The survey of CSOs and media in 9 MENA countries found that while some access public financial information and interact with SAIs, there is limited understanding of complex financial matters and reporting on public finance issues. Access to SAI audit reports is average and interaction with SAIs is mainly to request reports. Both CSOs and media expressed strong interest in cooperating with SAIs and building knowledge on public financial management through training. Key steps identified to strengthen transparency, accountability and cooperation included improving access to information, building capacity, and facilitating knowledge sharing between SAIs, CSOs and media.

1. Towards Responsive & Inclusive
Financial Management Institutions
Governance Global Practice
Middle East & North Africa
Issue 3
September 2014
www.cvmena.org

2. CV MENA
2
Connecting Voices (CV) Middle East and North Africa (MENA) is a regional initiative and partnership that promotes governance and improved financial management practices in the public and private sectors. The ultimate aim is to support the demands of citizens throughout the Arab World for jobs, better governance, a voice in public affairs, and social and economic inclusion as reflected in the World Bank’s MENA Regional strategy.
CV MENA plans to seize on the windows of opportunity available in the region. It will support capacity building in the area of financial management, facilitate the development of a professional commu- nity, as well as the sharing and transfer of knowledge both within countries and within the region as a whole. CV MENA will help fos- ter greater transparency and accountability, thereby engendering enhanced public trust. In addition, building public and private sector financial management capacity will also help attract and provide comfort to much-needed foreign direct investment in the region.
CVMENA won the World Bank’s 2013 MENA Vice President Team Award
The Exchange is a major annual forum that provides a channel for dialogue, enabling countries to share experiences and promote societal-governmental consensus building. It fosters intra-regional cooperation and stimulates interest in improving public financial management and corporate financial reporting in MENA. The Exchange facilitates knowledge-sharing from transi- tional democracies and showcases successful experiences from fragile and conflict states. The Exchange starts where financial management diagnos- tics leaves off, that is, in supporting the creation of an enabling environment for reforms to move from concept to reality. It helps catalyze innovative activities to develop regional public goods and enables the World Bank to fulfill its mission as a “Solutions Bank.”
A Boot Camp is a practical concept. It involves gathering a group of deci- sion-makers and experts to address a particular issue through focused and intensive discussion that takes into account both technical and non- technical factors. After thoroughly examining the issue, the group develops possible solutions and a work program to help implement them. The experi- ence is documented in a Solutions Paper—a brief note describing how a specific challenge or problem is addressed in a collaborative and pragmatic fashion. The Boot Camps, together with the Solutions Lab and discussions in Maarefah (“knowledge” in Arabic), feed into the design of the Exchange and CV MENA’s workprogram.
In partnership with the Wold Bank’s Global Development and Learning Network (GDLN), CV MENA connects participants across the MENA region (once each quarter) in finding solutions on topics related to internal and external audit and corporate financial reporting. The Solutions Lab realizes that an answer is not necessarily the solution: a time-tested “best practice” may not be optimal in a particular situation because it may not be politically or socially feasible at the time. The Labs help our clients fashion an attaina- ble solution—an alternative answer to the problem—by bringing in other perspectives and different, yet relevant, experiences from other countries. The Labs also feed into the design of The Exchange.
Maarefah responds to the need to implement, sustain, and build on the results of The Exchange, as well as to extend these benefits to those unable to personally attend Boot Camps and Solutions Labs. Maarefah (“knowledge” in Arabic) is a Community of Practice (CoP) that serves as a forum for ongoing dialogue and continuous peer-to-peer and expert knowledge exchange. The CoP—established by the Financial Management Unit of the World Bank’s Middle East and North Africa Region in 2011 as a response to popular demand for change, accountability, transparency, and inclusiveness—is designed to serve as a robust base for extending the dia- logue and refocusing it on the needs of CV MENA.
www.cvmena.org cvmena@worldbank.org
Publisher: Governance Global Practcie, MENA, The World Bank
Managing Editor: Hisham Waly
Art Director: Denis Largeron
Artwork: Michael Gibbson (cover), Greg Johannesen (illustrations)
Contributing Photographers: Denis Largeron, Arne Hoel
Images: World Bank Images, Shutterstock
Note: The posts in the Connecting Voices magazine should not be reported as representing the views of The World Bank. The views expressed are those of the authors and do not necessarily represent those of the The World Bank or its policy.

3. Contents
3
THEMES
Public Financial
Management (PFM)
06 MENA Survey
Perception of PFM and SAIs
12 Audit & Controls
Key features
14 PFM Legislation
Basic elements
16 Extractive Industry
MENA PFM Study
Corporate Financial
Reporting (CFR)
22 MENA CFR Strategy
Opportunities & Challenges
26 CPAs
Expending Opportunities
28 Integrated Reporting
Interview: Robert Eccles
Harvard Business School
Governance (TAP)
32 Promoting TAP
Role of institutions
34 Service Delivery
Working together
35 Corruption
Can Audits fight it?
37 Procurement
Capacity Building in MENA
COUNTRIES
Maghreb
52 Morocco
Governance Reform
54 Tunisie (in FRENCH)
Entrevue: Nabil Abdellatif
Président de l’Ordre des Ex- perts Comptables
56 Morocco
Public Procurement Reform
59 Libya
PFM Reform
60 Maroc (in FRENCH)
Driss Jettou, Premier Prési- dent de la Cour des Comptes
Mashreq
66 Djibouti (in FRENCH)
Entrevue: Ilyas Dawaleh, Ministre de l'Economie et des Finances, charge de l'industrie et de la planification
68 Djibouti
Interview: Homa Fotouhi
Resident Representative
70 Lebanon
Interview: Fadi Fakih Executive Board Member, CMA
72 West Bank & Gaza
Accounting Profession and MSMEs
74 Egypt (EN/AR)
Interview: Hazem Hassan
Chairman of the ESAA
Gulf
80 UAE
Article: Bassel Nadim
CEO of The AAA
82 KSA
Interview: Ahmad Al- Meghames, Secretary-General of SOCPA
83 Kuwait
Interview: Bassam RAMADAN, Kuwait Country Manager
GENERAL
Events
86 Maarefah
Q1 and Q2 2014
87 Bootcamps
Q2 2014
Cross-Cutting
92 Books
This issue selection
97 Comic Relief
This issue selection
98 From Our Windows
Team POV
99 Our Team
Who’s Who
COVER STORY
Strengthening
Financial
Management
Institutions in MENA
38 MENA Overview
Institutions & Governance
45 The Exchange
Conference and beyond
46 PFM Institutions
Achieving results
48 CFR Institutions
Achieving results

4. 4
Editor’s Note
Hisham WALY
Practice Manager
Governance Global Practice / MENA
The World Bank
The tree trunks in the picture, are, well, just that — tree trunks. But to many, the mean- ingless angles take on a familiar appearance, that of two human faces in profile kissing. This is an example of a phenomenon known as Pareidolia. The term comes from the Greek words "para", meaning beyond, and "eidolon", meaning image. The World Eng- lish Online Dictionary defines Pareidolia as “the imagined perception of a pattern or meaning where it does not actually exist.”
Some of us have experienced this phenom- enon whether by seeing religious symbols in oddly-shaped vegetables or even rabbit- shaped clouds in the sky. Essentially, people draw what they believe to be significant information from obviously insignificant stimuli. Scientists provide numerous expla- nations for this phenomenon ranging from our evolutionary heritage, the brain’s infor- mation processing system, or simply being a product of people’s expectations, as report- ed by the BBC.
A byproduct of working for the World Bank is attending meetings —a lot of meetings— whether internal (with specialists from vari- ous sectors and backgrounds) or external (with government officials, civil society, media, the private sector, citizens, and do- nors). In some of these meetings, I have observed that some of us sometimes see a pattern in random data because of our yearning to find meaning in the complex world of development reform. For example, the passing of an access to information law (an excellent step) is usually interpreted as a commitment by the government for more transparency and better governance. How- ever, in some cases, the law is never imple- mented or, when implemented, does not lead to increased participation or accounta- bility (for example, due to the weak capacity of CSOs and legislators, or even the gov- ernment itself putting up obstacles to pre- vent its implementation). Another example is the issuance of a law stipulating the adop- tion of International Financial Reporting Standards (IFRS) by a country— only to real- ize later that, as the capacity of stakeholders and enforcement arrangements were not considered, the adoption of such standards remains theoretical.
The intent of governments in pursuing pub- lic financial management or corporate fi- nancial reporting reforms varies. In many cases, governments are genuinely pursuing reforms with commitment and ownership, while in some cases they are reacting to external pressure by sending what Matt Andrews describes in his book The Limits of Institutional Reform in Development as “signals” to garner external legitimacy. However, oftentimes these cannot be im- plemented and seldom provide real and sustainable solutions. In other cases, gov- ernments are trying to rehabilitate their image— for example, after a well-publicized corruption scandal— by responding to pres- sure from the media and public opinion or in an attempt to deal with fiscal and eco- nomic crises tighten controls over public spending and put into place arrangements for fiscal discipline and independent scruti- ny (Archon and De Renzio, 2013).
As a development institution and donor, we need to be clear sighted about the level of government commitment and ownership in order to better collaborate with internal and external partners. In the past, this was not always easy, given the way the World Bank was organizationally structured whereby professionals representing financial man- agement, procurement, public sector, anti- corruption, regulatory policy, social ac- countability, taxation, and information management were spread between many sectors and regions that did not always co- ordinate and exchange information— and, in some cases, even competed over budget and tasks.
As of July 1, 2014, the World Bank Group’s new structural organization into 14 global practices, with one Global Practice (GP) dedicated to Governance, aims to solve this fragmentation by bringing together all such professionals under one roof. The aim will be to better work together, exchange in- formation faster, build local and global knowledge that is adaptable to our clients’ circumstances, develop integrated and in- novative solutions to real problems, timely report on results to our stakeholders and better connect the dots to design realistic— not pareidolia-like— interventions.
The Governance GP consists of more than 800 professionals with a presence in more than 120 countries across the globe. This, we hope, will help unlock our knowledge and expertise to help achieve the World Bank Group’s two ambitious goals: reducing the number of people living on less than $1.25 a day to 3 percent by 2030 and pro- moting shared prosperity by fostering the income growth of the bottom 40 percent.
A new chapter begins.

