«THE FRENCH SYSTEM OF REGIONAL PUBLIC SECTOR AUDIT _ General legal framework A recent creation Until 1982, under a legal system whose most recent ...»
* may produce administrative documents, advice and reports, as part of their examination of the performance of audited bodies. Other than in exceptional cases, the content of these documents cannot be subject to any appeal. They are aimed mainly at the authorities running the audited bodies. Matters may be brought before the authorities to which certain bodies are attached, and the ministries overseeing them, via the public prosecutor’s office at the Court of Audit, in whole or in part.
Types of audit
The duties assigned to regional audit chambers fall into three categories:
1 - administrative audit of budgets (budgetary control) 2 - judicial examination of accounts 3 – management or performance audit Every year, local authorities and their public bodies adopt their budget which plans revenue and authorises expenditure. In some cases, the regional audit chamber may
have cause to give advice on the conditions for adopting and implementing this budget:
this is the audit of budgetary measures, which takes the form of a “contemporaneous” audit, preceding or accompanying the adoption of budgetary measures. Implemented a
posteriori, the audit of the conditions of execution of budgets is made up of two parts:
the regional audit chamber gives its opinion through judgements on the regularity of the accounts, this being the judicial audit, and the chamber also reports on the management of the authorising official, this being the management or performance audit.
Audit of budgetary measures
Legislators have given regional audit chambers the original role of auditing budgets, which is an examination of an administrative nature rather than a judicial one. This includes intervention intended to help redress situations characterised by a serious failure in the execution by the authority of its budgetary and financial responsibilities.
The review of budgetary measures is a task carried out prior to the judicial auditing of accounts. Within this duty, the chamber prepares a detailed advice notice, which it forwards to the Prefect as representative of the State; it is the Prefect who takes any necessary corrective measures, but he cannot do this until he has received this prior ruling from the chamber.
Having thus inherited the financial supervision role formerly exercised by the Prefect, regional audit chambers review the budgetary measures of territorial authorities in four
1. The budget has not been passed within the prescribed time limits
When the Prefect places the matter before the chamber, the deliberating body (municipal council, department council, regional council, etc.) is relieved of its budgetary powers.
The chamber works out a draft budget, possibly along the lines of the unadopted budget draft if one exists, and retaining only such expenditure as is unavoidable or essential to the continuity of services. Having considered this draft, the Prefect settles the municipality’s budget and makes it enforceable. A similar system is used for new authorities when it is their first budget.
2. An unbalanced budget has been passed
The law defines the concept of balance, stating that the budget must be balanced in real terms. It is in fact not unusual for an apparent balance to conceal an actual imbalance (overvaluation of revenue, undervaluation of expenditure). The Prefect must involve the audit chamber if the budget which has been passed is not balanced. The chamber confirms the imbalance and proposes necessary corrective measures. If these measures are not accepted by the authority, the procedure continues to the administrative “settlement” of the budget by the Prefect as described above. If the chamber finds that the budget is balanced, it notifies the Prefect of its decision, which is binding.
If an increase in revenue becomes unavoidable, an increase in local taxes is normally the last solution to be considered.
3. Deficit in the management account When the statement of the municipal accounts shows a deficit in the execution of the municipality’s budget amounting to 10% or more of the revenue of the budgetary subclass for running costs in municipalities with fewer than 20 000 inhabitants or 5% in other cases, the regional audit chamber will propose measures required in order to reestablish a balanced budget. When a municipality’s budget has been the subject of corrective measures of this type, the Prefect refers the budget for the following financial year to the audit chamber.
In the three situations referred to above, if the Prefect departs from the chamber’s proposals, he must give explicit reasons for doing so. In the context of the budgetary control task, the chamber plays only a consultative role: the Prefect is not bound by its opinion, and he may deviate from its decision, provided that reasons are given, except where a budget is found to be balanced.
4. Mandatory expenditure has not been included in the budget
In contrast with the three budgetary control cases described above, where only the Prefect reserves the right to involve the chamber, any person with an interest (notably a creditor – for example, a company – which considers itself a creditor of an authority) may call in the chamber if it is believed that the funds required to make a mandatory payment have not been budgeted for. Consequently, the chamber may confirm that an item of mandatory expenditure has not been included in the budget and order the 7/21 authority or body concerned to include it or, if appropriate, ask the Prefect to arrange for the funds to be included ex officio.
The chamber begins by checking whether the expenditure is mandatory, then suggests necessary amendments to the budget so as to make possible that the expenditure be paid.
If these amendments result in an imbalance in the budget, the chamber must ensure that balance is restored.
5. Legislators have allowed for some other types of controls by calling in the
regional audit chambers:
* Audit of the resolutions of public health bodies (hospitals): The director of the regional hospital agency may place resolutions before the chamber if he believes that they will result in expenditure likely to threaten the balancing of the body’s budget. If the chamber agrees, he may cancel the resolution called into question in this way.
* Examination of market conventions or of local public service delegation contracts (outsourcing): This examination takes place at the request of the authorised representative of the State or territorial authority (mayor, regional president, etc.).
