Mitigating the

Global Financial
Crisis Impact
The Role of Government Auditors

Richard F. Chambers CIA, CGAP, CCSA

President and CEO – The Institute of Internal Auditors

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 Overview
• Global Financial Crisis: Impact on
Governments Worldwide
• Government Auditors: An Overview
• Mitigating GFC Impacts: Five Ways
Government Auditors can Add Value
• Conclusions

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 We All Know the Problem…
• Revenues from sales tax, property tax, income tax,
and fees have declined
• Citizens need higher levels of government services in
times of financial difficulty
• Most OECD countries are running significant budget
deficits
• State/local governments must run balanced budgets

This means difficult and painful choices.

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 Budget Squeeze

• Sales tax revenues down

• Property taxes down
• Income taxes down
• Investments down
• Increased use of social
• Fee income down programs
• Economic stimulus
programs
• Automatic triggers
(unbudgeted)

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 h

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 Recent Austerity Measures
Country Austerity Measures
Czech Cut public sector wages up to 43%; taxes on pensions of high
Republic earners
Greece Raise VAT from 19% to 23%; raise pension age; cut public
sector bonuses; freeze salaries/pensions; raise retirement age
Ireland Cut public sector wages 5%; cut 24,750 jobs; cut minimum
wage; reduce social welfare and child benefits; increase capital
gains, capital acquisition, and carbon taxes; new water tax
United Raise VAT from 17.5% to 20%; reduce government department
Kingdom budgets by average of 19%; raise pension age; cut 490,000
public sector jobs; reduce unemployment benefits

Source: Limiting Central Government Budget Deficits: International

Experiences, Congressional Research Service, 2011

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 The Status Quo is Unacceptable

• Rising public expectations for demonstrable

results and enhanced responsiveness
• Government performance/ accountability and
high-risk challenges
• Additional resource demands due to
economy, healthcare costs, terrorism…

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 Government Auditors:
• Work for “good government”
• Help improve performance and assure accountability
• Help identify and mitigate risks
• Maintain independence to make difficult decisions

“With
“With light
light comes
comes heat,
heat, and
and with
with heat
heat comes
comes action,
action, and
and
action
action is
is what
what we
we want.
want. How
How can
can we
we make
make government
government
work
work better?
better? By
By improving
improving the
the economy,
economy, efficiency,
efficiency, and
and
effectiveness
effectiveness of
of government.”
government.”
T
T -- The
The Honorable
Honorable David
David M.
M. Walker
Walker
Former
Former Comptroller
Comptroller General
General of
of the
the United
United States
States

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 Audit and the Financial Crisis

• Two potential solutions:

– Control costs
• Traditional audit “sweet spot”
– Grow revenue
• Potential audit opportunities
• With change comes risk
– Increases need for audit

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 Mitigating GFC Impacts: Five Ways
Government Auditors can Add Value
1. Providing assurance on the accuracy of financial
reporting
2. Providing assurance that government resources are
being used efficiently and effectively
3. Fostering accountability by government officials
4. Identifying opportunities for cost reduction and
containment
5. Fostering greater public trust

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 Five Ways Government Auditors can Add Value

1. Providing Assurance on the Accuracy of

Financial Reporting

• Generally accepted accounting principles

• Adequacy and accuracy of disclosures
• Privileged and confidential information
• Report distribution

In today’s economy, financial reports

are under intense scrutiny by public
officials, legislators, and citizens.

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 Five Ways Government Auditors can Add Value

1. Providing Assurance on the Accuracy of

Financial Reporting

• Financial audits include determining whether:

– Financial information is presented in accordance
with established or stated criteria,
– Entity has adhered to specific financial compliance
requirements, or
– The internal control structure over financial
reporting and/or safeguarding assets is suitably
designed and implemented to achieve control
objectives.

