THE STRATEGY OF
INSTITUTIONAL REFORM OF THE SUPREME AUDIT INSTITUTION: THE CASE OF UKRAINE
Yulia Slobodyanik
Kyiv National Economic University named after Vadym Hetman, Ukraine
E-mail: yslobodyanik55@gmail.com
Lesia Kondriuk
State Agrarian And Engineering University In Podilya, Ukraine
E-mail: lkondryuk@ukr.net
Yuliia Haibura
State Agrarian And Engineering University In Podilya, Ukraine
E-mail: hayburay@gmail.com
Submission: 14/11/2018
Revision: 27/02/2019
Accept: 28/02/2019
ABSTRACT
The
paper aims to define the strategic goals of the Accounting Chamber of Ukraine’s
institutional reform. Comparative analysis, a desktop study of United Nations,
INTOSAI, OSCE, Verkhovna Rada of Ukraine, the Accounting Chamber of Ukraine’s
documents, theoretical studies, statistical information, analytical data
prepared by the state and non-state bodies became the methodological basis of
the research. Desktop study of documents is combined with the processing the
empirical data collected by the author during the questionnaire survey among
experts in independent audit and state control area. The article deal with the
developing a strategy for institutional reform of the Ukraine’s supervisory
system in the direction of public audit institution development. It was
determined that successful implementation of the public audit institution is
only possible subject to a high level of public credibility. The authors have
proposed of the structure of strategic implementation plan of the public audit
in Ukraine. Given the current state of public audit institution transformation,
highlighting the following four strategic goals is appropriate: shaping an
entire system of public audit; adopting regulatory acts based on the
harmonization with world standards; staffing the public audit system;
information and technical support of public audit bodies functioning. As a
result of the proposed strategy realization the transforming the control system
according to world standards and good governance requirements must take place
focused on economic development maintenance and Sustainable Development Goals
achievement.
Keywords: public administration, trust, supreme audit institution, public audit, strategy
1. INTRODUCTION
Weakening the government control in
economic and finance as well as its legal control uncertainty constitute a real
risk to the economy and national interests of Ukraine. Last crisis phenomena
and their consequences aggravate a problem of control system inefficiency that
had to become a key to reforms realized performance and to combating of both
law infringements in economic domain and corruption. However, trust-based
collaboration between the society and the state is a cornerstone of democratic
national development, crisis recovery guaranty and further social-economic
achievements.
Public confidence is the index of
people’s attitude to a state and its ability to execute social security,
promulgate general economic and human values. In the study “International
practices on confidence-building measures between the state and civil society
organizations” conducted by Organization for Security and Co-operation in
Europe (OSCE) in 2010 it is noticed that public confidence is at the heart of
both economic development and social solidarity, also it is considered to be an
indicator of social capital of a country (OSCE, 2010).
From this perspective, the results
of global inquiry “Voice of the people 2015” held by Gallup International
Association are illustrative. The research was aimed to explore the citizens’
attitude towards a state, to people in power and to how to implement powers of
authority. Researchers had 56 countries in their sample, which included the
vast majority of the worlds’ population. It was established that in 2014 50% of
population do not consider their countries go by their people’s will. In the
same time in Ukraine only 31% of people believed that teir country was ruled by
the will of the people (GILANI, 2015).
However, democratic control cannot
be successful in the society with incomplete public confidence (BLIND, 2007).
As Hetherington (1998) states, low confidence in the government makes it
difficult for political leaders to obtain success. Expectation gap of Ukrainian
citizens and power resulted in civil dissatisfaction with low standards of
living, lack of development and excessive corruption.
Crisis of confidence as to wide
range of problems in economic, social, legal and cultural areas became a key
reason of the Revolution of Dignity in 2014. As a result, the society’s request
for transparent and responsible community resource management, governance
openness and fight against corruption became actual. Ukrainian society faced
with need for deep institutional reformations (SHVEDA; PARK, 2016).
According to North (1990),
institutions are a suite of formal and informal rules and standards determining
moral and ethical conduct of people in a society. And while institutions may be
changed quickly the informal standards are altered step by step, in view of
historical changes. Thus, when performing any institutional transformations it
is necessary to consider the impossibility of a direct borrowing of the
political and economic laws that work effectively in other countries.
In addition, social interaction and
confidence being a social capital basis is the key factor of a society’s
economic prosperity and sustainable development (FUKUYAMA, 1995). In other
words, only with the confidence between members of a society at hand new
effective institutes (both formal and informal) can be organized.
