UNIT 2 Audit of Banks, Insurance Companies and Mortgage Banks

MANUAL - AUDITING AND INVESTIGATION ( ACC 406) UNIT 1 The Audit of Public Sector Organizations. Power and Control over public funds as provided for by the constitution. The status and functions of the Auditor-General of the Federation, State Auditor-General. UNIT 2 Audit of Banks, Insurance Companies and Mortgage Banks UNIT 3 - Specialized Audit Hotels, Unit Trusts, Solicitors, Farms, Construction Companies, charities etc. UNIT 4 - Investigation Special engagement and investigation, interpretations of terms of reference, general approach. Investigation of acquisition of companies, prospectus reporting, special investigation (fraud and tax investigations). Investigation Report. 1

UNIT ONE 1.0. AUDIT OF PUBLIC SECTOR ORGANISATION The audit of public sector organization is governed by the Audit Act 1956 as amended in 1999. It requires that the Accountant-General of the Federation or the Accountant-General of the State should present to the Auditor-General of the Federation or the State the Account of Government for examinations and review and state that the accounts show a true and fair view. In expressing this view the Auditor-General of the Federation or the State should be guided by the Financial Regulations l958 as amended. The role of the Auditor-General is to ensure that there is proper accountability by the Executive Arm of the government to the legislative arm for the proper administration of the activities of government. The Auditor- General of the Federation or the state is the officer responsible by the provisions of the constitution to carry out the audit of government ministries and agencies. The constitution of the Federal Republic of Nigeria requires the Auditor-General to be the external auditor to the accounts of the Ministries and government agencies. 1.2 STATUS AND APPOINTMENT OF THE AUDITOR-GENERAL The Auditor-General of the Federation and the state shall be appointed by the President or the Governor on the recommendation of the Federal or State Civil Service Commission subject to the confirmation of the Senate or the State House of Assemblies. The Audit Act l958 provides that the Auditor-General shall audit the accounts of all Accounting Officers and all persons entrusted with government receipts and payments of public monies or in custody of government properties. The Auditor-General has the responsibility of examining the accounts relating to public funds and property and to ascertain whether the objectives of government auditing are met and to state whether in his opinion: (a) The accounts relating to public funds have been properly kept; (b) All public monies have been fully accounted for and the rules and procedures applied are sufficient to secure effective check on the collection and proper allocation of revenues as contained in the Financial Regulations. (c) All relevant records have been maintained in accordance with regulations and there are adequate controls in place to safeguard public funds and properties. (d) That the funds released have been for the purposes for which they were appropriated and the expenditures have been made as approved in the appropriation bill. 2

1.3 FUNCTIONS OF THE AUDITOR-GENERAL OF THE FEDERATION AND STATES. The functions of the Auditor-General of the Federation include the following (1) Auditing and reporting in respect of treasury accounts, accounts of Ministries. (2) Detection and prevention of fraud. (3) Control of loss of funds through ensuring that effective internal control systems are in place. (4) Serving as the Chairman of Audit Alarm Committee and Losses Committee. (5) Attendance during Public Accounts Committee sessions as an adviser to the committee. (6) In addition to being responsible for the auditing of the accounts of the accounting officers and all persons entrusted with public funds, the Auditor-General may also undertake the examination of the accounts of any organization that receives funds from the government such as government Parastatals and voluntary agencies. In performing such functions, the Auditor-General shall have access to all the books, records and returns and other documents relating to those accounts and in the exercise of his functions under the 1999 constitution, he shall not be subject to the direction or control of any authority except the provision of the statute. 1.4 LAWS REGULATING PUBLIC SECTOR AUDIT (1) The Constitution: The Constitution is a legal frame work that regulates not only government accounting but the system r aspects of financial management and control of government revenues, expenditure and property. It also has provision for the audit of government financial activities. (2) Audit Act 1956 (as Amended): This Act covers the areas of audit and accountability of the public sector organizations, especially those in the civil service. The accounts prepared and signed by the Accountant-General shall be presented to the Auditor- General. (3) Finance (Control and Management) Act of 1958 (as Amended): This is the Act that governs the control and management of the public funds especially in the civil service (i.e. Ministries, government agencies and public corporations). (4) Treasury and Finance Circulars: These are administrative regulations issued from time to time to amend or update the provisions of existing rules and regulations and to clarify legal provisions of existing or current law. They are issued from the offices of the Accountant-General, the Civil Service Commission, Establishment and Management Services, Ministry of Finance and Office of the Presidency and of course the office of the Governor in case of the States. 3

