Effectiveness of Auditing in Reducing Wasteful Spending in Government, Public Institutions and Local Governments

Effectiveness of Auditing in Reducing Wasteful Spending in Government, Public Institutions and Local Governments 

 

For many years, public spending has been on an increase on the basis of increased government activity.  There is often a lack of evidence linking the government activity to the end goal-improved social outcome.  In other words, there is very little to show for the amount of investment put into these activities.

Wasteful spending is generally the core problem.  And governments have become very adept at justifying their policies based on hind sight- the outcomes) or more commonly the activities) they achieved, rather than those that were expected (where expectations had in fact been thought through).  (Ghelani)  This problem plagues not only developing nations but also the developed nations.  It has spurned the interest of many analysts and the general public.

The budget reflects the vision and mission of incumbent government. The government leaders usually try to fulfill election pledges through the budget. The budget incorporates the government’s plan to collect resources and use the same to meet the public’s needs.  The people have every right to know about the income and expenditure of the government. The openness and transparency of a budget help them to judge whether the taxpayers’ money is being used properly.  (Siddiqui)

While providing the public with comprehensive and timely information about the government’s budget and financial activities and opportunities to participate in the decision making can strengthen oversight and improve policy choices. Keeping such processes closed would leave on opposite effect. Restricting access to information creates opportunities for governments to hide unpopular, wasteful, and corrupt spending, ultimately reducing the resources available to fight poverty.  It is the responsibility of a government to provide comprehensive and timely information about the budgetary and financial activities. The creation of a congenial atmosphere for all stakeholders to participate in decision making is a demand of the time.   (Siddiqui)

Independent auditing institutions with an extended mandate to analyze the budget draft and individual policy proposals have been generally neglected.  Auditors with an extended mandate improve transparency and provide essential information on the impact of policy proposals on common pool resources. This leads to less wasteful spending and a more efficient allocation of public resources.

According to the study conducted by Eichenberger and Schelker (2008):

“In mature democracies fundamental rules such as the separation of powers and regular elections have been established. They nevertheless suffer from the asymmetric influence of special interest groups, pork barrel politics, and the regular overuse of common pool resources. One of the fundamental problems is the collective action problem and the asymmetry between interest groups to articulate and provide information about their preferences. Thus, special interests are often able to obtain rents at the expense of the general public. Even though various institutional

mechanisms have been discussed to mitigate these problems, an important institution has been neglected so far: independent public auditors with an ex ante audit mandate.

Traditional auditors typically analyze the financial statements provided by the government and evaluate the use of public funds. All developed democracies feature some form of supreme auditing institution. Usually, these audit offices are fairly large: the German Bundesrechungshof and its associated offices employ more than 1400 individuals and the US Government Accountability Office (GAO) has a budget of roughly half a billion USD. These audit institutions are widely seen as being an important instrument to hold government officials accountable. However, they usually only targeted at bookkeeping procedures and evaluations of policy implementation, that is, after decisions have been made in the political process.

Therefore, these ex post audits often come too late, because decisions have already been made and the budget or specific policies have been implemented. In contrast to what is audited in these ex post audits, most budgetary ‘tricks’ are adopted ex ante to decisions and are, hence, not subject to an auditor’s evaluation.”

There should be more dialogue between the government and the other stakeholders prior to the preparation of budgets.  Audit mandate of public auditing institutions has an important impact on policy outcome. In addition to the standard ex post audit of the accounts and the performance of policy programs, auditors should analyze the fundamentals of the budget draft and evaluate individual policy proposals. The additional information provided by such a powerful auditing institution strengthens common pool interests, improves transparency, and reduces the overuse of common pool resources.  (Eichenberger & Schelker)

 

References:

Eichenberger, Reiner and Schelker, Mark.  Rethinking Public Auditing Institutions- Empirical Evidence from Swiss Municipalities.  March 2008.  Retrieved June 38, 2011 from http://dialnet.unirioja.es/servlet/fichero_articulo?codigo=2585755&orden=0

Ghelani, Deven.  Outcome-Based Government:  How to improve public spending decisions.  8 February, 2011.  Retrieved 28 June, 2011 from http://www.egovmonitor.com/node/40651

Siddiqui, MS.  How Transparent is budget making process?  6 March, 2010.  Retrieved 28 June, 2011 from http://www.thefinancialexpress-bd.com/more.php?news_id=94120

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