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AUDIT PLAN

A UDIT Y EAR
2008-09

This document is the property of the Office of the Auditor General of Pakistan. No part of this document may be reproduced in any material form or transmitted to any other person without the prior written permission of the Office of the Auditor General of Pakistan.

The core team involved in the preparation of this Audit Plan includes;

Name Designation Name Designation This Audit Plan submitted to the Office of the Auditor General of Pakistan by; (Name of the Head of the Office) Director General For further information or clarification about the audit plan please contact Office Name Address Phone: (0 ) Fax: (0 ) Name Designation Name Designation

AUDIT PLAN
AUDIT YEAR 2007-08

CONTENTS

1. Overview of the Office..............................................................................2 3. Vision and Mission....................................................................................8 4. Core Values.............................................................................................10 5. Primary Stakeholders and Related Expectations....................................12 6. Environmental Scan................................................................................14 7. Strategic Goals.......................................................................................22 8. Human Resource Development..............................................................26 9. Pendency of Audit Reports.....................................................................29 SECTION II: GLOBAL RISK ASSESSMENT........................................................................31 1. Identifying Risks, Issues and Themes ....................................................32 2. Criteria for Prioritizing Issue/Risk/Theme................................................35 3. Prioritizing Issue/ Risk/ Theme................................................................37 4. Prioritized Issues/Risk/ Theme Evaluation...............................................38 5. Focusing on Issues/ Risks/ Themes ........................................................40 SECTION III: ENTITY LEVEL PLANNING...........................................................................42 1. List of Auditees.......................................................................................43 2. Prioritizing Audits....................................................................................44 3. Type Name of Audit Entity/ Auditee Here...............................................50

Section I: Strategic Planning


1. Overview of the Office..............................................................................2 3. Vision and Mission....................................................................................8 4. Core Values.............................................................................................10 5. Primary Stakeholders and Related Expectations....................................12 6. Environmental Scan................................................................................14 7. Strategic Goals.......................................................................................22 8. Human Resource Development..............................................................26 9. Pendency of Audit Reports.....................................................................29 SECTION II: GLOBAL RISK ASSESSMENT........................................................................31 1. Identifying Risks, Issues and Themes ....................................................32 2. Criteria for Prioritizing Issue/Risk/Theme................................................35 3. Prioritizing Issue/ Risk/ Theme................................................................37 4. Prioritized Issues/Risk/ Theme Evaluation...............................................38 5. Focusing on Issues/ Risks/ Themes ........................................................40 SECTION III: ENTITY LEVEL PLANNING...........................................................................42 1. List of Auditees.......................................................................................43 2. Prioritizing Audits....................................................................................44 3. Type Name of Audit Entity/ Auditee Here...............................................50

1. Overview of the Office


Overview includes office key statistics of your office (such as the number of employees, physical location including regional representation), a brief, general description of expenditures, and a brief description of responsibility areas. Geographical Locations and Human Resource Statistics No. of Employees according to Office Location

Office Location

Task assigned

No. of Employees Sanctioned and Available in Various Grades Office Location Wise
Post/BPS Locatio n Locatio n Locatio n Locatio n Total Availa ble Sanctio ned Strengt h Surplu s/ Shorta ge

DG 20 Director 19 DD 18 AD 17 AO 17 AAO 16 SAs 11 JAs - 5

Total

Note: Paste/ Attach Organizational Structure of your office Profile of Key Staff Members
S. No. Name Designat ion Qualificat ion Years of experien ce Area of specialization/ skill set

Training courses conducted for officers and staff during the audit year 2007-08
S. No. Course Particulars Dates Number of staff trained Grade Band

Financials Amount in Rupees Major and Minor Object Wise Account Code Particulars Audit Year 2007-08 Budget Actual upto 30 April 08 Audit Year 2008-09 Budget Estimates

Note: Please provide account codes and particulars as per New Chart of Accounts.

Summarize a brief overview of products and services provided by your office during audit year 2007-08 in table given below:
Products/ Services Methodolog y Used Methodolog y Prescribed by OAGP Start Date of activity End date of activit y Numbe r of staff involve d Current status of Product/Service s

In relation to audit activities for the audit year 2007-08, what is the planned date for; completion of field work completion of DAC meetings

submission of audit report for quality assurance printing of audit reports and presenting to the legislature completion of certification audit submission of certified financial statements to APR&SD wing printing of financial statements and presenting to the legislature What are the entities of which your office conduct certification audit? Also specify the latest financial year for which financial statements have been certified.
S. No. Entity Financial Year

2. Mandate
Office of the Auditor General of Pakistan is the primary national institution that supports Parliamentary Oversight by promoting accountability, transparency and good governance in the management and use of public resources through its independent and objective reporting. The mandate of Auditor General of Pakistan is prescribed in section 168 to 171 of the Constitution of Pakistan Auditor Generals Ordinance 2001. Each DG Office is a strategic audit unit of OAGP that facilitates Auditor General of Pakistan in accomplishing his constitutional responsibilities. Please answer following questions in relation to the audit mandate of your office. 1. What is the mandate of your office and how it was communicated?

2. What are the products/ services your office is providing to the clients/auditees?

3. Does your office activities correspond to your office mandate and how?

4. If there is no mandate for such services/ product, what is the motivation for still providing those services/ product?

5. For the line(s) of business you have been auditing please complete the following table: Is the Mandate clear enough Does the Mandate help you to cover

Type of Audits

your scope of work? Yes No Yes No

6. Do you need any assistance on clarification your mandate?

7. Does your mandate enable you to meet the needs of stakeholders?

8. For the each product and service provided by your office what guidelines/ procedures are used by your office and what are the guidelines prescribed by Auditor Generals Office.
Products/ Services Methodology Used Methodolog y Prescribed by OAGP Reasons for not using prescribed methodology (skill deficit etc.)

9. Does what you do to overlap with other audit offices? If so, name the key offices and state how you liaison with these organizations to ensure efficiency and effectiveness.

10. The services/ products you are providing fits with Governments strategic direction or because we have always provide these products/ services?

11. Are services/ product you are providing would like to change or refine? If so, how will your office address these issues in the future?

3. Vision and Mission


A mission statement is an outcome oriented statement which systematically diagrams the vision by answering the questions who, what, and why. It must be realistic and achievable in approximately two cycles of strategic planning and should indicate how it will be measured. It should tell the ultimate outcome desired in the near future. It should be brief and memorable, and support the direction required by the organization to which it reports. It is not a descriptor of the programs and services or what the organization is about and it does not answer how it will be achieved. Vision Statement of OAGP: A Model Supreme Audit Institution Adding Value to the National Resources. Mission Statement of OAGP: Serving the Nation by Promoting Accountability, Transparency and Good Governance in the Management and Use of Public Resources. When you are finished count the number of Yes statements and rate the vision and mission statement keeping in mind that 5=excellent, 4=good, 3=fair, and 2/1=poor.

The Vision and Mission Statements

Vision Ye s

Missio n No

No Ye s

1. Can be accomplished by this organization within the next 3 to 6 years 2. Clearly identifies the intended primary stakeholder(s) (Who?) 3. Clearly outlines the desired outcome (What?) 4. Clearly describes the general benefit of our programs

and services (Why?) 5. Is brief and measurable Totals: Rating Vision Statement: __________________ Mission Statement: _________________ Comment: (If any)

4. Core Values
Values are the fundamental principles, which can be described as actions that guide behavior and decision making. OAGP has adopted INTOSAI Code of Ethics and as an employee of OAGP its responsibility of all of us to comply with the requirements of INTOSAI Code of Ethics. In addition, OAGP has defined following three core values for the organization. Integrity: At OAGP we seek uncompromising integrity from each individual. Integrity is our Arsenal and we believe that an auditor without Integrity is a solider without weapons. Quality: All of our work should confirm to professional standards. There will no bargain of quality for quantity. Partnership: We seek better relationship with stakeholders by; Aligning our goals with Govt. reform agenda Understanding our clients Improving communication with stakeholders Working as partners Help clients achieve their objectives economically, efficiently and effectively. Questions 1. Are you clear about OAGP values? 2. Can you describe how these values are manifested in your actions? 3. Are your employees aware of such values? 4. Do your staff need training regarding values and code of ethics. 5. Are your audit activities influenced by these values you have articulated? 6. Have you completed an environmental scan Response Yes No Explanation

to determine if OAGP values are observable and support the achievement of our objective?

