2.3. Key elements of establishing regulatory policy

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9/10

Of peer SAIs have looked at: The adequacy of budgetary planning processes, including: facilitating the alignment between budgeting and strategic objectives; ensuring reliability and quality of tools that underlie the budget; managing public debt; assessing long-term sustainability; guiding the multi-annual process of resource allocation.

Nine out of ten peer SAIs have looked at the adequacy of the budgetary planning process and the characteristics needed for its reliability. For example, the SAI of Portugal considers the adequacy of the budgetary planning process as part of its annual Opinion on the General State Account. Additional examples below highlight other ways in which SAIs are assessing the adequacy of the budget and its characteristics:

Examples of SAI work in this area include:  The Auditor General of South Africa (AGSA) is mandated to undertake an annual Budgetary and Strategic Review. Although this activity is formally considered as a financial and compliance audit, it also incorporates a broader assessment of predetermined objectives laid out in the budget. Specifically, AGSA reviews the relevance and measurability of pre-determined objectives and the measurability of targets to help ministries understand shortcomings in their planning. The Auditor General presents findings to relevant parliamentary committees (case study Box 2.8).  Korea’s BAI conducted a performance audit on budget system reforms in 2008. Beginning in 2003, the Korean government introduced four major budget system reforms, including: National Fiscal Management Planning, Top-down Budget System, Self-Assessment System of Financial Programme, and Digital Budget and Accounting System. The changes aimed to streamline financial management and to cope with a decrease in tax revenues and a rapid increase in demand on spending, including for welfare. BAI conducted a performance audit on budget system reforms early on in order to support their establishment. The audit found that the medium-term (five year) fiscal plan (The National Financial Management Plan) did not fully reflect ministries’ work plans, did not have the international budget classification system, and did not have an effective check-and-balance system to prevent ministries from formulating medium-term plans without consultations with the budget authority.3

The openness and transparency of budget documents (Table 2.2, key element C) and inclusive budgetary debate (Table 2.2, key element D)

The OECD believes that an effective legislature is a key ingredient for establishing and maintaining fiscal discipline, and also provides a necessary link with civil society and fosters accountability of the executive. Today’s legislatures scrutinise and authorise revenues and expenditures and ensure that the national budget is properly implemented. This is done through a variety of ways, including committee reviews, plenary debates, and parliamentary questions and interpellations. There is a great variation in legislative influence over the budget in OECD countries, as demonstrated by a legislature’s amendment powers.

In order to engage meaningfully in the budget process, rather than simply serving as a rubber stamp, legislatures require reliable, unbiased information and strong analytical

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capacity. However, the number of staff available to assist the budget/finance committee in undertaking specialised analysis of the budget and related matters varies widely. There is a trend in OECD countries to establish specialised units that assist legislatures with budget-related research and analysis. In some cases, these units are located within parliament, often as part of research services, in others they are independent. Some larger legislatures maintain a large unit – a parliamentary budget office (PBO) or equivalent – to assist the finance committee on public finance work. Across the OECD, these bodies differ in size, constituents and core. Adequate time to reflect upon and debate budget documentation prior to approval is particularly important for ensuring that legislative committees (which exist in all OECD legislatures and provide the most in-depth scrutiny of the budget) have sufficient time to review, debate and propose amendments. However, challenges remain in establishing appropriate transparency and open debates on budgetary choices.

Integrating reliable information that sheds light on the priorities included in previous budgets is a challenge when trying to link strategic and budgetary plans. As discussed above, SAIs use audit activities to promote how ministries can provide more user-friendly evaluations to the legislature and to help the legislature become more accustomed to using evaluations.

6/10

Of peer SAIs have looked at: The openness of budgetary planning processes, including: the existence and/or adequacy of participative and realistic debates on budgetary choices; whether it is fit to inform citizens, legislature and key stakeholders of the true position of public finances.

Examples of SAI work in this area include:  A report by GAO, Budget Formulation Process Emphasizes Agency wide

Priorities, but Transparency of Budget Presentation Could Be Improved, analysed the budgeting formation process of the US Army Corps of Engineers (Corps) and recommended ways to increase the transparency of decision-making procedures to enable project prioritisation (GAO, 2010).

Key Function 3: Establishing regulatory policy

The public sector uses regulations to create “the rules of the game” for government, businesses and civil society. Regulations are an important tool that governments can apply in pursuit of broader economic, social and environmental goals. However, regulations can also cause undue burden and generate inefficiencies, and their use should be justified, particularly in the context of fiscal constraints (OECD, forthcoming).

The 2012 OECD Recommendation of the Council on Regulatory Policy and Governance provided a benchmark for regulatory reforms geared towards cross-cutting and coherent regulatory governance. Increased attention has been placed on using regulatory tools, such as regulatory impact assessments (RIA), stakeholder engagement, and evaluation, to feed into and improve regulatory design, enforcement and review processes (OECD, 2015e). These regulatory tools are critical for improving the quality of regulations at the micro level, as well as for formulating or reformulating governmentwide regulatory policy. Measurable indicators should be established in this phase of the policy cycle, so that ex ante or regulatory impact assessments and ex post evaluations can provide a coherent storyline between the objectives and outcomes of regulatory policy.

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Table 2.3. Key elements of establishing regulatory policy

Stage of the policy cycle

Policy formulation Key functions of a strategic and open state

Strategic whole-of-government steering

Budgetary planning

Establishing regulatory policy

A. An explicit regulatory policy is established with clear objectives of regulatory policy and frameworks for implementation. B. An explicit regulatory policy is established with transparency and engagement (openness) through consultative processes to maximise the quality of information, including in regulatory design to maximise quality of information used as inputs C. Regulatory design integrates ex ante impact assessment and risk management as well as ex post reviews of the stock of significant regulation, to improve regulatory design, efficiency and effectiveness

Creating risk management and internal control policies

Source: OECD (2012a), “Principles 1, 2, 4, 5, 7”, Recommendation of the Council on Regulatory Policy and Governance, C(2012)37, 22 March 2012, OECD, Paris, www.oecd.org/gov/regulatory-policy/49990817.pdf.

The examples in this section demonstrate how some SAIs support key elements required for the formulation or reformulation of regulatory policy and of regulations (Table 2.3). SAIs appear to be responding to government efforts to improve regulatory policy and the quality of regulations through, for example, assessing regulatory reform and government processes for burden-reduction programmes. However, the coverage of SAI work on these subjects appears to be more piecemeal than systematic.

SAI activities that assess and support:

An explicit regulatory policy (Table 2.3, key element A) and regulatory design that incorporates ex ante and ex post assessment (Table 2.3, key element C)

The OECD’s Recommendation of the OECD Council on Regulatory Policy and Governance (OECD, 2012) outlines as its first principle commitment at the highest political level to an explicit whole-of-government policy for regulatory quality, with clear objectives and frameworks for implementation (OECD, 2012a). OECD members, and many other countries, have established their own regulatory policies and there has been some application of a variety of regulatory tools (OECD, 2015e)). However, these policies are often a series of disjointed regulatory policies rather than one coherent policy (OECD, 2015e).

The executive does not typically consider SAIs as a key actor in any particular stage of the regulatory governance cycle. An OECD study of 24 member countries showed that only 5 executives considered SAIs to have a role in evaluating regulatory governance (OECD, 2015e), and none considered SAIs to have a role in the design or enforcement stages.

SAIs do not normally have a role in deciding questions of policy and design, which are matters for the executive and legislative branches that have the electoral mandate.4

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