(5) Enabling Laws of Government Parastatals. The instruments setting-up public sector enterprises provide generally for the compilation of annual budgets financial statements, the audit and annual reports which are to be submitted to the Auditor- General for onward transmission to the appropriate committee of the legislature i.e. Public Accounts Committee. (6) Appropriation Acts. The Appropriation Act is the product of the Appropriation Bill passed by the legislature and assented to by the Executive arm of government (i.e. the President or the Governor) authorizing the released of fund from the Consolidated Revenue Fund Account for the running of government activities. (7) The Public Sector Auditing Standards: These are issued by the Committee of the Auditor-General for the Federation and States setting out professional standards and guidelines for the audit of public sector organizations in Nigeria. These standards are issued from time to time based on the experiences garnered in the course of audit assignments and also in consonance with the international best practices. 1.5 TYPES OF PUBLIC SECTOR AUDIT The functions and scope of responsibilities of the Auditor-General for the Federation and those of the states have shown that there are three main types of audit in the public sector. These three types have emanated from the fact that the primary objective of the public sector is not to generate profit but render services and stewardship to public. The classifications are: (a) Regulatory Audit: this type of audit is a compliance audit which is focused on the review of government expenditure whether they are in line with appropriate regulations such as Finance (Control and Management) Act, the appropriation bill, the Constitution, the Treasury Circulars and other relevant provisions in force from time to time. (b) Financial Audit This is the type of audit that is conducted on the financial transactions of government. It ensures that the accounting and control procedures are efficient and operating properly and that financial transactions have been properly authorized and accounted for. It is also to ensure that the financial statements and accounts have been prepared to present a true and fair view of the state of affairs of government and the accounts of Ministries and Government Agencies during the period under review. Example of this audit is the review and examinations of the Treasury Accounts, the monthly transcripts of accounts etc. 4

(c) Performance Audit This an audit which concerns the critical examination of financial activities of government expenditure in order to provide evidence that government fund had been used efficiently and effectively in line with the objectives of government. This audit includes the economy, efficiency and effectiveness with which the entity s resources have been utilized in achieving results. It is otherwise known as value for money audit or efficiency audit. 1.6 AUDITING PROCEDURES IN GOVERNMENT The Auditor-General of the Federation and the State shall have the responsibilities to carry out the review and examinations of Government Ministries and Agencies including the accounts of government Corporations/Parastatals. The focus of the audit of government organizations would be: 1.7 AUDIT OF TREASURY ACCOUNTS The Treasury Department which is also regarded as the Accountant-General Office has the responsibility of: 1. Keeping the Consolidated Revenue Fund, Development Fund, Contingency fund and other public fund of the government. 2. Recording of financial transactions of the government and reporting the government s financial position by the preparation of financial statements in a manner that will show the true and fair view. 3. Managing the Federation Accounts and their disbursements to the three tiers of government in case of the Accountant-General of the Federation. 4. Supervising the accounts of all the ministries and agencies and issuance of circulars to the various government units in relation to government accounting and financial control issues. 5. Training all accountants, accounting and auditing personnel in the employment of government 6. Ensuring that adequate internal control system is put in place in all ministries and government agencies. 7. Initiating and formulating financial and accounting policies for the government. 5

The Auditor-General has the responsibility to carry out the review of the Treasury Accounts of Government. The treasury account is the consolidated account of the government and it consists of 11 (Eleven) main statements and they are: Statement No. 1 Public Debt Statement No. 2 Assets and Liabilities Statement No. 3 Consolidated Revenue Fund Statement No. 4 - Development Fund Statement No. 5 - Treasury Fund Statement No. 6 - Special and Trust Funds Statement No. 7 - Other Loans and Investments Statement No. 8 - Losses of Government Funds and Stores Statement No. 9 - Revenue Abandoned during the year Statement No. 10 Guarantees of the Government on Loans to Statutory Corporations etc. Statement No. 11 - Arrears of Revenue as at the end of the year. The main objectives of auditing of Treasury Accounts are to ascertain whether: (a) All the statements have been prepared in accordance with generally accepted government accounting principles. (b) The information contained in the Financial Statements is properly classified, reliable, accurate and complete. AUDIT APPROACH The approach of the Auditor-General to audit the Treasury Accounts would include: (i) Review and examine the revenue and expenditure into and out of the Consolidated Revenue Fund Account. (ii) Examination and review of the revenue into the development fund accounts and also disbursements out of the fund. 6

