VIII EUROSAI Congress Lisbon, 2011 Written Contribution of the Portuguese Tribunal de Contas (TCP) Theme I.B The role of SAIs in the accountability and responsibilities of public managers Introduction Accountability and responsibilities of public managers is a cornerstone issue when we speak about the modern management of public finances. The concept, the meaning and the extent of the responsibilities of public managers have been discussed in the different countries, even though there is no consensus on the issue. In any case, the trend has been to assume the insufficiency of law compliance requirement. In addition to the observance of the law, public managers are required to accommodate their management acts to technical patterns in order to ensure management economy, efficiency and effectiveness. The ethical dimension of management must also be taken into account, when discussing the issue of responsibilities of public managers. It appears to be of critical importance for the SAIs activities to clarify the concept, the meaning and the extent of responsibilities in order to accommodate their action to the demands of modern public management. 1
Chapter I Legal and ethical framework of public management Public managers are not mere technicians; they are real public servants and should be considered as such. For that reason, the design of responsibilities of public managers should go beyond the matters relating to formal legality or technical expertise. The action of public managers must meet the requirements of the democratic States, including the concern to respond to the real needs of the populations they serve and to ensure transparency of the decision-making processes. We should not overlook the fact that public managers must be accountable to citizens. Answer to the questions 4. What role should the SAIs play in the relationship between public managers and citizens? (option 4) Assure the respect of legal rules by public managers and the economy, effectiveness and efficiency of public management, and promote the respect of the main principles of democratic state by public managers (including ethical principles). 2
Chapter II Accountability of public managers In Portugal, public managers are accountable to their hierarchical superiors, who, in turn, are accountable to the respective political control bodies. Likewise, public managers are accountable to courts and citizens in so far they are subject to the jurisdictional and social controls. The violation of financial norms may give rise to financial responsibility, which must be enforced by the Tribunal de Contas. Financial offences may give rise to sanctionary financial liabilities, which leads to the imposition of fines, and/or recovery financial liabilities, which consists in repaying into the public coffers the sums of the State wrongly spent. The Tribunal de Contas may also make recommendations seeking to improve public financial management, which may be fundamental for its effective political control. In this respect, both technical and political control may mutually contribute to the effectiveness of the external control. Over the last years, in Portugal, the technical rigueur of management has been focused besides the aspects relating to strict compliance with legality, which is of course reflected in the nature of the audits conducted by the Portuguese SAI that has carried out a growing number of performance audits. 3
Chapter III The role of the Tribunal de Contas in the accountability of public managers III. 1. Initial considerations To speak about control and responsibility is to speak about two related realities, both deriving from the Rule of Law principle. And this is all the more true and relevant since it is applied to public management activity and to the action of public authorities. Citizens must place trust in the acts and behaviours of decisionmakers upon whom they have conferred a title of legitimacy and in relation to whom they are not able, per se, to ensure an effective and enduring control and, consequently, hold accountable. That is why SAIs are so important, which, in an entirely independent and impartial manner, ensure an effective and enduring control on the financial decision-maker ; just as fundamental is to provide such institutions with instruments that allow them to correct and penalize noncompliance with binding legal frameworks, or, ultimately, to confer upon them the power to set in place external accountability mechanisms. This essentiality is all the more relevant since they cope with the requirements and the new challenges faced today by Corporate Governance : the sustainability of public finances in general, and the sustainability of social sectors in particular (education, health, social security) 4
and the definition of new boundary lines between society and the State in the context of public tasks, and consequently, their retraction and the growing difficulty in ensuring their direct responsibility. In this context, it is important to reflect upon the model of accountability and the mode of action of the Supreme Audit Institutions in order to ensure accountability of those who manage and use public resources and to hold the State accountable for the outcomes. III. 2. The relevance of the audit activity in the accountability of public managers Aware of all these concerns and challenges, the law adopted a concept of responsibility, which covers two distinct but supplementary realities: the concept of accountability and the concept of subjection of those who hold responsibility to penalty schemes in force. In other words, the Portuguese Tribunal de Contas combines two important missions: to control the modus operandi of the public manager and to penalize the illegal and unlawful performance as a result of that action, taking into consideration the complexity of organizations and the growing assumption by private entities of tasks once entrusted to public powers. The audit mandate of the Tribunal de Contas has been exercised through the conduction of audits, which deal with legality and adequate accounting, proper financial management, performance and internal control systems that are based upon certain acts, procedures and some or all aspects of financial management; the external verification of the accounts of all the 5
