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Transcript

How to handle Audit Issues

By

Tahira Ashraf

Sr. Audit Officer

26.12.2022

First Thought

AUDIT

WHAT IS AUDIT?

“Audit is the examination or inspection of various books of accounts by an auditor followed by physical checking of assets to make sure that organizations are following documentary system of recording transactions”.

Why Audit is required ?

Why Audit is required ? (Cont.)

If we are not accountable then will we follow the rules and regulations?

Meaning of audit under Quran:

“then as for who is given his record in his right hand he will be judged with an easy account and return to his people in happiness” (Surah al Insyiqaq v. 6-9)

“and indeed, (appointed) over you are keepers, Noble and recording; they know whatever you do” (Surah al- Infithar, v. 10-12)

Why Audit is required ? (Cont.)

5 reasons of why audit is required and important:

1. Provide Objective Insight.

2. Improves efficiency of operations.

3. Evaluate risks and protect assets.

4. Assess organizational controls (muster roll example).

5. Ensure legal/rules and regulations compliance.

TYPES OF AUDIT

Audit can be of many types but following are most common:

Financial Audit:

To evaluate whether the financial statements of entity are free from material misstatement whether by fraud or error.

Compliance Audit:

Entities are performing in accordance to rules and regulations governing them.

Performance Audit:

Entities are performing in accordance of principles of economy, efficiency and effectiveness.

Internal Audit

Govt. Audit

Audit Classifications

AUDIT CLASSIFICATION

External Audit

Commercial

Audit

INTERNAL AUDIT

The purpose of internal audit is to watch the interest of the organization.

INTERNAL AUDIT

MANDATE

AUDIT MANDATE : INTERNAL AUDIT

Internal Audit draws its mandate from Internal Audit Manual , Internal Audit Charter or any such document approved by the Chief Executive Officer/Board of Directors.

  • WAPDA Internal Audit Division draws its mandate from Internal Audit Manual (amended in 2014)

  • Chief Internal Auditor of each DISCO draws its mandate from its Internal Audit Manual.

AUDIT

CYCLE

Audit Cycle:

Internal Audit WAPDA

  • Approval of Annual Audit Plan.

  • Issuance of Audit Program to Audit parties.

  • Execution / Completion of Audit by Audit Parties.

  • Issuance of Inspection Report (IR) to Formation and Chief Auditor Office.

  • In-house Briefing to Chief Auditor WAPDA.

  • Identification / Marking the Significant Audit Observations and Follow up by IR Section.

  • Significant observations are discussed in IAC- Internal Audit Committee.

  • Annual report submitted to Chairman WAPDA.

Internal Audit includes

Internal audit may be one of following:

  • Routine/Compliance Audit

  • Consultant Audit

  • Project Audit

  • Stock Verifications

  • Special Audit

  • Joint Examinations, Enquiries and Verifications

EXTERNAL AUDIT/GOVT. AUDIT/STATUTORY AUDIT

EXTERNAL / GOVT. AUDIT

By providing unbiased, objective assessments of whether public resources are managed responsibly and effectively to achieve intended results, auditors help public sector organizations achieve accountability and integrity which improve operations.

AUDIT MANDATE : EXTERNAL AUDIT/GOVT. AUDIT

MANDATE

Articles 169 and 170 of the Constitution of Pakistan 1973, read with Sections 8 and 12 of the Auditor Generals Ordinance 2001, require the Auditor General of Pakistan (AGP) to conduct audit of any authority or body established by the Federation.

Also called Statutory audit and is conducted by Office of Auditor General of Pakistan through its field offices e.g:

DG Audit Water Resources:

WAPDA, IRSA,CEA , Commissioner for Indus Water, etc.

DG Audit

DG Audit Power :

DISCOs ,GENCOs, Power Information Technology Company, NTDC, NESPAK , etc.

AUDIT CYCLE: EXTERNAL AUDIT

Audit Cycle

Types of Paras

Types of

Paras

PAC

PUBLIC ACCOUNTS COMMITTEE(PAC)

Statutory organs of the National Assembly where the objective of Transparency and Accountability is ensured.

The Report of the Auditor General relating to the accounts of the Federation shall be submitted to the President, who shall cause them to be laid before the Majlis-e-Shoora (Parliament). The AG Report so laid in the National Assembly (N.A) shall be referred to the Public Accounts Committee [N.A Rule 177 (2)].

Then National Assembly refer the report to PAC.

PAC forward its findings and recommendations to concerned Ministry and in turn Ministry submits is replies to Committee.

The PAC listens to Audit comments and stance of the concerned Ministry and decides to

  • Settle the para, or
  • Issue directives

Follow up of the compliance of PAC directives is watched through DAC

All subsequent PACs are preceded by DAC meetings

Statutory Audit Liaison Section (SAL)

(WAPDA SPECIFIC)

Statutory Audit Liaison(SAL) Section in office of Chief Auditor WAPDA responsible to coordinate between WAPDA Formations and DG Audit Water Resources to:

  • Coordinate for DAC & PAC Meetings.

  • Prepare Working Papers for DAC/PAC/Pre DAC/Pre PAC Meetings.

