System-based Auditing and Monitoring of Government Programs and Projects
By faithfully fulfilling its statutory mission of audit and inspection over the past 50 years, the Board of Audit and Inspection of Korea (BAI) has worked unceasingly as the nation’s supreme audit institution to ensure accountability and performance in the public sector. As a result, it has become a highly regarded government organization. In recent years, however, there have been dramatic and widespread changes in the audit environment in Korea. The budgets of the BAI’s auditees increased more than 300 times from 1970 to 2004. While past government programs and projects were mostly small in scale and relatively limited in scope, today they tend to be large in scale and to involve many different government agencies directly or indirectly. Furthermore, the demand for the BAI’s external audits is increasing. In November 2003, the National Assembly made its first request for a BAI audit, and the number of popular audit requests is also steadily growing.
As the supreme audit institution, the BAI is expected to quickly identify emerging trends in the rapidly changing audit environment and to serve as a model organization to advance public administration. However, concerns have been raised about the BAI’s ability to meet the evolving demands of its clientele—the people, the National Assembly, and auditees—in the current environment. It has been alleged that the BAI has failed to meet new expectations and may have been remiss in its efforts to reform its auditing methods and practices. The BAI has been criticized for continuing to be a faultfinder that does not pay adequate attention to the larger picture and for failing to comprehensively and systematically diagnose structural drawbacks in government programs and projects, thus not presenting fundamental solutions.
With the launch of the Roh Moo-hyun administration in 2003, ever stronger pressure from inside and outside the organization has forced the BAI to revamp itself. Outside sources have repeatedly urged the BAI to play a consultant role—diagnosing and evaluating government services to discover solutions to the problems identified from an objective, independent perspective. Meanwhile, insiders have steadily argued that the BAI should change its traditional uncoordinated, microscopic audit approach to a comprehensive, macroscopic, specialized, and scientific approach that will lead to reliable audit results. After Chairman Yun-Churl Jeon took office in 2003, the BAI stepped up to the challenge of coping with the changing times and meeting the demands for reform. The BAI has thoroughly analyzed its role and function and come up with a new and more efficient system of audit management in response to the demands of the age of globalization and transparency. This article discusses the BAI’s new system-based audit concept and the monitoring system for major government programs and projects that was introduced to support it.
The system-based auditing the BAI has adopted includes comprehensive guiding principles for audit operations, including the BAI’s new policy, strategy, and concept of auditing. System-based auditing applies to both audit approaches and the subjects of audit. As an audit approach, system-based auditing employs a scientific and systematic method to identify core problems. This approach contrasts with the traditional practice of examining public officials or government operations at random and relying heavily on intuition. In other words, audit work begins only after key audit points are accurately identified by thorough preliminary study and data analysis. With regard to the subject of audit, system-based auditing goes beyond pointing out individual audit findings. It entails an across-the-board examination of the system in question to identify the causes of problems and to come up with a fundamental remedy. For example, in the case of a credit card scandal, a system-based audit would examine the overall financial system, without stopping to point out the known problems of financial supervision, in order to reach the root cause and recommend how to address it.
Three Guiding Principles for System-based Auditing
The BAI has identified three guiding principles for system-based auditing: it focuses on the most strategic and high-risk areas, it is performance oriented, and it is proactive. First, in selecting what to audit, system-based auditing focuses on the most important and high-risk areas to make the most of limited audit resources. In this way, system-based auditing addresses the areas that have the greatest influence on society.
Currently, the BAI has less than 1,000 staff members and more than 65,000 auditees, making it both impossible and inadvisable to try to audit the entire audit universe. Therefore, in order to use its limited resources to most efficiently audit the major items in the budget and large-scale programs and projects, it is necessary to employ a strategic audit approach that focuses on core audit points. To this end, the BAI sets up 3- and 5-year strategic plans that prioritize audit subjects in order of importance and urgency. When serious and urgent problems emerge in major government programs and projects, the BAI can modify its plans to examine them while keeping track of the progress of the other programs and projects.
Second, from the perspective of audit criteria, system-based audit assesses the performance of government operations in terms of the three Es (economy, efficiency, and effectiveness) and makes recommendations for improvement.
The role of the government today, unlike in the past, is geared more towards promoting and supporting public services than regulating or controlling them, and taxpayers are eager to see if their taxes are being spent efficiently. Consequently, auditing cannot make a difference by focusing on the current disconnected, microscopic audit approach that emphasizes compliance. The BAI will place a stronger emphasis on performance-oriented auditing that assesses the three Es in order to comprehensively analyze and review the performance and execution of government programs and projects and to develop measures for improvement that are both practical and comprehensive.
