Governance in the Public Sector

7/31/2019 Governance in the Public Sector

1/124


2/124

ii

ABOUT THE EASTERN, CENTRAL AND SOUTHERN AFRICAN FEDERATIONOF ACCOUNTANTS (ECSAFA)

The mission of the organisation is to build and promote the accountancyprofession in the Eastern, Central and Southern regions of Africa in order that itis, and is perceived by accountants, businesses, financiers and governments, tobe an important factor in the economic development of the region.

ECSAFA MembershipAngolaBotswanaEthiopia

KenyaLesothoMalawiMauritiusMozambiqueNamibia

South AfricaSwazilandTanzaniaUganda

ZambiaZimbabwe

ECSAFA, June 2002


3/124

ii i

Contents

Preface ............................................................................................ v

Executive Summary.................................................................................. vii

Chapter 1: Introduction ......................................................................... 1

Chapter 2: Standards of Behaviour ........................................................ 13

Chapter 3: Organisational Structures and Processes ................................ 21

Chapter 4: Control ............................................................................... 33

Chapter 5: External Reporting............................................................... 49

Appendix 1: Good Governance: A checklist for Permanent Secretaries ......... 57

Appendix 2: Code of Conduct for Public Officials....................................... 63

Appendix 3: Staff Code of Conduct (example) ........................................... 67

Appendix 4: Internal Auditing Guidelines ESAAG.................................... 75

Appendix 5: External auditing The Lima Declaration, INTOSAI ................. 95

Appendix 6: Further Reading ................................................................ 109

Appendix 7: Glossary of Terms.............................................................. 113


4/124

iv


5/124

v

Preface

Good corporate governance, or just good governance, is essential for all

successful organisations. The principles of good governance openness,integrity and accountability are not just optional extras. They are thefundamental foundations on which effective organisations are built. In thepublic sector, governance is as important, or even more important, than in theprivate sector. Public services should be just that, services to the public. Staff

working in the public sector are sometimes known as public servants.

Governance processes and arrangements are essential to ensure that they liveup to their name.

As accountants, professionals in the member bodies of the Eastern, Central andSouthern African Federation of Accountants (ECSAFA) are particularlyconcerned about the way that organisations manage their affairs. Whether theywork in the private or public sectors they expect their organisations to upholdthe highest standards of accountability, openness and integrity. For thesereasons, ECSAFA is pleased to provide this contribution to the development and

maintenance of proper governance in the public sector. We commend this

publication to all public sector managers in eastern, central and southern Africa.We hope that it will assist them to work with others in the public sectors oftheir countries to achieve the highest standards of public service management.

Between 1996 and 1998, an ECSAFA team, funded by a grant from IFAC,visited those government officers across the region with responsibility forgovernment accounting services. The aim was to promote higher standards ofaccountability in the public sector.

The team found that there was mixed understanding and little unanimity ofwhat constitutes proper accountability and governance. As a result, ECSAFACouncil encouraged the Public Sector Committee of IFAC to produce guidanceon this subject.

ECSAFA is grateful to the International Federation of Accountants (IFAC) forpermission to adapt their publication, Governance in the Public Sector: AGoverning Body Perspective (August 2001), to the prevailing circumstances inECSAFA member countries. We are also grateful to the East and SouthernAfrican Association of Accountants General (ESAAG) for permission to reproduce


6/124

vi

their Internal Auditing Standards and INTOSAI for permission to reproduce theirguidance on public sector external auditing.

The IFAC study has been modified so that it is appropriate for centralgovernment ministries or departments that do not have a governing body. It isassumed that a permanent secretary, who is an executive manager and thehead of a paid service reporting to a minister, manages such bodies. Theminister is assumed to be politically responsible for the ministry or department.

ECSAFA will prepare a companion document to this one that will apply to thearrangements found in government business enterprises (or public entities) thathave a board which may include non-executive directors.

It may be useful for national bodies affiliated to ECSAFA to adapt this guide totheir particular local environments by including references to their nationallegislative and regulatory requirements.

Attitudes to governance have changed over time and we expect them to evolvefurther in the future. Thus we expect that this Guide will have to be revised andrefined to reflect the experience of public sector governance across the region

and the world. We hope that our members will use this Guide to assist in thefurther development of effective governance arrangements in their public sectororganisations. In turn, we hope that this experience can be used to informfuture editions of this Guide.

This Guide has been prepared for ECSAFA by the Association of CharteredCertified Accountants (ACCA), with assistance from the South African Instituteof Chartered Accountants, the Institute of Certified Public Accountants ofUganda and the National Board of Accountants and Auditors, Tanzania.

ECSAFA would like to thank all of them for their contribution and particularlyACCA who also printed and circulated this publication.

Ndung'u GathinjiChief Executive ECSAFA

Hughes Building, Kenyatta Avenue, PO Box 42423, Nairobi, Kenya. e-mail:[email protected]

www.ecsafa.org

June 2002
mailto:[email protected]://www.ecsafa.org/http://www.ecsafa.org/mailto:[email protected]


7/124

vii

Executive Summary

Corporate governance is the means by which an organisation is directed and

controlled.

The introduction to this publication sets out the case for having goodgovernance, and the need for further improvements, in the public sectors of

ECSAFA member countries. The term "governance" is used, rather than

"corporate governance", purely because the word "corporate" may be interpretedas a private sector term; no distinction is made between the two terms. Theintroduction also explains the governance framework, including the role of thepermanent secretary, parliament and the three fundamental principles ofcorporate governance: openness, integrity and accountability.

The remaining chapters set out recommendations, derived from thesefundamental principles, on standards of behaviour (chapter 2), organisationalstructures and processes (chapter 3), control (chapter 4) and external reporting(chapter 5).

STANDARDS OF BEHAVIOUR

Openness, objectivity, integrity, honesty and accountability are necessaryingredients of effective governance and should be demanded of all publicservants. The permanent secretary and other senior managers should conductthemselves in accordance with high standards of behaviour as role models to

others. Permanent secretaries determine the values and standards that defineorganisational culture and behaviour.

Public sector organisations should adopt a formal code of conduct defining thestandards of behaviour required. Such a code, or other policy document(s),should cover such issues as conflicts of interest, political influence, gifts,hospitality and entertainment and dealing with suppliers.

All staff are entitled to be treated by their managers and colleagues openly,honestly, courteously and considerately.


8/124

viii

ORGANISATIONAL STRUCTURES AND PROCESSES

Public sector organisations need effective structures to ensure properaccountability, clear communication with stakeholders and clarity about rolesand responsibilities. Proper accountability means being accountable to thepublic for public money and for reporting on the performance of the organisationin relation to clearly defined objectives.

Communication with stakeholders (e.g. the public, staff, Parliament, suppliers,recipients of services supplied) needs to be open, honest, transparent, timelyand relevant to the stakeholders interests. It also needs to be adequate and topresent the information fairly.

There needs to be clearly defined divisions of responsibility at the head of publicsector organisations to ensure a balance of power and authority betweenParliament, the minister and the permanent secretary.

Ministers are usually politically accountable to Parliament for the operation oftheir departments and permanent secretaries are usually operationallyaccountable for the discharge of the responsibilities and commensurateauthorities delegated to them. Permanent secretaries should establish clearchannels of communication with their stakeholders on the organisationsmission, roles, objectives and performance, with appropriate procedures toensure that they operate effectively in practice.

Areas of accountability and responsibility should be clearly defined. Inparticular, the permanent secretaries should maintain an up-to-date formalframework of delegation including a formal schedule of matters reserved tothemselves. The minister is a key stakeholder and to strengthen accountability

of the permanent secretary there should be agreed performance benchmarksbetween the two of them.

CONTROL

Permanent secretaries need to ensure that their organisations have effectiveinternal control. Internal control, broadly, is a process to provide reasonableassurance that objectives will be met. Permanent secretaries should ensure thatthe effectiveness of internal control is assessed and should report on the resultof this assessment. Internal control is effective to the extent that it providesreasonable assurance that the organisation will achieve its objectives.


