Emasculating Public Accountability in the Name of Competition: Transformation of State Audit in Victoria

Abstract

This paper outlines contextural processes that resulted in the comprehensive transformation, in 1998, of a state audit institution in Australia. The reforms to the Victorian Auditor-General’s Office were ostensibly an outcome of the implementation of institutional economic theories, and more particularly a commitment to adopt competition policy in the public sector. They resulted in the adoption of a segmented model of state audit in which all state audits were made fully contestable. The right to conduct audits was stripped from the auditor-general and transferred to a statutory body, the principal function of which was to compete with private audit firms for the conduct of all financial statement and performance audits of all government bodies. The paper explores two major issues raised by these reforms. First, it considers whether the public accountability obligations of auditors-general can be maintained under a regime in which auditors-general conduct no audits. Second, it examines whether the reforms can be justified on the basis of the inefficient performance of the auditor-general, or of the implications of economic theory. The paper rejects the contention that principles enshrined in competition policy are an appropriate basis on which to reform state audit. This conclusion is reinforced through analysis of accountability and public interest considerations, the implications of the economic theories underpinning the thrust of the government’s reforms, and evidence rejecting the contention that the auditor-general acted as a monopoly supplier. The paper concludes, as widely contended at the time, that the audit reforms undertaken in Victoria in 1998 were politically and not economically motivated.