Association of Local Government Auditors - The Role of Audit in Furthering Public Policy Accountability

Written by Robert G. Prosser, City Auditor, City of Saskatoon,

(Editor's Note: The following is from a speech presented before the Mid-America Government Audit Forum in Kansas City, Missouri, in May 1994.)

Across Canada, public sector accountability has been the subject of hot debate over the past 10 years, due in large part to the efforts of the Canadian Comprehensive Auditing Foundation (CCAF). I believe, as does the CCAF, that auditors can and ought to play a significant role in developing and administering accountability systems at all levels of government and throughout all public sector institutions.

As City Auditor with the City of Saskatoon, I have devoted much of my time over the past few years to furthering greater public policy accountability at the municipal level through two initiatives: 1) the design, implementation, and administration of an overall accountability reporting framework, and 2) the development and implementation of a `value-for-money' auditing function, including program evaluations. This experience has contributed to the more effective and accountable administration of public policy.

The Role of Elected Officials
My perspective of the role of elected officials is that they are to provide leadership, not management. In their capacity as leaders, elected officials are required to ensure that we do the right thing while management sees to it that we do things right. Management's role is to identify program alternatives in response to the governing body's public policy objectives and to implement and manage programs approved by elected officials. In order to lead, elected officials must do the following:

Analyze community needs (problems, conditions, opportunities and threats).
Set public policy objectives.
Prioritize public policy objectives.
Analyze intervention alternatives presented by management.
Select the most appropriate intervention strategies or programs.
Evaluate the results or outcomes.

I do not believe that elected officials have carried out their leadership role very effectively. As a result, they often find themselves, and the organizations they represent, under siege.

The Need for Quality Information is Critical
This is happening in an era in which risk-taking and innovative approaches are demanded while control and accountability systems discourage initiative and innovation. Management and governing bodies are looking for the right balance, and need to be supported with the right kind of information to direct or redirect their organizations.

Elected officials who do not have the quality information readily available to them will not be able to satisfy the electorate and will find it increasingly more difficult to make intelligent and informed decisions on public policy. Those who do not have access to quality information on program outcomes will also find it more difficult to get elected or to stay elected.

Traditional financial statements, in my opinion, do not begin to provide the type of information necessary to develop, maintain, or make necessary modifications to public policies. Nor do they recognize the degree to which public policy objectives have been achieved. Financial statements tend to be only statements of fact. In the event that they show a surplus or a deficit, public opinion quickly judges success or failure on this basis alone. It is, therefore, theoretically possible to demonstrate a financial surplus which would probably be reported favorably by the media and at the same time have tremendous failures in achieving public policy objectives - and this would go unnoticed. Financial statements, which rarely even provide variance analyses, do not provide the tools necessary for the development, maintenance and redevelopment of public policy.

Auditors Must Provide the Critical Information
It was the concerns of decision-makers - including management and elected officials - over the lack of quality information on public policy effectiveness, which prompted audit practitioners across Canada to engage in the development of new accountability mechanisms that would support the decision-making process in the public sector. We wanted to enhance accountability in a way that would help public sector institutions recapture a measure of public confidence which is so vital to them.

Translating these concerns into action, the Canadian Comprehensive Auditing Foundation (CCAF) undertook a major research project in the area of effectiveness reporting. The CCAF is a national non-profit research organization supported by the federal, provincial, and municipal governments; major accounting firms; management consultants; and the three professional accounting bodies. The CCAF's green book on `Effectiveness Reporting and Auditing in the Public Sector' has attracted the attention of all levels of government across Canada. Not only has it stimulated unprecedented interest in the need for greater accountability; it has also been the catalyst for change in many public sector organizations - including the City of Saskatoon.

The CCAF consulted with a wide range of public sector executives and decision-makers, including members of governing bodies. What became abundantly clear during these consultations was that despite a proliferation of and investment in measurement processes and systems, including comprehensive audit, senior public sector executives and members of governing bodies were frustrated and had reservations about the information that they had available to them to support their decision-making processes. In particular, executives and governing bodies felt that they were not helped in their agendas because information providers, including auditors, evaluators and other measurement specialists, were not necessarily sensitive to the type and nature of information that would portray the performance of an organization fairly. Those consulted felt that it was both possible and desirable to try and establish a framework to guide reporting on effectiveness - one that would represent an improvement over past practice and reflect the interest of decision-makers.