Pochenchuk (2015) emphasizes the
current environment for institutional transformations in Ukraine is marked by
total or partial dysfunctionality in institutional structure of economy newly
created as a result of market restructuring; performing by some market
institutions unusual functions that were not taken into account when planning
their activities; strengthening transitional institutes as standing ones. An
important insight is that creating new institutes cries for reform strategy
development and providing the respective background to support them.
According to Mishchenko (2013), the
enhancement of public confidence towards authorities may occur via increase in
public awareness, reducing the possibilities of manipulating the information,
implementing e-governance that will strengthen the control over the authority
actions, help to eradicate the corruption schemes, etc.
A public audit institution, which is
an indispensable element of community recourse management in the countries with
long traditions of democracy, liberalism and civil society, holds a special
place in establishing effective social control over the authorities’
activities. For Ukraine a public audit institution has become new one as is for
other post-Soviet countries.
The new perception has become a
social values system, which is based on a conceptual idea of the need for
practical participation of citizens in control of state budget, property,
intellectual and other community resources. Rooting this idea in the minds of
citizens is concerned with changes in ideology, in ideas about the principles
of relations between an individual, a society and a state.
However, public audit institution is
able to guarantee and encourage national confidence towards authorities via
determining economic feasibility, efficiency and effectiveness in a country’s
resource management and government control quality (HEALD, 2018). Such a
conclusion is confirmed by positive experience of Western European countries,
USA, Canada and others in this area.
Hay and Cordery (2018) emphasize
that public sector auditing as it is currently known is old-established, dating
from the 1860s, but also a living organism that continues to change. The
authors draw parallels between independent audit and public audit and
substantiate that there are many explanations that can be applied to examine
the value of public audit, including agency, signaling, insurance, management
control, governance and confirmation explanations (HAY, CORDERY 2018).
It should be noted that modification
of the public audit concept is consistent with changes in the economy and
public administration. Thus, in the 1990s, researchers analyzed the compliance
of the Supreme Audit Institutions (SAIs) with the principles of the New Public
Management (POLLITT; SUMMA 1997). But currently, authors insist
that public auditors are more than whatchdogs and they are able to make a
significant contribution to good governance development (BUNN; PILCHER; GILCHRIST, 2018; MORIN; HAZGUI, 2016; HEALD, 2018; REICHBORN-KJENNERUD; JOHNSEN, 2018). Furthermore, the scope of
public audit should be expanded by adding to the classical three Es'
(efficiency, economy and effectiveness) the fourth dimension – the ethical
audit (BRINGSELIUS, 2018).
Recent studies confirm the existing
link between transparency, the quality of budgetary management and public audit
systems that positively affect the perception of corruption (BRUSCA; ROSSI; AVERSANO, 2017).
For
instance, Avis,
Ferraz and Finan (2018), based on the analysis the results of the Brazil’s
anticorruption program, which randomly audits municipalities for their use of
federal funds, claim that being audited in the past reduces future corruption
by 8%, while also increasing the likelihood of experiencing a subsequent legal action
by 20%.
Simultaneously, viewpoint has become
widespread that transparency the Supreme Audit Institutions decreases the level
of confidence (BRUSCA; ROSSI; AVERSANO, 2017; HEALD,
2018). In other words, the more open
information there is, the less citizens trust the government. However, Heald
(2018) emphasized, that despite the fragile balance between transparency, trust
and authorities legitimacy, theoretical and
practical researches in this area should be continued.
Based on the deep analysis of
scientific publications and history, Hay and Cordery (2018) conclude that further
productive research should include comparative studies of Supreme Audit
Institutions and their impact; examination of changing governance practices in
the public sector and their impact on auditing. Regarding this, the researches
based on a
cross-national comparison are useful (BLUME; VOIGT,
2011; BOWERMAN, et al., 2003; JEPPESON, et al., 2017; MORIN, 2016).
Thus, creating a modern
and efficient public audit institution in Ukraine should be based on the
contemporary achievements of science and the best practice and requires forming a clear strategy of its
development. In this connection, it is
necessary to investigate the prerequisites of transformational changes in the state
control system.
2. RESEARCH PROBLEM
Transformation of financial control
system in Ukraine started since the independence. The reforms were spontaneous,
they were not mutually agreed and thought-out that was confirmed by further
experience. Lack of the legally enshrined concept of forming a single control
system was the principal drawback. Although certain attempts to create relevant
law were made repeatedly there is still no legislation to lay the foundation of
public finance control system. During the independence years Ukraine has
developed a practice when the government control
prevails over the parliamentary one (KHMELKOV, 2016).
