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INTOSAI Working Group on the Audit of Privatisation,
Economic Regulation and Public Private Partnerships



INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnerships

Proceedings of the Fifteenth Meeting, Moscow, 17 and 18 March 2009

  1. The INTOSAI Working Group on the Audit of Privatisation, Economic Regulation and Public Private Partnerships held its 15th meeting in Moscow on 17 and 18 March 2009. The meeting was attended by representatives of 31 Supreme Audit Institutions, 29 of whom were members of the Group.
  2. Dr Sergey Vadimovich Stepashin, Chairman of the Accounts Chamber of the Russian Federation, opened the meeting by welcoming the delegates to Moscow. Dr Stepashin referred to the global financial crisis which had unfolded since the group last met and noted the impact on privatisation, the new risks and opportunities that have emerged and the potential way that SAIs conducted their audits. The work of the Group has focused previously on the real economy but the crisis suggests this focus will now move into the financial economy.
  3. Dr Stepashin noted the need to reconsider the role of international organisations and emphasised the role that INTOSAI can play in assisting them to resolve the financial crisis. The new Working Group chaired by the United States General Accounting Office will, for example, draw out common themes from SAI responses to the crisis. Dr Stepashin concluded that there may be valuable work for the Privatisation, Economic Regulation and PPP Working Group to undertake in updating existing products or developing new ones including on valuation techniques and developing a common understanding of terms privatisation and PPP terms. In closing, Dr Stepashin wished delegates every success for the meeting.
  4. Mr Ed Humpherson, Assistant Auditor General from the UK National Audit Office, representing Mr Tim Burr, the Comptroller and Auditor General of the UK, thanked Dr Stepashin for his welcome and reflected that a key theme for the meeting would be to understand better what the financial crisis means for the group. Mr Humpherson commended the Group for its farsightedness at the last meeting in Marrakech when delegates prioritised work on a new technical case study looking at the audit of financial services regulation. This case study was all the more relevant in March 2009. Mr Humpherson went on to remark that in the UK the crisis had led to financial services businesses being taken back into public ownership. Furthermore there had been an impact on Public Private Partnerships, with the finance for deals drying up to the extent that this may now be provided by the public sector.
  5. Mr Humpherson then highlighted to delegates that this would be an important meeting of the Group, given the UK NAO’s intention to cede the Chair after 15 years. His objective for the meeting was to reach a consensus on how to take the group forward. In concluding his opening remarks, Mr Humpherson thanked Dr Stepashin and colleagues from the Accounts Chamber for their generosity in hosting the meeting and for the warmth of their welcome to Moscow.


Meeting Objectives

  1. At XVIII INCOSAI in 2007 it was agreed that in the period leading up to XX INCOSAI in 2010, the Working Group should focus its efforts on:
    • Continuing to adjust guidelines where necessary in the light of experience;
    • Strengthening and developing the existing series of technical case studies; and
    • Developing the INTOSAI collaboration tool as a forum for members to share advice and expertise and to facilitate joint working.
  2. The agenda for the 15th meeting was able to meet this remit through the following work programme:
    • Presentations from the SAIs of the UK, Russian Federation, Sweden, Poland and Zambia on a range of issues relating to the audit of privatisation. There were also papers from the SAIs of Oman, Brazil, Malta and Australia on the audit of economic regulation. The SAI of Hungary gave a paper on matters relating to Public Private Partnerships.
    • Discussion about the Working Group’s development of a new technical case study, progress on collaborative working and wider contributions to the INTOSAI community.
    • Discussion and interactive voting about priorities for the Group in terms of the work programme in advance of XX INCOSAI.
    • Discussion about the future of the Working Group and its achievements in light of the UK NAO’s decision to cede the Chair.

