Pre-auditing, which involves verifying the legality of financial transactions and their conformity with the budget before they are carried out, is one of the main consuming roles of the Court of Accounts (CoA). The CoA Organization Law states that “the CoA’s pre-auditing is a procedure essential for any deal or transaction subject to this auditing to take effect. Any transaction that does not undergo this auditing is considered void, and the relevant official may not put it into effect”. If the CoA withholds approval, the administration must comply, unless the Council of Ministers adopts an explained decision allowing it to bypass the rejection, as we shall explain later in detail.

Because most administrative transactions cannot be executed without undergoing CoA pre-auditing, this auditing is classified as one of the CoA’s “administrative auditing” functions, which are distinct from “judicial auditing” functions. In general, the standards governing supreme councils and bodies that perform financial auditing constrict pre-auditing powers in order to consolidate their judicial role. This is evident, in particular, from Principle 3 of the Mexico Declaration issued by the International Organization of Supreme Audit Institutions (INTOSAI). This principle states that one of the essential requirements for supreme audit institutions to be independent is that, rather than auditing government policy, they restrict themselves to auditing the implementation of policy except in cases where the law requires them to do the former. 

Another important requirement is that supreme audit institutions should not be involved nor seen to be involved, in any manner whatsoever, in the management of the organizations that they audit. This principle has been reflected in several demands and recommendations to abolish the CoA’s pre-auditing and limit its role to administrative post-auditing and judicial auditing. These demands have been translated into many efforts over the years. They included a bill that the Council of Ministers adopted on 12 December 2000, based on a proposal by the minister of finance, to amend the Public Accounting Law and abolish the obligation to obtain prior approval.

Despite this international trend and these multiple demands, recent legislative trends have reaffirmed the pre-auditing role, particularly due to the ineffectiveness of after-the-fact accounting and the lack of any effective financial oversight inside the administrations subject to audit. Even if this form of auditing is retained, several issues remain standing in relation to the way it is conducted and, most importantly, the executive branch’s ability to override a decision to withhold approval and thereby have the final say.

This administrative auditing became even more problematic when the criteria adopted for conducting it – namely that the monetary value of the transactions exceeds a certain threshold – became ineffective because of the collapse of the national currency. Moreover, pre-auditing is imposed on some public law entities or entities that receive public funds not via a legal text but via decrees adopted by the executive branch. Hence, the CoA’s powers are not fixed by law; rather, some of them can be expanded or constricted by the executive branch.

Before discussing these issues, we will first discern the volume of pre-auditing.

The Volume of Pre-Auditing

The CoA’s reports show that the number of pre-audits has steadily increased over the past decades. While 1,600 occurred in 2001, the number had increased to 2,756 by 2013 and to 3,055 by 2015. We have no figures for subsequent years as the CoA ceased issuing reports.

This twofold increase is explained by the following factors. Firstly, the monetary thresholds for pre-auditing had not been amended since 1997 despite the inflation that occurred since that time. The collapse of the national currency significantly worsened this issue, rendering all financial transactions subject, in principle, to pre-auditing. Secondly, state spending increased from USD6.6 billion in 2001 to USD17.5 billion in 2017, the first year in which an annual budget was drafted in 12 years. Thirdly, the scope of the bodies subject to pre-auditing was expanded to include new municipalities.

Many of the judges whom we interviewed confirmed that pre-auditing consumes a significant portion of the CoA’s efforts and thereby limits their ability to conduct post-auditing, which many of them say is supposed to be their primary work.

This imbalance is evident from the figures that appear in the “annual” report for 2013, 2014, and 2015. Pre-auditing decisions numbered 8,378, whereas decisions related to judicial auditing of officials – including temporary and implicit decisions [i.e. approvals resulting from the CoA’s failure to issue a decision by the legal deadline] – numbered 268. Meanwhile, decisions related to judicial auditing of accounts numbered just 12, and administrative decisions related to auditing accounts numbered 17. Conversely, the report does not mention the issuance of any special reports, which constitute another kind of administrative post-audit.

What Does Pre-Auditing Encompass?

What transactions are subject to pre-auditing? What are the entities whose transactions are subject to it? Is pre-auditing limited to the legality of the transactions, or does it also address whether the reciprocal obligations are balanced or appropriate?