It should be noted that the shifts
that occurred in public finance control in recent years are fully justified by
the policy that Ukraine pursues to move closer to the European Union. Ensuring
the transparent and efficient public finance management which in turn requires
modern control mechanisms is one of the key requirements of European community.
This study aims to form the strategy
for the control system institutional reform of Ukraine towards the developing a
public audit institution. To substantiate the strategy it is necessary to
analyze the main factors that will condition the success of public audit
institution functioning in Ukraine.
2.1.
External
background for public audit institution development in Ukraine
In the early XXI century the
humankind realized that the further existence is impossible without solving an
economic growth problem subject to ensuring social inclusion, environmental
protection and dealing with problems due to climate changes. Accordingly, in
September 2015, the United Nations countries adopted an Agenda for sustainable
development until 2030 which outlines 17 goals comprising 169 tasks covering
the basic mankind problems at the present stage (poverty, hunger, education,
health, inequality, energy, ecosystems, etc.).
It is impossible to achieve
Sustainable Development Goals without consolidation of governments, civil
society, private sector and other parties’ concerned efforts. Ensuring the efficient,
accountable, effective and transparent public administration is one of the main
prerequisites in this process. A key role in the promotion of good governance
is assigned to Supreme Audit Institutions (SAIs). In the relevant Resolutions
the UN Assembly recommends to pay due attention to the development of
institutional capacity and independence of SAIs.
According to the President of the
SAI of the Netherlands, the President of EUROSAI Arno Visser (2015), combining
efforts and sharing the best practices of SAIs in different countries will make
a public audit a useful tool to improve management structures that will change
our globalised world for the better.
The International Organization of
Supreme Audit Institutions (INTOSAI) for more than 50 years of its existence
contributed to the development and transfer of knowledge, best practices to
ensure the institutional framework for the functioning of SAIs member-states
and to increase their professional potential.
The existence and proper functioning
of SAI today has become a key to outside parties’ trust towards governments.
High standards maintenance in public audit meets the expectations of citizens,
states, international institutions and supranational entities. That is what
accounts for focus of key requirements of the international institutions, which
put up money for Ukrainian reforms during last three years, on the expanding
the powers of the Accounting Chamber of Ukraine that is a full INTOSAI member.
To
conclude, for today in Ukraine the supreme control body acting on the basis of
the ISSAI’s fundamental international documents and standards should function.
Only if this occurs independent external control for efficiency and
effectiveness of the reforms put in place as well as for government transparency
and accountability will be provided.
2.2.
Internal
background for public audit institution development in Ukraine
Over
the last years, Ukraine is going through crisis in economy, politics and social
area which is due both to global challenges and internal problems that have an
objective basis. Among the main external challenges is the impact of the global
financial and economic crisis, Russia’s external aggression aimed at the
redistribution of modern-day Ukraine territories and obstructing the European
integration process.
These
problems were exacerbated by low living standards of population and social
standards, lack of development, significant energy dependence on the aggressor
and high energy intensity of the economy. In addition, for the first years of
its independence, Ukraine faced the problem of internally displaced persons
from Crimea and Donbas that as of July 30th 2018, according to Ministry of
Social Policy of Ukraine, amounts to 1,516,246 people or almost 4% of the
existing population.
Prominent
overregulation of the economy provoked sharp national currency depreciation.
Raising the utility tariffs to economically reasonable extent identified the
failure of most people to pay them in full. The need to keep the country from
defaulting led the Ukraine to resort to international institutions. At the same
time, all the credits and loans received increase the already significant debt
which burdens future generations of Ukrainians. A deep political crisis is also
due to the gap in citizens’ expectations from government. Hopes for fast
reforms and crisis recovery were not realized. All these factors provoked a
confidence crisis.
As
Osifo (2014) puts it, causes of collapse in confidence towards the state may be
different but in most cases they are directly related to government
inefficiency and high levels of corruption which creates administrative,
political and economic problems. The situation in Ukraine confirms this thesis
in full. Thus, Ukraine ranked 130th for the level of corruption perception in
the public sector out of 180 countries in 2017 (THE CORRUPTION PERCEPTIONS
INDEX, 2017).
These
factors cause extremely low confidence towards state authorities. According to
results of the Razumkov Center’ research held in June 2018, Ukrainians trust
volunteers, the Church and the army best of all. They do not trust the
President of Ukraine (80.6%), Verkhovna Rada of Ukraine (the Ukraine's
parliament) (85.6%), the Government of Ukraine (80.7%), state apparatus
(government officials) (85.3%), courts (84.3%) and political parties (80.0%).
