Audit Management and Audit Observation Settlement Procedure

Transcription

1 Audit Management and Audit Observation Settlement Procedure Shish Haider Chowdhury Finance Controller (Army), Pay-1 Dhaka Cantonment, Dhaka Cell:

2 Definition of Audit The word 'audit' comes from the Latin audire meaning to hear. An auditor is defined in Chamber dictionary as: a hearer: one who audits accounts. The auditors were deputed to hear suspected cases of irregularities, corruption, fraud and other serious offences in medieval times.

3 Definition of Audit Audit is an independent examination of books of accounts, other documents, stores, assets etc relating to receipts and expenditure of the Government, statutory public authorities and public enterprises with a view to ensure that rules and orders framed by competent authority in regard to financial matters have been followed; that expenditure has been incurred with due regularity and propriety; that assets have been properly utilized and safeguarded; that public resources have been used economically, efficiently and effectively; and that the accounts truly represent the fact/ true and fair view.

4 Auditor

5 Auditor- Financial Watchdog

6 Who audits audit?

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10 INTERNAL AUDIT AND EXTERNAL AUDIT COMPANY PERSPECTIVE Basic point Internal Audit External Audit Appointment Internal auditor is appointed by the company management External auditor is appointed by the shareholders of the company at the AGM Status He is a paid employee of the company He is an independent individual Qualification Responsibility Basic job No compulsory qualification is required for the internal auditor Internal auditor serves the needs of the management Review of operations and internal control for developing improvements and ensuring compliance of policies and procedures The external auditor must be a Chartered Accountant His duty is compliance of statutory requirements Expression of an independent opinion on financial statements Scope of work Determined by the management Determined the companies act 1994

11 Internal audit is an unit of the government entity does the auditing job of the expenditure. It is concurrent in nature. The internal audit reports directly to head of the office/department. Internal Audit

12 External Audit

13 External Audit External audit is an independent act by the Comptroller and Auditor General on the accounts of the Government bodies. The C&AG is empowered by the constitution and answerable to the people through parliament.

14 Principles of Auditing Seven principles as extracted from INTOSAI All institutions financed with or supported by public money should be subject to audit by supreme audit institutions, to promote better governance, transparency and accountability; The external auditor is fully independent in the conduct of the audit; The external auditor has sufficient authority to carry out the audit in a manner that meets best practice in the audit of public money

15 Principles of Auditing (Contd.) The external auditor has adequate resources to carry out the audit; The external auditor has the right and obligation to report on the results of the audit; The external auditor meets relevant professional and ethical standards; and The external auditor is appointed in an open, fair and transparent manner.

16 Types of Audit Attest or Financial auditing Regularity or Compliance auditing, and Performance or Value for Money auditing.

17 Verifies the accuracy and fairness of financial statements presented; An independent examination and evaluation to provide reliable and objective information to the parliament. Financial Audit

18 Compliance Audit A regularity or compliance audit is an examination of the management of expenditures and receipts, and financial systems and transactions of the audited entity to determine whether the entity has complied with specific applicable laws, rules, regulations, procedures, etc.

19 Performance Audit

20 Performance Audit Performance audit is an objective and systematic examination of an entity s programme, activity, function, or management systems and procedures to provide an assessment of whether the entity in pursuit of predetermined goals has achieved economy, efficiency, and effectiveness in the utilization of its resources.

21 Audit Work and Mandate The Audit work of the government expenditure is conducted by the Comptroller and Auditor General of Bangladesh; Article of the Constitution of Bangladesh gives the mandate to the C&AG

22 Comptrollership and Auditing The Comptrollership function is undertaken by Controller General of Accounts and its subordinate bodies like CAO, DCA, DAO and UAO; Controller General of Defense Finance and its down streamed organs e.g. SFCs, FCs, AFCs and FPOs and UAs; ADG (F) of Bangladesh Railway and its bottom streams say FA&CAOs, DFAs, Mangers (Pay and Cash).

23 Comptrollership and Auditing (Contd.) Audit Agents of C&AG for auditing functions: Directorate of Civil Audit; Directorate of Commercial Audit; Directorate of Defense Audit; Directorate Foreign Aided Projects Audit; Directorate Local and Revenue Audit; Directorate of Mission Audit; Directorate of Railway Audit; Directoarte of Performance Audit; Directorate of PT&T Audit; Directorate of Works Audit.