Main Conclusions

  1. The main conclusions of the 15th meeting were:
    • Financial Crisis The Working Group agreed that the global financial crisis is having an impact on the work of SAIs. Following some suggestions from Mr. Alexander Piskunov, Board member of the Accounts Chamber of the Russian Federation, the Group thought that there might be useful practical work to undertake including developing a thesaurus of the terms and processes associated with the economic crisis, developing a reference model for the valuation of assets and entering into dialogue with other Working Groups about their approach to the issues.
    • Future of the Group Mr Humpherson set out the rationale for the UK’s decision to cede the Chair of the Group and some options for going forward. There was extensive discussion of the options and strong support for continuing the group in its current format. Some delegates favoured splitting the Group. Of the three main areas in the Group’s remit, regulation emerged as the one which was of most ongoing interest. The preferred way forward for Members of the Group was that it should continue with a new Chair. The Secretariat agreed to explore these issues further with attendees of the meeting, other members of the Group and relevant heads of SAIs. It also agreed to develop a detailed plan for how the Group might work on a remote / online basis.
    • Future Work Priorities The Working Group agreed to take forward three priorities for future work: the creation of a case study on PPPs and the financial crisis; the development of collaboration on knowledge sharing of methodologies for the study of PPPs; and the mapping of the functions, governance, reforms, expertise and methods of regulatory institutions.

Theme 1 – Experiences in the Audit of Privatisation

  1. Ms Patricia Leahy of the UK National Audit Office (NAO) opened the presentations with a paper about the measures taken by the UK Government in response to the banking crisis, in particular those designed to bring stability to financial markets. Ms Leahy outlined the context of the NAO’s work on the crisis including a summary of the role and remit of the NAO, the main effects of the financial crisis in the UK and the key initial and subsequent government responses to the financial crisis. Ms. Leahy then described the strands of financial audit and performance audit work being undertaken by the NAO in response to the financial crisis. The key performance audit work includes a report on the process of taking Northern Rock into public ownership and a report reviewing developments and progress to date on measures to recapitalise banks and improve liquidity. Of the SAIs represented at the meeting 58 per cent had already carried out some financial audit work and 63 per cent had carried out performance audit work in response to the crisis. Ms. Leahy concluded that there were several ongoing challenges for auditors, in particular the political and changing nature of the crisis and assessing the short and long term effects.
  2. Mr Alexander Piskunov of the Accounts Chamber of the Russian Federation then delivered a paper on auditing the privatisation process in the Russian Federation with reference to developments as a result of the global financial crisis. He noted the impact of privatisation on efficiency and also the risk of privatising profit and nationalising losses. A particular concern for the Chamber of Accounts was the issue of national asset management and the potential scenarios for Government in developing a better asset management system both in terms of tangible and intangible assets. Mr Piskunov was positive about the role of the Working Group in terms of helping inform debate on the issues around the financial crisis and developing an audit response to the new requirements thrown up by changing economic circumstances. Mr Piskunov suggested the Group might develop new workstreams to respond to these issues. Delegates thought these suggestions were valuable and attached priority to developing a thesaurus of the process and terminology of the financial crisis, maintaining dialogue with other relevant Working Groups and considering how to develop a valuation of assets reference model.
