PERFORMANCE AUDIT MANUAL,
STANDARDS AND
IMPLEMENTATION Guide I&II
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July 2013
Reviewed and Customized by MOFED For Internal Audit use
CONTENT
SECTION ONE
Performance Audit Manual
Page
DEFINITIONS
0
INTRODUCTION
1
CHAPTER ONE
2
CHAPTER TWO
5
CHAPTER THREE
13
CHAPTER FOUR
59
CHAPTER FIVE
69
CHAPTER SIX
77
SECTION TWO Performance Audit Standards
DEFINITIONS
80
INTRODUCTION
81
CHAPTER ONE
82
CHAPTER TWO
84
CHAPTER THREE
91
CHAPTER FOUR
103
CHAPTER FIVE
109
GLOSARY
110
REFERENCE
114
SECTION THREE Oral Information Obtaining
ORAL INFORMATION OBTAINING & USE
SECTION FOUR
115
Appendices
APPENDICES (1 -26)
136
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SECTION
ONE
PERFORMANCE AUDIT MANUAL
Page
DEFINITIONS
……………………………………………
0
INTRODUCTION
……………………………………………
1
CHAPTER ONE
Concepts …………………………………
2-4
CHAPTER TWO
Purpose and Scope of Performance Audit
5 - 12
CHAPTER THREE Performance Audit Planning …………….
13 – 58
CHAPTER FOUR
Main Investigation
……………………..
59 - 68
CHAPTER FIVE
Reporting
……………………………
69 - 76
CHAPTER SIX
Post Audit Follow- up ………………….
77 - 79
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SECTION
TWO
Auditing Standards
Page
DEFINITIONS
……………………………………
80
INTRODUCTION
……………………………………
81
CHAPTER ONE
Back Ground
……………………
82 -83
CHAPTER TWO
General Standards ……………….
84 - 90
CHAPTER THREE
Field Work Standards ………….
91 – 102
CHAPTER FOUR
Reporting Standards …………….
103 - 108
CHAPTER FIVE
Follow-up
……………………….
109
Glossary
……………………………………..
110
Reference
……………………………………..
114
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SECTION ONE Performance Audit manual
DEFINITIONS
In this manual the context unless otherwise indicates:
Audit is an evaluation of a person, organization, system, process, enterprise, project or
product. The term most commonly refers to audits in accounting, but similar concepts also
exist in project management, quality management, and energy conservation.
Internal Audit means Audit services established in each Federal Government public bodies.
MOFED means The Ministry of Finance & Economic Development in Federal Government
of Ethiopia.
Internal Auditor means auditor of the Public body of Federal public body.
Audited entities/audited bodies/audited organizations mean all Federal public bodies that
are audited by the Internal Auditors.
Standards: - Although the word “standards” is used through out this document it is
understood that this word is to be used synonymously with the word “guidelines” which
keeps the authority for compliance within the domain of each government budgetary
institutions.
Government means the Federal Government of Ethiopia.
Internal Audit Head means head of the internal Audit in budgetary institutions.
Executive means the office of the council of ministers of Federal Government of Ethiopia.
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INTRODUCTION
1. The role of the Internal Audit traditionally has been limited to expressing
Recommendations on financial statements and related issues of legality, regularity
and fraud. This involves assessments of whether transactions were properly
controlled, whether care was taken in the collection and custody of revenues, whether
expenditures were properly incurred and generally, whether the executives’ intentions
were being met.
2. However, this approach does not provide information on waste, inefficiency or
ineffectiveness. Increased public expenditure, the need for more rational and
informed decision making in the use of resources and the growing demand for public
accountability of those who manage public resources necessitated a new and
expanded scope audit–performance audit.
3. Today, performance audit has become one of the major tasks in most developed and
in some developing countries. According to Financial administration proclamation
648/2001 (E.C) article No 7 sub article 1 (a) Internal audits in Ethiopia are already
Page | 1provided with mandates to undertake performance audit in the public bodies.
Traditional financial and compliance audits will continue to play an essential part; it is
anticipated, however, that there will be a gradual and planned growth of performance
audit work.
4. The Ethiopian Performance Auditing Standards (EPAS) and guides accompany this
manual. The manual and the guide are intended to assist performance auditors to
carry out performance audit projects successfully and to bring about work of
acceptable and uniform quality in all internal audits. Therefore, all internal audits are
advised to plan, execute and report performance audits in accordance with the
suggested procedures of the manual, standards and guide.
5. The manual is divided into 6 chapters.
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Chapter 1: Concepts
Chapter 2: Purpose and Scope of Performance Audit
Chapter 3: Performance Audit Planning
Chapter 4: Main Investigation Stage
Chapter 5: Reporting
Chapter 6: Closure and Follow-Up.
1
CHAPTER 1: CONCEPTS
1.1 The purpose of this chapter is to introduce some concepts and terminology used in
performance audit, to give the definition of performance audit, economy, efficiency and
effectiveness and to explain how the performance of an organization, entity, activity,
ministry, program or scheme can be measured. It also explains the interrelationship
between the basic concepts.
Definition of Performance Audit
1.2 Performance auditing is an audit of economy, efficiency and effectiveness with which a
government organization, a program, a project, an activity or a function uses its
resources in carrying out its responsibilities. It embraces:
(a) Audit of the economy of administrative activities in accordance with sound
administrative principles and practices, and management policies;
(b) Audit of the efficiency of utilization of human, financial and other resources,
including examination of information systems, performance measures and
monitoring arrangements, and procedures followed by audited entities for remedying
identified deficiencies; and
(c) Audit of the effectiveness of performance in relation to the achievement of the
objectives of the audited entity, and audit of the actual impact of activities compared
with the intended impact.
(d) Audit of the environmental effects of government activities.
1.3 The audit of the environmental effects of government activities entails the examination
of government activities in relation to the environment in order to provide information
on improvements of environment protection processes and to encourage best practices
in environmental management.
1.4 Performance audit is intended to be a broad, constructive examination and diagnosis of
policies, organization and operations of a government entity. It calls for appraisals of
an organization to compare accomplishments with plan, results with standards, and
practice with policy. The objective is to arrive at a dispassionate and verifiable basis
for comparing what is being done (and how well it is being done) with the plans,
policies and standards and, most importantly to understand the reasons for positive or
negative variance from those plans, policies and standards.
1.5 The performance of an organization, ministry, scheme, program or project can be
measured by reference to:
Objectives:
Inputs:
Activities:
Outputs:
Impacts:
what an organization is trying to achieve;
the financial, human and physical resources an organization used or
consumed;
the processes by which an organization, ministry, scheme, program or
project converts its resource inputs into outputs;
the product of activities in terms of goods, services or other results;
the ultimate effect of outputs not only in the direct achievement of the
organization’s or scheme’s objectives but also in the wider effect on
other governmental objectives or the objectives of others
Examples of the above concepts can be found in Guide 2 Appendix 1.
2
1.6
Using these definitions, performance is then the extent to which an organization,
ministry, scheme program or project is:
Economic: -
Efficient:-
Effective -
It is acquiring and protecting the right quantity and quality of resources
(e.g., staff, materials, equipment) at the right time, at the lowest
possible cost. For example, lack of economy could cause excessive
costs, or poor quality, or undue delays, of goods and services bought.
Maximizing the output (goods/services produced) from a given level of
resource inputs; or alternatively, minimizing the inputs for a given
level of output. For example, lack of efficiency could result in lesser
output, or poorer services, for the same amount of costs incurred; or,
alternatively, higher costs, or long time, for the same amount of goods
and services produced.
It is ensuring that the output (goods or services) is produced as
planned, and/or achieved the desired results. For example, lack of
effectiveness could result in outputs of goods or services falling short
of targets, and/or falling to achieve the desired objectives.
Examples of the economy, efficiency and effectiveness issues of specific programs and
schemes can be found in this manual. Further elaboration of the concepts of economy,
efficiency and effective in relation to performance audit is provided below:
Economy
1.7
Economy is usually thought of as the obtaining of the appropriate quality and quantity
of goods and services at the appropriate times and at the best (minimum) prices. Lack
of economy could occur, for example, when there is overstaffing or when overqualified
staff or overpriced facilities are used or excessive costs, or poor quality of goods and
services bought. (For further technical elaboration refer to technical appendix 1)
Efficiency
1.8 Efficiency is making sure that the maximum level of output is gained from the resources
devoted to each activity, or alternatively, that only the minimum level of resources are
devoted to achieving a given level of output.
1.9 So it is concerned with the “production” process of an organization i.e. The relationship
between the quantity of inputs expended and the amount of outputs obtained. An
efficient organization is one that optimized this relationship, either:
Minimizing the inputs used to obtain a desired level of output; or
Maximizing the outputs produced from a set level of inputs.
Effectiveness
1.10 Effectiveness is defined as:
The extent to which an organization achieves its objectives. An effective organization
will maximize this whilst minimizing the cost of doing so; and
The relationship between its actual impact and its intended impact. An effective
organization will maximize the extent it secures its intended impacts, at a least
cost, encourage beneficial side effects and discourage unwanted side effects.
1.11 The purpose of such an evaluation is to determine whether the desired results or
benefits are being achieved, whether the objectives established by the legislature or
other authorizing bodies are being met, and whether the agency has considered
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alternatives which might yield desired results at a lower cost. In other words it
attempts to measure a public sector organization’s true bottom line performance, that
is, whether or not the organization or program is achieving its objectives. This issue
is arguably the most important element of performance today, finding increasing
application in the public sector.
1.12 Recent developments in performance audit have moved from economy and efficiency,
often easier to examine and measure to effectiveness. This third ‘E’ is closest to
policy issue and it is a thin line between needing to know what constitutes a policy
and criticizing it. Auditors are concerned with the choice and impacts of operation of
policy instruments, not question the merits of policy objectives.
Interrelationship between Economy, Efficiency and Effectiveness
1.13
1.14
1.15
From the definitions of the 3Es given in the above paragraph, economy relates to
inputs; efficiency is the relationship between inputs and outputs; and effectiveness is
the relationship between outputs and impacts. In business enterprise both the inputs
and outputs are measurable in terms of money, and the efficiency with which the
business is conducted is reflected in a resultant profit or loss equation. The latter is not
necessarily the case with most governmental activities.
One has, however, to be cognizant that governmental activities also have a purpose.
Governments usually spend some amounts of money on numerous activities relating
to matters of public policy or the common good. Such expenditures are expected to
yield results in the form of benefits to the country, community, or to particular groups
of people. The goals, the benefits, or other outcomes that are expected to be achieved
represent the ‘value’ to be obtained from the envisaged expenditures, while the money
spent represents the expenditures incurred in the process. In short, the basic question
in regard to government expenditure is - Is the government getting adequate values
for the money it spends on various programs, projects and activities? That indeed is
the essence of performance auditing.
In performance auditing, we try to measure inputs in terms of the economy exercised
in the expenditure of money, outputs in terms of efficiency, and effectiveness value
of the results obtained, and the relevant activities by which inputs are converted into
outputs in terms of the degree of efficiency with which they are carried out.
Economy, efficiency and effectiveness are all related to one another by way of inputs,
activities, outputs, and outcomes/impacts, measured in terms of money spent, work
done and value obtained.
4
CHAPTER 2: PURPOSE AND SCOPE OF PERFORMANCE AUDIT
Introduction
2.1 This Chapter introduces the purposes and scope of performance audit. In general,
purposes of performance auditing are to determine if economy, efficiency and
effectiveness have been attained in the expenditure of public funds. In the process, it
will help to improve internal control system, to enhance public accountability, to upgrade all aspects of management performance and program results.
2.2 The scope of Performance audit ranges from ensuring that VFM is obtained, to a
review of those arrangements, such as organizational structure, management control
etc. In relation to an operational area (which might relate to a program or
organizational unit) or a single activity to an overall review of an organization, entity
etc.
Nature and Categories of Performance Audit
2.3 Performance audit is an independent assessment of the extent to which an
organization, ministry, commission, a program, an activity etc. Operates
economically, efficiently, effectively and with due regard for environment. It, in a
broad sense, is largely concerned with management control audit in securing and
accomplishing its mission in an economical, efficient and effective manner
(environment - the 4th ‘E’ - is dealt with in the Environmental Auditing Manual); the
auditor’s role is to examine and report on how well that responsibility has been
discharged and suggest cost-effective improvement as necessary.
To do this,
understanding of the nature of the organization and its programs is required.
2.4 Performance audits fall into four broad categories:
1. Selective investigations: These are carried out in cases where there are signs
of possible serious waste, extravagance, inefficiency, ineffectiveness or
weakness in control. The investigations are confined to examining whether
criticism is justified, examining causes and considering action taken or needed
to introduce improvements.
2. Major broad-based investigations: These kinds of investigations focus on the
whole audited body or of important activities or programs. These may serve to
give assurance in major areas where arrangements are found to be satisfactory
and no criticism is justified, as well as to draw attention to material weaknesses
in control or achievement and their consequences.
3. Major examinations of standard managerial operations: These tend to
follow common patterns or procedures or established good practice. Here, the
audit office selects an audit area, such as cash management, construction,
procurement, etc., and audits the issue across all of government, or across all
5
major departments involved in the activity. These are sometimes called
‘sectoral’ audits.
4. Smaller scale, ad-hoc investigations: These types of investigations are
directed towards producing useful improvements in value for money in specific
projects or activities. These may help strengthening systems and fostering
cost-consciousness.
2.5 Within these broad categories the auditor pays particular attention to good
management practices, in, for example:
Systems of planning, budgeting and controlling, revenue, capital expenditure and
income, and for allocating scarce resources.
Manpower management, including arrangements for deciding and reviewing
establishment levels and recruiting, training, rewarding or otherwise motivating
employees.
Arrangements concerned with the proper management of all the assets, that is,- land
and other property (including the adequacy of arrangements for acquisition,
maintenance, development, and disposal of land and other properties), plants and
computers (including the data held by the information technology systems),
finance and energy.
Arrangements designed to take advantage of economies of scale or skills, particularly
in procurements of goods and services.
Specific initiatives that have been taken to improve economy, efficiency and
effectiveness in the performance of the range of auditee activities.
Proper codification of responsibilities, authority and accountability.
Monitoring results against predetermined performance objectives and standards, to
ensure that outstanding performance is encouraged.
2.6 Audit may cover all or part of both of these topics. It may be sufficient for the
auditor to assess performance to date to point up success or the need for remedial
action by management. In other circumstances the auditor may wish additionally to
identify good and bad practice in the management of the scheme and suggest
recommendations for the future.
2.7 In performance audit, the auditor must first gain a clear understanding of the
objectives of the organization, scheme or program to be audited and of the strategies
used to achieve those objectives and then examine the systems and practices that
management uses to control operations. It permits the auditor to identify those
particular systems and practices that are key to the organizations success and it is on
these systems and practices that the auditor concentrates.
2.8 The performance auditor must tailor the audit engagement by selecting those several
available methodologies and techniques that are appropriate to the nature of the
audited programs, activities, the interests of the auditee, and the relationship between
data availability and the audit resources. This selection is the key to the success of
the performance audit.
2.9 If a performance audit to be successful:
Work is to be adequately planned;
Assistants are to be properly supervised;
Relevant, reliable and sufficient evidence is to be obtained to afford a reasonable basis
for the auditor’s opinions, judgments, conclusions and recommendations.
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2.10
The extent to which we can assess performance under each of economy,
efficiency and effectiveness can vary considerably. It is often easier to identify and
value inputs than outputs and outputs are generally easier to measure than impacts.
The objectives of the audited scheme may relate to social or economic aspects of a
program or an activity making it difficult both to assess changes and to distinguish
the effect of the program from other influences. Securing the intended impacts may
also be long term and involve matters of quality as well as quantity.
2.11
In the short term, in such instances, the examination may have to be confined
to whether intended outputs have been achieved rather than intended impacts.
However, it must be recognized that this is not a measurement of effectiveness.
Nevertheless good management and performance under all the three headings economy, efficiency and effectiveness - are the foundation of value for money and
the concern of performance auditing.
2.12
Performance auditing is a dynamic activity aiming at recommending timely
corrections, therefore, more skill and experience is required of an auditor when
conducting the audit.
Types of performance audits
2.13 There are different types of performance audit approaches in order to make the audit
products more relevant to the publc body. Reporting on the activity or project as a whole
is normally more useful than commenting on a segment carried out by a specific entity.
The types of performance audits are:
•Entity or program audits, which provide a substantive review of the whole or part of
the operations of a department or agency;
•Government-wide audits, which focus on government-wide issues or functional areas,
such as human resource management, in a number of departments selected by the Office;
•Sectoral audits, which focus on program areas delivered by a number of entities, for
example, search and rescue operations;
•Audit notes, also called other audit observations, are an alternative mechanism for
reporting matters of significance that come to our attention during the course of our work
on any Office products. Audit notes usually report on a single subject which must be
within the mandate of the Office; and
•Follow-up audits, which report on public bodies actions in response to previous
recommendations and issues of the Office and that are of continued interest to
management, and/or that pose a significant risk.
Difference between Performance and Financial Audit
2.14 Financial audit reports on the financial records of an organization, emphasizing
whether the records have been properly entered and adhere to prescribed accounting
principles and standards. Whereas performance audits cover the economy, efficiency
and the effectiveness of management operational activities and are conducted to help
management improve operations.
7
2.15 Performance audits are necessary for a more complete picture of what is taking
place inside the organizations. Financial audits alone do not give this completeness,
which is desirable for effective control and accountability of any organization.
2.16 The scope of financial audit is usually limited to financial statements at a
particular time and matters related to them. The audit work is based on
generally accepted auditing standards which provide the auditors with specific
guidance for audit planning, fieldwork and reporting. In contrast, government
auditing standards applicable to performance audits provide only general
guidelines for conducting the audits; and the scope of performance audits varies
considerably depending on audit objectives. Unfortunately, some officials
contracting for a performance audit may not have clearly defined audit
objectives, placing the auditor at greater risk of not meeting user expectations.
The auditor should discuss audit objectives and evaluative criteria with officials
of the entity to be audited and get their agreement; if agreement cannot be
reached, the views of the entity should be recorded.
Benefits of Performance Audit
2.17 If an effective audit program exists and has the support of an organization’s
management, it will have a very beneficial effect on how the available human
resources, materials, equipment and other inputs are assigned and used. The six
major benefits are:
Clarity of the aims and objectives of programs and projects;
Quality of planning at all levels;
Clarity of agency responsibility and authority to execute approved plans;
Quality and effectiveness of program execution in relation to approved plans;
Quality of internal administration and progress reporting; and
Quality of results in relation to previously established cost and other objectives at all
levels.
Difficulties in Performance Audit
2.18 Performance audit can not be conducted without significant effort to ensure
success. This is due to the difficulties in such audit which include among other
things:
Difficulties in defining the subjects of performance auditing and identifying line of
accountability: These are not easy tasks in public organizations because of the
frequent tendency to over employ.
Lack of legal mandate and of access to information: In many cases performance audit
is not enabling legislation of entities, while financial audits are required of law.
Thus auditees’ management may not attach much importance to such audits, and in
some cases, information may not be readily provided to auditors.
Lack of criteria: Performance auditing objectives are often stated in general and vague
terms and, at times, are not identified at all. All these objectives must be clearly
defined. In addition, specific criteria that are unanimously accepted to the
management and auditors must be formulated for a successful performance audit.
Objectives of Performance Audit
2.19 Prime objective of performance audit are:
To maintain and enhance public accountability;
8
To improve accountability by strengthening the relevant supervising authority’s
reporting to the counsel of ministers on the performance of government budgetary
institutions (Ministries, agencies, etc..)
To act as a force for beneficial change in the management of resources and the
achievement of value for money;
To encourage improved value for money in Budgetary institutions, agencies etc.
Where improvements are found to be necessary and cost effective;
To identify well performing government Budgetary institutions as possible lessons to
be emulated by others;
To enable to provide independent information, advice and assurance about the 3Es in
the major fields of revenue, expenditure and management of other resources;
To induce and assist audited entities to take action where improvements are shown to
be necessary and cost effective.
Public Accountability
2.20 In a modern democratic government, elected representatives rarely manage
expenditure or income themselves. They entrust this to executive government
officials.
Whilst elected representatives should set the objectives for
government, it is the responsibility of the officials to ensure that those
objectives are achieved economically, efficiently and effectively and that
resources are used with due regard for value for money.
2.21 This split between elected representatives and management means that the
council of ministers requires adequate independent information and advice to
hold officials accountable for their actions. In the first instance it is for officials
to provide sufficient relevant and reliable information. The Internal audit has
the responsibility, through performance audit reports, for:
Executive
To provide assurance that official information is adequate and reflects the true
performance of the auditee;
To supplement official information where it believes it to be inadequate.
The Auditee
To give advice, as to what could lead to improvements for the audited body;
To encourage audited entities to improve the quality of their reporting to the executive.
Ways of achieving these objectives entails:
Assessing whether the auditee has established sound system and adequate control for
ensuring its performance;
Assessing whether the auditee has adequate systems and procedures for detecting non
compliance irregularity and illegal acts.
Examining the practice of these systems/controls;
Examining evidence of poor VFM, seeking the causes and establishing potential
improvements;
Identifying appropriate cost effective ways of improving financial management and
control to persuade auditees’ cost effective solutions;
Ensuring that there is a cycle of coverage based on materiality, risk and key areas and
issues;
9
Ensuring credibility by presenting reports on major examinations which are fair,
balanced, accurate and up to date.
Force for Change
2.22 Performance audit also gives Internal audit the opportunity to identify areas
where there can be improved management or performance. Through systematic
review of the audit field and detailed examination of areas where there is a risk
to value for money, the Internal Audit can make valuable recommendations. It
is the responsibility of the Internal auditor to encourage and assist audited
bodies to take action where improvements are shown to be necessary and cost
effective.
2.23 Following on from the prime objectives, the Internal Audit should adopt the
Following operational objectives:
 To select feasible studies, on subjects having a legislative or public interest, or as
requested by the legislature, the executive or the management of the audited
entities, in material areas of the audit field where there is:
 Scope to make worthwhile recommendations for improving VFM; and/or
 A need to enhance public accountability.
To plan performance audit work such that:
 It has clear objectives and scope and a properly defined methodology;
 Resources are utilized efficiently; and
 Staff are fully aware of and capable of delivering the requirements expected of
them;
To obtain sufficient, relevant and reliable evidence, including adequate analysis;
To enable reasonable conclusions to be drawn and worthwhile recommendations to be
made;
To document work undertaken to provide a record of the evidence on which the
performance audit report was prepared and the basis of the findings and
conclusions reached and recommendations made;
To manage audits so that they are delivered on time, at the approved cost and with due
regard for the desired quality;
To foster and develop good working relationships with the audited entity so as to
allow the audit offices to work efficiently and effectively and to ensure:
 Mutual understanding and acceptance of each other’s roles, duties, activities
and basic management structures and systems;
 Trust in professional and personal integrity;
 A willingness to communicate on significant developments; and
 A respect for each other’s professional and administrative judgments;
To report the results of investigations accurately and fairly and in a manner that aids
the intended audience’s understanding.
All audit staff should follow these objectives in all performance audit assignments.
