1.

2 THE TRADITIONS OF STATE AUDIT

State audit has existed in some form in nearly all countries autocracies as well
as democracies for several hundred years. And, indeed, accountability for the
use of public funds is a cornerstone of democratic government. The
arrangements for public sector audit take different forms throughout the world,
though there is scarcely a country which does not have an Auditor General or
Court of Audit under one name oranother. 1 Within this variety two broad
traditions may be distinguished.The first is a common law tradition, as seen in
countries of the British Commonwealth, the USA, and some Scandinavian
countries, where the main emphasis is upon the auditor generals responsibility
to report his findings to the legislature who will then decide what
recommendations to make to the government. But the auditor general has no
legal powers to punish the transgressions distinguished in his report.
The second tradition is what might be called a Roman law tradition. Here public
sector audit is conducted by a court, which can hold hearings, and whose
decisions and punishments have legal force. Examples include the Cour des
Comptes of France, the Corte de Conti in Italy and the Tribunal de Cuentas in
Spain. In more recent times a number of countries have introduced significant
changes to the remit and operation of their state audit offices. A common
objective has been to give statutory authority to carry out performance or value
for money audits. In Italy for example, major new audit legislation was enacted in
1994 that enhanced the role of the Corte de Conti and facilitated the
development of performance audit. In Ireland, the Comptroller and Auditor
General (Amendment) Act was passed in 1993, extending the posts remit and
placing performance audit on a statutory footing. In the UK the most significant
enhancement of the status of the Comptroller and Auditor General was the
National Audit Act 1983. The Act followed increasing parliamentary, academic, 2
and general concern about the influence that the executive, in particular the
Treasury, the UKs Ministry of Finance, retained over the resources available to it,
as well as the access rights of public audit; together with the oddity that the
Comptroller and Auditor General audited the Treasury, while the Treasury audited
the Comptroller and Auditor General a conflict of interest indeed! Under the
terms of the 1983 Act the Comptroller and Audit General formally became an
Officer of the House of Commons, emphasising his independence from the
executive. And the National Audit Office (NAO) was funded directly by
Parliament, not by the executive, as the audit office had previously been. Express
powers were given to the post holder to carry out examinations of the economy,
efficiency and effectiveness with which central government departments and
certain other public bodies had used their resources. 3 As a result of the Act, and
the UK Parliaments support, this value for money work became quickly
established. Sixty reports are currently published and presented to Parliament
each year. Since the 1983 National Audit Act over one thousand reports covering
the full range of government activity have been produced. Assessing value for
money requires a rigorous process which commands confidence, particularly of
those intended to act in response to findings and recommendations important if
public audit is to have sustainable beneficial impact. Box 1.1 summarises the
generic principles of value for money work and how it is typically conducted. The
Appendix to this book provides some account of the wide range of diagnostic and
analytical techniques needed. While the Comptroller and Auditor Generals remit
excludes questioning government policy, the programme of value for money
work and other traditional audit activity, particularly the financial audit of the
accounts of government departments, provides considerable insight into both
success and failure in the implementation and administration of public services
and the underlying causes. The NAO value for money studies also increasingly

draw on the experience of the private and voluntary sectors and of other
countries. This enhances the perspective and insights they can provide and
means that the argument and lessons presented in this book have relevance to
public auditing generally.
2.3 BUREAUCRACYS FUNDAMENTAL FLAW
Yet these perspectives are not the whole answer since, in response to the first
argument in particular, all these difficulties could be and have been tackled
by various strategies of improvement. Strategies have included open book
accounting, and consultative machinery designed to achieve compromise and
consensus among stakeholders. These tools may have secured short term gains
from time to time, but have not delivered permanent improvements. These
explanations do not provide the solution because they do not address the
fundamental problem of bureaucracy.20 Bureaucracy looks
inward not outwards, to process rather then outcomes, to hierarchies rather than
teams, to rules rather than initiative, and to detachment from, rather than
engagement in, human interests (Box 2.3). Morris has talked of a characteristic
mindset among public sector managers; the mindset of administrators rather
than of entrepreneurs, leaders or executives. 21 This mindset, he argues, is as a
result of the:
requirement to be faithful agents of their mandated purposes;
duty to achieve these purposes as efficiently and effectively as possible;
assumption of substantial expertise in the field in which they work which
allows them to know how to get desired results and assure quality and
effectiveness in their operations;
expectation of administrative competence;
expectation of being able to prove public resources are not being stolen,
wasted or misused.
As a result:
their orientation is downward, toward the reliable control of organizational operations
rather than either outward, toward the achievement of valuable results, or upward,
towards renegotiated policy mandates. Instead of viewing their task as initiating or
facilitating change, they tend to see it as maintaining a long-term institutional
perspective in the face of fickle political whims. Their principal managerial objective is to
perfect
their organizations operations in traditional roles, not to search for innovations that can
change their role or increase their value to the polity. 22