9/124

ix

Internal control includes, but is not restricted to: budgeting and financialmanagement, having appropriately trained staff, internal audit, risk

management, audit committees, anti-corruption arrangements, structures andprocedures, as well as people aspects such as culture, motivation and team

work.

EXTERNAL REPORTING

Public sector organisations should publish an annual report, including financialstatements presenting a balanced and understandable account of theorganisation's financial and non-financial position and performance. The reportshould include a statement on how the organisation has applied relevant codes

of governance. The financial and certain other aspects of the report should besubject to external audit. There should be prompt and effective action taken tocorrect identified negative audit findings


10/124

x


11/124

1

1. Introduction

IMPORTANCE OF GOVERNANCE

1.1 Over the last decade or so, corporate governance has brought aboutmuch debate and change. Broadly speaking corporate governancegenerally refers to the processes by which organisations are directed,

controlled, and held to account1 and is underpinned by the principles

of openness, integrity and accountability. Governance is concerned withstructures and processes for decision making, accountability, controland behaviour at the top of organisations. In some countries,corporate may be interpreted as a private sector term. To avoid anypossible confusion, the term governance is used in this Guide todescribe what is commonly referred to in the private sector ascorporate governance. In some countries government governance isused to describe governance in the public sector.

1.2 The authors of a 1999 World Bank working paper concluded that there

is new empirical evidence that governance matters, in the sense thatthere is a strong causal relationship from good governance to betterdevelopment outcomes such as higher per capita incomes, lower infant

mortality and higher literacy.2

1.3 Comment such as this serves to highlight the importance of goodgovernance. In virtually all countries the public sector plays a major role

in society, and effective governance in the public sector can encouragethe efficient use of resources, strengthen accountability for thestewardship of those resources, improve management and servicedelivery, and thereby contribute to improving peoples lives. Effectivegovernance is also essential for building confidence in public sector

organisations, which is in itself necessary if public sector organisationsare to be effective in meeting their objectives.

1 Australian National Audit Office (1999). Discussion Paper, Corporate Governance inCommonwealth Authorities and Companies.2 Kaufman, D., Kraay, A. and ZoidoLobaton, P., (1999). Governance Matters, Working Paper,The World Bank.


12/124

2

CURRENT SITUATION

1.4 As recently as a generation ago, performance targets for aid werealmost exclusively expressed in terms of the amount of money or otherresources disbursed. Those who favoured aid regarded the practice asso self-evidently right that any inquiries into the efficiency with which itwas carried out appeared superfluous if not mean. Similarly,assessment of governmental budgetary performance was based on

financial compliance and not on value for money.

1.5 Today, with increasing education, globalisation and democratisation,the situation is totally different. Firstly, most international aid and

assistance is assessed on a stick-and-carrot basis, so aid agenciesinsist on good governance. Secondly, it is no longer easy forgovernments to censor or control inflows of information and freedom ofexpression and association. Citizens are now informed directly frommany sources, particularly via television and the Internet. Local andinternational issues and events that demand immediate responses areprojected into living rooms or in newspapers locally and globally,thereby triggering action. Thirdly, there is an increasing socialawareness by the people, which poses a new challenge forgovernments to be participatory in decision making, and transparent

and accountable in the conduct of public affairs.

1.6 In many developing countries, financial management systems have notbeen able to support adequately policy formulation, budgetaryimplementation, monitoring and control. The critical agencies that

shape and implement public financial management are the ministries offinance (including the accountant generals departments), thetreasuries, the central banks, the Auditor-General, internal auditsections and Parliaments. Yet, in many developing countries, thefunctions, roles and relationships of these institutions, and of politicians

and civil servants, are blurred.

1.7 Corruption, abuse of power and public office for private gain, and othertypes of financial irregularity have been given widespread internationalrecognition as a cancer in public administration and governance.Financial irregularity, where it exists, results in a waste of resources bydiverting government policy and the energies of public officials and thepress from the public interest to the activities of those who breach theduties of public office.


13/124

3

NECESSARY IMPROVEMENT

1.8 Improvements in the management and administration of governmentare essential if the global efforts to halt corruption and other types ofirregularity are to achieve desired results. Governments and theirdevelopment partners have tended to devote exclusive attention tomacro economic and fiscal issues to the almost complete neglect ofeffective risk assessment, financial management, monitoring, control

and evaluation. In most cases, the rules and systems of financialaccountability, record keeping, accounting and reporting, internalcontrol and internal auditing have not been well defined.

1.9 If the rules and systems have been defined, ignorance and/or non-compliance seem to be the norm rather than the exception. In othercases, the endeavours tend wrongly to emphasise external orindependent auditing of financial statements instead of emphasisingefficacy of internal control systems. Without an integratedaccountability framework or defined measurable performance indicatorsto determine objectively whether financial records are maintained andmanaged effectively, financial and other records may be unreliable,incomplete and difficult to use. All this serves to create opportunities forfraud, graft, inefficiency and waste. It also leads to loss of revenue and

impedes economic and fiscal planning.

1.10 This Guide outlines the principles of governance and their application topublic sector organisations, in particular to government ministries ordepartments. Governance practices will need to be tailored according to

the circumstances of individual public sector organisations and thecountries within which they operate. As organisations develop andchange over time, it will be necessary for the permanent secretaryresponsible for each organisation, to review and amend its governancepractices.

SCOPE OF THE GUIDE

1.11 The principles outlined in this Guide apply to all public sectororganisations, including national governments, regional governments(e.g. state, provincial, territorial), local governments (e.g. city, town),related governmental organisations (e.g. agencies, boards,commissions) and government business enterprises (or public entities).This Guide is written specifically for central government ministries ordepartments, as these are the largest and most significant public sector


14/124

4

institutions in ECSAFA countries. The principles in this Guide should,however, be easily amended for other types of public sector

organisations. The IFAC Guide, on which this Guide is based, waswritten for public sector organisations with boards that include non-

executive directors. Such organisations will also find the King Report onCorporate Governance for South Africa, published in March 2002, auseful additional source of guidance.

1.12 The King Report promises to be a major contribution to corporategovernance. Although it focuses on the private sector, many publicsector organisations, including those without boards for which thisGuide has been written, will find the sections on auditing and

accounting, internal audit, risk management and non-financial matters,including ethics, particularly useful.

1.13 A variety of terms are used to describe the head of staff or most seniormanager of a public sector organisation; these include permanentsecretary, chief executive, chief executive officer, secretary to thetreasury and principal. This Guide uses the term "permanent secretary"to describe this person.

1.14 In the interest of good governance, a minister with direct responsibility

for delivering a service or activity should ensure that therecommendations for governance in this Guide are applied. In anycircumstances where these recommendations cannot be applieddirectly, the basic principles of governance openness, integrity andaccountability should be followed when interpreting and applying this

guidance locally.

OVERALL RESPONSIBILITY FOR THE GOVERNANCE FRAMEWORK

1.15 In the overall governance framework, the roles of Parliament and

ministries or government departments often overlap.

1.16 It is normally the responsibility of the permanent secretary, of anorganisation that controls other organisations, to ensure thatappropriate governance arrangements are applied in all such controlledorganisations. It is necessary to ensure mechanisms are in place tosecure adherence to good governance, including the recommendations

in this Guide. Similarly, permanent secretaries of such controlledorganisations also have a responsibility to ensure good governance in


15/124

5

their own organisations, while government is the ultimate controllingorganisation.

1.17 One example3 of the overall accountability process in the public sectoris shown in Figure 1.1 below.

Figure 1.1: Example of overall accountability process in the public

sector

1.18 In most countries, there is a separation of the executive andParliamentary functions of government. Parliaments usually provide

authority for the acquisition and use of financial resources (by passinglaws to levy certain taxes and approving budgets to regulategovernment spending). They are also responsible for overseeing thedevelopment and administration of government policy.