Table 1 presents the balance of trust (difference
between the share of those who trust and part of those who do not trust)
calculated based on the Razumkov Center.
Table
1: Balance of the Ukrainians’ trust towards social institutions
|
№ |
Public institutions |
Balance of trust, % |
|
1 |
Volunteers |
+44.0 |
|
2 |
Church |
+35.1 |
|
3 |
Armed Forces of Ukraine |
+23.4 |
|
4 |
The State Emergency Service of
Ukraine |
+16.6 |
|
5 |
National Anti-corruption Bureau of Ukraine |
-46.0 |
|
6 |
President of Ukraine |
-66.8 |
|
7 |
Government of Ukraine |
-67.0 |
|
8 |
Political Parties |
-69.7 |
|
9 |
Verkhovna Rada of Ukraine (the Ukraine's parliament) |
-75.3 |
|
10 |
Courts |
-76.6 |
|
11 |
State apparatus (government officials) |
-76.7 |
Source: data based on the Razumkov Center.
NOTE: Calculated based on
the survey conducted by the Razumkov Center’ sociological service from June, 1
till June, 6, 2018. 2018 respondents aged 18 and above were interviewed in all
regions of Ukraine except Crimea and the occupied territories of Donetsk and
Luhansk regions on the sample representing adult population of Ukraine by main
socio-demographic indicators. The sample survey was built as multistage and
random one with quota selection of respondents at the last stage. Theoretical
sample error (excluding design effect) does not exceed 2.3% with probability 0.95.
According
to experts, such results are threatening to the political stability in the
country and require immediate actions.
Some outstripping of legislative practice in the public audit against the small number of relevant theoretical developments is another equally important aspect of the problem. First thorough studies on the
need to revise the paradigm of the country’s control system that was not
already at odds with current challenges emerged in the mid of 1990s (SHEVCHUK,
1998).
A significant increase in number of
scientific studies on public finance control system transformation at the macro
level took place only at the beginning of the XXI century. The relevant studies
were done by a number of Ukrainian scientists (DROZD, 2004; SIMONENKO, et al.,
2006; MNICH, et al., 2009).
The possibility to conduct an audit
in the public finance control has been considered only in recent years
(BARDASH, 2010; DYKAN, et al., 2011). The realization of the need to transform
the role of the Supreme Audit Institution of the state is only now in place
accompanied by increase in relevant scientific developments (NEVIDOMYI, 2016;
PIKHOTSKIY, 2016).
Lack of civil society’s awareness as
to the SAI’s functions and tasks is, to our opinion, a significant constraint
in the development of a public audit institution in Ukraine. At the same time,
any public audit institution’s attempts to bourgeon will not succeed without
generating public confidence towards it.
Thus, developing an effective
strategy for institutional reform of the Accounting Chamber of Ukraine as the
Supreme Audit Institution should take into account the need to maintain social
interaction and confidence (AVIS, et al.,
2018; BLIND,
2007; BRUSCA, et al., 2017; HETHERINGTON, 1998) and
the best foreign relevant practice (BLUME;
VOIGT, 2011; BOWERMAN, et al., 2003; BRINGSELIUS, 2018; JEPPESON, et al., 2017;
MORIN; HAZGUI, 2016; REICHBORN-KJENNERUD; JOHNSEN, 2018).
On the basis of the considerations
above this study also aims to provide answers to such questions: (1) To what
extent the experts in state control and independent audit in Ukraine are ready
to implement public audit institution? (2) What components must be included
into strategic plan of public audit realization in Ukraine in order to ensure
its effectiveness and efficiency?
3. DATA AND METHODOLOGY
3.1.
Source
of data
Comparative analysis, a desktop
study of United Nations, INTOSAI, OSCE, Verkhovna Rada of Ukraine (the
Ukraine's parliament), the Accounting Chamber of Ukraine’s documents,
theoretical studies, statistical information, analytical data prepared by the
state and non-state bodies became the methodological basis of our research.
Desktop study of documents is combined with the processing the empirical data collected
by the authors during the questionnaire survey among experts in independent
audit and state control area.
3.2.
The
sample
For
research purposes, we used survey method by personally interviewing respondents
through open-ended questionnaire.
The
first part of the survey was conducted among independent auditors. The sample
included 104 independent auditors –
representatives of audit firms and auditors-entrepreneurs of the 16 Ukrainian
regions. In total, 1,488 auditing entities – 1,251 audit firms and 237 auditors-entrepreneurs – were registered in Ukraine as of 31.12.2013 (AUDIT CHAMBER OF UKRAINE, 2014). Consequently, our survey covered almost 7% of the representatives of the audit community in Ukraine.