The consequences are neatly summarised:

For more than 20 years public services have been seen as insufficiently dynamic: too
often they have appeared to be rule bound, unresponsive to changed client and citizen
expectations or lifestyles, committed to outdated practices, technologically
unadventurous, overly influenced by staff interest and professional concerns, and
providing fragmented services that are sometimes costly and largely unaccountable. 23

2.4 LITERARY INSIGHTS

The problem of bureaucracy has been most effectively grasped by writers who
were not administrators or economists, but novelists and philosophers who saw
that bureaucracy had not guaranteed freedom. Instead, bureaucracy propagated
a subtle kind of public control so that citizens of most European, North American
and other industrialised societies accepted a degree of authoritarian state
control over their lives and fortunes which made a mockery of all the hopes for
freedom and selfdevelopment proclaimed during the American and French
Revolutions of the Eighteenth Century and inherent in all subsequent
overturnings of monarchical and aristocratic governments. The criticism of the

modern state as promoting alienation and false consciousness among citizens,

reconciling them to the distortions of life in capitalist societies was, of course,
one aspect of the philosophy of Karl Marx. But other writers and philosophers
also provided acute condemnations which went to the heart of the problems of
public sector management. These were often the more effective because as well
as reaching more readers they were couched in the symbolic language of the
novelist, the analyst of social and political affairs and the philosopher, rather
than in the proclamations of the management specialist. Franz Kafkas
posthumously published novels, The Trial (1925) and The Castle (1926), portray
the ordinary person wrestling with the tentacles of modern bureaucracy,
accused, for example, of offences which are never specified and for which he can
obtain no explanation. He is always held at bay by a vast and sinister official
machine which seems to embody a crazy logic which can never be fully
understood, and where all attempts to assert individuality and personal choice
are denied by those who, in principle if not in practice, are servants of the public.
Kafka, it should be noted, worked all his life as a civil servant dealing with
workers accident insurance. In his Animal Farm (1945) and 1984 (1949), George
Orwell too shows how bureaucracy can instigate and support manipulative
regimes thatdeny human freedom in subtle ways, as in propagating a new
language,Newspeak, whose vocabulary is reduced each year to make
questioning
thoughts literally unthinkable, and as in his aphorism about totalitarian
bureaucracies in Animal Farm: all animals are equal but some animals are more
equal than others. More recently, writers of popular culture have cast further
light on the power play of bureaucrats. Two of the most popular and, arguably,
most timeless television comedies Yes Minister and Yes, Prime Minister depict
the traits and machinations of senior bureaucrats in ways which transcend
national cultures and allow it to be enjoyed all over the world. Behind the
humour, however, there is a sense of futility around the absurd rituals and
constraints imposed by bureaucracy. As an official in one story puts it on
resigning a post, quite honestly, Minister, I want a job where I dont spend
endless hours circulating information that isnt relevant about subjects that dont
matter to people who arent interested. Whilst the civil service recruits and
retains very good people, often because of the intrinsic nature of the work, at the
same time popular television has managed to capture many of its essential
features: the focus on internal gaming, the rules, the insider focus on hierarchy
and positioning, andthe emphasis on form over substance.
2.5 WIDER PROBLEMS WITH BUREAUCRACY
Bureaucracy creates problems in many ways. I would like to suggest six in
particular which I will illustrate with examples. Too often, bureaucracies:
favour the producer and show insufficient concern for the user;
require the citizen to act and think like a bureaucrat;
are poor at learning despite gathering enormous amounts of information;
enmesh themselves in complexity, creating additional problems;
are poor at examining, assessing and debating their own performance;
provide little or no incentive to innovate and make better use of resources.
It is an oft-quoted observation that bureaucracy favours the producer. Michel
Foucault describes how various professions, often seen as bulwarks of the
modern state and whose members are often valued public servants, may
propagate regimes which define and treat those who are ill or mad or

