International Journal of Auditing – April 2003

Governmental Auditing in the South Pacific Region: A COOK ISLANDS PERSPECTIVE

I am privileged to have the opportunity to share with you some issues and challenges confronting small and isolated audit offices in the South Pacific. For the purpose of this article, I will focus my comments on the perspective of a small island state. The Cook Islands comprises 15 small islands scattered over an area of some 2 million square kilometers of ocean, with a total land area of 240 sq. km. It is flanked to the west by Tonga and Samoa and to the east by Tahiti and French Polynesia. The Cook Islands is divided into a northern group with seven islands and a southern group with eight islands. It has the second largest exclusive economic zone in the world but is one of the least populated countries in the South Pacific, with a population of under 20,000.


Until 1987, the Cook Islands Treasury Department maintained an internal audit function that focused primarily on the integrity of the Treasury Department’s centralized imprest system, the supply and sale of liquor, stamps, and cash counts. During this period, the internal audit function, which had four local staff, uncovered major fraud involving the supply and sale of liquor and cash losses in government-run post offices. This fraud resulted from poor internal controls and a lack of review and monitoring. In 1987, the Office of Audit and Inquiries, the Audit Office’s predecessor, was established under the Public Money and Stores Act. During this period, the Cook Islands government delegated responsibility for the external audit function to the New Zealand Office of the Auditor General.

Prior to 1995, the Cook Islands economy experienced an economic collapse due to a bloated public service leading to over expenditures. The government was forced to downsize and restructure the public service, which resulted in a reform process. The under performance of various government-owned assets contributed to the economic collapse and, consequently, privatization saw the sale of various assets, including the government’s failing flagship hotel. The reform process introduced the Public Expenditure Review Committee and Audit Act (PERCA) in July 1996 to help ensure financial management oversight and improve accountability and transparency. As a result of this legislation, the Office of the Audit and Inquiries was replaced by the Audit Office, which has functioned under the PERCA Act from the time of its origin. The external audit function carried out by the New Zealand Office of the Auditor General and private sector chartered accounting firms was transferred to the Cook Islands Government Audit Office, which took on full responsibility for external audit in 1996, when, for the first time, the Director of Audit position was localized. The Director of Audit rendered his first auditor’s opinion on the Crown Financial Statements for the year ended June 30, 1998. Since then, the Audit Office has been fully responsible for providing auditor’s opinions on the financial statements of the Crown and all of its Ministries and Crown Agencies.


After the public sector reform program began in 1995-96, the Ministry of Finance & Economic Management (MFEM) Act was enacted, which required strict financial management controls and replaced line item budgeting with output budgeting. The PERCA Act of 1996 was also designed to ensure adequate oversight and monitoring of compliance with the MFEM Act.

The Cook Islands Audit Office exists as a constitutional safeguard to maintain the financial integrity of the country’s parliamentary system of government and to assist government in the effective, efficient, and economic use of resources. The Audit Office assists Parliament in strengthening the effectiveness, efficiency, and accountability of the instruments of government.

The Audit Office is independent of the executive branch of government. Its statutory mandate is enshrined in the Constitution of the Cook Islands, under Article 71, and in the Office of Public Expenditure Review Committee and Audit Act 1995/96, Part 3. The Director of Audit performs the functions assigned to him by law, with the assistance of staff and persons he appoints according to the terms of Section 21 and 24 of the Office of Public Expenditure Review Committee and Audit Act 1995/96.

Staffing and Training

The Audit Office has experienced marked growth since its inception 7 years ago. The size of the audit staff has nearly tripled and local staff have attained formal tertiary qualifications and received ongoing training through the South Pacific Association of Supreme Audit Institutions (SPASAI). SPASAI training programs have received adequate funding as a result of the efforts of the INTOSAI Development Initiative (IDI) and financial assistance from Asian Development Bank (ADB). Both institutions are committed to promoting good governance in the region.