5. 5
Public Financial Management

6. MENA Survey
6
Perceptions of Public Finance Transparency and the Value of Supreme Audit Institutions
Mona EL CHAMI
Senior Financial Management Special- ist, Governance Global Practice/MENA, The World Bank
Coincident with the Arab Spring, calls for more transparency, accountability, and participation have been intensifying. This encompasses among other things, public access to information, natural resource revenue transparency, and opening budgets to public scrutiny. It is evident that a well- functioning and independent Supreme Au- dit Institute (SAI) can be a vital means to public scrutiny. SAIs can audit what is done with public monies. However, without hav- ing these audits open to Parliaments— and to citizens— the Executive cannot be held accountable. In principle, SAIs contribute to sound public financial management (PFM) and good governance. This helps to ensure less wastage and better investment of pub- lic funds, thereby leading to economic growth and eventually poverty reduction. Therefore, SAIs should continue to improve their value and make their benefits visible for all concerned. To explore the perception of the quality of public financial transparen- cy and value of MENA countries’ SAIs, a MNAFM sponsored survey was undertaken on December 2013, including 47 Civil Socie- ty Organizations (CSOs), and 27 media organizations across 9 countries (Djibouti, Egypt, Iraq, Jordan, Lebanon, Morocco, Tunisia, the West Bank and Gaza, and Yem- en). The areas explored include whether CSOs have access to the necessary type of information about public finance, whether they are trained in financial management; how they deal with the SAI of their country; whether they read the SAI reports and how they assess them, etc. Moreover, the sur- vey explored these organizationsal views on ways to strengthen their interactions and relationships with SAIs for better coopera- tion, as well as for public benefit. The Sur- vey also queried the level of cooperation between such organizations and SAIs in holding the government accountable. Re- garding the media, the Survey explored whether media organizations have ever published anything about public finance transparency; whether their staff are quali- fied to write on such issues; and whether or not they were trained in financial man- agement. The Survey also examied what could be done to promote better report- ing; whether CSOs know about SAIs (in their country) and SAI roles/responsibilities; whether they deal with SAIs, whether they report about SAIs; and what, in their opin- ion, could be done to strengthen their rela- tionship with SAIs for better cooperation and the public benefit.
The results of the Survey will help to guide World Bank support, strengthen CSO capac- ity, and develop mechanisms to build or enhance the collaboration between SAIs, CSOs, and the media.
Key conclusions from analyzing the responses:
• There is difficulty in understanding complex financial matters and limited reporting on public finance issues mainly due to media inexperience in these matters
• Interaction with SAIs is mainly to request audit reports; likewise, there is limited awareness of the value and benefits provided by the SAI.
• Access to specific SAI audit reports and perception of their good quality is rated average; obstacles to reading audit reports are mainly in accessability.
• There is very limited reporting on SAI audit reports.
• There is a wide interest and need in building knowledge of public financial matters and audit reports.
• There is also a wide interest in coordinating with SAIs.
Key steps that could be taken are:
• Support governments in having access to information laws as already started in a number of MENA cuntries.
• Facilitate knowledge building and training for CSOs and media on public financial matters and audit reports. The 2013 Exchange in Abu-Dhabi is a good example.
• Support SAIs in in coordinating with CSOs and the media. This entails providing needed capacity building to SAIs on communication.
• Support SAIs in improving the quality of audits and audit reports.
• Raise awareness of the importance of having budget document and audit reports made public, and support initiatives to facilitate this.

7. MENA Survey
7
Public Finance Transparency
Civil Society Organizations (CSOs)
68% of CSO usually access public information: mostly government financial statements and budget documents
Most CSOs reported that enhancing capacity by attending conferences on public finances, facilitating training, having relevant documents made public, and providing help for CSOs in preparing their budgets are key steps toward improving focus on public finance issues.

8. MENA Survey
8
Public Finance Transparency
Media
37% of media have reported on public finanance transparency news, including mostly budget implementation reports and procurement and budget preparation news
Most media reported that enhancing capacity by attending conferences on public finances, facilitating training, recruiting experts, and having relevant documents made public are key steps to improving the reporting on public finance issues

9. MENA Survey
9
Interactions with SAIs
Civil Society Organizations (CSOs)
34% of CSOs reported that they interacte with SAIs, mostly to request information or audit reports
40% of CSOs reported that they had read SAI audit repors and around 74% rated them as good.
60% of CSOs reported that they had not read a SAI audit report and 39% reported that the key reason was that reports are not made public.

10. MENA Survey
10
Interactions with SAIs
Media
37% of media reported that they interact with SAIs, mostly to request information or audit reports
54% of media reported that they had read a SAI auit report and around 85% rated it as good.
46% of media reported that they had not read a SAI audit report and 36% reported that the key reason was that the reports were not made public.

11. MENA Survey
11
Interest in SAIs
Civil Society Organizations (CSOs)
Media
85% of CSOs are interested in cooperating with SAIs. Most find that workshops, and conferences are a better means for cooperation, in addition, forming joint coordination committees is also seen as useful.
88% of media are interested in cooperating with SAIs. Most find workshops and conferences are a better means for cooperation, in addition, they want to be provided with public financial information.
Did You Know?
500 day milestone: Millennium Development Goals
August 18, 2014 marks the 500 day milestone until the target date to achieve the Millennium Devel- opment Goals (MDGs), 8 goals established by the United Nations and governments around the world to tackle some of the world’s biggest problems.

12. Internal Control & Audit
12
Key Features of Internal Financial Control and Audit
Yngvild ARNESEN
Financial Management Specialist
Governance Global Practice/MENA
The World Bank
Internal Control Systems
Organizations, be they public or private, apply a variety of measures in their opera- tions to ensure that their objectives are met, that financial reporting is of required quality, and that rules and legislation are followed. Such measures include: expendi- ture controls to ensure compliance with the budget; segregation of responsabilities to lower the risk of error and fraud; proce- dures to ensure quality and timeliness of accounting and financial reporting; as well as information technology (IT) security pro- cedures. These measures comprise “inter- nal control” in accordance with the defini- tion in the COSO1 framework. Internal con- trol is the responsibility of the management of the organization, and is carried out by staff throughout the organization as part of their everyday work. It can also be auto- mated through IT systems. For example, when an employee in the Ministry of Water Resources checks whether works on irriga- tion systems are proceeding according to the agreed specifications and quality, it is considered part of the internal control framework of the ministry. A subset of in- ternal control measures are related to the financial management of the organiza- tion.Management is responsible for design- ing an internal control framework which is appropriate for the specific organization, although this may also include certain man- datory measures prescribed by the legal framework. In designing the internal control framework, it is important to take into ac- count the specific characteristics, opera- tions and risks of the organization. As- sessing risk entails considering the likeli- hood of events occurring that may hamper the operations of an organization and the achievement of its objectives. In addition, risk assessment entails examining what and how severe the consequences of such events would be. The internal control measures are designed to mitigate the identified risks. Embedded in this concept is the notion that there is no “one size fits all” solution. For example, a bank will have different risks than a ministry that spends significant amounts on the procurement of goods. The type of budget system chosen also has implications for internal control measures (see figure). In public sector con- texts where budgeting is characterized by a strong focus on inputs, annual orientation and centralization, the main focus of the internal control system is often on assuring compliance with rules and regulations and annual budget appropriations. In organiza- tions or countries where the budget is more concerned with the expected results of the use of the funds, it will often be relevant to include measures aimed at increasing the chances of goal achievement and effective- ness. It is important to note that a higher number of controls and checks does not necessarily equal better control. In some countries with poor governance, multiple layers of controls may in fact increase cor- ruption.2
1 The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is an independent private sector initiative formed in 1985 to study the factors that can lead to fraudulent financial reporting. COSO’s Internal Control – Integrated Frame- work from 1992 has gained wide acceptance, and was updated in 2013.
2 Daniel Tommasi: “The Budget Execution Process”, in Allen, R., Hemming, R. and Potter, B. H. (2013): The International Handbook of Public Financial Management.
In Their Own Words
"In the past year, membership in The IIA rose more than 100 percent in the Middle East. That's not only an astounding increase, it far and away outpaced anywhere else in the world. At the same time, we found that more than 65 percent of chief audit executives surveyed by The IIA are reporting both staffing and budget increases. What's more, internal audit staffing levels did not decrease at any Middle East company responding to our survey, and none of the internal audit groups experienced a budget cut in the past year ... In the past four years, in fact, there was a 278 percent increase in the number of Middle East auditors receiving the Certified Internal Auditor (CIA) or other professional designations from The IIA. Much of the CIA growth has been the direct result of the CIA exam being translated into Arabic."
Richard Chambers, President and CEO of The Institute of Internal Auditors (IIA). March 17, 2014
Figure 1: The Budget System and Internal Control
Source: Robert Gielisse, European Commission. Adapted from Jack Diamond (2013): Good Practice Note on Sequencing PFM Reform.

