Cover Story


International Journal of Auditing – October 2007

Facing the Challenges of Harmonizing Development Cooperation

Picture of Jorgen Kosmo, Auditor General of Norway

As a fairly new entrant to the INTOSAI community, I feel honored and pleased to be
asked to contribute to this Journal.

During my time as a member of the Norwegian Parliament, the government approved
a policy to increase the use of various forms of budget support to provide development
cooperation. Norwegian authorities see the benefits of harmonized donor practices for
effective aid delivery and try to work in line with the Paris Declaration,1 recognizing
the strain that the previous system—in which each cooperating partner had its own
systems, accounting, and reporting requirements—placed on recipient authorities.

Budget support presents the donor country auditor with challenges that are different
from the previous forms of project support. Under budget support, funds from various
donors are pooled with the recipient’s own funds and are spent and accounted for
through the recipient country’s systems. The funds from an individual donor can no
longer be tracked (or audited) as an individual cash-flow stream or account.

As stated in the Norwegian Auditor General Act of May 7, 2004, my responsibility is
to ensure, through auditing, monitoring, and guidance, that the state’s revenues are collected as intended and that the state’s resources and assets are used and administered in a sound financial manner and in keeping with the decisions and intentions of the Norwegian Parliament.

When it is not possible to track funds to their final use as expenditures in accordance
with the decision of the Norwegian Parliament (as we would be able to do with a
Norwegian auditee), we try to seek assurance through other means and channels. Thus,
cooperation with other SAIs and reliance on their work has become part of our audit
methodology in this field.

For my office this is not really new, as we have performed joint audits with other SAIs
in the past. In 2000, however, the then minister of development cooperation urged our
audit office to gather representatives from like-minded SAIs to see if together we could
assist in defining reporting requirements that would satisfy all the involved donors
and their auditors. We were also encouraged to explore the extent to which SAIs could
harmonize and coordinate their work to reduce the strain on recipient countries’
authorities and SAIs.

This initiative started out under the name of Utstein cooperation but was later
renamed the Harmonization of Overseas Audit Practices (HOAP). An article on this
issue was written by the Netherlands Court of Audit and published in this Journal in
April 2005.

From the relatively small initial group of SAIs, HOAP has grown into a group with
broader participation and a more defined methodology. Groups of SAIs within
HOAP carry out reviews and audits and report to the larger group. It is then at the
discretion of each SAI to use the findings in an appropriate way. This way many SAIs
get information that may be used as audit evidence without doing the investigations
themselves.

Cooperation with other SAIs in this field will, in my experience, create not only
benefits but also some challenges.

Auditing development cooperation funds is a challenge in itself, as the donor country’s
auditee—in our case, the Ministry of Foreign Affairs and its embassies—does not
spend the funds but rather transfers the funds to another user—i.e., another country—
where we do not have an audit mandate. The auditee has the task of following up
and controlling the expenditure of funds. As more donors use the same financing
mechanism, they have to follow up with the same user, something they normally do
as a joint exercise. Auditing more donor countries’ agencies at the same time will give
the SAIs involved the clear benefit of having access to more information, as they will
get the views of more donors that may have been directly involved in following up
interesting issues.

Even if SAIs base their work on INTOSAI auditing standards and guidelines, they
may have different approaches and objectives. This will, more often than not, lead to
professional discussions from which everyone concerned will benefit. For example,
there have been discussions on how far we should follow the flow of money and its
use after it has been merged with another nation’s funds and also what constitutes
sufficient evidence.

SAIs have limited resources. By working together, each of the involved SAIs will
theoretically use less personnel resources on an assignment. I say theoretically because
thus far it seems that preparations for these joint audits take extra time. The team has
to agree on such issues as the approach and objective, the timing, the sharing of work,
and the reporting. Since the SAIs working together will change, this work starts from
the beginning every time. On the other hand, the HOAP participants who are not
involved in the particular audit will get the results for free.

Thus far my comments have largely related to the SAIs of the donor community.
Performing such audits should always involve the SAI of the recipient country. They
are the auditors of the spending authorities. Donor agencies will normally use the
reports from these SAIs as evidence of the expenditure of funds through the national
financial system. The voluntary active participation of the SAI of the recipient
country will provide an invaluable contribution to the exercise through the additional
information and local knowledge the SAI can bring. Through the discussion between
SAIs, the local SAI will, I believe, benefit by sharing experience and knowledge.

Also, the recipient authorities should benefit in that only one group of auditors
will demand their time and resources in collecting audit evidence and background
information.

In the April 2005 article on HOAP in this Journal, the authors mentioned the positive
experience resulting from HOAP’s work in Zambia. Subsequently, a different team has
worked in Tanzania, and another team is planning a joint audit or review visit to an
African country where direct budget support is of material value.

In closing, I would strongly recommend the continued cooperation between SAIs in all
fields where there is common ground and where resources can be more efficiently used
through cooperation. Sharing information will provide a firmer basis for our reporting
and put us in a better position to express an opinion on whether funds have been spent
in keeping with the decisions and intentions of Parliament.

For additional information, contact the author at riksrevisjonen@riksrevisjonen.no.


1 The Paris Declaration, endorsed in March 2005, is an international agreement through which over 100 ministers, heads of agencies, and other senior officials committed their countries and organizations to continuing to increase efforts in harmonization, alignment, and management of aid for results with a set of actions and indicators that can be monitored.