Consultation and Advice
2.24 Performance auditing are often complex undertakings requiring a wide range
of skills, expertise and experience to be completed cost-effectively. As noted
throughout this manual, considerable judgment is required at all stages of the
audit. The requirement to have an audit consulting committee, in individual
public body ensures that appropriate advice and assistance are available to the
audit teams. Audit teams should consult with internal audit committee, subject
matter specialists, and other support groups, as appropriate, on critical decisions
10
made during the audit, and also hold an informal brainstorming internal
methodology meeting during the planning process to obtain advice and
guidance before finalizing the audit plan.
2.25 Following is an outline of the key responsibilities of the consulting committee.
Audit advisory committees should be established in each public body.
Members of committee, from both inside and outside the public body, should be
selected on the basis of their skills, insights, relevant knowledge and experience.
Outside advisors are recognized as leaders in their fields of expertise.
2.26 The committee is designed to primarily provide a forum where the audit team
can seek advice on the objectives of the audit, the general approach, and the
significant matters and issues that are to be reported. The team also presents
information to the committee at the critical decision points of the audit and
normally meets two to four times during the course of an audit. The audit team
consults with committee members on the following aspects of the audit:
The preliminary broad audit issues which were identified during the overview stage,
background and rationale for the audit, initial lines of inquiry, and the relevance of
the planned audit to the office’s mandate;
The scope, general approach and evaluative criteria, and emerging issues during the
feasibility stage;
Expected findings, recommendations, conclusions and reporting strategy; and
The report chapter to assure that it addresses the right message, is fair, significant and
clearly presented during the reporting stage.
2.27 The role of the committee is to:
Advise on planned coverage, matters of potential significance and audit approach in
the early stages of the audit;
Provide expert counsel on the significance of issues;
Review the avenues for quantification being pursued and whether they will be
achieved;
Provide independent review, challenge and council at the critical control points of the
audit; and
Advise on whether the report “message is right” and the issues are significant, and on
the tone, fairness accuracy and reasonableness of the presentation.
The audit department/division could also use individual members of the committee
with expert knowledge as special advisors to the audit team.
Relations with Executive Audit committee
2.28 The development of a system where by audit reports are examined by a
parliamentary or other specially convened committees with powers to make
recommendations based on the reports add greatly to the standing and
credibility of the audit office. The effectiveness of the auditor can be enhanced
through the backing of such committee whose members are committed to
uphold public accountability. Consequently, the relationship between the
committees and the internal audit ought to be on formal statutory basis. The
objective of the relationships will be to improve management and control over
public finance.
2.29 At the initial stage the objectives could focus on ensuring establishment of
sound accounting standards and procedures and see to it that money is spent
only for authorized purposes. The subsequent practice for the committees to
spend more time upon the elimination of waste and extravagance, the
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encouragement of sound practices in estimating, contracting and financial
administration, and finally the need to ensure the quality of service to the public
and obtain good value for money.
2.30 Such committees may not have an executive power and can only submit
recommendations. Their value comes not from simply criticizing things that
things are wrong but by making fair recommendations, firmly based on actual
cases, which may be applied with good effect over a wide field. Their terms of
reference could be defined in broad terms Including the right to examine
accounts, to send for persons, papers and records, and to report. In practice the
significant work of the committees will arise from its examination of the
Internal audit report.
2.31 The effectiveness of the committees largely depends on having sound audit
reports, from the Internal Auditors, as a starting point with the specific issues to
be resolved clearly indicated. In turn the auditors’ effectiveness gains
significantly from the support and standing of the committees. The effort of the
internal audit may be seriously undermined when auditees fail to give adequate,
prompt consideration and response to audit queries; this is an area where the
Internal Audit should get to strong management support to secure corrective
actions.
2.32 Where the committees suffer from having only limited staffing support, the
problem can be relieved by way of direct assistance from the internal audit.
In particular the committees should be briefed as to the effective lines of inquiry
and questions which elicit the information required for any possible
committees’ reports. The committees make the greatest impact by taking
evidence from the head of the body under scrutiny as such body has the ultimate
responsibility for financial management.
Limits of Performance Audit
2.33 While the internal audit will acquire every right to look at how well an
organization is achieving its objectives, through Government laws this does not
mean the Internal Audit can investigate all aspects of governments. The merits
of what a government is aiming to do are for political debate and decision by
elected representatives and not the preserve of the Internal Audit. Therefore,
the Internal Audit would not normally question the merits of policy objectives.
2.34 This restriction, however, should not prevent the Internal Audit from
examining:
The events, evidences and circumstances leading up to the decisions regarding
policy objectives;
The means chosen to implement the objectives;
The extent to which the objectives are being achieved;
Other results of the policy, including unintended or adverse effects.
CHAPTER 3: PERFORMANCE AUDIT PLANNING
12
3.1
3.2
3.3
Performance audit is complex, time consuming and labor-intensive work; therefore, a
structured approach to performance audit is recommended in order that the most
significant and important issues are identified, investigated and then reported upon.
At all stages, review and approval of the audit by senior management are necessary to
be followed and liaison with the departments of the auditee about the progress of the
work, taking into account of views and changing circumstances are also necessary.
The structured approach proposed in this manual consists of the following:
 Planning
o Overview/General Survey
o Marking
o Annual Operation Plan And Strategic Plan
o Feasibility Stage
o Main Investigation Planning
 Main Investigation
 Reporting
 Post Audit Follow-up
Overview/General Survey
3.4
3.5
The overview/general survey is the starting point for a performance audit. Its purpose is
to assemble relevant information to develop an understanding of the entity to be audited
and appraise the information to come to some conclusion on the areas where there is
significant risk to value for money and to identify potential VFM investigations.
It consists of a broad based review of the activities, inputs, outputs, impacts, objectives
and management structures of the audited entity. Understanding of the entity:
Provides a basis for initial scoping decisions;
Allows a more efficient and economical deployment of audit effort;
Provides a basis for determining or changing audit priorities;
Forms a firm foundation for plans and for the feasibility studies, main investigation
and reporting stages that follow.
3.6
3.7
3.8
3.9
During this stage the auditor makes a preliminary assessment of those areas that warrant
audit attention, and determines a tentative audit strategy for addressing them.
An in-depth understanding of an audit entity may be developed and maintained over a
lengthy period of involvement with the entity, both through financial audit and past
VFM activities, or it may have to be acquired before the auditor is in a position to plan
and carry out a specific audit.
Careful selection and targeting of performance audit assignments is particularly
important in view of the complexity of the public sector and the relative resource
constraints for carrying out the work. Unless worthwhile assignments are selected, and
confirmed by the feasibility study, time spent in detailed main investigations will be
wasted with little being achieved. The overview is therefore a crucial stage in the
performance audit process.
Information gathering during the overview can be extensive but should not become an
end in itself. The auditor needs to strike a balance between collecting sufficient
information to have confidence in his/her recommendations to proceed to a feasibility
study, thereby committing the audit office to further use of scarce resources, without
trespassing into the feasibility study itself. Further explanation for the aims and
objectives of the overview is given in Guide 2 appendix 3.
13
Methodology
3.10 The overview consists of a top down approach to information gathering and analysis.
Starting with the most strategic and summarized information, we need to collect only
sufficient evidence in each potential audit area as to:
Differentiate the main activities of the auditee to allow us to form a broad strategy for
our audit;
Identify possible audit areas and issues for the main feasibility study;
Evaluate each of these audit areas and issues against the risk criteria mentioned earlier.
The objective of the overview is not to find out everything to know about the audited
entity. Information gathering should, therefore, be selective and targeted.
Initial Information Gathering and First Stage Analysis
3.11 The organizations we audit are usually very large and complex. Audited entities may
have a multitude of functions, branches and staff, and cover a wide range of
government objectives. The auditor needs, therefore, to develop a top-level picture of
what the entity is trying to achieve, what activities it is involved in and where it gets
and spends its money. In short, the auditor needs a coherent and logical map of the
organization, its objectives, activities and use of resources.
3.12 To develop such a map in a commercial organization, the auditor would evaluate the
financial statements. The main components of the balance sheet, sources and
applications of funds and income and expenditure statement would show the principal
activities of the organization and its use of funds. Examination of movements in the
financial statements year on year, coupled to variance analysis and comparison with like
organizations, would give key indicators of performance - e.g., return on capital
employed, movements in debtors and creditors etc.
3.13 Similar analysis is necessary of governmental organizations. However, the auditor
cannot rely so heavily on the financial statements because they are normally presented
in a way that facilitates internal financial control, not an understanding of the audited
entity and its objectives and activities. They rarely contain performance information.
Risk to value for money cannot be found solely by looking at budgets or annual
accounts. Equally, many of the entities are unique and there are few useful
comparisons we can make to similar entities.
3.14 The first step, and the objective of this initial information gathering, is to gain a
perspective of the entity. Evaluation of performance comes in the more detailed
examination. At this stage the auditor requires information on the entity’s:
 Vision, missions and objectives as well likely outputs;
 Policy instruments;
 Regulatory and principal administrative activities;
 Organizational structure and the accountability relationships;
 Input usage by type e.g., labor, interest payments;
 Income, expenditure, assets and liabilities;
 Main financial and management control systems;
 The environment in which the entity operates;
 Man power/key personnel information;
 Major risks facing the entity; and
 Prior deficiencies/known weaknesses.
3.15 This information will normally be acquired through a combination of interviews and
review of key information systems. The auditor should obtain a statement of policy
14
objectives and instruments from top management and it is good practice to check our
understanding of the structure and activities of the audited entity with them.
(use Guide 1 for detail)
3.16 Further information sources include:
 Top management information systems;
 Formal statements of policy objectives;
 Financial statements, including the annual accounts, budgets, and corporate plans;
 Organizational charts or similar information;
 Opening conference;
 Internal and external audit report;
 Other studies (research) made by internal and external body;
 Review of audited entity’s web- site, if any.
 It may be necessary to obtain more detailed analysis from the audit’s finance
branch. Financial audit report is also a useful source of information. It gives a
perspective of the main activities of the audit, its structure and, most importantly,
its financial management systems.
3.17 On its own this information will not give a full understanding of the audited entity. The
auditor needs a means of analyzing it. One useful technique is that of “cross-cuts”.
This involves structuring the information in such a way as to give us:
 A top-level appreciation of the audit, its objectives, activities, inputs, outputs and
management systems;
 A range of possible study assignments/areas for further investigation;
 A view of the materiality of each topic, and, in some cases, a tentative view on
other criteria, e.g., value for money.
 A detailed worked example is in Guide 2 appendix 7.
3.18 There are many ways to look at an audited entity and we are likely to come up with a
number of different cross cuts for the same entity. Information can be considered by
what the audited entity is attempting to achieve (which would give a view of the range
of effectiveness issues), what resources it is using (as a first step to considering
economy studies), aspects of management (e.g., the quality of performance
measurement), in fact by any aspect that affects value for money or public
accountability. Crosscuts are an area where the auditor needs to combine his/her
existing knowledge of the audited entity, the information collected and an open mind as
to the kind of factors that can lead to poor performance by the audited entity and
successful audit office’s studies.
3.19 The minimum cross cuts for any entity are by:
 Policy objectives and policy instruments: for effectiveness studies, and
management thereof;
 Activities: in the first instance for efficiency and its management, but also to see to
what extent activities tie up with objectives;
 Inputs: for studies of the control of resources and for wider economy studies; and
 The principal financial management control systems: for studies of the adequacy
and quality of the management controls over economy, efficiency and effectiveness.
3.20 Analysis should not be limited to the current financial year. To understand the entity
fully the auditor needs to appreciate organizational trends. Analysis of movements in
the financial statements year on year and of its budgets should also be undertaken to
show:
 Major changes in expenditure or income by policy objective or instrument;
 Significant variations in inputs;
15
 Un-budgeted income or expenditure;
 Explanations of the above.
3.21 At the end of the initial information gathering and analysis the auditor should present a
report to the relevant principal auditor showing the results of the crosscuts and
recommendations of the different levels of priority for materiality. The principal
auditor should decide on the basis of this information which areas to investigate further
(that is, against the remaining criteria) and to what depth.
Detailed Information Gathering and Analysis
3.22 The aim of this element of the overview is to evaluate the topics identified in crosscuts
and initial information gathering against the remaining criteria. The auditor needs to:
Come to a perception on value for money, potential impacts, audit ability etc. For
each topic;
Assign priorities against each criterion: this allows the auditor to judge which
potential assignments are most suited for detailed audit investigation in the future;
and
Foresee a potential audit program for performance audit of the field;
Identify broadly the 2 - 4 audit areas for each proposed assignment. Precise terms of
reference for the assignment will be defined at the feasibility stage but the auditor
should target the key areas of the overview. Proposed audit areas reflect the
auditor’s concerns on public accountability or value for money.
3.23 The availability and location of information will vary with the internal reporting
structures of the audited entity. Information may be obtained within the audit from:
The top-management information system: for performance data, risks to value for
money caused by the selection of policy objectives or instruments and discussion
of future developments likely to affect the audit field;
Departmental bids/justifications for resources: again these may include
performance data, and may refer to major constraints affecting the audit and
developments likely to affect the audit field;
Program evaluations: for performance information and analysis;
Performance reports;
Annual reports and corporate plans: may provide performance information and
results of discussion of constraints and likely developments. They may also
contain hints of the areas that the auditee feel are of most interest to the legislature;
Internal audit reports: it would be good practice for the performance auditor to
review all significant internal audit reports or scrutiny of financial management
systems for the last 2 - 3 years;
The auditor will also be interested in the existence, arrangements and quality of all the
above as this will reflect the organization’s ability to secure value for money;
Briefings and minutes of significant departmental committees: auditees may have
too many of internal committees and it is important to select those that discuss
matters having a bearing on the overview analysis;
Consultant’s reports and other scrutinizers;
Research program (if available): for future work planned by the auditee;
Observations during financial audits: this is likely to be our principal source of
information on the quality of the financial management systems.
16
3.24 Interviews will also play a major role in this element of the overview. The main
contacts will be with:
 The top management of the auditee and of individual programs;
 The finance and other significant branches of the auditee.
3.25 The audit team should seek the following from the auditee’s top management:
 Major developments in the pipeline;
 Any concerns they have on value for money or public accountability;
 Major constraints under which they are working, e.g., limitations on the recruitment
and dismissal of staff, lack of foreign currency etc., which may be affecting the
performance of the auditee or individual schemes.
3.26 The Internal auditors should also discuss the results of their overview with the audit
department head, before finally producing a report to the head of the public body. All
such interviews should normally be conducted at senior auditors level.
3.27 The auditee’s finance branch will normally be the first source for information that
cannot be obtained from the principal reports mentioned above, or to expand on detail.
The finance branch should also be expected to have the primary departmental
responsibility for ensuring that there are adequate financial management structures
covering all aspects of the auditee’s use of resources. The Internal Auditor will,
therefore, wish to discuss:
The broad content of the financial management procedures in place in the auditee
organization;
The finance branch’s monitoring and review of these procedures; and
Any reports arising from relevant scrutiny.
Where the finance branch has not exercised this responsibility, and no other branch has
delegated for it, there is a potential audit concern about the auditee’s internal control
procedures.
3.28 External information sources may also be helpful. In particular the recent relevant
outputs, if any, and future work plans for instance, the following organizations could
be reviewed:
Ethiopian Management Institute;
Industrial Project Services (IPS);
Ministry of Finance and Economic Development;
Addis Ababa and other Universities;
The major aid agencies, etc.
3.29
3.30
Information on legislative and public interest will normally be articulated by the
relevant organization and the media. The auditor should keep abreast of and follow
economical, political and social issues within the country through the media and
relevant public debates.
Information requirements to assess audit ability will depend on the nature of the
proposed audit assignment and the necessary methodology. What information we
will require during the main investigation, how we will analyze it, and the audit
resources required can only be determined once the issues and methodology have
been defined. But, as noted above, the auditor must confirm during the overview that
a main investigation is possible and should remain to be proved in the feasibility
stage.
17
3.31
At a minimum the auditor should check, for both departmental and possible external
information required during the main investigation:
Its availability, that is, does it exist and if not what can we do to fill gaps?
Its location, that is, how easy will it be to collect?
Its quality, that is, can we rely upon it?
The auditor should also ensure that any necessary external assistance would be
available when required.
Selecting areas for audit
3.32
3.33
The main purpose of the overview is to identify potential performance audit
investigations. During the overview process vast amounts of information are
collected about the audited body. To be able to make recommendations about what
would or would not make good studies and the priorities between studies the auditor
needs some form of basis for evaluating the information that has been collected.
Selecting potential areas for audit should be based on some or all of the following
criteria:
Materiality;
Risks to VFM;
Public accountability;
Possible impact;
Legislative or public interest;
Risks to the audit offices;
Departmental issues;
Suitability;
Audit ability;
Timeliness;
Previous audit works;
Other major work planned or in progress;
Developments likely to affect assessment.
3.34



The above information should be analyzed against each risk criterion. The primary
requirements are:
To identify and evaluate all information having a significant impact on our view of
the auditee;
To develop a consistent approach to the allocation of priorities across all topics within
the audit field; and
To delineate, within each potential audit area, the 2 - 4 key study areas for the
feasibility study.
3.35
To complete the risk assessment forms the auditor should:
Assign a priority to the topic as a whole;
Suggest when the audit should take place within the overall programme;
Give a priority rating (low, medium, high) against each risk criterion and briefly
explain the reasoning for these.
A worked example is given in Guide 2 appendix 10.
3.36 Even if the auditor uses selective approach to gather information, for the overview, he
can generate a large amount of data. To summarize results the auditor should produce
a short report as in Guide 2 appendix 9 for each of the main topics identified in the
crosscuts. Risk assessment form should be produced for each low, medium or high
18
priority areas, whether or not an assignment is being proposed. It is important to
ensure completeness.
Materiality (Significance)
3.37
3.38
3.39
3.40
3.41
3.42
In performance audit a matter is deemed material if its disclosure is likely to be of
interest to, or influence, the report user. Materiality is one of the main criteria
considered at the overview and strategic planning stages and latter in the reporting
process. It assists in the selection of areas for examination, in the determination of
priorities and in deciding what needs to be included in reports.
Deciding whether or not an audit issue or finding is material always involves the use
of professional judgment. There are three main factors which influence materiality
decisions-the amount, the nature of a matter and the context in which it occurs.
However, the measure of whether an item is material may not be determined solely in
terms of any single factor. Thus it may not be the value of the activity which is the
over-riding determinant of what is material, but its very nature, or the context in
which it occurs.
Materiality by Amount
Materiality by amount involves a consideration of whether the financial value is such
as to make it of interest to report users i.e. Influence them. This may be in terms of its
absolute amount (what is considered a significant sum of money) and/or its relative
value (e.g., compared to the auditee’s programs, total resources, assets etc.). It does
not necessarily relate to a given year’s expenditure and is more likely to be considered
in relation to the continuing program of activity.
Materiality by amount covers all financial factors in the organization expenditure and
income, assets and liabilities. Items should be considered in gross, rather than in net
terms so as not to hide underlying trends or significant areas of activity. We should
also include any public expenditure that is not the direct responsibility of the audited
entity but over which it has a major influence. In the case of country like Ethiopia,
receiving extensive but finite foreign aid, it is also appropriate to include the aid
expenditure that falls within the audited entity ‘s remit.
Analysis of materiality should not be limited to the present financial year but should
include expenditure and income over the recent past and proposals for the future.
Any major changes or significant trends are important as they give further context to
our assessment and may help us evaluate the potential for inherent risk. Information
on materiality can normally be obtained from the organization’s budgets, corporate
plans and financial statements.
The auditor’s interest in materiality is in both the absolute size of the audit item and
its size relative to other audit areas. Its relative materiality will be one factor in
deciding the priority of each individual item within the whole audit field.
Example
OFAG’s Social Services Division, in the 1983 E.C. financial year, had an audit field of
approximately 982 million Birr, with the following expenditure spread for organizations:
1 - ~ 493 million Birr;
2 - ~ 156 million Birr;
2 - between 20 and 30 million Birr;
19
1 - between 10 and 20 million Birr;
2 - above 3 million Birr;
Range of smaller institutions totaling another ~ 100 million Birr.
Given this spread of expenditure, it might be reasonable to allocate priorities as follows:
Entities spending >100 million Birr a year (3 in total) - high priority;
>3 million but less than 100 million (5 in total) - medium priority;
<3 million (a further 53 entities) - low priority.
If the division has sufficient resources to conduct 2 performance audits a year, and leaving
all other criteria aside, the office might decide to conduct performance audits as follows:
One study of a high priority entity every 18 months, giving an audit cycle of 4½
years;
One study of a medium priority entity every 2 years, giving an audit cycle of 10
years;
Studies of low priority items as audit resources, and other criteria, dictate.
The only caveat to this is to consider a study of the quality of financial control systems in
low priority entities. This would be a high priority item as together they spend
approximately 100 million Birr a year - the cut-off point for high priority entities.
Materiality by Nature
3.43
The consideration of materiality by nature relates to whether the intrinsic
characteristics of an activity are likely to interest or influence report users. Apart
from of its financial value, a matter may be significant, for example, because: it is
new (e.g., a new spending program, initiative or tax); it is novel or unusual; it
involves substantial diseconomy, inefficiency or ineffectiveness; or it is of particular
legislative or public interest.
Materiality by Context
3.44
Materiality by context relates to matters which are not necessarily material in their
own right, but because of their significance, they need to be drawn to attention. The
auditor must be sure that the related matter is relevant and of sufficient importance
while, at the same time, be satisfied that because of the context in which it occurs it
warrants inclusion on the grounds of fairness or completeness.
Risks to Value for Money
3.45
3.46
Risk is defined as an event or action occurring that may adversely affect the
organization, such as exposure to financial loss, loss of reputation or failure to deliver
the program with economy, efficiency, cost effectiveness or taking into account the
environment implications.
A risk to VFM is the risk that economy, efficiency and effectiveness are not being or
may not be achieved. Risk defined as the probability that an event or action may
adversely affect the organization, such as exposure to financial loss, loss of reputation
or failure to deliver the program with economy, efficiency, cost effectiveness or
taking in to account the environmental implications. Risk assessment is the process
20
that is crucial to the development of effective audit work schedules. The risk
assessment process includes identification of auditable activities, identification of
relevant risk factors, and an assessment of their relative significance. A risk
assessment requires the auditor to ask the following types of questions.
What can go wrong?
What is the probability of it going wrong?
What are the consequences?
Can the risk be mitigated or controlled?
3.47
There are two main types of risk to VFM, inherent risk, which stems from the nature
of the activity, and identified (control) risk, which may result from a perceived
weakness or specific evidence. The distinction between the two types of risk is often
not clear-cut. Categorizing risk in this way is merely intended as an aid to the
evaluation process.
Inherent risk
3.48
Certain types of operation, by their very nature, have an inherent risk to the
achievement of VFM. Factors outside the control of the audited body (if only
temporarily) may render a matter prone to poor VFM. This would include such
aspects as:
The set up of new services;
Legislative change;
Major contingencies;
Introduction of significant new policies;
Unusual transactions, that is, those outside the normal course of business of the entity;
Unusual financial arrangements;
The effects of the general economic and political conditions on operations, financing
or investment activities;
Exposure to interest or exchange rate fluctuations;
Complex programs;
New technology; and
Intangible objectives/outputs.