13. 13
Internal audit
An important component of the internal control framework is to monitor how the different internal control measures are functioning and whether they are having the intended effect. Internal audit plays a vital part in this monitoring process. It can have different organizational set-ups, but certain common principles apply.
The main objective of internal audit is to carry out independent and objective re- views and provide reasonable assurance that an organization’s operations are in compliance with rules and regulations, that financial reporting reflects the actual finan- cial position, and increasingly, that the or- ganization is achieving its objectives both efficiently and effectively.1 It also provides recommendations to management on cor- rective actions and improvement measures.
Internal audit can be distinguished from other internal control measures in that it mainly reviews after- the-fact, and that it is independent, — in other words that it is not involved in the operations itself. It should report directly to organizational manage- ment to ensure that important issues re- ceive top-level attention—without reports first having to be approved by the people who have been audited.
The potential scope of internal audit is wide, but an important task is to evaluate the internal control system. This entails a systematic analysis of the different measures put in place and their effective- ness. It is less concerned with testing indi- vidual transactions.
The Institute of Internal Auditors (IIA) has developed internationally-recognized standards for internal audit. They foresee an internal audit function which evolves from the testing of transactions to becom- ing management’s trusted advisor. This requires strong audit teams with a variety of skills.
Internal audit is distinct from external audit, which in the public sector is carried out by the supreme audit institution (SAI). Internal audit is carried out by staff within the or- ganization that is being audited (or in the public sector, sometimes by the Ministry of Finance). It reports to the management of the same organization. By contrast, the SAI is a separate organization with its own staff which reports to the Parliament and the public in addition to the audited entity. Therefore, it fulfills an important role in holding public officials accountable in the use of public funds. Internal audit is also distinct from financial inspectors in the public sector in that it does not solely carry out investigations into alleged mismanage- ment or violation of rules. Rather, it uses sampling and testing of the internal control systems to give overall statements to man- agement about compliance and financial reporting.
1 Jack Diamond: “Internal Control and Internal Audit”, in Allen, R., Hemming, R. and Potter, B. H. (2013): The International Handbook of Public Financial Management.
Figure 2: Internal Control and Internal Audit
Source: Pierre Messali, World Bank, presentation delivered at The Exchange confer- ence, Abu Dhabi, June 10-12, 2014.
Figure 3: The Change Challenge for Internal Audit
Source: Ross Fraser, presentation delivered at The Exchange conference, Abu Dhabi, June 10-12, 2014.

14. Legal & Regulatory Framework
14
Scoping and Unifying
Public Financial Management Legislation:
Basic Elements to Consider
Manuel VARGAS
Lead Financial Management Specialist, Governance Global Practice/MENA
The World Bank
As a number of countries in the Middle East and North Africa (MENA) region seek to consolidate and modernize their public financial management (PFM) legal and regulatory framework, some basic elements need to be addressed. The objective is to achieve strong, yet clear, PFM rules and the process includes assessing:
• The scope of a potential unified law;
• Coherence with the country’s constitu- tion;
• Identification of conflicting or redun- dant directives among the existing body of laws;
• A study of similar legislation in compa- rable country contexts (with caution); and
• Distinguishing the potential content of the new unified legislation from that of decrees and regulations.
A critical consideration in the design of a PFM Law is the imposition of limits, defini- tion of flexibilities, and the means to set, monitor and enforce regulations and stand- ards. Achieving the right balance between limits and flexibility is key to effective PFM legislation. The mechanisms to promote comprehensive information, transparency and accountability help to ensure flexibility and enforce limits. While studying the ex- perience of other countries is desirable, the impulse to either adopt a single model or assemble a set of “best practices”, - without due regard to the country contextual reali- ty, - should be avoided. With this caveat, international experience points to some basic elements normally found in modern PFM legislation.
Checks and balances in the budget system
• Roles, responsibilities and accountabil- ities between the executive and the legislative branches; and
• Main responsibilities of central agen- cies, particularly the Ministry of Fi- nance, spending ministries, and the cabinet.
Budget formulation, approval and adjust- ments
• Budget compliance with fiscal rules, if any;
• The comprehensiveness of the budget;
• The minimum content of: (i) the pre- budget statement (including link to me- dium-term frameworks); (ii) the budget project and supporting documents; and (iii) the budget law;
• The timeline of formulation, presenta- tion, discussion, and approval of the budget, and mechanisms for continuing operation when the budget project is
not approved before the start of the fis- cal year;
• The parameters within which the legis- lature can modify the budget project; and
• Authorities over supplements and ad- justments to the legislated budget dur- ing execution.
Budget execution and cash management
• Requirement for revenues to be consol- idated in a common fund;
• Treasury single account operation;
• Requirement for funds to be spent only by appropriation of the legislature;
• Financial and compliance controls at the commitment, verification (if applicable) and payment stages; and
• Parameters and controls for use of complementary execution periods and carryover of the capital expenditure budget.
Budget classification
Basis for classifying budget expenditures for formulation, approval, control, and report- ing.

15. 15
Accounting and financial reporting
• Provisions for public sector accounting standard-setting;
• Timeliness, content, and publication of in-year and annual budget execution re- ports, financial statements, and other fiscal information; and
• Legislative review of annual accounts (budget execution reports and audited financial statements).
Public debt
• Parameters, approval and management of debt (and guarantee) strategy and in- struments.
Special provisions
• Exceptional criteria for establishing, approving, and regulating the transpar- ency of extra-budgetary funds, if any;
• Arrangements for budget transfers to subnational governments (if applicable), and related reporting; and
• Arrangements for financial transactions with state enterprises, and related re- porting.
Transitional arrangements
• Transitional clauses/schedule to allow for phased implementation of certain provisions.
Regulations
• The means and authorities to regulate the law through decrees/regulations.
Other PFM laws
While external audit should be governed by a separate law concerning the independent supreme audit institution, care should be taken to ensure that PFM and audit legisla- tion are consistent. For example, this could be done by eliminating ambiguity between the role of internal and external audit, and ensuring compatibility of dates and proce- dures for production and publication of annual audited accounts.
In a similar fashion, the provisions of the public procurement and PFM legislation should be coherent.
Bibliography
IMF. 2010. Technical Note: Reforming Budget System Laws. Ian Lienert and Israel Fanboim, The World Bank. 1998. Public Expenditure Management Handbook
New Paper
This is PFM
Authors: Matt Andrews, Marco Cangiano, Neil Cole, Paolo de Renzio, Philipp Krause, and Renaud Seligmann
July 2014
Abstract:
The acronym PFM stands for Public Financial Management: But what is public financial management? This short note tries to de- mystify the concept, drawing on perspectives of specialists in the area who work in different contexts and bring different views (from academia, the multilateral and bilateral development agen- cies, think tanks, government, and civil society). The note is not meant to be prescriptive but rather offers an entry point to a fuller discussion on the constituent elements of PFM systems, how and why PFM reforms have emerged, and where the gaps are for fu- ture attention.

16. Extractive Industry
16
New MENA Extractive Industry Public Financial Management Study
Franck BESSETTE
Senior Financial Management Special- ist, GGP/MENA, The World Bank
The MENA Extractives Public Financial Management (PFM) Technical Practice (TP) launched a survey aimed at taking stock of the various ways in which re- source revenue generation (focusing on oil and gas resources) is currently con- nected to overall PFM systems of coun- tries in the Middle East and North Africa (MENA) region. Specifically, the survey examined connections in terms of the legal framework, transparency, accounta- bility, controls and oversight, integration of resource revenues in planning and budgeting practices, as well as Treasury operations and asset management. The scope encompassed issues of integrity of information as well as more general issues of budget management, institutional framework, and debt and asset manage- ment. The study is limited to the MENA region, and focused specifically on the those 11 countries in the region that are net hydrocarbon exporters, namely Alge- ria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates (UAE), and Yemen. Although Egypt and Morocco also have significant extractive industries (EI), the importance of the EI sector in these econ- omies is too limited to classify Egypt and Morocco as natural resource dependent.1 However, these countries could be added to the study at a later stage, if considered important for more comprehensive cover- age of the countries with significant re- source production in the MENA region. Syria is included in the list of resource- dependent countries, but will not be cov- ered by the study due to a complete ab- sence of recent data. In this context, it should also be noted that mining (primari- ly phosphates) comprises resource reve- nues in Morocco, whereas in the other MENA countries, resource revenues are based on oil and gas extraction.
Objectives of the Study
First, while the literature on governance of extractive industries and management of non-renewable resource revenues (RR) abounds, it is usually focused on general principles and good practices. However, it fails to bridge the gap vis-à-vis more re- gional and country-based knowledge that would be actionable in a specific context. Quite surprisingly, this is the case for the MENA region where country knowledge on Extractives PFM is scarce. It is either dispersed and has to be retrieved either from PFM sources— where the specifics of Extractives PFM are a secondary or minor concern (for instance in Public Ex- penditure and Financial Accountability [PEFA] reports) — or from Extractives sources which generally pay little atten- tion to budgetary systems. This study will help address this important gap. The sec- ond objective of the survey is to create a common pool of information that the Extractives PFM TP could later refine, update and expand upon, thereby provid- ing MENA GGP staff with opportunities for learning, as well as for enriching the coun- try-based policy dialogue on these issues.
Methodology
The methodology is based on a systematic review of the existing literature using an analytical framework especially developed in its initial version in a 2013 European Union (EU)/(IBF) note2. It is focused on links to the country’s PFM systems, and therefore does not cover policy decisions regarding rates of resource exploitation, fiscal regimes, growth and development, inequality and related issues of economic, social, environmental and fiscal policy. Rather, the focus is on the management systems and practices for the public finan- cial stocks and flows of each link in the value chain and the public institutions involved in or forming part of these sys- tems and practices. The institutions and practices typically involved are listed and grouped in tables 2 and 3 respectively. The systematic review has been captured in 11 country Resource Revenue Notes, which have been shared with relevant country-based Governance GP staff for validation, correction and additions. A report will summarize findings; identify issues and lessons, as well as potential for more in-depth country case studies or other possible follow-up.
Preliminary findings
The final report will be available in the coming months. Some preliminary themes can be outlined and are likely to be fur- ther explored, including:
• The quality of public expenditures is particularly important for MENA re- source-exporting countries because spending is substantially financed by temporary revenues from exhaustible resources. Many budget systems in MENA suffer from weaknesses, includ- ing the capacity to manage planning, al- location and effective control of budg- etary resources. Large increases in ex- penditures in recent years— facilitated by the resource price boom— have put additional pressures on the PFM sys- tems.
• In MENA, the availability of EI resources can reduce pressures for accountability and the drive for improvement in PFM and fiscal transparency.
• The Medium-Term Expenditure Frame- work (MTEF), when adapted to the cir- cumstances faced by MENA resource- rich countries, can provide an institu- tional framework for addressing medi- um- and long-term resource allocation issues. However, it has been notably underused in the region.
• Resource funds have been set up in Algeria, Bahrain, Iran, Kuwait, Libya, Oman and Qatar and their relationship with PFM systems will be discussed. Depending on its design, a resource fund may help or hinder the budget sys- tem in meeting its basic objectives.

