Technical Assistance Report Project Number: 42226 Capacity Development Technical Assistance (CDTA) September 2011 Lao People s Democratic Republic: Strengthening the Capacity of the State Audit Organization The views expressed herein are those of the consultant and do not necessarily represent those of ADB s members, Board of Directors, Management, or staff, and may be preliminary in nature.
CURRENCY EQUIVALENTS (as of 12 August 2011) Currency Unit kip (KN) KN1.00 = $8,003.00 $1.00 = KN0.00012 ABBREVIATIONS ADB Asian Development Bank CSP country strategy and program EPFC Economic Planning and Finance Committee GDP gross domestic product IFAPER Integrated Fiduciary Assessment and Public Expenditure Review IIA Institute of Internal Auditor INTOSAI International Organization of Supreme Audit Lao PDR Lao People s Democratic Republic MOF Ministry of Finance NT2 Nam Theun 2 PEFA Public Expenditure Financial Accountability PFM public financial management PFMSP Public Financial Management Strengthening Program SAI supreme audit institution SAO State Audit Organization TA technical assistance TECHNICAL ASSISTANCE CLASSIFICATION Type Capacity development technical assistance (CDTA) Targeting classification General intervention Sector (subsectors) Public sector management (public administration, public expenditure and fiscal management) Theme Economic growth (promoting macroeconomic stability) (subtheme) Location impact Rural (high), urban (high), national (high) NOTE In this report, "$" refers to US dollars. Vice-President B. N. Lohani, Vice-President-in-Charge, Operations 2 Director General K. Senga, Southeast Asia Department (SERD) Director S. Hattori, Public Management, Financial Sector, and Trade Division, SERD Team leader Team members P. Jena, Senior Public Management Specialist, SERD S. Leuangkhamsing, Senior Economics Officer, SERD J. Mendez-Santos, Operations Assistant, SERD M. L. Ventura, Operations Analyst, SERD In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.
I. INTRODUCTION 1. The Government of the Lao People s Democratic Republic (Lao PDR) has requested the Asian Development Bank (ADB) to provide technical assistance (TA) 1 to support the Lao PDR State Audit Organization (SAO) in order to improve the country s public sector governance. 2 Support for SAO would complement previous ADB support that contributed to professional development of SAO auditors. 3 The TA is in line with the ADB country strategy and program (CSP), 2007 2011 for the Lao PDR, 4 which underlines good governance through policy and institutional development as the key to achieving sustainable economic growth. ADB fielded a fact-finding mission to Vientiane on 1 3 June 2011. The mission and representatives from the SAO held discussions and reached an understanding on the objective, scope, cost, and implementation arrangements of the TA. The TA design and monitoring framework is in Appendix 1. II. ISSUES 2. Public financial management and accountability. A sound system of public financial management (PFM) and accountability are key factors for good governance and for achieving development objectives. Effective supreme audit institutions (SAIs) are an important element of such systems. Other elements include budgeting, accounting and internal controls, financial reporting, legislative oversight and with sufficient independence (in funding, setting audit programs, carrying out its work, and making findings public) and adequate capacity is important to the development agenda. An SAI is a critical part of the checks and balances in the management of public finances. In addition, the 2007 Integrated Fiduciary Assessment Public Expenditure Review (IFAPER) 5 underlined the critical role that an independent supreme audit institution could play in ensuring good governance. 3. Public procurement. Public procurement is at the center of the budget execution process. Public procurement accounts for a significant part of public sector expenditures. Procurement refers to acquisition of goods (including works) and services on behalf of a public authority. The government procurement of goods and services accounts for a substantial part of the public expenditure. Public procurement systems entail the highest level of risk in terms of fraud and procurement irregularities and waste of public funds. A public procurement system must ensure economy, efficiency, transparency and effectiveness consistent with the objectives of public sector programs and policies. In addition, the public sector procurement procedures must provide an assurance against fraud and procurement risks, including conflicts of interest. 1 The TA first appeared in Business Opportunities (proposed projects) on 8 July 2011. 2 Since 1998, Asian Development Bank (ADB) has had a long standing relationship of support to the Lao PDR in the area of Public Expenditure Management. From 1998 to 2007, ADB strategically focused on and consistently supported capacity development in the Ministry of Finance and SAO, providing around $3 million in TA over 7 years, including through: (i) ADB. 1998. Technical Assistance to the Lao People s Democratic Republic for Establishing the National Audit Office. Manila (TA 2987-LAO). (ii) ADB. 2001. Technical Assistance to the Lao People s Democratic Republic for the Institutional Strengthening of the National Audit Office. Manila (TA 3771- LAO). (iii) ADB. 2003. Technical Assistance to the Lao People s Democratic Republic for Enhancing Government Accounting Regulations and Procedures Phase II. Manila (TA 4180-LAO). (iv) ADB. 2005. Technical Assistance to the Lao People s Democratic Republic for Public Expenditure Planning for National Growth and Poverty Eradication Strategy. Manila (TA 4627-LAO). (v) ADB. 2007. Technical Assistance to the Lao People s Democratic Republic for Improved Public Financial Management Systems. Manila (TA 4954-LAO). 