INTOSAI Working Group on the Audit of Privatisation

At XVI INCOSAI in November 1998 the Working Group were invited to draw up audit guidance in two areas of particular importance for the development of public services: economic regulation and the increasingly widespread use of public/private financing arrangements and concessions. Since then the Group have been working hard in pursuit of this remit, informed by the survey of economic regulation and its audit, to which nearly 70 SAIs contributed, the results of which were placed on the Group's website on the internet last year. The Group's work on public/private partnerships and concessions has also been informed by experiences reported by a variety of members. I am glad to say that as a result the Group were able to reach agreement at their meeting at Buenos Aires in September 2000 on draft guidelines on best practice for the audit of economic regulation and also draft guidelines on best practice for the audit of public/private finance and concessions. The Working Group would like to recommend these guidelines for adoption by XVII INCOSAI in November 2001, and so with the agreement of the Working Group and of the Governing Board, I am writing to you now to invite your comments on the enclosed exposure drafts.

The draft guidelines on the audit of economic regulation highlight a series of key issues that SAIs are likely to need to address when examining the efficiency and effectiveness with which regulators of suppliers of public services have set about their tasks, having regard also to globalisation in increasingly unified markets. The draft guidelines are divided into five sections: the skills required by the SAI, the business of regulation, the supply of service, the price of service, and developing competition. The Working Group note that the draft guidelines have already proved to be of considerable help to a number of their members in carrying out their audits of economic regulation.

The draft audit guidelines on best practice for the audit of public/private finance and concessions concern a significant offshoot of privatisation - contracts which typically involve public sector bodies specifying services which they wish to purchase and, through competition, selecting private suppliers to provide the services and the relevant assets needed for that purpose. Such contracts can also involve the award of a concession to a private sector supplier who then charges the general public for access to the services. The purpose of these guidelines is to provide a logical framework for SAIs intending to examine these agreements, to establish whether the public sector partner has got the best possible deal for the taxpayer/citizen. The guidelines address: the general approach of the SAI, scoping the project, project management, contractual issues, value for money evaluation, and managing the contract.

The Working Group will be meeting in Budapest in June 2001 to review both sets of draft guidelines in the light of comments of SAIs, and to draw up recommendations to XVII INCOSAI. So I should be most grateful if you would let me have any comments on either or both sets of draft guidelines by 31 January 2001 at latest.

In addition to this work, the Group are also pursuing the other aspects of their remit from XVI INCOSAI, in particular monitoring the effectiveness of the comprehensive guidelines on best practice of the audit of privatisation which were adopted in 1998, and facilitating the further exchange of information between SAIs about privatisations and their audit. Experience so far suggests that the guidelines are proving to be very helpful to SAIs, enabling them to focus more directly, specifically and quickly on key audit issues, but also that there are areas in which the guidelines could usefully be supplemented. These include issues relating to the role of the state as minority shareholder in private businesses. The Working Group intend to pursue these issues at their future meetings.

I look forward, on behalf of the Working Group, to hearing from you.

Yours sincerely,

John Bourn