Public Financial Management in Development Practice - Glossary of Terms Rob Kevlihan, MAcc, FCA, MA, Ph.D

Transcription

1 Public Financial Management in Development Practice - Glossary of Terms Rob Kevlihan, MAcc, FCA, MA, Ph.D This study was made possible by the support of the American People through the United States Agency for International Development (USAID) under Purchase Order 641-O The contents of this study are the sole responsibility of the author and do not necessarily reflect the views of USAID or the United States Government. African, Caribbean and Pacific States (ACP) The African, Caribbean and Pacific Group of States (ACP) is an organization created by the Georgetown Agreement in It is composed of African, Caribbean and Pacific States signatories to the Georgetown Agreement or the Partnership Agreement between the ACP and the European Union, officially called the "ACP-EC Partnership Agreement" or the "Cotonou Agreement." Source: ACP Website Agreement Terms and Conditions The terms and conditions that an entity must comply with are set out in legal and contractual documents for the Project such as for example financing agreements, external aid contracts and programme estimates. The terms and conditions in these documents are referred to as the (applicable) Agreement Terms and Conditions. Annual Audited Statements (AAS) Applicable financial reporting framework DFID INTOSAI, IAASB Financial statements required from recipient governments to allow DFID to certify expenditure to recipient governments as having been properly incurred for development activities. Utilized as an alternative funding mechanism to continuous audit arrangements. The financial reporting framework adopted by management and, where appropriate, those charged with governance in the preparation of the financial statements that are acceptable in view of the nature of the entity and the objective of the financial statements, or that are Guidelines, p62.

2 required by law or regulation. The term fair presentation framework is used to refer to a financial reporting framework that requires compliance with the requirements of the framework and: (a) Acknowledges explicitly or implicitly that, to achieve fair presentation of the financial statements, it may be necessary for management to provide disclosures beyond those specifically required by the framework; or (b) Acknowledges explicitly that it may be necessary for management to depart from a requirement of the framework to achieve fair presentation of the financial statements. Such departures are expected to be necessary only in extremely rare circumstances. The term compliance framework is used to refer to a financial reporting framework that requires compliance with the requirements of the framework, but does not contain the acknowledgements in (a) or (b) above. Audit Task Manager (ATM) The ATM is a (European) Commission official responsible for managing (i.e. planning and monitoring) audits and other engagements and for carrying out organisational, administrative and procedural tasks related to these engagements. He/she is the primary contact point for the Auditor in the Commission. Auditor The Auditor is the audit firm contracted to perform the engagement as specified in the terms of reference and for submitting a report to the Commission. Auditor refers in particular to the partner or other person in the audit firm who is responsible for the engagement and for the report that is issued on behalf of the firm, and who has the appropriate authority from a professional, legal or regulatory body. Audit of External Operations (Audits) Audits of external aid projects and programs carried out by or on behalf of Commission services at the level of beneficiaries, contractors and intermediaries. Audits used by are assurance engagements and their main purpose is to provide assurance on the legality and regularity of external aid operations.

3 Assurance is related to compliance with the applicable regulations and rules. It can also relate to sound financial management and the principles of economy, efficiency and effectiveness. Audit of Internal Control Systems An audit of internal control systems gives an opinion on the quality and effectiveness of the internal control systems put in place by the audited entity, documented in particular by means of tests of control. This type of audit will determine the extent to which the internal control systems of the audited entity are: (i) conceived so as to provide protection against the risk of mismanagement and fraud identified in different areas (such as financial management, accounting, and safeguarding of assets), and (ii) operating effectively, continuously and consistently. This audit tells us whether the internal control systems are properly conceived and functioning they do not give an opinion on the financial statements produced by the audited entity, but under an SBA based approach can be relied upon in deciding the extent of substantive testing required for the audit of financial statements. Budget Support (BS) BS is defined as transfer of financial resources of an external financing agency to the National Treasury of a partner country, following the respect by the latter of agreed conditions for payment. The financial resources thus received are part of the global resources of the partner country, and consequently used in accordance with the public financial management system of the partner country. Capital Expenditure Capital expenditures are expenditures used by the Entity to acquire or upgrade physical assets such as equipment, property and buildings. Compliance Compliance can be defined as the ability to reasonably ensure conformity and adherence to the applicable legislation and rules. Compliance criteria which the Auditor will measure are determined by the engagement type and the documents that constitute the legal and regulatory basis for a project. The latter are typically Financing Agreements, external aid contracts and programme estimates. Comptroller General of the United States USG The head of GAO, appointed to a 15-year term by the President from a slate of candidates proposed by the US Congress. (2007b) (2007b) Source:

4 Commission The European Commission: For audit purposes, the Commission is the contracting authority for the engagement and the organisation which is providing the funds for the project subject of the engagement. The Commission may be represented by a service or unit of Co-operation Office or a Delegation of the Commission. Continuous Audit DFID A term used to describe DFID funding arrangements that operate on a reimbursement basis, based on submission of incurred costs to an independent auditor who reviews and certifies them before DFID makes payment on same. Cost Sharing Schedule USAID Where agreements require cost sharing contributions from the recipient, recipients are required to produce a cost sharing schedule either on a life of budget or annual basis (depending on the agreement). Auditors may prepare or assist the recipient to prepare the cost-sharing schedule from the books and records maintained by the recipient. The recipient must, however, accept responsibility for the schedule's accuracy. Deficiency in Internal Controls INTOSAI, IFAC Deficiency in internal control This exists when: (a) A control is designed, implemented or operated in such a way that it is unable to prevent, or detect and correct, misstatements in the financial statements on a timely basis; or (b) A control necessary to prevent, or detect and correct, misstatements in the financial statements on a timely basis is missing. Directorate General EU The European Commission is divided into several departments and services. The departments are known as Directorate Generals (DGs) Engagement Engagement refers to an assurance engagement (e.g. a financial or a systems audit) or a related service engagement (e.g. an agreed-upon procedures engagement) carried out by an Auditor. OIG (2009) Guidelines, p67 (also consistent with ISAs). Source: Europa Website

5 Engagement Context The engagement context is set out in the terms of reference for the engagement and includes the Agreement Terms and Conditions for the Project, the characteristics of the Entity and the Project subject to audit, the subject of the audit (e.g. a financial report or the internal control system of an entity), and other information that may have a significant effect on the engagement as well as contact details and key documents. Entity or Entity subject to the engagement The Entity subject to the engagement is the organisation or entity in respect of which the Auditor conducts the engagement (e.g. the audit). The Entity is responsible for implementing the project and for the use of the funds for the Project and it is required to report on the Project and the use of funds. EuropeAid Development and Co-operation (EuropeAid) EuropeAid Development and Cooperation is a Directorate General (DG) responsible for designing EU development policies and delivering aid through programmes and projects across the world. It incorporates the former Development and DGs. Source: Europa Website European Development Fund (EDF) EU The EDF is the main instrument for providing (European) Community aid for development cooperation in the ACP States and OCT. The 1957 Treaty of Rome made provision for its creation with a view to granting technical and financial assistance, initially to African countries which at that time were still colonized and with which some Member States had historical links. The EDF does not yet come under the Community's general budget. It is funded by the Member States, is subject to its own financial rules and is managed by a specific committee. The aid granted to ACP States and OCTs will continue to be funded by the EDF, at least for the period Fiduciary Risk Assessment (FRA) DfiD Initial assessment conducted to determine the condition of a recipient countries PFM system prior to the initiation of PRBS. INTOSAI An independent assessment, resulting in a reasonable assurance opinion, of whether an entity s reported financial condition, results, Source: Europa Website