3 ADB. 2007. Technical Assistance to the Lao People s Democratic Republic for Improved Public Financial Management Systems. Manila. 4 ADB. 2007. Country Strategy and Program: Lao People s Democratic Republic, 2007 2011. Manila. 5 2007. The World Bank, International Monetary Fund, ADB and European Commission. Lao PDR, Public Expenditure Review, Integrated Fiduciary Assessment. Washington, D. C. http://go.worldbank.org/6541oxg6z0
2 4. Public procurement system oversight. Public sector procurement policies and procedures should uphold the fundamental principles of public sector procurement. This can be achieved through the establishment of and meticulous compliance with comprehensive policies and procedures. Independent external oversight can provide assurance to stakeholders, and particularly lawmakers responsible for public sector procurement, that policies and procedures are being followed. Independent supreme audit institutions, such as the SAO, are expected to provide the most consistent and dependable independent oversight over the public procurement system, and assurance to stakeholders regarding the integrity and effectiveness of the public procurement system. 5. State Audit Organization. The government continues to make progress in PFM under the multi-year Public Financial Management Strengthening Program (PFMSP), that includes strengthening SAO. 7 External audit is the responsibility of the SAO operating in accordance with the 2007 Audit Law, with the duty to report to the National Assembly. The SAO is rapidly growing in stature and size its staff has almost tripled over the past 3 years and two new regional offices have been established. Matters included in SAO audit reports have been discussed and debated in the National Assembly. The Audit Law 2007 enhances the SAO s independence by having it report to the National Assembly rather than the Prime Minister, as was previously the case. The SAO has begun capacity-building activities for improving financial audits with support from selected SAIs and other INTOSAI members. An action plan for 2009 2020 has been developed that focuses on building the capacity and defining the resource requirements of the SAO. However, the SAO needs support to build its auditing capacity over time, with the objective of being able to perform its full mandate under the Audit Law 2007 to international standards within 3 5 years, thereby further enhancing public sector transparency and accountability in the Lao PDR. 6. The SAO faces major challenges in the development of its workforce, information and communication systems, and auditing systems and methodologies. The SAO must also respond to a number of immediate national priorities, requiring it to build capacity at both a central and a regional level simultaneously. The most immediate priority is to position itself to audit, to international standards, the government s revenues from the Nam Theun 2 (NT2) hydroelectric project, and their allocation to poverty reduction programs. The SAO needs to continue increasing its expertise in the audit of budget execution, including procurement, 8 In addition, in the Lao PDR close to 80% public investment project procurement is estimated to be funded by development partners; ensuring the integrity of the procurement process for externally-aided projects is therefore of fundamental importance. 7. The SAO also needs to strengthen its independent relationship with the National Assembly and its reporting practices. Legislative oversight normally takes place through scrutiny by the Public Accounts Committee (or similar committees established by the legislature) and a legislative debate. The audit reports of the supreme audit institution of the country is issued to 7 In November 2005, the government approved a five-year Public Expenditure Management Strengthening Program, which constitutes a cohesive framework for addressing weaknesses in PFM; the program has been renamed as the Public Financial Management Strengthening Program. 8 ADB. 2009. Governance Risk Assessment. Manila. The 2009 governance risk assessment undertaken by ADB identified (i) frequent collusion among suppliers; (ii) improper sole-source awards; (iii) split purchases to stay below the necessary threshold; (v) rigged specifications; (v) estimates for acquisition that were often close to the bid price; (vi) acceptance of inferior quality work; (vi) higher risks in provinces, as there are few decision makers; (vii) refusal by banks on bid security, because of submission of fraudulent and/or forged documents; (viii) low IT quotations due to pirated software; and (ix) higher prices in outer years in multi-year framework contracts due to annual commitments. National Assembly members have also expressed concern over problems with bidding, the lack of bidders, lack of transparency, selling of winning bids, and lack of project monitoring.