  3. Mr Goran Hyltander and Mr Dimitrios Ionnadis of the Swedish National Audit Office (SNAO) then made a presentation about the Swedish Government’s 2007 sale of 8 per cent of shares in TeliaSonera, the leading telephone business in Sweden and Finland. Mr Hyltander outlined the background and context of the sale, including the motivations behind the SNAO’s decision to audit the sale and Mr Ionnadis spoke about the relevance of this audit in times of financial crisis, stressing the emphasis on the craft of asset management. As a result of their audit the SNAO found the government achieved a reasonable price in the sale, but had not set clear objectives or given enough consideration to some of the technical aspects. The Swedish Government had not been in favour of the SNAO’s audit and Mr Hyltander emphasised the need for the SAI in these circumstances to develop a constructive and trustful dialogue with government to overcome problems of acquiring necessary information. Mr Hyltander asked members whether development of best practice would improve an SAIs audit of a Government sale; 77 per cent voted ‘yes’, whilst 16 per cent voted ‘maybe’ and 7 per cent voted ‘no’.
  4. Mrs Elzbieta Sikorska of the Supreme Chamber of Control (NIK), Poland, then delivered a paper on audits of privatisation of the pharmaceutical industry. Mrs Sikorska concluded that during the initial privatisations some common mistakes were made and the main recommendation from the audit was that the Ministry of Treasury update their privatisation programme and implement it for the remaining five state owned ‘Polfa’ plants. Mrs Sikorska described the 2007 NIK audit to investigate the new programme for the restructuring and privatisation of the pharmaceutical sector. The NIK found that the aims of the programme were inconsistent, measures taken unreliable and that during the time wasted in implementing the programme the economic and financial condition of the state pharmaceutical sector entities had deteriorated. The NIK was reluctant to recommend developing another new programme of privatisation in case it too developed inappropriately. Therefore more specific recommendations were made which the government implemented, although Mrs Sikorska indicated that owing to remaining inefficiencies, the NIK may perform another audit in the future.
  5. Finally under the privatisation theme, Mr Patrick Simusokwe of the Office of the Auditor General of Zambia presented on the SAI’s privatisation experience. Mr Simusokwe outlined the background to the decision made in the 1990s to privatise state enterprises and the establishment of the Zambia Privatisation Agency (ZPA). He noted that as a result of problems in privatisation there has been a shift to partial privatisation including PPPs. In some sectors such as water, telecommunications and electricity, privatisation has been ruled out by Government as they are seen as key public services. Mr Simusokwe then described the role of the OAG Zambia in the auditing of privatisation. The OAG does not have a mandate to audit privatised entities but can audit the ZPA. The OAG had difficulties in influencing the private sector companies involved in privatisations, problems obtaining information and found a lack of guidelines on privatisation and legislation governing PPPs. The main challenges for the OAG included building capacity, continuing to train up staff on developments in PPPs and the use of INTOSAI guidelines in these areas, monitoring the implementation of the new PPP legislation and ensuring access rights for the SAI are guaranteed. Mr Simusokwe emphasized the importance of the Group’s guidelines as the main source of information for the improvement of the OAG’s audit methodologies.