(iii) Carryout the review and examination of the monthly transcript of accounts submitted by the self-accounting ministries and agencies. (iv) Ensuring that adequate returns have been received from the sub-accounting units i.e. Federal Pay offices or Sub-Treasury Offices which are under the Accountant-General Office in each state of the Federation. (v) Examine the consolidated accounts of the government i.e. the Financial Statements of government financial transactions. (vi) Report to the Public Accounts Committee of the National Assembly or the State Assemblies of his findings on the accountability of receipts and payments of government at the end of the financial year. 1.8 AUDIT OF MINISTRIES/GOVERNMENT AGENCIES The Ministries/government agencies consist of Self-Accounting, Non-self Accounting and Sub- Accounting units. The Auditor-General has the responsibility to carry out the review and examinations of the books of accounts of the Ministries and Government Agencies. The main objectives of auditing the Accounts of Ministries and Government Agencies are to ensure that the financial operations of the Ministries and Government Agencies are in line with the financial regulations. Each ministry of extra-ministerial department is regarded as an accounting unit for the purpose of processing accounts in the public sector. Accounting units are classified into the following three groups and for the purpose of auditing, each accounting unit will be discussed. This in order that the audit approach of the accounts of ministries and extra-ministerial departments is well understood. SELF-ACCOUNTING UNITS These are ministries or extra-ministerial departments where the accounting functions are delegated to the accounting officer. Examples of Self-Accounting units are all federal and state ministries. Before a ministry or department could be designated a self-accounting unit, the following conditions must be met. (a) It must be approved by the Ministry of Finance as a self-accounting ministry or department. (b) The unit must have an accounting manual or account code which must be approved by the Accountant-General and Auditor-General. (c) Establish an Internal Audit Department. (d) Operate a Central Pay Office. 7

(e) Operate two current accounts with the Central Bank of Nigeria, one for Capital Expenditure and the other for revenue account. In the preparation of the accounts of government by the Treasury Department, the selfaccounting ministry or department must forward the following documents and statements to the Treasury Office monthly for the consolidation of the accounts of government. (a) Month transcript of account i.e. the summary of financial transactions on code by code basis. (b) Vouchers schedules. (c) Duplicate copies of vouchers. (d) Duplicate copies of vouchers relating to other ministries where original copies are for governments. (e) Certificate of cash and bank balances. (f) Bank reconciliation statement. SUB-ACCOUNTING UNITS These are ministries and extra-ministerial departments where the accounting function are delegated to the accounting officer but the officer is required to render monthly accounts to the Accountant-General not in details but in sub-head aggregate form, accompanied by the original vouchers. Examples of sub-accounting units are federal pay offices, state pay offices in local government areas, custom area offices and Police Pay Offices. The sub-accounting units are to meet the following conditions for they to be designated as subaccounting units: (a) Must be approved by the Ministry of Finance. (b) Prepare an accounting manual on code by code basis and it must be approved by the Accountant-General and the Auditor-General. (c) Must have an Internal Audit Department. (d) Operate a central pay office (e) Operate two current bank accounts with the Central Bank of Nigeria, one for revenue account and the other for capital expenditure. The documents to be submitted by these units to the Treasury Department are Monthly transcript of accounts, vouchers in support of the transcripts in original and duplicate, copies of vouchers relating to its own head in support of monthly transcripts; and schedule of expenditure not in detail but in sub-head aggregate form. The monthly transcript must be audited by the Auditor-General s staff before being sent to the Treasury Departments, whereas 8