  • Ensure transmission of appropriate replies to DG Audit Water Resources.

  • Arrange verification of Paras.

COMMON ISSUES WITH INTERNAL/EXTERNAL AUDIT AND THEIR REMEDIES

Repetition of audit observations

AUDIT ISSUES

Non holding of exit meetings

Non acceptance of replies

Audit after audit

Handling the auditors

Non verification of record

Handleing Audit Issues

1. Repetition of audit observations:

  • Audit observations data bank be maintained.

  • After receipt of issued report, don’t just place it in a rack.

  • Start reviewing audit issue and implement changes before next audit.

  • Seek professional help.

  • For repeated paras if the objection is not settled with previous course of action and replies, evaluate and respond in the way as indicated by the auditors during exist meeting or mentioned in action required.

2. Non holding of exit meetings/issuance of undiscussed report:

  • liaison with audit team be maintained throughout.

  • Confirm the day and time of exist meeting on or before the last day of audit.

  • key management personnel be available on the day of meeting.

3. Non verification of record:

  • Complete & relevant record be produced to Audit formally by formation representative.

  • Record be produced timely.

  • Varication of record under PAC/DAC directives:

  • Issuance of authority letter

  • Nomination Letter by GM Concerned.
  • Annotated Reply along with supporting documents.
  • Verification Performa-1.
  • Record verification certificate.
  • Checklist Issued by the DG. Audit Water Resources.

Duplicate Copies of the above Set of Documents (1 For DG. Audit and 1 For Chief Auditor Office) be provided for authority letter.

The above documents should be signed by the Head of Concerned Formation/Project.

Sample Authority letter

Sample Annotated Reply

Sample Verification Performa-1

Sample Record Verification Certificate Form

4. Non acceptance of replies/ unsettled paras/Writing a response:

  • Respond directly to fining and its recommendations within the time lines.

  • Make your response clear and concise and may be given after consultation with all relevant, financial, technical, legal, etc. personnel.

  • Managements first response and the subsequent responses be consistent, relevant and comprehensive.

  • Unnecessary details and overstatement be avoided.

  • Avoid “rain forest/over whelming response.

  • Path way to disaster is to respond with statement “ audit point is inappropriate or we have never had an issue with this point from other auditors or it has nothing to do with this office.

  • No response.

  • Avoid enigmatic response or promise without substance.

  • The replies should always be accompanied by required record; legible & attested.

  • Replies be produced to audit by responsible and well versed personnel.

  • If the observation seems genuine try to accepts and regularized the matter.

  • Reply should comply with all laydown procedures.

Example Of Bad Replies

Example Of Bad Replies

5. Objections on inquiry reports:

  • Inquiry proceedings be initiated timely (Example of veriation order enquiry).

  • The reports should discuss all facts in the light of TORs.

  • The reports should be conclusive.

  • All inquiry reports should be forwarded to the PAO for vetting

6. Audit after audit:

  • Prepared to be re-inspected (pre-audit & BAO Example).

8. Handling the auditors is itself is a big issue:

  • Psyche of auditors (internal and external)
  • Psyche of auditee

  • As human, emotions often rule over logics.

  • In case of nonconformity, ego is bound to triggered on either or both sides.

  • In case of mistake, be it intentional or not, ego find it difficult to accept.

  • The job of auditors require them to exercise professional speciesism.

  • Its hard to swallow but audit finings are for improvements not for judgment.

9. Management role:

  • Hosting the inspection.

  • Do not challenge Auditors.

  • Don’t be rude: an angry auditor is not a friendly auditor.

  • Don’t Surprise Auditors.

  • Participate in exit meeting.

  • Commitment for resolving the issue.

  • If a request cant be entertain explain it with facts.

  • Longer the requests are filled longer will be the stay.

  • Answer only the question asked.

  • Don't get submissive or rudely defensive.

Case Study

Relevent Documents

STAGE 1

At formation level

For internal or external audit

  • Preparation before audit.
  • On receipt of audit program.
  • During Audit.
  • After completion of Audit.

PROPOSED METHODOLOGY

Stage 2 & 3

STAGE 2

At formation level

Handling audit at PDP level

  • Audit standing committee keep a track of PDPs.

  • Prepare replies, seek technical advice on Finance, taxation, procurement, contract management ,etc.

  • Ensure submission of record within 04 weeks to Audit.

  • Attach a checklist with the replies.

  • Brief the higher Management for the DAC as the senior level management defending the department should be aware of all facts of the matter.

STAGE 3

At formation level

Handling Annual Audit Report

  • Audit standing committee shall maintain separate file for each para.
  • Prepare replies after receiving printed paras without waiting for DAC.
  • Replies be got signed by the GMs and transmitted to Audit.
  • Prepare for all future DACs/PACs & assist the higher management during the meetings.
  • Prepare progress report of compliance of DAC/PAC directives fortnightly.
  • DAC/PAC directives should be taken seriously and given priority.

INTENDED TAKEAWAYS

Thank You

  • The authority comes with responsibility and accountability.

  • Audit is inevitable and so as the findings.

  • Although sometimes comprehensive and seemingly overwhelming, but the best strategy is to focus on crafting right response.
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