Implementing the Pacific Regional Audit Initiative in Pacific Island Countries, Phase 1

Building the capacity of Pacific supreme audit institutions (SAIs) is fundamental to improving regional governance. Public auditing in the Pacific region overall has advanced substantially in the past decade. Numerous audit backlogs have been cleared, and both audit quality and the performance of almost all Pacific SAIs have improved. These gains have been made in the face of intimidating challenges. Sustaining such gains is difficult in smaller country settings because auditing in tight-knit social and cultural environments involves significant political, professional, and personal pressures. In addition, Pacific SAIs are at different stages of development and, for some, much more remains to be done to reach uniformly high standards.
2. In October 2005, Pacific Islands Forum1 (PIF) leaders endorsed for further study and analysis the Pacific Plan initiative 12.1, which included the Pacific Regional Audit Initiative (PRAI).2 The PRAI design was subsequently developed by the Pacific Association of Supreme Audit Institutions (PASAI),3 with support from the Asian Development Bank (ADB) and the Australian Agency for International Development (AusAID), under the coordination of the PIF Secretariat.4 The August 2008 PIF Leaders’ meeting endorsed the PRAI design. Following this endorsement, ADB, AusAID, and the International Organization of Supreme Audit Institutions (INTOSAI) Development Initiative supported the successful initial implementation and delivery of PRAI outputs from 2008 to 2010.5
3. The proposed regional capacity development technical assistance (TA) will support the continued implementation of the PRAI in Pacific island countries and has been developed in consultation with the PASAI secretariat and development partners.
 
To address these issues, the PRAI design was developed during a 2-year period of consultation with participating countries, development partners, regional organizations, and civil society. During the initial implementation period of the PRAI (2008–2010), progress has been made under each of the four project output areas as follows:
(i) Regional cooperation. Regional cooperation and coordination of audit activities between SAIs has been strengthened. A new PASAI Charter was developed and approved by the 12th Congress of PASAI in Palau in July 2009. In addition, as part of moving to the new strengthened institutional arrangements for PASAI, a governing board was established and membership was agreed at the 12th Congress. A small secretariat for PASAI was officially opened in January 2010.
(ii) Organizational capacity. Initiatives to enhance the organizational capacity of SAIs are ongoing. A PASAI Capacity Development Program was presented to the 12th PASAI Congress and endorsed for implementation. The INTOSAI Development Initiative is funding a staff position in the PASAI secretariat to implement the Capacity Development Program.
(iii) Technical ability. A cooperative performance audit has been undertaken in the Pacific region on the topic of waste management involving 10 PASAI members using a common methodology. In addition, the Subregional Audit Support (SAS) Program has completed its first phase. The program is using a unique model to deal with public auditing challenges by pooling resources on a subregional basis. The program is working to raise the quality of public auditing in Kiribati, Nauru, and Tuvalu through the establishment of a team of secondees from each of the participating countries, supported by specialist audit expertise. Through such initiatives, SAIs’ technical ability to undertake financial and performance audits is being strengthened.
(iv) Transparency and accountability. SAIs are now collectively advocating transparency and accountability. The first PASAI annual report on regional accountability and transparency issues (linked to PIF’s Eight Principles of Accountability) has been published.7 The report will become an annual.
 
Methodology and Key Activities
9. The TA will deliver the following outputs (and associated activities) during the remainder of the PRAI program period (2011–2013):
(i) Strengthened regional cooperation and coordination of audit activities among SAIs. The TA will support (i) the development of a strategy and plan for moving toward a common financial audit methodology; and (iii) the development of a rolling program for cooperative performance audits and peer reviews.
(ii) Enhanced organizational capacity of SAIs. One of the founding principles of the PRAI is that the appropriate involvement of private sector auditors in public sector auditing, under the auspices of SAI heads, will be supported and promoted.13 The TA will develop a generic model for contracting out and assuring the quality of audits completed by private sector auditors on behalf of the SAI. Guidelines will also be prepared on contract management and the engagement of specialists. The PASAI secretariat will provide direct advice to SAIs on negotiating and managing contracted-out audits.
Peer reviews are internationally accepted as an effective quality assurance tool. INTOSAI has developed peer review standards14 and peer reviews are required by the United States (US) Government Auditing Standards. Moreover, US insular areas in the Pacific have already successfully introduced a peer review program. Recognizing INTOSAI progress on peer review standards, the TA will work with SAIs to develop peer review guidelines and establish and support peer review teams. Moreover, the peer review process will help support institutional strengthening requirements and approaches.
(iii) Strengthened technical ability to undertake financial and performance audits. Cooperative audits involve multiple audit institutions working together on a single audit. They also enable high quality audit services to be delivered—particularly in specialist or complex areas—and support effective capacity development. The TA will support the completion of the Pacific region’s second cooperative performance audit using this approach.
The TA will also support the second phase of the SAS program for Kiribati, Nauru, and Tuvalu.15 The program’s objective is to enable the public accounts of these countries to be audited to uniformly high standards in a timely manner. The program will also strengthen in-country public financial management capacity and enhance accountability mechanisms.
Few SAIs are large enough to establish and sustain the in-house technical capacity that is necessary to respond effectively to the increasingly complex financial reporting and auditing environment. Recognizing the benefits of regional economies of scale, the TA will provide advice to SAIs on technical accounting and audit issues, and related issues, such as approaches to align governing legislation with INTOSAI’s Mexico Declaration on SAI Independence.16
(iv) Collective advocacy for transparency and accountability. In keeping with the PIF’s Eight Principles of Accountability,17 the PASAI secretariat, under the guidance of the PASAI governing board, will prepare and publish an annual report on the regional status of SAI independence, the progress in addressing audit findings, and an assessment