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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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