3 provide assurance to the lawmakers that the money voted by them was used for the intended purpose, have been brought to accounts and the programs supported by the budget achieve the desired output and outcome. Detailed examination of the audit reports by the designated legislative committee lends finality to the audit process. In the Lao PDR, the process of legislative scrutiny is evolving, and there is a need to ensure that the SAO audit report is viewed or scrutinized thoroughly within the scope of the Law on National Assembly, Law on Oversight and the Audit Law, and that their recommendations are acted on by the executive branch. This will complete the audit cycle, and strengthen SAO effectiveness. Discussions are currently ongoing to strengthen the coordination mechanism between the SAO and the Economic Planning and Finance Committee (EPFC). Meeting these needs will require sustained, coordinated support from development partners to (i) develop SAO s professional tools and capabilities; (ii) position it to deliver on its auditing mandate; (iii) develop its workforce and human resources management practices; and (iv) develop its reporting practices, consistent with its independent status. 9 III. THE TECHNICAL ASSISTANCE A. Impact and Outcome 8. The TA impact will be improved accountability in the management of public resources. The outcome of the TA will be improvements in the audit of public sector procurement practice. The key outputs of the TA will be to strengthen SAO audit capability of public sector procurement practices and legislative oversight of the SAO audit reports. These will (i) contribute to increased professionalism of SAO through training of SAO auditors in the auditing of public procurement transactions, (ii) enable the government to draw the economic benefits of a sound and well-performing public procurement system, and (iii) enhance legislative scrutiny of audit reports and the parliamentary stage of the audit cycle. B. Methodology and Key Activities 9. Public procurement audit. The objectives of the project are to strengthen the public procurement audit by SAO both for procurement under externally-aided projects and under national programs in all public sector entities under SAO audit jurisdiction. The TA will seek to strengthen the policy, principles, and procedures for audit of the overall public procurement system, with a special focus on procurement under externally-aided projects through establishment of a policy and procedure for consistent and persistent oversight by SAO over public sector procurement systems, procedures, and activities. The key outputs of the TA are: (i) Strengthened procurement audit capability. The TA will aim to strengthen audit professionalism and improve skills in the area of procurement audit, building on earlier TA efforts. A procurement guide was prepared under a recently concluded TA project (footnote 3), and this is an area of considerable interest to the SAO. This TA will specially assist the members of the SAO to better understand and carry out procurement audits. Specifically, the TA will increase the knowledge and skills of audit staff regarding procurement best practices; help auditors to identify risks relating to procurement processes and activities; assist auditors in achieving a high level of quality and consistency 9 In December 2009 the SAO presented its action plan for 2009 2020 to a workshop of development partners and other stakeholders. The action plan was the result of a thorough and well-structured process of identifying the SAO s development needs, beginning with an internationally benchmarked peer review (carried out by the New Zealand SAI) and taking account, at all times, of the wider context of the PFM reforms.
