Abstract
Public financial management reforms in Latin America have improved fiscal programming, budget formulation, revenue and cash management, reporting and audit. Yet, legislative scrutiny of audited annual financial reports remains consistently weak, leaving the budget cycle incomplete and accountability gaps unresolved. Strengthening this scrutiny should be a priority to ensure that public resources are not only managed transparently but also used effectively to achieve results for citizens.
Public financial management (PFM) reforms across Latin America since the turn of the century have brought notable progress in areas such as fiscal programming, budget formulation, revenue and cash management, reporting and audit. Yet, one critical function remains consistently weak: the scrutiny and formal approval by legislatures of the government’s audited annual financial reports — a step essential to closing the accountability loop in the budget cycle.
International good practice, as also reflected in the PEFA (Public Expenditure and Financial Accountability) framework, underlines the important role legislature plays in examining the execution of the budget it had approved. This typically involves legislative committees reviewing and analysing external audit reports and questioning officials responsible for implementing the budget. For scrutiny to be effective, it should result in a report that is debated (and ideally approved) by the full chamber of the legislature, prompting a formal response from the executive.
Despite constitutional mandates in nearly all countries in the Latin America region, this good practice is often only partially complied with. The objective of legislative oversight — ensuring that public resources are managed efficiently and achieve meaningful results for citizens — is undermined if the legislature neglects to review audit reports thoroughly, fails to issue recommendations, or does not follow up on them. Without this scrutiny, the budget cycle cannot truly be considered closed, and the credibility of policies and the effectiveness of government actions remain uncertain. Ultimately, no amount of strengthening of external audits will have an effect on accountability if their findings are ignored.
Evidence from PEFA assessments over the past two decades underscores this challenge. Across Latin American countries, scores on Indicator PI‑31, which measures legislative scrutiny of external audit reports, mostly range between D and D+, with no country ever achieving a score above C. These consistently low PEFA scores highlight a persistent gap between constitutional or legal mandates, actual practice and international standards, confirming that legislative scrutiny of annual audit reports remains weak across the region.
These weaknesses are often systemic. In some countries, the legal framework does not explicitly require legislatures to scrutinise audit reports. Even where such a mandate exists, it does not translate into practice, and legislative bodies often lack the technical capacity to analyse audit reports effectively. Engagement is frequently delayed; discussions may not address the reasons auditors qualified or objected-to annual financial reports, and hearings with officials are rare or not made public. Legislatures may also fail to issue formal recommendations based on audit findings, or when they do, there is little evidence of follow-up. This is why the same issues are raised year after year in audit reports.
Given these challenges, several actions could improve legislative scrutiny and bring it closer to international good practices: PFM reforms should include measures to strengthen legislative review of audit reports, recognising its critical role in ensuring accountability; where financial reports are not approved or are observed by the Supreme Audit Institution, legislatures should require explanations and corrective plans from the executive; set concrete indicators to address deficiencies and establish consequences if corrective measures are not implemented within formally established deadlines; and greater resources should be allocated to build technical capacity and develop clear methodologies for scrutiny of audit reports. Regional networks of audit bodies should help address these capacity gaps.
Understanding the legislature’s role in the budget cycle helps explain why these shortcomings matter. Legislatures are responsible not only for approving the annual budget, which authorises the executive to spend public funds in pursuit of policy objectives, but also for scrutinising audited annual financial reports to determine how much it cost and what was actually achieved. These two roles are complementary. Scrutiny of past performance should inform future budget decisions, creating a feedback loop that helps align resource allocation with policy priorities and actual results. When legislatures do not fully exercise this ex-post oversight, the budget cycle remains incomplete and the executive may have fewer incentives to correct weaknesses or explain deviations.
It is important to clarify that broader political control — such as debates on government policies or questioning of ministers — does not substitute for systematic, evidence-based scrutiny of annual financial reports anchored in the findings of the Supreme Audit Institution. Many constitutions specifically assign legislatures the responsibility to approve or formally review government accounts, underscoring that this is a legal and institutional duty, not merely an option that can be exercised when politically convenient.
Improving the efficiency and effectiveness of public spending in Latin America requires more than modernising budgeting and reporting systems. It requires strong institutions capable of holding the executive to account for delivering results. Legislatures have a critical role in this process, yet many are not fully exercising it. Strengthening legislative scrutiny of audited financial reports and ensuring it leads to meaningful recommendations and follow-up should be a priority for future PFM reforms. By doing so, countries can help ensure that public resources are managed not only legally and transparently but also effectively, to deliver the outcomes citizens expect. It may also lead to rebuilding trust in public institutions.