Identified (Control )Risk
3.49
Identified (control) risks are those specific circumstances, events or pieces of
evidence which indicate that an activity is not achieving or may not achieve good
VFM. The range of possibilities is enormous but, for the most part, they can be
identified from overview and marking work. Identified (control) risk is detected
through an appraisal of the climate in which the audited body operates from analyzing
its management practices, and as a result of the experience of audit offices staff. Such
climates may consist of:
a) Operational climate: political, social, environmental or economic issues can
influence the way in which operations are conducted, as can legislative or
other pressures. These may lead to activities being expanded or curtailed,
resulting in controls being circumvented, or other risks to VFM. Whilst, these
factors may be outside the control of the audited entity they are not inherent.
Evaluating the operation climate however can ensure that associated risks are
taken into account.
21
b) Management practice: the quality of management can also provide a good
indicator of the possibility of risk to VFM. The auditor should be looking for
three key elements which help to secure, control and monitor the achievement
of the 3Es. These are:
i)
The establishment of clear organizational and operational objectives;
ii)
Sound control over activities and procedures to make the most economic,
efficient and effective use of resources;
iii)
Appropriate monitoring and information systems to ensure that
management can quickly become aware of diseconomy, inefficiency and
ineffectiveness and take necessary action.
The absences of these elements can pinpoint the risk of poor vfm.
Degree of Risk
3.50
Once the inherent and identified risks have been assessed the auditor will need to
make some assessment as to how likely and how serious he/she believes them to be.
This should enable the risks to be given an approximate order or ranking, generally in
terms of “high”, “medium” and “low”.
3.51 It is not, however, possible to provide exact guidance on the level of risk. The auditor
must use his/her judgment to decide, but the following questions might help:
Is there evidence that poor VFM has actually occurred in the past? If so, to what
extent?
How adequate is the evidence in showing the likelihood of poor VFM having occurred
in the past?
How adequate is the evidence in showing the likelihood of poor VFM occurring in the
future?
3.52
3.53
3.54
3.55
Steps taken in risk assessment
The following steps should be considered in evaluating risks to VFM:
Identify areas of operations and activities susceptible to poor VFM;
Identify specific risks;
Establish VFM control and management information systems;
Assess degree of risk (likelihood, frequency, significance, extent, consequences,
short/long-term etc.);
Produce an order of ranking.
To assess whether an organization is achieving value for money the auditor must first
establish criteria of what constitutes economic, efficient and effective use of resources
for the entity or scheme in question (that is, what price it should pay for inputs, what
level of outputs it should be getting and what impact it should be having). By
comparing actual achievement with these “ideal” criteria the auditor can identify
areas where there is waste or poor performance.
Most people do this as a matter of course each time they make a purchase. For
example, when buying food we have a view of how much we want, what quality we
are expecting and what price we are prepared to pay. If the goods do not live up to
the standards we set then we see them as a poor purchase, that is, bad value for
money.
In assessing risk to value for money the auditor takes this process one step further. In
addition to seeing whether there has been waste s/he assesses the environment and
22
3.56
3.57
3.58
3.59
management controls to see whether they create a risk to the economic, efficient and
effective use of resources. By comparing the actual financial management
environment and control systems with those that a secure and well-managed
organization would have in place, the auditor can assess the risk that the entity will
not secure good value for money. A detailed discussion of the nature and use of risk
evaluating criteria is available in Guide 2 appendix 4.
Auditors should also pay special attention to the indications of non-compliance with
laws and regulations, irregular and illegal acts with in each audit area.
It would be impossible to include here all the possible evaluative criteria the offices
might use. However there are a number of available sources in OFAG library.
The overview should not be limited to looking only at those parts of an organization
with direct control over the use of resources. Poor value for money can also be
experienced in any area of an organization whose actions or regulations affect the use
of resources by others. For example, the Ministry of Transport may spend only a
limited amount on accident prevention on roads. But its regulations on such matters
as the wearing of seat belts and its effectiveness as a test for drivers may have a
major, albeit indirect, effect on money spent in the Ministry of Health on the
treatment of accident victims.
This criterion also incorporates the objective of identifying well performing
government organizations. This is the inverse of high risk and the analysis that
identifies poor performing or managed organizations will also allow the auditor to
pick out the well performing entities.
Public Accountability
3.60
This influences the auditor’s assessment of the audit field and selection of
assignments in two ways:
The executive should be given the opportunity to hold public bodies account for major
areas of government expenditure. This is discussed more fully in Chapter 2.
The Internal Audit corporate objectives include improving accountability by
strengthening audited entities reporting to executive .
3.61
In the first of these, we are interested in organizations or schemes which are so
important that it is reasonable that they are examined as a priority issue, irrespective
of any other criteria. This will often come down to a question of size and the auditor
will use materiality as the criteria for selection. However, there may be occasions
where an organization is important because of its political context; this is discussed
below under “ legislature or public interest”.
The second is concerned with the quality of organizations’ external reporting process.
As noted in Chapter 2 it is the responsibility of the organization to report accurately
and fairly on its use of resources and performance achieved. In selecting performance
audit assignments, the auditor should assess whether there is proper external reporting
and, where appropriate, identify the need for improvements. Evaluative criteria for
this area are detailed in Guide 2 appendix 4.
3.62
Possible Impact
3.63
The Internal Audit objectives for performance audit are heavily geared to having a
beneficial impact. Its principal purpose is to enhance the quality of reporting.
Equally, those concerned with value for money seek to encourage improvements
through recommendations which are necessary and cost-effective or by learning
23
lessons from well performing organizations. Cost-effectiveness analysis tries to show
how a given level of benefit can be achieved at the minimum cost, or to show how the
maximum benefit can be achieved at some given level of cost. The audit offices,
then, are not interested in being negative, critical agencies but wish to have a positive
impact through their work.
3.64 Identifying the scope for beneficial impact goes hand in hand with analyzing “value
for money” and “public accountability”. These criteria may identify instances where
the auditee’s performance or systems are weak. To assess the potential impact of an
audit assignment the auditor should then ask a further question as to what can be done
about it - what improvements should be made within the audited entity.
3.65 To answer this question the auditor should go back to the comparison between the
action of a “good” organization and those of the audited entity. As noted above, this
defines the problem areas within the auditee. But it also points to what the auditee
should do to improve. The evaluative criteria - our views of what a good organization
would be doing - are the required changes.
3.66 Identifying potential improvements is only the first step. The auditor should also
consider whether they are:
Feasible;
Cost-effective.
We should not expect the audited entity to be perfect. Perfection can be exorbitantly
expensive. It may not even be possible. The auditor should make a realistic
assessment of the true worth of any possible recommendations.
Executives Interest
3.67
3.68
Performance audit is not an end in itself. The public body expend valuable resources
on it to serve the interests of its main clients: the executive and, through them, the
public and the media. The auditor needs, therefore, to have a view of whether the
audit assignments he/she proposes are in areas of the executive or public interests or
whether the subject will prove to be of interest if the Internal Audit provide adequate
information. Though the auditor should be politically neutral he/she needs to have an
appreciation of the political environment.
The executive interest is also important because it will have a direct effect on the
impact of the public body work. If the Internal Audit recommendations are opposed
by the public body and the audit report does not generate much interest by the
executive, it may be difficult to secure improvements in value for money or public
accountability.
Risks to the Internal Audits
3.69
3.70
All types of audit involve risks to the auditor. Successful auditing involves
identifying these risks and limiting their extent. The risk to the Internal Audit at the
overview stage is simply whether the Internal Auditor is likely to be embarrassed if a
particular topic is not examined.
Significant risks to the Audit need to be identified, evaluated and given prominence
when reporting the results of the overview.
Departmental Issues
3.71
The audited entity affects selection of assignments in two ways:
They may commission the study themselves: this is a positive advantage to any
assignment as the auditee is then more likely to accept the conclusions and
recommendations. The auditor must, however, ensure that other criteria are met
24
before recommending a study. She/he needs to be satisfied that there is a real risk
to value for money worth investigating and that the Internal Audits are capable of
conducting a quality audit;
They may strenuously oppose a particular study: experience shows that this can
lead to considerable delays and may affect the quality of the final output. This
should not, of itself, stop the engagement from proceeding but the auditor should
consider the implications for the audit office work (likely delays, cost in resources,
future working relationships) and report accordingly to the audit offices’ senior
management.
Suitability
3.72
The auditor should only recommend potential assignments which are suitable for the
target audience. This revolves around two issues:
Whether the subject is so highly contentious politically that the Internal Audit report
will end up being argued over rather than acted upon. Auditors should avoid audits
which involve criticism of the government’s political objectives or which will
inevitably to be used for this purpose by external audiences;
Whether the subject is so technical in nature, that the Internal Audit cannot present a
report which meets the audience’s needs.
It is unlikely that the Internal Audit can achieve any of its corporate objectives if either
of these situations prevails.
3.73 The suitability of a subject depends upon how the likely content of the final Internal
Audit report can be presented. Being politically contentious or highly technical does
not, in itself, rule out an audit. If a subject can be presented in a factual, clear fashion,
without provoking political value judgments, it can still make a good study regardless
of its apparent sensitivity. To assess suitability, auditors must consider the final
presentation of the report, even at this early stage.
Audit ability
3.74
The auditor should only recommend assignments that the Internal Audit has the
ability to investigate. If the auditor recommends a study at the overview stage she/he
is committing the public body to expending scarce resources on a feasibility study.
Further, if it is found at the feasibility stage that the study is not viable, the audit will
have nothing to show for a considerable effort.
3.75 By the end of the overview stage the auditor should have a clear idea of a few more
important, potential audit areas to be investigated for value for money, public
accountability and performance audit improvements. The auditor should assess the
auditability of the identified potential study issues.
3.76 Audit ability depends upon:
The nature of the issues: very broad, effectiveness issues are generally more difficult
to examine than narrower economy issues. For example, if an audited entity has
failed to measure its achievement of social objectives and the auditor decides this
is an issue to look at he/she needs to think carefully about whether his/her office
has the ability to measure performance in this area;
The methodology required: the methodology will determine the necessary evidence,
analysis and staff skills. The auditor should assess whether the audit office can
cater for all of these before recommending a study.
The availability of evidence: evidence must be sufficient, relevant and reliable. At
the overview stage the auditor should make an initial assessment of what will be
25
needed, what is available in the audited body or elsewhere, and of its quality. The
auditor should then consider:
 How easy it will be to collect the evidence: it may only be available at various
locations far away from the audited entity. This could have significant
implications for costs and delivery of the study;
 Any gaps in the available information and the implications of poor quality of
information: if the gaps and the poor quality of information are significant the
audit office will have to fill them itself. The auditor needs to be sure that this is
possible and to have some view of the likely cost;
The Internal Audit available skills: auditors cannot attempt to be experts in every
field. The Internal Audits may need to employ specialist consultants. Equally, the
audit team may not have within it the necessary analytical skills and will have to
think about bidding for staff from elsewhere in its office;
Overall resource requirements: evidence may be available, and the office may have
all the necessary skills, but the audit may be prohibitively expensive to conduct.
The auditor should make an initial assessment of likely resource requirements and
estimate the projected delivery date of the final report. This should be weighed
against the potential impacts to see if the audit is cost effective.
Timeliness
3.77
The internal auditor should have to consider whether or not:
This is the right time for the Internal Audit to investigate this area;
The audited entity needs more time to implement major such as:
i) recommendations resulting from internal/external reviews; or
ii) Changes resulting from new legislation.
Previous Audit Work
3.78
The knowledge and experience gained from past financial and performance audit is
also a valuable source of information in selecting performance audit assignments.
Other Major Work Planned or in Progress
3.79
3.80
The Internal Audit aims to contribute original information and analysis. If the audited
intity are in the process of evaluating an area or have such evaluation planned for the
near future the auditor must ask what an investigation by the Internal Audit will add
to improving value for money or public accountability.
Information in this area is normally best sought from the audited entity’s senior
management. Where there has been recent research in a field we will also wish to
know what action the audited entity intends to take on the findings.
Developments Likely to Affect Assessment
3.81
The Internal audit’s overall objectives are to improve value for money or public
accountability. This depends, in part, on what the government or the audited entity
intends to do in the future in an area that is at risk. For example, if major policy or
legislation is planned the auditor should consider what the internal audit study would
contribute. This can depend on timing. If the internal audit report is produced after
the policy or legislation is enacted its work may well prove to be of very limited
value. If, however, it is able to produce a report while audited entity or government
26
3.82
3.83
are drafting a new policy or legislation it may be able to contribute positively to
decision-making.
Information in this area depends crucially on maintaining a good relationship with the
audited entity. Often they will be the only source available. The internal audit
should seek their views as to whether there are any pressing reasons why it should not
proceed with proposed audit engagement.
Risk criteria help the auditor to assess the importance of an item in comparison to
others in the audit field and to set priorities for the internal audit work. To come to a
view on the scope for performance audit in any area of the audited entity, the auditor
should evaluate each element against each criterion and assign high, medium or low
priorities, coming to a decision on the overall priority of the proposed study areas.
The factors affecting priorities or the various risk criteria are available in Guide 2
appendix 8.
Documentation
3.84
At the end of the overview the auditor should produce a summary working paper
folder containing:
A synopsis of the cross cuts covering the whole audit area. This can follow the format
of table 1 of appendix 22 in Guide 2 with one diagram for each type of cross-cut
e.g., by objective, inputs, financial management control system;
All risk assessment forms;
A short discussion of the performance audit strategy for the area, showing, at a
minimum the cycle of coverage of high, medium, and if appropriate, low priority
items;
A timetable for the proposed audit areas covering the following 5 years.
Separate working paper folders containing all relevant and necessary supporting
evidence.
3.85
Each risk assessment form should be fully supported by working papers and evidence.
This should be kept on separate working papers folders. Detailed evidence should not
be placed on the summary folder. The summary folder will then be both concise and
sufficient to go forward from the Internal Audit head, with a covering memo to the
head of public body Documentation of working papers and working paper folders are
discussed in Guide 2 Appendices 20 and 21.
Risk assessment forms on the summary folder should be referenced to the relevant
working papers and working paper folders containing the background information and
evidence for the auditor’s judgments. Referencing should be sufficient to allow
management to easily refer to the relevant data.
3.86
The Overview Report
The final output of the overview is a report to the head of public body containing:
Analysis of the whole audit field against the risk criteria discussed below;
Allocation of priorities to each area;
Recommendations of cycles of coverage of the audit field (e.g., all high priority items
over a 5 year period); and
Limited details of each of the audit assignments proposed for the next 2 - 3 years.
27
On the basis of this report the head of public body will approve feasibility studies in each of
the recommended audit engagement areas. There is no formal audit report to the audited
entity or any other external client.
3.87 The focus of the overview report is to help the head of public body decide about the
audit assignment. The report gives the auditor’s assessment about the key areas to be
audited.
3.88 The report should cover the auditor’s conclusions on the entire area that they
examined at the overview stage. It should include assessments of those areas which
they have decided not worth pursuing for further study in the short term as well as the
areas they have taken forward to the feasibility stage.
3.89 The main overview report should normally not be more than 8-10 pages long and
should include the following:






3.90


Brief description of the audit area reviewed;
Details of expenditure and income, and source of fund in each main area;
Review of the various elements of the audit area in terms of their suitability for
audit and their priority;
Auditor’s recommendations for the immediate audit and any recommendations
they may have for future performance audit work in this area;
Estimate of the likely cost of the proposed audit; approximate start and
completion dates of the feasibility stage; start date of the main investigation;
and production of the first draft report;
Concluding summary of the above.
The appendices should include:
Risk assessment sheet for each element of the audit area, for example, a sheet for each
section, division or part of the audited entity, or for each possible issue they have
considered. Risk assessment sheets should also be produced for areas that they have
decided not to examine in the feasibility study or the main investigation.
A spreadsheet summarizing the auditor’s judgments of the priority of each potential
audit area against each risk criterion.
Relations with the Audited Entity
3.91
3.92
3.93
Good relations with the auditee are essential for a successful overview. Particularly, if
the auditee has not previously been a subject for the internal audit, financial or any
kind of investigation, at the start, the auditor may know little about the auditee and is
dependent upon its staff to explain its workings and to draw his/her attention to key
information. Further, as noted above, a good level of contact with head of public
body is necessary.
The over-riding principle to which we should always work in our relations with
auditees, at all stages of performance audit, is that of “no surprises”. As we want to
be kept informed of any significant developments in the audited entity, so we should
ensure that we keep all relevant staff within the audited entity informed of what we
are doing. Co-operation cannot be one-sided.
The first stage of developing good relations is to inform the head of public body of
our intention to carry out an overview through opening conference. This should
normally be undertaken by the internal audit head or senior auditor directing the work
and should cover:
28
The internal audit performance audit objectives;
What an overview is and why we are carrying it out;
Briefly, the methodology of an overview;
What work we will be undertaking;
What information we will require from the audited entity;
Who within the audited entity we will need to talk to;
Our staffing and timetable;
Arrangements for liaison during the overview: the auditee should be encouraged to
inform relevant staff about our work and to appoint a liaison officer with whom we
can consult in case of difficulty, discuss changes in timetable, staffing or access
requirements and through whom we can formally verify information as the
overview progresses. This liaison officer should be accessible, given reasonable
notice and have the authority to speak on behalf of the auditee or be close to the
auditee’s top management;
What we will do with our results: it should be stressed to the audited entity that the
overview is the audit offices’ internal procedure and does not lead to a formal audit
report. However, the audit team should inform auditee’s top management that we
will want to discuss the broad outline of our findings at the end of the overview
and to give them the opportunity at that time to comment as they deem necessary.
3.94
In setting up the overview we should also take the opportunity of inviting top
management to give us a statement of the auditee’s policy objectives and inform us
of:
Any major concerns regarding its performance or that of its subsidiary bodies;
Any constraints affecting value for money;
Significant future developments within the auditee;
Any hindrances to the successful completion of the overview, e.g., the availability of
key staff. Before commencing, we should make every effort to resolve these.
3.95
The head and key staff within the finance branch should also be fully briefed. As
noted above, the finance branch is an important source of information. Because of the
internal audit financial audit the finance branch will be aware of the internal audit ,
but may not have come across performance audit before.
3.96 The auditor must also liaise properly with all other staff within the public body whom
he/she wishes to interview. These staff is more likely to be unaware of the internal
audit, its role and purpose and are unlikely to have encountered performance audit
previously. As a result they may, at first, appear hostile but this can normally be
overcome by careful explanation and discussion.
3.97 The auditor should ensure that the finance branch and other departmental staff of the
audited entity are informed, as appropriate, about:
The role and purpose of the Internal Audit;
The objectives of performance audit;
What an overview is and why we are carrying it out;
Briefly, the methodology of an overview;
What information is required from them and why;
Our staffing and timetable;
29
The liaison arrangements established with head of the public body, liaison officer
should be close to the top management and have the authority to speak on
behalf of the audited entity.
What we will do with our results, including the fact that the Internal Audit will
discuss results with the auditee at the end of the overview.
3.98
Precise methods of familiarizing staff will depend upon the liaison arrangements. In
some cases the audited entity will take responsibility, in others it will be left to the
Internal Audit head. (Whichever is the case, the auditor must check that auditee’s
auditee staff is fully and accurately briefed at an early stage.)
3.99 If there are any major changes in our staffing or timetable, or in the access we require
to people and papers, the internal auditor head should consult with the head of the
public body the earliest opportunity. Even where there are no changes, it would be
courteous to keep the auditee abreast of the progress of the overview. Internal audit
we wish to be informed of any developments within the audited entity which are
likely to affect the conduct or outcome of the overview.
3.100 In large, more complex organizations it is good practice to agree key facts as the
overview progresses. This gives added confidence to findings and might include:
Policy objectives, if these have not been formally communicated by the auditee’s
top management;
Financial information;
Existence and usage within the auditee of the major information systems;
The structure and key components of the financial management systems,
including strengths and weaknesses;
Completeness of listings of all major departmental reviews of the auditee, internal
audit or consultancy reports.
The auditor may find it useful to produce a “fact sheet” of the key information and
seek verification and agreement from the auditee.
3.101 On completion of the overview the principal or senior auditor should discuss the
results with auditee top management. This is partly a matter of maintaining the
principle of “no surprises” by keeping the auditee informed, but their comments on
our conclusions would be valuable at this point. They may be able to add a gloss to
some of the audit findings (e.g., by placing some risks to value for money into
context) and may be able to correct any errors that may have crept into our work (that
is, acting as a form of quality control on the overview).
3.102 These discussions should only cover the findings and broad conclusions of the
overview and should not commit the internal audit to a definite program of studies for
the future. Final decisions on the internal audit future work plan lies with the head of
the internal audit and other management who will not have had an opportunity to
consider the overview at this point.
Management
3.103 The overview is difficult to plan and control. It does not lend itself to detailed early
planning because both:
The results of early rounds of information gathering and analysis and
The large number of audit judgments involved (e.g., on the levels of materiality)
Affect the direction of later elements of the work. At the outset there will be
considerable uncertainty about which areas to concentrate audit resources on. This
30
will only become apparent as the overview progresses. Indeed, one of the reasons for
the overview, and later feasibility and main investigation planning stages, is to reduce
uncertainty about the scope, content and outcome of the (more costly) main
investigation by targeting audit areas with a high probability of success.
3.104 These difficulties can be reduced by breaking the overview down into self-contained
tasks. This gives management scope to monitor and review progress and intervene as
and when necessary at key decision points. The main tasks are:
Initial job specification: before any information gathering starts management must
carefully design the job, defining the scope, overall objectives, time and cost
budgets, and overall resource requirements;
Initial information gathering and cross cuts;
Detailed information gathering and risk assessment: this can be broken down by
subject and allocated to a number of staff;
Report preparation.
3.105 Although the work should be broken down into manageable tasks, it is good practice
to keep continuity of staff throughout. Understanding of the audited entity and
judgment of the risks and priority of each individual area in the context of the whole
organization depends upon the steady accumulation of knowledge and understanding
by those involved. This will not be facilitated by chopping and changing staff.
3.106 Each task should be separately planned in its own:
Objectives;
Methodology, data sources and analytical requirements;
Time and cost budgets;
Milestones; and
Expected outputs and documentation requirements, including deadlines.
Staff should be left in no doubt of what is required of them, how, by when and with
what results.
3.107 Milestones are those points in a task when management needs to evaluate progress to
date and consider options for future direction. They are decision points, and may
require some element of re-planning of tasks or the overview as a whole. Identifying
milestones has a number of advantages:
They highlight when management input is essential;
They emphasize the importance of key outputs without which management cannot
make informed decisions;
They delineate between those decisions which management needs to make and those
that can be left to more junior audit staff. This in turn points up to staff which
unplanned results should be brought to management’s attention.
3.108 Once the audit begins management must maintain a high degree of involvement.
Adequate control relies upon:
Monitoring progress and reviewing outcomes and outputs: management should
retain sufficiently close contact with the progress, outcomes and outputs of the
various tasks as to be confident that objectives for quality, time and cost are being
achieved; and
Acting at each key decision point: management must maintain the direction of the
study by making well-informed, prompt and appropriate decisions as necessary.
