Budgeting, Auditing, and Evaluation

Functions and Integration in Seven Governments

Andrew Gray

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000676044
• Edition: 1
• Topic: Business
• Subtopic: Auditing
• Index: Business

As governments the world over work to sustain public policy and develop much needed policy initiatives, there is increasing need for better budgetary management and sound evaluation of both past and prospective policies. Budgeting, Auditing, and Evaluation presents in-depth, comparative examinations of budgetary processes in seven major Western governments (United States, United Kingdom, Germany, Canada, Spain, Sweden, and Finland). Contributors focus specifically on the important links between budgeting, auditing, and policy evaluation. The authors identify both commonalities and divergences and make comparative statements of the consequences of these for the policy process.

1

Perspectives on Budgeting, Auditing, and Evaluation: An Introduction

Andrew Gray, Bill Jenkins, and Bob Segsworth

As governments the world over edge toward the twenty-first century, there is increased interest in the prudent use of resources to sustain public policy and to develop much-needed policy initiatives. Further, as many industrialized countries struggle to come out of recession, the need for better budgetary management and the evaluation of both past and prospective policies has been seen by many practitioners and observers as central to restore or retain economic growth. Hence, in areas as diverse as those of Scandanavia, the European Community, North America, and Australasia, governments have sought to achieve more effective control and management of public expenditure and to plan and evaluate public policy. To all this can now be added the recent dramatic events in Eastern Europe where many countries, faced with the challenge of developing and sustaining a market economy, have turned to the West for advice and assistance in reforming their public expenditure and policy planning processes.

The International Institute for Administrative Sciences (IIAS) is keenly concerned with all these matters. As an international organization devoted to the study and improvement of public administration and management, it seeks through its conferences, workshops, and sponsorship of research to improve the quality of public administration, to promote dialogue between different national groups on a variety of important issues and to act as a catalyst for organizational and institutional learning within the international political and administrative community.

As part of these efforts, the IIAS has sponsored a Working Group on Policy and Programme Evaluation. Over a number of years, this group has sought to study and advance the cause of policy evaluation from an international perspective. Its early work involved the study of the development of policy and program evaluation in a variety of countries. This sought to examine both the causes and consequences of individual national developments in policy evaluation and to promote comparative understanding (Rist 1990a, 1990b). Encouraged by these studies, the group extended its interests by focusing, first, on the utilization of evaluation and the connection between policy evaluation and organizational learning and, second, the relationships between budgeting, audit, and evaluation.

This book is devoted to an exploration of this second focus. For some time, individual members of the IIAS Working Group have been aware of the importance of the links between auditing and evaluation (e.g., Rist 1989). In its early work, moreover, the group noted that in many countries state audit offices played a significant role in the development of the evaluation function (Derlien 1990). This was particularly so in the development of performance or value-for-money (VFM) auditing. Thus, although auditing was frequently institutionally and functionally different from evaluation in many countries, it generated information that could affect on budget decisions. In addition, efforts to develop policy evaluation often had strong connections with national budgetary processes. However, national experiences differed and these required investigation.

It was therefore decided to explore this area in greater depth. Initially the members of the Working Group concentrated on describing the budgetary processes of their respective countries. They viewed auditing and evaluation as activities that generated information about (and thus could have an effect on) government programs and their management. In other words budgeting, auditing, and evaluation were elements of an interactive process that informed government decision making. What functions were performed by each and how interactive or integrated they had become in different countries seemed unexplored. Thus this volume brings together different national experiences of the development and linkages of budgeting, auditing, and evaluation and seeks to make some comparative statements of the consequences of these for the policy process. What follows in this introductory chapter develops the logic for this decision, identifies the major common points of interest, and, finally, details and explains the contents of the book.

Budgeting, Auditing, and Evaluation: Convergent or Divergent Processes?

The primary concern of most governments over the past three decades has been the control of public expenditure and the planning of policy. Budgeting, auditing, and evaluation have been significant instruments. Through budgets differing activities can be managed, coordinated and planned; through audit financial control and the accountability of resource use can be ensured; and through evaluation economy, efficiency and effectiveness can be promoted. Even if political cultures and environments mediate and influence different national patterns in fundamental ways, budgeting, auditing and evaluation have been used by governments to strengthen control, planning (and learning) and accountability in the policy process. These functions have been regarded as central both to the cohesion of the political system and the sustaining of economic growth.

Is any of this really new? After all, any cursory examination of political history shows that budgeting, auditing and evaluation have origins that are linked fundamentally to national political traditions. Budgeting, for example, has always been at the heart of the political process and may in fact be the expression of politics itself since it is in the budget that the questions of “who gets what, when and how” are determined. As a result, the role of finance ministries has a traditionally strategic position affecting their relationships with other departments and the processes through which these operate (Heclo & Wildavsky 1981).