6 and use of resources are presented fairly in accordance with the financial reporting framework. Guidelines, p56. Financing Agreement (FA) An agreement between the EC and the beneficiary country which determines the objectives and scale of a future program of assistance. Typically includes a TAP as an annex to the agreement. Financial Statements INTOSAI and IFAC A structured representation of historical financial information, including related notes, intended to communicate an entity s economic resources or obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework. The related notes ordinarily comprise a summary of significant accounting policies and other explanatory information. The term financial statements ordinarily refers to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework, but it can also refer to a single financial statement. Fund Accountability Statement General Budget Support (GBS) Generally Accepted Government Auditing Standards (GAGAS) USAID USG including USAID A fund accountability statement is a financial statement that presents a USAID recipient s revenues, costs incurred, cash balance of funds (after considering reconciling items), and commodities directly procured by USAID that were provided by USAID agreements. Short or medium term budget support, representing a transfer to the national treasury in support of a national development or reform policy and strategy. US government auditing standards as set out in the so-called Yellow Book of US Government Auditing Standards, published by the Comptroller General of the US, through the Government Accountability Office (GAO). The current version of the Yellow Book was published in 2007 and is available on-line. A new version of the Yellow Book is also available in draft form and is expected to be issued in Source: OneGlobalExpert.com Guidelines, p69 (consistent with ISA definition). Source: OIG (2009) (2007b) Source: Author

7 Ghana Integrated GoG The implementation of the GIFMIS is a major pillar of the PFM reform Source: GAS (2001) Financial Management program of the GoG. The major focus of the GIFMIS is the upgrading and Information System fresh installation of Oracle Public Sector Financial Business Suite of (GIFMIS) software, Version 12 on an Oracle 10g database, with its setup and reimplementation as the over-arching financial accounting and management system for the accounting, control, audit and reporting of the GoG budget appropriation. When fully implemented, GIFMIS will serve as the single source system for official budget creation and management, cash and treasury management, purchase ordering and payments, and financial control and reporting for the country as a whole. The GIFMIS system will utilize a new harmonized chart of accounts for all financial transactions throughout the country. The Controller and Accountant-General will enhance commitment control through the widespread use of the Purchase Government Accountability Office (GAO) USG Order module at all levels of government. The GAO is an independent, nonpartisan agency that works for the United States Congress. Often called the "congressional watchdog," GAO investigates how the federal government spends taxpayer dollars. Internal Audit INTOSAI and IFAC An appraisal activity established or provided as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of internal control. Internal Auditors INTOSAI and IFAC Those individuals who perform the activities of the internal audit function. Internal auditors may belong to an internal audit department or equivalent function. Internal Controls INTOSAI The whole system of financial and other controls, including the organizational structure, methods, procedures and internal audit, established by management within its corporate goals, to assist in conducting the business of the audited entity in a regular economic, efficient and effective manner; ensuring adherence to management policies; safeguarding assets and resources; securing the accuracy and completeness of accounting records; and producing timely and reliable financial and management information. Source: Adapted from Guidelines, p72. Guidelines, p72. Guidelines, p57.