31
3.109 Control also depends upon adequate communication within the internal audit and with
management. Good planning and the specification of key outputs and milestones will
help. Communications will also be aided by the use of regular internal audit
meetings. These should include all staff, including management. Their success
depends upon:
Relevance: the purpose of team meetings is to review progress and consider the future
direction of the overview. They should not become a forum for general discussion.
The head of the internal audit should chair all meetings;
Preparation: each staff should take responsibility for their own work and be able to
review progress accurately and completely, highlighting the significant findings
and areas where decisions need to be made;
Free flow of information: good quality decision-making depends upon all relevant
information being considered. This requires everyone being prepared to listen as
well as contribute;
Completeness of decision making: decisions should cover what needs to be done, for
what purpose, by whom, the deadline and, if appropriate, the methodology;
Accurate minute taking: minutes are records of discussion but, more importantly, of
decisions made. They are working documents from which all should be able to see
clearly what is required of them.
Marking
3.110 The information and analysis from overview work needs to be kept up to date so that
changes in circumstances can be taken into account when planning the audit strategy
e.g., changing legislation, rapid growth in income or expenditure.
3.111 Marking is the process of keeping the overview up-to-date. It involves maintaining a
selective watch of information and developments in the audited body with the
objectives of:
Identifying and evaluating any major changes in the audit field;
Revising the audit strategy and priority of audit areas as the changes dictate.
3.112 The two main elements of marking are:
Maintaining a broad overview of departmental plans and activities e.g. Annual reports
and estimates. The aim is to identify the principal developments which might
affect decisions taken as a result of overview;
Keeping a particular watch in those areas identified from the overview as warranting
special attention (examination of progress reports, management information,
statistics etc.).
3.113 To be fully effective marking must be capable of highlighting both new risks to VFM
and changes in the importance of previously identified risks.
3.114 Changes in the audited entity are likely to take place. These changes may include:
revising policy objectives, instituting new policy instruments, changing the allocation
of resources, getting involved in new activities etc. Equally, as performance audit
takes effect we would expect to see auditees with in the entity developing their
management systems, reducing risk to value for money, improving public
accountability and making better performance information available. All changes,
whether for the better or worse, must be incorporated into audit planning. This may
open up new areas for audit and change the priority given to existing ones.
32
3.115 Although we need to keep our audit planning up to date, we do not want to go through
the entire process of an overview each year. They are large-scale exercises which
consume considerable resources. We need to take a selective approach to our review,
homing in on any major changes in the audited entity and evaluating their
significance. Where the auditee continues as before largely unchanged the overview
analysis can stand unchallenged.
Methodology
3.116 Marking includes the following activities:
Selection of key departmental data sources to monitor;
Review of data sources to identify significant developments in the audit field since the
previous overview or marking round;
Evaluation of developments against the risk criteria discussed in Overview;
Revision of the audit strategy and audit proposals, as necessary;
Documentation and reporting of results.
Marking incorporates only those techniques that are used during an overview, but on a
more limited and targeted scale.
Selection of Data Sources
3.117 Marking should be kept to the minimum necessary to identify and evaluate significant
developments in the audited entity. The careful selection of key data sources is
therefore essential. Selection should be based on:
Experience from the overview: this should have highlighted the most valuable
information sources, i.e. Those most likely to give a good informative picture;
Any new developments in either the auditee’s internal or external reporting
structures or arrangements during the year: these may yield new sources of
quality information.
Review of Data Sources and Evaluation
3.118 This should follow the methodology of the overview. However it should be stressed
that the objective is to identify and evaluate only those developments in the audit field
that will alter the audit strategy or assessment of potential audit assignments. The
overview will have given a good appreciation of the audit area; marking should build
upon it, not re-perform it.
3.119 As with the overview, the first step is to analyze the financial data using crosscuts.
Marking cross-cuts have two purposes:
To see whether the overview analysis of the audit area is still valid, that is, whether
there have been significant changes in the materiality of the various elements of the
area;
To identify any significant trends in expenditure, income, or use of resources.
3.120 Marking should also include a brief review of organizational:
Policy objectives;
Activities;
Financial management structures.
The internal auditor should also monitor the auditee’s future plans through such
sources as corporate plans, resource bids etc.
33
3.121 The internal auditor should stay informed on the auditee’s achievement of value for
money. Sources for this will normally be identified during the overview and,
typically, will include:
Internal or external reporting of performance (e.g. Annual reports);
Internal audit reports;
Consultancy or other management reports.
3.122 All information should be evaluated against the risk criteria discussed in Overview
and the results compared to that of the overview or previous year’s marking. In each
case the auditor should look for any significant developments since the previous year
and assess the implications for the audit strategy and potential assignments.
Documentation
3.123 Documentation should reflect the principal activities of marking. It should:
Record the results of cross-cuts of financial data;
Identify further data sources;
Record the results of the monitoring of each data source, confirming, as necessary, that
the audit strategy or proposed assignments remain unaffected or highlighting any
major changes required;
Summarize proposed revisions in each individual future audit assignments and the
strategy as a whole.
3.124 Typically documentation would produce three sets of working paper folders:
Cross-cuts;
One for each data source (e.g., internal audit reports, annual reports etc.) With a brief
covering note of findings and implications;
A summary folder containing any revised or additional risk assessment forms and
revised audit strategy, as necessary.
3.125 As with the overview, it is essential that all working papers and working paper folders
are referenced properly. Documentation of working papers, including referencing, is
discussed in Guide 2 appendix 6.
3.126 Adequate contact should also be made with:
The finance department;
Other departmental information will be required during the course of marking.
All internal auditee staff should be informed of:
The role and purpose of marking;
Briefly, the methodology;
What information is required from them and why;
Our staffing and timetable;
What we will do with audit results.
3.127 As with the overview, precise methods of familiarizing staff will depend upon the
internal audit arrangements. In some cases the auditee will take responsibility, in
others it will be left to the internal audit. Whichever is the case, the auditor must
check that auditee staff are fully and accurately briefed at an early stage.
34
3.128 Because of the restricted nature of marking, there is usually only limited need for
continued communication during its progress. Discussions will, normally center on
points of clarification only. Equally, there is rarely any need to prepare detailed fact
sheets for agreement.
3.129 There will normally be no need to discuss the outcome of the marking with auditee’s
officials. However, if marking points to the need for a fundamental change in the
internal audit performance audit approach or immediate program of audit assignments
the head of internal audit in charge should consider whether this should be discussed
with the head of public body at an early stage.
Management
3.130 Marking must be closely managed. Decisions need to be made at the outset on:
The depth or intensity of marking;
Which data sources to review;
Whether marking should be once a year event or on a continuous basis;
Who should do the work staffing;
Time budgets and delivery dates.
Depth or Intensity of Marking
3.131 This can be varied across the department. It may prove to be most efficient to stratify
the audit field to give areas of low and high intensity marking each year. High
intensity marking may include those areas where we intend to do major study area in
the next two years or areas where there was expectation for major changes in the
policy objectives or policy instruments in the near future or areas of significant public
interest. For low intensity marking areas we would keep a relatively limited watch to
merely re-confirm or alter the overview conclusions. For high intensity areas we
would want to develop a more complete picture of changes and development in the
area.
3.132 Factors affecting the extent to which an area is monitored and reviewed include:
The likely influences of inherent risk or the control environment on changes in
risk to value for money: the more likely that changes will occur (both positive
and negative) the more it should be monitored to keep the audit strategy targeted;
Known developments: for example an area should receive extensive monitoring if
there is strong likelihood that there will be legislative change.
The timing of any future audit assignment: in making recommendations to internal
audit management for assignment for the following year we will want to ensure
that all proposals are valid.
The basis, scope and targeting of each
recommendation should therefore be reviewed in some depth during marking.
The complexity and size of the auditee: if the audit entity is large, with multiple
objectives and a wide variety of functions marking could develop into a major
audit activity. But the purpose is not auditing, hence effort will therefore need to
be concentrated on monitoring of priority areas.
Data Sources
3.133 The management should recognize that the more data sources that they require to be
marked the more audit resources they will consume.
35
Organization
3.134 Management has a choice as to whether part or all of marking should be conducted as
a once a year exercise or spread throughout the year. This will normally come down
to a question of the availability of resources. In practice it is probably best to parcel
the job up into discrete tasks (e.g., by data source) which can be given to staff as and
when they become available. If this is the case then there should be a marking
coordinator to monitor progress and to draw the findings together at the end of the
year.
Staffing
3.135 Decisions on staffing revolve around getting the best mix of skills to do the job.
Marking benefits from combining:
Performance audit skills: especially a knowledge and understanding of risk criteria;
Knowledge of the overview: the auditor needs to appreciate the results of the
overview to put marking findings in context;
Up to date knowledge of the audited entity: being familiar with what is going on in
different fields of the audited entity on a day to day basis can add insight to and
reduce the time spent on marking. Such knowledge is most often found in those
responsible for the financial audit.
The internal audit head therefore need to balance the various skills and abilities of their
staff.
Time Budgets and Delivery Dates
3.136 The internal Audit head should develop tight time budgets and delivery dates. Whilst
it may be reasonable to have relatively free budgets in the first year, management
should be looking to make these more limited, but still reasonable, as familiarity
develops with the entity under audit, performance audit generally and the
methodology of marking. Delivery against time budgets requires sensible and
positive planning and control by management.
Annual Operation Plan And Strategic Plan
3.137 The aim of a strategic plan is to provide a basis for what should be done in future with
available resources. The strategic audit plan is the main vehicle for:
Securing a regular annual review of audit staffing requirements for the whole ranges of
activities;
Constructing for each draft logical and defensible performance audit strategy;
Identifying within these performance audit strategies possibilities and priorities for
forwarding programs of investigations;
Providing a basis for allocating resources to departments.
3.138
Every year in June/July Internal Audit should produce a performance audit strategic
and annual performance plan. This is an internal decision making document for
discussion and agreement between Internal Audit and the head of public body on:
The internal audit strategy for the coming 5 years;
Specific performance audits for the following 24 months;
Consequential staffing needs and other resources.
3.139 Top management’s approval of the plan, revised as necessary, provides the Internal
Audit with a number of outputs:
36
It constitutes approval by top management to take specific audits forward to the
feasibility stage;
Taken together the strategies within the plans constitute the Internal Audit proposed
strategy for achieving the performance audit objectives;
The approved audit plan for the program of performance audit that the Internal Audit
expects to produce over the next 2 years;
Taken together the plans define the Internal Audit performance audit staffing and other
resource requirements for the next 2 years.
Internal Audit Strategic Planning Tasks
3.140 There are six main planning tasks involved in preparing the plans:
Examine the performance audit field in the light of ongoing survey and marking work;
Analyze materiality of the fields, the risk to value for money and other factors;
Confirm or revise the audit strategy as appropriate;
Compile proposed programs of investigation within the specified planning period;
Review issues identified by financial audit team which need further attention by the
performance audit team;
Calculate the resource requirements for all aspects of work within the planning period.
Internal Audit Strategic Plan Report
3.141 Internal Audit strategic plan report should include:
A brief description of the scope of the audit field and the internal audit proposed
strategy for performance auditing;
A brief description of the proposed program of audit assignments;
A short commentary on performance against the previous year’s plan, including an
explanation of any problems encountered;
A statement of the necessary staff and other resource requirements for the proposed
performance audit assignments;
A statement of staff availability within the internal audit;
A detailed staff bid to meet the gap between staff requirements and availability plus a
bid for other external resource requirements not available within the internal audit.
3.142
The head of the public body requires concise planning document which will:
Provide sufficient information;
Identify performance audit delivery;
Offer options;
Provide a satisfactory basis for decisions making.
To meet these requirements internal audits should prepare a short plan which has the
following case materials:
Part I:
coverage summary
Part II:
work proposal
Part III: overhead targets
Part IV: resources
Part V:
appendices
Within appendices:
37
A spreadsheet of the priority under each risk criteria of each proposed performance
audit assignments in the field, also showing proposal for timing (pro- forma in
Guide 2 appendix 10;
Up to a 3-page proposal for each recommended audit assignment. Requirements for
proposals are in Guide 2 appendix 12;
A departmental “income and expenditure” account for staffing showing staff
availability and main usage and highlighting “free capacity” available for
performance audit in Guide 2 appendix 13;
A statement on the need for consultants or other outside resources (Guide 2 appendix
14);
A work plan covering the next 2 years, by month, showing the time spent on each
stage of each audit assignment.
3.143 Plans should be prepared from:
The information and analysis of the overview and marking;
An assessment of resource requirements;
Monitoring and analysis of present staff usage.
In normal situations the plan can be rolled forward each year: where no major revision
of the audit strategy is needed the plan will vary little from one year to the next,
merely requiring the addition of a new 5th year of audit plan.
3.144 Responsibility for proposing strategy and for implementing the program of audit
assignments rests with internal audit head. Once discussed and agreed by the head of
public body the plans constitute “accountability documents” which the head of
Internal audit is answerable for delivering. To avoid problems at the feasibility,
planning and main investigation stages internal auditors must satisfy themselves that
their plans are viable.
Selecting an Audit
3.145 After the process of moving from general information about an organization to the
point where the exact sequence and timing of studies is worked out, it is possible to
select a study from number of options.
3.146 The following are suggested criteria for selecting a study from a number of options.
Thus a good performance audit study is that which:
Tackles important and topical issues and areas of strategic importance to government
policies and programs;
Gets to the heart of the matters examined;
Is well arranged and evidenced to provide Internal Audit impact; and “added value”
Takes constructive approach which is relevant to the auditee management in the real
world;
Is valuable and credible to knowledgeable users;
Is understandable to people who know about the subject.
Hence, divisions should bear these factors in mind when preparing their strategic
plans.
38
Operational Program in MOFED
3.147 The Operational program is the 4th steps of the planning processes which is used by
MOFED to follow up the operation of the performance audit by public bodies.
3.148 Its purpose is to provide a balanced and timely submission of reports to the executives
to monitor the progress of reports. It ensures that, whilst allowing for necessary
flexibility for the conduct of the major elements of the audit work; there would be a
balanced program for the submission of reports to the excutives on appropriate time.
Feasibility Stage
3.149 The purpose of a feasibility study is to produce a worthwhile and viable proposal for
the main investigation. The objectives of a feasibility study are:
To define the audit objectives, for the main investigation, the issues, scope, evaluative
criteria, likely conclusions and expected recommendations;
To design an audit methodology capable of delivering the main investigation
objectives;
To assess the ability of the internal audit to execute the methodology successfully;
To estimate realistic time and cost budgets and produce a work plan for the main
investigation.
3.150 The feasibility study is a major element of the performance audit process. It is central
to the effectiveness and efficient execution of the main investigation. Unless due care
is taken and effort is exerted during the feasibility stage it may prove difficult,
excessively costly or, in extreme case, impossible to produce a satisfactory
performance audit report.
3.151 On completion of the feasibility stage the internal auditor should report results to the
head of internal audit. The report should cover the objectives of the main
investigation, its feasibility and expected cost (full requirements are detailed below).
It is then for top management to decide whether a study should proceed.
3.152 The feasibility study may lead to decision that a main investigation is not justified at
this stage: The following could be some of the reasons for not carrying out the
proposed performance audit:
Unavailability of data;
Cost of carrying out the audit may be more than the benefits expected from the audit;
Financial audit results have covered most of the ground;
The internal controls and performance of management are satisfactory;
The objectives of the auditee are being met satisfactorily;
The audit is not expected to lead to significant findings and recommendations.
Sequential Steps
3.153 The steps involved in the feasibility study are shown in diagram 3.1. These are likely
to be iterative, with refinement coming through a number of cycles.
39
DIAGRAM 3.1 - STEPS IN THE FEASIBILITY STAGE
Reconsider
feasibility of
study or redefine
objectives,
issues and scope
1. Define objectives, set
issues and scope
Reconsider
feasibility of
study or redefine
objectives,
issues and scope
2. Establish evaluative
criteria
or
Redefine
methodology
3. Identify likely conclusions
4.
Identify expected
recommendations
5.
Delineate methodology
6.
Assess information
requirements
7.
Examine availability,
quality and access to
information
8.
Assess resource requirements
9.
Examine availability of
resources
Information
not available
Resources
not available
10. Prepare work plan, time and cost
budget
Achievement
unlikely
11. Review likely achievement
of study objective
12. Evaluate likely impact of study and
contribution to the Internal audit
performance audit objectives
13. Prepare report to the head of
public body
40
Impact limited
or little
contribution
Step 1 to 4: Defining objectives, issues and scope, establishing evaluative
criteria, identifying likely conclusions and expected recommendations
3.154 Steps 1-4 involve refining the risk assessments made during the overview or marking
to establish objectives for the main investigation.
Audit Objective/Issues
3.155 Audits must have clear objectives that can be concluded against. Audit objectives are
normally expressed in terms of what questions the audit is expected to answer about
the performance of an activity, for example, results achieved, economy or efficiency.
Ideally, audit objectives would be consistent with the achievement of results of the
entity, sector or functional area. In general terms, the objectives of the typical VFM
audit are compatible with the office’s mission.
Audit Scope
3.156 Audits must have a clear scope that focuses the extent, timing and nature of the audit.
Scoping the audit involves narrowing the audit to a relatively few matters of
significance that pertain to the audit objective, can be audited with the resources
available, and are critical to the achievements of the intended results of the audit
subject.
Evaluative Criteria
3.157 Audits must have suitable evaluative criteria that focus the audit and provide a basis
for developing observations. Auditors need a means of measuring or judging the
performance of the matters subject to audit. The standards used for this purpose are
referred to as evaluative criteria. Normally, auditees should have performance
measurement criteria which the auditor might adopt as evaluative criteria. If the
auditees do not have appropriate performance measurement criteria or they do not have
at all, the auditor should develop his own evaluative criteria in which case he needs to
discuss and agree with head of public Body.
3.158 Main investigations should be targeted on between 2- 4 specific and well-defined
issues which reflect the main risks to value for money or public accountability. To help
the auditor develop the audit objectives and fundamental issues, Guide2 Appendix 5
provides a list of 11 basic questions. Each issue should be supported by a set of
evaluative criteria against which to judge the auditee’s performance. Evaluative criteria
are discussed in depth in Guide2 appendix 4.
3.159 Likely conclusions are the auditor’s preliminary assessment of the audited entity’s
performance against each evaluative criterion. Taken together they give a full account
of the auditee’s achievements. By assessing the significance of the likely conclusions,
the auditor can rank evaluative criteria such that the main investigation concentrates on
the greatest risks to value for money and/or public accountability. Expected
recommendations are the likely improvements in the conduct or management of the
audited activity which are required to secure good value for money and/or public
accountability.
3.160 For each issue, steps 1-4 will give a hierarchy of evaluative criteria, likely conclusions
and expected recommendations similar to the following:
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1. Issue
1.
2. Evaluative
Criteria
3. Likely
conclusion
4. Expected
recommendation
A
M (negative)
V
B
N (positive)
P (positive)
X
C
Q (negative)
R (positive)
Y
Z
Note: “negative” likely conclusions are where there are indications of poor value for
money, and/or inadequate public accountability. In each case there are corresponding
recommendations to improve performance. Thus steps 1-4 give a number of layers of
objectives from broad issues to specific likely conclusions and expected
recommendations.
All conclusions, both positive and negative, should be reported.
Step 5: Delineate Methodology
3.161 By the end of the feasibility stage the auditor should have a complete specification of
the methodology that will be used during the main investigation to achieve the audit
objectives. This should cover all necessary audit tests, including any analytical and
financial techniques, and should show how:
To assess the auditee’s performance against each evaluative criterion;
To appraise the viability and cost effectiveness of recommendations.
3.162 In Practice, the methodology will center on the likely conclusions and expected
recommendations. As noted above, these reflect the auditor’s best assessment of the
priority areas for the main investigation, that is, where there is the greatest risk to value
for money and/or public accountability and, consequently, the greatest need for
worthwhile recommendations. The methodology must:
Give complete coverage to all likely conclusions and expected recommendations. All
conclusions and/or recommendations made in the final Internal Audit report will be
open to challenge by the auditee and must, therefore, be supported by sufficient
audit work;
Justify the conclusions and recommendations precisely, as written in steps 3 and 4.
For example, if we wish to make a broad conclusion covering performance in
general, in a particular audit area we will need to employ a statistically valid
sampling method. If, however, we only want to illustrate the potential for failure
of a control a more limited, less statistically rigorous approach, pointing out a few
examples, may be adequate.
3.163 This is illustrated in Guide 2 appendix 15. Which includes evaluative criteria, likely
conclusions and expected recommendations. Audit tests are detailed against each
likely conclusion and/or recommendation. In each case the nature of the audit test
supports the form of the expected conclusion and/or recommendation.
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Step 6 and 7: Establish evidence requirements and examine availability,
quality and access
3.164 Before determining whether a study proposal is feasible the internal auditor must
establish whether there is relevant and reliable evidence, sufficient to conduct the
proposed methodology.
3.165 In step 6 establishing evidence requirements internal auditor should analyze each
element of the methodology to identify evidence requirements. This should be as
complete and precise as possible so that there are no ambiguities about what is needed.
The principles of audit evidence are outlined in Guide 2 appendix 18.
3.166 In step 7 the internal auditor should ascertain whether it can obtain the evidence it
requires at reasonable cost. This includes:
The availability of the evidence;
Its quality; and
Whether the Internal audit has access to it.
3.167 Availability covers whether there is sufficient evidence in existence to execute the
methodology and achieve the study objectives. If the internal auditor finds that there
are significant gaps, it can:
Seek guidance from relevant audit committee before trying to fill them itself. For this
may prove difficult or costly and the internal auditor needs to be sure that it is
realistic within the proposed audit expenditure; or
Redefine the issues, scope etc. And the methodology to give a study which is feasible
given the gaps. In this case the internal auditor must be satisfied that the redefined
study is still worthwhile and contributes to the Internal audit’s performance audit
objectives.
3.168 Evidence must be both relevant and reliable. Poor quality evidence may make the
Internal Audit report findings and recommendations open to challenge from the
auditee. Factors to consider when considering the quality of evidence include whether:
It is accurate;
It is up-to-date;
It is complete;
It can reasonably be used in the manner intended.
(see Guide 2 appendix 18 )
3.169 Access to information includes:
Internal audits legal right to access to information: Whilst the Internal Audit has a
legal right to access to information from with in or outside the entity with matter
related to the audited area it will often require evidence from individuals or
organizations.
The location, ease and method of collection of the information:
The internal auditor should identify where necessary information is held and in
what form, and produce a plan for collection.The auditor may need to conduct pilot
collection exercise to check the feasibility of the proposed methodology.
3.170 At the completion of stage 7, the internal auditor should produce a summary as in
Guide 2 appendix 16. Against each likely conclusion and expected recommendation,
and the corresponding methodology, the auditor is needed to specify the information
needed and give details of its availability. Where requirement and availability do not
match exactly the auditor should comment on the implications, to draw management’s
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attention to any impact. This may have a considerable effect on the investigation’s
conclusions and recommendations. Guide 2 Appendix 16 should accompany the
feasibility stage report to senior management.
Step 8 and 9: Assess resource requirements and examine their availability
3.171The internal audit should apply the same approach to examining the need for and
availability of resources as for evidence. Resources will be needed to gather evidence,
analysis, evaluation of results and to produce the Internal audit report.
