UNITED STATES HOUSE OF REPRESENTATIVES
EXTENSIONS OF REMARKS, Page 5142
AN AUDIT PROGRAM IN PERU
HON. HERMAN E. TALMADGE OF GEORGIA
IN THE SENATE OF THE UNITED STATES,
Monday, March 4, 1974
Mr. TALMADGE. Mr. President, an audit program in Peru, assisted by the U.S. Agency for International Development, is serving
as a model for other Latin American countries in an effort to improve the effectiveness and efficiency of their governmental
accounting and auditing systems. Playing a leading role in this project is James P. Wesberry, Jr., of the Institute of Public
Administration of New York, under contract to AID. Mr. Wesberry is a certified public accountant and management consultant
from Atlanta, Ga., and also served three terms in the Georgia State Senate. There appeared in the January issue of the International
Journal of Government Auditing an article by Mr. Wesberry on reorganization of the Government of Peru's audit agencies, where
he has been acting as a consultant to the Peruvian comptroller general. I bring this article to the attention of the Senate
and ask unanimous consent that it be printed in the Extensions of Remarks. There being no objection, the article was ordered
to be printed in the RECORD, as follows:
DRAMATIC REFORM OF PERUVIAN COMPTROLLER GENERAL'S OFFICE (By James P. Wesberry, Jr.)
Prior to 1971 the Comptroller General's Office of the Republic of Peru was a somewhat obscure agency maintaining a passive
attitude toward the irregularities and inefficiencies of an ever growing bureaucracy. The appointment of Oscar Vargas Prieto.
Brigadier General of the Peruvian Army, as Comptroller General in January 1971 signaled the rebirth of the National Audit
Agency as a dynamic force in the efforts of Peru's revolutionary military government to improve and revitalize public administration
in the country. In January 1973 Brigadier General Gulllermo Schroth Carlin succeeded General Vargas as Comptroller General
continuing the dramatic reform and reorganization initiated by him.
New legal provisions were approved including the Organic Law of the National System of Control, the office was completely
reorganized, and professional development and training programs were initiated to strengthen the quality of government audits
and other functions related to control of the public sector.
The new Organic Law of the National System of Control and its Regulations have received world-wide acclaim as the most
modern and far-reaching examples of legislation for a Supreme Audit Institution in a developing country. They are especially
noteworthy in that the "national system" establishes the relationship within its framework not only of the Comptroller
General's Office but also of audits made by internal audit units of the various governmental agencies as well as those made
of such agencies by independent public accounting firms.
Internal auditing is considered to be an indispensable part of the system. Governmental auditing standards appl1cable
to all types of governmental audits are required to be prescribed by the Supreme Audit Institution. Considerable emphasis
is placed by the system upon the establishment of sound internal control as the responsib111ty of each agency head as an integral
component of the system. The law specifically authorizes operational audits of human, material and financial resources applied
by public agencies.
Reorganization was accomplished over a period of several months. The line functions were upgraded from "audit offices"
to "General Directorates of Control" and those responsible for the control of the general government were established
according to the primary categories of sectors:
+The Financial Sector.
+General and Social Service Sectors.
+Public Enterprises. An important new General Directorate was established for the control of public enterprises thus
recognizing the importance of this increasing area of public activity.
+Local Governments. A further General Directorate was established to audit local and regional governments.
Each General Directorate of Control was staffed with professional audit personnel as well as lawyers and engineers permitting
it to function as a fully responsive audit agency within its sphere of control.
The other major reorganization reform consisted of the establishment of a new arm of research and development, the General
Directorate of Systems. Standards and Procedures. Within this branch are included the following newly established offices:
+Organization and Methods--responsible for improvement of administrative support systems, evaluation of efficiency,
and drafting of administrative manuals.
+Research, Development and Planning--responsible for the development of technical standards of internal control and
auditing, research and development in the area of governmental control and auditing, drafting of auditing manuals and uniform
audit programs and internal control questionnaires, and coordination of general planning.
+Control of EDP Systems--responsible for developing technical standards in this area, training and assisting auditors
in the area of EDP auditing and evaluating existing and proposed EDP systems.
+Statistics and Evaluations--responsible for monitoring and evaluating the results of the various control activities
+Engineering Coordination--responsible for the coordination of the activities of the engineers who form part of audit
teams when necessary as well as for establishing construction and maintenance standards and preparing special reports.
The regulations set forth the duties and functions of the various organizational units established and provide minimum
requisites for the chiefs or directors in charge of each unit. High professional qualifications are set forth for the six
TECHNICAL STANDARDS OF CONTROL
To provide guidelines for the establishment of the National System of Control a total of 138 technical standards have
been prescribed thus far covering two major areas: Internal Control and Auditing.
