It is currently the institution whose role consists of supporting the promotion of:

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1 The supreme audit institution of Romania, the Court of Accounts, was initially set up in 1864 and operated until For the following 25 years financial control was initially the responsibility of the Ministry of Finance, and later of the Higher Court for Financial Control. The Court of Accounts was re-established by law in 1992, based on the provisions of the Romanian Constitution. It operates in support of the Parliament and conducts its activity independently - functionally, operationally and financially - from the entities it examines. It is currently the institution whose role consists of supporting the promotion of: accountability, correctness and the best practices in the sound management of public funds. The Court of Accounts is a key state institution, whose aim is : to examine the use, in full compliance of the law, of public money and the management of the state public and private assets, to report the infringement of the principles of efficiency, effectiveness and economy of management of financial resources, so that corrective measures may be taken according to the circumstances, establishing the accountability of the guilty parties, recovering damages and preventing such irregularities from happening in the future or to make it more difficult for such errors to occur again. 1

2 The Court of Accounts annually saves significant amounts owed to state funds. It identifies additional revenues intended for the state, and identifies waste of public money and fraud. We are committed to strengthen our ability to implement legislation in the field of public finances, as well as good governance of the Public Administration in Romania. T h e m i s s i o n o f t he Court of Accounts is to: Be responsible for the control and review of the establishment, management and use of the state and public sector financial resources, providing the Parliament, authorities, public institutions and tax-payers with reports on their legal and sound use and management, so as to ensure economy, efficiency and effectiveness; Improve external public audit by adapting applicable international standards to the legal framework and performing external public audit in line with international good practice. The organizational structure of the Court of Accounts consists of 12 departments: - 9 audit departments - 2 departments with coordination responsibility - 1 legal department. At the headquarters, there are offices directly subordinated to the President of the Court of Accounts (the Internal Public Audit Office, the External Relations and Protocol Office, the Communication, Image and Public Relations Office) and the General Secretariat, which is coordinated by the President of the Romanian Court of Accounts. Locally, there are 42 chambers of accounts, one for each county (41 in total), plus the Bucharest Municipality Chamber. Also, there is the Audit Authority, as an independent body. This is the organization chart of the Court of Accounts: 2

3 The activity of the Court of Accounts is coordinated by the Plenum which meets periodically. It is composed of 18 members, appointed by the Parliament, for a term of office of a maximum nine years, not renewable. Within the mandate given on October 15 th, 2008, the management of the Court of Accounts set as an objective the strengthening of the institution, so as to turn the Court of Accounts into an independent, professional and credible institution, responsible for the audit of public funds. The Plenum of the Court of Accounts approves applicable secondary legislation, which consists of regulations, norms, audit standards, audit guidelines and manuals, procedures and others. The Audit Departments, the Coordination Departments and the Legal Department are each headed by one counselor of accounts, fulfilling the position as a head of department. Up until 2003, the Court of Accounts had a jurisdictional function as well. In keeping with the authority granted to it by the Constitution and by its organization and rules relating thereto, the Court of Accounts carries out its reviews of the establishment, management and use of state and public sector financial resources, providing the Parliament and administrative and territorial units with reports on their 3

4 use and management, in keeping with the principles of legality, economy, efficiency and effectiveness. The specific activities conducted by the Court of Accounts cover the following: Financial audit on the implementation accounts of the consolidated general state budget: a) the general state annual budget implementation account; b) the state social insurance annual budget implementation account; c) the special funds annual implementation accounts; d) local budgets and the budget of the Municipality of Bucharest, the budgets of counties, of the Sectors of the Municipality of Bucharest, and of the annual implementation accounts of municipalities of towns and communes ; e) the State Treasury annual budget implementation account; f) the autonomous public institutions annual budgets implementation accounts; g) the accounts relating to the implementation of public institutions annual budgets, with mixed financing, respectively from own resources and public budget; h) the public institutions integrally financed from own revenues annual budgets implementation accounts; i) the state general annual public debt account; j) the non-reimbursable external funds annual budget implementation accounts; k) other budget implementation accounts provided by law. Performance audit missions relating to the use of state and public sector financial resources, both at the conclusion and during the unfolding of the projects, programs, processes or activities being examined. Compliance audit missions (control actions) of the entities under its examination competence. The Court of Accounts gives advisory opinions: upon request by the Senate or by the Chamber of Deputies, on the state budget draft and on draft laws in the field of public finances and accounting or on the documents the enforcement of which would result in a reduction of revenues or in an increase of expenditures approved by the budget law; 4