the self-accounting units monthly transcript of accounts need not be examined by the staff of the Auditor-General Office before being sent to the Treasury Department. NON-SELF ACCOUNTING UNITS These are ministries or extra-ministerial departments which are required to maintain complete records of below-the-line receipts and payments such as salary advance, vehicle loan, spectacle loan and other such accounts but incomplete records of the above-the-line account i.e. receipts and payments approved in the Appropriation Act. All the financial transactions of the non-self accounting units are conducted through the Sub-Treasury Office. The payment vouchers are presented to the sub-treasury for processing and payment. Revenue of this unit is paid directed to the accounts of the sub-treasury units since the sub-accounting units are not required to open current account in any bank. The overall financial transactions of subaccounting units are prepared by the sub-accounting units and transmitted to the Accountant- General for the preparation of the global accounts of government. It is noteworthy to mention that the sub-accounting units do not render monthly transcripts to the Accountant-General Office. The examples of non-self accounting units are the federal pay offices located in all the states of the federation. AUDIT PROCEDURES OF MINISTRIES/DEPARTMENT/AGENCIES The following are some of the general audit procedures of the Ministries/Departments/Agencies: (a) Examine and review the monthly transcripts of accounts submitted by selfaccounting and sub-accounting units. (b) Examine and review the below-the-line accounts of the Non-self Accounting Ministries/Departments/Agencies. (c) Check that the internal controls systems installed are working effectively and efficiently. (d) Examine all receipts and revenues from the operations of period under review to ensure all receipts belonging to government are properly collected and accounted for. (e) Ensure that the accounting system in operations provides financial information that is accurate, reliable and the records in place could facilitate the preparation of the accounting and financial statements as required by law. (f) Ensure that all the expenditure carried out are in line with the appropriation act as authorized by the National Assembly or State Assemblies. 9

(g) Carry out the review and examinations of the inventories of stocks and assets of government within the Ministries/Departments/Agencies. (h) Ensure that the activities and programmes are conducted and that there is value for the money released for government s projects. (i) Ensure that the resources of the Ministries/departments/agencies are adequately controlled and utilized in an effective, efficient and economical manner. (j) Examine and review the cashbooks to ensure that all transactions of the selfaccounting ministries and departments are correctly recorded in the monthly transcript of accounts transmitted to the Treasury Department or the Accountant- General s office. 1.9 AUDIT OF GOVERNMENT PARASTATALS OR STATUTORY CORPORATIONS The government statutory corporations are a creation of enabling Act of the National or State Assemblies. These corporations are set-up to provide some specific services to the population. These corporations are funded by the government funds and also from the Internally Generated Revenue efforts of those corporations. The examples of these corporations are PHCN, NNPC, FRCN, NTA, OSRC, BCOS, Nigerian Railway Corporation etc. The enabling law setting-up these corporations provides for the audit of these Parastatals. The audit of these corporations is carried out by the External Auditors appointed by the Boards of the corporations. The main objectives of the audit of Parastatals are: (a) To ascertain that proper accounting records have been kept. (b) Ensure that all expenditures of the corporation are properly authorized by responsible persons. (c) Ascertain whether all financial transactions comply strictly with the general level of probity and public accountability. (d) Ensure that adequate controls exist in all areas of operations in order that there are proper use of the corporation s funds and assets. (e) Ensure that the operations carried out by the corporation are those for which the organization was established. (f) Ensure that all income and expenditure of the corporation are properly accounted for and that the accounts are prepared in line with the generally accepted accounting principles for such organizations. (g) Carry out the verification of assets and liabilities to determine the existence, proper valuation and ownership of the assets of the corporation. (h) Obtain information relating to the operations of the corporation from relevant third parties such as Debtors and Creditors. 10

(i) Ascertain whether the Financial Statements are in are in agreement with the accounting records. (j) Ascertain that the financial statements prepared show a true and fair view of the position of the corporation as at the end of the period. 1.9.1 AUDITOR-GENERAL DUTIES ON THE AUDIT OF GOVERNMENT CORPORATION It should be stressed that the audit of Parastatals is carried out by selected external auditor in public practice. This is so because the financial operations of the Parastatals are distinctly different from the financial operations of the Ministries and Government Agencies. The instrument setting-up government corporations made provisions for the audit of those organizations by external auditor whereas the audit of Ministries and Government Agencies is guided by the Constitution. However, certain duties are imposed on the Auditor- General by the Audit Act in relation to the audit of government corporations. The Constitution of the Federal Republic of Nigeria provides that the Auditor-General, in respect of Government Corporation, shall: (a) Make selection from the list of External Auditors registered with government and send some to the Board of Parastatals from which the Board of the Parastatals shall appoint their external auditors; and (b) Provides guidelines on the fees payable to the External Auditors of Parastatals. (c) Comment of the reports of the External Auditor and send the report of his findings to the Public Accounts Committee of the Legislature. Apart from the above-stated duties, the Auditor-General has oversight functions on these Parastatals. He has the responsibility to carryout periodic examinations and review of the financial operations of the Parastatals. The Auditor-General is expected to monitor the activities of these government corporations in consonance with the Audit Act and to send his personnel to any such Parastatals as may be deemed necessary. 1.10 SPECIAL AUDIT FOCUS OF PUBLIC SECTOR ORGANIZATIONS The audit of public organizations is not entirely different from private sector organizations. But when carrying out the audit of government organizations, certain areas of the financial operations must be emphasized by the Auditor-General. These areas are of specific importance to public sector financial activities. Examples of these specific areas are: 1. REVENUE. The revenue collected by government organization is a vital area of the financial operations. The Auditor-General must ensure that all regulations as to collection, recording and accountability of the revenue are strictly adhered to. The 11