4 when auditing procurement; provide a basis for measuring audit performance; and allow others outside the SAO to gain a better perspective and understanding of the SAO audit practices. The capacity-building activities will be undertaken in accordance with INTOSAI audit standards, and will include pre-procurement procedures (examples include preparation of bid requirements, transparency in the bidding process, checks and balances in the bidding process), and postprocurement practices relating to audit and documentation. (ii) Strengthened legislative oversight. In addition, the TA will strengthen the institutional interface between the National Assembly EPFC and the SAO. The TA will seek to support a system of legislative scrutiny of public procurement with help of the SAO audit reports. The designated legislative committee is mandated to examine the audit reports in a systematic manner with the assistance of the SAO. To facilitate their detailed review of the audit reports, it is necessary to develop detailed, step-by-step guidance, rules or manuals that are informed by good international practices and provide a framework for the committee s detailed examination. Issues covered in the audit reports (e.g., review of accounts, compliance standards and performance) are technical, and it will be necessary to develop capacity in the designated committee s staff through training, workshops, and pilot case studies. The core tasks to facilitate legislative scrutiny of the audit reports and strengthen legislative oversight will comprise (i) developing formal rules of procedures for detailed examination of the audit reports; (ii) guidance notes and manuals to train stakeholders to strengthen the recommendation process, and the substance of the recommendations; (iii) capacity building in the EPFC secretariat and SAO staff; (iv) dissemination of procedures through seminars; and (vi) study tours to build awareness regarding good practices. The emphasis will be on strengthening the coordination mechanism between EPFC, SAO and the Ministry of Finance (MOF). 10. Assistance will be in the form of inputs, such as (i) support by international and national experts with relevant competencies in core areas of external audit, including mentoring support during on-the-job training; (ii) seminars, workshops, formal training (carefully selected for relevance, from ADB member countries); (iii) the provision of equipment, including photocopiers, desktop computers, laptops, printers, and LCD projectors and other equipment for use in training and during pilot audits; and (iv) study tours (subject to resources and on a selected basis). The training-of-trainers approach will be stressed to increase sustainability and knowledge transfer. The TA will seek partnership with regional SAIs for capacity building initiatives through seminars, study visits, and training on other regional SAIs, including measures to outsource audit. and to outsource audits. 11 ADB s Central Operations Services Office (COSO) will also support practical procurement and consulting recruitment training for procurement audit staff for ADB-financed projects in the Lao PDR under the audit jurisdiction of SAO. 12 11 The SAO made a request to use senior officials from supreme audit institutions in the region within the scope of the SAO s existing cooperation agreement. According to this proposed arrangement, trainers will be selected who are (i) nationals of an ADB member country, and (ii) from selected SAIs with whom SAO has a cooperation agreement. The TA will pay for per diem and hotel accommodations, while the cost of transportation will be met by the external supreme audit institution. This will strengthen peer learning, and would be cost effective. 12 ADB s Central Operations Services Office is responsible for consultant recruitment, executing agency procurement reviews, project implementation, portfolio management, and project performance management.
5 C. Cost and Financing 11. The TA is estimated to cost $825,000 equivalent. The government has requested ADB to finance $750,000 equivalent. The TA will be financed on a grant basis by ADB s Technical Assistance Special Fund (TASF-IV). The government will finance the balance of the cost, equivalent to $75,000 through provision of counterpart staff, office space and utilities, administrative services, physical facilities, and other in-kind contributions. See Appendix 2 for details of the cost estimates and financing plan. D. Implementation Arrangements 12. The State Audit Organization will be the executing agency, and the implementing agency for activities relating to SAO. In addition, the Department of Economy Planning and Finance of the National Assembly will be the implementing agency for activities falling within the scope of its mandate and authority, and having linkages with the work of the SAO. A project management committee, under the responsibility of director general or deputy director general of the Cabinet Office, will be established in the SAO to monitor activities under the TA. The director-general of the Department of Economy Planning and Finance will undertake project management functions for activities concerning the EPFC. 13. The TA will be implemented over 24 months, from November 2011 to October 2013. The TA will engage one international consultant for 12 person-months and one national consultant for 24 person-months. The indicative terms of reference of the team of consultants is provided in Appendix 3. The consultants will be recruited by ADB as individual consultants in accordance with the Guidelines on the Use of Consultants (2010, as amended from time to time). All procurement of goods under the project will conform to ADB s Procurement Guidelines (2010, as amended from time to time). Disbursements under the TA will be done in accordance with the ADB s Technical Assistance Disbursement Handbook (2010, as amended from time to time). The international principal audit adviser will be the team leader, who will be responsible for compiling and controlling the quality of the all the reports under the TA. All equipment certified by the consultants will be turned over to the SAO after the implementation period in accordance with ADB procedures. The monitoring of TA implementation will take place through ongoing communication with the SAO, implementing agencies, and other stakeholders, as well as through regular missions, consultations and reviews. There will also be close coordination with development partners in implementation of TA activities. IV. THE PRESIDENT'S DECISION 14. The President, acting under the authority delegated by the Board, has approved the provision of technical assistance not exceeding the equivalent of $750,000 on a grant basis to the Lao People s Democratic Republic for Strengthening the Capacity of the State Audit Organization, and hereby reports this action to the Board.
