Audit Objections: Problems and Mitigation

Procedures
Definition of Audit:
Audit includes an examination of the books of accounts, other
documents, stores, assets etc. relating to the receipts and
expenditure of government, statutory public authorities and public
enterprises with a view to ensuring that rules and orders framed by
the competent authority in regard to financial matters have been
followed; that sums due have been properly assessed, realized and
brought to account; 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
facts.
Types of Audit:
(a) Financial Statement Audits: A financial statement audit is the
examination of the financial statements of an audited entity with the
primary objective of expressing an opinion on whether the financial
statements truly present the expenditures and receipts in the case
of accounts prepared on cash basis (Government Accounts). In the
case of accrual accounts the opinion shall be whether financial
statements present a fair and true picture of the financial position,
results of operations, and cash flows.

(b) Regularity or Compliance Audits: A regularity or compliance

audit is an examination of the management of expenditures and
receipts, and financial statements and transactions of the audited
entity to determine whether the entity has complied with specific
applicable laws, rules, regulations, procedures, etc. that apply to it.
(c) Performance Audits: A performance audit or value-formoney audit is an objective and systematic examination of a public
sector organizations programme, activity, function, or management
systems and procedures to provide an assessment of whether the
entity in the pursuit of predetermined goals has achieved economy,
efficiency and effectiveness in the utilization of its resources (the 3
Es).
Management of Audit:

Audit Planning

Audit Execution

Audit Reporting

Audit Follow-up
Constitutional and Legislative Authority:

Articles 127-132 of the Constitution: Constitutional Provisions

of authority

Comptroller & Auditor General (Additional Functions) Act-1974

Comptroller & Auditor General (Additional Functions)

(Amendment) Act-1975

Comptroller & Auditor General (Additional Functions)

(Amendment) Ordinance 1983

Audit Observations:
1.

Ordinary Audit Observations

2.

Serious Financial Irregularities

Advance Para and Draft Para :

Advance Para: Serious financial irregularities (SFIs) which are

sent to the Ministry for reply are called Advance Paras.

Draft Para: When no reply is sent or the reply is not helpful to

resolve the observations then the Advance Para is developed into
draft Para for incorporation in the report of the Auditor General.
Different Process of settlement of audit observations:

1.

a) Spot disposal during audit:

Audit observations can be settled during audit when query is

issued and when necessary rectification is done by the auditee.

Audit observations can be settled during seen and discussion

meeting on the last day of the audit by providing necessary reply
along with required information covering, recovery, adjustment
rectification of errors or irregularities.

b) Disposal in headquarter:

Audit observations can be settled through broadsheet reply.

Broadsheet reply can be sent to audit directorate in respect of both
ordinary audit observations and serious financial irregularity.

c) Disposal in the Meeting:

Audit observations can be settled through the holding of bilateral and tri-partite meeting. Bi- lateral meeting takes place

between the audit directorate and the auditee. Tri-partite meeting is

attended by representative from the Ministry, Audit directorate and
the auditee.
1.

d) Disposal by the Public Accounts Committee (PAC):

Public Accounts Committee scrutinizes the appropriation

accounts and the annual finance accounts of the government.

Public accounts committee scrutinizes CAGs Audit reports.

Audit experience in the field audit :
The actual experience of audit while undertaking field audit are as
follows:

Audit is not looked upon as an aid to management

Auditee is generally uninterested in the work of the auditor

Financial statement is not prepared on time by the auditee

Financial statement is not prepared correctly

Cash book is not maintained properly

Delay in producing required vouchers, accounts, and relevant

documents by the auditee affects the progress of audit work

Record keeping is not audit friendly

Response to audit query is not immediate, detailed, and well

documented. Sometimes reply is not given at all.

Discussion on Local Audit Report (LAR) takes place on the last

day of audit program. Experience shows that in many cases auditee
does not want to discuss the report in detail.

Instead of substantial answer to the Local Audit Report (LAR),

the auditee responds by saying that reply would be given in due
course

Recurrence of similar type of irregularities

Correct information is not furnished to the audit party

regarding the number of outstanding paras in respect of the
Organization.

Sometimes accounts personnel are not well conversant with

necessary rules and regulations

Physical verification is not encouraged

Problems regarding settlement of audit observations:

Audited:

Broadsheet reply is not given on time and is not given properly.

Sometimes it is not supported by necessary documents.

Similar reply is repeated over and over

Actions are not taken against those responsible for

irregularities

Administrative and post facto sanction is not given

Write off method is not resorted to

Verified treasury chalan is not provided

Corrective measures are not taken

In case of DPA expenditure, statement of expenditure is not

obtained from the development partner

Delay in sending minutes of bilateral and tri-partite meeting

Lack of initiative on the part of Project Director to arrange bilateral meeting

For serious Financial irregularities (SFIs) broad sheet reply is

not given from the ministry in time

Department sends reply on SFIs directly, not through the

Ministry

Minutes of the tri-partite meeting is sent by the Department

not by the Ministry which is the acceptable system

Audit Directorate

Delay in taking action on the minutes of bilateral and tri-partite

meeting

Delay in the disposal of broadsheet reply received from the

Ministry and the Department

Delay in conducting physical verification following

recommendations of bi-lateral and tri-partite meeting

Streamlining the process of settlement of audit

observations:

Broadsheet reply received form Department and Ministry

should be reviewed by the audit Directorate without delay

The list of audit observations should be updated project wise

and year wise

List of audit observations should be reconciled

Bi-lateral and tri-partite meeting should be organized on a

regular basis

Minutes of bi-lateral and tri-partite meeting should be sent to

audit Directorate within three days

Audit Directorate should respond to minutes of the meeting

within three days

Project Director should arrange bi-lateral meeting when the

audit team is conducting audit

Crash program should be taken with proper explanation and

supported by appropriate evidence

Broadsheet reply should be given with proper explanation and

supported by appropriate evidence

For SFIs, broadsheet reply should be given by the Ministry on

every occasion.