Auditing, too, has its history. Indeed there may be a case for seeing the auditor as one of the oldest professionals in government, and audit as a process of deep historical significance. This is certainly true for many European countries such as Germany, where the legal tradition gives audit a role distinct from that in other countries and affects the interrelationships with budgeting and evaluation (see Ch. 4 below). In contrast, policy evaluation may not have such a long historical pedigree as a separate activity in its own right, with identifiable evaluators and a professional community. Rather, it might be seen as part of an “enlightenment” process developed in tandem with rational planning and reflecting a particular view of “good” government and “good” administration. As such its developmental path and underlying ideology may differ from the processes of budgeting and auditing already discussed.

It is important therefore to recognize that the processes of budgeting, auditing and evaluation in individual countries may reflect different patterns of political development and different political and administrative traditions. It may well be that, over the last twenty years, these processes have converged in particular national contexts. This has been justified in terms of better policy making and resource allocation. However, to prescribe specific patterns of integration for budgeting, auditing and evaluation is to deny the importance of national contexts and conditions in favor of a rationalist utopian vision that there is “one best way” of political and policy development.

In this volume we will explore the possibility of this integration and assess its effects on the policy process of different national political systems. In doing so, however, we are as interested in differences as in similarities. In particular we wish to explore how differences in political history and culture, changing political and economic environments, and in the internal politics of resource allocation and management have influenced developments. Before this can begin, however, we must address the definitional problems posed by the key concepts we are investigating and then elaborate theoretical approaches that have been and could be used to interpret them.

Budgeting, Auditing, and Evaluation: Meanings and Interpretations

Rose has argued that in comparative analysis “we need generic concepts that are not restricted in time or place” (1990). In dealing with budgeting, auditing and evaluation this may take some realizing. In any gathering of practitioners and administrators concerned with public policy and management there would be little dispute that budgeting, auditing and evaluation were important parts of political life. Whether there would be similar agreement on formal definitions, however, might be another story. Certainly the experience of the IIAS Working Group has suggested that an attempt to move from general descriptions to precise definitions of these processes immediately reveals a variety of concepts and usage. This is not surprising. If budgeting, auditing and evaluation are developed in different political cultures by different political communities, their definitions and interpretations will reflect the contexts from which they emerge. This may be true within as well as between countries and even where there have been attempts to forge professional communities with common professional languages. Audit is a good example here. The International Organisation of Supreme Audit Institutions (INTOSAI) has attempted to develop international standards for audit. It has sought to define the remit of audit tightly with specific (although to some narrow) conceptualizations of terms such as effectiveness and accountability. Audit may also be defined as an essentially legal process and thus exclude evaluation from its remit on the grounds that the setting of objectives is a political matter. But precisely because the policy process matters, it is possible to see audit as a much broader function of the accountability of public policy management.

Thus, the meanings and interpretations of concepts such as budgeting, auditing and evaluation may reflect important differences in professional and political cultures. In turn, these differences may be central to any understanding of differing patterns of development. Language and terminology are not neutral; rather, they reveal particular meanings and ideologies. The development and dominance of particular ways of looking at the world is reflected in such language and this is central to the problems this book seeks to discuss. For example, the recent strengthening of state audit in countries as varied as the United Kingdom, Finland and Canada may reflect a common attempt to strengthen public sector management in a particular way using terminology drawn from private sector practice. In contrast, the development of state audit in Germany is very different, possibly indicating the influences of political history and culture that has channeled growth down a different path. These complexities may go some way toward explaining why it would be misleading to force the concepts of budgeting, auditing and evaluation into a narrow definitional framework. However, some elucidation is necessary if only to provide the reader with a benchmark against which to characterize the usages of the following chapters

Budgeting and Budgets

Perhaps nowhere is the conceptual variation clearer than in the case of budgeting, where both practical experience and academic analysis indicate a multifunctional activity for most nation states and indeed most large organizations. Budgeting, as defined by most central finance ministries, refers to the raising and allocating of public expenditure. This is usually regarded as both historical and dynamic, i.e. it takes place over time and is influenced by changing internal and external political environments and history (Likierman 1988; Wildavsky 1975). For some, however, budgeting is solely allocatory, i.e., the process through which the annual resource cake is cut between the competing claims of departments or agencies. For others again, it is only concerned with revenue raising; in the United Kingdom, for example, the Chancellor of the Exchequer’s Budget is limited to raising revenue, the decisions on expenditure having been pronounced four months earlier, a peculiarly perverse British custom!