3.172 In step 8 - assessing resource requirements - the Internal audit should identify:
The nature of the work to be carried out at each step of the main investigation;
The type of resources required to execute the work. These may be available within the
audit team but often assistance will be needed from other sections of the Internal
audit (e.g., specialist statistical skills) or from outside the Internal audit (e.g.,
consultants or other specialists);
The quantity and timing of all input;
The precise terms of reference, expected results and outputs for any external
consultants;
Estimated costs for all inputs.
Detailed guidelines for the selection and use of external consultants are contained in
Guide 2 appendix 19.
3.173As with information, the auditor must check that all the necessary resources will be
available as and when required. This covers all types of staff - the audit team size,
grading and skills needed, specialist, Internal audit staff and external consultants. If any
problems are identified the auditor should consider the choices of either finding other
sources for resources or redefining the audit issues and scope to fit resource availability.
3.174By the end of the first 9 stages the auditor should have a full set of objectives for the
main investigation, a methodology for achieving these and assurance that all necessary
evidence and resources are available. If this is not the case the auditor should redefine
the audit issues and scope and reconsider the methodology so that a fully defensible
audit approach can be developed.
3.175In extreme cases problems with information or resources may lead the auditor to
conclude that it is not possible to conduct a worthwhile study. Although this decision
should not be taken lightly, and should always be fully justified, it is preferable to
continuing with the study that is incapable of producing an informative and useful
report. Main investigations consume valuable audit resources and should only be
entered into if there is a realistic possibility of producing a valuable output. In all such
cases the auditor must report her/his findings to audit office senior management at the
earliest opportunity.
Step 10: Prepare work plan, time and cost budgets
3.176Having developed a viable methodology, and ensured that the necessary evidence and
resources are available, the auditor should prepare a work plan, time and cost budgets
for the main investigation. These should be included in the feasibility study report to
the head of public body. They allow management to assess, in addition to the feasibility
of the audit, whether it is, in their view, cost effective.
3.177The work plan involves scheduling work and resources to give the most efficient
execution of the methodology within the desired time frame. The plan should show,
by week:
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The timing of the various tasks: these should be arranged in their logical sequence
taking into account the interdependence between them. For example, review of
the sample of cases can only take place after the work has been completed to draw
up the specification of need on which the review is based;
Required inputs from Internal audit and external source: the necessary input, by
post level, should be scheduled over the lifetime of the investigation. There will
normally be opportunities to trade off levels of staffing with delivery dates. For
example, one less auditor could be used (on the review of the sample cases and
survey of grant recipients) but at the cost of a later overall completion of the main
investigation. Due regard must be given, however, to the necessary sequencing of
tasks;
Key dates: start and completion of planning stage, start of main study, delivery of
draft report to the management, report to auditee body.
3.178 The time budget should show the total man-day input required for each grade within
the audit team, plus Internal audit specialist assistance and external resources. The
cost budget should show the total expected cost of each of these. These allow the head
of internal audit to compare the value of the outputs from the proposed study with the
cost of undertaking it. An example of a time and cost budget is in Guide 2 appendix
17.
Step 11 and 12: Likely achievement of study objectives and impact of the
study and contribution to the Internal audit performance audit objectives
3.179 Prior to producing the feasibility stage report to the internal audit head, the senior
auditors should review all the stages to date to assess whether:
The study procedures from steps 1-4 can be achieved using the methodology defined
and with the assessed information and resource availability;
The study will be worthwhile and is likely to have a significant impact; and
It will contribute materially to the achievement of the Internal Audit performance audit
objectives.
If this is the case, the team is in a position to report to the management. If not, there
will be no justification for proceeding with the main investigation, and the team should
either reconsider the feasibility of the study or redefine either the audit issues and
scope or methodology, as necessary, and then reperform all subsequent steps.
Step 13: Reporting to the head of the public body
3.180 At the end of the feasibility stage the Internal audit should produce a report to head of
internal audit. The information should be reported as briefly as possible using the
following headings:
Section 1: Background to the investigation
General objectives of the investigation;
Area under investigation in the context of other relevant work of the audited entity;
Statement of the audited entity’s policy objectives and policy instruments for the
area being investigated;
Reasons for the investigation in terms of public accountability, risk to VFM
materiality, indicating potential impact;
An assessment of the likely short-term and long-term impact that the investigation
might have;
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Benefits to Internal Audit in terms of its performance audit objectives.
Section 2: Issues and expected recommendations
A statement of the scope and main study issues;
A brief and concise statement of evaluative criteria (detailed evaluative criteria
attached in Guide 2 Appendix 4);
A brief statement of expected recommendations;
A statement of any preliminary findings.
Section 3: Evidence to be sought
Audit approach (types of evidence, accessibility, location, collection, techniques,
relevance);
Audit resources (audit team, grading, experience leader);
Specialist resources (consultants).
Section 4: agreement with audited entity
Confirm that the audited entity has accepted the investigation
Explain any problems (potential delays, disagreements, lack of access);
Inform if the use of consultants are to be employed.
Section 5: Budget and submission dates
Cost budgets (by grade up to department head including consultants);
Timetable projected delivery dates of draft report to internal audit, report to the
head of audited entity;
Documentation
3.181 The supporting document of the report should be organized as working paper folders
as suggested in Guide 2 appendix 6.
Arrangements with the Audited Entity
3.182 The area of focus is more limited and should start in previous stages at the top of the
audited entity . Auditee top management should be informed of the intention, purpose,
timing; and resourcing of the feasibility study and adequate arrangement should be
established.
3.183The feasibility stage is principally an internal audit planning activity. It does not lead to
a formal report to any external body. However, the audit team should maintain close
contact with appropriate senior grades within the audited entity throughout the
feasibility stage. The success of the main investigation will, in part, depend upon their
reaction to it and the assistance they give. Without acceptance by them, the main
investigation may get bogged down in disputes, causing delay and adding to costs.
Therefore, after obtaining the approval of the audit consulting committee the audit
team should take a positive approach to discussing the basis and methods of the
proposed main investigation with the audited department and should seek the head of
the auditee entity.
Comments and/or concerns about the scope and issues;
Acceptance of internal auditor evaluative criteria and methodology as a fair and
reasonable foundation for an investigation. The internal auditors should discuss
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the criteria with management before adopting them. Sometimes, the management
would dispute the criteria laid down by the internal auditors. In such a situation
the matter is resolved by discussion. But if the auditee management is adamant on
some particular criteria about which the auditor feels sure they (auditors) should
report the matter to Ministry of Finance and Economic Development.
3.184 Adequate contact should also be made with other department heads from whom
information will be required during the course of the feasibility stage. In each case
they should be informed of:
The role and purpose of the feasibility stage and, if necessary, of the subsequent main
investigation;
Briefly, the methodology;
What information is required from them and why;
Our staffing and timetable;
What we will do with our results.
If they are new to either the Internal audit or performance auditing they should also be
informed of:
The role and purpose of the Internal audit.
The objectives of performance audit.
3.185 As with the previous performance audit stages, precise methods of familiarizing
auditee’s staff will depend upon the arrangements agreed with the auditee management.
In some cases the auditee will take responsibility, in others it will be left to the Internal
audit. Whichever is the case, the auditor must check that auditee’s staffs are fully and
accurately briefed at an early stage.
3.186 In most cases it will be good practice to discuss the outcome of the feasibility stage
with auditee’s officials. However, care should be taken to avoid introducing any
concept of “likely conclusions” or “expected recommendations” into the discussion.
Auditees may feel that these indicate that the Internal audit is prejudging the main
investigation and entering into it with bias. Discussions should therefore be limited to
issues, scope, evaluative criteria, methodology, timing, information availability and
audit resourceing. Responsibility for this agreement lies with the internal audit head in
charge.
Internal audit Planning and Control
3.187 The internal audit head should plan and control each main task of the feasibility stage.
This allows the head to monitor and review progress and intervene at key decision
points. The main tasks are:
Initial job specification: before any work starts on the steps in diagram 3.1,
management must carefully design the job, defining the scope, overall objectives,
time and cost budgets, and resource requirements, including specialist staffing
skills;
Early agreement with Head of public body: normally undertaken by the head of
internal audit.
All the steps detailed in diagram 3.1.
Step 11-13 are, as discussed above, the responsibility of internal audit..
3.188 As the feasibility stage is relatively short it will normally be unnecessary to plan each
step in great detail. However staff should be left in no doubt of what is required of
them and, in particular, of the:
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Objectives of their work;
Methodology, data sources and analytical requirements;
Time and cost budgets;
Milestones, if any; and
Expected outputs and documentation requirements, including deadlines.
Further, management must ensure that the feasibility stage achieves its objectives
without trespassing into detailed auditing which is more appropriate to the main
investigation.
3.189 As with each previous stage of the performance audit approach the internal audit must
maintain adequate control throughout the fieldwork. This relies upon:
Monitoring progress and reviewing outcomes and outputs: management should retain
sufficiently close contact with the progress, outcomes and outputs of the various
tasks as to be confident that objectives for quality, time and cost are being
achieved;
Acting at each key decision point: internal audit must maintain the direction of the
study by making well informed, prompt and appropriate decisions as necessary;
and
Adequate communication within the team and with internal audit: because the
feasibility stage is meant to be short in duration, communications within the team
are best conducted by the use of regular team meetings, supported by adequate
documentation, rather than relying solely on formal documentation and minutes
taking.
Time budgets and delivery dates
3.190 Internal audit should develop tight time budgets and delivery dates for each main task.
These should be communicated clearly to staff, and should be backed up by sensible
and positive planning and control by internal audit.
Staffing
3.191 As with every other audit task, decisions on staffing revolve around getting the best
mix of skills to the job. The feasibility stage will benefit from combining:
Performance audit skills, especially a knowledge and understanding of the conduct of
main investigations;
Up to date knowledge of the relevant section of the auditee: this will aid agreement
and step 7 of the approach. Such knowledge is most often found in those
responsible for the financial audit;
An appreciation and understanding of the subject matter of the audit, including
relevant management principles: to draw up issues and evaluative criteria and to
identify likely conclusions the team will need expertise in the area being audited,
be it housing, human resources etc.;
Any necessary specialist skills in audit methodology: this may be include statistics,
surveying of client groups etc.
Main Investigation Planning
3.192 Planning is a decision making process. It involves the formulation of aims and
objectives and the development of the means for achieving them. Accordingly,
planning has an important role in performance audit work. Detailed main
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investigation planning should take place after the feasibility study report has been
submitted to head of internal audit but before the fieldwork commences. The purpose
of the main investigation planning is to develop a complete package of tools with
which to execute and manage the main investigation. Main investigations need to be
planned thoroughly as they often involve a large number of tasks, executed at a
variety of locations, over a lengthy period of time (up to 6 months), by staff who are
either new to performance audit, the particular audit or the subject matter in question.
3.193 Detail plan should show a logical progression from the audit issues to the individual
audit tasks and the expected conclusions and recommendations. Criteria, broad and
comprehensive task outlines and audit issues are related and should be linked to the
expected conclusions and recommendations.
3.194 In developing good practice approach to planning, the following issues should be
addressed:
i) What are the requirement of a main investigation plan;
ii) How might the issues proposed in the feasibility study report be developed
to produce a detailed plan;
iii) How planning might help reduce some of the common problems that arise
during the main investigation.
Requirements of a Main Investigation Plan
3.195 The internal audit is encouraged to apply good practice thinking to how public bodies
manage their resources. It can also apply to the management of performance audit
studies and in particular the planning stage. There are a number of principles which
should be applied to the main investigation plan. The main investigation plan should:
Inform all involved of the purpose and methods of the investigation;
State the study objectives and the work needed to support the likely conclusions and
expected recommendations;
Focus on what can be done, using the resources available against what might be
desirable to do;
Identify key outputs and milestones;
Identify the roles and responsibilities of the audit team;
Anticipate problems and make provisions for them;
Help the audit team to see how the study will develop and how their work will
contribute to the report;
Help minimize scope for collecting and analyzing irrelevant data and help minimize
the occasions where insufficient data is collected;
Provide management with the means to monitor, control and redirect the audit;
Form the basis for obtaining the agreement of senior staff for the fieldwork to
commence;
Make suggestions for the structure and content of the report;
Enhance the quality of reports by helping the audit team to produce clear, well
researched and supported findings conclusions and recommendations;
Assist clearance of the final report with the audited entity;
Assist agreement with the audited entity;
Guide the documentation and referencing of the investigation.
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Main Investigation Planning Methodology
3.196 There are two phases to produce a plan that meet these principles. First, the
development of the details within that structure and second developing a detailed plan.
I. Developing a framework for the detailed plan
3.197 Developing a framework for the detailed plan will depend upon the type of issues being
examined. Whatever approach is adopted it should clearly show:
How the audit issues have been broken down into discrete areas of work (these can be
thought of as sub-issues or tasks);
How these sub-issues or tasks have been progressively broken down into smaller units
of work to eventually produce individual audit tasks (audit tests).
3.198 The first step in producing a planning package is to break down the issues into discrete,
digestible tasks. Performance audits are often long and complex and can only be
managed effectively if the investigation is split up in this way. Progress on each task
can then be monitored and controlled separately during the main investigation, allowing
the audit as a whole to achieve its objectives on time and to cost.
3.199 The study can be organized into tasks by main issues, evaluative criteria, likely
conclusions or by the location of evidence, or a combination of any of these. The
structure will vary from study to study, but tasks must:
Give complete coverage of the audit objectives/issues approved by senior management
at the end of the feasibility stage;
Recognize the inter-relationship of separate tasks, including the importance of timing.
Tasks will rarely be self-contained; the findings of one will often affect another.
They often have to be done in a particular sequence with later ones only being
possible once the output of earlier tasks is available;
Allow management sufficient opportunity to consider progress. Management takes
time and should plan the audit along with all other necessary work.
II. Developing the detail plan
3.200 Planning in detail for the main investigation is about balancing what can be done
against what is desirable to do given the availability of time and resource. The
components of any performance audit plan are:
Audit objectives, issues and evaluative criteria;
Information to be collected;
Sources of information;
Methods of evidence collection;
Allocation of priorities;
Analysis plan;
Presentation of evidence;
Detailed budgets for each task;
Audit programs for each task;
Timetables for all aspects of the work;
A plan for agreement with the audited entity;
Full terms of reference for any external consultants;
Revision of the plan;
Documentation.
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Objective Issues and Evaluative Criteria
3.201 The audit objective are to be carefully considered and clearly stated. They must be
defined in a way that will allow the internal audit at the end of the audit to conclude
against each of the objectives. Future audit effort will be directed toward answering
the questions raised in the objectives. The audit objectives should therefore be
defined as precisely as possible in order to avoid unnecessary and expensive audit
work. Any changes to the audit objectives, and the major considerations and rationale
for such changes, should be brought to the attention of the head of the public body or
Ministry of Finance & Economic Development.
3.202 Evaluative criteria are reasonable and attainable standards of performance and control
against which compliance, the adequacy of systems and practices, and the economy,
efficiency and effectiveness of operations can be evaluated and assessed. Suitable
evaluative criteria are criteria that are appropriate to the particular characteristics of
the audited organization. They focus, wherever possible, on the results expected to be
achieved by the operation, system, control, etc. The assessment of whether or not
criteria are met results in audit observations.
Information to be collected
3.203 During performance audit studies there is a tendency to collect too much information.
Often because of our limited knowledge of the subjects being examined, it is difficult
to ensure that only sufficient, relevant and reliable evidence is collected. The frame
work suggested above of the audit issues being systematically broken down into a
hierarchy of audit tasks leading to a series of audit tests can help focus attention on
what is the minimum evidence needed to prove the expected conclusions. In this way
the scope for collecting irrelevant data might be reduced. The framework also
provides a useful reference point for the team members during the audit because it
confirms that the work being done is supporting the issues.
Sources of Information
3.204 During the feasibility study the Internal Audit will have considered the evidence the
public body:
Is known to hold and which will be collected;
Should hold but may not and therefore needs to be generated;
Does not hold but which is necessary for the report.
Each of the different sources of information will have implications for the audit
e.g., time – if a survey is to be used;
Cost – where local audits are needed.
These will need to be discussed and the most appropriate source used given the
resources available.
Method of Evidence Collection
3.205 The information needed to be collected will depend on many factors such as the
quantity, its location and structure. Certain methods are more time consuming than
others e.g., questionnaire and surveys, and provision may need to be made in the time
table for development work where this has not already been undertaken earlier. Most
plans contain some form of test programs. They are a useful method of collecting
data. They can provide audit team with clear instructions of the work to be done and
provide the internal audit head with a means of monitoring progress. However they
can become long and unwise to use.
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Allocation of Priorities
3.206 Two of the common problems on audit studies are overrunning on budgets and a
failure to meet target dates. These may occur because there is insufficient time
available to complete the planned work. In this situation a decision may need to be
taken on whether to reduce the fieldwork and meet the budget/target date or complete
the fieldwork and overrun the budget and miss the deadline. To help this process the
fieldwork could be prioritized to allow flexibility in the scheduling of the work.
Analysis Plan
3.207 Plans are decision documents. They need to show not only what will be done but
why. An analysis plan might form part of the necessary explanation. It could state how
the data collected would be analyzed to provide the evidence to support the likely
conclusions and expected recommendations.
3.208 Analytical techniques might be used in audit studies. Certain of them require data to
be sampled and collected in a specific way. Failure to do so may prevent the technique
being used. An analysis plan therefore helps avoid such occasions arising.
Presentation of Evidence
3.209The structure of the plan outlined so far has been based on the audit issues alone. There
may be occasions though when additional information is required for say the purposes
of comparison, illustration of events etc. It is easy to overlook these and if the
information is not collected during the fieldwork the opportunity to make the
comparison or the illustration may be lost. Consideration of the structure and content
of the final report should form part of the planning process.
Budget
3.210The provisional budget (staff and time) for the main investigation, broken down by
grade, will have been propose in the feasibility study report. Although based on an
outline of the main investigation it can at best only be an estimate. It should therefore
be reassessed in light of the detailed planning.
3.211Unrealistic budgeting can be as much a problem on audits as the failure to control data
collection. It is important therefore that the plan focus on what is reasonable and
realistic and not what is desirable.
3.212Seeking senior management’s approval before the fieldwork commences enables them
to see what the team are aiming to achieve and how. It gives them the opportunity to
introduce their own ideas at an early stage and guide the direction of the audit study.
3.213During the main investigation, management and the team will need resource budgets to:
Plan inputs into the audit;
Assess progress of work against the resources used.
Budgets will normally be required for each significant element of work as well as for
the audit as a whole. Experience suggests that it is advisable to desegregate totals into
segments of work that can be monitored and controlled easily during the main
investigation.
3.214 Whilst the exact structure of the budgets for the various tasks will vary from study to
study, they should include:
Full details of internal audit staff resource requirements, by grades, skills and
experience needed, including:
 Planning and controlling the task during the main investigation;
 Executing the work as specified in each audit program;
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 Documentation and
 Management
Budgets should identify internal audit specialist assistance separately.
Any consultant or outside assistance. This should include the Internal audit input into
the consultancy (e.g., for agreement with the consultant, production of information,
assessment of results etc.) As well as the consultant’s own time.
Guidance and examples of both time and cost budgets for the main investigation
are in Guide 2 appendix 21.
3.215 The budget for the audit as a whole will consist mainly of the aggregation of the
individual task budgets. However, additional allowance should be made for the
following, where not included in individual tasks:
Staff familiarization with the audit;
Progress monitoring and review, e.g. Team meetings;
Internal audit senior management involvement;
Administration of the audit.
3.216 What is the most appropriate level of planning? This depends upon many factors.
Insufficient planning can result in a poor quality report and a disillusioned team, whilst
too much planning is wasteful and unnecessarily restrictive. It is also sometimes seen
as preventing the use of initiative. Factors which influence the amount of time spend
on planning and the details of the plan are:
The experience of staff who will be working on the audit;
The staffs knowledge of the audited entity;
Whether the audit team worked on the feasibility study;
Size of the audit team;
Audit approach e.g. Whether the audit involved collecting the same data from many
locations;
Need to complete the audit quickly.
Audit Programs
3.217These should give full details of the audit tests and other work necessary to achieve the
main investigation objectives. Programs should cover all aspects of the audit from the
start of the main investigation up to preparation of the draft report. They should be
produced in sufficient detail to:
Ensure that all involved in the audit comprehend the objectives and methodology of
the investigation and of each task;
Allow staff to participate effectively in the main investigation and to recognize what is
required of them and by when;
Provide management with the means to monitor the investigation’s progress.
There will normally be one audit program for each main task or sub-task.
3.218 Audit programs should always be written with the abilities, competence and
experience of the team in mind. Programs are not an end in themselves. They are
working documents which all must be able to use and are intended to help management
and the team to move from the approved audit objectives/issues to the written report
efficiently and effectively.
3.219 Each audit program should:
State the objective(s) of the task (or sub-task);
Show how the task relates to the audit objectives/issues and fits into the audit as a
whole;
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Identify the evaluative criteria, likely conclusions and/or expected recommendations to
which the work relates and the means of interpreting findings. All three of the
above encourage staff understanding of their work and encourage positive
communication within the audit team;
Specify all work necessary to implement the audit methodology, including:
 Audit tests;
 The nature of evidence required;
Indicate sample sizes or other indications of quantity of evidence:
 Location of evidence;
 Method of collection;
 Means of analysis;
 Management;
 Expected outputs;
Identify key milestones, including delivery dates for outputs and the points within the
audit when decisions need to be made to advance the work;
Contain cross-referencing of each audit program to the relevant feasibility study
working paper folders. List contacts made in the auditee and elsewhere during the
feasibility stage together with references to all relevant evidence. This gives staff
new to the investigation a good starting point for their work;
Make sure that the structure of the audited entity is considered when packaging the
work. Minimize the burden on departmental staff to that consistent with an
efficiently run investigation;
Identifying the inter-relationship between different elements of the work. This is
necessary to plan the timing of staff input on a logical basis;
Establish priorities for the work. At the start of the investigation the team may have
only a limited idea of the time it will take to carry out each test. If a task has to be
dropped subsequently this should be done on a consistent and considered basis;
Make recommendations for the presentation of findings and documentation of working
papers. This will aid the collation of results and preparation of the draft report.
Guidance on documentation is contained in Guide 2 appendix 6.
Timetables
3.220 Each audit will normally have two timetables:
Work based: showing the timing and sequencing of tasks and other work;
Staff based: showing the involvement of all Internal Audit staff and consultants.
During the main investigation, management will use these to plan input and monitor
progress.
3.221Timetables should be based on the estimated elapsed time for each task and reflect the
sequencing of tasks identified in the audit programs. They should show the timing,
from start of the main investigation to preparation of the draft report, of:
All elements of the work;
The input of resources;
Each individual staff member’s involvement in the audit. The timetable, in
conjunction with the audit programs and budgets, should identify the roles and
responsibilities of each member of the team and help them see how their work
should develop, how it will advance the study objectives/issues and contribute to
the issued report;
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Major deadlines and target dates including expected delivery dates for draft report to
the head of internal audit, and estimates of the consequent production dates of a
draft for the head of public body..
Guidance and examples of the production and use of timetables and milestones are in
Guide 2 appendix 22.
