Putting Accountability with Teeth into Fiscal Transparency
On October 6, the IMF and the World Bank held a seminar on progress made in their fiscal transparency efforts. An almost full house was briefed about the revamped IMF Fiscal Transparency Code and Evaluation, and parallel plans for updating the Public Expenditure and Financial Accountability (PEFA) framework. The related Extractive Industries Transparency Initiative (EITI) was used as an example of how public-private initiatives could give a transparency initiative ownership, traction and increased impact.
As a former Vice President and Controller of the World Bank in the hectic period of 1995-2000, and having witnessed — propelled by the East Asian, Russian and Latin American financial crises — the (re)discovery, by default at the time, of proper accounting and auditing as an economic fundamental, much of the material presented last week was familiar to me. A lot of good work had already started at the turn of the 21st century on ROSC’s and the initial PEFA framework, with the World Bank’s Controllers during this period actively participating in the design and development of these diagnostic tools.
I have not been totally absent and silent on this subject since 2000, and have followed subsequent developments out of the corner of my eye. Indeed, I was quite actively involved from the EU’s perspective during my term as Director General and Chief Internal Auditor at the European Commission from 2001 till 2005. During this period I closely followed the intricacies of EU member states’ accountability for EU monies spent and contributions received.
The presentations on October 6 pleasantly surprised me as a new stage of institutional frankness and realism in helping countries in upgrading their fiscal transparency framework, and in giving this framework perspective and syntax — pulling no punches on traditional taboos, at least those of my time. Also, I was struck by the excellent mix of (holistic) academic rigor combined with a street-savvy attitude to the plentiful opportunities and loopholes that exist to evade international standards of fiscal transparency. A Russian case study was telling and refreshing.
Having said that, I dearly missed one element that I fought for vigorously during my time both at the Bank and the EU, and failed to achieve, namely to inject an element of results-based accountability into the transparency model. Results-based accountability, I soon found out, is for finance ministries around the world as popular as poison ivy in a grocery shop. The only way to strengthen accountability is to sell it as spinach, and take the poison out by changing the idea into mainly descriptive, open-ended, best effort assessments, preferably carried out by external consultants. But such a diluted approach is often at the expense of ownership and teeth.
World Bank Controllers developed around 2000 a so-called “Country Disclosure Statement”, an attempt to chart a country’s fiscal governance system, information management and public accountability. It included an assurance statement by the client country, expressed in terms of results, describing the adequacy of their fiscal controls in assuring that resources lent by the Bank were being used for the purposes intended.
But asking for ownership, through such a certificate, duly signed by the Minister of Finance, proved a few bridges too far. Heavy artillery was used to put the idea back into the box. Some countries, I was told after my departure, claimed it was an infringement of their national sovereignty. And the whole idea died at a conference of the World Bank’s executive board.
Fast forward: during my tenure at the European Commission I plagiarized my own proposal for a World Bank assurance model and tried it out on the EU accountability framework — with more than two dozen countries sharing the responsibility for the resourcing, redistribution and spending of a budget of tens of billions of euros. Contentious as the idea was, the proposal received a more welcome reception than at the Bank. The European Parliament endorsed it wholeheartedly as early as 2003, with a more tepid response by the European Commission. But the European Council, on behalf of the EU’s voters and taxpayers, torpedoed the “national declaration” unceremoniously.
Today only four EU countries, and to different degrees, have agreed voluntarily to sign a “national declaration”, countersigned by their Supreme Audit Institution, and for expenditures only. No countries are willing to vouch that their annual contributions to the EU are correct and complete.
What does this story tell us?
1) That sovereign governments are quite willing to proceed with “best efforts” accountability frameworks but, even though their ministers and senior representatives are protected by legal immunity, have little or no appetite for, and indeed are often wholly allergic to, results-based accountability.
2) That such passively aggressive opposition to “accountability with teeth” is a strong indication that governments still have a long way to go to meet international standards of fiscal transparence, and to support the efforts of other actors such as the supreme audit institutions
3) That this issue can be better resolved if we wean ourselves off our addiction to clean assurance statements. Instead; countries should use qualified audit opinions — warts and all — rather than clean opinions, as a precondition for turning fiscal accountability into more than an open-ended commitment. Any qualification to the financial reports produced by governments should be seen as valuable information, identifying gaps for which the countries concerned, in the first instance, should not be punished but helped to close.
1 Jules Muis is a former Vice President and Controller of the World Bank, presently a member of the ESM Board of Auditors and the Public Interest Oversight Board. He writes in his personal capacity.
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