following steps should be taken by the Auditor-General to audit the revenue account of government: (a) Ensure that receipts are issued for all monies collected and such receipts must bear the stamp of the office of issue. (b) Carry out periodic cash survey on the officer entrusted with collection of revenue. (c) Make a check-list of all receipts issued to the officer entrusted with the collection of revenue to ensure that all receipts issued to the revenue collector are adequately accounted for. (d) Trace the triplicate copies of the receipts issued by the revenue collector to the Revenue Cash Book to ensure accuracy of recording. (e) Examine the bank tellers to confirm that all revenue collected had been deposited in the designated government Bank Account. (f) Ensure that the revenue collector do not make any payment from the revenue collected by him. (g) Ensure that there is proper classification of revenue, head by head and sub-head by subhead in line with approved budget estimates for the year. 2. VOTE BOOKS Vote books are part of the essential records in the public sector for the recording of the budgeted amount approved in the appropriation act. This book is mandated by the financial regulations and all officers controlling expenditure must keep vote books for all the approved revenue and expenditure. The importance of this book is that it enables all officers in charge of government offices to monitor their financial transactions. The audit approach carried out by the auditor-general to review and examined the departmental vote allocation books (vote books) in the public are detailed below: (a) Review and examine the copy of approved estimates for the Ministries and departments heads-by-heads and sub-heads by sub-heads. (b) Examine copies of financial warrant and authority to incur expenditure issued by the Ministry of Finance to the Ministries and Departments. (c) Vouch the warrant issued to the vote book to ensure that all entries in the vote book are backed with financial warrants. (d) Ensure that all actual expenditures, liabilities and commitments are recorded in the vote book. (e) Ensure that adjustments are made in the balance available column if the actual cost is more or less than the liability amount already recorded. (f) Ascertain that no unauthorized liability or expenditure is posted into the vote book and ensure that over-expenditure is not made. 12

(g) Ensure that all recordings in the vote book are properly authorized and the signature of the authorizing officer must be evidenced. (h) Ensure that all outstanding liabilities at the end of the financial year are cleared as provided for in the Financial Regulations. 3. CONTRACTS. The auditor-general has responsibilities to ensure that all contracts awarded by government Ministries or departments are properly monitored and also to verify that all contracts awarded follow the normal procedures. The audit of contracts by the auditorgeneral may include: (a) Verify all contract agreements entered into by government and check the minutes of the Tenders Board meetings for authorization of the contract awarded. (b) Ascertain that all interim payments are properly certified before actual payments to the contractors. (c) Ensure that adequate contract information is made available to the public in accordance with due process procedures. (d) Examine the completion certificate to ensure that payment is made on the appropriate certificates. (e) Ensure that all contracts awarded are authorized in the appropriation act. (f) Ascertain that proper records are kept for all payments made and that the vote book contained all relevant information relating to actual release and the outstanding liabilities and commitments. (g) Ensure that all statutory deductions such as withholding tax and retention fee are made. 4. CASH BOOK The Treasury Cash Book No. 6A is the most important accounting record of the Ministries and Departments. The cash book records all receipts and payments in and out of government offices. It is from the cash book that all other financial records are prepared. It is very essential for the auditor-general to review and examine the contents of the cash book to ensure that it is accurately kept and contained all information relating to the financial activities of the Ministries and Departments. The following procedures shall be adopted by the auditor-general when carrying out the review and examinations of the cash book: (a) Ascertain that all receipt and payment vouchers are posted to the cash book in the appropriate columns. (b) Ensure that receipt and payment are posted serially and according to the date of transactions. 13