6 Appendix 1 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Improved accountability in the management of public resources Performance Targets/Indicators Improvement in aggregate expenditure out-turn compared to original approved budget, to within 10% of the budget targets by 2015. (Score of A for performance indicator (PI)-1 of the PEFA PFM high-level performance indicator set. Baseline: a score of B in 2010) Data Sources/Reporting Mechanisms PEFA assessment SAO reports on budget execution MOF budget execution reports Assumptions and Risks Assumptions Political commitment Sustained support by development partners and regional SAIs Risk Lack of timely access to information Outcome Audit of public sector procurement practice improved Improvement in competition, value for money and controls in procurement (score of B for PEFA PI-19 by 2016. Baseline: a score of D+ for PI-19 in 2010). Number of compliance and substantive issues raised concerning procurement practice SAO website SAO and implementing agency audit reports Legislative Assembly records Streamlined procurement regulations and procedures adopted by the MOF Risks Lack of finance, infrastructure and human capacity undermines SAO s ability to fulfill its assigned tasks Absence of enforcement mechanisms and incentives to impose sanctions on audit recommendations undermine audit outcome Outputs 1. SAO audit capability of public sector procurement practice strengthened 2. Strengthened legislative oversight of the SAO audit reports SAO audit team deployed on procurement audit trained Audit reports are consistent with INTOSAI best practices as incorporated in SAO audit guide and relevant manuals (baseline: 2 in 2011) Number of SAO audit reports scrutinized by Economic Planning and Finance Committee (EPFC) of the National Assembly Training evaluation reports Evaluation report from regional SAIs Project reports and course delivery report SAO annual report EPFC reports Assumptions Continuous management commitment to workforce requirements SAO s strategic audit planning includes prioritization in audits of high-value procurements Risk Risk that the National Assembly may be unable to ensure that corrective action is taken based on audit findings
Appendix 1 7 Design Summary Performance Targets/Indicators (baseline: 2 in 2011) Data Sources/Reporting Mechanisms Assumptions and Risks Number of recommendations by SAO and EPFC implemented by the government and monitored regularly (baseline: 0 in 2011) Activities with Milestones Inputs 1. SAO audit capability of public sector procurement practice strengthened 1.1. Need assessment undertaken to identify short-term and long-term needs within the inception period of the TA (within 2 weeks of TA commencement during the inception phase) 1.2. Long-term training plan (LTTP) and short-term training plan developed 1.3 Teams of functional responsibility leaders identified and formed (in procurement audit) to work closely with LTTP 1.4 Standard training course materials developed and disseminated 1.5 Procurement audit guides, codes and manual developed concurrently and disseminated 1.6 In-country training organized by the international consultant 1.7 Training organized with the support of resource persons and/or experts and/or trainers from regional SAIs 1.8 Four experimental audits conducted two for externally funded projects and two for high-value procurement undertaken under national budget 1.9 On-the-job training and mentoring undertaken concurrently 1.10 Study visit (activities 1.2 1.10 will be undertaken throughout the TA implementation period) 2. Strengthened legislative oversight of the SAO audit reports 2.1. Role and responsibilities for parliamentary oversight of financial management, including SAO audit reports, assessed and institutional strengthening