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Strengthening Pacific Accountability: Regional Responses to National Challenges

Keynote Address by Philip Erquiaga
Director General, Pacific Department, Asian Development Bank

To the XIth Congress of the South Pacific Association of
Supreme Audit Institutions (SPASAI)
Cook Islands, Rarotonga
15 April 2008

A. Introduction

Distinguished participants, ladies and gentlemen: Good morning. As indicated, my name is Philip Erquiaga and I am the Director General of Pacific Operations at the Asian Development Bank.

I am honored to address this Congress of the South Pacific Association of Supreme Audit Institutions on the topic of regional responses to national challenges. As you know, regionalism has become a subject of great importance and healthy discussion in recent years, and not just in the Pacific. So I would like to express my appreciation to SPASAI for giving me an opportunity to discuss this important matter.

B. Pacific Public Auditing

Let me begin with a few words on a topic you know well — public auditing in the Pacific. An independent, impartial, competent and properly-funded public audit office is vital to a country’s governance regime. And as you well know, good public auditing is central to sound economic and social development. Let me give you four reasons why.

First, the absence of, or late provision of, audited financial information fundamentally undermines accountability mechanisms. Without timely and reliable information, how can policy-makers react effectively to emerging crises and problems?

Second, sound public auditing practices are integral to good governance arrangements. One study of 175 economies found strong positive relationships between good governance arrangements and per capita incomes, infant mortality rates and literacy rates.

Third, strong public auditing promotes cost effectiveness in the public domain. A 2005 ADB-Commonwealth Secretariat study estimated that poor governance in Papua New Guinea, Fiji Islands, Solomon Islands and Nauru had resulted in nearly $75 billion in forgone income in those countries since independence.

Fourth, an effective public auditing function can improve a country’s response to, and management of, its economic vulnerabilities. In this connection, another study found that the quality of institutions in small countries is particularly important given the vulnerability of these states. The study maintained that small states with high-quality institutions — including public audit offices — have less growth volatility and are more likely to achieve higher rates of economic growth.

Now, while public auditing arrangements are, admittedly, just one part of a complex governance equation, they are an important part. That is why I am inspired by the many positive improvements over the past decade — numerous audit backlogs have been cleared and audit quality has improved significantly.

For example, the progress made by the US-affiliated, or “insular”, states is impressive. Just six years ago, not a single one of the 11 insular states was submitting timely or clean Single Audits. Today, the record on timeliness is almost exactly the opposite, with only one jurisdiction not current — but soon should be.

I see also from the Pacific Regional Audit Initiative design document that public audit offices provide some of the region’s best examples of fundamental institutional change. ADB is pleased to have supported some of these transformational efforts — for instance in 1996 the Fiji Office of the Auditor General employed just three graduates, but by 2005 all professional staff was either qualified or was studying towards graduate qualifications. This has dramatically enhanced the office’s effectiveness as an accountability watchdog.

C. National Challenges

These gains have been made despite intimidating challenges. And sustaining such gains is difficult in smaller country settings. Working in a tight-knit social and cultural environment, I can only imagine the political and professional pressures that you must face on an almost daily basis.

Moreover, many island states have educational systems that fall below best-practice standards. The best and brightest often leave the islands for higher education and to find jobs abroad. In addition to the wealth of opportunities offered in the United States, the booming Australian and New Zealand job markets are sucking talent away: the Institute of Chartered Accountants in Australia estimates that there are four job vacancies for every one accountant in Australia. Also, the private sector often pays better and private sector auditors do not work in a goldfish bowl. As a result, there are acute shortages of the type of talent that is necessary for sound public auditing. As you can tell by looking around this room, there are many educated and capable people in the islands. There just are not yet enough of them.

To complicate matters, auditing has become more demanding as expectations grow, financial reporting becomes more complex, and the scope of audit work expands beyond a narrow financial focus to performance and environmental auditing. To be effective in this more demanding environment, public auditors need access to specialist resources and high-level technical support.

D. Pacific Regionalism and the Asian Development Bank

One approach to addressing national challenges is through closer regional cooperation. Working together provides economies of scale and opportunities to share capacity. Pacific leaders showed renewed political support for regionalism when they endorsed the Pacific Plan in 2005.

