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October 16, 2015

Strengthening External Audit at Subnational Level in Brazil


Posted by Francisco Javier Urra[1]

The early 1990s was a turning point for the Brazilian economy. After successive crises and pervasive macro-economic instability, the so-called “Plano Real” restored balance to the economy and brought inflation under control through a mix of policies that included price de-indexation, fiscal adjustment, monetary contraction and the adoption of a fixed exchange rate. A new Fiscal Responsibility Act (LRF, Lei de Responsabilidade Fiscal, Act n.101/2000) become the cornerstone of sound macroeconomic management and fiscal discipline, both at federal and subnational level.

The LRF gave particular emphasis to the role played by the state Tribunais de Contas (TCs) dos Estados e Municipios, the 33 audit institutions of the states and municipalities in Brazil. TCEs and TCMs became responsible for a broad array of functions such as accounting standards, and the analysis of budgets and public expenditure, as well as their traditional role as external auditors.

The reform of the 33 TCs in Brazil was supported by the Inter-American Development Bank (IDB) through the Programa de Modernização do Sistema de Controle Externo dos Estados, Distrito Federal e Municípios brasileiros¸ PROMOEX. This program was allocated total funding of $US64 million, of which 60% was financed by the IDB and 40% by the government. PROMOEX proved to be the IDB’s largest operation in the area of government audit. The project ran for more than ten years from the early 1990s until 2013.

PROMOEX set itself a number of specific objectives which included: (i) integrating the audit work of the TCs into the budget cycle; (ii) developing inter-institutional links among TCs and the federal government; (iii) developing shared solutions to common problems; (iv) redefining external audit methodologies and procedures; (v) strengthening strategic planning and the modernization of public administrative; (vi) developing common IT solutions; and (vii) implementing a policy for managing the TCs’ human resources.

Of the nine key performance goals set by PROMOEX, five were exceeded, three were achieved, and only one fell slightly below the target. The program was successful in creating a national TC network (Portal dos Tribunaes de Contas), shared by the Federal Government, the Supreme Audit Institution and the TCs, as well as building capacity in performance audit, and other achievements.

PROMOEX represented a huge effort but also a remarkable success. Subnational TCs in Brazil underwent a profound transformation, becoming “champions of PFM reform”. A tangible proof of this is the rising number of subnational TCs that are now accredited by the World Bank or the IDB for auditing their loans, advancing the use of country PFM systems much farther than in most other Latin America and Caribbean countries. Moreover, these TCs are not limited to the most developed regions of Brazil—such as Sao Paulo or southern Brazil—but also to North and Northeast states, such as Ceara, Para, and Rio Grande do Norte.

Among the important lessons learned from the project, the following stand out.

1. Opportunity and political support. PROMOEX was created at a time of profound transformation in Brazil. The LRF was a symbol of this transformation and of the government’s commitment to reform. An initiative of the size and ambition of PROMOEX would have failed without this very particular background, and the exceptionally high level of political support.

2. Alignment, ownership and bottom-up focus. A high degree of flexibility was built into the program from the beginning. PROMOEX balanced the setting of a clear top-down monitoring framework, and the nine overall performance targets, by offering TCs a strong sense of ownership, and encouraging them to provide regular feedback on the design and implementation of the project, which were modified continuously.

3. A federal vision. One of the main concerns of PROMOEX was to build a true federal program, with a focus on shared solutions, and alignment with the federal government’s PFM reform agenda. At the same time, the specific requirements and autonomy of the TCs were honored. To achieve this balance, PROMOEX was divided into two main components: the Componente Nacional and the Componente Local. The national component allowed the development of a federal agenda for government audit and PFM. The local component reserved resources for building capacity in every TC, based on its size and specific needs.

4. A focus on building shared solutions. Eight working groups were established, with members drawn from several TCs, in areas such as improving fiscal responsibility, performance auditing, and IT support systems. The working groups prepared a range of activities and outputs such as capacity building events, auditing standards and procedures, and technology solutions, which were shared among all the TCs in order to leverage the results of the project, and diversify its benefits.

5. Sustainability. The work started by PROMOEX did not finish when the program terminated in 2013. Many of the working groups and technical committees have continued to operate successfully. The focus on delivering shared solutions and cooperation instead of simply financing the requirements of individual TCs has ensured that the benefits of the project will be sustained in the years to come.

[1] Francisco Javier Urra is a Senior Operations Specialist at the Inter-American Development Bank in Washington DC. He was previously based in Brasilia, where he was Team Leader of the IDB loan for PROMOEX.

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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