The
next part of the survey included 30 representatives of Accounting Chamber of
Ukraine. As at 31.12.2014, 432 individuals worked at
the Accounting Chamber of Ukraine. Consequently, our survey covered 6.9% of the public auditors.
The research was carried out from March 2014 to
September 2015.
3.3.
The
essence of the interview
As a
result of the survey, the authors of the study planned to get an expert opinion
on the need to implement the institute of public audit in Ukraine. Questions to the experts were designed as a
questionnaire consisting in 10 open-ended questions and included expert
opinion on the following: awareness of the existence of the institute of public
audit and its role in modern society; opportunities to ensure the independence
of the Supreme Audit Institution; the need to engage independent auditors to
conduct public audit; the effectiveness of the interaction between the
government supervisory authority and the Supreme Audit Institution; the
necessity and duration of training specialists to participate in various forms
of public audit; the assessment of public confidence in the performance of the
Supreme Audit Institution, etc.
The opinion of the experts was taken
into account when developing the goals and tasks of the strategic
implementation plan of the public audit in Ukraine.
4. RESULTS AND DISCUSSIONS
4.1.
The
interview-based analysis
To
study the specialists’ preparedness in the field of state control and
independent audit to the public audit implementation, a questionnaire survey
was applied. The first part of the research
was carried out in March 2014 via the independent auditors inquiring. The aim
was to obtain expert opinion as to the problematic aspects of public audit
procedure as well as the necessity and possibility to involve independent
auditors in this process. The basis for such a survey was the international
experience of certain countries, in particular New Zealand, in attracting
independent auditors to conduct a public audit.
97.1%
of independent auditors felt the need
for public audit, since the audit is more effective to determine transparency
and efficient use of public resources. Consequently, 2.9% of respondents
considered the state financial control in the form of audits and inspections
sufficient. At that 98.1% of respondents approved the engagement of the
independent auditors in public audit conduct saying about the ability to ensure
transparent use of public resources (4.9%) and the audit service market
expansion (2.9%) and also about the two reasons simultaneously (90.3%).
Given
the purpose of the study, the set of issues concerning the preparation for the
public audit and independent auditors’ awareness with the International
standards for Supreme Audit Institutions (ISSAI) has become important. Thus,
58.3% of respondents noted, they knew about the standards but they did not
require them in the professional activity, 30.1% of respondents did not turn to
these standards, 11.6% said they worked with the ISSAIs. However, the responses
to the questions regarding the level of need for additional training of
auditors to attract them to conduct a public audit were distributed as follows:
44.7% of auditors believed that regular refresher courses up to 40 hours were
sufficient, 27.2% were in favor of longer-term training (1–3 months) and 28.1%
of the respondents were convinced that additional training was not necessary.
To
confirm the latter thesis the respondents argued that the auditor’s certificate
is a higher qualification proof and requirements to auditor’s experience may
only be set (for example, “at least n years”). The respondents also said that
there should be a test procedure and final document format.
Given
that independence principle is a key characteristic of the audit, we proposed
to assess the independence of the Accounting Chamber experts during their
professional duties performance. Accordingly, 41.7% of auditors denied the
independence of the Accounting Chamber as an opportunity, 43.7% believed
legislative support for its independence possible, and 14.6% agreed with a
partial independence which is influenced by factors such as governmental
impact, threats of self-interest, lack of professional control over the
Accounting Chamber.
In
addition, respondents expressed the opinion concerning the possible
independence problem solution through the formation of audit team consisting in
the Accounting Chamber representatives and independent auditors in the 50/50
ratio, and the involvement of non-governmental organizations in monitoring the
Accounting Chamber’s operation.
The
view was also expressed about the need to develop national standards on public
funds auditing. In this case, the audit firms must receive appropriate training
in these standards and accreditation, and the choice of an auditor should occur
every time on a tender basis.
The
results of the independent auditors survey show that the professional community
of independent auditors aware of the importance and necessity of cooperation in
the public audit. At the same time, the Accounting Chamber independence
assessment on the part of experts reflected at large low support for its
functioning in the modern Ukrainian society.
Questionnaire survey among the Accounting Chamber experts which took place in June 2015 and September 2015 prolonged our survey. As part of the survey, which was conducted on an anonymous basis, we received answers from 30 representatives of various Accounting Chamber’s departments, namely: Department of state budget revenues, Department of use of state budget
funds in the regions, Department of banking and financial institutions control,
Department of public debt, financial institutions and international activities,
Department of legal support of the control activities of the Accounting
Chamber, Department of public finance
control, etc.
