Discussion paper for the Roundtable on Independence of Supreme Audit Institutions held in Sarajevo on 8 September 2016.

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ROUNDTABLE ON THE INDEPENDENCE
OF SUPREME AUDIT INSTITUTIONS
Network of SAIs of
EU Candidate and Potential Candidate Countries
and European Court of Auditors
Discussion paper
Sarajevo
8 September 2016

2. 2
INTRODUCTION
In April 2016, the Network of Supreme Audit Institutions of Candidate and Potential Candidate Countries
and European Court of Auditors (the NT) agreed to revise their work plan to include a roundtable on
Supreme Audit Institution (SAI) independence. As a result, the Audit Office of the Institutions of Bosnia
and Herzegovina (SAIBiH) will host a roundtable on 8 September 2016 in Sarajevo, Bosnia and
Herzegovina.
In preparation for the roundtable the SAIBiH, supported by SIGMA, conducted a survey of the SAIs within
the NT related to the independence of SAIs as laid out in the International Standards of Supreme Audit
Institutions (ISSAIs) in ISSAI 1 (the Lima Declaration), and ISSAI 10 (the Mexico Declaration). The survey
was tailored to reflect issues that had previously been highlighted as concerns by members of the NT and
therefore did not cover all aspects of independence as laid out in ISSAIs 1 and 10. All members of the NT
and the three sub-national BiH audit institutions responded to the survey, providing further details and
information describing the practical aspects of their situation as requested. The survey questions and
results are provided in the accompanying report prepared by the SAIBiH.
This discussion paper has been prepared using the results of the survey and the SIGMA Baseline
Measurement Reports1
from 2015. The purpose of the paper is to stimulate and encourage further
discussion by workshop participants of the key issues on independence, and to identify further questions
for consideration. It does not cover all areas included in the survey but develops the key topics that will
be the focus of the roundtable:
 statutory independence and the impact of other laws/regulations on the operation of SAIs;
 the impact of mandatory audits on the delivery of SAI mandates including the audit of political
parties;
 challenges to financial independence and the freedom to use allocated resources.
In examining the challenges to SAI independence and the matters covered in this discussion paper it is
important to consider the context surrounding this subject. Clearly, independence is a fundamentally
important issue for SAIs, and is recognised in the Lima and Mexico Declarations. It is also reflected in the
March 2012 UN General Assembly Resolution 66/209 promoting the efficiency, accountability,
effectiveness and transparency of public administration by strengthening SAIs, which recognised that
SAIs can only accomplish their tasks objectively and effectively if they are independent of the audited
entity and are protected against outside influence. It is further underlined by the Sustainable
Development Goals (SDGs) contained in the United Nations Agenda 2030 and adopted in September
2015.
It is an important component from the perspective of EU integration, and is included as a key
requirement in the Principles of Public Administration2
developed by SIGMA and the European
Commission.
However, SAI independence is not an end in itself, but an important aspect of enabling the fulfilment of
its larger mission of delivering value. It needs to be considered in relation to the local context and
environment and not purely in relation to the ISSAIs. The provisions of the ISSAIs will have different
meaning and be applicable in different ways in different environments.
It is important to consider that the Lima Declaration recognises that state institutions cannot be
absolutely independent as they are part of the state apparatus, but what is essential is that SAIs should
have the functional and organisational independence to carry out their mandate.
The International Organization of Supreme Audit Institutions (INTOSAI) recognises that one of the most
effective ways SAIs can promote and protect their independence is by clearly and consistently
1
SIGMA (2015), Baseline Measurement Reports, OECD Publishing, Paris.
2
SIGMA (2014), The Principles of Public Administration, OECD Publishing, Paris.

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demonstrating the value and benefits of the SAI and its work. In this context, SAIs need to be
accountable for what they do and be able to demonstrate that they deserve their independence.