Theme 2 – Experiences in the Audit of Economic Regulation

  1. Mr Abdul Rahman Ahmed Hamed Al Harthi, representing the SAI of Oman began the presentations on the audit of economic regulation with a paper on the audit of electricity regulatory authorities in Oman. Mr Al Harthi spoke in particular about the Authority for Electricity Regulation (AER), an independent regulatory body, audited by the SAI and responsible for securing the provision and safety of electricity and related water services and protecting consumer interests, including encouraging competition in the public interest. When auditing the AER, the INTOSAI guidelines on regulation were used at the request of the client body. The audit findings were largely positive: the AER had clear objectives, was impartial and accountable, had information and validation systems in place and had mechanisms for ensuring supply and appropriate price of service. There was, however, scope for improving dispatch procedures in order to reduce the price of service, and for developing competition in the sector. During his presentation, Mr Al Harthi asked members whether their SAI used the INTOSAI Guidelines on best practice for the audit of economic regulation while auditing regulatory authorities. 75 per cent of members used the guidelines either wholly or partially.
  2. The presentations continued with two papers from Mr Marcelo Barros Gomes of the Brazilian Court of Audit (TCU). The first paper focused on the TCU’s Modernization Project for external control of regulation and the second on experiences of audit of regulation of the power sector. Mr Gomes began by recalling a 2001 congress of Latin American governments which concluded that state enterprises were problematic and that it was necessary to redefine the role of the state. In 2008, Mr Gomes noted with interest that the same conference found liberalism and privatisation to be the cause of the financial crisis and advocated nationalisation as a solution. Mr Gomes talked through the Modernization Project and explained the benefits it has had for the TCU’s ability to oversee the Brazilian regulatory system in a more efficient and effective way, in particular through consolidating methodologies, developing new audit techniques, accessing information more easily and improving capacity building. Mr Gomes then moved on to talk about the power sector and the TCU’s role in overseeing regulation, stressing that the TCU is not the regulator, or the regulator of the regulator and that they must stay within their mandate as an audit body. Mr Gomes discussed the successes and challenges of regulation in Brazil concluding that with the assistance of the TCU, regulatory bodies have made significant progress towards establishing a healthily functioning infrastructure sector.
  3. Mr Wilfred Aquilina of the Malta National Audit Office (NAO) then delivered a presentation on the subject of auditing the regulation of the universal postal service. By way of context, Mr Aquilina discussed the importance of the postal service and the background of the Malta Communications Authority (MCA) in regulating it. He highlighted the concepts of universal service, quality and affordability and explained the framework of the postal service and the privatisation of the Universal Service Provider (USP), MaltaPost, in 2008. The NAO’s current performance audit is examining the effectiveness of the MCA’s monitoring to ensure adequate performance from the USP and to safeguard the interests of users. Mr Aquilina discussed the main areas of the examination including universal service obligations, minimum quality of service standards, integrity and security of mail and user complaints. The NAO has found that there are areas where the MCA can better safeguard the interests of users, maximise customer choice and drive improvements in the quality of service delivered by the USP. During his presentation Mr Aquilina asked members whether universal postal service obligations and minimum quality of service standards are regulated in their country; 78 per cent of members said that they were.
  4. The final presentation on the theme of economic regulation was made by Ms. Alicia Hall of the Australia National Audit Office (ANAO), on the subject of The Australian Government’s response to the global financial crisis in terms of fiscal stimulus and financial stability measures and issues for performance audit that have arisen from these. Ms. Hall began by outlining the impact of the global financial crisis in Australia and the fiscal stimulus packages that have been launched in response. She also outlined the institutional arrangements that have been put in place to support infrastructure spending, including the establishment of Infrastructure Australia and the adoption of common PPP policy and guidelines across government. Ms. Hall asked members whether their governments had introduced a deposit guarantee scheme for banks and whether infrastructure spending had been accelerated in their countries - 59 and 61 per cent respectively answered positively. Ms. Hall then described the relevant performance audits being undertaken by the ANAO including an audit of the conduct of Infrastructure Australia and a series of audits examining national building funds. The ANAO intends to provide assurance to parliament on the extent that spending was on worthwhile projects, whether it was managed appropriately and whether it stimulated economic activity and generated employment.

Theme 3 – Experiences in the Audit of Public Private Partnerships

  1. The presentation focusing on the audit of PPPs was delivered by Dr. Gusztav Bager of the Hungary State Audit Office and looked at the audit outcomes from assessing a programme of student hostel PPPs in Hungary against the UK NAO’s matrix approach. This approach is based on six key performance themes which are common to all six stages in the life cycle of a PPP project. Dr. Bager outlined the objectives for the PPP programme including construction of new hostels and redevelopment of old hostels in order to fill the gap in student accommodation. Dr Bager concluded that this was a successful PPP project which achieved most of the key performance themes set out by the UK NAO. Dr. Bager finished his presentation by suggesting that the UK NAO’s matrix appears to be efficient and can be used to help with regular monitoring of projects. Dr. Bager asked members whether they thought that this approach might be efficient for evaluation and audit. 75 per cent voted conclusively in favour of this approach with a further 18 per cent thinking that it might be useful.