Cases where management accounts of public accountants are rejected, or cases of nonpayment of interest on arrears, take the number of possible audit situations to more than a dozen.
6. Procedure The regional audit chamber normally has one month to give a ruling, but the procedure – even though it is restricted by a short time limit – must be transparent and must take into account the arguments of all the parties.
Where a budget has not been passed, the draft budget is sent to the Prefect who makes it enforceable by prefectoral order.
In other budgetary control situations, the chamber’s opinion is notified to the deliberating body. If this body does not adopt the recommended measures within a fixed time period, the chamber issues a new notice to the Prefect, who will make it enforceable by order.
The advice and decisions given on budgetary matters by a regional audit chamber are notified only to the Prefect (or the person concerned) who placed the matter before the chamber, and to the body concerned, except in the case of a budget which has not been passed in time, where the chamber’s opinion must be displayed publicly.
As they are not judicial acts, the opinions given by the chamber on budgetary matters are therefore not appealable to the Court of Audit. It is the decisions taken by the
administrative authority in view of these opinions which may be challenged before the administrative courts4.
Judicial examination of accounts Regional audit chambers are judicial authorities because they judge on the accounts of the local authorities in a quasi-judicial procedure. This historic task is therefore significant as it justifies the judicial character which forms the basis of the chambers’ independence and impartiality.
However, rulings of the European Court of Human Rights5 have called into question the characteristics of the judicial procedures before the audit offices with financial status, contesting their fairness for those liable and criticising their excessive length. Since 2006, the procedural practices of the French audit offices with judicial status have evolved. The Law of 28 October 2008 and its implementing decrees of 19 December 2008 have completely reshaped these procedures to bring them into line with the provisions of the European Convention for the Protection of Human Rights and Fundamental Freedoms.
This large-scale reform had three objectives:
• To clarify the rules on opening proceedings, particularly reflected in the elimination of autonomous formation of the court and in the separation of the functions of instruction, prosecution and judgement; the public prosecutor has exclusive authority to open proceedings;
• To accelerate procedures: where the instruction does not give rise to litigation, the accountant’s situation is ruled on by a “discharge order” delivered by a single judge and no longer by a judgement rendered collectively; in the event of litigation, the “double order” rule (provisional, then definitive) is abolished, with the audit office giving one single judgement;
• To reinforce the balance in litigation by further opening up the debate to the parties, generalising the public hearing and excluding the reporting officer and the public prosecutor from the deliberations.
The judicial examination of accounts is carried out based on three major principles:
1. Chambers judge the accounts, not the accountants They never judge the authorising officials6, except when these are found to be de facto accountants.
Those who improperly collect revenue destined for a public authority, or who extract public monies through fictitious mandates (via slush funds, semi-official bodies, faked invoices, etc.) are effectively at risk of being declared “de facto accountants” by the accounting judge. They must then give account of how the improperly managed funds have been used, justify the public benefit gained from such expenditure, and repay from their personal funds any expenditure not accepted by the judge. They may also be ordered to pay a fine up to the amount of the funds irregularly handled.
The Code governing financial judicial authorities states clearly in Article L.211-1 the principle of the judicial audit: “The regional audit chamber will judge all accounts issued by public accountants for territorial authorities and their public bodies within its jurisdiction”.
Judicial auditing looks at the regularity of operations authorised by public accountants, in relation to both revenue and expenditure. This procedure is formally ordained and hence mandatory, and regional audit chambers settle and clear the accounts by issuing judicial decisions, irrespective of whether any irregularities have been discovered. The purpose of the audit is not only to ensure that the accounts are regular, but also that the accountant has carried out all the checks which he is supposed to complete, notably those relating to the origin and amounts of revenue and expenditure, and that he has not negligently acted to the detriment of the authority concerned. These checks are carried out on-site, on the basis of documentary evidence.
Regional audit chambers deliver their judicial decisions after a contradictory procedure which allows the audited party a right of reply, whereupon they grant discharge to the accountant (no negligence, or the determined negligence did not result in any financial loss for the authority) or may leave him with a liability, in other words, require him to repay a specific amount to the authority concerned, where lack of diligence on his part has led to the authority suffering a financial loss.
These judicial decisions may be appealed before the Court of Audit. Rulings issued by that Court are, like any other rulings, appealable on points of law before the Conseil d’Etat, the highest administrative court in France.
The rules of a fair trial, as defined in article 6-1 of the European Convention on Human Rights and interpreted by the European Court of Justice, apply to all cases of leaving an accountant with a liability, in the first instance and on appeal. A public hearing is organised before any liability is conferred (or any judgement is given on an appeal that covers liability). The report and the conclusions of the public prosecutor are to be communicated to the parties before the hearing. The reporting officer and the representative of the public prosecutor may not participate in or attend the deliberations.
2. Public accountants for territorial authorities are obliged to render their accounts to the chamber responsible for the territory concerned This obligation represents one of the fundamental elements of the French public accounting system. By failing to comply with it, the public accountant exposes himself
to be fined by the chamber at the request of the public prosecutor for financial matters7.
The obligation to render accounts applies to all public accountants for the territorial authorities and associated public bodies, or bodies which have a public accountant.