(c) Trace all receipt and payment vouchers to the cash book to ensure that all postings are accurate in relation to the figure and classification codes. (d) Ensure that all revenues collected and recorded in the cash book are accurately accounted for and to ascertain that all monies are banked by making reference to the bank tellers. (e) Ensure all deductions such as salary advance etc are properly posted to the appropriate column in the cash book. (f) Verify all payment vouchers to ensure that all the payments made are authentic and properly authorized by responsible persons. (g) Carry out the casting of the figures in the cash book to ensure that every brought forward and carry forward balances from one folio of the cash book to the other are correctly transferred to the other period. 5. AUDIT OF SECURITY DOCUMENTS In the public sector, control of security documents is of utmost importance. These security documents must be properly safeguarded because they can be misuse by officers and staff for fraudulent purposes. Examples of these documents are cheque books, receipt booklets and stamps. The auditor-general must carry out the examinations and review of all security documents in possession of the accounting officers and officers in charge of government units or agencies. The following audit approach should be adopted: (a) Ensure that all deliveries of security documents are recorded serially in the appropriate register. (b) Check that all requests for new order of security documents are properly authorized by the responsible official before procurement. (c) Ensure that there is strict internal control in place in respect of security documents. (d) Reconcile both the unused and used security documents and compare with the initial order to ensure that no security document is missing. (e) Ensure that all the security documents both currently in use or unused are kept in a safe under lock and key. (f) Check all cancelled security documents to ensure that they are genuinely cancelled. 6. VERIFICATION OF ASSETS There is the need for the Auditor-General to carry out the examinations and review of the assets belonging to government. The reason for this is that all assets of government are recorded as revenue expenditure and as such there is no assets register in place for the identification of the assets, their location, cost and value. The only means of 14

identification of the assets is the maintenance of inventory lists and register which are placed in the various offices where the assets are located. In view of the fact that there is no assets register for all these assets, it may be difficult, if not impossible for the government to have a clear picture of the assets belonging to it or there will be misappropriation of the assets or outright loss. It is on the basis of the above that verification of assets to determine their location and existence become imperative. The audit procedures for the verification of government assets are as follows: (a) Carryout the examinations and review of the master inventories, i.e. the total inventories of all the assets in a ministry or government unit. (b) Examine the inventory list in each office and carryout physical check to determine that there is agreement between the inventory lists in each office with the master inventories lists. (c) Examine the payment cash book to ensure that all assets purchased during the period are entered into the master inventories. (d) Ensure that all ministries and government agencies comply with the instruction that inventories list must be hung in each offices and government quarters. (e) Ensure that all assets have departmental numbers in order to enable easy reconciliation between the departmental listing and the master inventories. (f) Ensure that any transfer of assets between offices is properly done and that the master inventories are updated for such transfers. (g) Where the auditor-general identifies any missing items, it should be reported. 7. SALARIES AND WAGES Payment of personal emoluments to government workers is a huge expenditure in relation to the total expenditure of government. Therefore it is very important for the Auditor-General to examine and review the actual payment of salaries and wages and also to ensure that payment procedures are strictly followed. The procedures for the audit of salaries and wages in relation to the records and documentations are as follows: (a) Examine and review the comprehensive staff list at the start of the year and at the close of the year. (b) Ensure that all appointments and promotions are properly authorized in line the approved budget estimates. (c) Examine all the Personal Emolument cards of all staff to ensure that adequate information is recorded on the cards to enable the payroll officers have enough information for the preparation of salaries and wages of staff. (d) Compare the payroll with the P.E. cards to ensure accurate of wages. 15