The Monetary Threshold

The first criterion adopted to determine which transactions are subject to pre-auditing is the value of the transaction, which must exceed a certain threshold. The threshold defined in Law no. 286 of 1994, ranged between LL5 million for revenues, LL15 million for amicable settlements of legal cases or disputes, and LL75 million for procurements of works and supplies. In other words, when the threshold was set in 1997, it ranged from the equivalent of USD3,300 to USD50,000. Despite inflation over the past decades, no amendment to this threshold was made until 28 November 2024. Hence, the scope of pre-auditing in practice expanded to include transactions that are less valuable than the legislation intended.

This criterion became virtually ineffective following the collapse of the national currency that began in October 2019. Consequently, the CoA became burdened with low-value transactions. Nevertheless, no legislative amendment to the threshold was made until 28 November 2024, i.e. five years after the crisis began.

Regarding the post-2019 financial collapse, three attempts to reduce the number of transactions presented to the CoA were made.:

The first was a memorandum issued by the CoA’s president on 20 February 2024. It stipulated that purchases with an invoice need not be presented to the CoA if their value is less than LL500 million. Irrespective of the pertinence of this memorandum’s content, the CoA president clearly has no power whatsoever to amend the threshold as, in practice, such an amendment exempts the CoA from responsibilities set for it by law. Despite the memorandum’s illegality, some of the CoA’s chambers followed it (others refused to accept it).

The second was a decision, adopted by the government in its 14 August 2024 session, not to present purchases that are made via a request for quotations and are valued at no more than LL5 billion (approximately USD56,000) to the CoA for prior approval. Via this decision, the government freed itself, along with all the administrations subject to the CoA’s auditing, from this auditing for all transactions involving less than the aforementioned amount, contrary to an explicit legal text subjecting them to it. At the time, the Legal Agenda expressed its concern that this government decision would lead to legal chaos as it illegally suspends an essential procedure and thereby enables any interested party to contest the validity of the exempted transactions.

The third attempt was a bill submitted on 23 July 2024 by MPs belonging to several blocs: Ibrahim Kanaan, Hassan Fadlallah, Mohamad Khawaja, Bilal Abdallah, Ali Hassan Khalil, and Jihad al-Samad. The bill aimed to increase the threshold of transactions subject to the CoA’s pre-auditing by 200 to 1000 times. It was adopted recently in the legislative session held on 28 November 2024.

The Entities Subject to Audit

Although the law subjects all public administrations to pre-auditing, the legislators explicitly exempted some public law persons, particularly public institutions and state-owned companies. They justified this exemption with the need to create more flexible frameworks for administering certain sectors. Moreover, in some categories of public law persons (such as municipalities and those that receive public funds), the law leaves it up to various other sources to determine which ones are subject to CoA auditing and the auditing mechanism, thereby depriving the CoA of its authority as an oversight and judicial body with universal jurisdiction.

In fact, General Statute for Public Institutions no. 4517 of 72 exempts public institutions from pre-auditing. Only two institutions are excluded from this exemption, namely the Lebanese University and the Lebanese National Higher Conservatory of Music (their establishment decree subjected them to it). This exemption not only enables these public institutions to spened without pre-auditing but also enables public administrations, in several cases, to evade pre-auditing by transferring their allocated funds to these institutions and delegating them to spend these funds.

For example, the Council for Development and Reconstruction has taken up many projects that fall within the purview of administrations, institutions, and ministries after receiving funds from them for this purpose. Similarly, the Ministry of Telecommunications recently attempted to transfer funds allocated to it to the board of Ogero, allowing the latter to spend them without pre-auditing. The CoA addressed this matter in a decision issued on 29 August 2024, which stated that “the power granted to the minister of telecommunications is connected to the privileges of public authority, is an indivisible whole, and may not be delegated to other bodies in the absence of a law to this effect”. The decision added, “Any relinquishment by the ministry of its powers to Ogero’s board is risky, given the difference between the auditing regulations governing the Ministry of Telecommunications and those governing these boards”. Commenting on this decision, the Legal Agenda said that the CoA had deemed transferring power in this manner to be defective not only because it violates the law but also because it constitutes a fraudulent circumvention of its auditing, although it avoided using the term “fraud” in order not to offend the telecommunications minister.