5. Primary Stakeholders and Related Expectations


Stakeholders: Any person, group, or organization that can place a claim on the organizations attention, resources, or services e.g. Legislature, Federal Govt, Provincial Govts, Auditor Generals Office, Employees, PIFRA etc. Need: Certification of financial statements, Value for Money Audit, Training, Reward etc. Who are our stakeholders (both internal and external) What stakeholders need (Product/ service) from us How stakeholder s influence and judge us Do our stakeholder think that we: Meet Sometim Rarel their es meet y needs their satisf needs y their need

Comment:

6. Environmental Scan
Environmental scan allows abstraction from information available relating to environment in which an entity resides. The purpose of environmental scan is to provide information on the strengths and weaknesses of the organization in relation to the opportunities and challenges its faces. This information will be used to define the strategy to achieve organizational objectives. Sources of information for environmental scan A list of possible sources of information is given below, please mention the source of information you used for environmental scan. S. No. Particulars Used for Environmental Scan Yes No N/A Details

1 2 3

4 5 6 7 8 9 10 11 12

analysis of past reports analysis of minutes and newsletters analysis of local, national, international standards consultations individual, group and community direct observations evaluation reports focus groups Interviews literature, news papers, websites Questionnaires review of records statistical analysis

13 14 15

suggestions from stakeholders surveys work samples

Internal Analysis Internal analysis involves analyzing the functions, processes, systems and culture of the entity. Each Audit office should conduct its internal analysis which will identify its strengths and weaknesses. Given below are the factors that should be reviewed during internal scan. The list is not exhaustive and details considered necessary may be added by the audit office.
S. No. Particulars Reviewed Yes 1 No N/A Details

effectiveness and efficiency of internal business processes

employee relations

human resources and projected future requirements internal harmony, including levels of cooperation within and between components of OAGP Communications

organizational structure

internal financial conditions

client/public needs as identified in submissions stakeholder needs as identified by your audit area

10

status of technology

11

strengths and stressors as identified by staff

12

physical conditions and working environment need for training in new technologies/ work methods; expectations and needs created by the introduction of new audit reforms. overlaps in functions and recommendations to streamline work functions and need for training/retraining; and Leadership and cultural change

13

14

15

16

External Analysis Each audit office should have a clear understanding of its external environment. External analysis involves analyzing the political, economical, social, legal, technical factors related to the entity. External analysis will help in identifying opportunities and challenges for the entity.
S. No. Reviewed Yes No N/A Details

Particulars

orientation and ongoing staff development requirements as projected by the professional associations, stakeholder groups, or standards setters Collaboration levels with other stakeholders e.g. Auditees, World Bank. current research/innovations/best practices which could change the way of doing business/offering programs and services

government expectations

public expectations

local, national and international comparisons

needs as articulated by other public bodies in the region discussions or meetings/correspondence the management had with the minister/ sectary of the relevant department/division Relevant government documents

10

information posted on the web sites of provincial and federal government

11

minutes of meetings senior staff have had with their government counterparts minutes of meetings the head of the department attended with the executive of the relevant department

12

SWOC Identify key strengths, weaknesses, opportunities and challenges for your office on the basis of environmental scan.

Strengths: Internal strengths are resources or capabilities that help an entity accomplish its mandate or mission e.g. highly skilled staff.
S. No. 1 2 3 4 5 Strength Description Option for Preserving or Enhancing Each Strength

Weaknesses: Internal weaknesses are deficiencies in resources or capabilities that hinder an entitys ability to meet its mandates and fulfill its mission.
S. No. 1 2 3 4 5 Weakness Description Options for Minimizing or Overcoming each Weakness

Opportunities: External Opportunities are outside factors or situations that the entity can take advantage of to better fulfill its mission and meet its mandate.
S. No. 1 2 3 4 5 Opportunity Description Options for Taking Advantage of Each Opportunity

Challenges: External Challenges are outside factors or situations that can effect you entity in a negative way making harder for entity to fulfill its mission and meet its mandate.
S. No. 1 2 3 4 5 Opportunity Description Options for Taking Advantage of Each Opportunity

7. Strategic Goals
Strategic goals are the statements which describe what an organization wish to achieve over a period of strategic plan i.e. 3 or 5 years. OAGP through a consultative strategic planning process starting from the DGs conference has defined following three strategic goals for the organization. Goal 1: Quality and Timely Audit Reports for the Parliament and the Government Goal 2: Respond to Challenges Emerging Goal 3: Maximize the Value of Auditor General's Office by being a Model SAI Accomplishing these goals require goal congruence among the individuals and offices of OAGP. Each audit office should define quantified objectives against each goal which should be Specific, Measurable, Attainable, ResultsOriented and Time Bounded. Achievement of the objectives will lead to accomplishing the strategic goals, vision and mission of OAGP Goal 1: Quality and Timely Audit Reports for the Parliament and the Government
S. No. 1 2 3 4 Objectives Measures for Objectives Key Performance Indicators (KPIs)

Actions necessary to achieve Objectives Who Objectives Actions Cost s Tim e R A C I Time Frame/ How outcomes are to be reported

R = responsible for collecting data; A = accountable for the outcomes; C = must be consulted/involved along the way; I = who will need to be informed of the outcomes

Goal 2: Respond to Challenges Emerging


S. No. 1 2 3 4 Objectives Measures for Objectives Key Performance Indicators (KPIs)

Actions necessary to address Objectives Who Objectives Actions Cost s Tim e R A C I Time Frame/ How outcomes are to be reported

Goal 3: Maximize the Value of Auditor General's Office by being a Model SAI
S. No. 1 2 3 4 Objectives Measures for Objectives Key Performance Indicators (KPIs)

Actions necessary to address Objectives Who Objectives Actions Cost s Tim e R A C I Time Frame/ How outcomes are to be reported

8. Human Resource Development


Human Resource Development is at the top of the reform agenda of OAGP. Globalization is bringing about rapid changes in accounting, auditing, financial management and ethics. OAGP has to align itself with the changing environment at the global level and upgrade the knowledge, skills, expertise and experience of its human resources to cope with the challenges of the 21st century as old tools are no longer relevant to address the problems of today. HRD activities should be given the top priority by each audit office. The primary objective should be to develop a workforce that can conduct audit using Financial Audit Manual and CAATs so as to provide timely quality audit service.

Response Yes 1. Have you identified areas in which a specific skill set is required to conduct the audit? e.g. FAM 2. Does your staff have enough skill to carry out value for money audit? 3. Have you identified during the overall planning process the need of training? 4. Have you incorporated the training need into your agenda? 5. Are there enough inhouse resources to fulfill training needs? No

Explanation

6. Is there any strategy to address the issue to get the staff train by outsourcing, if there is no in-house capability exists?

Skill Deficit and Areas of Development


S. No. 1 2 3 4 5 Areas of Skill Deficit and Areas for HRD Primary Target No. BPS Strategy to Address Risk and HRD

Explanation

Training Courses Planned


S. No. 1 2 3 4 5 Course Planned Course Objective Instructor / Facility Date of Courses Participants No. BPS

9. Pendency of Audit Reports


56 years of audit reports at the federal and provincial level are pending before the Public Accounts Committees (PAC). 12 years of audit reports with Federal, 16 years of audit reports with Sindh, 13 years with NWFP, 12 years of audit reports with Baluchistan and 3 years of audit reports submitted by the Auditor General of Pakistan are lying with the respective PACs for discussion. Accountability delayed is accountability denied. Audit reports will lose their utility if they are not timely discussed. OAGP intends to address this issue by establishing pendency sections in field audit offices which will follow-up the pending reports with the concerned organizations through Departmental Accounts Committee (DAC). Officers of OAGP will assist the auditee organizations in addressing the issues highlighted in the audit reports and taking corrective actions and improving internal controls. Pendency sections will not only help reducing pendency and improving public sector management but also develop Partnership between OAGP and the auditee organizations which will create value for the Government. Each audit office should therefore incorporate resolution of pendency in its annual audit plan.

Question Division/ No. of Department years the 1. Is/are there pending Name reports report(s) related to your are in office? pendency 2. Is/are there any factor you think that prevents you to conclude those pending report? Total 3. Do you have any strategy or any plan in pipeline to address the issue of pendency? 4. Have you prepared any course of action after planning stage?