(e) Compare the nominal roll with the P.E. cards of staff to ensure that all officers on the nominal roll are captured in the P.E. cards. (f) Ensure that the bank schedules prepared from payroll are in agreement. (g) Ensure that the transfers from payroll to summary vouchers are accurate. (h) Ascertain that the summary voucher is entered into the vote book to ensure that the actual salaries and wages paid to staff are recorded against the budget estimates. (i) Check the arithmetical accuracy on the payroll and summary voucher. (j) Examine the payroll reconciliation to ensure that all variations are accounted for. 8. STORE AUDIT In government organizations, stores expenditure is very significant. Most government offices have in custody allocated, unallocated, expendable, non-expendable and consumable stores. The auditor-general must, as a matter of urgent audit duties, critically examine and review the stores procedures and other related issues before concluding his work on government ministries and agencies. The following procedures must be adopted: (a) Examine and review all the stores records for efficiency and adequacy. (b) Conduct physical counts of items in the stores on sample basis. (c) Compare all the LPOs and contract agreement on all inventories supplied to the store with the actual receipts. (d) Check that all receipts into store are covered with stores receipt vouchers. (e) Ensure that all issuance out of store are properly authorized. (f) Ensure that all issuance are covered by stores issue vouchers duly authorized. (g) Ensure that bin cards are updated from time to time. (h) Examine and the review the internal control procedures within the stores. (i) Ensure the proper arrangement of stores for easy access to store items for proper checking, (j) Examine and review the security arrangement within the store. (k) Ensure that all store items issued are charged to appropriate heads and sub-heads of account. (l) Ensure that the stock levels procedures are properly in place i.e. re-order, maximum and buffer stocks. (m) Make a report of any loss of store items to the appropriate authority. 16

(9) PENSIONS AUDIT The audit of the payment of retirement benefits to staff beneficiaries is primarily aimed at ensuring that the claims of retiring officers such as gratuities and pensions for both civil servants are carefully examined and approved for payment by the office of the Auditor-General before such claims are paid. The audit of pensions is one of the primary responsibilities of the office of the Auditor-General and the procedures for this audit are: (a) Examine the completed pension forms of the retiree. (b) Ensure that the copy of record of services of the retiree is critically examined for information such as date of appointment, dates of promotion, date of birth, number of years in service and all relevant information in relation to the employment history of the retiree. (c) Examine photocopies of letter of appointment and letter of promotion to the last grade. (d) Obtain copies of letter of notice of retirement and acceptance by relevant authority. (e) Examine copy of computation sheet prepared for the retirement benefits. (f) Verify the details of the debt profile of the retiree to government. (g) Ensure that the calculations of the retirement benefit are in accordance with government regulations from time to time in accordance with the pension scheme. (h) Verify the payment vouchers raised for the retirement benefits for accuracy. 1.11 AUDIT OF SPECIALIZED GOVERNMENT ORGANIZATIONS Some of government organizations have certain peculiarities of operations and activities and need special audit focus. These government organizations are Defence and Securities Agencies such as Military, Civil Defence, police and other para-military organizations. Some others are Foreign Missions, Economic and Financial Crime Commission, Independent Corrupt Practices Commission etc. The audit of these organizations is the responsibility of the Auditor-General of the Federation. The audit approach is not substantially different from the audit of Ministries and Government Agencies but there are some peculiarities which the Auditor-General need to pay particular attention to. AUDIT PROCEDURES (a) Audit of Defence and Security Agencies The special focus of attention in the audit of Defence and Security Agencies will be, in addition to the normal audit procedures: Check the inventories of arms and ammunitions in stores 17

Ensure that payment procedures for supplies and contracts in line with the financial regulations. Examine the release of recurrent expenditure are made from the Consolidated Revenue Fund of the Federation. Examine the nominal payroll of all personnel to ensure that there are no ghost - worker. Ensure that there is proper internal control system in place. Examine the records for the payment of allowances to personnel who are posted to outside locations and also ensure that salaries paid to these staff are properly transferred to their bank accounts until their arrival from posting. Ensure that records are kept for staff who are either lost or dead at outside locations. Critically examine the death gratuities of dead personnel and that their entitlements are paid to their proper next-of-kin. (b) AUDIT OF FOREIGN MISSIONS The audit of Foreign Missions and Embassies is also the responsibility of the Auditor- General of the Federation. In practice, the Audit Department of the Ministries of External Affairs has the primary responsibility of the audit of the foreign Missions. The Ministry will periodically send its Internal Audit Staff to the foreign mission for the purpose of internal check and control procedures. The Constitution of the Federal Republic of Nigeria made a specific provision for the audit of the foreign mission by directing the Auditor-General of the Federation to ensure that the operations of the Foreign Missions are subject to examinations and review. The peculiarities of the audit are as follows: Ensure that the Internal Audit department of such Mission is functioning properly. Examine the records of foreign exchange transactions carry out during the period. Examine the personnel records to ascertain the staff in such foreign missions. Check the report of the Internal Audit Department and carry out detailed examinations and review of areas which need further investigations. Carry out verification of assets of the foreign missions. Ensure that foreign exchange translations of the financial transactions are in line with exchange rate prevailing from time to time and that difference in the foreign exchange translations are properly treated in the account. 1.12 OTHER AUDIT PROCESSES IN GOVERNMENT Apart from the activities of the Auditor-General on the financial transactions of Ministries and government agencies, there are other audit processes put in place for the accountability of 18

