Report: Study Tour to Singapore and to Sixth Biennial Australasian Council of Public Accounts Committees (ACPAC) Conference in Canberra, Australia, dated 13 November 2001:
The Standing Committee on Public Accounts (the Committee) reports as follows:
A. Introduction
The Committee, by invitation by the Office of the Auditor-General, attended the Sixth Biennial ACPAC Conference held in Canberra, Australia, from 4 to 6 February 2001. The tour to Australia included an overnight stop in Singapore, where the delegation held a brief meeting with their Deputy Auditor-General, Mr Teo Chee Khiang.
The multiparty delegation consisted of Mr D Gumede (ANC), Mr P Gerber (ANC), Mr B G Bell (DP) and Ms B Marshoff (ANC), as well as Mr E Molefe, Committee Secretary.
B. Meeting in Singapore
1. Purpose of meeting - briefing by Office of Auditor-General on:
* Mode of operation of the Public Accounts Committee in Singapore
* Relationship between the Office of the Auditor-General and the Public Accounts Committee
* Audit Committees in national departments
* Fight against corruption in public sector
(a) Mode of operation of Public Accounts Committee
Singapore's public accounts committee consists of seven members of Parliament. The Speaker of Parliament appoints the chairperson of the committee. Although the ruling party has a majority of more than 70%, the Standing Orders of Parliament require a balanced representation between government benches and the opposition benches.
The main task of the committee is to examine accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and such accounts laid before Parliament as the committee may think fit, together with the Auditor-Generals' reports.
All committee meetings are closed and report becomes only a public document when debated in Parliament.
The committee operates informally and there are no standing rules governing it. Parliament provides administrative service and researchers. The committee shares researchers with other committees.
The committee's work is focused mainly on Auditor-General's reports on state-owned companies. These reports are detailed and are submitted individually, whilst a summarised general report is prepared for departments.
The committee, however, is not precluded from requesting a detailed report from such a department. This method of reporting on the finances of the departments is the result of the Audit Act, which prohibits the Auditor-General from divulging any information uncovered when auditing government departments, except to the President, who is not a member of a political party but is elected by popular vote.
The summarised report of the Auditor-General on government departments normally concentrate on the following:
* Financial Audit
The Auditor-General evaluates proprietary, accuracy and transactions.
* Compliance Audit
The Auditor-General evaluates whether laws, regulations and policies have been complied with.
* Value-for-money Audit
The Auditor-General evaluates whether there is waste or extravagance in the management and use of funds, manpower and or other resources.
* Programme Audit
The Auditor-General evaluates the desired results or benefits set to measure performance and report on the effectiveness of the programme.
The Auditor-General must inform the President of any proposed transaction by the government that is likely to draw on the reserves of the government not accumulated by it during its term of office. This is the result of an Act of Parliament, which precludes a new government from using the reserves accumulated by a previous government.
The committee has the power to summon the Prime Minister to appear before it. In practice, the Permanent Secretary, a political appointee, is the one summoned by the committee.
(b) Relationship with Office of Auditor-General
There is no statute or regulations that require a close working relationship between the Auditor-General's office and the public accounts committee.
The officials in the Office of the Auditor-General are neither part of the preparatory work performed before the hearing nor part of the drafting of committee reports and resolutions. Their relationship is on an ad hoc basis - to provide additional information when required to do so.
Article 148-f(1) of the Constitution of Singapore requires that the Office of the Auditor-General be independent of the government, despite the fact that it is being funded by the government.
The Auditor-General is appointed for a term of six years, which is renewable.
(c) Audit committees in national departments
There is no law that requires national government departments and state-owned departments to appoint audit committees. If a state department establishes an audit committee, the chairperson of that committee can be an employee of that department.
Cash accounting is practised, but because of legislation, assets registers are kept. The value of an asset is at purchase price and is not devalued until the asset is disposed of.
(d) Fight against corruption in public sector
All the investigations on any corrupt practices uncovered by the Office of the Auditor-General in the cause of auditing state-owned companies and state departments are referred to the Corrupt Practices' Investigation Bureau. The Prime Minister appoints the head of the unit who reports directly to him. The Auditor-General does not perform forensic audits, unless there appears to be irregularities.