3 Office of the Auditor-General of Canada training material

Acknowledgement of Responsibility

Audit

TransparencyIndependent,

objective information

Parliament

Minister/Permanent

SecretaryAuditor-General

Accountability

reporting

Conferred

responsibility

Audit

reporting

Conferred

responsibility


16/124

6

ROLE OF THE PERMANENT SECRETARY

1.19 The permanent secretary is authorised by Parliament to spend (withinan overall budget), invest, borrow and administer programmes inaccordance with any laws and regulations that apply. The permanentsecretary is also responsible for authorising the acquisition and use offinancial resources, within the authorisation by Parliament, and foroverseeing and monitoring the implementation of the approved budget

or financial plan.

1.20 The permanent secretary is usually responsible for:

planning, directing and controlling day-to-day operations

directing operations with due regard to economy and efficiency

maintaining an adequate system of internal control

ensuring compliance with applicable authorities

selecting and applying appropriate accounting policies

safeguarding assets

measuring the effectiveness of programmes

and

reporting on their performance to those to whom they areaccountable and preparing reports that provide an account of their

administration.

1.21 Personal responsibility for internal control and wider governance maybe given to the permanent secretary as the head of each ministry orgovernment department. The permanent secretary may be designatedas the accounting officer to indicate that he or she will be held toaccount in this way. This Guide assumes that the permanent secretaryhas such responsibility.


17/124

7

1.22 The permanent secretary may be required to consult with and report tothe Ministry of Finance on matters relating to the control and

management of public funds and resources. They may also be requiredto manage their ministries in line with financial regulations set by the

Ministry of Finance.

OVERSIGHT FUNCTION OF PARLIAMENT

1.23 Parliament has the right and responsibility to hold government and itsorganisations accountable for their management of the financial affairs,the use of resources entrusted to them and the result achieved. Ineffect, accountability is the obligation to answer for a responsibility that

has been conferred. It presumes the existence of at least two parties:one who allocates responsibility and one who accepts it with theundertaking to report upon the manner in which it has beendischarged. Therefore, Parliament plays an important role in the overallframework of governance in the public sector.

1.24 Parliament needs to exercise control over the expenditure of publicmonies made available to the organisation. It usually reviews theannual reports of public sector organisations, evaluates the standard oftheir work and makes recommendations, based on the facts contained

in the various audit reports by the Auditor-General (see paragraph5.245.30 and Appendix 5 of this Guide).

1.25 In some countries, a Public Accounts Committee fulfils theresponsibility of reviewing the audit reports of the Auditor-General indetail, on behalf of Parliament. In the interest of transparency, thehearings of such a committee should be public. There are therefore foursteps making a cycle of accountability:

(1) audit and reporting by the Auditor-General

(2) hearings by Parliament

(3) recommendations of the Parliament to the permanent secretary

and

(4) the response of the permanent secretary.


18/124

8

The efficiency of the cycle depends on the timeliness with which allfour steps are completed.

1.26 The committee systems in most Parliaments are well suited to holdaccountable those who exercise public power in society. Variouscommittees of a Parliament usually have different areas of expertise toenable effective accountability. The traditional system of accountabilitythrough elected persons (Parliament), who are in turn held to account

by the citizens in a democratic election, may, however, be weak andineffectual. For example, in some countries Parliament has limitedpowers of effective control or influence over government-ownedorganisations. Therefore, it is important to ensure that centrally

controlled and funded entities are able to respond to local needs andconcerns, and good governance arrangements are in place that enablecommunication with stakeholders.

PRINCIPLES OF GOVERNANCE

1.27 The Reportof the Committee on the Financial Aspects of CorporateGovernance4 (the Cadbury report) defined corporate governance as thesystem by which organisations are directed and controlled. It identifiedthe three fundamental principles of corporate governance as:

openness

integrity

and

accountability.

1.28 These principles are relevant to all public sector organisations. Publicsector organisations have to satisfy a complex range of political,economic and social objectives, which subject them to externalconstraints and influences. They are also subject to different forms ofaccountability to their various stakeholders.

4 Cadbury Committee (UK) (1992). Report of the Committee on the Financial Aspects ofCorporate Governance.


19/124

9

1.29 These three principles have been developed and redefined to reflect thepublic sector context, as shown in figure 1.2 below.

Figure 1.2: Principles of governance in the public sector context

Openness Openness is required to ensure that stakeholders.5 can have

confidence in the decision-making processes and actions of public

sector organisations, in the management of their activities, and in the

individuals within them. Being open through meaningful consultation

with stakeholders and communication of full, accurate and clear

information leads to effective and timely action and stands up to

necessary scrutiny.

Integrity Integrity comprises both straightforward dealing and completeness. It

is based upon honesty and objectivity, and high standards of

propriety and probity in the stewardship of public funds and

resources, and management of an organisations affairs. It is

dependent on the effectiveness of the control framework and on the

personal standards and professionalism of the individuals within the

organisation. It is reflected both in the organisations decision-making

procedures and in the quality of i ts financial and performance

reporting.

Accountabili ty Accountabili ty is the process whereby public sector organisations,

and the individuals within them, are responsible for their decisions

and actions, including their stewardship of public funds and all

aspects of performance, and submit themselves to appropriate

external scrutiny. It is achieved by all parties having a clear

understanding of those responsibilities, and having clearly defined

roles through a robust structure. In effect, accountability is the

obligation to answer for a responsibility conferred.

5 Stakeholders will include the electorate, elected representatives (Parliament), providers ofresources (taxpayers, lenders, bondholders and creditors), service providers and partners(employees, contractors and other government organisations) users of services (individuals andbusinesses who benefit from the services that the organisation provides), interest groups,analysts and other statistics gatherers (policy analysts, economists, financial analysts, ratingagencies), the media and the wider community.


20/124

10

1.30 These fundamental principles are reflected in each of the dimensions ofthe governance of public sector organisations:

standards of behaviour how the permanent secretary and seniormanagement of the organisation exercise leadership indetermining the values and standards of the organisation, whichdefine the culture of the organisation and the behaviour ofeveryone within it;

organisational structures and processes how the permanentsecretary and senior management within organisations are

appointed and organised, how their responsibilities are defined,

and how they are held to account

control the network of various controls established by thepermanent secretary and senior management of the organisationto ensure:

the achievement of the organisation's objectives

the effectiveness and efficiency of operations

the reliability of internal and external reporting and

compliance with applicable laws and regulations and internalpolicies

and

external reporting how the permanent secretary and seniormanagement of the organisation demonstrate their financialaccountability for the stewardship of public money and theorganisation's use of resources.


21/124

11

1.31 From these fundamental principles of openness, accountability andintegrity it is possible to derive a set of recommendations on

governance.

Figure 1.3: Recommendations on governance in the public sector

Standards of behaviour (Chapter 2):

Leadership

Code of conduct Integrity and honesty Objectivity and openness

Relationships.

Organisational structures andprocesses (Chapter 3):

Accountability for publicmoney and performance

Communication withstakeholders

Roles and responsibilities Balance of power and

authority

Permanent secretary Relations between

Ministers, permanentsecretaries and seniormanagers

Remuneration policy.

Control(Chapter 4):

Internal control

Budgeting &financialmanagement

Staff training

Internal audit +audit committees

Risk management Anti-corruption

commission

External reporting(Chapter 5):

Annual reporting

Use of appropriateaccountingstandards

Performancemeasures

Auditor-General


22/124

12


23/124

13

2. Standards of Behaviour

INTRODUCTION

2.1 The openness, integrity and accountability of individuals within a publicsector organisation are fundamental to effective governance. Thereputation of the organisation depends on the standards of behaviour of

everyone within it, whether senior managers, staff or agents contracted

by it.