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 Five Ways Government Auditors can Add Value

1. Providing Assurance on the Accuracy of

Financial Reporting
• Financial audits also evaluate:
– Poor financial management systems
– Corruption, fraud, fund diversions
– Use of reserves during unexpected events
– Inadequate funding
– Release of funds to Ministries/Departments/Agencies
– Initiation of spending
– Payment
– Recording of transactions
– Production of accounting/budgeting reports

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 Five Ways Government Auditors can Add Value
2. Providing Assurance that Resources are
Being Used Efficiently and Effectively
• We need to know whether or not government
programs operate economically and efficiently
• We need to know which initiatives are showing
results and which are not
• We need verifiable evidence of success

In today’s economy, government

leaders need to know which programs
are effective and which are not so they
can make tough choices.

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 Five Ways Government Auditors can Add Value
2. Providing Assurance that Resources are
Being Used Efficiently and Effectively

• During difficult economic times government auditors

can provide consulting services that will show if the
organization is conducting operations effectively
(meeting its goals) and efficiently (controlling costs)
– Services might include “management studies” that identify
opportunities for enhancing the efficiency of operations

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 Five Ways Government Auditors can Add Value

3. Fostering Accountability by
Government Officials
• Public officials are responsible for:
– Complying with applicable laws and regulations
– Using resources efficiently, economically, and effectively
– Establishing and maintaining effective controls to ensure that
appropriate goals and objectives are met
• Officials and employees who manage government
programs need to render an account of their activities
to the public
• Auditing provides objective evidence enabling us to
hold management accountable for key responsibilities

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 Five Ways Government Auditors can Add Value

3. Fostering Accountability by
Government Officials
• Government officials should abide by a Code of
Ethics/Conduct and establish a culture for
preventing, detecting and reporting fraud and
corruption

“
“In
In the
the last
last analysis,
analysis, of of course,
course, anan oath
oath will
will encourage
encourage
fidelity
fidelity in
in office
office only
only to to the
the degree
degree that
that officeholders
officeholders
continue
continue to to believe
believe that
that they
they cannot
cannot escape
escape ultimate
ultimate
accountability
accountability forfor aa breach
breach ofof faith.”
faith.”
-- James
James L.L. Buckley
Buckley

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 Five Ways Government Auditors can Add Value

4. Identifying Opportunities for Cost

Reduction and Containment
• Lack of coordination among departments
• Inadequate cost information
• Substandard contract management
• Mission fragmentation/program overlap
• Ineffective procurement controls
• Poor planning
• Burdensome legal mandates

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 Five Ways Government Auditors can Add Value

4. Identifying Opportunities for Cost

Reduction and Containment
• Scrutinizing processes can identify opportunities for
increased efficiency
• Encouraging adoption of performance measurement
systems can help departments focus their energies
and monitor quality and effectiveness.
• Advocating rigorous, data-driven decision making
processes can lead to better outcomes

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 Five Ways Government Auditors can Add Value

5. Fostering Greater Public Trust

• Auditing provides credibility to the information

reported by or obtained from management through
objectively acquiring and evaluating evidence
• Audit of government reporting is an essential element
of public control

In today’s economy, auditing provides

transparency to meet the growing
demand for objective information about
government programs and services.

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 Five Ways Government Auditors can Add Value

5. Fostering Greater Public Trust

“Citizens deserve to know that their state

government is spending their tax dollars
wisely on vital programs and services that
directly benefit them and make a measurable
difference in their lives.”
- Edward G. Rendell
Two-term
Two-term Governor
Governor of
of Pennsylvania
Pennsylvania

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 Conclusions
• The status quo is unacceptable in times of global
financial crisis.
• A fundamental review of government programs and
policies is necessary to determine what the
government should do and how the government
should do business in the future.
• In times of financial crisis, internal audit is key to
assuring ongoing government efficiency,
effectiveness, and transparency.

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 Questions?

•• For
For more
more information,
information, contact:
contact:
Richard
Richard F.
F. Chambers
Chambers
President
President and
and Chief
Chief Executive
Executive Officer
Officer
The
The Institute
Institute of
of Internal
Internal Auditors
Auditors
richard.f.chambers@theiia.org
richard.f.chambers@theiia.org

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