The 95 internal control standards specify minimum requirements for the maintenance of sound systems of internal control
within the various government agencies.
The 43 technical standards of auditing provide guidelines for internal auditors, members of the Comptroller General's
staff and representatives of private auditing firms designated by that oftice to perform audits of public agencies. They include
the ten "generally accepted auditing standards" of the public accounting profession as well as "fundamental"
provisions promulgated by the Office of the Comptroller General.
The two groups of standards thus permit the evaluation of both internal and external control. Accompanying each standard
is a commentary which explains its application and scope.
STAFF SELECTION AND TRAINING A high priority was placed by the Comptroller General on the selection and professional training
of the audit staff. The audit staff was increased to approximately 270 from less than 100 at the beginning of 1971, achieving
the ratio of 75% professional auditors to 25% administrative support personnel-a complete reversal of the ratio which had
been in effect prior to 1971. This conversion necessitated taking on many new employees who were selected from among nearly
1,000 applicants who participated in competitive entrance examinations for positions as auditors, assistants and audit helpers.
Minimum requirements for auditors included a professional degree as a public accountant, a bachelor's degree in accounting
and practical experience. Audit assistants and helpers were accepted with a university degree only and some students in their
final years were approved.
A massive staff training program first concentrated on existing professional audit staff members, then was extended to
new personnel and finally included, at the request of various ministers, internal auditors from a number of governmental agencies.
This program during 1971 provided four basic one-month courses for 277 students in the fundamentals of government accounting
and auditing. During early 1972 two more advanced training courses were given to 96 of the senior professional staff. A course
in the audit of public enterprises emphasized the practical aspects of auditing the various new state-owned corporations.
The second course included the accounting, legal and auditing aspects of financial operations including banking, customs and
tax operations. Twenty- one subsequent courses have been offered to date.
International organization support of staff training included a symposium offered by the Inter-American Development Bank
on auditing of international loans which was given to 23 auditors and the signing of a series of three annual contracts for
programs of technical assistance with the United States Agency for International Development totall1ng US $124,000 in scholarships
for on- the-job training, provision for short term instructors, training materials, course development, etc. Special courses
in English language training were offered to outstanding auditors to prepare them for scholarships.
Two auditors were sent to the office of the State Comptroller of New York for a one year program of on-the-job training
in 1972- 73. They worked as regular audit staff members and participated in the staff training program of that office. Four
top level audit executives were sent to United States universities for specialized training in 1973-74. In addition the USAID
program furnished a technical advisor in governmental auditing from the Institute of Public Administration of New York for
a period of four years, furnished an offset press for printing training materials, supported Peruvian participation in international
congresses and seminars and the interchange of one top official with the Office of the Comptroller General of Venezuela for
one month. It also financed the first course in operational auditing given in Latin America by the U.S. Interagency Auditor
Training Center employing simultaneous translation and the development of the Spanish language course in applied operational
auditing by a retired official of the United States Comptroller General's Office.
Closely related to the training efforts was the establishment through the USAID program of the new technical library of
the Comptroller General's Office which now includes over 4,000 books and other publications in the fields of accounting, auditing
and public administration.
An integral part of the program of professional staff upgrading was the "across the board" increase of salaries
to end the continual loss of top auditors to other public and private entities which were paying higher salaries. By the end
of 1971 the average starting salary for an auditor had been increased by 53 percent. In addition, a number of merit increases
and promotions were made. This helped immeasurably in attracting better qualified new personnel as well as overcoming the
continual loss of good professionals which had plagued the Comptroller General's Office for many years.
A massive public employee training program in budgeting, accounting and control was also carried out in 1972 and consisted
of an intensive one-week course in the three topics by five teams of three instructors, each in 27 different cities throughout
the country outside the Lima area. A special text book was prepared in three sections marking the first time that a specific
text was prepared for a course of this type in Peru. Other features of the course were the use of visual aids illustrating
good internal control, practical case studies and a concluding examination. The course reached 7,000 public employees having
administrative and financial responsibilities and was the largest single effort in public administrative training ever undertaken
SCHOOL OF GOVERNMENT AUDITING
The School of Government Auditing was formally established in 1972 to administer all future training courses. It is also
responsible for the operation of the library, the program of professional research and development, conferences, seminars,
workshops and the publication of a quarterly professional Journal, Peru Control, distributed to the audit staff and internal
auditors throughout government service. The School gives basic training courses in financial and operational auditing as well
as specific and advanced courses on internal control, bank auditing, audit of EDP systems, writing audit reports, advanced
audit techniques, investigatory audit techniques and so forth.
A full-time director, chief of academic studies and secretary were appointed; however, the professors at the School consist
of outstanding auditors of the Office of the Comptroller General who contribute their practical experience for specific courses.
A special course for instructors prepared 22 audit supervisors to serve as professors in the school. Specially invited instructors
also give valued assistance occasionally.