2.2 Therefore, effective procedures and safeguards should be put in place

to ensure that all management and staff:

are committed to high standards of personal behaviour

and

maintain open and honest relationships with the public, with

people from other organisations, and with other employees andofficers of the organisation.

2.3 The IFAC Financial Management and Accounting Committee publishedStudy 8 Codifying Power and Control: Ethical Codes in Action in May1999.6 The study focuses on ethical codes as one way in whichcorporations make explicit their values, guide and direct decisionmaking, and define the ground rules of behaviour.

2.4 Study 8 notes that:

Corporate Codes serve three purposes. First, they are vehicles

through which the power of overarching forms of social morality isdrawn on for use as corporate power. Second, they are vehicles fordeploying corporate power over values, choices and behaviours inways designed to induce appropriate responses to contextual

6 Study 8 Codifying Power and Control: Ethical Codes in Action,published by the IFACFinancial Management and Accounting Committee in May 1999.


24/124

14

requirements. Third, they are vehicles for establishing control overthe exercise of values, choices and behaviours so that appropriate

responses to contextual requirements are induced.

LEADERSHIP

2.5 The permanent secretary and other senior managers should exercise

leadership by conducting themselves in accordance with high standardsof behaviour, as a role model for others within the organisation.

2.6 The permanent secretary has a leadership role his or her actions

should set a high standard: formally by setting rules and regulationsand communicating those standards, and informally through personaladherence to high standards of behaviour and the setting of a goodexample. In a central government environment, Parliament, or aspecific permanent secretary on behalf of all the permanent secretaries,may set codes of behaviour for all public officials.

2.7 Permanent secretaries are usually responsible for determining thevalues and standards that will serve to define the culture of theorganisation and govern the behaviour of everyone within it.

2.8 High standards of behaviour should be demanded of all public servants.Permanent secretaries and other senior managers have a special

responsibility to demonstrate the standards expected of others withinthe organisation.

CODES OF CONDUCT

2.9 Public sector organisations should adopt a formal code of conductdefining the standards of behaviour that the permanent secretary,

senior managers and all other staff are required to follow.

2.10 A government-wide code of conduct may exist, which staff in all publicorganisations are required to follow. Guidance from the UN ondeveloping such a code is included as Appendix 2 and an example ofsuch a code is included as Appendix 3 to this Guide.

2.11 The code of conduct should:

commit staff to the highest standards of behaviour


25/124

15

be developed in a consultative manner and involve theorganisations stakeholders

receive total commitment from the permanent secretary andsenior management of the organisation they should set theexample for other employees to follow

and

be sufficiently detailed, so as to give a clear guide to the expectedbehaviour of all employees.

2.12 On appointment, the permanent secretary, senior management andstaff of the organisation should undertake to uphold and abide by thecode of conduct. They should be aware that failure to follow the codemight lead to dismissal.

2.13 Codes of conduct should reflect the three fundamental principles ofopenness, integrity and accountability. They should also address:

honesty

objectivity and openness

and

relationships.

Integrity and honesty

2.14 All public servants should conduct themselves in accordance with highstandards of behaviour to maintain the organisation's good reputation.In particular, staff should be trustworthy in the handling of public

funds. They have to demonstrate:

integrity and honesty in handling assets and resources entrustedto them

care in safeguarding property, assets and confidential informationto ensure they are not stolen, abused or damaged


26/124

16

proper observance of the organisations rules and procedures,particularly when accounting for finances

economy to avoid waste and extravagance

and

personal honesty in claiming expenses and ensuring that officialassets and resources are not used for private advantage.

Objectivity and openness

2.15 Permanent secretaries should establish appropriate mechanisms toensure that senior managers and other staff of the organisation are notinfluenced by prejudice, bias or conflicts of interest.

2.16 Permanent secretaries and all other employees of public sectororganisations involved in the decision-making process should be, andbe seen to be, objective and should put the interests of the organisationabove their private interests. This imposes an obligation to be fair,honest and free of conflicts of interest.

Conflicts of interest

2.17 The permanent secretary and employees of public sector organisationsare required to observe not only the law but also other relevant rules ondisclosure of interest. In the treatment of disclosure of interest,complete openness needs to be observed. The appearance of a conflictof interest could be as damaging as the existence of a real conflict, andpublic office holders should do their utmost to ensure that in all their

activities, both professional and private, the appearance of a conflict of

interest does not arise. In this context, avoiding conflicts of interestmeans that permanent secretaries and other employees do not use theirposition in the public sector organisation to further their private gain ina social or business relationship outside the public organisation.Examples may include:

any outside employment, directorships or material shareholdingbeing entered into if it is contrary to the objectives and interests ofthe organisation


27/124

17

official decisions or official actions being improperly influenced byany relationship (e.g. kin, marriage or partnership) or by any

personal or financial consideration

fees for performing services that form part of official duties (e.g.lecturing) are disclosed to the organisation, which establishesprocedures for their treatment

and

relevant political interests that may be directly related to the workof the organisation.

2.18 These rules could be underpinned by a register of interests to recordall the relevant personal and business interests of the permanentsecretary, senior managers and other staff. The register of interests forthe permanent secretary and other senior managers should be publiclyavailable. Where a conflict is established, or appears to conflict withpublic office, the person concerned should play no further part in therelevant discussion, decision or action.

Political interests

2.19 Relevant political interests will include engaging in any significantpolitical activity, including holding office, undertaking elected positions,making public appearances and undertaking candidature for election, inthe previous five years. Any such activity should be disclosed in theregister of interests.

Gifts, hospitality and entertainment

2.20 Public servants should not offer or accept any payment, bribe, favour orinducement.

2.21 Gifts, hospitality and entertainment should only be offered or acceptedif there is a genuine need to impart information or represent theorganisation. To resolve any doubts about the appropriateness ofoffering or accepting hospitality or a gift, the person should follow theguidelines below.


28/124

18

He or she should consider whether the offering or acceptance ofany such gifts or hospitality could be regarded as normal and

reasonable. Normal and reasonable is defined for this purposeas no more than the organisation would be prepared to offer inequivalent circumstances. Organisations should provide guidanceas to what may be considered appropriate. Staff must not exceed

such guidance without the specific and written authority of thepermanent secretary or other designated senior manager. Wherethere is no guidance, the person needs to ensure that anyhospitality or gift is not of a level or an amount which would leadany person to believe that he or she might be influenced.

The person should ensure that a full record is kept of allhospitality or gifts offered, given or accepted above a minimumlimit.

The person should decline the gift if there is any doubt as to theobjectivity and openness of making or accepting such an offer.

RELATIONSHIPS

The public and people from other organisations

2.22 All staff should uphold the reputation of the organisation for which theywork by treating the general public and people from otherorganisations:

in a helpful and courteous manner

on a timely, reliable and, where appropriate, confidential basis

and

in an open, fair and efficient way.

Other staff

2.23 All staff should have a general duty to treat colleagues:

openly, honestly and courteously


29/124

19

with consideration for others health, safety and personal welfare

and

without harassment, discrimination or abuse of any kind.

2.24 The permanent secretary has a responsibility towards his or her staff.The permanent secretary needs to seek to establish an open climateand culture in which staff can have confidence in the fairness andimpartiality of procedures for registering and dealing with their interestsand concerns. Similarly, it is the responsibility of the permanent

secretary and senior management to ensure equality of opportunity and

to establish open and fair procedures for making appointments and fordetermining terms and conditions of service.

2.25 The permanent secretary should nominate one of his/her most seniormanagers to be responsible for investigating any concerns raised bymembers of staff about standards of conduct. Any such investigationshould be undertaken on a confidential basis.

Suppliers

2.26 All staff should take care to maintain the reputation of the organisationfor honouring contracts and other agreements to which it is a party.This implies building trust through fair, open and consistent dealing.Staff involved with suppliers should display high standards ofcompetence and integrity.