17. 17
• It should be integrated within the budget process in a coherent manner to help maintain a unified control of fiscal policy. It also facilitates a consistent prioritiza- tion across government operations. In MENA, several resource funds have led to extra-budgetary spending, such as the Libyan Investment Authority.
• In a limited number of cases, such as Al- geria, governments have recently made efforts to better integrate their resource funds with budget systems and fiscal poli- cy frameworks, as well as to strengthen fiscal transparency.
1. According to the IMF (2007), a country is considered rich [rather than ‘dependent’] in hydrocarbons and/or mineral resources if it meets either of the following criteria: (i) an average share of hydrocarbon and/or mineral fiscal reve- nues in total fiscal revenue of at least 25 percent; or (ii) an average share of hydrocarbon and/or mineral export pro- ceeds in total export proceeds of at least 25 percent.
2. The analytical framework as well as data and preliminary analyses presented in this article can be found in Frans Ronsholt, World Bank Study on Existing PFM Frameworks in MENA Resource-Producing Countries: Inception Report, May 2014
Table 1. MENA Countries and Extractive Industry Characteristics
Country
Population 2011 (million)
GDP Per Capita- 2011 (PPP at 2005 USD)
Extractives Percentage Share of Total Exports (2011)
EI as Percentage Share of Total Government Revenue (2011)
Algeria
36.0
7,643
67%
98%
Bahrain
1.3
21,345
91%
76%
Egypt
82.5
5,547
38%
10%
Iran
74.8
10,462
50%
74%
Iraq
33.0
3,412
97%
99%
Kuwait
2.8
47,935
83%
93%
Libya
6.4
15,361
91%
86%*
Morocco
32.3
4,373
13%
..
Oman
2.8**
25,460**
..
83%*
Qatar
1.9
77,987
68%
73%
Saudi Arabia
28.1
21,430
90%
88%
Syria
21.9**
4,730**
..
34%*
UAE
4.6**
57,740**
..
73%*
Yemen
24.8
2,060
63%
89%
Notes: GCC= Gulf Cooperation Council; PPP= purchasing power parity; USD= United States dollars. Base info: RWI 2013 Country Profiles;
(*) IMF 2012 Figure 5, average for period 2001-2010. (**) The Economist: World in Figures 2012 Edition, 2009 figures.
Table 2. Institutions Typically Involved in Resource Revenue Management
National Government
Other Public Institutions
Citizens / Private Sector
Ministry of Extractive Sector; Ministry of Finance; Extractive Industry Regulatory Agency; Revenue Agency; Resource Fund; Government auditors and Legislature
Public Corporations in Extractive Industry sector, Central Bank and Sub-national government
Owners of natural resources (if not the state); Companies extracting, pro- cessing, selling natural resources; and Citizens as intended beneficiaries
Table 3. Management Systems and Practices Typically Involved in Resource Revenue Management
Legal Setting
Reporting
Compliance
Ownership of natural resources; Issue/sale/allocation of explora- tion and extraction rights and permits; Government participation in operations; Fiscal regimes; Utilization of resource revenues; Institutional roles, responsibility and authority.
Coverage, Quality, Level of detail, Frequency and
Distribution/publication
Safeguards, Quality assurance, Appeals, Audit, and Oversight
Box 1: Recent Initiatives to Strengthen Resource Revenue Management in Resource-rich Countries
The Extractive Industries Transparency Initiative (EITI) has developed standards for disclosure and reconciliation of what companies pay and what gov- ernments receive, that is, a distinct but crucial stage in the value chain. A set of requirements must be fulfilled for a country to become an EITI Candidate and to maintain that position. The standards include obligations for both the government and for the natural resource companies (NRCs) in a candidate country, and involve an independent institution as auditor or ‘reconciler’. Currently 39 countries implement the requirements, of which 23 are considered to be ‘EITI compliant’. An update of the EITI Standard and requirements was approved in May 2013.
The IMF in 2005 issued the first version of the Guide on Resource Revenue Transparency, which provides a comprehensive framework for assessing trans- parency and accountability across the whole value chain. The Guide on Resource Revenue Transparency is a companion document to the Fiscal Transpar- ency (FT) Code and Reports on the Observance of Standards and Codes (ROSC, and was re-issued in 2007 in connection with the revision of the FT Code and ROSC in the same year. It delineates 24 good practices, arranged under the same four headings as the FT Code. As the FT Code and ROSC are currently undergoing a revision, it would be expected that the Guide on Resource Revenue Transparency will be re-issued later in 2014.
The Revenue Watch Institute (RWI) promotes effective, transparent and accountable management of oil, gas and mineral resources for the public good. The RWI developed the Resource Governance Index (RGI) — formerly Revenue Watch Index — to measure government disclosure in the management of revenues from oil, gas and minerals extraction. It was first applied in 2009/10 in 41 countries. The second report on the RGI covers 58 countries and was released in May 2013. The Index is based on 50 indicators under four clusters with a total of 71 main survey questions plus additional information, resulting in 173 rated data entries per country. It is described by the RWI as largely a quantification of compliance with the good practices promoted by the IMF Guide on Resource Revenue Transparency.

18. 18
New Paper
In Their Own Words
Connecting Budgeting and Evaluation
The spending reviews conducted in the wake of the global financial crisis have mostly been "rough and ready" processes, and have not been informed by quality information on the effectiveness of existing programs. This is where evaluation comes in. Ministries of Finance increasingly understand that good spending reviews depend on the quality of the public expenditure analysis which underpins it, and that evaluation has a major role to play in helping to guide the identification of appropriate savings options. There is also a growing under- standing that evaluation has a pivotal role to play in perfor- mance budgeting, which is about the systematic use of per- formance information to improve the quality of budgeting and funding decisions. At the government-wide level, one of its most important objectives is to improve "allocative efficiency" – that is, to help ensure that limited resources are allocated to the areas which are going to deliver greatest benefits. The problem is that performance budgeting is often perceived as exclusively concerned with the use of performance indicators in budgeting. The result is that many OECD governments have packed budget documents with thousands of not necessarily pertinent performance indicators. They are then disappointed with the failure of these indicators to make much difference to budgetary decisions. The reason for this is that indicators alone often provide only partial information about the effec- tiveness and efficiency of expenditure. Most outcome indica- tors are heavily affected by so-called external factors. It is necessary in many cases to subject indicators to significant analysis in order to tease out the real performance story. Ex- pressed differently, assessing program effectiveness usually requires not only looking at the outcome indicators, but the use of tools such as impact evaluation and program logic anal- ysis. Performance budgeting is therefore increasingly being more correctly viewed as the systematic use in budgeting of performance information generally – not only of indicators, but of evaluation. Evaluation has been a "missing link" in the attempts to realize the performance budgeting goal of truly connecting performance and resource allocation decisions.
Tuesday, July 1, 2014, By: Dr. Marc Robinson
World Bank Group – Blogs
Making Progress on Foreign Aid
Abstract: Foreign aid is one of the most important policy tools that rich countries use for helping poor countries to improve population well-being and facilitate economic and institutional devel- opment. The empirical evidence on its benefits is mixed and has generated much controversy. This paper presents descriptive statistics which show that foreign aid to very poor countries accounts for very little of total global aid; reviews the evidence that foreign aid is often determined by the objectives of donor countries rather than the needs of recipient countries; argues that the evi- dence on the impact of aggregate foreign aid is hindered by problems of measurement and identi- fication, which are partly due to the heterogenous nature of aid; and discusses recent studies us- ing natural and randomized experiments to examine narrowed definitions of aid on more dis- aggregated outcomes.
Qian N. 2014. Making Progress on Foreign Aid. Annu. Rev. Econ. 3: Submitted. Doi:10.1146/annurev- economics-080614-115553