Response Yes No No. of Audit Years/ Audit Financial Para(s) Year

Explanation Financi al Impact Your estimate of settleme nt

Pendency Details
No. of DAC planned during the year Details of DAC Planned Dates/ Who is attending etc.

Pending reports categorization


No. of Para(s) Financial Impact

Division/ Department Category of Name 5. Is there any time frame or Para(s) deadline set by you or communicated to you in which you have to conclude the pending report?

Section II: Global Risk Assessment


1. Overview of the Office..............................................................................2 3. Vision and Mission....................................................................................8 4. Core Values.............................................................................................10 5. Primary Stakeholders and Related Expectations....................................12 6. Environmental Scan................................................................................14 7. Strategic Goals.......................................................................................22 8. Human Resource Development..............................................................26 9. Pendency of Audit Reports.....................................................................29 SECTION II: GLOBAL RISK ASSESSMENT........................................................................31 1. Identifying Risks, Issues and Themes ....................................................32 2. Criteria for Prioritizing Issue/Risk/Theme................................................35 3. Prioritizing Issue/ Risk/ Theme................................................................37 4. Prioritized Issues/Risk/ Theme Evaluation...............................................38 5. Focusing on Issues/ Risks/ Themes ........................................................40 SECTION III: ENTITY LEVEL PLANNING...........................................................................42 1. List of Auditees.......................................................................................43 2. Prioritizing Audits....................................................................................44 3. Type Name of Audit Entity/ Auditee Here...............................................50

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1. Identifying Risks, Issues and Themes


INTOSAI auditing standards stipulate that audit activities be properly planned. Although the auditing standards refer specifically to the planning of individual audits, some standards are also relevant to strategic planning, especially those that require knowledge of the specific sector and/or auditees business. Accordingly, knowledge of the sector and/or client agency's business is a major input into the development of the Annual Audit Plan. In particular, a sound understanding of sector and auditees, their risks and how these are managed. Audit strategic planning should be undertaken for sectors of the Government e.g. health, education. Aligning audits to the Governments sectoral structure will assist in identifying the risks to good management along sectoral lines. Some larger agencies within a specific sector may be significantly important to justify a separate audit strategy. Information should be collected by the audit offices to ensure a good understanding of each sector including its outcome/output structure, operating environment, business risks, existing controls and, where relevant, changed administrative arrangements. This knowledge can be obtained from various sources including the auditee management, programme/ project managers, annual reports/ year books, reviews, economic survey and media coverage. Audit themes should be designed to take into account significant trends in the public sector and risks to sound administration. OAGP intends to develop audit themes for the audit year 200-09 strongly influenced by the risks and opportunities facing the entire public sector. Classification of audit against themes can have very high impact which provides a macro view. Audit themes are not determined on the basis of specific criteria rather, they are derived from: initiatives across the government designed to address contemporary challenges, understanding of the broader impact of risks and opportunities, particularly where improvements would flow on to the operations of other agencies across the government; and previous audit coverage, where the OAGP continues to find weaknesses in particular controls, systems or approaches that have widespread effects. 32 | P a g e

Analysis of sectors, auditees, audit risks and opportunities, and consideration of themes influencing public sector administration will be used to generate a list of potential audit topics. Please mention the risks, themes or potential improvement areas relating to the government sector which you feel that OAGP should consider during audit year 2008-09.

1. Mention Risk/ Issue/ Theme Provide brief details

2. Mention Risk/ Issue/ Theme Provide brief details

3. Mention Risk/ Issue/ Theme Provide brief details

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4. Mention Risk/ Issue/ Theme Provide brief details

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2. Criteria for Prioritizing Issue/Risk/Theme


Individual audit topics will then rated against several criteria including: potential benefits; materiality; risks to reputation and service delivery; and extent of previous audit coverage.

Expected benefits can take many forms but audits that are likely to realize financial savings, although hard to quantify, are highly regarded. Financial materiality is based on an assessment of the total value of Audit Portfolio. Financial materiality is one dimension of the significance of a proposed audit. The significance of an audit topic will also have regard to the magnitude of its organisational impact. For example, a small unit with low materiality may be responsible for decisions with long lasting, strategic and operational impacts within the agency, across the government or, more broadly, have national importance. Assessment of risks to reputation and service delivery requires consideration of the visibility of the proposed audit topic. This criterion is related to the social and economic aspects of the activity and the importance of its operations to the legislature and the public. Coverage refers not only to previous OAGP audit but also to other independent reviews of the activity being proposed for audit. Such reviews may have been conducted by CFAOs, internal audit, external consultants or foreign donors. Please mention potential benefits, financial materiality, risk of reputation and service delivery and extent of previous audit coverage against each issue, risk or theme.

Mention Risk/ Issue/ Theme


Potential benefits Materiality

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Risk to reputation and service delivery Extern of previous audit coverage

Mention Risk/ Issue/ Theme


Potential benefits Materiality Risk to reputation and service delivery Extern of previous audit coverage

Mention Risk/ Issue/ Theme


Potential benefits Materiality Risk to reputation and service delivery Extern of previous audit coverage

Mention Risk/ Issue/ Theme


Potential benefits Materiality

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Risk to reputation and service delivery Extern of previous audit coverage

3. Prioritizing Issue/ Risk/ Theme


Risk to reputatio n and service delivery

Issue/Risk/Theme

Rati ng

Total Scor e

Potentia l benefits

Material ity

Extent of previous audit coverage

Audit office should devise a criteria to rate each issue, risk or theme. For instance criteria for materiality and extent of previous audit coverage can be; Materiality
Expenditure or Revenue Score 3 2 1

More than Rs. 2 billion Between Rs. 1 & 2 Billion Below Rs. 1 Billion Extent of Previous Audit Coverage
Audit on this issue, risk or theme not conducted during

Score 3 2 1

Last 5 years Last 3 years Last 1 year

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Issue, risk or theme which received highest total score will be rated 1st and would be given highest priority.

4. Prioritized Issues/Risk/ Theme Evaluation


List issues as per priority on the basis of score received in previous section. Only those issues that are to be covered during current audit year should be listed. Issues/ Risks 1. 2. 3. 4. 5. Answer as Yes or No against each question
We: 1 A. can independently address this issue B. need to partner with other agencies to address this issue C. would like to address this issue but it is clearly in someone elses mandate D. should address this issue but, at this time, have neither the resources nor expertise. E. see this issue as high priority but other influential parties do not agree. Issue/ Risk/ Theme 2 3 4 5

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5. Focusing on Issues/ Risks/ Themes


Complete this form for each issue, risk or theme. Issue/ Risk:
Response Remarks

Has the issue, risk or theme being discussed with the auditee?

Yes/ No

Is the issue, risk or theme viewed as important by the auidtee?

Yes/ No

How broad an impact this issue, risk or theme will have?

o o o o o o o

Single Area Entire organization Entire Sector Entire Government Very little Significant Disruption Major Long Term Consequences Benign Touchy Explosive Operational management Senior management Government Legislature

What would be the possible consequences for not addressing the risk? How sensitive the issue, risk or theme is politically, socially, religiously, economically, technologically, legally or culturally? Level of management who could decide how to deal with the issue.

o o o o o o o

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How apparent is the best approach for resolution?

o o o

Clear Few details shown Wide open

How long will it take to address the issue or risk

o o o

Less than a year Less than 2 years More than 2 years

Can our audit office conduct the audit of the issue, risk or theme? Do we need to involve and coordinate other audit offices to conduct audit of the issue, risk or theme?

Yes/ No

Yes/ No

What are the limiting factors that hinder our office form addressing the risk or issue during audit?

Please list the actions that audit office should take to address the limiting factors.