2.27 Individuals need to be aware of the risks involved in contracting andpurchasing relationships. Suppliers should be selected on the basis ofquality, suitability and value for money. Staff should be fair,

straightforward and honest in their dealings with suppliers. They shouldtake care at all times to avoid becoming, or appearing to become,obliged to an individual supplier e.g. by accepting gifts, hospitality,entertainment or other inducements.

2.28 When dealing with suppliers, staff need:

to ensure that value for money is achieved


30/124

20

to comply with the law and the organisations internal rules andprocedures, e.g. public procurement legislation, regulations of a

tender board and purchasing and technical standards

to ensure quality standards are met and procedures followed, andbe diligent in ensuring that suppliers comply with the standardsspecified

and

to pay for supplies within the time agreed.


31/124

21

3. Organisational Structures andProcesses

INTRODUCTION

3.1 Parliament has the responsibility to hold government and its

organisations accountable for the management of their financial affairs

and for the effective use of resources entrusted to them.

3.2 The permanent secretary and senior managers should establish

effective organisational structures and processes to ensure:

proper accountability for public money and performance

clear communication with stakeholders

and

clarity about roles and responsibilities of key players, and inparticular the relative roles and responsibilities of ministers,permanent secretaries and other senior managers.

ACCOUNTABILITY FOR PUBLIC MONEY AND PERFORMANCE

3.3 Permanent secretaries should establish appropriate arrangements toensure that public funds and resources are properly safeguarded and

are used economically, efficiently, effectively and in accordance withthe statutory or other authorities that govern their use.

3.4 Accountability can be interpreted as a means of making public sector

organisations (politicians and officials) accountable to the public. Thisneeds to be distinguished from political accountability, wherebypoliticians are accountable directly to the public (e.g. through anelection), and managerial accountability, whereby officials areaccountable to their superiors through the hierarchy up to the political

head or minister.


32/124

22

3.5 Accountability to the public addresses:

the stewardship of assets and resources entrusted

the financial performance, that is, the use of those assets andresources and the incurrence of liabilities in the delivery ofservices

and

non-financial aspects of performance, including accountability for

the organisations priorities and the quality of services provided.

3.6 Accountability for public money will be secured by having clearorganisational objectives, by the establishment of an effectiveframework of internal control, and discharged by means of timely,objective, balanced and understandable reporting to stakeholders.Accordingly, each permanent secretary has specific responsibility forensuring that appropriate advice is given to their minister andParliament, for keeping proper financial records and accounts, and formaintaining an effective system of internal control.

COMMUNICATION WITH STAKEHOLDERS

3.7 Ministers and permanent secretaries should make an explicitcommitment to openness and transparency in all the activities of theorganisation, subject only to the need to preserve confidentiality inthose specific circumstances where it is proper and appropriate to doso.

3.8 Most public sector organisations affect the lives of citizens in a wide

range of social and economic activities, and therefore citizens have theright to know what government intends to achieve in a specified period

of time, and what it actually accomplished during that time. Therefore,a public sector organisation needs to account to its stakeholders on itsintentions, objectives and strategies and the actual results achieved.

3.9 Openness is more than structures and processes. It is also an attitudeand belief among key players, politicians, public servants and otherstakeholders that information is to be shared and is not owned by anyparticular organisation it is a public resource.


33/124

23

3.10 There is a presumption that as much information as possible about theactivities, including policy decisions and actions, of public sector

organisations needs to be in the public domain, with information onlybeing withheld when it falls within strictly defined criteria. Many

countries have in place legislation designed to improve transparencyand protect the publics right to information. Public sector organisationsshould ensure there are procedures in place to comply with any suchlegislation and should aim to provide positive and timely responses toany reasonable request for information. However, the confidentiality of

personal and commercial information needs to be respected at alltimes. In some countries the confidentiality of such information isbacked up by data protection legislation.

3.11 Public sector organisations should have a clear policy of openness andtake steps to ensure that the public is aware of its provisions.Communication to stakeholders should be open, balanced, honest,accurate, understandable, transparent and timely. The quality of theinformation needs to be based on the concepts of openness andsubstance over form. Reporting usually addresses material matters ofsignificant interest to stakeholders. Reports should present a balancebetween the positive and negative aspects of the organisation.

3.12 In any communication with the stakeholders, permanent secretariesshould ask themselves the following four questions.

Is the communication open, honest and transparent?

Is it relevant and substantial or merely a communication of form?

Is the communication prompt and clear?

Does it fairly set out the position?

3.13 To ensure openness and transparency, the permanent secretary mayalso institute periodic external reviews of the organisation and establish

consultative groups with key stakeholders. The non-financial aspects ofthe activities should be subject to external review of the extent that:

the organisation fulfils the obligations imposed on it in statute andor regulation


34/124

24

the conduct of its affairs complies with appropriate standards ofconduct

and

its delivery of services is satisfying predetermined levels of quality.

3.14 Permanent secretaries should establish:

clear channels of communication with their stakeholders on theorganisations mission, roles, objectives and performance

and

appropriate procedures to ensure that such channels operateeffectively in practice.

3.15 To improve effective communication with stakeholders, public sectororganisations may:

publish formal predetermined standards and measures of

performance, and report actual performance against them inreports that are public documents these standards ofperformance usually relate to key financial and non-financialobjectives (also see paragraphs 5.135.18)

inform stakeholders of their rights to services and information,and how, if necessary, to complain

inform stakeholders of contracting and partnership arrangementsand how to become involved

develop and publish formal procedures for both internal andexternal enquiries and complaints, and ensure that enquiries andcomplaints are dealt with promptly and effectively

where relevant, establish mechanisms to investigate externalcomplaints, where routine complaints procedures have failed todeal with them to the satisfaction of the complainant


35/124


36/124

26

3.19 Distinguishing between political accountability and operationalaccountability is a helpful device to consider the different roles of

ministers and permanent secretaries. However, in practice it may bedifficult to separate political accountability from operational

accountability. For example, a government may decide to introduce apolicy to provide housing to low-income earners. The housingdepartment is assigned responsibility for implementing this policy. Acritical part of implementing this policy will be determining the criteriato decide who are low-income earners and therefore who will be

eligible to apply for the low-income housing. The housing departmentmay have the responsibility for developing the criteria (operationallyaccountable). Because the eligibility criteria are central to the policy,

however, the Cabinet or responsible ministers are also likely to beconcerned with the criteria and be held politically accountable for thosedeveloped.

3.20 There are two reporting levels at which a government is normally heldaccountable. Firstly, at the level of individual departments/organisations, and secondly, at the level of the government as a whole.The former is usually the responsibility of the line ministers and thehead of the department/organisation as discussed above. The latter isusually the responsibility of the Prime Minister (or President and/or the

Cabinet).

3.21 Areas of accountability should be clearly defined. The information tosatisfy this accountability may substantially be derived from legislationrequiring annual reports that include annual financial statements andperformance information.

3.22 Some central governments have recently entered into new governancearrangements such as government partnerships and/or contracts withother governments or the private sector to deliver their programmes or

services. Through these arrangements, traditional delivery ofgovernment services has shifted to outside organisations. Thegovernment, ministers and the permanent secretary should ensure thatproper accountability, performance reporting, transparency andprotection of public resources in such arrangements are adequate. Thegovernance recommendations in this Guide may be used as a guidelinein evaluating such governance arrangements.


37/124

27

Permanent secretary

3.23 Every public sector organisation needs to be led by an effectivepermanent secretary to manage and control the organisation, and to

monitor the senior managers and other staff.

3.24 The permanent secretary is, in the first instance, accountable to his orher minister, but he or she is also accountable to Parliament for the

operational aspects of his or her public sector department/organisation.A permanent secretary may thus be called to give evidence before thePublic Accounts Committee (see paragraph 1.24), on the basis ofreports from the Auditor-General (see paragraphs 5.245.30 and

Appendix 5 to this Guide).