5 on the setting up, by the Government or by ministries, of specialized bodies under their authority. It controls, upon request by the Chamber of Deputies or by the Senate, the management of public resources and reports its findings. The resolutions of the Chamber of Deputies or of the Senate, requesting the Court of Accounts to conduct controls, within the limits of its competences, are mandatory. No other public authority may request the Court of Accounts to do so. The Court of Accounts autonomously determines its programme of activity. External public audit planning is done at two levels: multi-annually (3 years) and annually. The multi-annual activity plan of the Court of Accounts may be reviewed and updated every year, based on the draft of the annual activity program. The examinations conducted by the Court of Accounts mainly cover: the reliability and accuracy of financial statements, as set out in the accounting regulations in force; the assessment of the management and control systems at the level of the authorities competent to oversee the financial liabilities to budgets or other public funds provided by law, of legal or natural persons; the use of funds allotted from the budget or from other special funds, in keeping with the set destination; the quality of economic and financial management; the economy, effectiveness and efficiency of the use of public funds. O p e r a t i o n a l L e g a l F r a m e w o r k 5

6 General legal framework The Constitution of Romania, art. 140; Law no. 94/1992 on the organization and operation of the Court of Accounts, re-issued in 2009; Standards The Audit Standards of the Romanian Court of Accounts; The International Standards of Supreme Audit Institutions (ISSAIs) The audit standards of the International Federation of Accountants (ISA). Regulation on the organization and conduct of the activities specific to the Court of Accounts, as well as on the follow-up of the reports resulting from these activities; Regulation on the drawing up the Annual Public Report, the annual reports on local public finances and other reports specific to the Court of Accounts; Secondary legislation Regulation on the Organization and Operation of the Court of Accounts; Regulation of the Plenum of the Court of Accounts; The Code of Ethics and Professional Conduct of the Staff of the Court of Accounts; The Statute of the External Public Auditor; The Financial and Regularity Audit Manual; The Performance Audit Manual; 6

7 Methodology for the Drawing up, Amendment and Follow-up of the Court of Accounts Activity Program; Guidelines for the audit of internal control and internal audit functions; Guidelines for the use of the work of an expert. The Romanian Court of Accounts consistently operates to the professional standards of the International Organization of Supreme Audit Institutions by : harmonizing its own audit standards with international audit standards; up-dating the audit manuals; assimilating and adequately enforcing its own audit standards, regulations and manuals. The existing secondary legislation and the various internal regulations were updated in Thus, the following regulations were reviewed: 1. The Audit Standards of the Court of Accounts Most of the ISSAIs and INTOSAI GOVs endorsed at the recent XX INCOSAI in South Africa were implemented in the Court of Accounts audit standards and were detailed within internal regulations and procedures. Auditing standards included in the first three levels of ISSAIs were integrated in the legislative framework and in our own methodology. From level 4 we have implemented for the moment the standards reffering to financial (ISSAI ), performance (ISSAI ) and compliance (ISSAI ) auditing. We consider the Romanian legislation includes appropriate provisions regarding independence. Furthermore, with the purpose of ensuring complice with the relevant ISSAIs on independence (ISSAI 1,10 and 11) the internal regulation deals in details with this issue. 7

8 A. The principles of transparency and accountability (ISSAI 20 and 21 ) were introduced for the first time in the audit standards and are detailed in the Regulation on the drawing up the Annual Public Report, the annual reports on local public finances and other reports specific to the Court of Accounts. The Court of Accounts plays an important role in enhancing public sector performance, emphasizing through its annual public reports submitted to the Parliament, other public authorities, public institutions and taxpayers the importance of the principles of good governance, transparency and accountability. B. Quality Control for SAIs (ISSAI 40) was introduced in the audit standards and there is a new chapter on quality control in the Regulation on the organization and conduct of the activities specific to the Court of Accounts, as well as on the follow-up of the reports resulting from these activities. This chapter describes several fundamental prerequisites to establish efficient quality controls. It presents the procedures designed to promote an internal culture recognising that quality is essential in performing all of the Court of Accounts work, the procedures designed to provide it with reasonable assurance that the Court of Accounts, including all personnel and all parties contracted to conduct work for the SAI, complies with the relevant ethical requirements, and the internal controls required to ensure quality of audit planning, execution, revision, reporting and follow up. C. Guidelines to financial audit are presented in the "Regulation on the organization and conduct of the activities specific to the Court of Accounts, as well as on the follow-up of the reports resulting from these activities". They follow the INTOSAI principles according to which the full scope of government financial auditing includes regularity and performance audits as well. The definition of financial audit, based on the Court of Accounts mandate specifies auditing and reporting responsibilities in addition to the audit of financial statements. Such responsibilities include: - Attestation of financial accountability of accountable entities, involving examination and evaluation of financial records and expression of opinions on financial statements; - Audit of financial systems and transactions including an evaluation of compliance with applicable statutes and regulations; - Audit of internal control and internal audit functions; 8