As for the municipalities, the CoA Organization Law defines the municipalities subject to pre-auditing – namely Beirut, Tripoli, El Mina, Bourj Hammoud, Sidon, and Zahle-Maalaka – but allows the executive branch to subject other municipalities to it via a decree if their revenue exceeds LL1 million. Accordingly, several decrees have been issued subjecting approximately 50 municipalities (i.e. no more than 5% of all municipalities) and a number of municipality unions to this auditing. Hence, major municipalities such as Hazmieh, Baabda, and Jounieh are still exempt from auditing because of the government’s failure to adopt decrees subjecting them to it, which reflects much selectivity in this regard.

The same goes for the companies, institutions, and associations in which the government owns shares, as well as the state’s oversight authorities. While the scope and procedures for auditing these bodies were supposed to be defined by a decree adopted by the Council of Ministers, to this day no decree has been issued. Hence, the provisions of Decree no. 13615 of 1963 remain in force, limiting the auditing of these bodies to post-auditing.

Some bodies also remain exempt from pre-auditing because they do not fall into any of these categories. For example, the text establishing the High Relief Committee failed to define its legal nature, thereby placing it outside the scope of a pre-auditing.

The 2012 bill aimed to plug these gaps by putting all municipalities and municipality unions under the CoA’s jurisdiction. It also sought to significantly amend the companies subject to CoA auditing such that they include any company in which the state, a municipality, a public institution, or legal persons subject to CoA auditing own at least 40% of the shares.

The bill also expanded the CoA’s powers to include auditing concession accounts.

Auditing Transactions’ Legality or Their Appropriateness?

As mentioned earlier, the CoA Organization Law defined the purpose of administrative pre-auditing as “to verify the transaction’s validity and its conformity to the budget and the laws and regulations” (Article 32). The literal wording of this text suggests that the CoA’s function, when conducting pre-audits, is limited to verifying the transaction’s legality and does not include the appropriateness of the deal. The legislature resolved this question in 1954 – i.e. during the early days of the CoA – by explicitly revoking this power, which it had granted to the CoA in 1953. Nevertheless, the CoA has strived to expand its power to encompass the fairness of the prices based on the principle of financial balance,[1] stating that this jurisdiction stems from its function of watching over public funds.

In reality, expanding the CoA’s auditing to encompass these criteria raises several red flags. The CoA is still an auditing body and cannot supplant the administration and its discretionary power to assess the appropriateness – or lack thereof – of the expenditure, provided that the legal norms and the principle of legality are met. Moreover, it is difficult for the CoA, given the large number of transactions it handles, to assess appropriateness during a short timeframe, such as the 10 days granted to it to issue its decision in the context of pre-auditing.

Finally, note that the CoA has endeavored, via its jurisprudence, to expand the scope of its auditing in practice. It has attempted to audit price fairness in multiple ways based on the principle of financial balance and on Article 1 of the CoA Organization Law, which stipulates that its function is to watch over public funds.

Pre-Auditing Procedures

Below, we will address the procedures that the CoA follows when conducting pre-audits, all the way to the procedures for making its decisions and for contesting them. These procedures raise several issues, most of them related to the administrative nature of this auditing. This is the case when it comes to the short timeframes granted to the CoA to make pre-auditing decisions in order to prevent any hindrance to the administration’s work, as well as the ability of the Council of Ministers to override a decision to withhold prior approval via an administrative decision. This we will explore in detail.

Who Conducts the Pre-Audit?