8 The International Federations of Accountants (IFAC) All The International body responsible for issuing International Auditing Standards (ISAs), it is comprised of national accounting bodies and other interested in accounting related matters. Macroeconomic Budget A term formerly used by. It has now been Support (MBS) replaced with the term General Budget Support (GBS) Mandatory Audits Audits provided for in the Financial Regulations, the specific program legal basis and reflected in conventional (e.g. Financing Agreements with third countries) and contractual documents (e.g. external aid contracts and program estimates). Mandatory audits can be managed by Commission services and or managed by beneficiaries of certain external aid contracts. Office of the Inspector General (OIG) USAID The OIG operates under the Inspector General Act of 1978,as amended. Major responsibilities of the OIG are to detect and prevent fraud, waste, abuse, and violations of law and to promote economy, efficiency and effectiveness in the operations of the U.S. Agency for International Development, the Millennium Challenge Corporation, the United States African Development Foundation, and the Inter- American Foundation. Upon request, the OIG also provides oversight services to the Overseas Private Investment Corporation. The OIG fulfills these responsibilities by conducting audits, investigations, inspections, and other reviews. Operating Expenditure Operating expenditures are the on-going costs for running a project or an action. The classification of expenditure is primarily determined by the expenditure budget headings specified in the Agreement Terms and Conditions (expenditure will often be presented using an input based classification). (2007b) Source: g/ [Accessed 22 nd March 2010]. Overseas Countries and Territories Twenty-one overseas countries and Territories (OCTs) that depend constitutionally on four of the European Union (EU) Member States: Denmark, France, the Netherlands, and the United Kingdom. OCT nationals are European citizens. However, these countries do not form part of EU territory, they are not directly subject to EU law, but benefit from associate status conferred on them by the Treaty of Source: Europa Website

9 Lisbon. Performance Audit INTOSAI An audit of the economy, efficiency and effectiveness with which the audited entity uses its resources in carrying out its responsibilities, also known as Value for Money audit. Guidelines, p58. Poverty Reduction DFID Term for Budget Support used by DFID Budget Support (PRBS) Practice Note (PN) INTOSAI Included in the INTOSAI Guidelines. The Practice Note explains how to apply the ISA in a financial audit in the public sector. They also contain guidance relevant to audits of public sector entities in addition to what is provided for in the ISA. Program Based Approach (PBA) Programme Estimates (PE) Progress Assessment Framework (PAF) OECD-DAC Per Health Sector SBS document Program-Based Approaches (PBAs) are a way of engaging in development cooperation based on the principles of co-ordinated support for a locally owned program of development, such as a national development strategy, a sector program, a thematic program or a program of a specific organization. Program-based approaches share all four of the following features: (a) leadership by the host country or organization; (b) a single comprehensive program and budget framework; (c) a formalized process for donor co-ordination and harmonization of donor procedures for reporting, budgeting, financial management and procurement; (d) efforts to increase the use of local systems for program design and implementation, financial management, monitoring and evaluation (OECD DAC definition). Programme estimates are documents laying down the human and material resources required, the budget and the detailed technical and administrative implementing arrangements for the execution of a project over a specified period by direct labor and, possibly, by means of public procurement and the award of specific grants. A monitoring framework, including indicators, targets and milestones, included in an APOW. Targets will be specific, time bound, measurable and results-oriented. The PAF is used to assess sectoral performance on an annual basis. Guidelines, p58. Cant et al (2008) Source: Framework MoU between the Government of Ghana and DPs, 2008 Progress Assessment Per MDBS A set of growth and poverty reduction objectives, development Source: MDBS

10 Framework (PAF) Framework Memorandum between GoG and Development Partners (2008) indicators and policy reform measures.mutually accepted by GoG and DPs. Framework Memorandum between GoG and Development Partners (2008) Project or Project subject to the (audit) engagement Public Expenditure and Financial Accountability Initiative (PEFA) World Bank and collaborators External aid activities usually take the form of programmes and projects. The term Project is used to refer to a series of activities set out in for example a financing agreement, an external aid contract (e.g. for works, services, supplies or grants), a programme estimate or in a series of these documents. The PEFA Program was founded in December 2001 as a multi-donor partnership between the World Bank, the European Commission, and the DFID, the Swiss State Secretariat for Economic Affairs, the French Ministry of Foreign Affairs, the Royal Norwegian Ministry of Foreign Affairs, and the IMF. The PEFA Secretariat is located at WB headquarters in Washington, DC. The goals of the PEFA Program are to strengthen recipient and donor ability to (i) assess the condition of country public expenditure, procurement and financial accountability systems, and (ii) develop a practical sequence of reform and capacitybuilding actions. Source: World Bank Website Public Financial Management (PFM) All PFM, as generally understood, includes all components of a country s budget process both upstream (including strategic planning, medium-term expenditure framework, annual budgeting) and downstream (including revenue management, procurement, control, accounting, reporting, monitoring and evaluation, audit and oversight). Sound PFM supports aggregate control, prioritization, accountability and efficiency in the management of public resources and delivery of services, which are critical to the achievement of public policy objectives such as the MDGs. In this context, the use of country PFM systems means the using components of the PFM system in donor financed activities. Source: OECD-DAC, 2009