criminal. While such categories are represented as the product of objective

research and reason and in the interests of the disadvantaged and the deviant,
they may actually operate to maintain the power, influence, income, authority
and prestige of the professional groups concerned, and also for the governmental
and other organisational structures within which they work. It may seem harsh to
think of modern professional people in this way yet experience shows that this
possibility should not be ignored auditors themselves need to guard against it.
But, much of the history of the post-war NHS can be seen in terms of a battle
between governments and professionals: since the 1960s successive
governments had seen the professionally based health community as a barrier to
service improvement. In addition, professional self-evaluation was often
considered weak and inadequate with little emphasis on patients as
consumers.26 If bureaucracy has favoured the producers too much, it has also
thought too little of those it was intended to serve. The need for citizens to
behave like bureaucrats can be seen no better than in the way in which they
have been asked to interact with the state.At times, citizens have been variously
required to:
know which organisation to deal with;
appreciate the different layers of government and howthey fit together;
understand the language in which the rules are expressed;
seek out assistance if necessary (having identified where to go and what
to ask for);
find and provide the information they have been asked to provide; and
if it all goes wrong, negotiate different processes in order to complain.
Government bodies have tended to make a series of assumptions for example,
that the customer could cope with complex information and had conscientiously
read all the information provided with an application form. It was no surprise
when testing for a recent audit identified that much published benefit literature
required a reading age five years above the national average. 28 There were some
encouraging signs: some forms are now shorter; some leaflets are better written
and demonstrate a greater regard for Plain English standards; citizens are
consulted more often in the design of written material coming out of
government; and, call centres are available to assist with applications. But, even
now, applicants for many services are expected to negotiate long and complex
processes which do not seem designed with them in mind, or suffer at the hands
of bodies unable, for example, to pass information within the same organisation.
This remains the case, for example, between contact centres dealing with
different benefits. Another reason why government appears to struggle is
because often bureaucracy is poor at learning lessons or sharing them more
widely. This is ironic since stability and record keeping are features of the classic
bureaucracy, and also disturbing because, as has been noted elsewhere, the
most important aspect of policy failure and policy disasters is how mundane they
really are.32 This point has been particularly obvious in the context of the
causes of IT failures. In 2000, the Committee of Public Accounts, concerned at
the repeated and frequently high profile problems with the introduction of new
IT systems within government, produced a report looking back on 25 cases it had
examined since the early 1990s. 33 The report showed that many of the problems
had been repeated over and again, but highlighted that many were about basic
management rather than complex technical issues. Reflecting on the findings,
Pollitt commented:
It is distressing that principles as obvious as [those relating to the importance of senior
management commitment, identifying the needs of users, professionalism in negotiating

contracts and adequate training for users] have had to be re-stated at all. Yet failures on
these points emerge again and again.35

It has not just been IT problems, however, and in 2005 the Committee of Public
Accounts produced a further and more widely focused report which
highlighted that right across government, lessons from cases they had examined
were not being picked up and implemented more widely, even where they were
relevant.36 The Committee considered a number of aspects of delivery:
failure to plan carefully prior to implementation;
the quality of project management;
complexity and bureaucracy;
productivity;
commercial astuteness;
fraud; and
implementation of policies and programmes.
In each case, the Committeewas able to point to cases where similar mistakes
had been made and adequate planning not implemented. Despite the
importance of learning from pilot projects, for example, the Department for
Education and Skills (DfES) went ahead with the Individua lLearning Accounts
(ILA) initiatives (Box 2.6), even though none of the schemes tested proved
workable. A different model was introduced but a rushed implementation
resulted in a scheme vulnerable to fraud which cost the taxpayer 67 million.
None of the difficulties were a surprise lessons had simply not been learned