Plan of agreement with the auditee
3.222Good relations with the audited entity are essential for an efficient main investigation.
There should be free flow of information between both parties with each feeling secure
that no significant information is being withheld, either purposefully or by omission.
3.223Good agreement does not happen of its own accord; it needs planning just like any other
aspect of the work. By the start of the main investigation the audit team should have
developed a plan for agreement with all relevant parties within the audited entity. The
plan should ensure that arrangements exist which allow:
Internal Audit to be kept informed of any significant changes in the audit area and of
any concerns the audited entity has regarding the audit;
The audited entity to be acquainted with the objectives, scope and methodology of the
investigation and be kept informed of any changes and of significant findings and
conclusions.
3.224 To achieve these objectives the plan should cover:
Who to agree with: this will normally include the audited entity’s top management, the
finance branch, staff in the audit area of the auditee and, where appropriate, any
official agreement officer appointed by the auditee;
Their information requirements: as with all previous stages of the performance audit
approach, the audit team should assess each of the auditees’ information
requirements. This will include:
 Their knowledge of the role and working of the Internal Audit;
 Their understanding of performance audit;
 Their appreciation of the audit in hand, including what our objectives are, why
we need to work with them and what we will require from them (information,
assistance and facilities, as appropriate);
 Arrangements for internal audit access to information and general liaison with
the auditee;
 Communication and agreement of the finding and conclusions of the
investigation;
The Internal audit’s additional information requirements: as noted above, beyond the
normal audit evidence, the internal audit will need information on the auditee’s
plans for the audit area and any concerns they have regarding the objectives, scope
and conduct of the audit;
How to facilitate exchange of information efficiently and effectively; this may
involve:
 Face to face meetings: both to introduce the Internal Audit, the auditee And/or,
subsequently, to agree findings;
 A standard letter of introduction from the Internal Audit or top management;
 Site visits to lay the ground work for subsequent audit work;
 Specific information on individual audit tests (e.g., a letter of explanation
accompanying a questionnaire).
 The use of fact sheets to agree findings.
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Key dates within the audit timetable, e.g., start of main investigation, agreement
meetings etc. Wherever possible the internal auditor should get the audited entity’s
commitment to meeting these dates.
Consultant Terms of Reference
3.225As a separate, but related exercise, the internal auditor should draw up terms of
reference for each consultant or other outside expert. These will be based on the
analysis of necessary work and resource requirements (including both total and elapsed
time) undertaken to produce the audit programs, budgets and timetables. The terms of
reference will form the basis for both formal contracts and working relationships with
the consultants and should state:
All required work, including agreement with the Internal Audit and the audited entity,
as necessary;
Qualifications/skills of consultant staff;
Total input required and expected timing;
Expected outputs and delivery dates (both final and interim, as necessary);
Methods of handling of the consultancy, including internal audit input.
Detailed guidance on the selection and use of consultants is contained in Guide 2
appendix 19.
Revision of the Plans
3.226 Plans need constant review. They are at best an estimate of what is hoped to be
achieved. Circumstance can change and the plans may need to reflect those changes.
They, therefore, need to be flexible.
3.227When should the main investigation plan be prepared? Only limited planning should be
carried out during the feasibility study but it should include a cost budget and a report
submission date. Detailed planning should take place after the feasibility study report
has been submitted to head of public body but, before the fieldwork commences. The
auditor is faced with the dilemma of having to set budgets and deadlines without
considering in detail the work needed to be carried out.
Methodology - review
3.228 On completion of the planning package the internal auditor and management should
review the planning package to ensure that it:
Achieves the audit objectives/issues;
Does not differ significantly, in terms of expected use of resources and delivery dates
for outputs, from the budgets previously approved by internal audit senior
management at the feasibility stage.
3.229 In the normal course of events, the planning stage should lead to broadly the same
conclusion as the feasibility stage. However, there may be occasions when this more
detailed planning casts doubt on the feasibility of the investigation, the Internal Audit
ability to draw the conclusions expected or on the cost or delivery dates of the study.
In such cases, the senior auditor charge should inform Internal Audit head and make
recommendations about the continued viability of the audit. No work should start on
the main investigation until the head have given his approval.
Documentation
3.230 Documentation during the planning stage consists primarily in the production of the
various elements of the planning package – audit programs, budgets, timetables, plan
of agreement and consultant’s terms of reference.
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Agreement with the Audited Entity
3.231 The planning stage is principally an internal audit process and will often require little
contact with the audited entity. However, some contact may be necessary to obtain
accurate information to produce the audit programs and an adequate agreement plan.
3.232Where there is a need for significant contact the internal auditor should follow the same
basic procedures of good agreement as in previous stages:
Inform the audited entity’s top management of the intention to carry out planning,
explain its purpose, the work involved and establish arrangements;
Ensure that all other staff contacted are fully briefed as to the role of the internal audit,
performance audit and the planning stage, and explain what is required of them.
3.233 The internal auditor should also consider discussing the outcome of the planning stage
with the management. In particular, the internal auditor will find it useful to obtain
their reaction to the impact that the audit will have on their workload and that of their
staff. Main investigations place a heavy burden on audited entities – in providing
information, reviewing output and agreement – and unless they are able to handle this
the audit is unlikely to meet its planned deadlines.
Discussions should cover:
The scope and objectives of the main investigation;
The audit methodology;
The proposed timetable and budgets;
Internal audit resourcing, including the use of any external consultants;
The agreement plan;
Requirements from the auditee public body..
As far as possible the internal auditor should aim to obtain the audited entities top
management’s full agreement to the proposals. Where significant problems arise the
internal auditor should consider its likely impact on the study objectives, timetable and
budgets.
Management
3.234 The planning stage does not require extensive management. It can be limited to
allocation of tasks amongst the audit team (audit programs, timetables, etc.) And
monitoring of progress. Detailed planning and control of each task will not normally be
necessary.
3.235Although there is no need for detailed management of the planning stage itself, Internal
Audit head must be heavily involved in review of the outputs of the planning process.
They must ensure that they are in full agreement with the output of the planning stage
as the basis for conducting the main investigation. Work should not start on the main
investigation until management have given their formal approval to all aspects of the
planning package.
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CHAPTER 4: MAIN INVESTIGATION
4.1 Main investigation stage is one of the key performance audit stage; where the auditor
should obtain relevant and reliable audit evidence that is sufficient to enable the
auditor to draw reasonable conclusions on the achievement of VFM in the main issues
selected for examination. The investigation should be based on the audit issues, scope
and time table determined at the feasibility stage together with the audit program,
developed at the planning stage.
4.2 This chapter, therefore, describes the main investigation stage and includes a brief
description on the purpose of the investigation, the methodology to be adopted, the
relevant documentation, the agreement with the audited entity, method of managing
the investigation and the review of working papers.
4.3 The purpose of the main investigation is to conduct a well researched examination of
the audit issues and, through appropriate and professionally executed evidence
collection, analysis and evaluation, to draw reasonable conclusions and
recommendations. The main investigation should provide the necessary information
for the internal audit to produce an innovative, fair, unbiased and informative report to
the legislature which adds to public accountability and/or leads to improvements in
value for money.
Methodology
4.4 During the planning stage the internal auditor will have produced a planning package
for the main investigation. This should contain all that the internal auditor and
management require to carry out a successful investigation - audit programs, budgets,
timetables, a plan for agreement with the audited entity and use of consultant (see
Guide 2 Appendix 19). In the simplest cases, therefore, all the team needs to do is to
implement the package, including:
Limited initial planning and set-up of the main investigation;
Execution of audit programs;
Evidence collection;
Monitoring of progress;
Control and
Documentation
More often, however, as the audit team obtains information not available at the
feasibility and planning stages, the main investigation will also require some element
of re-planning, re-scheduling of resources, or even re-definition of the direction and
priorities of the examination.
Initial Planning and set-up
4.5 Before detailed audit work starts management needs to:
Tailor the planning package to the circumstances existing on day one of the main
investigation. The precise start date of the investigation and availability of staff
may not have been known when the package was produced. Tailoring the planning
package is only a limited task involving:
 Assignment of work and budgets to individual staff members;
 Re-casting the timetables forwards from day one; and
 Identification of all key dates.
Communicate all requirements to the internal auditor: each member of staff should be
informed of what is required of him/her (including expected outputs, and reporting
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and documentation arrangements), by when, and how their work fits in with that of
others;
Agree with the audited entity to ensure that all auditees are fully aware of the main
investigation.
Execution of the Audit Programs
4.6 Internal audit has overall responsibility for delivering the audit on time and to cost.
Within this, each member of staff is responsible for executing the tasks allocated to
her/him by internal audit. It is only by the professional execution of both these
responsibilities that the investigation can be successful.
4.7 Auditors should use both judgment and initiative in executing audit programs. Each
audit program has a stated objective and it is this that the auditor is striving to achieve.
The auditor may find that the planned audit tests need to be reconsidered to adequately
address the objective or that defensible conclusions can be drawn with a reduced
amount of work. Audit programs should not be executed unthinkingly and the auditor
should evaluate results as the work progresses, bringing any significant factors to
management’s attention at the earliest opportunity.
Evidence Collection
4.8 Evidence is the specific information, obtained during the main investigation through
such activities as, analysis of records and other data, interview, survey, case studies
and observations. Such evidence, to support performance audit reports, must be
relevant, reliable and sufficient to draw reasonable conclusions. In the process of the
investigation, therefore, evidence collection should be directed towards examining
questions of economy, efficiency and effectiveness on the issues under review.
4.9 Before starting evidence collection, it is good practice for the internal auditor to stop
and think about the type and qualities of the evidence. Unnecessary time wastage and
cost should not be sustained in collecting irrelevant and unreliable evidence.
Consequently, in collecting evidences, the internal auditor should seek to collect
relevant example of perceived weaknesses. In addition to this, each individual
involved in evidence collection needs to consider:
What sort of evidence should be collected;
Will this form of evidence be the most useful;
How will it support or refute the initial conclusions on the issues under investigation;
How can this evidence be translated into facts for the internal audit report.
It is only after such considerations and assurances, on the relevance and usefulness of
the evidence, collection should proceed.
4.10 There are four categories (types) of evidence, “PHYSICAL, TESTIMONIAL,
DOCUMENTARY and ANALYTICAL”, each of which has different qualities of
which the auditor should be aware. Detailed guidance on the types of evidence and
some of the techniques used to obtain evidence are given in Guide 2 appendix 18.
4.11 Collection of evidence by itself is not sufficient. The findings observed should be
evaluated against the criteria set. When the internal auditor identify a deviation from a
detailed criterion, they should gather and analyze additional evidence to support
conclusion at the level of the component and the entity as a whole. Generally, each
auditor needs to:
Determine the frequency of the deviation, to assess whether the deficiency is an
isolated instance or represents a systemic or general weakness;
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Identify the fundamental cause of the deficiency. This is important in appreciating the
significance of the findings and in developing a basis for recommending remedial
action;
Assess and quantify the effect or potential effect of the problem, where practical.
Quantifying the effect of a problem helps to determine its significance.
Consider the relative significance of the findings in relation to the audit issues and in
relation to the audited entity.
Develop one or more examples or cases for inclusion in the report to clearly illustrate
the nature of the problem. Examples help the report user to understand the “So
what” of procedural or control deficiencies;
Determine if the audited entity’s management deficiency and if corrective action is
underway. This may help the auditor to decide the reporting strategy and to ensure
fairness in the report. A matter that has been identified by the audited entity’s
management and is being corrected and/or disclosed to MOFED may be less
significant for reporting purposes than a previously unknown, unresolved problem;
Identify best practices that can be emulated or transferred to other entities.
Monitoring of Progress
4.12 Adequate monitoring, together with effective control are probably the most
important factors in determining the success of the investigation. They are the process
through which management ensure, as far as possible, that actual achievements
conform to planned achievements within agreed deadlines and budgets. If we do not
monitor and control the investigation properly we are unlikely to deliver a satisfactory
end product on time and to cost.
4.13 It is not possible to monitor the progress of every aspect of an investigation - they
are too large and cover too many variables. Management should focus, therefore, on
the study’s key performance areas:
Achievement of the audit objectives/issues: Management should monitor
developments which may affect the achievement of the audit objective/issues.
Checks should involve questions such as:
 Are there developments, or new information, which may affect the audit issues,
methodology and plans for collecting evidence?
 Are we collecting the evidence we planned to collect?
 Are there findings we had not expected?
 Does the evidence collected or findings require us to change the direction or
priorities of the investigation or individual tasks?
 How can the evidence be used in the final report?
Quality of the audit: Internal audit should monitor and review the quality of work to
ensure that the internal audit investigation is defensible. Questions to ask include:
 Is the team carrying out the audit in a professional manner and in compliance
with the Internal Audit performance audit operational objectives, the
Performance Audit Manual, procedures and in accordance with standards.
 In the light of evidence collected, do the evaluative criteria and methodology of
the investigation remain appropriate to the audit issues?
 Is the evidence collected relevant and reliable?
 Is the evidence in sufficient quantity for us to make defensible conclusions and
recommendations?
 Is the evidence analyzed appropriately and is the analysis carried out properly?
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 Are we evaluating the evidence objectively and are we drawing reasonable
conclusions and recommendations?
 Is the evidence, analysis etc. Properly documented?
 Is the quality of consultant’s work in accordance with audit office requirements
Timing: Internal audit should monitor progress to see whether the audit is on schedule
and consider whether decisions and external developments may affect the
investigation’s timing. This involves questions such as:
 Is the study progressing as per the plan and timetable? - Are internal audit staff
and external consultants achieving milestones and are they delivering outputs
on time (or is progress on tasks sufficient to lead management to believe
outputs will be delivered on time)?
 Will the investigation be completed on time?
 Are there external developments which could affect the completion date?
 Does the evidence collected or findings necessitate the addition of extra tasks
or audit tests (e.g., to increase the confidence we can have in our conclusions)?
 Does the evidence collected or findings necessitate reducing the scope of some
tasks (e.g., because it is apparent that the audited entity’s control systems are
better than first expected)?
 Are there any other likely changes to the investigation which might affect the
completion date?
Cost and staffing: Internal audit should monitor the outrun of staff and other costs to
ascertain whether the audit is within budget. This involves questions such as:
 Are tasks completed within the approved hours and by the planned grade of
staff?
 Are changes in the direction or priorities of the study, or of the quantity of
evidence collected, likely to significantly affect the cost of the audit?
 Should tasks be re-allocated within the team to more closely reflect staff
abilities and skills and to achieve the study’s issues or deadlines?
 Are additional staff required to achieve the audit’s objectives or deadlines?
 Are we keeping ancillary costs (e.g., travel and subsistence) within budgets?
 Are consultancy costs as budgeted?
 Is there a need for additional expenditure on consultants or other external
assistance to achieve the study’s objectives or deadlines?
4.14 Effective monitoring depends upon good communication between the team and
internal audit. This needs to go beyond the traditional process of management review
of completed tasks and working papers which, whilst a necessary element of quality
assurance, will rarely be sufficient for effective monitoring. Monitoring of the
progress, achievement of study objectives and the quality of the audit can be enhanced
by the use of:
Main investigation summary reports; and/or
Fact sheets;
Team meetings;
Limited interim review of working papers;
Budget monitoring forms, timetables and milestones.
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Main Investigation Summary Reports
4.15 At regular intervals the team should produce main investigation summary reports
setting out the progress of the study. The reports should record in detail, for each of
the audit issues and evaluative criteria:
The evidence collected to date;
The conclusions and recommendations that can be drawn from that evidence;
All further work that remains to be completed, as per the main investigation planning
package, and any suggestions for revision of the planned work.
4.16 The value of summary reports is that they give management a quick and
concentrated means of reviewing progress to date. They allow management to see
what work has been completed and what remains to be done (which can be compared
to budgets and timetables), whether adequate evidence is being collected and whether
conclusions and recommendations are fair and well grounded in facts. Through the
course of the audit the team will up date the report, perhaps at monthly intervals,
thereby giving management a regular opportunity to monitor progress and take any
necessary action.
4.17 The main investigation summary reports also provide a link between related working
papers facilitating the review process by management, and depending on their depth
and coverage may help resolve questions which may arise after the work is completed.
Well-prepared summaries simplify the drafting of the final report as they will provide
the underlying rationale and the basis for the conclusions reached in the final report.
Fact Sheets
4.18 Fact sheets are statements that show the evidence collected during the investigation
corroborated by the agreement of the audited entity. During the main investigation
process, it is good practice to provide the audited entity with the fact sheets of
evidence for them to agree, before drafting of the final report. Such an exercise
provides the opportunity for evidences to be presented and for any misconception to be
removed. To make the auditee aware of the evidence collected the audit team needs to
provide the facts at regular intervals, say at the end of every month or audit issues
(without repeating what previously presented). This condition minimizes the time
delay in clearing the final reports with the audited entity through removing
misunderstanding and any information gap that might arise.
4.19 Care should be taken not to include in the fact sheets any “opinion”, because it could
lead to dispute and delay the progress of the investigation. Only factual data such as
outputs not produced, number of cases etc. Should be included being free of any
opinion. Auditee together with the audit team could choose the format of the fact
sheets. However, for clarity and simplicity, it is advisable to use two column format,
one for facts (the evidences collected) and the other for comment by the audited entity
confirming the fact or not (with their reasons). Always fact sheets should be provided
and confirmed by responsible head of auditee. An example is shown in Guide 2
appendix 20.
4.20 The use of fact sheet to internal audit is that they indicate the progress of the main
investigation together with the reaction of the audited entity on the evidence collected
to date. From the fact sheets any matters in dispute could be observed early to further
extend the audit work for completeness and for supporting the conclusions to be
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reached. It also facilitates the reviewing process of the investigation by internal audit
leading them to concentrate on key issues disputed.
Team Meetings
4.21 The objective of team meetings is to:
Assess progress to date, including the achievement of objectives and the quality of the
investigation; and
Identify the best way forward, any changes in plans and necessary corrective action.
When team meetings are held regularly, fact sheets and main investigation summary
sheets should be prepared and circulated to each members in advance.
4.22 Meetings should be conducted in a professional manner. Agendas should be
circulated in advance and staff should come prepared and able to report on the
progress of their tasks and to answer questions. Discussion should be properly
controlled and directed to the agenda. Internal audit must create a climate in which
each member of staff feels able to contribute openly. Meetings should be properly
minuted with a record of:
The main points made on progress to date;
All decisions on future action;
Specific allocation of responsibility for that action to those present.
Meetings should normally include all staff involved in the audit, regardless of grade.
Each member of staff will have information which may contribute to an informed
picture of progress and results and the exclusion of staff will leave internal audit with
less than a complete view.
Interim Review of Working Papers
4.23 Based on information obtained from summary reports, fact sheets and team
meetings, internal audit may feel it is also necessary to perform some limited interim
review of working papers. This can prove to be the most efficient and effective means
of gaining assurance on the achievement of study objectives and the quality of the
audit. It is not, however, a mandatory requirement of the main investigation stage and
management should balance the need for detailed assurance with the probable
disruption to the work of staff which may entail. Internal audit should assess the need
for interim review on:
The overall significance of the audit area (e.g., its importance in respect of the audit
objectives/issues, use of resources etc.);
The skills, experience and capabilities of staff;
The quality (relevance, reliability and sufficiency) of evidence collected;
The sensitivity of conclusions and recommendations.
Budget Monitoring Forms, Timetables and Milestones
4.24 In addition to monitoring the likely achievement of the study’s objectives and the
quality of the audit, internal audit need to assess whether the audit will be delivered on
time and to cost. They should review the use of resources and progress of tasks
against the budgets and timetables and update them to cover the remaining stages of
the investigation, taking into account any changes in audit plans, as necessary. To
revise budgets internal audit will need information on actual hours spent to date on
each task or sub-task and an estimate of the time required to complete it. The total
derived can then be compared to the planning budget and included into revised
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timetables. Budget monitoring forms are useful in this process; guidance on their use
and an example is in Guide 2 appendix 21 and 22.
Control
4.25 The value of monitoring is lost unless internal audit takes appropriate action to
control the investigation. This involves:
Deciding whether changes and new instructions (audit programs, budgets, timetables
etc.) Are needed to achieve the audit’s objectives;
Identifying the changes and communicating these decisions to members of the audit
team;
Inputting the changes and instructions into the planning package and hence into the
control mechanism for later stages of the audit.
Control should be exercised over the achievement of objectives, the quality of the
audit, use of resources and the cost and delivery of the audit. Internal audit should use
the checklist in paragraph 4.13 to assess what changes are needed.
4.26 Significant changes should be communicated to auditee senior management for
consideration and approval. The audit is the responsibility of the relevant team auditor
but internal audit head should be consulted where team consider that there will be:
An alteration of audit issues or major changes in the possible impact of the audit;
Slippage in the internal audit report date;
More than a reasonable percentage increase in budgeted staff costs;
Any increase in expenditure on external consultancies.
Documentation
4.27 Main investigations tend to generate a considerable amount of evidence and working
papers. It is important, therefore, to document the audit well to ensure that:
All evidence, analysis, decisions and agreement with the audited entity are properly
recorded
All evidence and analysis are given due weight within the audit and Internal Audit
report. (Unless they are properly documented they may be forgotten or overlooked)
Evidence and analysis can be easily and quickly located to support the Internal Audit
report in discussing the report with the audited entity. Auditors should be able to
produce all necessary evidence to justify their conclusions and recommendations;
Internal audit is able to review work with ease.
4.28 General guidance on documentation is contained in Guide 2 appendix 6. Additional
important points to consider during the main investigation are the need to:
Develop a logical overall structure to the documentation of the study:
 Keep administrative and evidential documentation on separate working paper
folders;
 Organize administrative working paper folders around the relevant activity,
e.g., audit programs, timetables, monitoring of budgets, auditee’s agreement
etc.;
 Organize evidential working paper folders by task, audit program, location of
evidence (or a combination of these) as the needs of the audit dictate, but
ensure that the structure is coherent and remains consistent throughout the
study;
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 Keep all drafts of the report on a separate folder and date reference all revisions
such that internal audit head and staff can easily identify the current version;
Ensure that evidential working paper folders contain all necessary documentation.
These include:
 The relevant audit programs;
 All relevant evidence and analysis;
 A clear and concise summary analyzing the significance of the evidence
including a record of, and justification for, the auditor’s conclusions and
recommendations;
 A full record of all managerial review points, with examiner responses;
 An index of contents.
Ensure that all evidence obtained from the audited department is fully referenced to its
source (e.g., departmental file), notes the date of origin and originator (with
grade), and shows any subsequent departmental action, where appropriate;
Record all planning and monitoring activities and decisions (e.g., audit programs,
main investigation summary reports, fact sheets, minutes of team meetings) for
future reference and ensure that they are circulated to all interested parties;
Record all agreement with the audited department - this may be required at a future
date to clarify facts or resolve problems;
Reference every fact, conclusion or recommendation in the draft report to the relevant
working paper folder and individual working paper. This has two advantages: it
allows management to locate supporting evidence and assess its strength quickly
and easily; it also provides a check for the audit team that they are able to justify
all that they have written;
Reference all drafts of the internal audit report sent to the audited entity to the relevant
departmental source (file, report, interview etc.) From which information was
obtained. Care should be taken, however, not to infringe the confidentiality of
interviews with individual members of the auditee’s staff, where this is relevant.