19. Annual Members’ Face-to-Face Meeting
November 26-28, 2014
Amman, Jordan
More info @ www.maarefah.net
MAAREFA

20. Excerpt
Revenue Administration: Administering Revenues from Natural Resources
Natural Resources revenues, which are substantial in many countries, have major macro-fiscal rele- vance. In 2011, these revenues accounted for over 50 percent of government revenues in petroleum- rich countries, and approximately 20 percent in mining-producing countries and countries with both mining and petroleum extraction industries (Figure 1). The importance of—and dependence on—the NR sector is higher in developing countries. Indeed, the concentration of revenues in the oil sector can reach levels of 80 percent or more in countries like Angola, the Republic of Congo, Equatorial Guinea, and Nigeria. Moreover, future trends look optimistic in terms of reserves, with significant NR potential estimated for certain regions, in particular sub-Saharan Africa (World Bank, 2011). This is a remarkable opportunity to foster development and reduce poverty, but it comes with significant challenges for many low-income countries.
International Monetary Fund
Fiscal Affairs Department
Revenue Administration: Administering Revenues from Natural Resources—A Short Primer
Prepared by Andrea Lemgruber and Scott Shelton
April 2014

21. 21
Corporate Financial Reporting

22. CFR Strategy
22
A Strategy for Corporate Financial
Reporting in MENA:
Addressing Opportunities and Challenges
Gabriella KUSZ Senior Financial Management Specialist Governance Global Practice, MENA
The World Bank
Economic growth, job creation, financial sector development, and sound governance all rest on a country’s Corporate Financial Reporting (CFR) environment. CFR refers to the broad spectrum of cross-cutting areas which include the following:
• The existence of a sound legal and regu- latory framework to facilitate high- quality financial reporting with due re- gard to international standards and good practices. It should be suitable to different environments, such as financial sector and capital market players, small- and medium-size enterprises, and state- owned enterprises;
• Design and implementation of educa- tional programs, inclusive of youth and women professionals, to prepare them to undertake roles in the financial re- porting process;
• Building of sufficient human capacity within organizations to produce finan- cial information;
• Advancement of firms which provide external accounting and auditing ser- vices for these organizations;
• Strengthening of regulators and gov- ernment entities which oversee the production and use of financial infor- mation; and
• Awareness among end users that rely on this information in making economic de- cisions.
In the private sector, CFR activities are strongly aligned with World Bank strategy. Specifically, Bank strategy seeks to increase transparency, foster market confidence, and enhance the effective management of pub- lic resources. It also aims to further country stability, economic development and social progress. Additionally, credible and reliable financial information builds investor confi- dence, furthers sound economic and finan- cial management and increases the attrac- tiveness of a country’s investment climate. In doing so, it facilitates foreign direct in- vestment (FDI) and business development.
Whereas strong CFR and improved financial reporting contribute to financial sector sta- bility, a lack of strong accountancy and poor quality financial information limit effective supervision of companies, banks, insurance companies and other financial institutions. Therefore, weak CFR increases the vulnera- bility of a country to instances of fraud and potential financial crisis.
Finally, high quality financial information is not only vital for FDI and financial stability, but also for the growth of small and medi- um enterprises (SMEs). In developing and emerging countries, these entities may comprise more than three‐quarters of a country’s gross domestic product (GDP) and total employment. Like their larger coun- terparts, SME businesses require high- quality financial information to support business planning, facilitate access to credit, and expand operations and employment, thereby contributing to economic growth.
In the public sector, CFR and the develop- ment of competent and capable accounting professionals benefits not only private sec- tor employers, but government as well. Specifically, CFR can offer governments better educated and skilled candidates knowledgeable in key areas, such as budget preparation, financial oversight and audit. Well-skilled professionals are better able to produce high-quality financial information. Such information can then be relied upon by the government in making decisions related to the allocation of resources, over- sight and evaluation of the use of public funds and future financial decision making.
Additionally, production of high-quality financial information by the private sector offers government better data and greater insight into the growth and development of the economy, which may aid in the creation of better policies to guide and enable eco- nomic growth. Finally, competent and ca- pable accountancy professionals are better able to assist and provide support in the correct preparation of tax return state- ments, and may contribute directly to in- creased tax revenue collection by the state.

23. CFR Strategy
23
When appropriately supported and devel- oped, a country’s corporate financial report- ing environment has the potential to pro- vide high-skilled accountancy professionals and similarly high-quality financial infor- mation. These are two inputs necessary for public and private sector development and the achievement of the dual goals of the World Bank, namely: ending extreme pov- erty and promoting “shared prosperity”. Although this is the ideal, and significant reforms have been made throughout the MENA region with regard to CFR environ- ments in recent years, there are still areas for improvement.
In assessing the degree of need for strengthening CFR, MNAFM undertook a SWOT (Strengths, Weaknesses, Opportuni- ties, and Threats) assessment. Key challeng- es identified through this exercise included the lack of understanding /awareness of the role of CFR in the economy, as well as the importance of utilizing government support to strengthen this aspect of the economy. This is compounded by the lack of willing- ness on the part of some governments to support CFR development and embrace financial sector initiatives which may benefit the broader economy.
Additionally, throughout MENA countries, serious deficiencies exist with regard to:
(i) the clarity and modernity of accounting and auditing legislation and regula- tions;
(ii) the degree of alignment of university accounting education and Professional Accounting Organization (PAO) certifi- cation programs with International Ed- ucation Standards (IES);
(iii) the capacity of PAOs to undertake core functions;
(iv) the level of organization and operation of systems involving investigation and discipline of accountants and auditors; and
(v) the lack of systems of quality assurance over the audit profession.
Challenges were also seen in the poor gen- der balance within the MENA region ac- countancy fields, including accounting, au- diting, and financial management. Such an imbalance harms the diversity and ability of national CFR environments to develop in- clusively.
Finally, an over-emphasis on professional accountants and auditors ( 1 - 5 percent of the profession) without due regard for vo- cational and technical training in the area of accountancy— which may be more relevant to the whole of regional CFR environ- ments— presents a challenge to developing a full and multi-faceted profession.
In recognition of the powerful role that CFR can play in the development of the MENA region and in light of the need for the strengthening of CFR environments, the World Bank’s MENA Regional Financial Management Unit (MNAFM) embraces a vision of strong CFR institutions in the public and private sectors of our client countries. Such institutions can promote financial transparency and economic development.
SWOT Analysis
Strengths
Weaknesses
• Serious interest in alignment with international standards and good practices in MENA region.
• Positive history of World Bank engagement in the MENA re- gion.
• Strong regional unification of Gulf countries.
• Common languages: Arabic among Gulf / Levant countries, and French among the Maghreb countries / Djibouti.
• Lack of awareness of CFR role in economy, in some countries.
• Some government willingness to strongly support CFR reform.
• Deficiencies in the CFR environment structure and function.
• Politics of CFR reform and professional accountancy organiza- tion (PAO) development.
• Low gender balance in accountancy profession /CFR environ- ments.
• Over-emphasis on ‘Professionals;’ not enough emphasis on developing strong tier of accounting ‘Technicians.’
Opportunities
Threats
• Political transition could lead to financial transparency.
• Strengthened political expression could lead to strengthened private sector development.
• Re-branding of CFR for region.
• CFR as a tool for further private sector development / em- ployment generation for the region.
• Strong link between public financial management and CFR.
• International interest and engagement in the region.
• Expansion of interest in Islamic finance.
• Potential for using Reimbursable Advisory Services (RAS) to provide targeted technical assistance as requested.
• Further development of regional organizations.
• Fiscal pressure faced by some MENA countries may hinder advancement and funding of the CFR agenda.
• Sustainability of some reforms undertaken given changing political environments.
• Limitations in ability to travel / engage with counterparts due to limited access / security.
• General decreases in funding.
Source: World Bank, Middle East and North Africa Financial Management Unit, 2014.

24. CFR Strategy
24
To achieve this vision, the MNAFM Unit has developed a Vision and Work Plan. Five key strategic goals have been identified which will guide the unit’s activities in promoting CFR reform and development. They include the following:
STRATEGIC GOALS
#1
Raise awareness of CFR, specifically its role in ad- vancing transparency and accountability and its impact on economic and social development.
Presently the MENA region maintains a low level of understanding of the importance of CFR, and of the role of government and pri- vate sector in furthering this area. Additional efforts are needed to increase comprehension of the role of CFR, its function in promot- ing transparency and accountability, and its link to strengthening job creation, economic development, shared prosperity and politi- cal, and social stability. This includes looking internally within the Bank and ensuring that MNAFM CFR Staff are knowledgeable about the subject, and that they are actively speaking with Country Direc- tors and other World Bank leaders to raise awareness.
#2 Strengthen the legal and regulatory framework and government institutions supporting CFR de- velopment.
Weak and/or misaligned legal and regulatory frameworks threaten not only the development of the financial sector and accountancy environment, but also the further development of the private sec- tor and overall economy. Therefore, strengthening this area— in- cluding the implementation of legislation and regulations, and the institutions which seek to support it— will provide a sound founda- tion for further development efforts.
#3 Strengthen national and regional professional ac- countancy organizational development and ca- pacity.
Strengthening the capacity of PAOs will enhance their ability to undertake core functions in the areas of education, investigation, discipline and quality assurance — all areas of serious deficiency for the region. Additionally, they will be able to better:
(i) promote the adoption and implementation of international standards and good practices;
(ii) address and prepare professionals for emerging issues in the profession such as integrated reporting and Islamic Finance; and
(iii) facilitate the positioning of professional accountants as advisors to their SME sectors.
#4
Strengthen accountancy education and contrib- ute to building the capacity of university and ed- ucational institutions in this area.
Strengthening educational programs (including programs of life- long learning) and the institutions which provide access to learning and knowledge on the subject of accountancy is an important step in creating a competent and capable accountancy workforce.
#5
Improve diversity of participation in corporate financial reporting.
In recognition of the challenges facing the region in the areas of women and youth unemployment, efforts will be undertaken to ensure that CFR technical assistance and support is provided in a manner which addresses such groups.