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I. STATUTORY AND ORGANISATIONAL INDEPENDENCE
Basis for the legal mandate of the Supreme Audit Institutions and legal protection
According to ISSAI 1, the Lima Declaration, the establishment of SAIs and the necessary degree of their
independence shall be laid down in the Constitution; details may be set out in legislation. INTOSAI clearly
indicates in the Lima Declaration that it considers the constitutional basis of SAIs as the best way to
protect their legal independence, since it is in principle more difficult to amend the constitution than a
law.
The independence and mandates of the institutions in all seven countries are based on specific
legislation, but they are only anchored in the constitution in five of them, with the exceptions being BiH
and Macedonia. There are examples where practice and traditions do not provide constitutional backing
for a country’s SAI without impacting on the SAI’s ability to deliver its mandate independently. However,
these cases are very much related to the prevailing political culture and democratic traditions of the
country, and should not be seen as a model for countries where the establishment of institutional checks
and balances is still “work in progress” and where a more formal constitutional basis may be needed to
establish and ensure the independence and mandate of the SAI.
Constitutional provisions may differ a lot between a brief acknowledgement (with the main provisions
for the organisation and functions of the SAI provided for in the SAI law) and a very detailed description
of the organisation and functions of the SAIs, for example including provisions governing the
appointment of the senior management, the mandate and the relations between the SAI and other key
institutional actors, such as the Parliament, the Government or the Judiciary. As SIGMA’s 2015 Baseline
Measurement Reports3
indicated, in the cases of BiH and Macedonia, where there is no constitutional
anchorage, this does not seem to have prejudiced the independent functioning of these SAIs so far, as
the operational and financial independence of the SAIs are adequately provided for in the specific SAI
laws which meet the expectations of international standards. Conversely, there are aspects of SAI laws in
other countries which are not in fully in line with the expectations of international standards, potentially
creating risks for the SAIs regarding independence, despite being anchored in the constitution.
An often-neglected additional requirement of the Lima Declaration is that adequate legal protection by a
Supreme Court against any interference with a Supreme Audit Institution’s independence and audit
mandate shall be guaranteed. Without sufficient and effectively functioning legal protection, the
constitutionally or legally-guaranteed independence risks being guaranteed only theoretically and not in
practice. In order to ensure that the legally-guaranteed independence is respected in practice by other
public stakeholders, there has to be a way for SAIs to request the legal examination of actions taken by
those stakeholders that the SAI considers are affecting its independence.
In this regard, it is interesting to look at the example of the Turkish Court of Accounts where an
amendment made to its Law by the National Assembly in 2012 negatively impacting its mandate was
overturned by the Constitutional Court as being unconstitutional. This shows the potential value and
benefit of the SAI’s independence and mandate being anchored in the constitution.
Areas to follow up:
 Are constitutional provisions defining SAI independence and mandates adequate?
 Do SAIs see the constitutional provisions as supporting their activities, or can they be a limitation?
3
SIGMA (2015), Baseline Measurement Reports, OECD Publishing, Paris.

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Derogations of the organisational law by other legislation/regulations/decisions
A way to constrain or limit the independence of SAIs could be to undermine certain aspects of
functioning through, for example, another piece of legislation or by a regulation/decision adopted by the
Executive. In response to the survey, two SAIs - SAI BiH and SAI Serbia - indicated that their
organisational laws had been partly overridden by other legislation or regulations adopted by the
Executive. In both cases the issues concern the laws and regulations related to salaries in the public
sector, which in the Serbian example provides for smaller salary coefficients than the Law on the SAI, and
in the BiH example regulations on vehicles, phones and other areas contradict certain articles of the
audit law
The above-mentioned cases bring up two distinct questions, one related to the legality of the decisions
that were taken and the other to the effect that they have on the organisational independence of the SAI
concerned.
In many jurisdictions, in principle, a law can always amend another law. However, as we understand it
this is not legally possible when a “lex specialis” (the SAI Law) is amended by a “lex generalis” (the Law
on Salaries). The first question that needs to be discussed is whether it is legally correct to adopt a law
that goes against regulations that were previously decided by an existing SAI Law. It may be an issue of
co-ordination and consistency between legislation. If it is accepted, there may be an increased risk that
further, more significant challenges to the SAI Law may arise at a later date. So the question is: what
legal action can the SAI take in order to get this question answered by the courts and does the SAI
ultimately have any legal protection when its independence is affected in one way or another? If it does
not, we cannot really consider that the SAI Law adequately protects the independence of the SAI.
The next question that needs to be asked is whether those derogations de facto unduly affect the
independence of the SAIs, or whether they just specify the limits of the Presidents’ or Auditor Generals’
independent decision making in matters of salaries and related areas.
It could be argued that these matters constrain the ability of SAIs to manage resources or attract staff
with the requisite skills and experience. However, SAIs must always consider that given their position as
an advocate for good governance, transparency and accountability, where the Government sets out
regulations to be followed in sensitive areas such as the use of vehicles, phones and hospitality SAIs
should be looking to apply them, so that they can be seen to be leading by example in the use of public
funds. It is worth noting that the situation in other jurisdictions varies in these areas, with some SAIs
required to follow the requirements laid down by the Government and others free to determine their
own policies.
As already noted, the derogations highlighted by the SAIs of BiH and Serbia both concerned the law and
regulations related to salaries in the public sector, and this raises an interesting issue about the
remuneration system the SAIs operate under and whether this impacts on SAI independence. In both the
Serbian and BiH cases, the SAIs operate under the remuneration system applicable to all public sector
employees. This is also the case in Kosovo4
and Montenegro, whilst the other SAIs have remuneration
systems that are independent of other public sector employees. For example, SAI Macedonia indicates
that the salary scheme is governed by the State Audit Law on the one hand and a collective agreement
between the institution and the unions on the other hand, and the Turkish Court of Accounts indicates
that the system is designed by reference to laws on the judiciary and prosecutors.
In terms of independence, the ISSAIs do not prescribe how the remuneration systems of SAIs should be
established to ensure that they have the necessary and reasonable human resources to fulfil their
mandate. The only direct reference is in ISSAI 1, which indicates that “To ensure auditing staff of
excellent quality, salaries shall be commensurate with the special requirements of such employment”.
4
This designation is without prejudice to positions on status, and is in line with United Nations Security Council Resolution
1244/99 and the Advisory Opinion of the International Court of Justice on Kosovo’s declaration of independence.