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Section III: Entity Level Planning


1. Overview of the Office..............................................................................2 3. Vision and Mission....................................................................................8 4. Core Values.............................................................................................10 5. Primary Stakeholders and Related Expectations....................................12 6. Environmental Scan................................................................................14 7. Strategic Goals.......................................................................................22 8. Human Resource Development..............................................................26 9. Pendency of Audit Reports.....................................................................29 SECTION II: GLOBAL RISK ASSESSMENT........................................................................31 1. Identifying Risks, Issues and Themes ....................................................32 2. Criteria for Prioritizing Issue/Risk/Theme................................................35 3. Prioritizing Issue/ Risk/ Theme................................................................37 4. Prioritized Issues/Risk/ Theme Evaluation...............................................38 5. Focusing on Issues/ Risks/ Themes ........................................................40 SECTION III: ENTITY LEVEL PLANNING...........................................................................42 1. List of Auditees.......................................................................................43 2. Prioritizing Audits....................................................................................44 3. Type Name of Audit Entity/ Auditee Here...............................................50

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1. List of Auditees
Note: Auditee or Audit Client means PAO or the office in respect of which audit report is issued. Kindly do not mention DDO wise detail.
S. No. Name Auditable Expenditu re (Rupees) Auditable Revenue (Rupees) Latest Year for which Audit was Conducted

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2. Prioritizing Audits
Note: Usually audit offices have large number of audit clients and due to limited human and financial resources it is not possible to conduct field audit of all auditees. Therefore it is necessary to use scarce audit resources in the areas of high risk and materiality. Our first priority would be to address issues, risk or themes identified in Section II. In addition, the remaining audit entities need also to be prioritized according to criteria for field audit and desk audit. Last year DG Audit Federal Government in its annual audit plan devised a rating system which is reproduced here for your reference. Each audit office should develop its own criteria and audits should be prioritized accordingly.

Chapter 9 of Audit Plan of DG Federal Audit for Audit Year 2007-08 In order to achieve a targeted approach in addressing the audit risk we have established a ranking system on the basis of which audits of various PAOs have been selected that would determine our priority in mitigating our audit risk and focusing on critical issues to be addressed and brought to the attention to the management. The scoring system has been based on the following criteria keeping in view both financial and non-financial impacts on the PAO. 1. Current Expenditure 2. Development Expenditure 3. No. of Paras in last 3 audit reports 4. Government Priority Areas 5. Relevance to Mellinium Development Goals All PAOs have been assigned a score and have been listed in order from the highest score to the lowest. The top 25 PAOs in terms of ranking have been considered for audits for which field audit would be conducted. The rest of the PAOs would be covered using CAATS 44 | P a g e

The scoring has been determined by the following criteria: Current Expenditure
Level of approved federal grants Scor e 3 2 1

More than Rs. 2 billion Between Rs. 1 & 2 Billion Below Rs. 1 Billion

Development Expenditure
Level of Approved Federal Grants Scor e 3 2 1

More than Rs. 1 Billion Between Rs. 250 million and Rs. 1 Billion Less than Rs. 250 million No. of Paras in previous three years
Number of Audit Paras

More than 10 audit paras Between 5 and 10 audit paras Less than 5 audit paras Government Priority Areas
Priority Areas

Scor e 3 2 1

Scor e 3 2 1

Health, Education, Water & Power, Internal Security, Environment, Energy, Commerce Communication, Information Technology, Financial Management Others Relevant to Millennium Development Goals
Significance to PAO

High Medium

Scor e 3 2

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Low Audit Ranking Matrix

The audit ranking matrix detailing the scores obtained by the PAO and its ranking in terms of the scoring system is detailed below;

Top 25 PAOs where field audit will be carried out


Sr. No . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 PAO Current Exp 3 3 3 3 3 3 3 3 1 3 1 1 1 3 3 2 2 Developme nt Exp 3 3 3 3 3 2 1 0 2 2 3 3 3 3 3 3 3 Govt. Priorit y 3 3 2 3 3 3 3 3 3 1 2 3 1 1 1 2 2 No. of Audit Paras 3 3 3 3 3 2 2 3 3 3 2 1 3 3 2 3 2 M D G 3 3 2 1 1 3 3 3 3 2 3 3 3 1 2 1 1 Total Score 15 15 13 13 13 13 12 12 12 11 11 11 11 11 11 11 10 Ranking

Education Division Health Division Finance Division Defence Division Interior Division Social Welfare and Special Education Division Commerce Division Higher Education Commission Petroleum and Natural Resources Division Cabinet Division Economic Affairs Division Environment Division Food, Agriculture and Livestock Division Kashmir Affairs and Northern Areas Division Labour and Manpower Division Science and Technology Division Information Technology and Telecom Division

1 1 3 3 3 3 7 7 7 10 10 10 10 10 10 10 17

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Sr. No .

PAO

Current Exp and 1 1 1 1 3 1 3 2

Developme nt Exp

Govt. Priorit y

No. of Audit Paras

M D G

Total Score

Ranking

18 19 20 21 22 23 24 25

Planning Development Division

3 2 3 1 1 3 3 1

3 1 3 2 2 1 1 2

0 3 1 2 1 0 0 2

3 2 1 3 1 3 1 1

10 9 9 9 8 8 8 8

17 19 19 19 22 22 22 22

Culture Division Water and Power Division Women Development Division Communication Division Population Welfare Division States and Frontier Regions Division Establishment Division

Remaining PAOS: Covered through CAATs


Sr. No . 26 27 28 PAO Strategic Planning Division (PAEC) Law, Justice and Human Rights Division Information and Broadcasting Division Local Government and Rural Development Division Revenue Division Tourism Division Defence Production Division FATA Secretariat Industries, Production and Special Initiatives Division Current Exp 3 1 2 Developme nt Exp 3 2 0 Govt. Priorit y 1 1 2 No. of Audit Paras 0 2 1 M D G 0 1 2 Total Score 7 7 7 Ranking

26 26 26

29 30 31 32 33

1 1 1 2 1

3 2 1 0 1

1 3 1 3 1

1 0 1 0 2

1 1 3 1 1

7 7 7 6 6

26 26 26 32 32

34

32

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Sr. No . 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62

PAO Minorities Affairs Division Ports and Shipping Division Prime Minister Secretariat (Public) Board of Investment Controller General of Accounts Election Commission of Pakistan Housing and Works Division National Security Council Overseas Pakistanis Division Privatization Commission Statistics Division Youth Affairs Division National Accountability Bureau Pakistan Nuclear Regulatory Authority Textile Industry Division Federal Judicial Academy Federal Shariat Court Federal Tax Ombudsman Sect. National Assembly Secretariat National Commission for Government Reforms National Reconstruction Bureau Pakistan Audit Department Parliamentary Affairs Division Prime Minister Secretariat (Internal) Provincial Coordination Division Religious Affairs, Zakat and Usher Division Senate Secretariat Sports Division

Current Exp 1 1 1 1 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Developme nt Exp 0 3 3 0 0 0 0 0 0 0 1 1 0 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0

Govt. Priorit y 1 1 1 1 2 1 1 3 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

No. of Audit Paras 2 0 0 0 0 1 2 0 0 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

M D G 2 1 1 3 1 1 1 1 3 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Total Score 6 6 6 5 5 5 5 5 5 5 5 5 4 4 4 3 3 3 3 3 3 3 3 3 3 3 3 3

Ranking

32 32 32 38 38 38 38 38 38 38 38 38 47 47 47 50 50 50 50 50 50 50 50 50 50 50 50 50

48 | P a g e

Sr. No . 63 64 65 66

PAO Supreme Court of Pakistan Wafaqi Mohtasib Secretariat President Secretariat (Personal) President Secretariat (Public)

Current Exp 1 1 1 1

Developme nt Exp 0 0 0 0

Govt. Priorit y 1 1 1 1

No. of Audit Paras 0 0 0 0

M D G 1 1 0 0

Total Score 3 3 2 2

Ranking

50 50 65 65

NOTE: The above model is designed to identify higher risk PAOs that were considered for possible audits during the planning phase for the audit year 2007-2008. It does not replace the use of knowledge on the PAOs obtained by the Audit Officers in previous audits. We still need to consider additional audits when we become aware of issues that give us certain concerns that need to be highlighted.

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3. Type Name of Audit Entity/ Auditee Here


Note: Audit plan of each entity for each field audit is to be conducted needs to be developed using forms specified in financial audit manual and working paper kit. For your guidance, audit plan of the ministry of health from 2007-08 Audit Plan of DG Federal Audit is attached. Your are required to develop such type of plan for each audit entity for which field audit is to be conducted. Please start new chapter for each entity from 3 onwards in this section.

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Chapter 19 Health Division


Audit Period Audit Year 2007-08 Auditable Expenditure

Grant No.