25. CFR Strategy
25
The following chart and focus areas illustrate how the CFR agenda may be furthered throughout the region during the 2015 fiscal year. Forthcoming efforts will be designed to align with the World Bank strategy to end poverty and promote shared prosperity. Related activi- ties will be supported not only by MNAFM staff, but as needed, by individuals and consulting firms, volunteers and public-private partners to ensure proper implementation.

26. CPAs
26
CPAs: Expanding Opportunities
in the Global Marketplace
Yasmine EL-RAMLY
CPA/CITP, American Institute of Certi- fied Public Accountants (AICPA)
Certified Public Accountants (CPAs) around the world are increasingly being called upon to provide a variety of services in the global marketplace. It’s really no surprise. No mat- ter what size the organization, more and more businesses are looking outside of their own country and across borders to expand their prospects. To better assess this thriv- ing practice area, the American Institute of CPAs Private Companies Practice Section (PCPS) polled member accounting firms regarding their international services, as well as the degree to which they are work- ing in a cross-border manner. The results depict an increasingly globalized world and significant opportunities for accounting professionals throughout the Middle East and North Africa (MENA) region and the world.
Insight from the American Case
Taking the American case as an example, 64 percent of U.S. small companies sold mer- chandise or services to a customer outside of the United States in 2013, up from 52 percent in 2010 (according to the National Small Business Association (NSBA) 2013 Small Business Exporting Survey (available at tinyurl.com/owul3m8). Even more compel- ling, 63 percent of non-exporting companies said that they would be interested in selling to a foreign client in the future, if their con- cerns about exporting could be addressed. The trend toward greater globalization is likely to continue, as more than 70 percent of the world’s purchasing power is located outside of the United States, according to U.S. Department of Commerce data. In the US, CPA firms, regardless of their size, are finding international services to be a grow- ing business, as results of the PCPS survey show. The survey was designed to gauge practitioner interest in expanding to new markets and acquiring an international cli- entele. Firms also expressed their top inter- national challenges and needs.Half of sole practitioners and 71 percent of small firms polled forecast international growth. By comparison, among the largest firms re- sponding to the survey, 97 percent expected these services to grow.
Despite a notable interest in international matters, 19 percent of survey respondents were not currently offering international services. Of that group, a little more than one-third (35 percent) had no plans to offer international services during the next five years.
Top Countries for Future Service Growth
Of the largest firms, 69 percent were look- ing to China, followed by 58 percent to Can- ada and 53 percent to Mexico. Among sole practitioners, India (30 percent) came in second after Canada (40 percent), followed by Mexico (20 percent), and China, Brazil, and Australia (each at 10 percent). When the PCPS survey asked practitioners in which other countries they expected to see growth, their answers covered a number of locations in Africa, Asia, Europe, and South America. Among PCPS members who were not offering international services but planned to do so within the next five years, the largest overall average percentage (37 percent) thought they would be most likely to serve subsidiaries of international com- panies located in the United States. Another 27 percent overall expected to work with U.S. citizens working outside of the country, and 25 percent anticipated working with multinationals based in the US.
In Demand
What emerges from the survey data is that CPA firms of all sizes are tapping into the many opportunities offered in the interna- tional market, - and that their services are in demand around the world.
Exhibit 1
Top Five Challenges in Providing International Services
An American Institute of CPAs Private Companies Practice Section (PCPS) asked CPAs about the greatest hurdles to offering international services. Their answers can be found in Table 1, and are disaggregated by firm size.
Table 1: Challenges in Providing International Services
Sole practitioners
2-to-10 CPAs
11-to-75 CPAs
75+ CPAs
Developing the expertise needed
Complying with international regulations
Marketing services
Marketing/forging alliances
Marketing services
Marketing services
Investing in people
Exploiting information tech- nology (IT) developments
Forging alliances
Forging alliances
Compliance with international regulations
Investing in people
Exploiting IT developments
Investing in people
Forging alliances
Source: American Institute of CPAs Private Companies Practice Section (PCPS).

27. 27
Exhibit 2
Top Countries for Future Service Growth
Where did U.S. CPAs expect to see the most demand for their services? The top replies are as follows:
Table 2: Expected Demand for CPA Services: Top Countries
Country
Percentage
Canada
54.3
China
44.5
Mexico
33.5
India
26.2
Brazil
24.4
Australia
15.9
Source: American Institute of CPAs Private Companies Practice Section (PCPS).
Implications for Public Accountancy Organizations in the MENA Region and Beyond
The US case offers some interesting perspectives for Profession- al Accountancy Organizations (PAOs) operating in the MENA region and beyond. Understanding the degree to which firms of all sizes are engaging internationally in the provision of cross- border services provides a strong input into the development of services and support which a PAO can provide to its members. Additionally, such input can provide useful information to the development of Continuous Professional Development (CPD) offerings, which may be more tailored to the upcoming needs of PAO members. Such offerings may therefore better prepare them to provide high-quality services in other countries. Finally, such perspective on the degree of international engagement of member firms provides helpful direction to the PAO’s own in- ternational engagement and relations.
Yasmine El-Ramly, CPA/CITP, is a senior technical manager with the AICPA Firm Services & Global Alliances team. She supports practitioners in CPA firms, creates resources that address their top concerns through the Private Companies Practice Section (PCPS), and builds a more inclusive environment with the help of the AICPA Women’s Initiatives Executive Committee.
CGAP Photo-Contest
For more information, including the contest rules, please visit: https://photocontest.cgap.org/cgap

28. Integrated Reporting
28
Interview
Professor Robert G. ECCLES
Harvard Business School
Interview conducted by Rama KRISHNAN VENKATESWARAN, Lead Financial Manage- ment Specialist, Governance Global Prac- tice, MENA, The World Bank
Connecting Voices (CV MENA): The con- cept of Integrated Reporting (<IR>) is in- creasingly gaining attention in the corpo- rate world. Why do you think that compa- nies need to prepare integrated reports rather than common size financial state- ments?
Robert Eccles (RE): The fundamental reason is that companies and their shareholders are increasingly recognizing the role of all six capitals in “The International <IR> Framework” (<IR> Framework) developed by the International Integrated Reporting Council (IIRC) play in creating value. Tradi- tional financial statements do a good job of presenting how a company has used finan- cial and manufactured capital since both are captured on the income statement and balance sheet. The intangible assets of hu- man, intellectual, and social and relation- ship capital are not. Nor is the true cost of natural resources and the negative external- ities companies create on these intangible assets and natural capital reflected. The Carbon Disclosure Project (CDP) has played a leadership role in natural capital, first with a focus on greenhouse gas emissions and more recently on water and forests. Failure to account for all forms of capital will inhibit a company’s ability to create value over the long term and will put its social license to operate at risk.
CV MENA: The <IR> Framework emphasiz- es the importance of “integrated thinking.” Just what is this and how is it related to integrated reporting?
RE: Integrated thinking is about ensuring that everyone in the organization takes account of the organization’s use of and impacts on all six capitals in the short, me- dium, and long term. Integrated thinking means that managers look beyond the silos of their responsibilities to understand how their decisions affect and are affected by the decisions of others in their organization. Integrated reporting drives integrated think- ing. In fact, the most immediate benefits of integrated reporting are internal ones— better decisions by managers and greater engagement by employees who want to know how a company is producing its finan- cial results.
CV MENA: The concept of “sustainability reporting” has been around for some time now. How is <IR> different from Sustaina- ble Reporting?
RE: Sustainability reporting, under the lead- ership of the Global Reporting Initiative (GRI), came about through the recognition that civil society, typically through the voice of non-governmental organizations (NGOs) representing various stakeholder interests, deserves the right to information on a com- pany’s performance on issues that matter to them. <IR> is focused on “providers of fi- nancial capital” and any others who want a holistic view of a company’s performance. Integrated reporting should not and will not lessen the importance of sustainability re- porting. While the interests of investors and stakeholders overlap, they are not identical. Stakeholders can also be the early warning system that identifies issues that aren’t important to shareholders, but that might be in the future.
CV MENA: As a layman, I understand that the concept of <IR> goes much beyond the realm of accounting and reporting and should be seen as a core governance tool. Can you please explain why <IR> is im- portant from a governance perspective?
RE: The <IR> Framework emphasizes the importance of looking at how a company is creating value over the short, medium, and long term. Too many companies today are focused on the short term at the sacrifice of the medium and long term. Time frames determine which stakeholdersare important to a company. Today, especially in the An- glo-Saxon world, there is this false belief that boards have a fiduciary obligation to put shareholder interests first. This is simply not true as a point of law. Boards represent the interests of the corporation which has its own identity. In representing their fidu- ciary interest to the corporation, the board decides which stakeholders—or audienc- es—matter and over what time frames. They should do so by issuing an annual “Statement of Significant Audiences and Materiality (Statement).” This Statement, which is the board’s view on the role of the corporation in society, provides high-level guidance for what should be in the compa- ny’s integrated report. In turn, the integrat- ed report is a key process and mechanism for ensuring the implementation of the Statement.
CV MENA: What is the concept of “materi- ality” in the context of <IR>? Why is this concept important and what is the latest thinking on it?
RE: I have already referred to materiality in the context of the Statement. Materiality is at the heart of reporting. Its origins are in financial reporting and have been extended to sustainability and integrated reporting. Definitions and guidance on materiality have all been high-level and general, which is appropriate. Materiality is an entity- specific notion. It cannot be determined by algorithms. It depends on what audiences the board deems are significant, the sec- tor(s) in which the company competes, and its particular strategy. The Sustainability Accounting Standards Board (SASB) pro- vides sector-specific guidance on materiality which companies can adopt to their particu- lar circumstances.
CV MENA: What is the role of the Sustain- ability Accounting Standards Board? How does it relate to the existing accounting- standard setters globally?
RE: The SASB’s mission is to ensure that so- called nonfinancial (e.g., environmental, social, and governance [ESG}) information is reported to the same degree of comparabil- ity and quality as financial information.