Continuous professional development and staff training have continued to be a high priority for the Office, which has assisted in funding staff to take accounting and law courses through the extension services of the University of the South Pacific. In February 2001, the Audit Office hosted the 7th SPASAI Congress in Rarotonga. The Congress included a performance auditing workshop for auditor generals in the region.

Financial Accounting and Reporting Practices and Audit Methodology

Since the reform program was initiated, the standards for reporting accounting information from Ministries and other reporting units to the Ministry of Finance and Economic Management have improved considerably. The transformation from the cash basis of accounting to the accrual basis under generally accepted accounting practices has been completed. In the 1998/99 financial period, out of the 30 entities, five qualified audit opinions and one disclaimer of opinion were issued. In the 1999/2000 financial period, three qualified audit opinion and one disclaimer of opinion were issued. However, delays in the timely preparation of financial statements and, the Audit Office’s subsequent audit continue to be an area of concern. In December 2002, MFEM issued a comprehensive set of governmentwide accounting and financial reporting policies and procedures.

At present, the majority of Audit Office staff resources are directed toward the conduct of financial statement audits to ensure that the public financial statements of the Crown and its separate reporting units are fairly presented. However, the Office undertakes special reviews targeted at specific problems ranging from internal control structure issues to allegations of criminal wrongdoing in the public service. The Audit Office functions as a safeguard to maintain the financial integrity of the country’s parliamentary system of government.

Future Challenges

The recruitment and retention of qualified accountants and auditors is the most significant challenge the Audit Office faces today. Many of the Cook Islands’ most talented and ambitious young people have left the country to pursue educational and career opportunities in larger South Pacific countries, such as Australia and New Zealand.

The Office also faces expanding workload management problems caused by understaffing. Quite simply, additional staff are needed to deal with the increased number of required financial audits and the Office’s need to begin service performance audits in order to fulfill its legislative mandate. The lure of more attractive rates of pay in the private sector enhances recruitment problems.

To obtain the increased funding necessary to hire additional staff, the Audit Office will have to convince the government that the incremental costs associated with each new staff member hired would be more than offset by cost savings derived through additional audits conducted, especially service performance audits.

Presently, the Ministries and other reporting entities do not adequately report on the nonfinancial elements most commonly included in general purpose financial reports, i.e., the inputs, outputs, and outcomes directly related to service performance. The Audit Office will be encouraging reports on service performance that disclose the degree to which the reporting entity has met its service objectives of supplying goods and/or services. Once these reporting mechanisms are in place, the Audit Office will need to have additional staff to conduct related audits.

By undertaking service performance auditing, the Audit Office plans to become increasingly involved in ensuring the effective, efficient, and economic use of government resources. The performance audits will allow us the opportunity to evaluate the government’s return on investment in terms of outputs and outcomes derived from the investment of public funds.

The Audit Office recognizes the need to solicit expert assistance from overseas to ensure that Audit Office staff receive appropriate training and are informed, on a regular and continuing basis, of changes and emerging issues related to international accounting standards and generally accepted accounting practices. While several Chartered Accounting firms practice in the Cook Islands, there may be issues concerning whether they themselves have had the time or opportunity to become fully knowledgeable with respect to current accounting changes and emerging issues.

Environmental auditing, information technology auditing, fraud and forensic auditing, and public debt auditing are also areas of concern and high priority for future staff resource allocations.

The Cook Islands Audit Office is currently challenged in meeting its statutory obligations under the PERCA Act with its existing level of resources. Declining revenues are available to the government due to external factors. The resulting decreasing budget appropriation, in turn, compromises the Audit Office’s mandate.

These challenges lay out an ambitious agenda for the Cook Islands Audit Office. Other SAIs face similar challenges in carrying out their mandates. This makes it all the more imperative that as we celebrate INTOSAI’s 50th anniversary this year, we continue to share our experiences and collaborate with one another to address our common challenges and promote accountability and transparency in government around the globe.