One of the main issues that administrative auditing raises is the potential overlap between the administration and the judiciary. The existence of legal guarantees to prevent this overlap is very important, particularly when it comes to the distribution of pre-auditing work between the CoA’s judges and chambers. The CoA’s council has customarily distributed work between them based on the entities subject to auditing. In other words, the work distribution decision assigns each judge the task of auditing specific administrations, although the decision to grant or withhold approval must be made collectively by the chamber to which the judge belongs. Besides the absence of sufficient guarantees of independence of the CoA’s council, as we explained elsewhere, we must also make the following observations:

1. The Deficiency Stemming from Article 37 of the CoA Organization Law and Its Misinterpretation

Article 37 of the CoA Organization Law stipulates that, “The president is responsible for referring the transaction to the competent judge in accordance with the work distribution decision. He may also handle it himself when necessary or in the cases specified in the work distribution decision”. Based on this article, the CoA’s president has deemed himself authorized to distribute the transactions that the CoA receives and to handle any one of them he chooses himself, even if doing so contravenes the principle of distributing work. CoA President Mohamad Badran has even gone as far as to establish his own chamber that, in addition to exercising its own powers, examines any transaction that he chooses in the aforementioned manner. This move provoked several objections, particularly from the president of the CoA’s first chamber Jamal Mahmoud. She saw it as a distortion of the CoA Organization Law, which is based on the distribution of work among eight – not nine – chambers. This practice also detracts from the power of the judges and chambers, and allows the CoA president to exercise favoritism toward certain administrations. Making matters worse, it lacks transparency as the CoA president makes the decision to retain a transaction without even informing the competent chamber or providing any explanation. Moreover, a close examination of Article 37 refutes the exercise of this power in this manner as the term “president” appears to refer not to the CoA president but to the chamber president. The text states that the “president” refers the transaction to the competent judge (i.e. within his or her chamber), not the competent chamber, as would be the case if it really meant the CoA president.

2. Distributing Administrations Among the Judges Based on Their Political Loyalties

Additionally, and as previously mentioned, the work distribution decision effectively determines the competent judge in principle, so long as the transaction is not withdrawn from this judge under Article 37. This, in light of the lack of guarantees of the independence of the CoA’s council (which has the competence to distribute work), paves the way for political appointments that result in certain administrations being audited by judges close to them. Although no comprehensive data is available in this regard, some work distribution decisions appear to have been made based on sectarian criteria, and some have been amended after the administration objected to being audited too strictly. A review of the work distribution decisions also shows that several judges retained jurisdiction over certain ministries for years. This raises the concern that a close relationship could develop between a ministry or administration and the judge who audits it, which would reduce the chance of effective auditing.

While the law’s text originally distinguished between auditing decisions made by the competent judge singlehandedly and decisions that this judge makes – in light of his or her report – with the bench of their chamber, amendments to the monetary threshold in 1997 effectively eliminated the opportunity for singlehanded decisions. The disappearance of such decisions strengthens the guarantee of collegiality and limits the scope for favoritism to affect these decisions. The government’s 2012 bill attempted to codify this change by limiting the role of the competent judge in the context of pre-auditing to drafting a report about the transaction, with the chamber then making the decision on it.

The Timeframe for Deciding on the Transaction

Under the CoA Organization Law, audits are conducted within short timeframes. Article 39 requires the CoA to decide on the transaction within 10 days or else have its opinion disregarded. If there are requests for information or clarification, the deadline is extended to five days after the documents or clarifications are received. While a short timeframe accords with the nature of the auditing, which is not supposed to obstruct the work of the administration, and its subject matter, which should be the transaction’s legality and not its appropriateness, it assumes that the CoA is also granted broad powers to access administrations’ records and obtain clarifications without delay.

According to information we obtained, the CoA has, in many cases that call for broad explanation, entered a rejection decision into its own records and drafted the explanation later. In such instances, the administration is not served with the rejection decision until it has finished being drafted. While this practice allows improved legal explanation, especially when it comes to relatively new or important transactions, there are concerns that it may in practice obstruct administrative work and generate more objections to pre-auditing.

Finally, note that the 2012 bill sought to increase the timeframe granted to the CoA to decide on a transaction when it requests additional documents, making it 10 days from the date the documents are received instead of five. This change would strengthen the CoA’s ability to scrutinize the documents, especially given the expansion of its auditing to encompass appropriateness, all municipalities, and more public bodies.

Requests for Review

Unlike judicial decisions, several entities can request that pre-auditing decisions undergo review. The CoA’s president, its public prosecutor, and the relevant administration can request a review, and the law sets no deadline for such requests. Several judges told us that some of their decisions have been subjected to multiple, repeated requests for review, usually unaccompanied by any explanation or rationale. These requests put the judges under pressure from inside or outside the CoA.