Particulars

Rupees

Current/ Non-Development Expenditure 55 Health Division 56 Medical Services 57 Public Health Development Expenditure 146 Health Division Total

198,151,000 3,035,970,000 227,610,000 3,461,731,000 10,747,829,00 0 14,209,560,00 0

Audit Formations

PIMS Research fund Federal government services hospital NIHD NIH HEALTH DIVISION Up gradation and renovation of FGSH 51 | P a g e

Health Services Academy, Islamabad Establishment of burn care centre at PIMS CARDIAC surgery facilities at PIMS MATERNAL CARE SERVICES AT MCH Centre Abpara Establishment of critical care unit at FGSH Uplifting of main operation theatres at FGSH PURCHASE OF MRI machines for PIMS Collaboration of JOHN HOPKINS University, USA and PIMS Provision of 64 SLICE health CT scan angiography equipment NICVD Upgradation of existing facility AT NIHD Strengthening of EPI services through GAVI grant assistance National programme for family planning and primary health care, AJK Muzafarabad National programme for family planning and primary health care FPIU Improvement of nutrition through primary health care and nutrition education/ public awareness Expanded programme of immunization (CDD) NIH Enhanced HIV/AIDS Control program Prime minister program for preventive and control of Hepatitis National programme for blindness

Audit Team

S.No. 1. 2.

Name Dr. Akmal Minallah Nazar Rauf Rathore

3. 4.

Quratulain Hadi Sherdil

5.

Ch. Sadiq

Designatio Role n Director Finalization of Audit report, Holding DAC meetings Dy. Director Supervision of audit activities, Planning of audit, Review of audit findings, Review of draft audit report Audit Technical support in planning, Expert execution & reporting Audit Audit execution, Officer Preparation of AIRs & draft audit report Update audit permanent file Senior Audit Audit execution, Officer Prepare audit working papers

Time Schedule 52 | P a g e

From 22 August 2007 to 10 January 2008 (For details refer page 338 )

I.

AUDIT OBJECTIVE AND SCOPE The main objectives of the audit of the ministry of health are: - to attain reasonable assurance whether the financial statements are prepared in accordance with the identified financial reporting framework and the sum expanded has been applied in all material respect for the purposes authorized by the Parliament - to check the system of internal control and compliance with the respective authorities to provide certification for the foreign aided projects

- To perform performance audit of the major health projects, so that efficiency, effectiveness and the impact of the project on the economy can be assessed. International standards of auditing define scope as the audit procedures that are necessary in the circumstances to achieve the objectives of the audit. These audit procedures should be determined in accordance with the applicable laws and regulations which includes the compliance of applicable financial reporting framework, that is; New Accounting Model comprising of seven volumes i. ii. iii. iv. Manual of Accounting Principles Accounting Policies and Procedures Manual New Chart of Accounts Financial Reporting Manual

And the other applicable laws and regulations which includes; Rules of business Establishment codes 53 | P a g e

PPRA rules System of Financial Control and Budgeting Account code Audit codes PC-1 General financial rules Treasury rules etc.

54 | P a g e

II.

UNDERSTANDING THE ENTITY The understanding of the ministry is obtained in lines provided in the form PF-I till PF-IX of the audit working paper kit, which includes, Block C Pak-Secretariat Islamabad Tel: 051-9213933, Fax: 051-9203944

A.

Status of Entity and its Core Operations Ministry of health is strategically run by elected representatives of the public and administratively controlled by the bureaucracy. Being the primary concern sector for any government this sector is controlled by each provincial ministry at the province level and by district governments at district level. The main role of the ministry is to, - International Liaison, Regulate Legislation pertaining to the drugs and medicines, administration of drugs Acts 1976. maintenance of educational standard, education abroad, educational facilities for backward areas, and for foreign nationals except the nomination of candidates from the FATA for admission to Medical Colleges Among major nursing, dental, pharmaceutical, para-medical and allied subject

Pakistan is committed to achieving the Millennium Development Goals as the national agenda for development as well as reducing the burden of poverty and disease. Health, education and poverty alleviation are Government priorities. There is a full commitment at policy level about the importance of investing in health as a critical input for socio economic development. To translate this commitment into action a number of initiatives in public sector programs (new and ongoing) have been undertaken: the most notable include the Women's Health Project, National Nutrition Project, Reproductive Health Project, Special Immunization Activities and the National Maternal and Child Health Program me 2005-2011 and hepatitis program. These programs with current and future major 55 | P a g e

interventions should help to reduce premature deaths among women and children and contribute towards the achievement of the MDGs. Investment in health though increased by 16%, in 2005-06 from previous years, yet it is still only 4% of the total federal development program. The government obtains foreign loan/aid also to invest in the health sector. Federal MOH is the key functionary which plays a leading role in regulating aid flow in the health sector. The poverty reduction strategy paper (PRSP) was adopted as a basic document for all aid efforts; donors channel their resources towards common identified objectives with government. The common identified objectives are: Increased coverage of health facility Reduction of inequalities

Preventive care And achieving millennium development goals, that is reducing the burden of diseases Being the priority agenda of the government a lot can be achieved in preventing deaths due to unavailability of basic health facilities if the commitment from the bureaucracy is there. B. SWOT Analysis Before considering the risk areas that are at present hindering the government in fully implementing the millennium development objectives in health sector, the strength/opportunities available for its foster growth and achieving objectives are discussed below; Strengths Governments priority Agenda: Pakistan adopted its Poverty Reduction Strategy Papers (PRSP) in 2002 based on the National Health Policy (NHP, 2001) emphasizing increased coverage, reduction of inequalities, preventive care and the MDGs Devolution of health function: Devolution of the department of health direct attention towards health sector at all levels of government, that is, federal , provincial and local government level. 56 | P a g e

Program me for Lady Health Worker:

Lady Health Workers (LHWs) programme covers almost 50% of the population ensuring access to basic health care for the female population National health information resource centre: The Federal Ministry of Health (MOH) initiated a project to establish a national health information resource centre, which could support monitoring and evaluation at all health system levels a. The Federal MOH launched a National Maternal, Neonatal and Child Health (MNCH) Program me to address the high rates of child and maternal mortality b. New public health programs implemented like control and prevention of hepatitis and other viral infections and blindness. Coordination with donors: Inter-Agency Coordination Committee (IACC) provides a forum for donor coordination Donor-assisted initiatives such as the NHF, National Health Policy Unit (NHPU) and National Health Information Resource Centre, are implemented to support policy input and information management at the MOH and partners; the NHPU has the mandate to strengthen coordination.

Weaknesses The main weaknesses of the system that are identified before starting the audit engagement activities through discussions with the key officials and initial system analysis are; - Unequal access to healthcare, particularly in Baluchistan and the North-West Frontier Territory - Inadequate health information systems for monitoring communicable diseases and major health risks Insufficient capacity for policy analysis and formulation at all government levels to support a devolved health system - Insufficient capacity of the Federal MOH and provincial health departments to regulate, support and build partnerships with the private sector - Imbalanced health workforce with excess doctors and specialists; lack of nurses, paramedics, skilled birth attendants and health system managers. - Weak coordination between the Government and donor agencies 57 | P a g e

- Lack of clarity in roles and expectations of partners behind the national health reform - Lack of clear priorities, responsibilities and benchmarks for donors - Poor mechanisms for sharing information between the Government and donors. Threats C. Change of government may suspend the development projects undertaken by the present government. Funds might not be utilized for the purposes to achieve the targets.

External Factors External factors that might affect the ministrys performance may include; Technological factors Social factors Political factors Economic factors Climatic factors

Technological factors: Obsolescence of machinery, knowledge Change of medicine technique

Social factors: Religious considerations Literacy Ethnic groups Sudden spread of Epidemic diseases due to external environment.

Political factors: Change of government may abandon present programs Funding from the foreign donor may discontinue due to external pressures.