government finances. These processes are put in place to augment the activities of the Auditor-General. These processes are: PUBLIC ACCOUNTS COMMITTEE. The Public Accounts Committee is a creation of the provision of the Constitution which ensure that a committee of the legislature is responsible for considering the report of the Auditor-General. This Committee is given the responsibility to: Consider the reports of the Auditor-General on the accounts of Ministries, government agencies and Parastatals. Examine all accounting officers on oaths in relation to investigation of financial improprieties. Ensure that proper investigation is carried out on any areas of the Auditor-General reports which concern any accounting officer. Make recommendations to the legislature or penalties to be awarded against erring officers. Direct the Auditor-General to make additional information available to the Committee in relation to erring officer AUDIT ALARM COMMITTEE The audit alarm committee is part of the audit processes put in place to ensure accountability in government. The audit alarm committee is a way by which the facilitators of the audit alarm system alert authority when irregular payments are to be made. The composition of the audit alarm committee in Federal government ministries and government agencies is made up of the Auditor-General of the Federation as the Chairman, the Accountant- General of the Federation as a member, and a representative from the Presidency also as member. The facilitators of the alarm system are the Directors of Finance and Supplies, Director of Personnel Management and the Heads of the Internal Audit. In the State, the composition of the Committee is made up of the Auditor-General of the State as Chairman, the Accountant-General of the State, and the representative of the office of the Governor. The facilitators of the audit alarm system in the state are the Directors of Finance and Supplies, the Directors of Personnel Management and the Heads of Internal Audit Department. In the Local government administration, the audit alarm committee comprises of the Auditor-General for the Local government as Chairman, Director of Local government or representative of the office of the Governor. The facilitators of the alarm system in the local government are Secretary or the Director of Personnel Management, the Treasurer of the local government and the Head of the Internal Audit. 19

It is their individual and joint responsibilities of the facilitators to alert the Committee before any irregular or illegal payments are made, whether they have been approved in the appropriation act or not. The failure of the facilitators to promptly alert the Committee will make them liable for appropriate share of punishment as provided in the audit act. It is therefore illegal for any payment to be made the Audit Alarm System without an Audit Clearance certificate issued by the Auditor-General after careful consideration of the Audit Alarm Committee. It is important to stress that the audit alarm system in the audit process of the government financial processes is to ensure that all payments made are properly strunized before payment is made. It is a way of sanitizing the financial procedures in government Ministries and agencies. INTERNAL AUDIT UNIT It is also part of the audit processes in government to establish Internal Audit Units in all Ministries and Government Agencies. This is to ensure that all financial transactions are scrutinized properly before payment. It is now mandatory for all Ministries and government Agencies to set-up Internal audit unit in their Ministries and Government Agencies. The functions of the unit are: (a) To ensure that financial transactions comply with the financial regulations. (b) Review the internal control system from time to time. (c) Pre and post audit of payment vouchers (d) Facilitator of the audit alarm system. (e) Carry out verification of the assets and store inventories (f) Carry out periodical cash and stock surveys. (g) Carry out investigation on any areas of the financial activities of the ministries and government agencies. VALUE FOR MONEY AUDIT The scope of governmental auditing has been widened over the years by the demand for independent verification of information to the extent that it can no longer be limited to the audit of financial operations in the accounting records. It has been said that governmental auditing is now concerned with whether governmental organizations are achieving the purposes for which programmes are authorized and funds are made available and that the funds released are spent economically and efficiently and in compliance with the laws and regulations. It is against this backdrop that the issue of Value for Money Audit comes into focus. The concept of value for money audit is that which seeks the maximization of the use of scarce resources for the welfare of the public by ensuring that activities and programmes are 20