Revaluating the State Auditing Law: An Urgent Requirement of International Integration

Revaluating the State Auditing Law: An Urgent Requirement of International Integration

This April, the International Monetary Fund (IMF) announced its suspension of loans to Vietnam within the Poverty Reduction and Growth Facility (PRGF) in the 2001-2004 period because Vietnam has yet to meet the IMF’s requirements on accounting and auditing activities of the State Bank of Vietnam. More precisely, for further disbursement, the IMF has asked Vietnam to perform independent auditing with activities relating to non-performing loans and budget expenditures of the State Bank of Vietnam to ensure transparency. However, according to the Law for the State Bank of Vietnam, only State auditors can perform this activity. This hurdle, together with other tricky requirements of international integration demonstrates shortcomings in the existing Ordinance on State Auditing. According to Professor and Dr. Vuong Dinh Hue, deputy of the State Auditing of Vietnam (SAV), after ten years of development, SAV has affirmed its role and position in the State in Vietnam. SAV has performed thousands of auditing cases on different scales, including national reserves, national defence and security and the Party economy, with a focus on settlement reports of ministries, agencies, provinces, centrally-run cities, State-run corporations, national target programmes and the State’s major capital construction works. SAV has helped the audited localities and units to review and assess their real financial situation, overcome shortcomings in economic management and business and production activities, preventing corruption, and innovating and perfecting their internal management and control system.

The achievements of SAV have affirmed the necessity to strengthen and develop State auditing as an indispensable instrument of the legitimate State for the examination and control of public finance in Vietnam. However, the practical reality reveals holes in the existing legal system on State auditing. According to experts, the history of formation and development of many countries in the world affirms that the effectiveness of activities of the State auditing agencies depends greatly on their legal position, functions and independence. Usually, the legal position of State auditing agencies is stipulated in the Constitution and more concrete issues about the activities of State auditing agencies are stipulated in the Law on State Auditing. However, Vietnam has yet to have any legal document stipulating the tasks and powers of the State auditing agency. The legal position of the SAV is only stipulated in the Government’s Decree, which does not express fully the functions and tasks of SAV as a State financial examination agency. Furthermore, the independence, power and limitations of State auditing, as well as other operational regulations have yet to be clarified. The function of State auditing is limited to auditing financial reports and compliance auditing. There has yet to be any adequate regulations concerning the examination and evaluation of economic features, effectiveness of management, and the use of financial resources and State assets.

Moreover, the existing regulations have many shortcomings. Some issues relating to State auditing activities have yet to be stipulated or are stipulated but in an unclear manner. These include the legal value of auditing reports, auditing principles and regulations of State auditing, the form and content of auditing reports, State agencies which are subject to State auditing and regulations on publicly announcing auditing results. This has reduced the effect and effectiveness of State auditing activities.              

Another important issue is that the existing regulations on State auditing have yet to meet all the requirements of international economic integration in the building of a healthy, open and transparent playing field. The integration process requires all organisations and units which manage and use State budget, funds and assets to be audited by SAV.

To address obstacles arising during auditing activities and to settle constraints in the existing legal system on State auditing, it is necessary for Vietnam to study, build and issue the Law on State Auditing to regulate the organisation and activities of State auditing more adequately and comprehensively in line with international requirements. To meet the demand, SAV has cooperated with the German Technical Cooperation Agency (GTZ) to build a draft law on State auditing based on a draft ordinance which was prepared from 1998, complying with the auditing standards of the International Organisation of Supreme Audit Institutions (INTOSAI) of the 1977 Lima Declaration. The project has been put into the agenda for law and ordinance building of the 11^th National Assembly in 2004 and is expected to be submitted to the National Assembly at its year-end session to be approved in a session in early 2005. So far, the draft law on State auditing has been drafted many times with inputs and comments from relevant agencies and ministries.

The draft law consists of six chapters with 40 articles. Chapter I consists of general provisions about the scope of application, auditing purposes, principles, the legal value of auditing reports, responsibilities of relevant agencies, units and organisations, and activities banned during the auditing procedures. Chapter II stipulates the entities to be audited. Chapter III clarifies auditing activities. Chapter IV stipulates the organisation, functions and powers of State auditing. Chapter V stipulates the conditions, standards and titles and responsibilities of State auditors. Chapter VI consists of provisions on implementation. With these contents, Tao Huu Phung, deputy director of the National Assembly Economic and Budget Committee, said that the building of a Law on State Auditing was necessary in order to institutionalise opinions and approaches of the Party and State by establishing a sure financial-monetary examination mechanism, ensuring national finance security and controlling capital sources, debt and debt payment, facilitating financial openness for international integration. The Law on State Auditing will become a useful tool for the State to examine and control public financial resources, especially the State budget when it comes into effect.   