Third, system-based auditing is proactive. It strives to act in advance to address anticipated difficulties in order to promote entrepreneurship and creativity in the public sector. In the past, auditing was often blamed for concentrating on faultfinding for its own sake, hampering smooth public administration, and nurturing complacency among government officials. In response to this criticism, the BAI’s new audit efforts will place greater emphasis on holding government officials accountable for a job not done than for a job badly done in order to encourage the civil service to boldly embark on new tasks with creativity. At the same time, best practices will be promoted and widely disseminated among the civil service so that the BAI’s auditing will become positive and future-oriented.
Furthermore, system-based audit will not stress uncovering wrongdoing in order to punish the perpetrators. Rather, it will emphasize improving ineffective institutions and removing environmental and structural factors that lead to improprieties, thereby forestalling possible recurrences of the problems.
Monitoring Major Government Programs and Projects
The BAI introduced a monitoring system to back up the implementation of its new systembased auditing. For system-based auditing to successfully take root, auditors need to have a thorough knowledge of the workings of government. For example, auditors must have ample understanding of the auditees’ tasks, programs, and projects and keep up to date with their progress. In the past, auditors reviewed and analyzed only the programs and projects selected to be audited during the assigned audit period. As a result, they were poorly positioned to acquire the knowledge and insight that were needed. BAI’s auditors were often given only about 20 days to identify all the problems in government programs and projects and come up with recommendations for improvement.
In addition, even though certain programs and projects were vital to the nation as a whole, they were sometimes left unattended for several years unless they were selected for audit, and the optimal timing for auditing was often missed. In order to remove such problems, the BAI devised a monitoring system that systematically addresses the connection between auditing and the progress of government programs and projects. The monitoring system has several functions. First, it reinforces the implementation of strategic auditing by helping to concentrate limited resources on the most important areas.
For instance, using the problems identified through monitoring, auditors can prioritize auditees in order of importance and the urgency of the problems. Government programs and projects are selected for monitoring according to the priorities in the 3-year strategic audit plan. In the course of monitoring, confusion or conflicts of interest related to the implementation of programs or projects may be identified among different government agencies. If these issues need to be dealt with urgently, the BAI can begin a timely audit and notify government authorities of solutions to the problems identified.
Second, the monitoring system shows whether latent socioeconomic issues are reflected in the policy agenda and raises issues as necessary. If a matter of public debate is not included in any agency’s policy agenda due to indifference or the passive posture of the government agency in charge, or if a policy needs to be revised due to changes in circumstances, monitoring identifies the need for appropriate policy actions.
Third, the monitoring system identifies and promotes best practices in the implementation of programs and projects. Through ongoing monitoring, best practices are analyzed to identify the key factors of success and are communicated broadly to the public sector.
In January 2004, after in-depth analyses and the systematic classification of 1,000 major programs and projects, the BAI selected 100 for monitoring. These included the president’s election pledges and directives, departmental initiatives, and 300 major government-financed projects. Two main selection criteria were the importance of the program or project and the risk it posed. Core programs and projects, projects with large-scale funding, and projects having significant socioeconomic impact and ramifications were given higher priority in terms of importance. Programs or projects with complicated implementation structures and procedures or those with many interest groups or related government agencies were given higher priority in terms of risk.
Three Basic Principles for the Monitoring System
First, the monitoring system is operated in close connection with auditing. Those programs and projects of importance that are being monitored are included in the annual audit plan. If the monitoring results reveal serious problems, even those programs or project that are not included in the annual audit plan are audited. Other programs or projects being monitored will be reflected in the medium-term audit plan according to auditing priority and will be audited in chronological order.
Second, if the monitoring results show the need for immediate action or improvement, relevant government authorities are notified of the problems identified. When there is a conflict of interest among different government agencies, resistance from interest groups, or any other confusion or setbacks that call for prompt adjustment or remedy, the Office for Government Policy Coordination is notified of the monitoring results so that it can promote implementation through timely actions.
Third, the BAI regularly follows up on and keeps track of how problems identified in the process of monitoring or auditing are redressed.
At this time, it would be premature to assess the effect of the BAI’s new paradigm for auditing and monitoring system as these efforts are still in the early stages. Also, undertaking these changes requires the development of a shared commitment and behavioral changes from those who work in the institution. Reform is a long and difficult journey that bears fruit only if it is pursued continuously based on a well-defined vision and strategy. The BAI’s initiative will enable it to become an advocate of reform and lead by example. These ongoing efforts will enable the BAI to maintain the trust and confidence of the people that it serves.
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