The
questionnaire consisted of 10 open-ended questions. At that some questions were
duplicated, namely: attitude towards public audit conduct by the experts of
State financial inspection of Ukraine (for now – The State Audit Service of Ukraine); evaluation of the
possibility to engage independent auditors to conduct a public audit; necessary
level of training for independent auditors when engaging them to conduct the
public audit; evaluating the independence of the Accounting Chamber’s experts
when they perform their professional functions.
Table 2 represents a comparative analysis of the responses to cross-questions. As the data show both
independent auditors and the Accounting Chamber’s experts have negative
attitude towards public audit conduct by governmental supervisory authority pointing at the impossibility to ensure its
independence, which is the key feature of an audit.
At
that the Accounting Chamber’s professionals noted that governmental supervisory
authority may only conduct an internal public audit that meets the requirements
of international standards in this area. Professional community also evaluates
positively the engagement of the independent auditors to conduct a public
audit.
The
Accounting Chamber’s experts among the advantages of such cooperation noted the
following: the possibility to perform more proficient (at a professional level
within the corresponding field) control measure; additional experience; the
ability to understand the problem from a different angle; the possibility of
using independent auditors as a specific knowledge source.
It is important, given the purpose of this study, that
26.7% of the Accounting Chamber’s experts surveyed noted their partial
independence pointing at the lack of leverage on the facility to be audited and
at social protection against high risks and responsibility.
Table
2: A comparison of attitudes
of independent auditors and the Accounting Chamber of Ukraine’ experts
|
Questions |
Answers, % |
|
|
independent auditors |
Accounting Chamber of Ukraine’s experts |
|
|
Negative attitude towards public audit realized by
supreme supervisory agency (for now – The State Audit Service of Ukraine) |
66.0 |
60.0 |
|
Positive attitude towards engaging independent
auditors in public audit conduct |
98.1 |
53.4 |
|
Necessity of additional training for independent
auditors if they are engaged in a public audit conduct, in particular: - sufficiency of usual professional courses up to 40 hours; - need for longer-term training (1–3 months) |
44.7 27.2 |
26.6 40.0 |
|
Possibility to guarantee independence of the
Accounting Chamber of Ukraine’ experts when they perform their professional
duties, in particular: - sufficient independence; - fractional independence |
43.7 14.6 |
73.3 26.7 |
Source: own
compilation.
Concerning the body that is expedient to entrust the
coordination of public audits with independent auditors involvement, 86.6% of
the Accounting Chamber’s specialists interviewed said that it should be the
Accounting Chamber. At the same time, the opinions of independent auditors on
this issue are divided – 32.0% were convinced that it should be the Audit
Chamber of Ukraine, 23.3% of the respondents believed that the Accounting
Chamber of Ukraine should act as a coordinator because, according to current
legislation, the ACU has an impact on auditors because it performs quality
assurance check and regulates auditing activities, which can limit the audit
independence.
However, 44.7% of the independent auditors express their
own attitude to the coordination of engaging the independent auditors to
conduct a public audit that should be carried out by other authority or in
collaboration, namely: a public control organization; Ministry of Finance of
Ukraine and Audit Chamber of Ukraine; a collegian body including the
representatives of independent professional organizations; public Union of
auditors which is independent one; jointly the Accounting Chamber, the Audit
Chamber of Ukraine and the Union of auditors of Ukraine; the newly created
Supreme authority of financial control as a public organization.
The opinions of the Audit Chamber’s experts and independent
auditors about the need for training the latter in case of engaging them to
conduct the public audit varied. So, 40.0% of the Accounting Chamber’s experts
insist upon long-term training (1 to 3 months) against 27.2% of independent
auditors who overestimate their own training for the public audit. 13.3% of the
Accounting Chamber’s experts note the need for special education and practical
expertise of an auditor in a certain area.
It
is our opinion that the answers of the Accounting Chamber’s experts to the
questions on the institutional capacity of the Chamber are important. Thus,
53.4% of the experts, to a question on the assessing the possibility to
implement the ISSAI standards, responded that the implementation is possible at
the 3rd standard level (Fundamental auditing principles), 33.3% believed that
implementation is possible only at the first two standard levels (Founding
Principles and Prerequisites for the functioning of SAIs). At the same time,
13.3% of respondents were not able to answer the question justifying it by
their own ignorance of the ISSAI standards contents.
To the question regarding the possibility to cover the
full reports on the results of the control measures of the Accounting Chamber
(in compliance with confidential and secret information) only 6.7% of
respondents replied in the negative, pointing that declared results of a small
volume are sufficient (4–6 pages). Other 93.3% of the Accounting Chamber’s
specialists take a positive attitude towards the publication of the full texts
of the reports.