plan developed (within 2 weeks of TA commencement) 2.2 A draft mandate for the legislative committee drafted within 6 weeks of TA implementation 2.3 Workshops for EPFC members on their role and functions; governance, accounting, and auditing issues; and codes of behavior and ethical conduct organized; 2.4 Procedures for communicating with NAA, MEF and other relevant agencies drafted 2.5 A steering committee established to oversee the relevant initiatives 2.6 Draft Rules of Procedures for Examination of the Audit Report prepared 2.7. Seminar (1) and workshop (1) to introduce and cover the objectives and benefits of the draft rules (Activities 2.2 2.7 to be undertaken through the TA implementation period) ADB Item Amount ($ 000) Consultant 380.00 Equipment 60.00 Training 235.00 Contingency 75.00 Total 750.00 Government (in kind) Item Amount ($) Counterpart staff, 75.00 office accommodation, and other support facility 3.0 TA administration and reporting 3.1 Timely government signing of TA letter by Q3 2011 to commence TA effectiveness; 3.2 Consultant selection completed by Q4 2011 3.3 Inception mission fielded by Q4 2011 3.4 Inception plan (including inception report) finalized and formally adopted within 1 month after fielding of consultants (draft inception report to be submitted within 2 weeks of fielding) 3.5 Consultant s midterm report by the team leader midway after commencement of consultancy assignments
8 Appendix 1 Activities with Milestones Inputs 3.6. Consultant s draft final report submitted 1 month and final report submitted 2 weeks before end of TA period 3.7 Regular ADB review missions fielded 3.8. Continued participation by ADB in joint external partners review missions throughout TA implementation period. 3.9. Timely implementation of TA to end 24 months after inception. 3.10.Financial closure of TA 30 months from commencement ADB = Asian Development Bank, EPFC = Economic Planning and Finance Committee, INTOSAI = International Organization of Supreme Audit Institutions, LTTP = long-term training plan, MEF = Ministry of Economy and Finance, MOF = Ministry of Finance, NAA = National Audit Authority, PEFA = Public Expenditure Financial Accountability, Q = quarter, SAI = state audit institution, SAO = State Audit Organization, TA = technical assistance. Endorsed by: Approved by: Shigeko Hattori Director, SEPF Kunio Senga Director General, SERD
Appendix 2 9 COST ESTIMATES AND FINANCING PLAN ($'000) Total Item Cost A. Asian Development Bank a 1. Consultants a. Remuneration and per diem i. International consultants 295.00 ii. National consultants 66.00 b. International and local travel 25.00 2. Equipment b 60.00 3. Training, seminars, and conferences c a. Facilitators 75.00 b. Training program 154.00 4. Contingencies 75.00 Subtotal (A) 750.00 B. Government of the Lao PDR d 75.00 Subtotal (B) 75.00 Total 825.00 a Financed by the Asian Development Bank s Technical Assistance Special Fund (TASF-IV ). b Includes 6 desktop computers, 10 laptops, 1 multifunction color printer, 5 portable black and white printers, 3 photocopiers, and 3 LCD projectors. The Economic Planning and Finance Committee requires 1 laptop, 1 LCD projector, 1 printer, and 1 desktop computer. All equipment certified by the consultants will be turned over to the executing agency following ADB procedures. c Includes training, overseas training and study tours, administrative and logistic support, workshop facilities, training, and contingency expenditure relating to training and workshops. Such costs will be incurred in ADB member countries. This would also include engaging resource persons from regional SAIs on selected audit issues, and project management support. d Includes counterpart staff, office accommodation, and other support. Source: Asian Development Bank estimates.