6. 6
In reality in many countries, even those with long-standing and well-established SAIs, the complete
autonomy of the public external audit does not exist. Public external auditors are public officials, often
civil servants, and as such do not enjoy a different status to other public servants, with remuneration
being established through the public sector systems. However, within these systems there are methods
for recognising the requirements of SAIs, for example through job weighting and special allowances.
In practical terms, it can be difficult for SAIs to be competitive in terms of recruitment in comparison to
the private sector, as salaries in the private sector can be higher and career development opportunities
more attractive. However, there can be other incentives in the public sector for SAI employees such as
job security, work/life balance and pension benefits. The challenge is increased where the disparities
between the remuneration in the public and private sectors are greater.
Conversely, there are jurisdictions where the remuneration system is not linked directly to the systems
for public sector employees, and where reference is taken of remuneration in the private sector in areas
such as the accounting and auditing professions. In terms of independence, this could imply a greater
degree of autonomy, although the impact of regulation under distinct legislation and through union
negotiation needs to be considered. Even in this situation, cognisance may be taken of remuneration in
the wider public sector as well.
Areas for follow-up:
 Have other SAIs experienced similar situations with other laws/regulations derogating the SAI law,
and how have those been handled?
 What kind of legal protection do SAIs of the Network have and how have those ever been
exercised?
 Are SAI staff external auditors working in a public sector environment, or are they public officials
practicing an audit profession?
 Does following the public sector remuneration system have any impact on the independence of
the SAI?
Other actions taken by the Executive or the Parliament undermining the statutory
independence of the SAI or constraining its statutory functions
Institutions in three countries indicated in the survey that they had been subject to other actions by the
executive or parliament which impacted their independence or constrained them in undertaking their
statutory responsibilities– BiH, Montenegro and Serbia. The other four countries – Albania, the former
Yugoslav Republic of Macedonia, Kosovo and Turkey – indicated that they had not faced any such
constraints.
The issue raised by the SAI Serbia concerns the establishment of its budget, which relates to financial
independence and is addressed later in the paper. The SAI Montenegro raised the issue of the Law on
Financing of Political Parties, which expanded its mandate to cover the audit of political parties,
impacting their ability to independently decide on the audits it undertakes and deliver its overall
mandate. The specific issues of mandatory audits impacting on the discretion of SAI and the auditing of
political parties which flow from this are addressed later in this paper.
The examples given by SAIBiH concern certain limitations to the audit work through legal texts ensuring
the confidentiality of certain data, an issue which could be expected to affect most SAIs to a greater or
lesser degree. SAIBiH indicated that access to classified information in security, police and defence
agencies, and areas such as witness protection programmes and special investigations by the
Prosecutor’s Office were constrained. They also identified that certain laws ensuring the confidentiality
of certain data impacted on the auditors’ ability to access information.
The ISSAIs indicate that SAIs should have adequate powers to obtain timely, unfettered, direct, and free
access to all the necessary documents and information, for the proper discharge of their statutory