The prescription period in Singapore is six years. The Office of the Public Service Commission pursues claims for the recovery of money owed to the government. This Office, supplemented by tough punitive measures taken against those found guilty, led to a high success rate in fighting corruption.
2. Recommendations
The Committee recommends that:
(a) It investigate the prescription legislation in Singapore.
(b) It conduct further dialogue with the public accounts committee of Singapore to clarify certain points.
C. Conference in Canberra, Australia - introduction
The Conference was attended by all members of the Australasian Council of Public Accounts Committees (ACPAC), namely public accounts committees and Auditors-General of the Federal States of Australia, Fidji and New Zealand, and observers from the Canadian council of public accounts, the Committee, Executive members of the SA Association of Public Accounts Committees (APAC) and Auditors-General from Hong Kong and South Africa.
Presentations were made on the following themes:
* Accrual Accounting
* Transparency, including commercial confidentiality
* Outsourcing risk: Risk management in new contestable environment
* Retention of corporate memory and skills in public service
* Public interest in new contestable environment
* The impact of devolution
* Measuring performance in the public sector
Major findings from above-mentioned themes
1. There is general movement among ACPAC members from cash accounting to accrual accounting, and New Zealand seems to be at the forefront.
2. Most countries are outsourcing their service activities.
3. Loss of corporate memory (skills, experience and knowledge) by the public sector is a major problem experienced in the process of outsourcing government activities.
4. Outsourcing by the public sector has created confusion and responsibility, accountability was clouded, and some delegates were concerned at the long-term liability.
5. There was general consensus that efficiency and productivity in the public sector are no longer the only criteria measuring performance, but that outcomes are more important - efficiency and productivity are useless unless outcomes are good.
6. Continuous problems are being experienced by governments trying to balance contractual terms with transparency in cases of commercial confidence - non-disclosure in the name of commercial in-confidence viz-a-viz disclosure for transparency.
7. Measuring performance in the public sector is a very difficult task. None of the presenters proposed any satisfactory criteria to be used.
8. There is no clear-cut understanding on what constitutes public interest.
D. Accrual accounting and its impact on accountability
The implementation of accrual accounting to replace the cash accounting system in many public sectors has seen major improvements in accountability in the public sector.
Presenters argued that accrual accounting is the key to more informed decision-making and, therefore, better financial management, because it distinguishes between capital and current expenditure and facilitates more accurate costing of outputs.
1. New Zealand experience
The implementation of accrual accounting in the New Zealand central government sector was part of a much wider reform of financial management in the public sector. A major reform was devolving financial management from central control to the control of the departmental chief executive.
Financial management reforms undertaken by New Zealand included the following:
(a) Changes in the accounting basis, the result of which moved responsibilities and accountability from central control to the operational level.
(b) Accrual accounting in New Zealand now shows the full costs of programmes and activities, including capital costs and budgets.
(c) A shift in emphasis from controls over inputs to controls over outputs.
During the transitional period by departments from cash to accrual, the Treasury performed the following key tasks:
* Developed a set of accounting policy parameters within which departmental accounting policies were constrained, and within which general Accepted Accounting Principles (GAAP) was used.
* Approving the readiness of departments to move on to the new system.
The presenters emphasised that successful implementation of the system could be achieved if:
* There is wide support so that the changes are effectively adopted.
* Off-the-shelf commercial software is used.
* Changes in human resource management must be implemented where directors are given powers to set remunerations and hire and fire as they see fit.
E. Transparency (including commercial in-confidence)
Governments throughout the world have many challenges in the future, if they are going to achieve a proper balance between the legitimate need for secrecy and the transparency necessary to ensure an adequate level of government accountability.
One of the consequences of the managerial approach to modern government is that much of the information that reveals the activities of government is now of a commercial nature. As a result, access to documents by citizens and their elected representatives is being prevented by the increased use of commercial confidentiality claims.
The concern at the conference was that this presents a major threat to existing mechanisms for ensuring accountability and requires a new focus on the issue of commercial confidentiality and its effect on the transparency of government activities.