Agreement with auditee
4.29 At the planning stage the audit team will have produced a plan for agreement during
the main investigation with the auditee The details should include:
Who to agree with;
The entity’s information requirements;
The internal audit’s own information requirements;
How to facilitate exchange of information efficiently and effectively;
Identification of key dates within the audit timetable, e.g., start of main investigation,
agreement meetings, etc. The internal audit should have agreed these with the
audited entity.
4.30 Agreement with the audited entity should follow the plan. However, it is essential
that internal audit and the team:
Monitor and control the working of the plan. The plan should not be followed blindly
but should be reviewed and modified, with the top management agreement, as
circumstances and experience dictate;
Ensure that the audited entity is informed of any changes or new development’s in the
study;
Ensure that there are adequate arrangements for discussion and clearance of the draft
internal audit report with the audited entity and that they are kept informed as to
when we will require input from them.
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Management
4.31 The internal audit responsible for achieving the audit objectives on time and to cost.
This depends upon adequate:
Planning: development of a main investigation planning package and initial set-up of
the audit is in paragraph 4.5 above;
Monitoring, including good communications between staff and management: this is
discussed in paragraphs 4.12 - 4.23 above; and
Control, including taking of corrective actions, where necessary: see paragraphs 4.25
and 4.26 above.
4.32 In addition to the items discussed in above, internal audit should consider the need
to:
Allocate tasks amongst the audit staff to get the best possible match between the
requirements of the work and the skills, experience and capabilities of team
members;
Make good use of consultants and ensure that:
 There is a clear understanding from the outset about the scope of the
consultant’s work, timetable and deadlines;
 There are adequate arrangements for agreement with consultants, including
timing of interim reports and meetings at key stages;
 Any problems are identified and resolved at an early stage;
 There is adequate communication between the Internal audit and the
consultants such that all evidence is properly considered;
 The work of consultants is monitored, controlled and reviewed promptly and
properly. Consultants should conduct their work in a professional manner, free
of error and bias, allowing the internal audit to use it in the report with
confidence. The management should ensure that this is so, working on the
principle that, though conducted by persons outside the public body, the work
of consultants remains the responsibility of the auditee. Guidance on the
management and use of consultants is contained in Guide 2 appendix 19;
Gain assurance about the quality of the completed audit. Paragraphs 4.12 - 4.26 above
emphasized the need for adequate monitoring and control of the progress of the
audit. The use of main investigation summary sheets, fact sheets and team
meetings, with some limited interim review of working papers where necessary,
was recommended. However, this does not remove the need for management to
review completed tasks in detail. Before proceeding to drafting of the report
internal audit must assure them selves that every aspect of the main investigation
accords with Internal audit professional standards. This can only be achieved by a
detailed review of working papers. Normally the senior auditor should examine all
papers; the Internal audit head should conduct a test check of the more important
or sensitive areas;
Learn lessons for the future from the experience of the present main investigation.
Each investigation will provide lessons both for performance audit in general (e.g.,
regarding the completeness of Internal audit procedures, the value and conduct of
particular audit techniques etc.) And for working with the audited entity (e.g., their
attitude to effectiveness audits, the general awareness of their staff about the audit.
It is important that we learn from these lessons if the Internal audit ability to
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conduct performance audit efficiently and effectively is to improve, these lessons
must be recognized and propagated within the public body.
Review of Working Papers
4.33 When the main investigation comes to an end, the head of the internal audit
responsible for the whole audit, should review documentation on files and supporting
working papers with the objectives of:
Getting assurance that the subject has been thoroughly examined in accordance with
the approved plan;
Proving that no significant elements have been omitted;
Ensuring the auditors’ conclusions are sound and are based on sufficient, relevant and
reliable evidence; and
Ensuring that the main investigation summary reports, fact sheets and any other
minutes etc. Are factually accurate.
The senior auditors should also add or give opinion (comments) on files and each
working paper folder to indicate the extent and the result of the review. Checklist for
completion by the head of internal audit is given in Guide 2 appendix 23.
4.34 During the review senior auditors should not duplicate the work of the audit team.
Any re-working, if considered necessary should be restricted to critical audit actions
involved (e.g., matters of crucial calculation by the audit team). However, such rework should be done only to the extent judged absolutely necessary to satisfy the head
of internal audit and reach the same conclusion as the audit team. Where time and
other factors permit, incomplete or unsatisfactory work should be returned to the audit
team for further examination and re-submission. On top of the review done by the
head of internal audit the review by the department, should confirm the adequacy of
the review of the head of internal audit.
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CHAPTER 5: REPORTING
5.1 Reports are the principal means by which an Internal Audit meets its primary
performance audit objective of providing its executive with independent information,
advice and assurance on the use of resources by the audited entity. Reports are also
springboards for action; they should not just expose weaknesses and criticize, but
acknowledge auditee’s achievements and attempt to show the way forward. They
should not be written to be read as dialogue between the Internal Audit and the
auditee. They should get their essential messages across clearly and simply to an
audience who almost certainly do not know, do not need to know and do not wish to
know the details and complexities which may surround the subjects being examined.
Consequently, to satisfy these conditions attempts must be made:
To keep them as brief as possible;
To give them clear report structure;
To use simple, direct and unambiguous language;
To select the minimum information needed for a sufficient understanding of the main
issues and important findings, conclusions and recommendation; and
To use hard evidence and telling examples to reinforce the messages in the reports.
5.2 This chapter, therefore, presents the structure, methodology, findings, conclusions and
recommendations of the performance audit end product – the performance audit report.
Governing Legislation and Reporting Objectives
5.3 The Internal Audit governing Laws places specific requirements on the Them for the
way in which it reports the results of its audits. The Internal Audit reporting mandate,
based on its corporate objectives, serves different purposes depending on the
requirements of the various recipients of the reports.
5.4 Therefore, each Internal Audit required to submit its performance audit reports to the
head of audited entity, and to Ministry of Finance and Economic Development in
accordance with the spirit and the letter of its enabling executive on reporting. The
internal audit objectives in doing so mirror its organizational performance audit
objectives, namely:
To the Audited Entity
To encourage auditees:
The quality of their external reporting, where this is shown to be necessary; and
To improve value for money. To this end the Internal Audit will, within its reports,
demonstrate the opportunity and scope for beneficial change by:
a) Making recommendations for cost-effective improvements in management or
performance; and
b) Identifying well performing government organizations as possible lessons to
be emulated by others.
To executive through Ministry of Finance and Economic Development
To maintain and enhance public accountability by:
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a) Providing independent information, advice and assurance on the use of
resources in audited entities;
b) Seeking the executive’s support in encouraging auditees to improve the quality
of their own external reporting;
To act as a force for beneficial change by seeking the executive’s support for the
Internal Audit findings, conclusions and recommendations on auditee’s
achievement of value for money.
5.5 These objectives must be kept clearly in mind throughout the drafting process and
reports should be tailored accordingly. Reporting is the final main stage in Audit
approach to realize its organizational performance audit objectives. It is the principal
means by which the Internal Audit informs its users of its findings, conclusions and
recommendations. It is, therefore, the main means of communication by which the
Internal Audit tries achieve its objectives.
Findings, Conclusions and Recommendations
5.6 Many auditors experience problems in segregating findings, conclusions and
recommendations one from the other. Findings are the result of the auditors’
comparison of the actual situation with the relevant evaluative criteria. In the findings
part, audit evidence should be presented in a correct way without judgments or
comments by the auditor. The auditor should avoid discussion here, as well as
introducing his personal opinions and comments. To make it easier to the reader, the
words “according to the auditee/interviewee” etc. May be used here and there.
Auditors also should not forget to ensure whether each finding contains the four
elements of findings (condition, criteria, cause and effect) which are explained in
detail in the reporting standards.
5.7 Conclusions reflect the view of the auditors deduced from the findings. Accordingly,
in the conclusion part, auditors reflect their opinion on the implication of the findings.
To help the reader to identify the conclusion from the findings, phrases like “in our
opinion” “we felt that” etc. May be used repetitively in the conclusion aspect of the
report.
5.8 Recommendations are auditor’s proposals that call improvement in operations and/or
performances either the audited entity as a whole or of a particular section or in an area
audited within the entity. Recommendations should neither be too detail nor too
general. In developing the recommendations auditors have to concentrate on what
should be changed and leave the questions of how to make changes to the auditee.
Too detail recommendations may link the Internal Audit with specific solutions. On
the other hand, recommendations should be sufficiently detailed that they can be
understood and implemented by the auditee and at the same time followed-up by the
Internal Audit.
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How to Structure Findings, Conclusions and Recommendations
It should be noted that the presentation of findings, conclusions and recommendations
must be logical and they must be linked to one another when we write a report.
Alternative structure of presenting in the audit reports is presented below. The examples
are based on an audit, which focused on two different audit issues (A and B).
Structure I
Structure II
Findings
Findings, conclusions and
Recommendations on A
Findings on A
Conclusions on A
Recommendations on A
Findings on A
Findings on B
Conclusions
Conclusions on A
Findings, conclusions and
recommendations on B
Conclusions on B
Findings on B
Conclusions on B
Recommendations on B
Recommendations
Recommendations on A
Recommendations on B
The two structures both have advantages. Structure I make it possible to get a good overview
of all findings, conclusions and recommendations. Structure II on the other hand provides a
more comprehensive analysis of the different audit issues.
Methodology
5.9
The Internal Audit reports in two phases:
First, to the audited entity. A separate report will be sent for each public body.
Subsequently, to the MOFED. The reports on all performance audits conducted in a
year are incorporated in MOFED annual report to the council of ministers.
This allows the MOFED to include the audited entity’s views, comments and proposed
response in the report to the council.
5.10
There are a number of stages in the drafting process:
(a) Outline Report
(b) Report to the head of the public body
 Conduct audit conference on audit findings.
 First draft by the audit team;
 Review and revision by head of the internal audit;
 Copy sent to MOFED;
©



Report to council of ministers
First draft by Inspection;
Review and revision by management;
Inclusion within MOFED annual report.
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(a) Outline Report
5.11 The first step in the drafting process is to produce an outline report. The aim of this is
to:
Delineate the structure and broad content of the report;
Provide senior management with the opportunity to comment on the general direction,
conclusions etc. Of the report at an early stage. The outline should be agreed on
with head of internal audit level before any detailed drafting starts. This will
reduce the need for revision and amendment at later stages of the drafting process.
5.12
In the outline, the audit team should:
Sketch out the structure of the report. A well thought out and logical structure is an
essential element of any Internal Audit report. It allows us to communicate
information to auditee in a clear and intelligible manner;
Identify :
 The findings and conclusions to be included within each main section, together
with supporting evidence;
 Any tables, charts or other graphical representation of information; and
 All necessary appendices.
We need to decide which of the information we have collected during the main
investigation to include in the main body of the report, which in appendices, (and
which to exclude), and how best to present it.
5.13 A useful aid to producing the outline is the latest version of the main investigation
summary sheets, (see Chapter 4, paragraphs 4.15 and 4.17 ). If the summary sheets
have been produced properly during the main investigation they will detail the up to
date position on the audits:
Findings, conclusions and recommendations; and,
Material evidence against each audit issue.
These will contain, therefore, the main items for inclusion in the outline.
5.14 Although the summary sheets should include all the more important facts, etc., it is
good practice to allow all staff who have had a significant part to play in the audit to
have the opportunity to participate in preparing the outline. This gives added
assurance that the outline is complete and also ensures that a balanced interpretation is
given to the evidence. Staff can place evidence in its proper context – something
which a bare reading of the summary sheets may not be able to do.
5.15 Once approved, by management, the outline report should be passed to the auditte
entity as the basis for discussing views on the main matters to be raised in the final
report. Such discussions must in no way be allowed to become a clearance exercise, or
the occasion for extensive and time-consuming arguments. The auditte will have every
opportunity to comment widely at the full draft report stage, so discussion at the
outline report stage should be confined to reviewing the main issues and should avoid
questions of details. The aim is to identify and, if necessary, take account of any
fundamental differences of view on main facts and conclusions and major obstacles
likely to arise at the formal clearing stage. More detailed guidance is given in Guide 2
appendix 24.
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(b) Report to the Auditee - First Draft
5.16 Once the outline has been agreed, the internal audit should decide who amongst the
audit team should draft which sections of the report. This will depend upon such
factors as the availability and experience of staff. In practice, however, internal audit
will often get the best results by allocating responsibility for drafting each section to
the staff member most closely involved in the relevant element of the main
investigation (and who has, therefore, the best knowledge of the evidence).
5.17 The drafts of the various sections will need to be drawn together to produce a coherent,
balanced report. This is the responsibility of team management as it is they who are
accountable for submitting a good quality first draft report to senior management.
Team management must keep the following points in mind:
The legitimacy of the report. The report should not stray outside internal audit’s
legal remit. There should be no suggestion that the internal audit questioning the
merits of policy objectives;
The adequacy of the findings, conclusions and recommendations in addressing
the audit objectives, that is, whether the internal audit has done a satisfactory
audit and whether this is adequately represented in the draft report. Management
should ensure that the report provides complete and conclusive coverage of all the
audit issues. The draft should move from each audit issue to clear and explicit
conclusions and recommendations;
The balance of the various sections of the report. The report should concentrate on
the important aspects of management and auditee’s performance and avoid detail
on relatively minor issues;
The quality of presentation. The draft should be written well, in accordance with the
reporting standards and principles. Appropriate tables, charts etc. Should be used
to aid the reader’s comprehension of the findings, conclusions and
recommendations. It is often useful to have someone with no knowledge of the
audit read the draft report at an early stage; this will highlight areas where
presentation is weak.
That the draft:
 Can be fully supported by the available evidence;
 Includes all significant findings and conclusions which can be drawn from the
evidence; and
 Is a fair representation of the weight and balance of the evidence.
Both sides of the issues should be presented in moderate and un prejudicial terms. The
draft report should be open-minded and reflect an unbiased investigation where issues
are examined in proper context. In addition the draft report should be “rounded” in the
sense of presenting praise-worthy performance, effective management and good VFM
as well as firmly disclosing weaknesses in systems and control and example of bad
VFM. Generally draft reports should be constructive in looking forward to necessary
improvements rather than tracing backwards at mistakes and weaknesses. Guidance to
the structure of reports is given in Guide 2 appendix 25.
5.18 The audit team should review all working papers before finalizing the draft report.
This may have been done during the main investigation but it is good practice to take
one final run through all working papers at this stage to obtain a rounded view of the
evidence. The team may also find it useful to cross-reference the report - its findings,
conclusions and recommendations, supporting evidence, tables and charts etc. - back
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to the relevant main investigation working papers to check that it is possible to justify
everything in it. Check list is provided in Guide 2 appendix 23.
Report to the Auditee Audit Review
5.19 It is for the head of the internal audit to sign the report and send it to the auditee for
comment. Before doing so she/he needs to satisfy her/himself as to:
The legitimacy of the report;
The adequacy of the findings, conclusions and recommendations in addressing the
audit objectives;
Balance;
Quality of presentation.
The internal audit head will not normally review the working papers in detail. He/she
has delegated this responsibility to the senior auditor. However, where findings,
conclusions or recommendations are particularly sensitive, the head may find it
necessary to call for the relevant working papers.
Discussion with the Auditee entity (Clearance of Reports)
5.20 All draft reports should be discussed at the appropriate level with the auditee. The
results of the investigation, in particular the critical findings should be subject to
consultation with the auditee. Such a consultation at the drafting stage is the key point
to ensure that:
All material and relevant facts have been included;
The facts are not in dispute;
The presentation and conclusions drawn from them are fair;
The report is balanced in coverage, content and time;
Where the report states internal audit views or conclusions with which the audited
entity are unable to agree, this is made clear.
5.21
After internal audit head have approved the draft report, in order to clear the report,
the following alternative procedures should be followed:
 Normally, where discussions of the outline have revealed no particular problems,
the draft report approved by the head will be sent to head of the public body and
MOFED.
 In other cases, where matters are particularly complex or earlier discussions have
left important matters un resolved, where there is uncertainty on major issues or
where significant changes have been introduced at the final drafting stage, the
internal auditor should prepare the final report including the reservation of the
auditee and sent the report to the head of public body and MOFED.
5.22 It is important that the auditee fully appreciates what it is being asked to agree. The
internal audit with the audit team should, therefore, handle all discussions on the report
with the auditee. The objectives are in short, to:
Agree the content of the draft report as far as this is possible, and, where full
agreement can not be reached, identify the auditee’s reservations;
Ascertain what action the audited entity intends to take on the reports conclusions and
recommendations.
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5.23 At such report clearance stage all material differences observed should be identified.
Where the audited entity does express reservation, on the facts and conclusions
drawn, these should be considered and discussed in a fair way. Any subsequent
redrafting of the report should continue to reflect the aims of having an agreed report
which clearly sets out the facts, evidences and conclusions. Where differences of
opinion can not satisfactory be resolved the report should bring this out. And both the
auditees reservations and proposed course of action should be noted in the report
together with comment from the Internal Audit.
5.24 The current procedure followed after discussion with the auditee (clearance on the
reports) is for the Internal Audit to request a formal response from auditee when
sending them the report. On receipt of the response the Internal Audit head will ask
the audit team for their comments. The Internal Audit should consider whether the
response is:
Complete, that is, whether it addresses all the major conclusions and recommendations
made in the report;
Relevant - whether the audited entity has responded to the actual issues raised in the
report;
Sufficient - whether the audited entity’s proposed course of action will solve the
problems identified in the report in their entirety and whether it will lead to the
speedy and full implementation of the recommendations;
Fair - whether the audited entity’s reservations or disagreements with the report are
justified.
Where the response significantly fails one or more of these tests the Internal Audit
head will consider writing back to the auditee. Any subsequent response should be
subjected to the same examination.
5.25 ‘The Internal Audit head should also consider the nature of any major reservations or
disagreements the auditee may have. These can be divided into:
Disagreements on the completeness, relevance or sufficiency of the auditee’s response;
Disagreement on facts or technical interpretation of the evidence.
The distinction affects the way in which the Internal Audit handles the disagreement.
On the former, if reported clearly and fairly, we can expect the MOFED to be able to
weigh the merits of the Internal Audit and auditee’s positions. They can, therefore, be
included in the Annual Report to the council of ministers In contrast; disagreements
on facts or technical interpretation will normally be beyond the MOFED competence
to judge. They should, as far as possible, be resolved before proceeding to drafting of
the final report to the executive.
(d) Report to the Executives
5.26
The report to the executive differs from that to the audited entity only in:
Format (see paragraph 5.11 above);
Including the substance of the audited entity’s formal response, and the audit office’s
comments on the response.
In all other respects the general structure and content of the report should follow the
outline report.
5.27 The executive, unlike the audited entity, will have no specialist knowledge of the
subject matter. MOFED must bear this in mind in producing the first draft. The report
should be written to allow the executive a ready understanding of the main issues, the
internal audit approach, findings, conclusions and recommendations. As noted above,
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the report must avoid placing the executive in a position where it is required to make
technical judgments which are outside its competence.
Documentation
5.28
The main elements of documentation in the reporting stage are the various drafts of
internal audit report. There will be few, if any, additional working papers generated and,
consequently, only limited need to apply. See Guide 2 Appendix 6.
5.29 It is essential, however, to maintain the standard of documentation through to the final
supported Report. Audit teams should:
Keep a separate working paper folder containing all main drafts of the reports together
with all correspondence with the audited entity;
Maintain a clear trail from the first draft of both reports, through the various revisions,
to the final versions. Keep copies of all drafts of each section of the reports and
date all pages of all revisions of the drafts;
Cross refer all main drafts of the reports back to the evidence. Internal audit drafts
should be referenced to the internal audit working papers and any drafts sent to the
auditee referenced to the auditee’s own files.
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CHAPTER 6: POST AUDIT FOLLOW-UP
6.1
This chapter describes the objectives and procedure for closure of the investigation,
review of the audited entities response to the Internal Audit report and measuring the
impact of the Audit report.
Closure of the Investigation
6.2
At the end of the investigation, after submission of the Internal Audit report the head
of internal audit should produce a resume to the public body management on the
achievement the manner in which the audit has been conducted, problems, if any,
faced and important lessons learned from the investigation. The objectives of the
procedure are:
To give management the opportunity to “sign off” the study, thereby formally closing
it;
To ensure that the Internal Audit as a whole is able to learn lessons from the conduct
of the audit which will assist its development of performance audit.
6.3
The final resume should consider:
Whether the study’s original objectives (as per the feasibility stage report) were
achieved, providing explanations where this was not the case;
What the likely impact of the Internal Audit report will be;
The audited department’s reaction to the study and the report, and what lessons can be
learnt from it;
Whether the study was delivered on time and to cost, giving explanations for any
variances;
The success or otherwise of the methodology, highlighting lessons to be learnt;
The value and lessons from use of any novel audit techniques.
A copy of the report, together with audit programs and evaluative criteria, should go to
the performance audit unit. In addition, the Internal Audit should produce a short
commentary for the administrative division on the performance of any external
consultants employed on the study. See Guide 2 appendix 19.
Internal audit will review the report, calling for any explanations as necessary. When
they are satisfied that the study has been fully assessed they will sign it off, thereby
allowing the Internal Audit to close the study formally. Before doing so, the Internal
Audit must ensure that the documentation is in an adequate state, such that persons
unfamiliar with the study are able to use the files at a later date.
6.4
Review of the Auditee’s Response
6.5
6.6
At a suitable interval after submission of the Internal Audit report, normally about two
years, the audit department should review the audited entity’s response to the Report’s
conclusions and recommendations. The objectives of this exercise are:
To ensure that the auditee has acted adequately and is seeking to improve public
accountability and/or value for money;
To evaluate the benefits that has resulted from the audit report.
The team should report their findings to the internal audit head, with appropriate
recommendations for further action by the public body.
Review should consist of an examination of the auditee’s actions on each conclusion
and recommendation and, where possible and appropriate, an evaluation of the savings
that have accrued. The audit team may find it useful to list each main point in the
report and ask the auditee for a formal statement of their response and actions. Even
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6.7
where a formal statement is not forthcoming, the team should always agree the facts
with auditee’s, especially where producing financial estimates of savings.
The review should also include an evaluation of the adequacy of the audited entity’s
response to the internal audit conclusions and recommendations. Where the review
suggests that the response has not been adequate, internal audit team should seek an
explanation from the audited entity. If this is not satisfactory, the internal audit should
consider possible further action by auditee:
A formal letter from the Internal audit to the head of the auditee, again seeking
explanations and asking for appropriate action to be taken;
A briefing to MOFED explaining the facts of the case;
A further audit investigation and report at a later date.
The course to follow will depend upon the significance of the relevant conclusions and
recommendations and upon the audited entity’s reasons for their lack of response.
However, if the performance audit work is to have a beneficial impact, audited entities
must act properly and speedily.
