Supreme Audit Institutions (SAIs) are key organizations for promoting fiscal transparency in the use of public resources. By conducting different types of audits, SAIs offer information on the reliability of financial data generated by governments, the legality of public actions, as well as the efficiency, effectiveness, and economy of public entities’ performance. SAIs’ audit reports include findings and recommendations aimed at improving the operation of the audited entities and making governments answerable for their decisions and actions. The added value and benefits of SAIs make them essential elements for promoting accountability and transparency within the public sector.
However, the positive impact from SAIs’ work depends upon having adequate independence conditions to protect the SAI from interference by the Executive and/or Legislative. If SAIs are not independent, they will not be able to execute their powers effectively and, under such limitations, cannot generate public value from their work. The independence of SAIs should be understood in the light of the Lima and Mexico Declarations, issued by the International Organization of Supreme Audit Institutions (INTOSAI). The Lima Declaration, endorsed in 1977, expounds the foundational principles of public auditing, including the acknowledgement of concepts such as the organizational, functional and financial independence criteria required for SAIs to accomplish their tasks.
INTOSAI issued a second key document in 2007 known as the Mexico Declaration. The Mexico Declaration expands on the content of the Lima Declaration and presents eight principles which clarify the definition of SAI independence. The eight principles of the declaration are:
- The constitutional or legal acknowledgement of the independence of the SAI.
- The independence of Head of SAIs and members, including security of tenure and legal immunity.
- A sufficiently broad mandate and full discretion.
- Unrestricted access to information.
- The right and obligation to report on their work.
- The freedom to decide the content and timing of audit reports, and to publish and disseminate them.
- The existence of effective follow-up mechanisms on audit report recommendations.
- Financial and administrative autonomy, and the availability of appropriate human, material, and monetary resources.
These principles are holistic and must be seen from a comprehensive perspective. For example, though a SAI may have a sufficiently broad mandate (principle 3), it may not be able to implement its mandate if there are insufficient financial resources (principle 8). Another example is that the benefit of publishing audit reports (principle 6) could be limited if there are not suitable mechanisms in place to follow-up on recommendations (principle 7). Therefore, if a SAI does not successfully hold to all eight principles within the Declaration, this can put their independence at risk.
These components of the Mexico Declaration have both legal and practical dimensions. The independence of Supreme Audit Institutions is not only about the design of provisions in the Constitution or the Audit Act, but it is also related to the way the legal framework is implemented. In fact, SAI independence can positively influence the institutional framework, especially when SAIs provide insight to improve the functioning of processes and programs, as well as foresight to aid governments in adapting to future trends and risks (OECD, 2016).
An independent SAI is regarded as an asset within a country’s public financial management (PFM) system. In fact, the concept of independence is referenced as part of different global processes promoting values such as transparency and accountability. For example, it is included in the IMF’s Fiscal Transparency Code and the IMF’s Fiscal Transparency Evaluations (FTE). The IMF’s Fiscal Transparency Code stipulates SAI independence as a necessary condition for generating a suitable level of assurance on the reliability of the government’s financial statements. However, independent SAIs can also contribute to fiscal transparency through other channels, such as their contribution to the improvement of internal control systems of audited entities, the functioning of the budgetary cycle, and other structural institutional factors like the rule of law.
As part of the XXIV International Congress of Supreme Audit Institutions, held in Rio de Janeiro in November 2022, the IMF along with other organizations participated in the International Forum on Government Auditing. The discussions at this event highlighted the relevance of SAI Independence as a necessary condition to generate value and benefits for citizens. The results of this forum, as well as the outcomes of the Congress, indicate the need for global actors to establish partnerships to advocate for the independence of SAIs.