29. 29
The SASB recognizes that the material ESG factors vary by industry and is therefore taking a sector approach—10 sectors subdi- vided into 80-some industries. The SASB has made rigorous and disciplined progress to determine the small number of ESG issues that are relevant to investors for each in- dustry and what the appropriate metric is for reporting on them. Right now, the SASB is focused on disclosures covered by the US Securities and Exchange Commissioin (SEC) Regulation S-K which applies to all firms with a U.S. stock exchange listing. Domestic corporations are required to file, among other things, the Form 10-K; foreign regis- trants file the form 20-F. The SASB is now in the process of determining how its stand- ards can be adopted by other countries with the intent of making them as comparable as possible, while at the same time still recog- nizing local differences
CV MENA: Is the concept of <IR> relevant to the public sector? If so, how?
RE: It most certainly can be. In fact, the IIRC is organizing a public sector working group to explore this specific topic. Public sector organizations, including the hybrid public sector/private sector listed state-owned enterprises (SOEs) also use the six capitals in performing their roles and they should ac- count for this. The big difference is one of audience. Unless the governmental organi- zation is a listed SOE, shareholders are not a relevant audience. Instead, the audience is the broader public and the specific ele- ments the public sector organization aims to serve.
CV MENA: What do you see as the role of international organizations such as the World Bank in developing <IR>? Which international organizations are currently involved in the development and dissemi- nation of <IR>?
RE: The World Bank has a critical role to play in helping to spread the adoption of integrated reporting. For starters, the Bank can produce its own integrated reporting and I know that it is working on doing so. This will give it the “moral high ground” to encourage the adoption of integrated re- porting by its clients which are public sector organizations and SOEs. Another interna- tional organization interested in supporting the development of integrated reporting is the International Accounting Standards Board (IASB). The European Union is also following the development of integrated reporting with interest.
CV MENA: Your book, One Report, intro- duced the world to the concept of <IR> in a systematic way. I understand that you are in the process of publishing your second book on the subject. Can you please tell us the key areas of focus in your upcoming book?
RE: My next book, The Integrated Reporting Movement: Meaning, Momentum, Motives, and Materiality, examines what has hap- pened since my first book was published and makes recommendations on what should be done now. While the first book was largely a conceptual one due to the early stages of the integrated reporting movement four years ago, the current one is based on a substantial amount of empiri- cal analysis— including the evaluation of the quality of 124 integrated reports, the corpo- rate reporting websites of the largest 500 companies in the world by revenues, and 91 materiality matrices. This book also intro- duces two ideas. One, already mentioned is the “Statement of Significant Audiences and Materiality.” The other, which builds on the idea of a “materiality matrix,” (first intro- duced about 10 years ago at the same time as integrated reporting, although as an in- dependent idea at that time) is the “Sus- tainable Value Matrix.” It is a management tool for implementing the principles estab- lished in the Statement which guides report- ing, engagement, resource allocation, and innovation. Finally, the book has a chapter devoted to information technology (IT) which discusses the important role IT can play in furthering the development of inte- grated reporting and integrated thinking.
CV MENA: How should companies go about transitioning from traditional finan- cial reporting to Integrated Reporting?
RE: This is very much a function of a compa- ny’s particular circumstances. Those com- panies which are already producing sustain- ability report have developed at least some of the internal control and measurement systems for the requisite nonfinancial in- formation that should go into an integrated report. Those which haven’t will obviously need to develop them. I don’t know of any situation in which integrated reporting didn’t have the strong support of the Chief Executive Officer (CEO). In fact, Chief Finan- cial Officiers (CFOs) are often nervous about it. A process needs to be defined for how to produce an integrated report since it in- volves the coordination across a large num- ber of functions to gather and understand the relationships regarding metrics of all six capitals. The company should also not as- sume that producing an integrated report is an end in itself and that the users of the report, including analysts and investors, will understand its contents. It should be pre- pared to engage in a process to explain to all relevant audiences why the company has made this decision, and provide guidance on how to analyze and understand the con- tents of the report.
CV MENA: What do you see the potential of <IR> as a governance tool for organiza- tions such as NGOs, the Government?
RE: Good question and it reveals a certain irony. NGOs and the government are con- stantly pressing companies (and increasingly investors) for greater transparency. At the same time, many are not exactly paragons of transparency themselves, and they are under increasing pressure from civil society to provide more information about the re- sources they are using and the outcomes they are achieving. <IR> will help them do so. It will also foster integrated thinking that will produce the same benefits it does for companies. Governments, NGOs, and inves- tors that want integrated reports from companies will be in a stronger position to make this case if they are practicing it them- selves.
CV MENA: Any further thoughts?
RE: Yes, and thanks for asking. Speaking personally, I have been studying and trying to change corporate reporting for over two decades. Reporting is one of those prosaic, yet politically-charged issues that can have an enormous impact on society. We wouldn’t have the capital markets we have today without accounting standards and required financial reporting. We won’t have the capital markets and society we want for tomorrow without integrated reporting. It has to happen on a global basis, and soon. My primary professional goal is to making whatever personal contribution I can to the integrated reporting movement and help make it happen.
The Exchange
Integrated Reporting in the Public Sector
See Back Cover for More Details

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Transparency,
Accountability,
and
Participation

32. TAP
32
Promoting Transparency, Accountability
and Participation (TAP):
The role of check and balance institutions
Francesca Recanatini Senior Economist, Governance Global Practice, MENA, The World Bank
Worldwide there is increasing recognition that citizen involvement is critical for en- hancing democratic governance, improving service delivery, and fostering empower- ment. This citizen involvement can be fos- tered and ensured by promoting transpar- ency and participation. The World Bank has been focusing on the role that transparen- cy, accountability and participation (TAP) can play in the achievement of develop- ment goals. This renewed focus on trans- parency, accountability and participation has led World Bank practitioners to expand the scope of their work beyond the tradi- tional public sector institutions so as to include check and balance institutions (see Figure 1). It has also pushed practitioners to understand better which policies can strengthen the links between citizens and their government representatives, and promote more accountable government structures.
In practice, the concepts of transparency, accountability and participation have been operationalized in many different forms, from formal check and balance institutions (auditor general offices, AC authorities, etc.) to public sector measures (income and asset disclosure legislation, immunity pro- tection legislation, etc.) to “demand-side” tools (freedom of information legislation, scorecards, participatory policy systems, etc.). Over the past decade the World Bank has launched a series of initiatives to im- prove our collective knowledge in this broad area. The World Bank has collected data and information on the effectiveness of AC authorities that has led to the crea- tion of a portal and several publications (www.acauthorities.org). In addition, the World Bank has focused on gathering and analyzing data and information on financial disclosure systems around the world
www.worldbank.org/fpd/financialdisclosure/lawlibrary). This data has allowed Bank practitioners to analyze experiences with the implementation and enforcement of financial disclosure systems globally and to identify initial lessons learnt. This newly acquired knowledge has been disseminated widely through regional Conferences (Latin America, East Asia and Eastern Europe) and two publications aimed at assisting policy- makers and practitioners to address the challenges of establishing or strengthening these systems. Finally, the World Bank has focused on additional Public Accountability Mechanisms to enhance the transparency of public administration and the accounta- bility of public officials. This line of work allowed gather data on (i) Immunity Protec- tions, (ii) Conflicts of Interest Restrictions, and (iii) Freedom of Information.
To-date, PAM has released in-law (legal framework) data on Immunity Protections (2013), Conflict of Interest Restrictions (2012), and Freedom of Information (2010). The information and data gathered, hosted in the PAM portal (www.agidata.org/pam http://www.pamdata.org/), has been dissemi- nated via e-learning activities and in-depth workshops. Given however the growing importance of the integration of accounta- bility, transparency, and participation in policy making and in the strengthening of institutions, especially in fragile and post- conflict contexts, the Global Governance Practice team developed and delivered a workshop to share in an integrated way the current knowledge on TAP, bringing to- gether knowledge from different teams and areas regions. The objective of the workshop was to provide policy makers, government officials and donor representatives with a deeper understanding of how transparency, accountability and participation can be integrated for a more effective functioning of government institutions. The event was delivered in Caserta, Italy, last April, using the training facilities of the MENA-OECD Centre. More than twenty participants from seven MENA countries (Libya, Egypt, Yemen, Tunisia, Iraq, Jordan, West Bank and Gaza, and Morocco) participated. The team was able to bring together senior officials from a diverse set of government agencies (anti-corruption agencies, supreme audit institutions, ombudsman offices, etc.).
1 To promote greater transparency and accountability, various countries have introduced requirements for public officials to file asset disclosures. In parallel, efforts to curb money laundering have resulted in greater scrutiny of financial relationships with politically exposed persons (PEPs). This work analyzes how information on asset disclosure could be used to support the identification of PEPs and provides a series of recommendations that can help support this use. http://fpdweb.worldbank.org/units/fpdvp/ffsdr/ffsfi/Pages/Using-Asset-Disclosure-for-Identifying-Politically-Exposed-Persons-.aspx
2 The Volume titled “Public Office, Private Interests. Accountabil- ity through Income and Asset Disclosure” examines the objec- tives, design features, and implementation approaches that can contribute to the effectiveness of a financial disclosure (FD) system, and enhance its impact as a prevention and enforcement tool. The Volume draws on detailed case studies that are pub- lished in a companion volume: “Income and Asset Disclosure: Case Study Illustrations”. The volume can be viewed using this link:
http://www1.worldbank.org/finance/star_site/publications/Public-Private-interest.html