Working Group Update

  1. Ms Louise Bladen and Mr Ed Humpherson gave a joint presentation on behalf of the Working Group Secretariat about developments in the work programme and the future of the Group. Ms Bladen summarised work that has been carried out on a new technical case study on the subject of audit of regulation of the financial services sector. Ms. Bladen noted that this topic was increasingly topical in light of the global financial crisis. She emphasized that the case study is a living document and that it should be added to and developed given the dynamic nature of the issues involved. Ms Bladen then summarized the key issues arising from the case study for regulation and for auditors of regulators.
  2. Ms Bladen also spoke about progress against the Group’s remit agreed at XIX INCOSAI, Mexico 2007. Ms. Bladen explained that work on the Working Group guidelines currently consists of the development of stand alone executive summaries of the guidelines, as requested by INTOSAI as part of efforts to build an online database of official INTOSAI documents. The technical case study series had been added to through the case study on financial services regulation and work had also been carried out on the INTOSAI collaboration tool to ensure that members are registered and can now receive email forwarders from the tool to inform them of updates. Ms. Bladen emphasised that more collaboration on documents and reports is needed and that we should start to encourage announcements and discussions using the tool. Other initiatives and meetings which have required input from the Group include responding to a questionnaire about updating the INTOSAI Strategic Plan 2011-2016, reporting to the 58th Governing Board meeting in Vienna in November 2008 and the inaugural meeting of the Knowledge Sharing Committee in New Delhi in March 2009 and work on a request from Mexico as President of INTOSAI to review and update the Group’s glossary of audit terms. Ms. Bladen requested input to this glossary from group members.
  3. Mr Humpherson then spoke to the Group about its future. He began by summarising the achievements of group from 1993-2009, which include around 150 papers delivered at over 15 meetings, 4 sets of audit guidelines published, 11 technical case studies developed and a growing membership of 42 members, making the Group the second largest in INTOSAI. Mr Humpherson added that the UK NAO has enjoyed being the Chair of the Group and had learnt a great deal from the role. He stressed, however, that the UK model of Chairing is not the only model for the Group and that other SAIs have excellent experience that could be drawn upon. Mr Humpherson then put forward some options for the future of the Group: a new Chair is identified to take over from 2010; a new form of working is devised; or that the Group be dissolved at INCOSAI 2010.
  4. Delegates had the opportunity to vote on key questions about the future of the Group. 32 per cent of members voted that they would see a benefit in splitting the group into three subgroups, with a Group on the theme of Economic Regulation being seen as the most beneficial if this option were followed up. 24 per cent of members voted in favour of participation in a Group conducted remotely or online. Mr. Humpherson summarized the findings of the interactive voting by concluding that the Group would prefer to keep working in the current format, although perhaps with a shift in focus. He also concluded that there was no strong appetite for splitting the group or for online working, but that members felt that there was still much work for the Group to do.
  5. Mr Humpherson then opened up the discussion on the future of the Group to all members. It was concluded that the best option would be to find a new Chair for the Working Group. Mr Humpherson confirmed that the UK NAO would continue to seek a new Chair through discussions with members of the Group and, where relevant, through contact with heads of SAIs. In the event that no new Chair was found, the Group concluded that online collaboration could be an option for future working. In response to a suggestion from delegates, the Group Secretariat will work up a proposal for how an online system could operate. Mr Humpherson concluded that the least favoured option would be for the group to be dissolved.

Break Out Groups

  1. Members of the Working Group were invited to join one of three discussion groups around the themes of auditing privatisation, economic regulation and PPPs. The groups explored current issues affecting their work in these areas and discussed opportunities and priorities for future work. Each group was asked to feedback to the plenary session their top priorities for future work. These were as follows:

Privatisation

Economic Regulation

  • Map the functions, governance, reforms, expertise and methods of regulatory institutions.

iii. Public Private Partnerships

  • A new technical case study on the subject of PPPs and the financial crisis
  • Collaboration on knowledge sharing of methodologies for the study of PPPs
  • A new technical case study on the subject of transparency in the public / private sector dynamic
  1. In the plenary session the Group voted that the three top issues to take forward in our future work programme were to create a case study on PPPs and the financial crisis, to develop collaboration on knowledge sharing of methodologies for the study of PPPs and to map the functions, governance, reforms, expertise and methods of regulatory institutions.

Closing Remarks

  1. Mr Humpherson closed the meeting by thanking presenters for the high quality of their contributions, and all members for their exceptionally frank and open discussions. He concluded that the Group had been on a journey through a wide range of issues and had identified new challenges, new issues and new solutions to be taken forward. Mr Humpherson also thanked the Accounts Chamber of the Russian Federation for their hard work in organising and hosting such a productive meeting.
Fifteenth Meeting Index