entities that integrate the Public Sector in order to establish a numerical demonstration of the financial operations, evaluate the internal control systems and verify legality, efficiency and effectiveness of financial management; and the internal verification of accounts of the General Government entities, embodied in the analysis and comparison of accounts only for the numerical demonstration of the operations carried out, which include the debit and credit account of the management and show the opening and closing balances. The Tribunal de Contas sends all the audit reports to the Parliament, to the adequate follow-up; as a consequence, the Tribunal de Contas can even be called to provide evidence and clarify aspects contained in those reports. In the context of its audit activity, the Tribunal de Contas has given particular importance to the conduction of performance audits and audits that evaluate the implementation of public policies, which were designed in order to enhance the improvement of public expenditure quality. In particular, we refer to the application of the principle of Good Government in the State-Owned Companies, to the verification of added value of the model of shared management of resources within the Public Administration, to the follow-up of the new budget logic of reinforcement of the programme budgeting and to the permanent and systematic monitoring of the measures adopted to mitigate the economic and social effects of the current economic and financial crisis. When performing its audit duties, the Tribunal de Contas makes recommendations to the competent bodies in order to address specific shortcomings, to prevent future irregularities and illegalities, to improve accountability, to contribute to better public management and, ultimately, to make better use of public resources. In order to give its recommendations a real purpose, the Tribunal de Contas is provided with mechanisms that allow it to verify the degree of compliance with its recommendations, namely by conducting follow-up audits and to ensure that 6
noncompliance only occurs under exceptional circumstances, duly grounded and justified. Strictly speaking, those who hold responsibility must comply with the recommendations formulated by the Tribunal de Contas, taking into consideration their content. In order to verify compliance with this duty, the Tribunal de Contas has two mechanisms: - Through the action of those responsible, who must notify the Tribunal de Contas of the observance of the recommendations formulated within the deadline fixed for the purpose; - Through the action of the Tribunal de Contas, conducting follow-up audits of the recommendations. As we have already observed, the Law ensures that noncompliance with the recommendations may only occur under exceptional circumstances, dully grounded and justified (v.g. a recurrence of changing situations), and the addressee may incur financial liabilities for repeated and unjustified noncompliance. The degree of compliance with the recommendations formulated by the Tribunal de Contas takes on even greater importance when the existence of fault is determined, the degree of fault is evaluated, the penalty is calculated and when financial liability is relieved. In the permanent archive of the entities, the Tribunal de Contas therefore keeps updated information regarding its recommendations, which allows it to follow up the development of addressee entities in terms of refinement and improvement of the management aspects it proposed. In addition, in order to ensure effectiveness of its action and improve excellence of its organization, the Tribunal de Contas has implemented an evaluation and measurement policy of its actions and decisions, which allows it to determine to what extent it contributed to reduce public expenditure and improve public financial management. 7
In the last three-year period (2007-2009), and as a result of the follow-up of its recommendations, the Tribunal de Contas identified savings in the amount of 37.9 million to the State Treasury. III.3. The jurisdictional activity of the Tribunal de Contas As indicated above, the Tribunal de Contas is also vested with jurisdictional mandate and, to that extent, it is a real Court, a sovereignty body. In addition, together with the other categories of courts (civil courts, criminal courts, and administrative and fiscal courts), it is responsible for managing justice on behalf of the people. Thus, as any other court, the Tribunal de Contas is independent and is only subject to the Law, having the power to assess the conformity of laws with the Constitution. In pursuing its duties, it has the right to be assisted by the other entities and its decisions are enforceable to all entities, either public or private, prevailing over those coming out of any other entities. The performance of jurisdictional mandate materializes into the enforcement of financial liabilities. The financial responsibility is a form of distinct and independent accountability from those existing in the Portuguese financial legal framework, as is the case of political responsibility, civil responsibility, criminal responsibility and disciplinary responsibility. This form of responsibility is deemed autonomous in relation to the others because of the nature of the rules violated (procedural or substantial of financial nature) and the jurisdictional nature of the body that enforces it the Tribunal de Contas. Financial responsibility means, by definition, that someone is likely to be forced to refund public funds (recovery financial liability) or to afford the legally foreseen punitive sanctions (sanctionary financial liability), as a result of the audit 8