The Australian Federal State of Victoria, which presented the paper on this theme, raised concerns on the impact of confidentiality on an open government. It submitted that there was widespread concern about the over-use of confidentiality clauses in government contracts and an increasing reliance on claims of commercial in-confidence to resist disclosure of information. This was applied not only to requests for information by members of the public, but also to MPs, parliamentary committees and the Auditor-General.
As an attempt to remedy the situation, the federal public accounts committee of Victoria has proposed guidelines, which were submitted to the Commonwealth Parliaments for adoption. The report contained analyses, different in context, in respect of which claims for confidentiality may arise. It particularly singles out governmental contracts and the tendering process as those requiring attention.
Some of the proposed guidelines are:
1. Departments must ensure that third parties are made familiar with disclosure requirements before providing sensitive information to government agencies.
2. Parliaments must ensure that there is a general assumption of disclosure and restrict the use of confidentiality clause in government contracts.
3. The use of confidentiality clauses should be kept to an absolute minimum and contracts should instead contain specific terms, stating that they are prima facie public documents.
4. Parliamentary committees and the Auditor-General must have unrestricted powers to access commercially sensitive material held by government agencies and third parties, in order to perform their duties.
It was, however, pointed out that a variety of options exist for dealing with commercially sensitive material and that, where genuine reasons exist, it is possible to take middle ground between unrestricted access or total confidentiality.
It was found that the main opponents to disclosure were state departments' heads; private institutions were generally quite prepared to allow full release of documents.
F. Outsourcing risk: risk management in new contestable environment
Since the 1980s, governments all over the world have been engaged in the process of outsourcing of service delivery functions, which have traditionally been the sole purview of the government. For many governments, outsourcing is considered an attractive alternative to standard in-house government service delivery.
It was observed that competition has forced outsourcing issues to become more prominent. It is used to enhance government service delivery by introducing competition to the public sector.
However, as presenters from Queensland, Australia, stated, poorly managed outsourcing arrangements can be fraught with risks and may result in adverse outcomes for stakeholders.
Key points which can help mitigate risk in outsourcing arrangements
Departments/agencies should ensure that:
1. Their core competencies, strategic goals and deficiencies are clearly defined.
2. Arrangements are planned, not hastily entered into. A formal contract should exist which specifies the roles and responsibilities of the government department and other parties entering into the outsourcing arrangement, and should include clear provisions to ensure transparency and accountability.
3. Officers managing outsourcing projects have appropriate skills.
4. There is regular and effective monitoring and evaluation of arrangements.
5. Probity and accountability requirements are observed at all times during the outsourcing cycle - outsourcing activity should not in any way reduce the risk management obligations on an accounting officer.
6. Outsourcing is only used in those business areas which are conducive to outsourcing and will deliver improved returns.
7. They address sensitive issues associated with potential job losses.
8. They manage the contract. This phase involves managing outsourcing arrangements.
To try and manage such issues, the Queensland government policy on contracting out of government services specifies that there will be no contracting out of services currently provided in-house, other than in circumstances where:
(a) Actual shortages exist in skilled in-house staff.
(b) There is a lack of available infrastructure capital or funds to meet the cost of providing new technology.
(c) It can be clearly demonstrated that it is in the public interest that services should be contracted out.
The general view was that service provision, whether through in-house provision or outsourcing, ultimately funded through appropriations from Parliament and the government, must remain primarily responsible and accountable in evaluating the process of outsourcing.
G. Retention of corporate memory and skills in public services
Corporate memory is the collective experience, knowledge and creative energy stored in employees. It also includes explicit knowledge, which is more tangible as it is gained through formal processes, databases and manuals. It is formed through the collective business experiences, visions, successes and failures of all employees.
There were concerns that:
1. The loss of experience and expertise in the public sector has the potential to adversely affect the ability of the public service to conduct its core business efficiently and effectively.
2. Outsourcing public services can place a limitation on information sharing - to preserve their jobs, employees sometimes guard the specific business information that they possess. It is for this reason that public sectors must engage in or encourage information sharing within the institution and promote succession planning.