3.25 Appointment as a permanent secretary includes responsibility for theoverall organisation, management and staffing of the body and for itsprocedures in financial and other matters. The essence of a permanentsecretary's role (as an accounting officer) is personal responsibility forthe functions entrusted to them. When a permanent secretary fulfils therole of the accounting officer, his or her responsibilities normallyinclude appropriate arrangements to ensure that public funds andresources are properly safeguarded and are used economically,

efficiently, effectively and in accordance with the statutory or otherauthorities that govern their use.

3.26 The permanent secretary is responsible for how results are achieved taking into account due process and observance of proper procedures.Thus, it is not good enough to deliver a specific set of outputs; theyneed to be delivered in an appropriate way. The permanent secretaryneeds to establish effective arrangements to ensure compliance with allapplicable statutes and regulations, and other relevant statements ofbest practice.


38/124

28

Accountability for public resources

3.27 The permanent secretary is responsible for:

the adoption of a strategic planning process within the policy andresources framework laid down by Parliament and/or ministerswhich includes:

- developing and defining the annual, and longer-term,objectives of the organisation and agreeing suitable plans toachieve these

- overseeing the delivery of planned results by monitoringperformance against agreed strategic objectives and targets,and ensuring corrective action is taken when necessary

and

- maintaining a forward looking perspective

ensuring that procedures are followed, and that all applicable

statutes and regulations and other relevant statements of bestpractice are complied with

the appointment, development and succession of senior managers

ensuring senior managers have access to all relevant information

ensuring that key and appropriate issues are discussed by seniormanagers in a timely manner

ensuring that there is an effective process of review of theperformance of senior managers and, if necessary, appropriatedisciplinary steps are taken

and

ensuring that the organisation has and maintains an effective,efficient and transparent system of internal control, includinginternal audit and risk management


39/124

29

ensuring the effective, efficient, economical and transparent useof the financial and other resources of the organisation concerned

ensuring arrangements for safeguarding assets, and themanagement of the liabilities of the organisation

taking effective and appropriate steps:

to collect all revenue due to the organisation concerned

to prevent wasteful expenditure, losses resulting from criminal

conduct, and expenditure not complying with legislation

and

ensuring the quality of services provided by the organisation.

Relationships between ministers, permanent secretaries and seniormanagers

3.28 To strengthen the accountability of permanent secretaries to theirminister or the Cabinet, there should be a performance agreement withthe permanent secretary. The agreement needs to identify the keyaccountabilities to which the permanent secretary will add value to

meet the objectives of the organisation. Ministers may be able todismiss permanent secretaries, but this will often be subject to reviewby another body or person, and the permanent secretary will typicallyhave rights of appeal for unfair dismissal.

3.29 Where responsibilities have been delegated by the permanent secretary,there is a need to ensure that individual responsibility for managementdecisions can be established, and that such responsibility is madeproperly accountable so far as the individual is concerned. Everyemployee needs to be accountable for his or her expected contributiontowards the successful delivery of outputs.

3.30 The permanent secretary should also enter into performance contracts

with his/her senior managers. These contracts will be similar toperformance agreements between the minister and the permanentsecretary, but will be more limited in scope, as they will only apply tothat part of the organisations operations for which the senior managers


40/124

30

are responsible. They should be linked to the objectives of theorganisation set out in strategic and business plans. An assessment of

performance of other staff will ensure that the individual performance islinked to the operational plan of the organisation.

3.31 If implementation of any directive by a minister (or other executiveauthority) to the permanent secretary is likely to result in non-compliance with legislation (e.g. overspending) or could infringe the

requirements of integrity or objectivity, the permanent secretary willusually be responsible unless he or she has informed the minister inwriting of the likelihood of that non-compliance.

3.32 Any decision of the minister (or other executive authority) to proceedwith the implementation of such a directive, needs to be in writing, andthe permanent secretary needs to file a copy of this decision with theAuditor-General or equivalent.

Delegation and reserved powers

3.33 Permanent secretaries should establish and maintain an up-to-dateframework, of delegated or reserved powers, that includes a formalschedule of those matters specifically reserved for themselves.

3.34 Clearly, permanent secretaries cannot do everything. Therefore, to theextent permitted by legislation and other provisions governing the

organisation, responsibility for day-to-day management matters isusually delegated to senior managers. This scheme of delegation shouldbe clear, agreed and in writing.

3.35 There will be matters that permanent secretaries specifically reservesfor their own decision, however, to safeguard against misjudgements

and possible illegal practices. These matters are likely to include issuesof strategy, key strategic objectives and targets, major decisionsinvolving the use of financial and other resources, and personnel issues,including key appointments and standards of conduct. Again,responsibilities and accountability need to be balanced so that aproductive relationship exists between permanent secretaries and theirsenior managers.


41/124

31

Financial officer/Director of finance

3.36 A senior manager should be made responsible for ensuring thatappropriate advice is given to the permanent secretary, minister and

Parliament on all financial matters, for keeping proper financial recordsand accounts, and for maintaining an effective system of internalfinancial control.

3.37 The responsible financial officer should be a qualified accountant and amember of a recognised accountancy body. Membership of such abody will require compliance with professional (ethical and technical)standards over and above any requirements imposed by statute and

regulations, and other relevant statements of best practice.

REMUNERATION POLICY

3.38 Public sector organisations should establish a formal and transparentprocedure for developing policy on the remuneration of seniormanagers. No staff should be involved in deciding their ownremuneration.

3.39 In many countries, the salaries of permanent secretaries, seniormanagers and other staff are set centrally by the public servicecommission or equivalent. However, some public sector organisationsmay be authorised to set the salaries of their own staff.

3.40 To avoid potential conflicts of interest, permanent secretaries may setup remuneration committees of independent advisers. Such committeesmay make recommendations to the permanent secretary, within agreed

terms of reference, on the organisations framework of remuneration forsenior managers and its cost; and to determine on their behalf specific

remuneration packages for each senior manager, including pensionrights and any compensation payments. Where applicable, publicservice regulations should be adhered to.

DISCLOSURE

3.41 The annual report of a public sector organisation needs to contain astatement on the remuneration policy and details of the remunerationof senior managers.


42/124

32

3.42 The permanent secretary should report to his or her minister andParliament each year on organisations policy on staff remuneration.

The report should form part of, or be annexed to, the organisationsannual report.

3.43 Separate and full disclosure should be made in the annual report of:

the total remuneration package of the permanent secretary,including house, car and any pension contributions

and

the total remuneration package of the senior managers within theorganisation.

3.44 Separate figures should be shown for salary, fees, other benefits andother performance-related elements. The basis on which performance ismeasured (for performance-related remuneration) also needs to beexplained.

3.45 Recently, good practice has increased the level of detail of salary and

other remuneration that is disclosed. It is now considered good practicefor the organisation's annual report to contain details of theremuneration of the minister, the permanent secretary and each of theorganisation's senior managers.


43/124

33

4. Control

INTERNAL CONTROL

4.1 Permanent secretaries should ensure that a framework of internalcontrol is established, and operates in practice, and that a statementon its effectiveness is included in the organisations annual report.

4.2 Internal control has been broadly defined by the Committee ofSponsoring Organisations of the Treadway Commission (COSO) inInternal Control - Integrated Framework, as:

a process, effected by an organisations board of directors,management and other personnel, designed to provide reasonableassurance regarding the achievement of objectives in the followingcategories:

effectiveness and efficiency of operations

reliability of financial reporting

and

compliance with applicable laws and regulations.

4.3 The Criteria on Control Board of the Canadian Institute of CharteredAccountants (CoCo) and the internal control Working Party of the UKInstitute of Chartered Accountants (Turnbull) have similar definitions of

internal control. Both refer to internal and external reporting, ratherthan just financial reporting, however, and to compliance with internalpolicies, as well as with laws and regulations.