The research conducted by the CCAF resulted in the development of an overall Framework for Effectiveness Reporting - a framework that includes effectiveness reporting criteria and a definition of the roles various parties, including auditors, play in applying the framework. The foundation proposed that the following attributes be used as the basis for reporting information on effectiveness to governing bodies:

Relevance. The extent to which a program makes sense in light of the problems or conditions to which it is intended to respond. Information about this attribute could lead to confirmation, amendment, or elimination of a government program or service.
Appropriateness. The extent to which the design of a program or its major components, and the level of effort being made, are logical, given the specific public policy objectives to be achieved. Information on `appropriateness' could lead to the pursuit of alternative program delivery strategies, such as contracting out.
Achievement of results. The extent to which public policy objectives and program results have been achieved.
Acceptance. The extent to which the constituencies or customers, for whom a program or line of business is designed, judge it to be satisfactory.
Secondary impacts. The extent to which other significant consequences--either intended or unintended, and either positive or negative--have occurred.
Costs and productivity. The relationships among costs, inputs, and outputs.
Responsiveness. The extent to which a program, function, or organization is positioned to adapt to changes in such factors as markets, competition, available funding or technology.
Financial results. The matching of and the accounting for revenues and costs, and the accounting for and valuation of assets, liabilities, and equity.
Management direction. The extent to which the objectives of an organization and its component programs or lines of business, are clear, well integrated and understood, and appropriately reflected in the organization's plans, structure, delegations of authority, and decision-making processes.
Working environment. The extent to which the organization provides an appropriate work atmosphere for its employees; provides appropriate opportunities for development and achievement; and promotes commitment, initiative and safety.
Protection of assets. The extent to which important assets - such as sources of supply, valuable property, key personnel, agreements, and important records or information - are safeguarded so that the organization is protected from the danger of losses that could threaten its success, credibility, continuity and, perhaps, its very existence.
Monitoring and reporting. The extent to which key matters pertaining to performance and organizational strength are identified, reported, and carefully monitored.

Information about only one or a few of these attributes is insufficient to allow governing bodies to form a balanced judgement about the effectiveness of an organization or program. But with information on all of the attributes - or at least all that are relevant in the circumstances - recipients of the information can start making effectiveness judgements.

The Roles of Management and Auditors in the Development and Administration of a Public Policy Accountability Reporting Framework
There is a general consensus among audit practitioners that managers, not auditors, are in the best position to measure and report on effectiveness, and it is managers who should carry this responsibility. In the absence of an active management effort to report on effectiveness however, there is always the possibility that auditors may be asked to fill the gap and assume what would more properly be a management responsibility. I personally have no objection to auditors taking the lead role in developing and administering accountability reporting systems, as long as management plays an equally key role in the process. In Saskatoon, for example, my office took up the initial challenge to develop management representations; although this responsibility has since been transferred to management, audit still plays a significant leadership role in the process.

The CCAF further advocates that a management representations approach to reporting on effectiveness is only feasible if there are appropriate checks and balances. Fundamental among these is the need for independent audit assurance in the form of opinions as to the fairness and appropriateness of the information that management has reported. To this end, the CCAF proposes that auditors provide opinions on the reliability and suitability of information reported by management about effectiveness. This is really not unlike the role that auditors play in providing assurance on financial statements.

While there has been widespread interest in the effectiveness reporting framework across all public sectors in Canada, progress in actually applying the framework has been slow. In the interest of accelerating actual application of the framework to various sectors, the CCAF is currently exploring options for introducing or amending legislation to enforce effectiveness reporting and accountability across all levels of government. While reasonable progress has been made in some jurisdictions, I expect it will take at least another decade before the requirement to report on effectiveness in most government agencies is embedded in legislation.

(Bob Prosser has implemented an effectiveness reporting framework for the City of Saskatoon. For more information, call or write: Robert G. Prosser, City Auditor, City of Saskatoon, 222-3rd Avenue North, Saskatoon, Saskatchewan, Canada, S7K 0J5. Phone: (306) 975-3274; FAX (306) 975-2784).

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