3. Outsourcing is the major contributing factor in loss of corporate memory.
Positive steps towards retention of corporate memory against threats from downsizing and contracting out were proposed. It was also recognised that the provision of services is not just about realising the lowest price, but also about maximising overall value for money for the taxpayer - outcomes and ensuring proper accountability for the use of public resources.
Strategies proposed to counter loss of corporate memory in the public sector were:
(a) Preservation of records - accurate record-keeping and maintenance of files.
(b) Move towards information technology (IT).
(c) Proper use of human resources.
(d) Establishing specific policies and procedures to be followed, such as having mechanisms in place to deal with staff change and hand-over procedures and using standard documents.
(e) Knowledge management.
H. Public interest in new contestable environment
The purpose of this theme was to define public interest and see how best it could be protected.
Australian Parliaments (Federal and Commonwealth) have effectively adopted a practice of defining the term public interest on a case-by-case assessment, rather than trying to be prescriptive. Therefore, while the term is widely understood and applied, it is not precisely defined.
Parliament, through its membership, is responsible for protecting the best interest of the electorate. Presenters argued that the executive government is not beyond parliamentary scrutiny and that Parliament has a right to have sufficient information available in order to fully determine the public interest and benefit of policy implementation.
However, it is acknowledged that there is no clear-cut understanding of what constitutes public interest in all circumstances. If members of Parliament are to define the public interest, it is probably best undertaken on a case-by-case basis rather than within a framework of broad controlling principles.
I. Impact of devolution
The debates on this theme were centred on the impact arising from the devolution of responsibilities for the delivery of government services under the Commonwealth's Financial Management Act in respect of Asset Management.
Effective strategic asset management remains a challenge for many government organisations.
In Australia, the Financial Management and Accountability Act has created a framework for better Commonwealth asset management by devolving the responsibility and accountability for managing the assets of departments and agencies to their Chief Executive Officers.
It is the Commonwealth government's expectation that, through accrual budgeting, managers will actively manage their resourse base. Managers will also be required to define outputs and link them to outcomes.
Presenters were convinced that better asset management could not only realise substantial financial savings for agencies and the Commonwealth, but also improve service quality by using assets, which are tailored to their purpose and are well managed.
Assets management could be improved by:
1. Formulating general guidelines, with the assistance of the Auditor-General.
2. The creation of bodies like asset management forums, which will prevent departments from working in isolation. These forums should meet regularly to exchange information on assets management issues.
3. Senior management performance measurement should include a reference of how assets under their control are managed efficiently and effectively.
J. Measuring performance in public sector
The measurement of outcomes, to the extent that it could be practically and effectively achieved, could enhance the accountability of the executive government.
The introduction of the Public Corporations Act (PCA) by the South Australian Government in measuring performance as it relates to government businesses, was the most significant development in assisting performance monitoring.
The requirement for government businesses (subject to PCA) to develop a charter and an annual Performance Statement, that includes financial and non-financial performance targets, has led to performance measurement constituting an essential component in running their businesses. This is a highly debated matter. A paper was presented and judging from discussions, no solution was reached, because measuring performance in the public sector is a very difficult task.
K. Next ACPAC Conference
The South African Association of Public Accounts Committees (APAC), of which the Committee is a member, was invited to be member of ACPAC.
The representatives of APAC present indicated that the matter would be discussed with their members.
If APAC joins, they will participate in the next ACPAC Conference, to be held in Melbourne in 2003.
L. Recommendations
The Committee recommends as follows:
1. That it be proposed to the Executive Council of APAC that the Committee join ACPAC, if finances are available.
2. That it consider approaching Parliament for resources to carry out research work.
3. That, if it has researchers, it will be in an improved position to do investigative work.
M. Conclusion
The delegation, through formal and informal interaction with other MPs at the Conference and with the Deputy Auditor-General in Singapore, were exposed to some alternative method of dealing with issues relating to financial management in the public sector.
For that reason, the visit was of great benefit to Committee members who have to deal with some of these problems in future.
It was also interesting to note that members of ACPAC are spending considerable time on investigative work. The reason for this was that they were well-resourced, with an average of three researchers and one professional adviser (in most cases an academic).
We thank the Department of Foreign Affairs and the South African High Commission in both Singapore and Australia for ensuring that our visit was enjoyable.