9 - Audit of the probity and propriety of administrative decisions taken within the audited entity - Reporting of any other matters arising from or relating to the audit that the Supreme Audit Institutions considers should be disclosed. The financial audit standards are written in the context of a public auditor conducting an audit of financial statements in accordance with the Court of Accounts mandate whereas such audits are only a part of the public sector audit task. The overall objective of the auditor in conducting an audit of financial statements as being: (a) To obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, thereby enabling the auditor to express an opinion on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework (b) To report on the financial statements, and communicate as required by the financial audit standards, in accordance with the auditor s findings. The purpose of a financial audit is to enhance the degree of confidence of intended users in the financial statements. Regularity requirements in the public sector are as important in public accountability as expressing an opinion on the financial statements. This is achieved by the expression of an opinion by the public auditor on whether the financial statements are prepared, in all material respects, in accordance with an applicable financial reporting framework and also reveals the violations of the principles of legality, efficiency, effectiveness and economy of financial management. The audit reports recommend the audited entities to take corrective action in individual cases, to make those accountable accept responsibility, to obtain compensation, or to take steps to prevent or at least render more difficult such breaches. This is a much broader task than providing an opinion on financial statements. The public auditor has to design audit steps and procedures to provide reasonable assurance of detecting errors, irregularities, and illegal acts that could have a direct and material effect on the financial statement amounts or the results of regularity audits. 9

10 The Court of Accounts objective of financial auditing is thus wider than the objectives of an audit according to the ISAs. D. Guidelines to compliance audit are presented in a separate chapter in the Regulation on the organization and conduct of the activities specific to the Court of Accounts, as well as on the follow-up of the reports resulting from these activities. Compliance audit deals with the responsibility of the Court of Accounts to audit whether the activities of public sector entities are in accordance with the relevant laws, regulations and authorities that govern such entities. This involves reporting on the degree to which the audited entity is accountable for its actions and exercises good public governance. These elements involve auditing to what extent the audited entity follows rules, laws, and regulation, budgetary resolutions, policy, established codes, or agreed upon terms, such as the terms of a contract or the terms of a funding agreement. The objective, scope and nature of a particular compliance audit depends on a number of factors, including the mandate and constitutional role of the Court of Accounts, as well as laws and regulations that are relevant to the audited entity. E. The audit mandate for public sector entities, arising from legislation, regulation, ministerial directives, government policy requirements, may result in additional responsibilities for the public auditors they are not qualified for which may include performing procedures and reporting instances of non-compliance with authorities. As the requirement to become a public auditor is to have an economical or legal degree, the Court of Accounts issued this year a procedure regarding the use of the work of an expert whose expertise is different from accounting, audit or legal, in light of these additional responsibilities. The procedure is a guideline to the standard Using the work of an expert and describes the following: determining the need for the work of an expert ( when the work cannot be performed by an other public institution and is cost efficient ); the competence, capabilities, independence and objectivity of expert; the nature, timing and extent of audit procedures; selection of the expert; agreement with the selected expert evaluating the adequacy of the expert s work; reference to the expert s work in the public auditor s report. 10

11 The public auditor has sole responsibility for the audit opinion expressed, and that responsibility is not reduced by the auditor s use of the work of an expert. If the auditor using the work of an expert, having followed this standard, concludes that the work of that expert is adequate for the auditor s purposes, the auditor may accept that expert s findings or conclusions in the expert s field as appropriate audit evidence. F. The standards on internal audit assessment are detailed in another chapter of the Regulation on the organization and conduct of the activities specific to the Court of Accounts, as well as on the follow-up of the reports resulting from these activities which presents the internal control elements and the objectives examined by external public auditors when assessing the way the managerial control system was conceived/organized and establishing the extent to which the latter is implemented/operates. More detailed guidelines were published in order to clarify the steps to be followed by public auditors when dealing with this new audit objective. The management of the Romanian Court of Accounts took a series of steps to enhance the quality of its external audit activity, especially in point of the assessment by external public auditors of the internal control system of public entities of Romania. The first step materialized in the assessment of the activity unfolds by the two central units for the harmonization of internal public audit and respectively for the financial management and control system within the Ministry of Public Finances. The analysis of the data and documents provided to the specialized staff of the Court of Accounts showed that the internal control system was implemented to an adequate degree at the level of the entities within the central public administration and at an inadequate level within the local public administration. A Protocol for Cooperation and Collaboration in the Process of Strengthening Internal Public Financial Control concluded between the Romanian Court of Accounts and the Ministry of Public Finances, based on the INTOSAI GOV 9150 Coordination and Cooperation between SAIs and Public Internal Auditors was another achievement of the Court. 11

