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July 04, 2011

METAC Workshop on Expenditures Control and Internal Audit: A Good Example of Donor Coordination

Posted by Pierre Messali

As part of its work program in the area of public financial management, METAC organized a regional workshop in Cairo, Egypt from May 30 to June 1. The objectives of the workshop were to review the systems of expenditure control and internal audit in the Middle East and North Africa (MENA) region and to come up with reasonable and practical recommendations for reform and modernization. The event was very successful and gathered a large number of officials from the METAC and Gulf Cooperation Council (GCC) countries (some 50 participants).

This was a collaborative effort of METAC[1], the Ministry of Finance of Egypt, and donors. These included the European Union (EU), jointly with the SIGMA-OECD program[2], the USAID, jointly with the Egypt Competitiveness Project (ECP) program[3], the World Bank[4]  (HQ and Cairo and Beirut offices), and ADETEF[5], affiliated to the Ministry of Finance of France. 

The workshop exemplified a high degree of collaboration between donors and it should set a precedent for future activities. Such cooperation: (i) avoids duplication of efforts and waste of resources; (ii) gives more consistent messages to recipient countries; and (iii) benefits   participants from exchanging experiences with donors and making full use of respective comparative advantages. This is also in line with the Paris Declaration on aid effectiveness which calls for donors to harmonize their actions and to work together to reduce duplication of work and promote joint training to share lessons learnt and build a community of practice.

Following the workshop, USAID issued a newsletter highlighting the success of the workshop (attached). Other collaborators, the EU and the WB and ADETEF have also expressed a great deal of satisfaction with the workshop and agreed on further cooperation.

Main Features of Expenditure Control and Internal Audit in the MENA Region

Some common weaknesses in MENA emerged from the workshop, including from the presentations of three participating countries. These weaknesses include:

  • Predominant component of internal control framework still lies on traditional control activity, mostly ex ante desk review-oriented control, while more advanced components defined in particular by COSO standards (control environment, risk assessment, information, communication, and monitoring) are rarely practiced; 
  • Core differences between internal control and internal audit are still not fully understood and need to be worked out in referring to various different international systems and practices;
  • Similarly, though to a lesser extent,  a misunderstanding emerged from the workshop regarding the differences between internal and external control/audit;
  • Adherence to international internal audit standards (COSO, IIA, PIFC) is rare; in the best cases, national standards are in place, but not properly documented;
  • The role of financial inspections[6] remains a challenge for any internal audit reforms because of their different, if not divergent, aim, strategy, human capacity, standards, institutional and legal frameworks;
  • Mixing components of various different audit systems, such as centralized audit system (audit mostly within MoF) and decentralized system (audit mostly within line ministries) is raising risks[7] of duplication, waste of resources and inefficiencies. Lack of communication between audit and inspections units (work programs, results, and outcomes), not to mention the absence of communication with the external auditor in many countries[8], is also challenging.

One of the outcomes of the workshop was a self assessment by representatives of participating countries of their control and audit systems with respect to some seventeen best practices reviewed under the program of the workshop (attached). This self-assessment could help further identify technical assistance needs in this area.

Main recommendations

The workshop did not advocate any model of auditor any specific standard. However, it highlighted the underpinnings and rationales of each model and the difficulty to mix them without generating duplication and waste of resources. It emphasized the need to:

  • clarify the status of control and audit prior to implementing any new framework in order to avoid additional risks of accumulation of layers of duplicative control and overall inefficiency;
  • split functions within the existing inspections between audit and inspection tasks, despite the inherent difficulties to such reform; and
  • adopt a gradual and sequenced approach in developing the new systemstaking into consideration the features of the existing systems and the country specificities.

[1] Moderator:  Pierre Messali, METAC Resident Advisor in Public Financial Management; and David Webber, international expert. [2] Lecturer: Joop Vrolijk. [3] Lecturers: Ken Reager and Khaled Zacharia Amin. [4] Lecturers: Sanjay Vani, Mona El-Chami and Akram El-Shorbagi. [5] Lecturer: Frank Mordacq. [6] Except in some GCC countries. [7] Such risk exists more particularly in Iraq, Jordan, Saudi Arabia, and Yemen. [8] Except in particular in Qatar and Saudi Arabia.

Note: The posts on the IMF PFM Blog should not be reported as representing the views of the IMF. The views expressed are those of the authors and do not necessarily represent those of the IMF or IMF policy.

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