10 Appendix 3 A. International Consultant OUTLINE TERMS OF REFERENCE FOR CONSULTANTS 1. Principal audit adviser (state audit)/team leader (intermittent, 12 person- months). The principal audit adviser and team leader will have an advanced university degree in accounting, audit, business administration, commerce or a related field; or professional accounting, auditing or related designation (chartered accounting, certified public accountant, certified internal auditor) and will have a minimum of 15 20 years experience of working in government audit, preferably in one of the supreme audit institutions of International Organization of Supreme Audit Institutions (INTOSAI) and/or Asian Organization of Supreme Audit Institutions (ASSOSAI) member countries, and will have significant experience in working on issues relating to the legislative scrutiny of supreme audit institution (SAI) reports by parliamentary and/or legislative committees. The specialist should be sensitive to the cultural and political context of the Lao People s Democratic Republic (Lao PDR). The specialist will have strong knowledge of general auditing standards and practices, and audit tools and techniques, and will have extensive working experience in designing and implementing capacity development and audit training programs for the national supreme audit institutions in the region. The specialist must have demonstrated competence in INTOSAI Auditing Standards and ASOSAI Performance Auditing Standards and Implementation Guidelines and International Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (IIA). In addition, the specialist will have significant experience in the areas of procurement audit. 2. The specialist will aim to strengthen audit professionalism and improve skills in the area of procurement audit, building on earlier technical assistance (TA). 1 The focus will be on audit of procurement under national budget, and also under externally aided projects including those undertaken by the World Bank and the Asian Development Bank (ADB). The TA will specifically assist the members of the State Audit Organization (SAO) to better understand and carry out audit of procurement. Specifically, the TA will increase knowledge and skills of audit staff regarding procurement best practices; help auditors to identify risks relating to procurement processes and activities; assist auditors in achieving a high level of quality and consistency when auditing procurement; provide a basis for measuring audit performance; and allow others outside the SAO to gain a better perspective and understanding of the audit practices of the SAO. In addition, the team leader will also work with the SAO and the Economic Planning and Finance Committee (EPFC) of the National Assembly of the Lao PDR to undertake activities detailed in paragraph 6 below. 3. The capacity building activities will be undertaken in accordance with INTOSAI audit standards. The specialist will conduct training using a highly participative training delivery methodology through a combination of interactive presentations, followed by group discussions and exercises. Case studies will be used to diagnose areas of risk in public procurement operations. On-the-job training and mentoring will be undertaken. 4. The specialist will aim to strengthen audit professionalism, and this is an area of considerable interest to the SAO. At a general level, the audit standards prepared under the Improved Public Financial Management Systems TA (footnote 1) must be finalized, adopted, or implemented into SAO audit practice. The specialist will seek to put in place a quality assurance 1 ADB. 2007. Technical Assistance to the Lao People s Democratic Republic for Improved Public Financial Management Systems. Manila.
Appendix 3 11 process, including improvements in the format of audit reporting. A modern code of conduct needs to be prepared, approved and distributed to all staff. Specialist inputs will be significant in seeking to increase the professionalism of the SAO. 5. Procurement audit. The specific responsibilities will be to (i) strengthen the audit function within SAO in the area of procurement audit; (ii) assist in formulating a training and capacity development plan short-term and long-term plans based on a rapid needs assessment of the existing system of external oversight on public procurement in the Lao PDR and the prevailing policies and procedures for public procurement in the Lao PDR and appropriate audit policy in the prevailing environment in the public sector; (iii) work with the SAO audit teams in conducting field assignments, from planning to final reporting. These audits should include at least 2 4 externally aided projects and 3 5 high-value procurement actions undertaken under the national budget; (iv) deliver specific training, arrange workshops and seminars to senior SAO staff with a focus on procurement under national budget and for externally aided projects; (v) prepare course training modules and reference materials (e.g., guidance, a manual of audit, checklists for procurement audit, and criteria for procurement audit that incorporate principles of procurement consistent with INTOSAI and/or ASOSAI best practices); (vi) simulate real-time red flags and include in the training course and provide training of SAO staff in procurement audit through a series of step-by-step modules that include updates of the existing procurement manual within a risk analysis framework; (vii) support and coordinate SAO efforts with the regional SAIs in training SAO on relevant topics and act as a resource person; and (viii) provide advice and support to pilot and actual auditing, support response to and use of audit findings by the management in at least 2 4 externally aided projects, and support development of standard process and product documents for use in subsequent audits. 6. The international consultant will support the EPFC of the National Assembly, especially in its work with the EPFC, and strengthen the interface between the Economic and Standing Committees of the National Assembly and the SAO to facilitate improved coordination regarding scrutiny of audit reports, their examination and recommendations, and follow-up of recommendations. The specialist will seek to (i) prepare terms of reference to clarify the institutional relationship between the SAO and the EPFC; (ii) define EPFC s role and responsibilities for parliamentary oversight of financial management legislation and implementation; (iii) draft rules of procedures for examination of the audit report, and the procedures for submitting recommendations to the National Assembly, and prepare manuals, guidance and notes; (iv) hold workshops for EPFC members on their role, functions, and auditing issues; (v) develop procedures for communicating with SAO, MOF and other relevant agencies; (vi) design the terms of reference of the project management committee to monitor these initiatives; (vii) organize a seminar and workshop to introduce the objectives and benefits of the draft rules; (vii) provide advice and guidance as requested by the implementing agency. 7. The team leader will coordinate training by training specialists from selected regional SAIs within the framework of ASOSAI, building on audit capabilities of regional SAIs through theoretical and hands-on training on selected audit issues. 8. The team leader will perform any other tasks required in implementing the project, including assisting ADB missions, to help achieve the objectives and goals of the TA within the approved budget. These terms of reference will be further refined during the inception phase.
