1. Mitigating the Global Financial Crisis ImpactThe Role of Government Auditors Richard F. Chambers CIA, CGAP, CCSA President and CEO – The Institute of Internal Auditors

2. Overview Global Financial Crisis: Impact on Governments Worldwide Government Auditors: An Overview Mitigating GFC Impacts: Five Ways Government Auditors can Add Value Conclusions

3. We All Know the Problem… Revenues from sales tax, property tax, income tax, and fees have declined Citizens need higher levels of government services in times of financial difficulty Most OECD countries are running significant budget deficits State/local governments must run balanced budgets This means difficult and painful choices.

5. Property taxes down

6. Income taxes down

7. Investments down

8. Fee income down

9. Increased use of social programs

10. Economic stimulus programs

12. Recent Austerity Measures Source: Limiting Central Government Budget Deficits: International Experiences, Congressional Research Service, 2011

13. The Status Quo is Unacceptable Rising public expectations for demonstrable results and enhanced responsiveness Government performance/ accountability and high-risk challenges Additional resource demands due to economy, healthcare costs, terrorism…

14. Government Auditors: Work for “good government” Help improve performance and assure accountability Help identify and mitigate risks Maintain independence to make difficult decisions “With light comes heat, and with heat comes action, and action is what we want. How can we make government work better? By improving the economy, efficiency, and effectiveness of government.” T - The Honorable David M. Walker Former Comptroller General of the United States

15. Audit and the Financial Crisis Two potential solutions: Control costs Traditional audit “sweet spot” Grow revenue Potential audit opportunities With change comes risk Increases need for audit

16. Mitigating GFC Impacts: Five Ways Government Auditors can Add Value Providing assurance on the accuracy of financial reporting Providing assurance that government resources are being used efficiently and effectively Fostering accountability by government officials Identifying opportunities for cost reduction and containment Fostering greater public trust

17. 1. Providing Assurance on the Accuracy of Financial Reporting Generally accepted accounting principles Adequacy and accuracy of disclosures Privileged and confidential information Report distribution Five Ways Government Auditors can Add Value In today’s economy, financial reports are under intense scrutiny by public officials, legislators, and citizens.

18. 1. Providing Assurance on the Accuracy of Financial Reporting Financial audits include determining whether: Financial information is presented in accordance with established or stated criteria, Entity has adhered to specific financial compliance requirements, or The internal control structure over financial reporting and/or safeguarding assets is suitably designed and implemented to achieve control objectives. Five Ways Government Auditors can Add Value

19. 1. Providing Assurance on the Accuracy of Financial Reporting Financial audits also evaluate: Poor financial management systems Corruption, fraud, fund diversions Use of reserves during unexpected events Inadequate funding Release of funds to Ministries/Departments/Agencies Initiation of spending Payment Recording of transactions Production of accounting/budgeting reports Five Ways Government Auditors can Add Value

20. Five Ways Government Auditors can Add Value 2. Providing Assurance that Resources are Being Used Efficiently and Effectively We need to know whether or not government programs operate economically and efficiently We need to know which initiatives are showing results and which are not We need verifiable evidence of success In today’s economy, government leaders need to know which programs are effective and which are not so they can make tough choices.

21. Five Ways Government Auditors can Add Value 2. Providing Assurance that Resources are Being Used Efficiently and Effectively During difficult economic times government auditors can provide consulting services that will show if the organization is conducting operations effectively (meeting its goals) and efficiently (controlling costs) Services might include “management studies” that identify opportunities for enhancing the efficiency of operations

22. Five Ways Government Auditors can Add Value 3. Fostering Accountability by Government Officials Public officials are responsible for: Complying with applicable laws and regulations Using resources efficiently, economically, and effectively Establishing and maintaining effective controls to ensure that appropriate goals and objectives are met Officials and employees who manage government programs need to render an account of their activities to the public Auditing provides objective evidence enabling us to hold management accountable for key responsibilities

24. 4. Identifying Opportunities for Cost Reduction and Containment Lack of coordination among departments Inadequate cost information Substandard contract management Mission fragmentation/program overlap Ineffective procurement controls Poor planning Burdensome legal mandates Five Ways Government Auditors can Add Value

25. 4. Identifying Opportunities for Cost Reduction and Containment Scrutinizing processes can identify opportunities for increased efficiency Encouraging adoption of performance measurement systems can help departments focus their energies and monitor quality and effectiveness. Advocating rigorous, data-driven decision making processes can lead to better outcomes Five Ways Government Auditors can Add Value

26. 5. Fostering Greater Public Trust Auditing provides credibility to the information reported by or obtained from management through objectively acquiring and evaluating evidence Audit of government reporting is an essential element of public control Five Ways Government Auditors can Add Value In today’s economy, auditing provides transparency to meet the growing demand for objective information about government programs and services.

27. Five Ways Government Auditors can Add Value 5. Fostering Greater Public Trust “Citizens deserve to know that their state government is spending their tax dollars wisely on vital programs and services that directly benefit them and make a measurable difference in their lives.” - Edward G. Rendell Two-term Governor of Pennsylvania

28. Conclusions The status quo is unacceptable in times of global financial crisis. A fundamental review of government programs and policies is necessary to determine what the government should do and how the government should do business in the future. In times of financial crisis, internal audit is key to assuring ongoing government efficiency, effectiveness, and transparency.

29. For more information, contact: Richard F. Chambers President and Chief Executive Officer The Institute of Internal Auditors richard.f.chambers@theiia.org Questions?