33. Governance FrameworkActors, Capacities and AccountabilityOutcomes: Services, Regulations, CorruptionPolitical Actors & Institutions•Political Parties•Competition, transparencyExecutive-Central GovtService Delivery & Regulatory AgenciesSubnational Govt & CommunitiesFormal Oversight Institutions•Parliament•Judiciary•Oversight institutionsCivil Society & Private Sector•Civil Society Watchdogs•Media•Business AssociationsCross-cutting Control Agencies (Finance, HR) Citizens/Firms Citizens/Firms Citizens/Firms Citizens/Firms
33
During the event, the participants benefitted from both the World Bank team’s expertise and from the first-hand knowledge of colleagues from Croatia, Georgia, Italy and Romania. In particular, participants discussed a framework that could be used for the operationalization of transparency, accountability and participa- tion within a country. The presentations and the material shared with the partici- pants aimed at promoting knowledge- sharing on selected check and balance insti- tutions, such as financial disclosure for pub- lic officials, supreme audit institutions, anti- corruption agencies and ombudsmen, as well as fostering regional and country-level dialogue on these mechanisms and their impact on governance outcomes. The event offered also the opportunity to disseminate global research findings, share key relevant international experiences, increase aware- ness on the different aspects related to the design and implementation of any of these mecha- nisms, and reflect on the ways forward for the coun- tries involved. The event was well received, thanks also to the very high level of professionalism of the team on the ground from the MENA-OECD Centre and the SNA that supported the implementation of the event. Participants engaged in many ways over the three days, contributing actively to each session and to the overall discussion, and sharing their experiences and the challenges they face in their own country. The agenda, the presentations and the list of participants can be found here:
http://worldbank.org/anticorruption/tap
The event also served as a platform to launch the creation of a regional network of government experts interested and in- volved in the design and implementation of these institutional reforms, which can help sustain the technical and policy dialogue beyond the event.

34. Service Delivery
34
You say budget sub-entity, I say hospital: Why we should work together for our client’s sake
Hana BRIXI Lead Economist, Governance Global Practice, The World Bank
You know the problems: Pregnant women unable to receive basic antenatal care promised by government policy. Children not learning basic skills in schools despite significant public investment in educa- tion. Essential medicines, text books and teaching materials missing from hospitals, clinics and classrooms, even though they were all purchased and paid for from the government budget. When specialists in the health and education sectors detect these problems, the solutions they offer tend toward sector-wide reforms. The design of the reforms would draw on sec- tor policy analysis and on the assessment of service delivery arrangements and ca- pacity. Increasingly, since the 2004 World Development Report, sector reforms would also seek to make teachers, health profes- sionals and other service providers ac- countable to citizens and communities. Rarely, however, would sector specialists trace service delivery problems in their sectors to “upstream governance” issues involving public finance management, pro- curement or civil service / performance management “at the center of govern- ment”. The realms of the Financial Man- agement Information System (FMIS) and the Medium-Term Expenditure Framework (MTEF)— or public employment and public sector performance management— appear too distant to have any relationship with the poor performance of schools and hos- pitals. Yet, the connections between ser- vice delivery and “upstream governance” do exist and unless addressed can lead to the failure of education or health sector reforms. The implementation of health sector reform in China, for instance, has hinged on the ability of the central gov- ernment to make subnational government officials accountable for equitable resource allocation and service delivery perfor- mance within their jurisdictions. This has required an adjustment in the country- wide public sector performance manage- ment system. In addition, upstream inter- ventions have been needed to enforce equity in budget allocations across locali- ties, and the prioritization of basic service delivery in government budgets at the provincial level. The upcoming Independ- ent Evaluation Group report on health financing identifies a number of such ex- amples, as well as cases where sector re- forms cannot be sustained without being anchored at the upstream center of gov- ernment through, for instance, public fi- nance law or civil service regulations. Iden- tifying and addressing such connections, however, brings challenges. One of the most surprising is the difficulty experts have in communicating across disci- plines. As an example, at a recent innova- tive public expenditure review in the Mid- dle East and North Africa region, it took several rounds of discussion before the health financing experts figured out what their colleagues in public finance manage- ment (PFM) were actually talking about. It turns out that within that particular coun- try’s budgetary system, a public financial management (PFM) expert would use the term “budget sub-entity” when talking about a hospital or school. “Budget enti- ties” would include public universi- ties. Once this misinterpretation was fig- ured out, it took even longer for the ex- perts to agree on the implications of the proposed introduction of performance- based hospital payment mechanisms and the desired increase in hospital autonomy for the overall government budget classifi- cation and budget allocation mechanisms, as well as for the functionality of the exist- ing FMIS. There are however clear benefits to overcoming these challenges. There was more to the discussion among health financing and PFM experts, as it also in- volved stakeholders across ministries and service providers.

35. 35
These stakeholders learned to understand each other along with the experts. Moreo- ver, the joint engagement helped to ex- pand the common ground and establish a common vocabulary among multiple stakeholders for the needed reforms. More opportunities for joint learning, knowledge sharing and engagement across disciplines are clearly needed. In a recent training session organized by the World Bank joint- ly with the Harvard University Kennedy School, governance experts explored prob- lem-driven approaches to PFM. The focus was on recognizing the benefit of involving country clients in designing PFM reforms so as to address service delivery problems. Instead of offering country clients ready- made tools such as the MTEF and FMIS, participants learned to recognize problems from the perspective of country clients (for instance, poor performance of schools), and deconstruct problems to identify the separate elements related to upstream governance (such as budget allocations not reaching schools, and lack of performance information and performance audit). In the future, such training could include not only governance experts but also experts on education, health and other sectors. Cross-cutting Communities of Practice (CoP) can facilitate this sort of engagement across disciplines. The recently established CoP PFM for Service Delivery, for instance, could serve as a platform to showcase and learn from examples where engagement across disciplines has led to the success- ful delivery of integrated solutions to clients. The CoP could also create oppor- tunities to connect specialists across disci- plines in assisting the World Bank Group’s country clients. I would welcome your suggestions for cases or issues that should be further explored. Moreover, to promote connections across the emerging Global Practices (GPs), and increase the potential for integrated solutions, the Incentives Task Force for Collaboration, Knowledge and Results is proposing a series of rec- ommendations to encourage GP manage- ment. Further, specialists are being en- couraged to recognize the complexity of development problems and the cross- cutting nature of many true solutions. Making the different GPs all “book” their shared activities in their own portfolios, allowing specialists from the different GPs to co-lead a task, or encouraging the Coun- try Management Units (CMUs) and all rele- vant practice managers to work together to identify the possible benefit of multi-GP approaches in country work programs, would make cross-GP collaboration and knowledge sharing much more likely. As we move forward, perhaps each of us, proud of our own discipline, can open our eyes wider to see what those in different fields have to contribute to solving prob- lems in our own domain. We will need to accept with humility and patience that we may not understand each other at first, but that over time we will learn from each other and be able to integrate our individ- ual expertise-driven perspectives into true solutions that will work for our clients.
Corruption
Can Audit Fight Corruption?
Jad MAZAHREH
Senior Financial Management Special- ist, Governance Global Practice/MENA, The World Bank
Corruption in Words
Corruption can severely undermine the development effectiveness and impact of projects. Over the last decade, the donor community has increasingly dedicated more attention to addressing corruption at the national, sectoral, and project levels. The World Bank’s 2012 updated Strategy and Implementation Plan for Strengthening Governance and Tackling Corruption called for managing more effectively, rather than avoiding, the risks inherent in working in a development context, including the risk of corruption. The impact of corruption on development projects varies from imple- mentation delays, selecting unqualified contractors, inflating of costs, and failure to complete works— to utterly deterring in- vestment, preventing development, and adding unproductive debt.
Audit as a Tool
Audit, in varying forms, is believed to play a significant role in detecting and preventing corruption. The term audit is widely used as a synonym for evaluation, appraisal, as- sessment, examination, study or review. Some audits— such as financial, perfor- mance, compliance, and internal audits— have specific definitions attributed by in- ternational bodies (the International Organ- ization of Supreme Audit Institutions [IN- TOSAI]; the International Federation of Accountants [IFAC]; and the Institute of Internal Auditors [IIA]). These audits follow a set of globally-agreed procedures, where- as other audits, such as technical and social audits, follow less standardized procedures which vary according to circumstances. Other, more specialized audits, such as environmental audits and forensic audits, serve specific purposes.
Corruption versus Fraud
The words ‘corruption’ and ‘fraud’ are often used interchangeably. In principle, corruption is defined as “the abuse of public office for private gain”. However, corrup- tion takes place in the form of bribery, kick- backs, commissions or other benefits with- out leaving any trace in the official records. ‘Fraud’ consists of originating benefits by bypassing some controls or bending some rules, with some traceable evidence re- maining in the records. Therefore, audit should be planned, designed, and executed to address the risk of "corruption.” It should be done differently from dealing with the risk of “fraud”.