State auditing should be embodied as an agency under the National Assembly - Professor and Dr. Tao Huu Phung, deputy director of the National Assembly Economic and Budget Committee

The Law on State Auditing should have comprehensive contents, objectives and scope. Therefore, the law should affirm that State auditing is the supreme agency performing public finance examination, evaluating the management and use of public financial resources of the State in all State agencies, units and organisations using State budget and assets. The identification of the legal position of State auditing agencies in the Law on State Auditing will be decisive, enabling the clarification of the functions, tasks and powers of the agency. State auditing should become an agency under the National Assembly for supervising and examining the legal obligations, helping the National Assembly and its agencies to supervise the management and use of State budget in State agencies, administrative and economic units, and social organisations. Furthermore, as the National Assembly is the most powerful body in implementing the functions of legislation, supervision and decisions of important issues of the country, State auditing will become a useful tool for the body in performing its State budget estimates, distribution and State budget settlement in a precise, honest and objective manner. With information from auditing activities, the National Assembly will supervise and propose regulations on the mechanism, policies and norms for budget expenditure and macro financial policies for socioeconomic development.      

More articles should be added to the draft Law on State Auditing - Ki-Jung Choi, deputy head of the Legislation Department, Auditing and Inspecting Committee of the Republic of Korea

In case that State assets and money of audited entities are damaged, there should be articles about the responsibility of State auditing. Even before auditing, State auditing should examine and settle cases in which State assets are damaged. There should also be a mechanism for regular record auditing and for receiving support and documents from agencies and individuals outside audited entities during the auditing process. Moreover, there should be a mechanism in which State auditing should be able to review results and to ensure independent auditing as well as regulations serving as a basis for necessary articles which can be assigned to sub-law documents.

The country’s situation should be taken into account while studying auditing laws in foreign countries - Vuong Thuong Tung, head of the Legislation Department of the China State Auditing Administration

At present, most countries in the world have built up their auditing mechanism. This is a common feature, but it should be noted that diversification is its outstanding feature. The auditing agency is a parliamentary organisation, whose structure differs from country to country, as there are auditing agencies acting as an auditing court, auditing agencies under the management of the government, and auditing agencies merging with inspecting agencies. Auditing agencies of each country must be in line with the political, economic and cultural features of the country. Vietnam should note these features when it builds the Law on Auditing.

The draft Law on State Auditing should comply with regulations of the Lima Declaration - Dr. Thomas Apelt, head of the department and member of German State Auditing

“My inputs and comments to the draft Law on State Auditing focus only on the compliance of the draft law’s regulations with the regulations provided in the Lima Declaration. The Lima Declaration on financial examination principles was adopted in 1977 at the ninth congress of INTOSAI in Lima. The declaration is a synthesis of basic principles on public financial examination.

Activities of State auditing should be carried out in line with the following principle: auditors involved in State auditing must not be dependent on audited agencies and must not let these agencies make them dependent. Therefore, paragraph 3 of Section 6 of the Lima Declaration must be met. Accordingly, in their professional careers, auditing staff of the Supreme Audit Institution must not be influenced by the audited organisations and must not be dependent on such organisations.

According to paragraph 2, Article 12, audited units have a right to petition and ask for a clarification of the contents in auditing reports. This is an important democratic principle, also stipulated in Germany’s Law. However, in the regulations on auditing procedures within the draft law this principle is not clear. Paragraph 2 of Section 17 in the Lima Declaration states that the Supreme Audit Institution should give due consideration to the points of view of the audited organisations. Should the idea be put into Article 12 of the draft Law on State Auditing?

The Government’s Decree 93/2003/ND-CP dated August 13, 2003, on the functions, tasks, powers and the organisation of State Auditing stipulates that State auditing is independent and must be in compliance with the law while performing its auditing tasks. Under the spirit of the Lima Declaration, this content should be added to the draft law on State auditing.

The draft law seems to say that State auditing will be a Governmental agency. If there is any chance that State auditing will become a parliamentary agency, some contents in the draft law should be considered for change. The State auditing agency’s sanction in implementation of auditing proposals is an example.

Based on a comparison with State auditing agencies in the world, I think that sanction powers of State auditing are closely related to its position in the State apparatus: the more executive orientations the State auditing agency has the more sanction powers it has. The closer to the National Assembly the agency is the weaker its sanction powers.  

• Hai Chi