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Introduction: Fiscal institutions and financial governance

Constant experience shows us that every man invested with power is apt to abuse it ... it is necessary from the very nature of things that power should be a check to power. Charles de Montesquieu, The Spirit of the Laws, 1748:XI,4.

In framing a government, which is to be administered by men over men, the great difficulty lies in this: You must first enable the government to control the governed; and in the next place, oblige it to control itself. A dependence on the people is no doubt the primary control on the government; but experience has taught mankind the necessity of auxiliary precautions. James Madison, The Federalist Papers 51, 1788.

What explains the effectiveness of autonomous audit agencies (AAAs) in emerging economies? How relevant are they to improving fiscal governance and curbing corruption? How can they be reformed and strengthened? Anchoring fiscal discipline and budget responsibility are key challenges for emerging economies seeking to strengthen financial governance. AAAs have a key role to play for improving financial governance and discouraging corruption in the public sector. They are pivotal actors in the governance of the budget and the system of fiscal control, providing much-needed checks and balances in the management of public finances. 1

Tasked with scrutinizing public spending and overseeing government finances, they are ‘pillars of integrity’ (Dye and Stapenhurst 1998) acting as agencies of government restraint within the state. They help to improve transparency and accountability in the budget process, traditionally dominated by the executive branch. As oversight institutions, they participate in the cycle of legislative accountability, assisting the legislature in holding government to account for the manner in which it manages public finances.

However, little is known about how to measure their impact and what determines their effectiveness. While AAAs are amply acknowledged as central actors in the governance of the budget, they are often weak institutions failing to fulfill their prescribed role. They are contested organizations, criticized for their inability to curb corruption and reduce waste in government finances. Furthermore, they are particularly hard-to-reform organizations. Their reform has proved particularly elusive in developing countries (Dorotinsky and Floyd 2004).

Although they have been receiving greater attention in the past decade, AAAs remain unexplored institutions of financial governance, outside a small circle of public finance specialists. There exists little comparative research on the functioning and performance of AAAs, most of which carried out by auditors themselves. In particular, the political economy of government auditing and financial accountability has received little attention until recently. The emerging literature on fiscal and budget institutions, to which this article seeks to contribute, is starting to address this shortcoming.

1 Those autonomous state organizations tasked with independently auditing government finances are hereafter referred to as autonomous audit agencies (AAAs). This terminology is used to underscore the autonomy of these organizations within the structure of the state, as part of the checks and balances on government, like oversight agencies and accountability institutions. The International Organization of Supreme Audit Institutions (INTOSAI) officially refers to them as supreme audit institutions to underline their position at the helm of the government auditing systems. They are also called state audit institutions, auditor general’s offices, comptroller general’s offices, national audit offices, courts of accounts, or tribunal of accounts, reflecting different institutional traditions for organising the external auditing function in modern states.

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