Through 1973 the school had trained 1,100 governmental auditors from all levels of government in 27 training courses totaling
84,349 student/hours of training. Included were 27 students from Supreme Audit Institutions of six other Latin American countries
invited in collaboration with the Latin American Institute of Auditing Sciences. Of particular interest is the course in applied
operational auditing which presents a practical case study of the audit of a fictitious governmental agency from the initiation
of the audit through the writing of the audit report. The text materials for this course consist of 28 chapters of auditing
manuals of the United States Comptroller General's Office translated into Spanish.
OTHER REFORMS AND ACTIONS
One of the first steps taken at the start of the reform program was the writing for the first time of the broad operative
procedures and rules of the agency. This included a number of provisions for upgrading the quality of government audits and
these were later incorporated into the permanent regulations and the technical standards of control.
A major reform was the abolition of the Superior Court of Accounts which had been a prime bottleneck in the process of
fiscal control for many years as it created a legal process within the audit process which sometimes delayed publication of
audit reports tor four to five years. Major efforts were made toward clearing out all pending audit reports which had been
caught up in this process.
While ample legal provision had existed since 1964 for penalties to public servants negligent in their duties, these provisions
had never been effectively applied before 1971. Beginning in that year many penalties were ordered thus initiating a real
effort to improve public financial administration, bring accounting records up to date and establish the necessary discipline
in the financial management of public entities. Penalties were applied at all levels of public servants including accountants,
mayors and Directors General.
Two major control actions were undertaken during 1971 in addition to normal activities. Operation CONTALDI-ARQ (an acronym
for "accounting up-to-date and surprise cash counts") was conducted at mid-year consisting of special examinations,
made on a surprise basis of 1,413 public entities outside Lima and employing the entire audit staff in surprise cash counts,
determination of adequacy and timeliness of accounting records and reports and brief evaluations of systems of internal control.
Over U.S. $1,600,000 in idle cash funds were returned to the public treasury as a result of this operation. Ninety-seven
public agencies were penalized for grave deficiencies and 22 agencies were scheduled for audit due to irregularities. It was
determined that the most poorly administered public entities from the financial viewpoint were municipalities, public welfare
agencies and universities. The primary benefit of this massive control operation was to make the entire Peruvian public administration
aware that the Office of the Comptroller General was now taking aggressive action.
"Operation Lima" was initiated in October of 1971 and consisted of general audits of selected major ministries,
banks and public enterprises in Lima. These likewise resulted in numerous findings of irregularities and corrective actions
were initiated. Over U.S. $250,000 was returned to the public treasury as a result.
The impact of these two massive operations of control on the Peruvian public administration has been considerable with
notable improvements being made even by agencies not yet subjected to audit action. Other public funds returned to the treasury
as a result of normal audits totaled over U.S. $175,000 bringing the total recouped in 1971 to over U.S. $2,025,000.
As a result of 102 audits for special examinations during 1972, a total of 84 final decisions involving financial responsibilities
of accountable officials provided for recoupment of U.S. $313,401 in public funds. Administrative responsibility or penalties
were established for 487 public servants as a result of audit findings.
As an illustration of the support given to the Office of the Comptroller General by the Council of Ministers, the authorized
expenditures of this office were increased by 56 % 1n 1971 over 1970 and a further increase of 27% was approved for 1972.
These increases primarily include salary raises for existing employees, additions of new professional staff members and costs
of rental and operation of a new building.
Special working groups named by the Comptroller General have performed a number of important research studies which will
be incorporated into the Auditing Manual of the Office of the Comptroller General presently being drafted. These include the
(a) Development of a uniform method of indexing and cross referencing audit working papers and uniform audit tick
(b) Development of a standard internal control questionnaire. (c) Development of a uniform audit-program.
(d) Study of the preparation of official audit findings of irregularities.
(e) Study of the detailed process involved in the establishment of individual accountability for irregularities and
the application of disciplinary measures.
(f) Provisions for the designation of private auditing firms to conduct examinations of governmental agencies where
Because of the great strides made by Peru's Supreme Audit Institution in its reform and reorganization the site of the
Latin American Institute of Auditing Sciences (ILACIF) was transferred to Lima in late 1972. This technical-professional regional
organization comprising 17 Latin American Supreme Audit Institutions has been given new impetus under the Peruvian Comptroller
General's leadership having to date initiated training programs including a course 1n cost accounting offered for the Bolivian
Institute of Public Administration in La Paz and has given technical assistance to the Offices of the Comptrollers General
of Bolivia and Ecuador at their request. In addition it publishes a monthly technical news bulletin and has published several
technical documents dealing with governmental auditing. Plans call for considerably expanded operations if international organization
technical assistance is forthcoming.