12 This Protocol contemplates, among others, the fact that ensuring managerial control and internal public audit implementation at the level of all public entities, for a good management and administration of public funds and public patrimony, is an essential prerequisite to effectively and efficiently provide public services. Here are some of the benefits of implementing the Protocol: a thorough understanding of the specific character of internal public audit and of external public audit activities; exchanging information among the categories of staff conducting internal audit, internal control within public entities and external public auditors; exchanging information on risks faced by public entities, resulting in a more effective focusing of audit resources and subsequently to the issue of more pertinent recommendations; improving internal public audit and external public audit coordination, specific to each institution; avoiding duplicating efforts of internal public auditors and external public auditors in the conduct of audit activities. Consideration is also given to cooperation in the field of methodology, of programs/plans of activity coordination, as well as to the implementation of joint objectives, such as consistent professional training of internal auditors, external auditors and delegated financial controllers. A Cooperation Agreement with Internal Audit Association was the next action taken by the management of the Court following the model of Memorandum of Understanding between INTOSAI and IIA-USA (Institute of Internal Auditors). According to this document one of the most important issues is the common training based on relevant standards. In March 2011 a Guide assessment of internal control system in public entities was issued by the professional staff of the Court and made available to all external auditors like brochure and was posted on the website. In the guide was attached the INTOSAI Guidance for Good Governance (INTOSAI GOV) translated into Romanian language. The knowledge presented in the guide are very important for the auditors, because during the examination conducted by the Court of Accounts the findings on this area are loaded into an application named INFOPAC and analyzed in order to elaborate an 12

13 annual report which is presented to the plenum of the Court and sent to the Ministry of Public Finance, Government and other stakeholders. INTOSAI GOV 9100 Guidelines for Internal Control Standards in Public Sector and INTOSAI GOV 9130 Further Information on Entity Risk Management are already implemented into Romanian primary and secondary legislation. This is the reason why the management of the Court decided to initiate a comprehensive training program for the specialized staff, based also on the other INTOSAI GOVs. As a consequence of all these steps and measures the Court of Accounts made a series of proposals for legislative improvement in the field of internal control and internal audit in public sector, submitted to the Romanian Parliament and recently embodied in the changes of normative acts. Law no. 234/2010 to amend Governance Ordinance no.119/1999 concerning internal control and preventive financial control, introduced the obligation of management of public entities to prepare an annual report on internal control system as annex to financial statement for the accounting period of the ended year. In order to raise the awareness of the ISSAIs and INTOSAI GOVs the audit standards were published together with the translation into Romanian of the first three levels of ISSAIs and INTOSAI GOV as mentioned above. Also they are posted on the Court of Accounts website. Other regulations reviewed last year in accordance with ISSAIs are: 2. The Statute of the External Public Auditor. It regulates the career, rights and obligations of external public auditors, as well as the labor relations between them and the Court of Accounts. 3. The Code of Ethics and Professional Conduct of the Court of Accounts Staff - It sets ethical and professional conduct norms and establishes principles to be followed to increase the authority and prestige of the Court of Accounts as a supreme audit institution. On drafting the Code of Ethics and Professional Conduct of the Court of Accounts Staff, consideration was given to the recommendations included in the INTOSAI Code of Ethics which, in compliance with the principles adopted at the Congress of Lima in 1977, became a foundation for the codes of supreme audit institutions. The Ethics Committee was set up and the independence statement was introduced for external public auditors. 13

14 The following conclusions about the way the Romanian Court of Accounts has implemented the recommendations of the XXth Congress of INTOSAI in Johannesburg, South Africa are: 1) The implementation of the ISSAIs and INTOSAI GOVs into the national audit standards and guidelines was made in accordance with the Court of Accounts mandate and with the national legislation and regulations; 2) The ISSAI framework is used as a common frame of reference for public sector auditing; 3) The awareness of the ISSAIs and INTOSAI GOVs was raised at the national level by publishing the reviewed audit guidelines in the Official Monitory and on the Court of Accounts website. 4) Seminars like this one are excellent opportunities for supreme audit institutions to share experience, good practice and challenges in implementing the ISSAIs and INTOSAI GOVs and with those responsible for developing and revising the ISSAIs and INTOSAI GOVs. Ph. D. ELENA DOINA DASCĂLU V I C E P R E S I D E N T 14