ADB strongly supports regionalism — our new Long-term Strategic Framework identifies regional integration as one of three development agendas, together with inclusive growth and environmentally sustainable growth. Closer to home, our Pacific Strategy commits us to supporting regional approaches. And in November 2007, ADB approved our new Pacific Regional Operations Business Plan, which aims to contribute to reducing Pacific poverty by strengthening national ownership of regional approaches, by increasing the regional provision of services, and by improving the private sector environment. The Business Plan aligns our assistance with Pacific Plan priorities and national development strategies.

Nevertheless, while Pacific regionalism may make good sense theoretically, its practical uptake has moved at a measured pace. This is not unexpected. High transport costs in the Pacific make regionalism expensive. And many island countries are still relatively newly independent by global standards and continue to identify vital interests in national terms.

In this connection, let me applaud the efforts of the Pacific Islands Forum and its secretariat for tirelessly and effectively promoting the benefits of regionalism among its member states. This, of course, is most clearly articulated within the Pacific Plan. And yet the Pacific Plan itself remains solidly anchored in reality when discussing the prospects for regionalism. It assumes that regional approaches should be taken only when they add value at the country level. Regionalism is not meant to replace national policies and programs, but to support and supplement them. Indeed, a major objective of regionalism is to protect and enhance national sovereignty.

ADB has identified some key lessons to guide its assistance and to strengthen the development impact of its support for regional activities.

First, regional initiatives are most successful when they directly address national needs and priorities, and indeed when they reinforce the focus of assistance at the national level. This is seemingly obvious, but the recognition that working regionally is merely a tool to better meet national needs can often become lost as the promotion of regionalism takes on a life of its own within the Pacific’s regional architecture.

Second, ADB is most successful when it complements and builds upon sectors and themes in which it has performed strongly in the past. Once countries have worked together and achieved a positive outcome to a common issue it creates a base for deeper cooperative relationships in the future. Success builds success.

Third, sub-regional approaches can be successful by allowing for variation in emphasis and approach for self-selecting groups of countries with heightened commitment. Every Pacific country is different and each has unique priorities at any point in time. Regional activities which demand involvement by a large group can be slowed or even stopped by one unwilling member. This is something we have seen happen time and again in the Pacific - where seemingly good ideas prove difficult to implement. Having a sub-regional group of participating countries who actually see benefit in participating creates the basis for a strong team working to a common purpose and increases the likelihood of success.

Fourth, successful regional interventions can be time and resource intensive, requiring long-term engagement. In the past ADB has ended up extending the implementation period of many of our regional activities to provide the time necessary for all participating countries to move forward together. Working at a regional level does take more time, more communication, and more give and take than working on national level actions. All involved need to make sure the benefits flowing from regional cooperation justify the extra time and effort required.

We are keeping these lessons in mind as we determine which regional activities to support and how best to provide this support. Our priorities include providing regional aviation safety services through the Pacific Aviation Safety Office (PASO), providing financial technical assistance through support to the Pacific Financial Technical Assistance Centre (PFTAC), an increased focus on environmental issues, and, last but not least, supporting the design and implementation of the Pacific Regional Audit Initiative.

E. The Pacific Regional Audit Initiative

Regionalism is certainly not new to Pacific public auditors with SPASAI being one of the Pacific’s longer-standing and more active regional organizations.

So, before closing, I would like to mention three aspects of the proposed PRAI design which highlight the use of regional approaches to meet national challenges.

First, the PRAI will work with national offices to build and sustain public auditing capacity. Regional economies of scale will enable the PRAI to provide effective structured training that recognizes individuals’ career paths. The PRAI will also provide high-quality technical advice to national audit offices. And acknowledging the successful experience of the insular states, the PRAI will support region-wide peer review programs for those offices which wish to participate.

Second, few national offices have the capacity to adequately undertake specialist financial audits or performance audits, including environmental audits. But the PRAI will support national offices working together to conduct cooperative financial and performance audits.

Third, national offices can feel isolated when seeking improved auditor independence, better transparency or responses to audit recommendations. The PRAI will provide a collective regional umbrella for advocating enhanced accountability mechanisms.

F. Conclusion

In summary then, there is considerable enthusiasm for and expectations of the Pacific Plan, and regional approaches in general, but we will need to harness our collective efforts to address national challenges. I believe that the PRAI proposal provides an opportunity to build on the already impressive gains that have been made to date on Pacific public auditing.

Your discussions this week will hopefully confirm a PRAI design that meets your national needs in a practical and appropriate manner. This will enable us to move to the next stage — implementation.