Click on the URL below to read the Director’s Cut of this rant!

    http://negativeagain.blogspot.com/

  6. Carma Mazzarino

    June 15, 2010 at 8:33am

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