At last but not least, in regard to
social confidence level that the Accounting Chamber has at the present day the
ACU’s experts replied in the following way: 6.7% – high level of confidence;
20.0% – middle level (due to lack of education of some social groups and scant
confidence); 46.7% – low level (weak public awareness of the Chamber’s work,
the low effectiveness of control measures); 26.6% – it is difficult to answer
the question due to lack of data. The answer to this question (received from
professionals) confirmed our hypothesis about the lack of information to ensure
the confidence and support of public audit institution functioning in the
Ukrainian society.
4.2.
Developing
a strategy for institutional reform of the Accounting Chamber of Ukraine
Given
the above, we denote the conceptual approach to working-out the strategy of the
public audit establishment and development in Ukraine. When formulating the
basic components of a strategy for SAI’s institutional reform the requirements
of the following documents should be taken into account: Transforming our
world: the 2030 Agenda for Sustainable Development (2015), The Abu Dhabi
Declaration (2016), INTOSAI Strategic Plan 2017–2022 (2016), International
framework: good governance in the public sector (2014),
Promoting and fostering the efficiency, accountability, effectiveness and
transparency of public administration
by strengthening Supreme Audit Institutions (2014).
The
aim of the strategy is to establish an independent public audit institution
that will provide community with lawful, effective and transparent public
resources management and to give complete, timely and accurate information on
this. Independence, objectivity, consistency, integrity, competence,
transparency and efficiency will be the basic principles that meet the world
standards and should form the basis for the public audit development
(Figure 1).
Given
the current state of public audit institution transformation, highlighting the
following four strategic goals
is appropriate.
·
Goal 1. Shaping an
entire system of public audit. Involves the following tasks:
1.1. Scientific rationale, generalization and
determination of definitions that are used in public finances control, namely
the distinction between the concepts:
a) public audit and audit as type of business
activity;
b)
public audit and public internal financial control;
c) internal and external public audits;
d) types and forms of public audit.
1.2. Developing the organizational and functional
structure of public audit:
a) assigning the status of the Supreme body of public
audit to the Accounting Chamber in the Constitution of Ukraine;
b) expanding the network of territorial business units
of the Accounting Chamber of Ukraine to guarantee performing its corresponding
functions;
c) developing the system of public internal financial
control and audit headed by The State Audit Service of Ukraine;
d) improving the internal public audit services in
government agencies, budgetary institutions and public utility services;
e) development of functional interactions between the
public audit bodies and other state regulatory agencies (National Bank of
Ukraine, Antimonopoly Committee, State Fiscal Service of Ukraine, Security
Service of Ukraine, etc.).
1.3. Determining the level of the ISSAI standards
adoption and scientifically grounded development of regulatory and
methodological support of public audit that will include:
a) external and internal public audit standards;
b) codex of professional ethic for public auditors;
c) data confidentiality;
d) avoiding conflict of interests;
e) methodological recommendations as to SAI operation
planning given the necessity to consider the issues outlined in The 2030 Agenda
for Sustainable Development;
f) methodological recommendations as to conducting
financial audit, performance audit and compliance audit in different areas;
g) methodological recommendations as to audit reports
preparation and completion, etc.
1.4. Introducing new types and forms of audit taking
into account the best world experience and practical expertise in this area.
1.5. Developing criteria for assessing a public audit
effectiveness.
1.6. Developing theoretical and methodological as well
as organizational support of public audit functioning.
·
Goal 2. Adopting legal and regulatory acts based on the
harmonization with world standards in this area:
2.1. The preparation and adoption of strategic
legislative acts: on the system of public finance control; internal and
external public audit.
2.2. The preparation and adoption of amendments to the
Constitution of Ukraine and to the Law of Ukraine “On the Accounting Chamber”
as to the recognition of the Accounting Chamber of Ukraine the Supreme Audit
Institution and defining its powers regarding the control of receipts and
expenditures of both state and local budgets.
2.3. Development and approval the legal framework
regarding both external and internal public auditors independence.
2.4. Development and implementation of an effective
mechanism to ensure quality control of public audits and the Accounting Chamber
activity as a whole.
2.5. Development and implementation of effective
mechanisms to ensure timely response to violations identified by the Accounting
Chamber.
·
Goal 3. Staffing the public audit system.