The 2012 bill sought to reduce the abusive filing of review requests by limiting this mechanism to a period of 10 days from the date of the decision and permitting each of these authorities to use it only once.

The Ability of the Council of Ministers to Override Decisions to Withhold Approval

Finally, the current law allows the Council of Ministers to override a decision to withhold approval of a transaction via an explained decision, based on a request by the administration concerned. Article 40 of the CoA Organization Law allows the relevant minister, the minister of finance, or the relevant administration to present transactions rejected by the CoA to the Council of Ministers. Based on this article, the Council of Ministers has exercised this power broadly during the past decades. One striking example is the fact that between 2010 and 2012, the Council of Ministers overrode 23 CoA decisions, 18 of them related to the Ministry of Public Works and Transport (during the term of Minister Ghazi Aridi). Although Article 41 stipulates that the decision to override the CoA must be explained and occur after listening to its president, most of these decisions appear to be discretionary decisions devoid of any explanation. Hence, these decisions do not rectify the violations identified by the CoA; rather, they reflect an intent by the Council of Ministers to go forward with the transaction despite its legal and financial defects.

The current government has refrained from overriding CoA decisions, according to some of the judges interviewed. However, the role of the auditing bodies came under a clear attack during the government’s examination of a request submitted by the Ministry of Telecommunications. The ministry had objected to the CoA’s decision to deny its acceptance of the sole bidder to administer the postal system. During the session, the auditing bodies were accused of systematically blocking public transactions.

Despite the gravity of this practice, the 2012 bill did not include any amendment to it. Several CoA judges told us that the political authority justifies these procedures on the basis that pre-auditing decisions fall under administrative auditing and therefore are distinct, in terms of how they are made, their force, and even their subject matter, from judicial decisions. Nevertheless, INTOSAI recommends that if any financial auditing institution performs this type of auditing function, there should be more safeguards against any overlap between them and the administration. One of the most important of these safeguards is that the auditing institution’s decisions should not be contestable before any nonjudicial authority.

The Outcomes of Pre-Auditing

Besides the above, while the CoA’s decisions were initially limited to granting or withholding approval, its reports in recent decades show a remarkable diversification in the content of its decisions.

These reports indicate that the decisions in 1968 and 1969 were limited to granting or withholding approval, declaring a lack of jurisdiction, and declaring that no pre-audit can be performed because the transaction has already been put into effect. On the other hand, the reports for 1999 and 2000 include, besides decisions to grant or withhold approval, various other decisions, including partial approval, conditional approval, approval coupled with recommendations, and referring the transaction back to its source to rectify the deficiencies. The latest CoA report, which covers the years 2013, 2014, and 2015, reveals the addition of various new types of decisions, such as decisions to grant conditional approval with cautions, to grant approval with cautions, to grant approval with cautions and recommendations, to grant approval while retaining observations, and to retain the transaction with recommendations. While we were unable to view, and therefore assess, these decisions, the aim of diversifying decisions is clearly to pass illegal transactions while recording nonblocking CoA reservations regarding their legality. This is confirmed by the absence of any procedures for verifying that the reservations have been addressed, the recommendations have been followed, or the conditions coupled with the approval have been met.

The report issued for 2013, 2014, and 2015 shows 14 kinds of decisions and10 kinds of approval, including: full approval, conditional approval, conditional approval with recommendations, approval with recommendations, partial approval, conditional approval with cautions, and approval with cautions and recommendations. Full approvals constituted 62%, 58.5%, and 52.8% of all decisions in the aforementioned years, respectively, and approvals that fall into one of the other nine categories constituted 34%, 37.1%, and 41.5%. In contrast, decisions to withhold approval constituted just 2.8%, 3.3%, and 2.7%, and decisions declaring a lack of jurisdiction constituted 0.8%, 0.81%, and 0.55%.

Several of the judges we interviewed told us that the recourse to these approvals coupled with “buts” or conditions reflects a desire to make the administration’s work easier without omitting legal reservations and comments – a desire that sometimes stems from pressure from the administration itself.

[1] CoA Report for 2013, 2014, and 2015, Chapter 6.

This article is an edited translation from Arabic.