4.4 While internal control is a process, its effectiveness is a state orcondition of the process at one or more points in time. Internal controlsystems operate at different levels of effectiveness. Control is effectiveto the extent that it provides reasonable assurance that the organisationwill achieve its objectives reliably. Internal control can be judged


44/124

34

effective in each of the three categories respectively, if the permanentsecretary and senior managers have reasonable assurance that:

they understand the extent to which the organisations operationalobjectives are being achieved

published financial statements are being prepared reliably

and

applicable laws and regulations are being complied with.

4.5 In reporting on the effectiveness of the organisations framework ofinternal control, permanent secretaries should include, in the annualreport, a statement to the effect that the framework of internal controlthey have established is both appropriate to the nature of theorganisation and effective in practice. The statement should outline thearrangements that they have established to enable them to make therequired statement. These may take the form of a review of the varioussystems, risks and opportunities, as well as monitoring of the keycontrol processes and procedures. The criteria against which the

system is measured are thus identified, as well as the date on whichthe conclusion is made.

4.6 Care needs to be taken to provide staff with the skills required to

implement and maintain an adequate internal control process, and toensure that staff responsible for securing major changes in the processare suitably experienced (also see paragraphs 4.21 4.25 below).

4.7 Objectives change over time and therefore management needs toassess periodically the effectiveness of control in the organisation and

communicate the results to the permanent secretary. Procedures andcontrol activities should be revised from time to time to ensure theircontinuing relevance and reliability, especially at times of majorchange. The effectiveness of internal control needs to be reviewed andtested regularly. These reviews should cover all control activities,including those related to finance, operations, budgetary control,compliance and risk management. They may be undertaken by theorganisation's Internal Audit section (see paragraphs 4.26 4.32below). However, responsibility for internal control should remain with

management, specifically with the permanent secretary.


45/124

35

BUDGETING AND FINANCIAL MANAGEMENT

4.8 Permanent secretaries should ensure that that effective and efficientbudgeting and financial management procedures are in place.

Budgeting

4.9 Parliament is usually responsible for sanctioning the overall publicsector budget and for authorising the executive to incur expenditureswithin the overall level of expenditure (see also paragraph 1.17 above).The permanent secretary of a public sector organisation usually

approves a budget or financial plan, within the overall approved level ofexpenditure, to provide authorisation for the acquisition and use offinancial resources, and is responsible for overseeing and monitoringthe implementation of the approved budget or financial plan.

4.10 Budgeting is an essential element of the financial planning, control andevaluation processes of public sector organisations. By its nature it is ameans of allocating resources to achieving the objectives of a publicsector organisation. It is a management tool for planning, and also ameans of controlling funds to ensure that the stated objectives can bemet.

4.11 Budgeting is most successful if it is linked to a medium-term framework(a plan that usually covers a period of about three to five years)containing measurable statements of the objectives of the public sectororganisation, policies and priorities, strategies for achieving theobjectives, and a resource framework (projections of revenues andceilings) to plan for the period. It is often impossible to achieve theobjectives within one year, thus it is necessary to plan ahead to ensurethe best use is made of resources.

4.12 Emphasis needs to be placed on identifying objectives, priorities andactivities (or outputs and outcomes). The format of the budgetdocuments should provide a clear explanation of the rationale for theproposed allocation of resources. Where possible, public feedback istaken into account in the formulation of the budget.

4.13 To be effective, budgeting needs to be integrated with accounting. If asimilar basis of accounting is adopted for budgeting purposes andfinancial reporting, it will provide a framework of accounting


46/124

36

information to provide a more rational basis for planning and controllingexpenditure and for decisions about its financing. Cash flow budgeting

is an essential element of effective cash management, and therefore aforecast of the timing of cash inflows and outflows will always be

needed.

4.14 Regular monitoring of actual financial performance against the budgetis vital. The figures for revenue or expenditure reported against budgets

should be reliable and readily available for discussion and managementaction, and projections revised where necessary.

4.15 The World Bank Publication, Financial Accounting Reporting and

Auditing Handbook(FARAH), 1995, states that the budget problemsin developing countries relate to:

a lack of appropriate feedback systems

a failure to integrate budgeting with accounting and cashmanagement functions

a lack of comprehensive coverage, i.e. certain

programmes/agencies may be excluded from the budget

a focus on one year rather than multi-year

classifications or budget categories not being fully useful forexpenditure planning and control

a lack of focus on goals and programmes

lack of clarity and accuracy in defining recurrent and developmentexpenditures

and

over-emphasis on sophisticated programmes beyond realisticcapacity.


47/124


48/124

38

flexibility in the use of resources

discretion to determine cost allocations

and

full responsibility to determine staffing requirements andremuneration.

It is vital that:

risk management principles are followed

incentives are created to ensure improved efficiency

and

non-financial measures for outputs in terms of quantity, qualityand timeliness are introduced and used together with financialmeasures in the evaluation of performance.

4.19 A sound financial management system needs to be supported byappropriate legislation, regulations, instructions and systems. Trainedand competent staff are essential, informed by an efficient management

information system. There should be guidelines, manuals orinstructions setting out the procedures and regulations with whichpublic sector financial management and reporting must comply. TheMinistry of Finance may specify financial regulations with which publicsector organisations are required to comply. These documents should

be reviewed every two or three years (or when major change hasoccurred) and updated accordingly.

4.20 The permanent secretary and senior managers should have useful andreliable information in order to evaluate the operations of theorganisation. The information system and its operators should ensurefull and proper records are kept of the affairs of the public sectororganisation. Information systems should be designed in such a way asto measure costs and the key performance indicators consideredessential by the permanent secretary, and other senior managers, intheir assessment of the organisations success or failure. Theaccounting system that produces the financial statements needs to be


49/124

39

integrated with other management systems (e.g. cash, budget, treasuryand debt management).

STAFF TRAINING

4.21 Permanent secretaries should ensure that training programmes are inplace so that all staff are competent to perform their work.

4.22 Sound recruitment policies, acceptable conditions of employment andappropriate training programmes can contribute to competent staff. Thequality of management in a public sector organisation is directly related

to its ability to obtain and retain experienced managers, accountantsand other specialist staff. Salary levels in public sector organisationsshould be sufficient to attract and retain staff of the right calibre. Publicsector salaries are usually set centrally by the Public ServiceCommission or equivalent.

4.23 Public sector managers should be proficient in the following areas:

strategic planning

formulation of output objectives, performance measures andoperational plans

organisation (people and structure, operational processes andtechnology)

performance measurement, financial and performance reporting

management of funds, working capital and other assets

managing reliable and relevant accounting and informationsystems

procurement and contracting for goods and services

and

management and motivation of staff.


50/124

40

4.24 An assessment of the performance of staff should ensure that individualperformance is linked to the operational plan of the public sector

organisation. Incentives should be given for good performance to ensurecontinued improved efficiency, and sanctions should be instituted for

non-performance or sub-standard performance.

4.25 Staff should be appropriately supervised and their performanceevaluated against an appropriate profile. Training should be tailored to

fit the immediate requirements and career aspirations of staff. Thetraining programme needs to integrate formal training with on-the-jobtraining. Management training opportunities should be provided to allstaff to ensure that they perform competently. Staff with specialised

responsibilities require appropriate additional training.

INTERNAL AUDIT

4.26 Permanent secretaries should ensure that an effective internal auditfunction is established and maintained as part of the organisation'sframework of internal control.

4.27 Acceptable standards should be applied by the internal audit function,in particular relating to independence, professional proficiency andaudit approach. The East and Southern African Association ofAccountants General (ESAAG) has developed a set of Guidelines onInternal Auditing with a commentary and explanatory notes. The

Guidelines are reproduced at Appendix 4 to this Guide. The Institute ofInternal Auditors' Standards for the Professional Practice of InternalAuditing may also be a useful reference.

