Paper by the Supreme Audit Institution of Argentina (Auditoría General de la Nación)
The SAI should identify its audit responsibilities in relation to the economic regulator and, in addition to the financial audit skills needed to examine the execution of the regulator's budget, should ascertain what specialist skills it needs to carry out performance appraisals of economic regulation.
Concerning this Guideline, the AGN has got the various bodies of the Regulatory Section and their representatives identified in its data base and files, seeking to keep this information updated as well as being aware of their missions and their control and regulation functions.
Besides, during the process, the AGN seeks to obtain specific awareness as regards the legal bases, revenues, speciality of the services provided, obligations, accounting analysis and benchmarking that will enable the body to perform a cost-benefit analysis as well as a risk analysis and an assessment of the impact of regulatory decisions.
Accordingly, and with reference to the activity being audited, the AGN carries out audits on Investment Account, BookKeeping, Fares, Commercial Attention, Compliance with Obligations, Compliance with Product and Service Quality and Compliance with Investments.
The SAI should identify and secure the core in-house skills it needs to enable it to carry out authoritative performance appraisals of economic regulation, and should supplement these skills with expert external support as necessary
The AGN counts with a training plan, which scope covers the most prominent agents in the audit of the regulatory bodies.
This training is performed internally by in-house agents or by teachers hired for that purpose. Besides, the AGN also sends some of its agents to take courses imparted by academic institutions.
In order to set about performance evaluations the SAI needs to have a clear understanding of the context in which the economic regulator is operating.
The SAI has a clear understanding of the economic regulator that is being audited but in the case of Argentina, the regulatory bodies were created after the privatisation process took place, for these premises could not be taken into consideration.
The SAI needs to have a clear understanding of the objectives, functions and powers of the regulator in order to examine how effectively it is addressing its tasks
The AGN has the Audit Standards and a series of technical documents from which several key aspects for any kind of audit procedure arises. This has specifically an important effect on the possession of a clear understanding of the objectives, functions and powers of the regulator.
In Argentina, the regulatory bodies are separated by specific areas:
The SAI should examine what rules and procedures have been established to ensure that regulatory functions are carried out properly and honestly and that cases of alleged improper practice on the part of the regulatory body or its staff are investigated.
Regarding this guideline, it is important to point out that one of the main aspects of the procedure is that related to checking that Missions and Functions are being met in order to avoid any sort of improper practice such as taking attributions that exceed their competence.
The SAI should examine what steps the regulator has taken to ensure that it has sufficiently competent staff, and access to expert advice, to enable it to carry out its functions with adequate knowledge of the regulated suppliers and the markets within which they operate.
In Argentina, the SAI does not examine the technical skills of the regulatory body's personnel. However, it does check that the body complies with the functions for which it was created.
The SAI should establish whether the regulator is able to obtain sufficient reliable information about suppliers to enable it to carry out its functions efficiently and effectively.
The AGN checks the quality of the information required by the body to the suppliers. It also considers the analysis of reliability to be of great importance, applying cross-examinations for this purpose.
The SAI should examine what steps the regulator has taken to assist public and parliamentary scrutiny of its decisions and actions, including consultation arrangements with interested parties, having due regard to the need to protect commercial confidentiality where this can be shown to be in the public interest
The regulatory bodies can call a public hearing so as to dissolve controversies between the parts involved. The AGN checks that the rules and regulations are being complied with but it has no saying in these matters.
The AGN exercises an EX - POST control and it is not consulted for the decision making of the bodies.
The SAI should examine the arrangements which the regulator has put in place to ensure that suppliers provide at least the basic statutory services and that consumers are protected and compensated if failures of supply occur.
As regards the security of supply, this is included in the contractual guidelines, except from the cases of service cut offs due to lack of payment or other reasons of main importance.
There are terms for this and of course, seeking to protect the consumer, there is the possibility to impose penalties or even terminate the contract or cancel the license in case the businesses fail to provide the privatised public service.
The SAI should examine how the regulator has sought to secure consumer access to services and whether suppliers are prevented from discriminating unfairly between different groups of consumers.
If this occur, then it becomes a "standard audit" applied to various periods of time, followed by observations. The AGN checks the Regulator and the Company by cross examinations in order to come up with results that will allow to determine if the regulator has protected the consumer who is captive of the service that is being provided.
The SAI should examine how the regulator monitors whether suppliers comply with their statutory duties to provide access to vulnerable groups.
Since 1993, the AGN has been carrying out audits on COMMERCIAL ATTENTION - CONSUMERS' COMPLAINTS, both in the regulatory bodies as in supplier companies providing PRIVATISED PUBLIC SERVICES. This is monitored on a yearly basis, comprising different periods of time so as to be able to determine if consumers' rights regarding complaints procedures are defended or complied with. The AGN also checks that this is being done both by the regulator as by the Company.
