Dimension 10.2. Monitoring of subnational governments


10.2:1. This dimension assesses the extent to which information on financial performance, including the central government’s potential exposure to fiscal risks, is available through the audited annual financial statements of subnational governments. It also assesses whether the central government publishes a consolidated report on the financial performance of the subnational government sector annually. Fiscal risks created by subnational governments can take the form of debt service defaults with or without guarantees issued by the central government, operational losses caused by unfunded subnational governments’ quasi-fiscal operations, expenditure payment arrears, and unfunded pension obligations. The net fiscal position of subnational governments that have direct fiscal relations with the central government should be monitored, at least on an annual basis, with essential information on fiscal risks reported to the central government official responsible for subnational government oversight.

10.2:2. Direct fiscal relations, for the purposes of this dimension, include transfers from central government to a subnational government and revenue-sharing arrangements between central and subnational levels, including revenues collected by the central government and shared with a subnational government and vice versa. The term also includes arrangements in which the central government underwrites or guarantees fiscal support, including loans, loan guarantees, and pension obligations.

10.2:3. The consolidated report may be a standalone document covering only subnational governments or it may be part of a consolidated ‘whole of government’ financial report that includes subnational governments along with other public sector organizations.

10.2:4. INTOSAI standards recognize that SAIs and their local branches may have a jurisdictional form known as ‘audit courts’. Jurisdictional control is one of the four types of audit assessed in the SAI

Performance measurement framework. In many countries where external PFM audit is performed by audit courts, jurisdictional control applies at local government level for legal reasons. In those systems, in most cases, the general accountant is responsible for a fully autonomous control system of budget execution and personally liable to audit courts. Annual financial statements are officially endorsed by the general accountant and submitted to audit courts. Such a system, if well applied, ensures that accounts and their transactions are complete, accurate and comply with the national rules. Thus, assessors shall take into account these specific settings when assessing dimension 10.2. Therefore, in such cases, assessors should make sure that:

  • Local government’s accounts are publicly available within the required period,
  • Central government issues a consolidated report on those accounts,
  • The jurisdictional control’s function works effectively.

10.2:5. An effective jurisdictional control function needs that the SAI sets rules ensuring that:

  • The jurisdictional control of all the accounts under the SAI authority is carried out within a reasonable time period,
  • The judgment of all the accounts by the SAI occur within a reasonable time period,
  • The inventory of accounts awaiting judgment by the SAI remains stable or is reduced,
  • The financial amount of these accounts, considering current inflation and increase in public expenditure, awaiting judgment by the SAI is stable,
  • The periods of prescription, if existing, are properly implemented.

10.2:6. An SAI may not have the internal resources and capacities to conduct, every year, a jurisdictional control of every entity under its authority. In this case, the SAI must program its jurisdictional control in such a way that, within a relevant time period, all the entities are subject to its control.


Pillar Three: Management of Assets and Liabilities