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responsibilities. But there are legitimate questions to be raised about accessing classified/sensitive
information or documents relating to areas of national security. This is an issue often faced by public
auditors in many jurisdictions, with classified information protected by legal provisions being used by
authorities as an obstacle to audit work being performed.
The confidentiality of data for reasons of privacy or for business motives is not disputable as such, but it
cannot totally prevent a justified audit activity. Whilst there could be legitimate security concerns over
certain information/documents, the risk is that agencies may attempt to use legal restrictions on
sensitive and classified information to avoid audit for unrelated reasons. Legal restrictions should not be
a presumptive impediment to accessing sensitive information/documents, although they may present a
reasonable motive for not reporting publicly in some circumstances. Restrictions placed on the reporting
by SAIs on issues around national security, security services or other materials determined to be highly
classified may be appropriate and are not inconsistent with the ISSAIs. No matter the legal position there
is always a responsibility on a SAI to carefully consider the reporting of sensitive information worthy of
protection against the benefits of full public disclosure at the time in question. Public reporting may be
appropriate at a later date, when the information becomes less sensitive or the interests no longer need
to be protected.
The question for SAIs relates to the strategies they should employ to mitigate the need to justify to the
auditees their reasons for requesting certain information or documents and to minimise the restrictions
on accessing documents/information. A balance must be found between the interests protected by
confidentiality, be they private or public, and the need for a comprehensive coverage of the public sector
audit.
Areas to follow up:
 Do SAIs have agreed procedures for accessing sensitive or classified information?
 Do SAI staff undergo vetting and higher levels of security clearance if they are auditing sensitive
areas such as defence and national security?
 Do SAIs implement increased security procedures around audit documentation for sensitive areas?
 Have SAIs developed procedures for reporting on the outcomes of audit findings in respect of
sensitive/classified information, including delaying public reporting?
II. MANDATORY AUDITS AND THE AUDIT OF POLITICAL PARTIES
Annual mandatory audits and the impact on delivering the audit mandate
All but one of the surveyed SAIs are requested by the law to perform at least one mandatory audit per
year. This normally covers the audit of the execution of the budget or, more rarely, the state financial
statements. According to the questionnaire, only one SAI does not have such a requirement. The
performance of at least one yearly audit on the state budget is a requirement of the Lima Declaration.
There is no consequence on the independence of the SAI, in principle, as it is a legal requirement and the
minimum work to be expected.
However, two countries specifically highlighted issues relating to the broader questions of whether
mandatory audits can effectively undermine SAIs’ ability to deliver their overall audit mandates and the
discretion they should have in determining their programmes of work. SAI Montenegro highlighted
concerns regarding the impact of the mandatory requirement for it to audit political parties over a
specific threshold, and the SAIBiH the requirement for it to audit all institutions at the state level
annually, no matter the size.
It is not uncommon for SAIs to be required through their legislation to undertake certain mandatory
audits. In some jurisdictions, these mandatory obligations are significant but the SAIs are still able to

8. 8
plan, undertake and report on a broad programme of audit work and other engagements, which is
determined at their own discretion in line with the ISSAIs. Therefore, the legal requirement for certain
mandatory audits does not necessarily impinge on the discretion and independence of SAIs, and the
standards do not indicate this either. However, the risk is that if the mandatory requirements are very
significant in relation to the resources available this could effectively undermine the SAIs ability to
deliver its overall mandate. Conversely, it could also be a strong argument for additional resources.
There is nothing specific in the ISSAIs that mentions or prohibits the audit of political parties and election
campaigns highlighted by Montenegro as part of the mandate of a SAI. The ISSAIs are not restrictive in
stipulating entities to be included or excluded, and focus on enabling SAIs to follow all public money and
preventing restrictions being placed on SAIs in auditing of public funds, assets etc. For example, where
political parties receive public funds you could conclude that the auditing of their use of public funds
would be part of the SAI’s work. Even where entities do not receive public funds, parliaments may
consider it in the public interest for their audit to be included in the SAI mandate, and again there is
nothing in the ISSAIs that prohibits this. Within EU Member States, a number of SAIs have the right to
audit political parties, although it is worth noting that this is often done by the election commission or
other specifically-designated bodies and not the SAIs.
There is an argument that requiring SAIs to audit political parties does create some significant risks to
independence and reputation. It could undermine the relationship with the Parliament and there is also
a reputational risk faced by the SAI in the event of a financial scandal after the audit of a political party.
However, the most significant risk, as identified by SAI Montenegro, is that significant levels of limited
resources are diverted from the execution of the core programme of audit work, to undertake the audit
of political parties, preventing the fulfilment of the overall statutory mandate and undermining
independence.
However, in considering this the challenges are to determine what constitutes the successful delivery of
the audit mandate and establish the level at which the requirement for mandatory audits has
constrained the ability of the SAI to effectively use its discretion in delivering its overall mandate.
Areas for follow-up:
 Are there audits that SAIs should be undertaking annually or should full discretion be left to the
SAI?
 How far does the requirement to audit political parties undermine the independence of a SAI?
 How far can an effective risk based audit approach reduce the burden of mandatory audits?
III. FINANCIAL INDEPENDENCE
Independent establishment of the SAI budget (i.e. without interference from the Executive)
As recognised in the Lima Declaration, the independence of SAIs cannot be absolute, as it states that
“Although state institutions cannot be absolutely independent because they are part of the state as a
whole, Supreme Audit Institutions shall have the functional and organisational independence required to
accomplish their task.” It is important that the right balance is found between the government’s
considerations in setting the overall budget of the state and the principle of financial independence as
set out by the Lima and Mexico Declarations, namely that SAIs should be provided with the financial
means to enable them to accomplish their tasks.
All SAIs indicated unanimously that the legal provisions within their countries provide for the
independent establishment of their budgets through the relevant channel of their respective parliaments
without interference from the Executive. However, in practice institutions from three countries indicated
that the Ministry of Finance has had a role in setting their budgets.