Economic factors: Increase in the import of drugs Rise in the prices of drugs and medicine 58 | P a g e

Climatic disaster: D. Natural disaster such as earth quake, flood Sudden change in weather patterns

INTERGOVERNMENTAL RELATIONSHIP: Functionally ministry consists of one main division along with various line departments/suboffices. The Ministry of Health is responsible for matters concerning trade policy of the country and coordinate with various trade organizations of different countries. Departments The departments attached with the ministry of health are; Central Drugs Laboratory, Defence Housing Authority Karachi. Drugs Controller, Blue Area Islamabad. Federal Government Services Hospital, Islamabad. Jinnah Postgraduate Medical Centre, Karachi National Council for Homeopathy, Islamabad. National Council for Tibb, Islamabad. National Health Information Resource Center Islamabad (NHIRC) National Health Information Resource Center Islamabad National Health MIS National Institute for Handicapped, Islamabad. National Institute of Cardiovascular, Karachi National Institute of Child Health, Karachi National Institute of Health, Islamabad Pakistan Nursing Council (NIH) Islamabad. Pharmacy Council of Pakistan, Islamabad. Planning & development section Drugs Control Organization Pakistan Medical &Dental Council, Islamabad College of Physicians surgeons of Pakistan, Karachi Pakistan Institute of Medical Sciences, Islamabad. Pak Medical & Research Council, Islamabad 59 | P a g e

Health Services Academy, chukshahzad Islamabad Drugs Control Organization, Peshawar Drugs Controller, Abbasi Clinic & Hospital Karachi. National Program for Primary Health Care & family Planning PMRC Research Centres

E.

Various programs are initiated by the government under each division/department with a sharper focus on poor and unprivileged segments of the society. Organizational Structure The organizational structure of the ministry is annexed as Annexure A.

F.

Accounting System of the Ministry: Ministry of health is a centralized accounting entity, where, controller general of accounts is responsible for processing of its accounting transactions and maintaining the accounts. The sub offices of the controller general of accounts at province and districts maintain the respective accounts. Various development projects are undertaken by each line department. For the purpose of the accounting classification each division and line departments are classified under cost centers, (the functions), which are then further classified into various cost element ( the objects). The major cost centers as per New Accounting Model are; Account code 071 072 073 074 075 076 Cost centers Medical product, appliances and equipment Out patient services Hospital services Public health services Research and development health Health administration

For more specific accounting each department and projects to further detailed level can be classified as cost centre. Each cost centre is further divided into cost elements, the major classification of which is detailed below; Account code A01 Cost elements Employee related expenses 60 | P a g e

A02 A03 A04 A06 A09 A11 A12 A13

Project pre-investment analysis Operating expenses Employees retirement benefits Transfers Physical assets Investments Civil works Repairs and maintenance

Broadly the expenditures are classified as current or non-development expenditure and development expenditure. Separate budget are allocated for each type of expenditure. Gazette officers of at least BPS 16 and above hold the charge of the post of drawing and disbursing officers in each ministry/divisions/departments/development projects. The budget allocations are on account of - Grant in aid - Releases from the federal government The budgets are transferred through the ministries/departments; - AGPR Counter - PLA is maintained with federal treasury and - Assignment account maintained with NBP - Departmental accounts with reference to NIH following to the

The budget of province is transferred to account 1 whereas the budgets of districts are then transferred to a/c IV. Foreign aided projects maintain departmental accounts where the expenses are incurred in the department from the government account and the proportionate share is reimbursed from the aid account. Receipts Of the commercial entities: National institute of health is governed by separate ordinance, therefore the receipts are realized and credited in their own accounts. F. Organizational Chart The organizational chart is annexed as Annexure A to the chapter. III. A. RISK ASSESSMENT General Risk Assessment Procedures 61 | P a g e

Our risk based approach during the audit would be to plan and document our risk assessment procedures performed so as to obtain an understanding of the entity and its environment. Our risk assessment procedures may include inquiries, observations and inspections, and analytical procedures. The major risk factors that would commonly be addressed to assess the risk of the entity are; The adequacy of internal controls and the control consciousness environment is in place; Participation by those charged with governance Management approach to taking and managing business risks Changes in operating environment Corporate restructuring Discussions with the management regarding any internal control weakness, frauds and irregularities identified earlier. Are changes in the design of internal controls documented and review by a competent authority; There is a clearly defined organization structure and the operating functions are performed independently so as to create segregation of duties; The role and authority of the internal audit function (if any), and review of internal auditors assessment of the corrective actions taken, and to consider the impact on the nature, extent and timing of our audit tests and procedures; The nature of transactions (for example, the number and Rupee volumes and the complexity involved); Assessment of non-routine transactions and its adequacy of its documentation and approvals; Understanding of the financial reporting process; The age of the system or applications used; The physical and logical security of information, equipment, and premises; Susceptibility of assets to theft and misappropriation; The adequacy of operating management oversight and monitoring; Previous regulatory and audit results and managements responsiveness in addressing the issues raised; Human resources, including the experience of management and staff, turnover, technical competence, managements succession plan, and the degree of delegation; and Senior management oversight.

62 | P a g e

The auditor must be able to identify high risk areas and the high risk areas may be identified from material weaknesses. Material weaknesses will be; Be evident at multiple agencies Affect a significant portion of the governments total budget or other resources Stem from a deficiency that should be monitored and addressed through individual agency actions as well as through Office of Management and Budget initiatives Major non-compliance of applicable laws and regulations. B. Inherent Risk Factors 1) Inherent risk factors associated with activities/programmes Complexity of programs; Complex, unusual or high value transactions; Activities involving the handling of large amounts of cash or high value attractive goods - embezzlement or theft; Activities of a nature traditionally considered to be particularly prone to fraud or corruption (e.g. public works and technical contracts, contracts for the delivery goods); Urgent operations (e.g. emergency aid) and operations not fully subject to the usual controls; Historical evidence of a high incidence of intentional irregularities; Eligibility criteria inconsistent with objectives (too wide, too restrictive, not relevant); Activities that are uninsurable and/or are subject to risks arising from political, financial, ecological (etc) instability; 2) Inherent risk factors associated with the operating structure Management approach to taking, managing and mitigating business risk; Geographically dispersed organization, or organization operating in areas where communications are difficult; Unclear division of responsibilities within the Division/Department;

63 | P a g e

Activities or projects involving numerous partners (coordination problems, weaknesses in management and communications structures); Particular points mentioned in internal and external audit reports, and in press reports etc. 3) Inherent risk factors associated with the beneficiaries Operations where the conduct of beneficiaries is difficult to check, or where the ultimate beneficiaries may be different from the apparent recipient; Beneficiaries highly dependant on public funds; Activities which imply several levels of subcontracting, making the identification of eligible beneficiaries difficult; Historical evidence of a high incidence of intentional irregularities; Political or administrative pressure exerted by beneficiaries or participants in the activity; Imposition of unwanted responsibilities upon organizations, administrations or beneficiaries; 4) Inherent risk factors associated with the economic or technical circumstances Abnormal trends and ratios; Results intangible or difficult to evaluate; Activities that are starting up or coming to an end, or are subject to rapid technological change; Unstable sources of supply and variable prices of inputs (raw materials, etc); Over-dependence on one supplier (e.g. supplier of equipment has exclusive maintenance contract, is sole supplier of parts and materials, software, etc); 5) Inherent risk factors associated with the audited entity Lack of turnover of personnel and/or personnel not taking holidays in a sensitive department/area; Activities with which the audited entity has no or limited experience; Activities that are highly dependant upon a small number of key personnel; Insufficient staff, or staff and management under-qualified, inexperienced or poorly motivated; Peaks and troughs in work patterns and information flows; Utilization of obsolete information technology systems; 6) Inherent risk factors associated with the audited entitys management policies and practices 64 | P a g e

C.

