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through technical assistance and financial aid (Santiso 2006a, 2006b, 2004c).2 This research contributes to the emerging literature on the role of fiscal institutions in financial governance and, in particular, the role of oversight agencies in financial accountability. It is structured in six main chapters. After this introductory section, the second chapter discusses the contribution of AAAs to the governance of the budget and the oversight of public finances. It discusses the concept of financial accountability, devises a conceptual framework and develops a quantitative index to gauge the performance of AAAs in ten Latin American countries. The following three chapters compare and contrast the trajectories of AAAs in Argentina, Brazil and Chile, respectively. The sixth and concluding chapter captures this article’s key findings and policy recommendations.

Political economy of government auditing

Some officials handle large sums of money: it is therefore necessary to have other officials to receive and examine the accounts. These inspectors must administer no funds themselves. Different cities call them examiners, auditors, scrutinizers and public advocates. Aristotle, cited in Day and Klein, 1987:9.

Government auditing and financial governance

External auditing of government finances occupies a critical juncture in the political economy of financial governance and executive-legislative budget relations. AAAs are an integral part of the system of checks and balances overseeing government finances, acting as what James Madison (1788) called ‘auxiliary precautions.’ While constitutional provisions and institutional arrangements vary from country to country, AAAs generally act as auxiliary agencies to legislatures in the oversight of public finances and thus contribute to the cycle of legislative accountability. They are autonomous state agencies tasked with overseeing government finances, enforcing ‘horizontal accountability’ and restraining government (O’Donnel 2003, 1998; Mainwaring and Welna 2003; Schedler et al. 1999). 3

AAAs’ role is to provide reasonable reassurances of the reliability of government financial statements and guarantee the integrity of government financial reporting. By enhancing budget transparency and government accountability, they provide potent incentives for improving the efficacy of public spending. However, despite widespread recognition of the importance of independent auditing of government finances, developing countries struggle to strengthen their AAAs. Repeated scandals of corruption and misuse of public funds, especially through flawed public procurement, have revealed important dysfunctions in the systems of fiscal control and government auditing. It is now amply recognized that, in the second stage of reform, improving economic governance, fostering fiscal responsibility and combating corruption necessarily require strengthening the institutions of accountability and oversight in government finances and the budget process.

Latin America counties are symptomatic of the many dysfunctions of fiscal control systems. The nature and functioning of presidential political systems have prevented the consolidation of robust

2 The emergence of direct budget support in recent years places further onus on the need to strengthen financial accountability, reduce fiduciary risk and curb corruption in developing counties finances.

3 ‘Horizontal accountability’ refers to ‘the existence of state agencies that are legally enabled and empowered, and factually willing and able, to take actions that span from routine oversight to criminal sanctions or impeachment in relation to actions or omissions by other agents or agencies of the state that may be qualified as unlawful’ (O’Donnell 1999:38). ‘Horizontal accountability deals exclusively with those actions that ‘are undertaken by a state agency with the explicit purpose of preventing, canceling, redressing, and/or punishing actions (or non-actions) by other state agencies that are deemed unlawful, whether on the grounds of encroachment or of corruption’ (O’Donnell 2003:35).


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