4.28 The head of Internal Audit should gain the respect and co-operation ofthe permanent secretary, other senior managers and the auditcommittee (see also paragraphs 4.334.38 below). The Internal Audit

section should have unrestricted rights of access to all personnel,records (both electronic or otherwise) and assets, and be able to obtainsuch information and explanations as the head of Internal Auditconsiders necessary for the proper fulfilment of its responsibilities

4.29 Internal Audit needs to be objective, and, as far as possible,operationally independent of the organisation's management. It is the

responsibility of the audit committee to ensure that conflicts of interestsdo not arise and that its objectivity and independence are notcompromised. The head of Internal Audit should report directly to a


51/124

41

senior manager, with direct access, as necessary, to the permanentsecretary and chair of the audit committee (or equivalent).

4.30 An effective internal audit function needs to cover the systematicreview, appraisal and reporting of the adequacy of the systems ofmanagerial, financial, operational and budgetary control and theireffectiveness in practice, including, at a minimum:

the adequacy of established regulations, guidance, policies, plansand procedures

the appropriateness of organisational, personnel and supervisionarrangements

the extent of compliance with the above

the adequacy of accounting for assets and interests and the extentthat these are safeguarded from losses of all kinds arising fromwaste, extravagance, inefficient administration, poor value formoney, fraud or other cause

the appropriateness, reliability and integrity of financial and othermanagement information and the means used to identify,measure, classify, report and act upon that information

the economy and efficiency with which resources are employed

the integrity of computer systems, including systems underdevelopment

and

the follow-up action taken to remedy previously identifiedweaknesses.

4.31 The Internal Audit section should have relevant documented procedures(e.g. an audit charter and manuals) and other guidelines.

4.32 In several countries, internal audit has a direct role to play in theauthorisation of payments through the pre-audit process. Permanent


52/124

42

secretaries may consider that this is a necessary role for Internal Audit.However, Internal Audit will be more effective in a wider role. This

would include the following changes:

Internal Audit should change focus, from being a control to beingan independent review of internal controls under the direction ofan audit committee

Internal Audit should be clearly defined as a management ratherthan as a financial tool

there must be management support for Internal Audit and thecreation of a climate where managers and those responsible forInternal Audit co-operate for their mutual benefit

and

Internal Audit should develop a constructive role: as an aid to riskassessment and a pro-active approach to contribute to goodmanagement and effective internal control.

AUDIT COMMITTEES

4.33 Permanent secretaries should establish an audit committee, comprisingindependent members, with the responsibility for independent review ofthe framework of control and of the external audit process.

4.34 To be effective, the audit committee should be independent of theorganisation's senior management. To achieve this:

it is established as a high level committee, and its members are

given written terms of reference that deal adequately with theirmembership, authority and duties

the majority of members of the committee are not employed bythe organisation; they may include senior managers from otherpublic sector organisations or from the private sector; members ofthe audit committee are named in the annual report

the permanent secretary, responsible finance officer or director offinance, the head of Internal Audit and the Auditor-General


53/124

43

normally attend meetings of the audit committee and have directaccess to this committee at any time; other senior managers may

also attend as required

the head of Internal Audit and the Auditor-General bring allsignificant findings arising from audit activities to the attention ofthe audit committee

the audit committee has discussions with the head of InternalAudit and the Auditor-General at least once a year, without thepermanent secretary and other senior managers being present, to

ensure that there are no unresolved issues of concern

and

the committee has explicit authority to investigate any matterswithin its terms of reference, the resources it needs to do so, andfull access to information. The committee is able to obtain outsideprofessional advice and if necessary, invite outsiders with relevantexperience to attend its meetings.

4.35 The effectiveness of the audit committee will depend on its having acapable chairperson who has the confidence of the permanentsecretary, the organisation's head of Internal Audit and the Auditor-General. The quality of its other members will also be important.

4.36 The chairperson of the audit committee should be independent ofsenior management of the organisation. The chairperson of the auditcommittee should not be the permanent secretary and should neitherfulfil a management role within the organisation nor any other role thatmay conflict with his or her role as chair of the audit committee.

4.37 Members of the audit committee should be appropriately qualified, andreceive appropriate information, advice and training to enable them tocarry out their roles effectively. Members should have experience ofmanaging organisations of a similar size and complexity. At least onemembers of the audit committee should be an experienced financialmanager, preferably a qualified accountant.


54/124

44

4.38 The terms of reference of the audit committee should be written andconfirmed by the permanent secretary. The functions of the audit

committee include:

reviewing the extent to which managers implement and maintainan adequate internal control process

reviewing, with management, the adequacy of policies andpractices to ensure compliance with relevant statutes, directions,guidance and policies

reviewing, with management, the latters ability to monitorcompliance with relevant standards or codes of governance

reviewing, with management, the adequacy of the financialinformation they rely on to manage the organisation

reviewing, with senior managers, the latters relationship with theAuditor-General (see also paragraphs 5.195.23 below)

ensuring that the Internal Audit function is properly resourced and

has appropriate standing within the organisation

recommending or approving the hiring or removal of the head ofInternal Audit and, where appropriate, the Auditor-General. Inmany countries the appointment of the organisation's externalauditor is made by the Parliament or a separate audit regulatorand may not be within the remit of the audit committee of theorganisation

reviewing the activities of the Internal Audit function, including itsannual work programme, co-ordination with the Auditor-General,the reports of significant investigations and the responses ofsenior managers to specific recommendations

where relevant, reviewing the scope and results of both InternalAudit and the Auditor-General and their cost effectiveness, andthe independence and objectivity of the auditors; where theAuditor-General also supplies a substantial volume of non-auditservices to the organisation, the committee needs to keep the


55/124

45

nature and extent of such services under review, seeking tobalance the maintenance of objectivity and value for money

monitoring, on behalf of the permanent secretary, all aspects ofthe organisations relationship with the Auditor-General; thisincludes

reviewing the audit report and other communication withmanagement, as well as actions taken by management onrecommendations included in previous communications

reviewing any non-audit work proposed to be carried out by theAuditor-General

and

ensuring that adequate safeguards are in place to prevent

possible conflicts of interest and guard the Auditor-Generalsindependence

providing advice to the permanent secretary and/or relevant

accounting officers on the above aspects of their work

and

holding formal meetings as required; this will usually be at leastfour times a year.

RISK MANAGEMENT

4.39 Permanent secretaries should ensure that effective systems of risk

management are established as part of the framework of control.

4.40 Risk can be defined as the chance of something happening that willhave an impact on the achievement of objectives. It can be expressedin terms of consequences and likelihood. Risk can have either abeneficial or a detrimental impact on the achievement of objectives.

4.41 Risk management can be viewed as a process of:


56/124

46

understanding the organisational objectives

identifying the risks associated with achieving the objectives

assessing the risks, including the likelihood and potential impactof specific risks

developing and implementing programmes/procedures to addressidentified risks

and

monitoring and evaluating risks and the programmes/proceduresin place to address them.

4.42 The permanent secretary and other senior managers should identifyinternal and external risks so they can react to (or initiate) changes inan appropriate and timely manner.

4.43 Other staff should also know what risks are acceptable to thepermanent secretary and other senior managers. In turn, the permanent

secretary needs to understand what risks are acceptable to theminister, Cabinet and the President/Prime Minister. Risks that havebeen accepted by the organisation should be documented andcommunicated to senior managers and relevant staff.

ANTI-CORRUPTION COMMISSION

4.44 Permanent secretaries should ensure that they and their staff supportthe work of the national anti-corruption commission, if one exists. Theyshould also regularly consider the extent to which the work of their

department can be co-ordinated with that of the anti-corruptioncommission to ensure that fraud and corruption are minimised.

4.45 Several ECSAFA member countries have es

Date post:	05-Apr-2018
Category:	Documents
Upload:	andy-wynne
View:	215 times
Download:	0 times

Governance in the Public Sector

Documents