actions conducted by the Tribunal de Contas or by the internal control bodies, in virtue of the violation of rules that aim at regulating the public financial activity. The enforcement of financial liabilities is ensured by the 3rd Chamber of the Tribunal de Contas, consisting of 3 Counsellor Judges. This Chamber is totally independent from the other Court Chambers (1 st Chamber, 2 nd Chamber and Regional Chambers), which means that the judgment, as a result of a control on the existence of signs of financial infractions, does not bind the judge who makes the judgment, in other words, the Judges of the 3 rd Chamber. This independence of audit and judgement functions at the Tribunal de Contas is also ensured by the independence of those who are legitimate to file financial responsibility proceedings. In truth, the Law only acknowledges competency to ask for a judgement to the Public Prosecutor and, in a subsidiary manner, to the management bodies, to the supervision bodies or to the tutelage bodies of those who are responsible or even the internal control bodies. The Tribunal de Contas remit includes functions as a First Instance Court and as an appeal court. Appeal of the decisions that are made in the First Instance by the single judge to the Plenary Sitting of the 3rd Chamber is possible, in which the complainant does not participate. The Tribunal de Contas has jurisdictional and audit mandates over those who are responsible for managing or using, despite in a merely occasional manner, public money or other assets, no matter the nature of the entity under the scope of which duties are performed and to which they are accountable. As indicated above, financial responsibility may be twofold: recovery and sancionatory. As the term itself suggests, recovery responsibility aims at restituting or refunding the State treasury, which was illegally and culpably affected by an agent s action or omission. This form of responsibility might occur in the event of misappropriation or deviation of public money or other assets, undue payments, 9
non-collection of revenue in virtue of non-settlement, collection or delivery of due revenue, and also when the entity is forced to compensate as a result of violation of laws. In this case, the sanction shall lead to the restitution by the person responsible for the situation that existed before the wrongful act or for the situation that would exist if the wrongful act had not taken place, including interest on late payments over the respective amounts. Where there is no intention on the part of the offender, the Tribunal de Contas may transform the recovey into a fine. In turn, the sancionatory responsibility aims at penalizing the offender for the violation of financial rules. Thus, it shall lead to the application of a financial sanction, which shall vary between a minimum and a maximum amount established in the law, and can occur in the following situations: - Settlement, collection or delivery of revenue due to the State coffers; - Violation of rules on the elaboration and implementation of budgets; - Violation of rules on the assumption, authorization or payment of public expenses or commitments; - Lack of implementation or improper withholding of legally mandatory deductions from staff; - Violation of rules related to budget, treasury and property management and control; - Illegal advanced payments; - Contraction or illegal use of loan; - Financing of public expenses with funds from treasury operations; - Enforcement of contracts to which have not been granted the seal approval or that have not been subject to a priori audit, when those requirements should be complied with; - Use of money and other assets for any different purpose other than that defined in the law; - Repeated and unjustified noncompliance with recommendations and injunctions; 10
- Violation of rules related to staff contracts. It should be stressed that financial liabilities are a form of subjective responsibility, which is based upon the existence of fault, and intention or mere negligence should be punished. Naturally, the degree of fault will be one of the critical aspects to consider when the Tribunal de Contas expresses its intention to establish the penalty or sanction. As we have had the opportunity to stress, financial liability proceedings are filed on the basis of reports of the audit actions conducted by the Tribunal de Contas or by internal control bodies. In the last three-year period (2007-2009), the Tribunal de Contas ordered refunds and imposed fines in the amount of 853 206. The Tribunal de Contas may also, if appropriate, send the audit reports to the competent bodies in order to possibly enforce other responsibilities, v. g. civil, criminal and disciplinary. IV Conclusions 1. Accountability is a duty of modern public administrations. 2. Accountability is a complex concept, which extends far beyond the merely accounting meaning of the term. 3. Public managers are bound not only to the law, but also to technical criteria of good management, as well as to ethical norms of conduct. 4. The SAIs are challenged to adopt methodologies to respond to the new requirements of accountability (in a broad sense) and to hold public managers accountable. 11