Audit Management1.ppt

7/28/2019 Audit Management1.ppt

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Audit Management and Audit

Observation Settlement Procedure

Shish Haider Chowdhury

Finance Controller (Army), Log Area

Dhaka Cantonment, DhakaLATC, 25 April 2012


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Definition ofAudit

The word 'audit' comes from the Latin audiremeaningto hear.

An auditor is defined in Chamber dictionary as: ahearer: one who audits accounts.

The auditors were deputed to hear suspected casesof irregularities, corruption, fraud and other seriousoffences in medieval times.
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DEFINITION OF AUDIT

Audit is an independent examination of books of accounts,other documents, stores, assets etc relating to receipts andexpenditure of the Government, statutory public authoritiesand public enterprises with a view to ensure

that rules and orders framed by competent authority in regardto financial matters have been followed;

that expenditure has been incurred with due regularity andpropriety;

that assets have been properly utilized and safeguarded;

that public resources have been used economically, efficientlyand effectively; and

that the accounts truly represent the fact/ true and fair view.


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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 improvementsand ensuring compliance of policies and

procedures

Expression of an independent

opinion on financial statements

Scope of work Determined by the management Determined the companies act 1994


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Internal Audit

Internal audit is anunit of thegovernment entity

does the auditing jobof the expenditure. Itis concurrent innature. The internal

audit reports directlyto head of theoffice/department.


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External Audit


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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.


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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


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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 andtransparent manner.


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Types of Audit

Attest or Financial auditing

Regularity or Compliance auditing, and Performance or Value for Money

auditing.


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Financial Audit

Verifies the accuracyand fairness offinancial statementspresented;

An independentexamination andevaluation toprovide reliable and

objectiveinformation to theparliament.


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Compliance Audit

A regularity or complianceaudit 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.


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Performance Audit


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Performance Audit

Performance audit is an objective andsystematic examination of an entitysprogramme, activity, function, or

management systems and procedures toprovide an assessment of whether the entityin pursuit of predetermined goals hasachieved economy, efficiency, and

effectiveness in the utilization of itsresources.
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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

Bangladesh gives the mandate to the C&AG
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Process of Audit

Audit Program

Provide training &

briefing to audit team

Supervision &

Inspection

Auditing

Audit Plan

Local Audit Report

Send to Ministry for

their comments.

Prepare Audit Reports with two

volumes:

audit observations.

annexure


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Audit Management Process

Legal

framework.

Concerned

Offices &

authorities.

Existing laws,

rules,

regulation and

orders.

Reporting &

Monitoring

frame work.

President AuditReport

O C A G

Information 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(Finance Act, Appropriation Act).(Public Accounts Committee)


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Basics of Audit

Compliance with Public Procurement ActCompliance with GFR, TR, Delegation of FinancialPower, fund release order etc.

Special Regulations applicable for the Entity. Ensure Parliamentary requirements.

Various circulars of NBR.

Audit Code and Audit Standards. Adherence to DPP/TPP in terms of project

management (for projects).


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End Product of Audit

Report

Audit Inspection Report by audit teams

Auditor Generals Report to Parliament


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Audit Inspection Report

Auditors 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

Section 3: Follow up action


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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.


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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


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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

Lack of adequate and skill manpower


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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


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How to minimize audit observations?

Personal involvement of Head/PD onfinancial management;

Consultation of previous audit observation;

Steps for non-repetition of previous auditqueries;

Introduction of Internal Control;

Maintenance of the updated rules and

regulations; Reconciliation and co-ordination between

the transaction of field offices & PHQ;


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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 financialactivities and transactions;

Immediate response to the audit query; and Arrangement of bi and tripartite audit

meeting


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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


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Spot Reply

Audit observationsare raised during

audit. The Auditee

can furnish replyand evidence at

that time. If the

reply is satisfactory

the auditobservation is

settled in the spot


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Audit Exit Meeting

It is a tri-partite meetingusually held at FAPADimmediately aftercompletion of audit.Discussion held on DraftAIR among DPrepresentatives,concerned ministry,project personnel and

FAPAD representatives.After discussion andpresentation of evidenceobservations may bedropped


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Broadsheet Reply


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Bi-lateral/Tri-partite meeting


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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. Auditobservations 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.


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PAC meeting

Audit observations

included in the

C&AGs audit report

are discussed in thePAC of the

Parliament. The

C&AGs Audit Report

is prepared with the

unsettled SFI

observations


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Preparation of C&AGs 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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Audit Management1.ppt