Regardless of definition, however, the product of budgeting is a statement that sets out the results of the decision-making process. This might be taken as the simple outcome of a rational process. Yet, as a variety of academic commentators have established, not only is the budget a multipurpose document but the very process of budgeting is a multifunctional activity in a political system (Wildavsky 1975; Brown-John et al 1988). Just as budgets serve planning, coordination, control, and motivation in the management of public policy, at the most basic level the budgetary process acts as a mechanism for integrating differentiated interests into the regularities of the political process.

As a consequence budgeting is not only a process that seeks to install economic efficiency in the political process but also a major mechanism for ensuring political efficiency by acting to resolve competing interests. This book begins with the assumption that budgeting describes the process whereby government funds are distributed among competing interests. It is therefore concerned with how this system has developed, who the major actors in the process are and what criteria are used to resolve the choices the process throws up. We are also crucially interested in the links (if any) between this system and the processes of auditing and evaluation and the consequences of these relationships for the making and development of public policy.

Auditing and Audits

In some ways auditing is more easily defined than the other major terms we deal with. Caldwell (1983), for example, argues that the scope of audit may include financial matters, compliance relationships and the performance of operational controls and programs. However, we observe in common currency a somewhat wider definition going beyond the simple independent examination of the adequacy of records, information and control systems to include such other assessments as administrative adherence to prescribed rules and policies, the fairness of financial statements and performance reports and the efficiency and effectiveness of programs and operations (Knighton 1975).

A distinction may be made between internal audit, a quasi-independent but internally staffed service for departmental management, and external audit, performed by independent bodies often attached to sovereign legislatures. The latter’s visibility, through such supreme audit bodies as the General Accounting Office in the United States or the Riksrevisionsverket in Sweden, has perhaps led to some underestimation of the role of internal audit. Traditionally internal audit’s task, at least as spelled out by government audit manuals, is to appraise the soundness of accounting and financial controls (attest auditing), promote compliance with established policies and procedures (compliance auditing), ensure that safeguards against losses are in place, and check the integrity and reliability of financial information (Likierman 1988, Ch. 8).

Traditionally both internal and external audit have concentrated on the attest and compliance functions (Thomas 1988) on the grounds that these are “reasonably objective” and thus more likely to be regarded as legitimate (Siegal 1986). However, more recently this notion of objectivity has been challenged by a contention that auditing is essentially normative, assessing “what is against what ought to be” (Rist 1990c, p. 10; see also Chelimsky 1985). This idea has caused unease among the auditing profession especially when the scope of audit is extended from financial and compliance audits to value-for-money and comprehensive audits that may have, as part of their scope, a concern for the efficiency and effectiveness of government programs. For many, moving from a mandate that may be served by objective analysis to one in which analysis may challenge policy threatens the neutrality of the auditor (Hopwood 1984). Further, there is a fear that audit has neither the skills nor methods to operate in this field; the search for comprehensive auditing may thus be akin to that for “fool’s gold” (Thomas 1988). Clearly performance and value-for-money audits involve much more than financial regularity. In dealing with efficiency, auditors may be functioning as if they were management consultants and when they deal with effectiveness, especially in terms of policy and program matters, they may be close to becoming policy analysts or indeed policy evaluators.

As we shall see in later chapters, evaluation is being used increasingly to inform budgetary allocation decisions. This implies at least an indirect integration of audit with both evaluation and budgeting. This is clearly a crucial development. As a result, in some countries audit has been obliged to make rapid changes not always to the liking of the audit profession (e.g. in UK and Canada). In others, audit has remained very much a traditional activity confined by its past...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Acknowledgment
• 1. Perspectives on Budgeting, Auditing, and Evaluation: An Introduction
• 2. The Separation of Powers and Political Choice: Budgeting, Auditing, and Evaluation in the United States
• 3. Separate Developments: Budgeting, Auditing, and Evaluation in the United Kingdom
• 4. Two-Track Processes: Budgeting, Auditing, and Evaluation in the Federal Republic of Germany
• 5. Out of Sequence and Out of Sync: Budgeting, Auditing, and Evaluation in Canada
• 6. Many Reforms, Little Learning: Budgeting, Auditing, and Evaluation in Spain
• 7. Connected or Separated? Budgeting, Auditing, and Evaluation in Sweden
• 8. Muddling Through, Too: Evaluative Auditing of Budgeting in Finland
• 9. Horses to the Water: Budgeting, Auditing, and Evaluation in Seven Governments
• Glossary
• Contributors
• Index