11 Public Sector INTOSAI and IFAC National governments, regional (for example, state, provincial, territorial) governments, local (for example, city, town) governments and related governmental entities (for example, agencies, boards, commissions and enterprises). Regional Inspector General (RIG) USAID A regional office of the Office of the Inspector General of USAID; the regional office responsible for Ghana in based in Dakar, Senegal and is called RIG/DAKAR. Regularity Audit INTOSAI A regularity audit embraces: (a) attestation of financial accountability of accountable entities, involving examination and evaluation of financial records and expression of opinions on financial statements; (b) attestation of financial accountability of the government administration as a whole;(c) audit of financial systems and transactions, including evaluation of compliance with applicable statutes and regulations; (d) audit of internal control and internal audit functions; (e) audit of the probity and propriety of administrative decisions taken within the audited entity; and (f) reporting of any other matters arising from or relating to the audit that the Supreme Audit Institution considers should be disclosed. The terms regularity audit and financial audit are often used interchangeably. Such references to audits includes an audit of financial statements, and some or all of the elements set out in a) to f) above, depending on the mandate of the Supreme Audit Institution. Guidelines, p77. Guidelines, p58. Related Services Engagments Related services engagements are not assurance engagements - they are not audits they include other work such as expenditure verifications of grant and service contracts. Risk Based Audits These audits stem from a risk based approach to assess and prioritize projects for audit in 's Annual Audit Plan. These audits are complementary to mandatory audits and they are identified according to a set of criteria which are transversal to the different management modes and are related to the specific risks perceived by the Commission services. The objective is to have a second layer of

12 controls available, which may complete and integrate primary level controls and assurance mechanisms (such as inter mandatory audits) from a management perspective. Scope of Work USAID Terms of Reference Sector Budget Support (SBS) Funds provided over the medium term to support the implementation of a sector program of a partner government. (2007b) Significant deficiency in Internal Control INTOSAI and IFAC A deficiency or combination of deficiencies in internal control that, in the auditor s professional judgment, is of sufficient importance to merit the attention of those charged with governance. Guidelines, p80. Subject of the (audit) engagement The subject of the engagement is the subject matter on which the Auditor is requested to report. For example, in the case of a financial audit this is the financial report of the Project or for a systems audit it is the internal control system of the Entity. In the case of compliance assessments the Auditor will have to assess the Entity's compliance with specific criteria including for example internal control and procurement. Supreme Audit Institution (SAI) Technical and Administrative Provisions (TAPS) INTOSAI The public body of a State which, however designated, constituted or organized, exercises by virtue of law, the highest public auditing function of that State. In some Supreme Audit Institutions there are a single appointed Auditor General who acts in a role equivalent to that of engagement partner and who has overall responsibility for public sector audits. Other Supreme Audit Institutions may be organized as a Court of Accounts or having a collegiate or board system. In Ghana the GAS is the recognized SAI. Detailed terms and conditions associated with a Financing Agreement, including provision related to financial audits, usually set out in an annex to the FA. Terms of Reference, Equivalent to USAID s Scope of Work, a Terms of Reference, in Guidelines, p58.

13 other DPs broad terms, sets out the nature and extent of an assignment to be conducted. Tests of Controls INTOSAI and IFAC An audit procedure designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level. Yellow Book USG See Generally Accepted Government Auditing Standards (GAGAS). Guidelines, p82.