Badly defined or unrealistic objectives; Strong pressure upon management to produce results, achieve objectives, meet unrealistic deadlines, achieve high rates of budgetary utilization at the year-end; Short-term budgetary pressures (e.g. delay in undertaking necessary maintenance imposes greater costs later); Management, supervision and control functions poorly suited to the activity; Lack of management information system and/or cost accounting system; Unclear division of responsibilities within and between the various departments; Specific Audit Risks Risks involved in operating expenses: - Illegitimate payments Improper classification of expenses in the heads of accounts Improper mode of payment Improper allocation of expenses

Risks involved in the purchase of physical assets: - Violation of PPRA rules IV. In adequate measurement In complete records In adequate utilization of resources In adequate disclosure AUDIT APPROACH

The audit approach would include a combination of financial audit and compliance audit. At the preliminary stage, the assessment of internal control system would be performed to identify the weaknesses that would lead to the assessment of audit risk. Materiality level is basically determined at 2 percent of the budgeted amount, but nature of expenditure is also considered. The departments, offices and projects are selected on the basis of the high budget appropriation grants subsidies and write offs involved criticality of audit issues and sensitivity of core operations 65 | P a g e

The selection of each DDO of each division for current expenditure and development expenditure is made on the basis of the level of materiality that is established by determining its nature and its amount. The DDOs selected have been mentioned individually and the areas to be focused upon are also mentioned. The audit approach for efficient and effective would encompass around understanding of the financial reporting and internal control system, checking compliance with applicable laws and regulations and performing compliance testing (test of control) and substantive testing as appropriate. The audit procedures may include any of the following, but are not exhaustive of the all the procedures as some of the procedures may be identified at the time of execution of the audit. Understanding the client internal control system and identifying internal control weaknesses and audit risks Issues highlighted in the previous audit reports that are still unresolved Compliance testing to ensure that applicable policies, rules and regulations and complied with. Compliance with grant agreement. Use of sampling to select items for compliance testing and substantive testing Vouching payments on a test basis and check the payments for accuracy, completeness, valuation and ownership The understanding of the accounting and internal control system will enable the auditor to 1) identify types of potential material misstatements, 2) considers factors that affect the risk of material misstatements, and 3) design appropriate audit procedures. Therefore, the auditor should obtain an understanding of the accounting and internal control system to identify and understand: Major classes of transactions How such transactions are initiated Significant accounting records and supporting documents Accounting and financial reporting process, from the initiation of significant transactions and other events to their inclusion in the financial statements. The audit procedures would include a combination of compliance testing (tests of controls) and substantive procedures (test of detail). The objective of test of controls is to evaluate whether a control 66 | P a g e

operates effectively, whereas the objective of tests of detail is to detect material misstatements. The auditor is required to perform tests of control when the auditors risk assessment includes an expectation of the operating effectiveness of controls or when substantive procedure do not provide sufficient appropriate audit evidence. The auditor selects procedures to obtain sufficient appropriate evidence that the controls operated effectively throughout the period of reliance. The more the auditor relies on the operating effectiveness of controls in the assessment of risk, the greater is the risk of the auditors test of controls. In addition, as the rate of expected deviation from a control increases, the auditor increases the extent of testing of the control. The matters that may be considered in determining the extent of the auditors test of controls include the following: The frequency of performance of control by the entity during the period. The length of time during the audit period that the auditor is relying on the operating effectiveness of the control. The relevance and reliability of the audit evidence to be obtained in supporting that the control prevents, or detects and correct, material misstatements at the assertion level. The extent to which audit evidence is obtained from tests of other controls. The extent to which the auditor plans to rely on the operating effectiveness of the control in the assessment of risk. The expected deviation from the control.

The following are the types of controls to test: Financial reporting controls (including certain safeguarding and budget controls) for each significant assertion in each significant cycle/accounting application, Compliance controls for each significant provision of laws and regulations, including budget controls for each relevant budget restriction, and Operations controls for each operations control (1) relied on in performing financial audit procedures or (2) selected for testing by the audit team. The auditor also should understand performance measures controls, but is not required to test them. However, the auditor may decide to test them Substantive procedures are performed in order to detect material misstatements and include tests of detail of transactions, account 67 | P a g e

balances, and disclosures and substantive analytical procedures. Substantive procedures are generally applicable to large volume of transactions that tend to be predictable over time, which includes a combination of tests of detail and analytical procedures. The auditor designs tests of details responsive to the assessed risks with the objective of obtaining sufficient appropriate audit evidence to achieve the planned level of assurance. In designing the tests of details, the extent of testing is ordinarily thought of in terms of the sample size, which is affected by the risk of material misstatement. However, the auditor may consider the use of selective sampling such as selecting large or unusual items from a population. In addition to the above mentioned audit procedures, analytical procedures may also be performed that would include analysis significant ratios and trend, consideration of relationships among elements of financial information and considering the relationship between financial information and non-financial information. The auditor will need to consider the testing of controls, over preparation of information used in applying analytical procedures, accuracy and reliability of information available. Audit approach to address the risks involved in operating expenses: Illegitimate payments: The risk could affect the management assertion regarding RIGHTS and OBLIGATIONS. Document the system for the sanction of expenditure and identify any non compliance from general financial rules. The expenses are compared against the budget allocations so that excess especially in the utilities and general which includes advertisement and miscellaneous can be critically analyzed. Ensure that each payment is supported by the proper contract duly approved and authorized by the competent authority. Ensure that the payments are made against the schedule of authorized expenditure, and the applicable laws and regulation. Improper classification of the expenses in the heads of the account The risk could effect the management CLASSIFICATION and PRESENTATION. assertion regarding

Review the details of expenditure, select the sample from each major classification and check the classification according to the new accounting model. Improper mode of payment. 68 | P a g e

The risk could effect the EXISTENCE and OCCURRENCE

management

assertion

regarding

Document the system recommended by the accounts manual and check the compliance in the departments/division. Verify on sample basis the expenditures from the bank statement. Obtain the list of expenditure paid in cash and obtain their justification. Improper Allocation Of Expenses The risk could effect the VALUATION and EXISTENCE management assertion regarding

Ensure with focus on advertisement expenses and miscellaneous whether the expenditure should be classified as capital expenditure or revenue expenditure as detailed in the audit code and IPSAS. Obtain the list of miscellaneous expense and identify purchase of drugs. Check the PPRA rules for the purchase of drugs Review the treatment of obsolete drugs Document the system of maintaining the drug store. Approaches to address risks involved in purchase of assets: Violation of PPRA This risk will affect the assertion of compliance with regulation and inadequate disclosure of facts. Document the system to call tenders and compare it with the bench mark provided in the PPRA rules. Inquire non-compliances In adequate valuation This risk will affect the assertion of valuation Check the useful life of the fixed asset and the depreciation rate applied with the market information for similar assets. Document the criteria for the recognition of the cost and compare it with international standards. Incomplete records This risk could affect the assertion of EXISTENCE Documents the system of recording the assets. Document the internal control applied on recording the assets. 69 | P a g e

Check the items from records to ground and vice versa. Inadequate utilization of resources The risk will affect the assertion of Rights and Obligation. Ensure that the assets are maintained properly Ensure that assets are used for the purposes it is acquired. Ensure that assets are in the name of the project/department. Ensure that assets are insured or not. Ensure that warranty services are acquired when required during the warranty period. Inadequate disclosure This will affect the assertion of classification and presentation and disclosure. Select a sample and ensure that the items are properly disclosed in the correct account as per the classification of New accounting model. Ensure that the assets are disclosed in accordance with financial reporting manual, and IPSAS.

V. A.

BUDGET ALLOCATION

Current Expenditure The total federal budget for current expenditure including grant in aid Rs. 3,461,731,000 Budget allocation for current expenditure (Rs.)
198,151,000 3,035,970,000 227,610,000

Grant No.
55 56 57

Particulars
Health Division Medical Services Public Health

3,461,731,000 Function wise and object wise classification of expenditure under each grant is as follows; Grant No. 55: Health Division (Rs. 198,151,000)
FUNCTIONAL CLASSIFICATION Accoun PARTICULARS t Code Revised estimates

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71 72 74 76

Medical Products, Appliances And Equipments Hospital Services Public Health Services Health Administration TOTAL

2006-07 68,303,000 3,215,000 8,550,000 118,083,000 198,151,000

OBJECT CLASSIFICATION Accoun t Code A01 A02 A03 A04 A05 A06 A09 A13 PARTICULARS Employee Related Expenses Project Pre-investment Analysis Operating Expense Employee Related Expenses Grants, Subsidies And Writeoff Loans Transfers Physical Assets Repair And Maintenance TOTAL Revised estimates 2006-07 72,518,000 40,000,000 71,660,000 3,550,000 1,000,000 1,192,000 6,129,000 2,102,000 198,151,000

Grant No. 56: Medical Services (Rs. 3,035,970,000)


Accoun t Code 73 75 76 93 PARTICULARS Hospital Services R & D Health Health Administration Tertiary Education Affairs And Services Revised estimates 2006-07 3,014,641,000 1,875,000 11,895,000 7,559,000 3,035,970,00 0 Revised estimates 2006-07 1,113,128,000 1,075,985,000 460,045,000 112,953,000 159,594,000