In Argentina, the state provides subsidy for example, in the case of rail companies for the purpose of reducing the stipulated fares to consumers. In this case, the AGN carefully monitors the company as it also examines the obligations arising from the contract.
The SAI should examine what the regulator has done to establish minimum standards of service for consumers, to monitor the performance of suppliers, and to secure improvements when suppliers’ performance falls short of those standards.
The compliance with Product Quality and Service Standards are audited by the AGN which also checks that the regulator complies with its control duties over the obligations emerging from the contract (among these obligations, the ones that preserve the Quality of Service).
The SAI should examine whether regulators and suppliers have set up well-publicised procedures to enable consumers’ complaints to be satisfactorily addressed.
Reasons for the guideline
The AGN checks that the existence of the regulator is communicated. As a result of this, it demands each business to publicise the addresses and telephone numbers where complaints can be received, both in the Businesses as in the regulator and that Consumer Rules are available to everybody from Consumers' Attention Centres.
As regards this issue, it would be appropriate to present the example of the ETOSS, which allows consumer's associations to participate in decisions concerning consumers. These associations have no vote but their considerations are assessed by the Board for Resolutions. It also donates an amount of 150.000 pesos to Consumers' Associations to be used for special surveys and training on Sanitary Services.
The SAI should examine how the economic regulator is discharging responsibilities it may have for checking that suppliers are meeting any obligations laid upon them for the protection of the environment.
The organic structure of the AGN defines an Environmental Performance Control Management which checks that the regulator is controlling that businesses are complying with their contractual obligations (within national and international standards) as regards the protection of the environment.
Where the economic regulator has responsibility for controlling the prices charged to consumers by suppliers, the SAI should examine whether the regulator has implemented a well designed and transparent pricing policy in line with the regulatory objectives.
The AGN checks prices when relevant so as to ensure that these are fair and reasonable and also that there is no discrimination in the sense that there is an equal price for an equal service.
The SAI should examine whether the regulator has sought to ensure that the price consumers are required to pay is matched by the quality of service provided.
The AGN checks that the regulator is monitoring the quality of service provided linked to its price. In some cases, a price increase depends on the provision of the service (In Argentina, this applies in the case of rail services).
The SAI should investigate whether the regulator has sought to encourage suppliers to reduce their costs and improve their efficiency.
The AGN has detected in various cases that the regulators, in accordance to their specific area, seek for businesses to reduce their prices and improve the quality of service and efficiency. They also seek to induce businesses towards newest technologies in order to improve the provision of the service in every possible aspect.
The SAI should examine whether, in setting price controls or other limits on suppliers' income, the regulator has examined the likely cost to suppliers of raising capital, including both debt and equity capital, having regard to factors such as the proportions of suppliers’ balance sheets made up by different sources of finance, and taxes on profits and interest.
In Argentina, the limit is the internal rate of return, for instance in the case of Hidrovías where the limit to income and profitability cannot be higher than the internal rate of return which is determined by the economic and financial equation. If it is higher than the rate of return, the price drops. By contrast, if the rate is lower, the price rises.
The SAI should examine whether the regulator is monitoring supplier investments, checking in particular that suppliers are fulfilling any investment requirements and undertakings, and that the investment is having the desired beneficial effects for consumers.
The AGN periodically checks that the regulator is monitoring the compliance with the investments emerging from the contract and also the fulfilment of requirements related to a particular task.
Where the regulator has the objective of promoting competition in order to reduce monopoly and market domination, the SAI should examine what has been done in pursuit of that objective and with what results.
In this sense, it has been already pointed out that when there is monopoly, the function of the regulator is essential for balancing the market.
In our country, the reduction of monopoly and market domination was done in the area of interurban telecommunications and, from November 2000 the prices will be reduced, for the regulator seeks for new companies to arrive in order to supply for a market where the consumer will be able to choose, thereby encouraging competition.
The SAI should examine what the regulator has done to assess whether consumers have the scope to change supplier, whether there is sufficient information for them to make rational decisions about which suppliers they choose, and whether there are effective arrangements for those consumers who want to change supplier.
Although there is no previous experience on this matter in our country due to the fact that the market was recently opened and this applies solely to the area of telecommunications (interurban and international), from November 2000 the urban market will become competitive. Today, this market is co-dominated by TELECOM AND TELEFONICA. This is considered to be an important subject for future audit procedures.
The SAI should examine whether the regulator seeks to identify and deal promptly with alleged anti-competitive practices.
In it procedures,the AGN has regard to this issue notwithstanding the fact that privatisation in Argentina is slowly becoming competitive.