12 Appendix 3 B. National Consultant 9. Project coordinator and national audit expert (continuous, 24 person-months). The expert will have a background in the government policy and procedures, and will be thoroughly conversant with audit laws, all relevant regulations establishing the SAO, and will be required to have significant work experience in project management, and knowledge of public financial management and public audit. The national expert will possess an understanding and knowledge of audit and accountability issues in Lao PDR, and will be proficient in English. The position requires significant facilitation and communication skills, and will report to the team leader. The expert will undertake the following tasks: (i) assist the team leader and the international specialists in all aspects of their task within the terms of reference and assist the executing agency (the SAO) in setting up the implementation arrangements in line with ADB processes; (ii) under the guidance of the team leader, collect and analyze information, and make it available in English in an organized, readable form; (iii) conduct research on specific topics as required by the team leader and the international specialists; (iv) arrange and organize discussions, training and workshops, and help the team leader and the international specialists prepare materials for them, including translations of documents (if necessary) and interpretation of the discussions; (v) act as an interpreter in meetings and training sessions, help translate documents (if needed) and coordinate translation works to be contracted to others; (vi) prepare copies of training materials, reserve training venues, and liaise with training participants and other resource persons; (vii) support the team leader in preparation and submission of all reports, in training, and all related activities; (viii) work closely with the Secretariat of the Economic and Finance Committee of the National Assembly, and other major development partners providing funding assistance to the SAO; and (ix) perform other tasks that may be assigned by the principal audit adviser. C. Deliverables 10. The team leader will be responsible for compiling and controlling the quality of all reports under this TA. The team leader will provide: (i) an inception report, to include a comprehensive implementation plan to be submitted within 2 weeks of the start of the project, including a log frame outlining the implementation schedule that specifies the number of seminars, workshops, and training and study tours to be undertaken; (ii) regular progress reports; (iii) a midterm report; (iv) draft final report (to be submitted 2 weeks before the end of consulting services) and (iv) a final report reflecting comments by the executing agency, implementing agencies, and ADB, to be submitted at the end of the consulting services. The inception report will include a work plan and will also incorporate the activities indicated in the design and monitoring framework. Particular care should be taken to ensure that the measurement mechanisms, designed outputs and indicative targets are included in the team leader s monitoring and reporting of TA implementation progress. Where no measurement mechanism is in place, or no baseline information is available, a strategic approach to gathering the baseline information and its subsequent measurement should be included in the TA inception report. The reports will be submitted to the executing agency, implementing agencies, and ADB, and will include an assessment of the outputs and activities, including performance indicators included in the design and monitoring framework. The consultant s team will ensure that baseline data for each output are gathered and monitored over time in the project. The reports will be discussed with the executing agency, implementing agencies, and ADB. The team leader will coordinate with SAO and support a study tour, subject to available resources. 11. The team leader will finalize the work plan, and the activities with the DEPF for activities related to the EPFC, and will report to the director general of the DEPF for relevant outputs in this regard.