TOTAL OBJECT CLASSIFICATION Accoun t Code A01 A03 A05 A06 A09 PARTICULARS Employee Related Expenses Operating Expenses Grants,Subsidies And Writeoff Loans Transfers Physical Assets

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A13

Repairs And Maintenance TOTAL

114,265,000 3,035,970,00 0

Grant No. 57: Public Health (Rs. 3,035,970,000)


FUNCTIONAL CLASSIFICATION Accoun t Code 71 74 PARTICULARS Medical Products, Appliances And Equipment Public Health Services TOTAL Revised estimates 2006-07 26,002,000 201,608,000 227,610,000

OBJECT CLASSIFICATION Accoun t Code A01 A03 A05 A06 A09 A13 PARTICULARS Employee Related Expenses Operating Expenses Grants Subsidies And Writeoff Loan Transfers Physical Assets Repair And Maintenance TOTAL Revised estimates 2006-07 63,714,000 23,403,000 129,000,000 17,000 9,336,000 2,140,000 227,610,000

Departments selected for the audit are: Departments Budget allocation for current expenditure PIMS 900,235,000 Research fund 44,000,000 Federal government services 468,938,000 hospital NIHD 81,159,000 NIH 109,090,000 HEALTH DIVISION 88,250,000 The sub offices carried out the audit of all the federal departments in the respective provinces with focus on the significant audit areas. BASIS OF SELECTION: 72 | P a g e

The departments are selected on the basis of; - the high budget appropriation - sensitivity of core operations We have tried to integrate the approaches for financial and compliance audits and simultaneously planned to perform performance audit so that effective utilization of financial resources can be ensured. Further the audit approach is more directed towards system based audit to address the system weaknesses. As discussed in the earlier section the expenditure are broadly classified in the current and development expenditure. We have focused more on development expenditure as huge investment has been made in development sector which if utilized efficiently will help the government in achieving their goals Significant audit areas for current expenditure: Current expenditure is recurring expenditure of the health departments listed above. For the purposes of the audit we have focused on the operating expenses and the purchase of physical assets of the departments selected for the audit in particular and the rest will be audited in general. Audit approach for current expenditure: - Prepare analytical procedures and Investigate where actual are more than budget appropriation. - Investigate transfer payments to sub-offices and there utilizations. - Document the system of revenue recording, from source document till deposit in the bank account. - Ensure that the procurement of the contractor as per PPRA RULES - Circularize confirmation for loan amount to the local offices of the donor agencies and obtain reconciliations

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B.

Development Expenditure The total federal budget for development expenditure including grant in aid Rs. 10,747,829,000 Grant No.
146 Health Division

Particulars

Budget allocation for development expenditure (Rs.)


10,747,829,000

TOTAL

10,747,829,000

Function wise and object wise classification of expenditure under each grant is as follows; Grant No. 146: Health Division (Rs. 10,747,829,000) Accou nt Codes Revised Estimates 2006-07 Pak Rupees 6,033,000 3,052,361,000 7,344,447,000 339,988,000 5,000,000 10,747,829,0 00 2,880,157,000 26,739,000 3,624,914,000 2,988,000 4,148,000 2,793,839,000 1,298,712,000 116,332,000 10,747,829,0 00

Particulars

1. Functional Classification 72 Outpatients Services 73 Hospital Services 74 Public Health Services 75 R & D Health 76 Health Administration

2. Object Classification A01 Employees Related Expenses A02 Project Pre-investment analysis A03 Operating Expenses A04 Employees Retirement Benefits A06 Transfers A09 Physical assets A12 Civil Works A13 Repairs and Maintenance

The development projects selected for audit during year under review includes;
Name of the project Budget appropriation in FY 2006-07

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Up gradation and renovation of FGSH Health Services Academy, Islamabad Establishment of burn care centre at PIMS CARDIAC surgery facilities at PIMS MATERNAL CARE SERVICES AT MCH Centre Abpara Establishment of critical care unit at FGSH Uplifting of main operation theatres at FGSH PURCHASE OF MRI machines for PIMS

Collaboration of JOHN HOPKINS University, USA and PIMS Provision of 64 SLICE health CT scan angiography equipment NICVD UPGRADATION OF EXISTING FACILITY AT NIHD Strengthening of EPI services through GAVI grant assistance National programme for family planning and primary health care, AJK Muzafarabad

8,823,000 76,306,000 228,000,000 205,000,000 24,000,000 20,000,000 21,000,000 100,000,000 (nil in revised budget, yet selected for audit) 10,000,000 (nil in revised budget, yet selected for audit) 360,000,000 200,000,000 70,000,000 75,465,000 (only employee related cost will be audited as it is 84% of the budget appropriated for the project) 882,518,000 (GENERAL EXPENDITURE in operating expenses, which is almost 89% of the total budget appropriation) 73,414,000 (general expenditure in operating expenses, which is almost 97% of the total budget appropriation) 1,067,768,000 (general expenses in operating expenses are 89% of the total budget

National programme for family planning and primary health care FPIU

Improvement of nutrition through primary health care and nutrition education/ public awareness

Expanded programme of immunization (CDD) NIH

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Enhanced HIV/AIDS Control program Prime minister program for preventive and control of Hepatitis National programme for blindness

appropriation for the year) 223,000,000 550,000,000 362,112,000 (audit of purchase of plant and machinery only, as it is 91% of the total budget appropriation)

Basis for selection: The bases for selecting the projects are: - Government high priority areas that are threats for public - Huge investment in the procurement - Huge investments by the donors and the government. - Projects not audited in the previous year. Audit approach for development expenditure: The significant areas are the same as that of non-development expenditure; however certain additional procedure will be applied for the purposes of the audit, discussed below; Internal control assessment: - Document and analyze the system of internal control in the light of internal control questionnaire provided in the FAM and - Analyze the delegation of powers authorized by the ministry to the key officials and the powers actually exercised. Project objectives: - Obtain PC-1 and check the efficiency of the project with respect to time and resources. - Discuss the modes of viability/sustainability of the projects. Budget utilization: - Compare the budget appropriation with actual utilization. - Investigate where budgets are not utilized fully along with its financial impact. - Compare expenditure statement with budget allocation and ensure that expenditures are in line with appropriations only. Cash/bank balances: - Confirm bank balances for loan account with the local offices of the donor and investigate differences and financial implications if any. - Obtain reconciliation with - Document the imprest system for cash handling and identify any irregularities. 76 | P a g e

VI.

ISSUES HIGHLIGHTED IN PREVIOUS YEARS Recovery from persons appointed on fake degrees Ill planned procurements Unauthorised collection of charges by NGOs Heavy expenditure on utility charges and inequitable share of recovery from colony residents Lost opportunities due to delay in release of funds Mis-procurements, violation of PPRA rules Non-production of Receipt Account

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VII.

TIME SCHEDULE Planning Execution Fieldwork Reporting Holding DAC Meeting Total 10 days 78 days 6 days 28 days 122 days Duratio n
122 days

Particulars

Start Date
22-Aug-07 22-Aug-07 28-Aug-07 3-Sep-07 3-Sep-07 10-Sep-07 17-Sep-07 24-Sep-07 1-Oct-07 8-Oct-07 22-Oct-07 5-Nov-07 3-Dec-07 3-Dec-07 7-Dec-07 10-Dec-07 10-Dec-07 3-Jan-08 4-Jan-08 7-Jan-08 9-Jan-08

Finish Date
10-Jan-08 27-Aug-07 1-Sep-07 1-Dec-07 8-Sep-07 15-Sep-07 22-Sep-07 29-Sep-07 6-Oct-07 20-Oct-07 3-Nov-07 1-Dec-07 8-Dec-07 6-Dec-07 8-Dec-07 10-Jan-08 2-Jan-08 3-Jan-08 5-Jan-08 8-Jan-08 10-Jan-08

Permanent File Planning File Execution Main Ministry NIH EPI GAVI PM PROGRAM FOR HEP. BLINDNESS PROJECT NIHD FGSH PIMS Reporting Prepare AIR Send AIR to PAO DAC Hold DAC meeting Sign Minutes of meeting Complete Working Papers Scan WP Evidence Finalize Audit Report

5 days 5 days 78 days 6 days 6 days 6 days 6 days 6 days 12 days 12 days 24 days 6 days 4 days 2 days 28 days 21 days 1 day 2 days 2 days 2 days

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Annexure-A

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