Audit Management and Audit
Observation Settlement Procedure
Shish Haider Chowdhury
Finance Controller (Army), Pay-1
Dhaka Cantonment, Dhaka
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.
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
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 No compulsory qualification is required
for the internal auditor
The external auditor must be a Chartered Accountant
Responsibility Internal auditor serves the needs of the management
His duty is compliance of statutory requirements
Basic job Review of operations and internal control for developing improvements and ensuring compliance of policies and procedures
Expression of an independent opinion on financial statements
Internal Audit
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
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.
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
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.
Types of Audit
• Attest or Financial auditing
• Regularity or Compliance auditing, and
• Performance or Value for Money
Financial Audit
• Verifies the accuracy
and fairness of
financial statements
presented;
• An independent
examination and
evaluation to
provide reliable and
objective
information to the
parliament.
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.
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.
Audit Work and Mandate
• The Audit work of the government
expenditure is conducted by the Comptroller
and Auditor General of Bangladesh;
• Article
127-132
of the Constitution of
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).
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;
Process of Government Audit
Audit Program
Provide training & briefing to audit team
Supervision & Inspection
Auditing
Audit Plan
Audit Inspection Report
Send to Ministry for their comments.
Prepare Audit Reports with two volumes:
– audit observations. – annexure
Audit Management Process
Legal framework. Concerned Offices & authorities. Existing laws, rules, regulation and orders. Reporting & Monitoring frame work. President Audit Report O C A GInformation Analysis Audit observation Revenue Earning Agencies (NBR, Ministries, Sector Corporation). Spending Agencies (Ministries, Departments, Sector Corporation etc). Ministry of Finance P A R L I A M E N T Legislative function Monitoring function
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).
End Product of Audit
• Report
Audit Inspection Report (AIR) by audit
teams to Executives
Audit Inspection Report
Auditor’s report (Certified Financial Statement)
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
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
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
Continued ……
Poor Monitoring
Delay in preparation & submission of records
Incomplete information from field offices
Non reconciliation of accounting records
Long outstanding advances
Progress monitoring.
Lack of skills
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
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;
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
Procedure of Settlement
There are several ways to settle audit observations:
Spot reply Exit meeting Broadsheet reply Bi-lateral meeting Tri-partite meeting PAC meeting
Spot Reply
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
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
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