24 Process of Government Audit Audit Plan Audit Program Prepare Audit Reports with two volumes: audit observations. annexure Provide training & briefing to audit team Auditing Send to Ministry for their comments. Supervision & Inspection Audit Inspection Report

25 Audit Management Process P A R L I A M E N T Legislative function Monitoring function (Finance Act, Appropriation Act).(Public Accounts Committee) Legal framework. Concerned Offices & authorities. Existing laws, rules, regulation and orders. Ministry of Finance Revenue Earning Agencies (NBR, Ministries, Sector Corporation). Spending Agencies (Ministries, Departments, Sector Corporation etc). Reporting & Monitoring frame work. President Audit Report O C A G Information Analysis Audit observation

26 Basics of Audit Compliance with Public Procurement Act and Rules; Compliance with GFR, TR, Delegation of Financial Power, Fund Release Procedure etc. Special Regulations applicable for the Entity; Ensure Parliamentary requirements; Various circulars of NBR; Audit Code and Audit Standards; and Adherence to DPP/TPP in terms of project management (for projects).

27 End Product of Audit Report Audit Inspection Report (AIR) by audit teams to Executives Auditor General s Report to Parliament

28 Audit Inspection Report ( Statement Auditor s report (Certified Financial Management letter Section 1: General information about project Audit scope Financial operation and control Equipment management Monitoring Evaluation & Reporting Adequacy of management structure Section 2: Audit observations Part-A: Advance Para including SFI Part-B: Ordinary/Normal Para Overall Audit Results Section 3: Follow up action

29 Audit Observations

30 Developing Audit Observation Significant deficiencies, weakness and problems caused by non- compliance with standards, regulations, authority and non-adherence to norms of economy and efficiency impairing the purpose of the project raises issues that are addressed in audit observations.

31 Why Audit Observation Arises Misstatement in FS: Understated, Overstated, Accounting Standards Lack of project documentation in transactions. Non compliance of: Rules, regulations, agreements and other orders issued by GoB and DPs. Non-compliance with loan covenants. Lack of transparency in procurement. Lack of Internal control: Cash management Asset management

32 Poor Monitoring Continued Delay in preparation & submission of records Incomplete information from field offices Non reconciliation of accounting records Long outstanding advances Progress monitoring. Lack of skills Lack of adequate and skill manpower

33 Common Audit Observations Non maintenance and submission of auditable documents Observation related to GOB fund Non adjustment and irregular advance Discrepancy between FS of PHQ & FO Unauthorized expenditure Misuse of money Non realization of Tax/VAT Poor maintenance of assets Excess payment Absence of reconciliation

34 How to minimize audit observations? Personal involvement of Head/PD on financial management; Consultation of previous audit observation; Steps for non-repetition of previous audit queries; Introduction of Internal Control; Maintenance of the updated rules and regulations; Reconciliation and co-ordination between the transaction of field offices & PHQ;

35 How to minimize audit observations? Proper and updated record keeping; Maintenance of proper accounting books; Avoidance of expenditure in the non project areas; Proper monitoring of physical and financial activities and transactions; Immediate response to the audit query; and Arrangement of bi and tripartite audit meeting

36 Procedure of Settlement There are several ways to settle audit observations: Spot reply Exit meeting Broadsheet reply Bi-lateral meeting Tri-partite meeting meeting PAC

37 Audit observations are raised during audit. The Auditee can furnish reply and evidence at that time. If the reply is satisfactory the audit observation is settled in the spot Spot Reply

38 Audit Exit Meeting It is a tri-partite meeting usually held at FAPAD immediately after completion of audit. Discussion held on Draft AIR among DP representatives, concerned ministry, project personnel and FAPAD representatives. After discussion and presentation of evidence observations may be dropped

39 Broadsheet Reply

40 Bi-lateral/Tri-partite meeting

41 Continued.. Broadsheet (BS) reply: After issuance of the AIR, the auditee sends written reply on audit observation to FAPAD. The reply of part- A observation comes through concerned ministry and the reply of Part-B comes directly to FAPAD. Audit observations are dropped after analyzing the BS reply. Bi-lateral/Tri-partite meeting: This type of meeting is usually held by the request of the auditee to discuss and settle audit observations.

42 Audit observations included in the C&AG s audit report are discussed in the PAC of the Parliament. The C&AG s Audit Report is prepared with the unsettled SFI observations PAC meeting

43 Preparation of C&AG s Report SFIs are issued to the concerned Secretary giving 30 days time for reply; Reminder issued giving additional 2 weeks time; D.O letter issued to the Secretary by the Director General giving 4 weeks time; and 2 weeks time for preparation of draft audit report.

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