9. 9
In the examples provided, the Ministry of Finance has played a role in either setting upper ceilings for the
budgets of institutions or has directly impacted budgets without respecting the role of the Parliament in
establishing the budget of the SAI.
In practical terms, the establishment of the SAI budget cannot be developed in complete isolation from
development of the overall state budget, and the budget guidelines or other annual instructions from
the Ministry of Finance. The budget of a public institution, no matter how independent it is supposed to
be, can hardly be in complete opposition to the general framework designed by the Ministry of Finance
for the next financial year. It would seem even more disputable in the case of the SAIs to see them
freeing themselves from the budget disciplines they are supposed to encourage their auditees to
respect. A SAI cannot ignore the financial constraints and fiscal position the government is operating
under in establishing its budget. For example, the recent financial crisis led to significant fiscal challenges
for the public sector in many countries, which led to budget restrictions and austerity measures for many
government institutions. In such a situation, as an advocate of good governance and sound financial
management, it is difficult to argue that the SAI should be exempt from the effects of such issues in
setting their budget.
The role of parliament and relevant committees is important in ensuring the establishment of an
independent budget for a SAI, and this process should be respected by all parties. In ensuring the process
is respected by all parties, such committees ensure the budget proposals of SAIs are critically appraised,
not just accepted, and ensure that they are appropriate in the circumstances. In this regard they should
be able to consider the advice of the Ministry of Finance in respect of the overall budgetary context.
SAIs need to be able to demonstrate that their budget proposals are well founded and how they will
provide value. In this regard demonstrating their value through effective accountability reporting is
important. SAIs should be looking to lead by example in submitting their budget proposals, considering
their environment, responding realistically and proactively.
Areas for follow-up:
 To what extent do the SAIs agree that the Ministry of Finance has a role in setting out the overall
framework for the budget and constraints that each institution must take into account?
 Is the role of parliament in setting the SAI budget respected or does the Ministry of Finance
exercise undue influence?
 Does the parliament or the relevant committee undertake appropriate deliberations over the SAI
budget, including taking evidence from the SAI?
Free management and allocation of resources by the SAI within its budget
All SAIs indicated that they are free to manage and allocate their resources as they see fit within their
budget, with the exception of SAIBiH. A fundamental principle of financial independence as articulated in
the standards is that SAIs should be able to manage their own budgets and use the funds allocated as
they see fit. The SAIBiH indicated that the Ministry of Finance not only sets its overall budget ceilings but
it also has to approve transfers across budget lines and to approve individual transactions that are
performed through the Single Treasury Account. Additionally, the allocation of funds to certain
transactions, such as hospitality, is limited by regulations established by the executive.
The form of the arrangements for the SAIBiH might undermine its independence, with the Ministry of
Finance exercising control over the institution that audits it. This might create a conflict for the delivery
of an independent audit and undermine the effective and efficient management of the SAI. In regard to
effective and efficient management, it might also be questionable as to whether the requirements meet
the objectives of sound public financial management. In terms of actual practice though an important
question is whether these arrangements have been used to prevent the SAI from managing its budget or
whether it is an administrative process which has not directly impacted on the ability of the SAI to
manage its funds. This should be considered in broader terms than just the financial independence of the

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SAI. It is also about the establishment of appropriate financial management and control arrangements
within the public sector and the effective delegation of budgets, which is something the Ministry of
Finance should be actively developing to meet the requirements of Chapter 32 of the acquis.
Areas for follow-up:
 Have any other SAIs ever experienced any constraints on using their allocated budget?
 Do SAIs face constraints such as the maximum staff numbers they can employ, or where they are
physically located?