3.1. Creating educational basis for relative
specialists training:
a) introduction in educational institutions of ІІІ-ІV
levels of accreditation of separate master programs in “Accounting and
taxation”, “Finance, banking and insurance”, “Law”, etc.;
b) advanced training for public auditors according to
special programs and with the assistance of practicing public auditors;
3.2. Creating scientific-research basis for public
audit specialists training:
a) development of training standards;
b) processing the programs of public auditors’
professional development;
c) introduction of external public auditors’
certification;
d) development of the certification training;
e) preparation and conduction of
educational-methodical and scientific-practical seminars on the public audit;
f) development and maintenance of continuing education
for government auditors, etc.
·
Goal 4. Information and technical support of public audit
bodies functioning:
4.1. Creation of information-analytical database on
the control activities carried out, their results as well as decisions and
steps taken on their basis.
4.2. Development of an annual unified national plan of
control measures based on the concept of state control bodies’ activities
coordination.
4.3. Ensuring timely, transparent and full disclosure
of relevant information on the main aspects of the Chamber’s activity.
4.4. Ensuring information exchange via The Knowledge
Sharing Committee of a Community Portal to facilitate the knowledge sharing.
The results of delivering the strategy of public audit
formation and development must be translated into:
1) creating a unified system of public audit in
accordance with international standards and the requirements of the Ukraine’s
state-of-the-art;
2) ensuring the effectiveness and efficiency of the
control over the public resources accumulation and use as well as their
management;
3) improving the transparency and timeliness of
information disclosure relative to both the target and efficient use of
budgetary resources and managerial decisions;
4) increasing responsibility of heads of state and
public sector bodies for the decision-making, ensuring compliance with the
principles of good governance (GARCÍA, 2015);
5) assistance in the implementing an anti-corruption
strategy of the state;
6)
reducing costs and improving efficiency in the use of funds for the public
finance control.
Figure 1: The structure of
strategic implementation plan of the public audit in Ukraine
Source: own results.
5. CONCLUSIONS AND RECOMMENDATIONS
The aim of the research was to
justify the developing a strategy for institutional reform of the Ukraine’s
supervisory system in the direction of public audit institution development. To
this end the key external and internal factors influencing this process in
Ukraine at the present stage were analyzed. It was determined that successful
implementation of the public audit institution is only possible subject to a
high level of public credibility.
Otherwise
its functioning will be impossible. In addition, the task was to find answers
to questions concerning: (1) the awareness level of Ukrainian state control and
independent audit specialists of the public audit institution implementation;
(2) components of effective and efficient strategic plan for the public audit
implementation in Ukraine.
The
research methodology was based on obtaining empirical data for comparative
analysis of the Accounting Chamber experts’ and independent auditors’ attitudes
towards the public audit institution implementation in Ukraine. The total
number of questionnaires processed was sufficient as it was aimed at experts of
rather narrow sphere. Documents and statistical data used in the study are
accurate and reliable because they were obtained from official public sources.
The
results of the study made the following conclusions.
1)
The public audit institution has been known for a long
time and is a traditional effective instrument of parliamentary control in many
countries. Currently, public audit is able to support national confidence
towards authorities via determining economic feasibility, efficiency and
effectiveness in a country’s resource management and the quality of the fight
against corruption.
2)
New institutions in Ukraine created as a result of
market reform are marked by full or partial dysfunctionality and performing
unusual functions for them. The reason was the lack of a systematic approach to
developing a reform strategy and ignoring the need to create appropriate
conditions for their support. Public audit institution is no exception.
3)
The modern Ukrainian society has a latent request for
a public audit, formed under the influence of the socio-political and economic
situation in the country and under the pressure of international institutions.
Despite the fact that the institutional framework of government audit in
Ukraine is now laid down it has not a real support on the part of the society.
This situation is due to low public awareness of the Accounting Chamber
activities and the lack of effective response mechanisms as to violations
identified.
4)
The results of the questionnaire surveys of Ukrainian
experts in state finances control conducted by the authors confirm the need to
reorient the current control system for the implementation of the public audit,
which is able to provide independent and effective control of public resources and
the government control quality.
5)
The proposed structure of the strategic implementation
plan of the public audit in Ukraine meets the requirements of the UN and
INTOSAI fundamental documents in this area. The practical implementation of the
proposed strategy is aimed at forming the public confidence towards the public
audit institution, which will ensure its future efficiency and legal
competency. At the same time, its further development depends on creating the
necessary conditions, providing the scientific rationale for the development
and implementation of legislative and normative acts, studies and balanced
transfer of international best practices in the public finance control area.
This will culminate in the control system transformation in accordance with the
international standards requirements and domestic needs of the governmental
control development.
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