Measuring the Impacts of the Audit
6.8
Since one of the objectives of the performance audit is promoting improvements in
performance and value for many achievements, to know the improvements and
achievements, the internal audit needs to evaluate and measure the impacts of the
audit. To meet this need, the internal audit should establish arrangements for:
Monitoring planned impacts through the course of the audit and in relation to other
outputs;
Recording and evaluating commitments to action made by the audited entities;
Monitoring and recording achievements against commitments; and
Provide a report for senior management, on commitments and achievements resulting
from internal audit outputs during the preceding 3 years. Impact will, mainly
derived from performance audit as a result of action taken by the audited entities
during the course of the audit, on the internal audit reports or following the
executives recommendations.
6.9 During the strategic plan preparation, the internal audit is required to include a
statement indicating the need and time table for the assessment of potential impacts of
the audits. Even though it is difficult, at this stage, to predict clearly all the eventual
impacts, some attempt to identify likely impacts or benefits is worthwhile as they are
important factors in selecting studies. This will be further considered in the reports of
the feasibility study, as the result of selecting the audit issues, by identifying more
clearly the likely impacts of the main investigation. Then, in undertaking the main
investigation, tasks should be identified and methods adopted which help to ensure
these benefits are achieved.
6.10 The following procedures should be followed in measuring and reporting the likely
impacts resulting from the audit:
A) Monitoring and tracking
Monitoring the outcome of planned impacts is a matter of checking whether the
anticipated impacts are met and taking follow up action on the circumstance
resulted from the study. In this regard, it is helpful to open an impacts working
paper folder for each study at an early stage, for example at the start of the main
investigation. This working paper folder helps to record and hold information on
planned impacts and, in due course, the audited bodies commitments and
achievements.
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B)
Evaluating impacts
In evaluating commitments and the subsequent achievements, there should be
evidence that the work of the internal audit or the executive influenced the
proposed action to a significant extent; that action has actually been taken and that
benefits can be reasonably attributed to the action. It is not possible to be specific
and prescriptive over the definition of significant impact. This is because most
performance audit impacts will relate to individual internal audit or executives
recommendations and responses of the audited entities. Benefits, derived from the
action taken as the result of the study may be measurable or not. Hence auditors
should identify these benefits as measurable and non measurable to facilitate their
evaluation. If measurable, it should enable them to report the extent of the impact
of the audit in the clearest terms. These might include reduction in expenditure,
increases in income, improved efficiency in service delivery and greater outputs
from the same level of expenditure. However, in some cases it will not be possible
to estimate financial benefits accurately. In such cases best estimates of the likely
savings within a range of potential savings is advisable. On the other hand, nonmeasurable impacts are those arising from actions which improve government
operations or provide better service to the public but for which there is no
quantifiable and discernible financial benefit. Examples of these are reducing
waiting times for operations, simplifying procedures for tax collection or
improving advice and guidance to claimant etc. By identifying these measurable
and non-measurable impacts, auditors should assess and evaluate the results of the
audited entities’ commitments and achievements. These need to be recorded and
updated regularly in the working paper folder opened to monitor and track impacts.
C) Reporting
Impact assessment and measurement is not for external reporting to auditee. It is a
means of observing the achievement of study objectives and the effectiveness of
internal audit in meeting its organizational objectives. Therefore, impacts of the
audit observed during the evaluation should be reported to the head of the public
body. In this regard, the public body should be provided with annual statements of
detail of all impacts promised or delivered in the previous 3 years. Depending on
the nature of the action promised, it may be necessary to review the actual progress
made for the full 3 years period so as to reassess savings being achieved.
D) Validation of impact returns
As the impact of internal audit may come under close it is important that
assessments are consistent. Benefits achieved as a result of the work of internal
audit should always be internally validated. Wherever possible they should be
agreed with the audited entities or MOFED. If there is a disagreement clearly
articulated about the benefits achieved the head of the public body should be
advised on what basis the benefit has been assessed and, if applicable, the audited
bodies reservations clearly articulated.
6.11 The audit process should not come to an end once and for all. For all audits
undertaken, there should follow a cycle starting from the overview to the follow up
stage and again marking. Internal audit should ensure that the outcome of an
investigation and any necessary follow up is clearly brought out to be included in all
marking and monitoring arrangements.
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SECTION TWO Performance Audit Standards
DEFINITIONS
In this document unless the context otherwise indicates:
Internal Audit means the audits established in each public bodies.
Audited Entities or Auditees means all government entities that are audited by the internal
audits according to their mandates.
Auditors General means The Federal Auditor General.
Auditor means performance auditors of the internal audits in federal public body.
Standards: Although the word ''standards'' is used throughout this document it is understood
that this word is to be used synonymously with the word “guidelines'' which keeps the
authority for compliance within the domain of each internal audit.
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INTRODUCTION
The standards contained in this document, referred to as Ethiopian Audit Standards are
intended for use by auditors conducting performance audits of government entities, programs,
activities, and services. The standards provide benchmarks for ensuring that auditors achieve
a professional level of quality, integrity, objectivity, and independence in planning,
conducting and reporting their audits. The standards together with the performance audit
manual and supporting materials provide guidance for the auditor in determining the auditing
steps and procedures that should be applied in the internal audit.
The document comprises four chapters:
Chapter 1: Provides essential background. It defines the concept of the 3Es of performance
audit and the basic principles considered in developing the standards.
Chapter 2: Presents the 3Es key general standards: independence of internal audit
competence of the audit; the exercise of due professional care in conducting and reporting the
audit; and the presence of quality assurance required in carrying the audit.
Chapter 3: Presents the fieldwork standards that highlight the need for planning,
supervising, documenting, study and evaluation of internal controls, examining auditees’
compliance with laws and regulation and obtaining relevant, reliable and sufficient audit
evidence during the planning and the execution stages of the audit.
Chapter 4: Deals with the reporting standards which discuss the requirements that should
be fulfilled by the auditors and the internal audit with respect to the form, timeliness, content,
presentation and distribution features of the audit report.
Chapter 5: Deals with follow-up standards that highlight the need to follow-up on action
taken by the audited body on previous recommendations.
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CHAPTER 1
BACKGROUND
1.1
1.2
The role of the public auditor traditionally has been limited to expressing opinions on
financial statements and related issues of legality, regularity and fraud. This involves
assessments of whether transactions were properly controlled, whether care was taken
in the collection and custody of revenues, whether expenditures were properly incurred
and generally, whether executives intentions were being met.
Starting in the 1960s with increasing public expenditures, the need arose for more
rational and informed decision-making in the use of resources and a growing demand
for public accountability of those who manage public resources.
1.3
Traditional financial and compliance, although essential, could not provide the
information needed on waste, inefficiency or ineffectiveness. This necessitated the need
for a new type of audit with an expanded scope. This new type of audit came to be
known as performance audit or value-for-money audit.
1.4
Performance auditing was first introduced in the Supreme Audit Institutions (SAIs) of
some western countries in the 1970s. Today, it has become one of the major tasks of
SAIs in most developed and in some developing countries. In Ethiopia, the Office of
the Federal Auditor General (OFAG) commenced performance audit in 1992. Some
Regional Audit Offices (RAOs) has recently introduced it. Although, traditional
financial and compliance audits will continue to play an essential role, it is anticipated,
however, that there will be a gradual and planned growth of performance audit work in
all offices in due course.
1.5
More recently, about 20 years ago, greater awareness and understanding of
environmental issues led governments to rethink their roles and responsibilities as
environmental stewards. Over this period, there has also been increasing concern that
organizations should be held accountable for their actions that affect the environment.
1.6
In line with this, audit offices began to examine and assess the performance of
government organizations, programs, activities in relation to compliance with
applicable environmental laws, regulations, policies, etc. They also started to include
‘environment’ as the 4th “E” in a normal performance audit or made environment’ the
primary focus in the audit (audit of air quality, water quality, for example), in order to
provide the legislature with independent information, to improve environmental
protection processes and encourage best practices for sustainable development.
1.7
Performance audit is an objective and systematic examination of the financial and
operational performance of a government organization, programme, activity or function
carried out to provide the council of ministers with independent information, improve
public accountability and encourages best practice. It is also to help audited bodies
improve their performance in achieving value for money (VFM).
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1.8
The scope of modern performance audit covers:
(a) audit of the economy of administrative activities in accordance with sound
administrative principles and practices, and management policies;
(b) audit of the efficiency of utilization of human, financial and other resources,
including examination of information systems, performance measures and
monitoring arrangements, and procedures followed by audited entities for
remedying identified deficiencies;
(c) Audit of the effectiveness of performance in relation to the achievement of the
objectives of the audited entity, and audit of the actual impact of activities compared
with the intended impact; and
(d) Audit of the environmental effects of government activities.
BASIC PRINCIPLES
1.9










The following principles (assumptions) underlie the standards and were considered in
developing them.
The standards are consistent with those of the International Organization of Supreme
Audit Institutions (INTOSAI) and international best practices;
Internal audits have to conduct performance audits to uphold and promote public
accountability by providing independent information and assurance to the legislature
Internal audits should apply their own judgment to the diverse situations that arise in
conducting performance audits
Auditors are required to maintain an attitude of professional skepticism when
discharging their professional duties
The adoption and application of a code of ethics for auditors in the public sector
promotes trust and confidence in the auditors and their work
Internal auditors should work on improving audit techniques and methodologies for
auditing the performance of government organizations
Good relationships and exchange of information between public bodies internal audits
and MOFED.
Audited entities are required to develop specific and measurable objectives and
performance targets
The head of the public body is responsible for economic, efficient and effective use of
resources; and for designing and applying effective control systems to ensure that
objectives are met, resources are safeguarded, laws and regulations are followed and
reliable data are obtained and disclosed
Development of adequate information, control, evaluation and reporting systems within
the government are needed to facilitate the accountability process.
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CHAPTER 2
GENERAL STANDARDS
2.1
This chapter prescribes general standards for conducting performance and
environmental audits. These general standards are related to standards with ethical
significance for the independence of the internal audit and their auditors, the required
competence of auditors, and the exercise of due professional care in conducting the
audit and in preparing audit reports. The general standards also include policies and
procedures that should be adopted by the Internal audit for recruiting personnel with
suitable qualifications, developing and training audit staff, preparing manuals and other
written guidance, and instructions and the standards for quality assurance.
INDEPENDENCE
In all matters related to their audit work, the Internal audits and their individual auditors must have
independence from the management of the public body.
2.2
Independence implies impartiality and freedom from or rejection of improper influence
in conducting the audit work and in reaching judgments and conclusions.
2.3
Internal audits must be objective in their audit of entities. They should use sound
judgment in determining the scope, audit objectives, selecting the methodology and
procedures for the audit.
2.4
The auditor and Internal audits must be, and must be seen to be, independent and
objective in carrying out audits. They should be fair in their evaluations and in reporting
on the outcome of audits.
2.5
The audit offices are expected to work closely with the legislature, including with any
committees empowered by the legislature to consider audit office reports.
2.6
The Internal audits may give members of the executive council briefings on audit
reports, but it is important that the Internal audit maintain their independence from
political influence, in order to preserve an impartial approach to their audit
responsibilities.
2.7
Independence requires that they not otherwise be subject to direction by the council in
the programming, planning and conduct of audits. The Internal audit should have the
freedom to set priorities and programme their work in accordance with their mandates
and adopt methodologies appropriate to the audits to be undertaken and to decide
whether studies should be extended or curtailed or even aborted. However, this does
not imply that the internal audit should not accept audit assignments requested by their
respective executive. The Internal audit may take into consideration their respective
executive request for audits while planning their regular audit tasks. But the Internal
audit should be free to decide on the manner in which they conduct the requested audit.
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2.8
The Internal audit should be able to form their own conclusions and recommendations
based on the audit findings, and report the findings impartially to their respective head
of the public bodies heads and ministry of finance and economic development.
2.9
The Internal audit should have budget and staffing freedom to discharge their
responsibilities in a reasonable manner.
2.10 The Internal audit should not be obliged by the management to carry out, modify or
refrain from carrying out an audit or suppress or modify findings, conclusions and
recommendations.
2.11 The Internal audit should be ready to advise the management in such matters as
accounting standards, policies and regulations avoiding any explicit or implied
commitment that would impair the independent exercise of their audit mandates.
2.12 The Internal audit should have adequate power to access, at all reasonable times,
premises, records, relevant documents and any other information that is necessary to the
fulfillment of their duties and responsibilities. They should also have the right to obtain
relevant information, by way of enquiry or other means, from persons or entities
possessing it..
2.13 The Internal audit has to discharge their mandates freely and impartially, taking the
audited entities' management views into consideration in forming audit conclusions,
judgments and recommendations.
2.14 The internal audit may co-operate with academic institutions and establish formal
relationships with professional bodies, provided the co-operation and the relationships
do not inhibit their independence and objectivity, in order to make use of the advice of
experienced members of the profession at large.
2.15 The Internal audit has a duty to ensure that the results of the audits are communicated
accurately, without bias and in a manner that allow the appropriate user to understand
fully and act appropriately.
2.16 Individual auditors must perform their audit in an ethical manner without any financial
influences that might compromise their independence. They should also be sufficiently
removed from political pressures to ensure that they can audit and report their findings
and conclusions objectively with out fear of political repercussion.
2.17 Auditors should protect their independence and avoid any possible conflict of interest
by refusing gifts or gratuities which could influence or be perceived as influencing their
independence and integrity. Auditors should not use their official position for private
purposes and should avoid relationships which involve the risk of corruption or which
may raise doubts about their objectivity and independence.
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2.18 Auditors should not become members of management committees of their entity and; if
advice is to be given, it should be conveyed as audit advice or recommendation and
acknowledged clearly as such.
2.19 Auditors who have and/or had had close affiliation with the management such as social,
kinship or other relationships that lessens objectivity, should not take that assignment to
audit that. Similarly, auditors who have official, professional, personal or financial
relationship with the audittee that might cause an auditor to limit the extent of the
inquiry, to limit disclosure, or to weaken or slant audit findings in any way should not
be assigned in that area.
2.20 Auditors who face personal impairments indicated above should clearly decline to
perform the audit and are responsible for notifying the appropriate officials. The
Internal audit is also responsible for having policies and procedures in place to help
determine if auditors have any personal impairment.
COMPETENCE (1200)
The audit team must collectively possess the required competence.
2.21 The Internal audit must apply methodologies and practices of the highest quality to their
audit in order to provide the required professional service to the public sector entities.
Accordingly, audit tasks should be carried out by auditors whose education and
experience is commensurate with complexities of the audit tasks.
2.22 Internal Auditors have a duty to conduct themselves in a professional manner at all
times and to apply high professional standards in carrying out their work to enable them
to perform their duties competently and with impartiality.
2.23 Internal Auditors should not undertake audit assignments that they are not competent to
carry out unless competent advice and assistance are obtained which enable them to
conduct the audit satisfactorily.
2.24 Each Internal audit needs to command the range of skills and experience necessary for
effective discharge of the audit mandate. Thus, the internal audit should equip
themselves with the full range of up-to-date audit methodologies including systemsbased techniques to audit automated information systems.
2.25 The Internal audit should adopt policies and procedures to recruit personnel with
suitable qualifications for performance audit such as accounting, statistics, law,
engineering, architect, automated data processing, public administration, economics or
other related social sciences.
2.26 Newly recruited auditors should attend an induction course on performance auditing
methodology, auditing standards as well as government policies and procedures.
2.27 Internal audit personnel should possess suitable academic qualifications and be
equipped with appropriate training and experience. The audit offices should establish,
and regularly review, minimum educational requirements for the appointment of
auditors.
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2.28 The Internal audit should adapt policies and procedures to develop and train employees
to enable them to perform their task effectively and to define the basis for the
advancement of auditors and other staff.
2.29 The Internal audit should have well-established training programmes to ensure that their
staff maintain professional proficiency through continuing education and training. In his
regard, auditors have a continuous obligation to update and improve the skills required
for the discharge of their professional responsibilities.
2.30 The internal audit should adopt policies and procedures to support the skills and
experience available within the offices and identify those skills which are absent;
provide a good distribution of skills to auditing tasks and a sufficient number of persons
for the audit; and have proper planning and supervision to achieve their goals at the
required level of due care and concern.
2.31 The Internal audit should encourage their personnel to become members of professional
bodies relevant to their work and to participate in the bodies' activities.
2.32 The audit offices should ensure that audits are planned and supervised by auditors who
are competent, equipped with knowledge of the offices' standards and methodologies,
and have an understanding of the specialties and peculiarities of the environment.
2.33 The audit offices may acquire external experts as consultants if the successful carrying
out of an audit so requires in order that the audit findings, conclusions and
recommendations are perceptive and soundly based and reflect and an adequate
understanding of the focus area of the performance audit.
DUE CARE (1220)
The Internal audits and their auditors must exercise due care and concern in
complying with the performance auditing standards. This embraces due care in
planning, executing and reporting the performance audit assignments.
2.34 The Internal audit must be objective in their audit of public bodies. They should use
sound judgment in determining the scope, audit objectives, selecting the methodology
and procedures for the audit. They should also apply the same sound judgments in
conducting and supervising the audit, in evaluating and reporting the audit results.
2.35 Technical skill should be of a quality appropriate to the complexities of a particular
audit assignment. Auditors need to be alert for situations, weak management control
systems, inadequacies in record keeping, errors and unusual results which could be
indicative of fraud, improper or unlawful expenditure, unauthorized operations, waste
or inefficiency or lack of probity. Even in seemingly normal circumstances, auditors
should maintain an attitude of professional skepticism and should make a critical
assessment, with questioning mind of, audit evidences, representations of management
and be alert for evidence that contradicts or brings into question the reliability of
documents or representations of management.
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2.36 The Internal audit must exercise due care when employing external experts as consultants
to assure themselves of the consultants' competency and aptitude for the particular tasks
involved.
2.37 Should the Internal audit need to seek external expert advice to carry out certain
performance audit projects, the standards for exercise of due care in such arrangements
have a bearing also on the maintenance of quality of performance. Obtaining and using
external consultants' service in carrying out performance audit projects does not relieve
the Internal audit of responsibility for the opinions formed or conclusions reached on
the performance audit task.
2.38 When the Internal audit use the work of another auditor(s), they must apply adequate
procedures to provide assurance that the other auditor(s) has exercised due care and
complied with relevant auditing standards, and may review the work of the other
auditor(s) to satisfy themselves as to the quality of that work.
2.39 The internal audit is required to maintain confidentiality regarding audit matters and
information arising from their audit task. However, they must be entitled to report
offences against the law to proper prosecuting authorities.
2.40 Auditors must respect the confidentiality of information acquired during the course of
their audit work, and should not disclose or use any such information unless there is a
legal or professional right or duty to disclose such information.
2.41 Auditors should not use information received in the performance of their duties as a
means of securing personal benefit for themselves or for others. Neither should they
divulge information which would provide unfair or unreasonable advantage to other
individuals or organizations, nor should they use such information as a means for
harming others.
2.42 Auditors should conduct themselves in a manner which promotes co-operation and
good relations between auditors and within the profession. The support of the
profession by its members and their co-operation with one another are essential
elements of professional character. The public confidence and respect which an auditor
enjoys is largely the result of the cumulative accomplishments of all auditors, past and
present. It is therefore in the interest of auditors, as well as that of the general public,
that the auditor deals with fellow auditors in a fair and balanced way.
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QUALITY REVIEW (ASSURANCE) (1300)
The Internal audit should have policies and procedures to review the efficiency and
effectiveness of their internal standards and procedures.
2.43
To ensure consistently high standards of work, internal audit should pay particular
attention to quality assurance programmes in order to maintain and improve audit
performance and results.
2.44
Internal audit should establish systems and procedures to:




Confirm whether the performance auditing standards were applied in the various
stages of the audit;
Ensure whether adequate performance audit procedures are followed in conducting
the audit;
Confirm whether integral quality assurance processes have operated satisfactorily;
and
Secure improvements and avoid repetition of weaknesses.
2.45
The Internal audit head has the overall responsibility for ensuring the quality of the
audit. However, in carrying out the audit engagement, the audit head delegate portion of
the work pertaining to planning, execution or supervision to other members of the audit
team.
2.46
Audit staff who have line responsibility for ensuring the quality of performance audits
should supervise and review audit activities and the audit report by using the auditing
standards.
2.47
The Internal audit should establish their own quality assurance arrangements in relation to
planning, conduct and reporting of an audit. A sample of audits may be reviewed in depth
by suitably qualified personnel not involved in those audits, in consultation with the
relevant line management regarding the outcome of the internal quality assurance
arrangements and periodic reporting to top management.
2.48
It is appropriate for Internal audit to institute their own internal audit function with a
wide charter to assist the public body achieve effective management of its own
operations and sustain the quality of its performance.
2.49
Internal audit conducting audits in accordance with these standards should have an
external quality review at least once every five years external body. The external
quality review should determine whether the Internal audit have quality assurance
systems in place and are operating effectively to provide reasonable assurance that
established policies and procedures and applicable auditing standards are being
followed.
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2.50
An external quality review under this standard should meet the following requirements:
Reviewers should be qualified and have current knowledge of the type of work to be
reviewed and the applicable auditing standard
a) Reviewers should be independent of the audit office being reviewed, its staff and
its auditees whose audits are selected for review
b) Reviewers should use sound professional judgment in conducting and reporting
the results of the external quality review
c) The review should include a review of the audit reports, working papers, and other
necessary documents (such as correspondence and continuing education
documentation) as well as interviews with the reviewed audit office's professional
staff, and
d) A written report should be prepared communicating the results of the external
quality review.
WRITTEN GUIDANCE
The Internal audit adopt policies and procedures to prepare manuals and other
written guidance and instructions concerning the conduct of the performance audits.
2.51 The Internal audit should communicate to their staff by means of circulars containing
guidance, and the maintenance of an up-to-date audit manual setting out their polices,
standards and practices so as to maintain the quality of audits.
2.52 The Internal audit should attempt to update their performance audit manuals with latest
methodologies and practices on a pre determined regular period.
2.53 The Internal audit should revise and update their manual and guidance in the light of
new Internal audit standards and as well as the Financial regulations and guides.
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CHAPTER 3
FIELDWORK STANDARDS
(2000-2300)
3.1 This chapter prescribes standards for fieldwork (planning and conducting the audit) for
performance audits.
3.2
The scope of performance audit should embrace:
•
•
•

3.3
Audit of the economy with which the entity has utilized resources in the pursuit of its
objectives in accordance with sound administrative principles and practices, and
management policies;
Audit of the efficiency of utilization of human, financial and other resources, including
examination of information systems, performance measures and monitoring
arrangements, and procedures followed by audited entities for remedying identified
deficiencies;
Audit of the entity's effectiveness in achieving its predetermined objectives, and audit of
the actual impact of activities compared with the intended impact; and
Audit of the environmental effects of government activities.
The purpose of fieldwork standards is to establish the criteria or overall framework for
the purposeful, systematic and balanced steps or actions that the auditor has to follow.
These steps and actions represent the rules of research that the auditor, as a seeker of
audit evidence, implement to achieve a specific result.
PLANNING
The auditor should plan the audit in a manner which ensures that an audit of high
quality is carried out in an economic, efficient and effective way and in a timely
manner.
3.4
In planning the audit, auditors should:
a) Obtain general information about the audited entity, key management systems and
controls to assess risk to value for money and to determine significance,
b) Define the audit objectives and the audit scope,
c) Identify the study issues and evaluative criteria,
d) Design the methodology to achieve the objectives,
e) Identify special problems that might be encountered during the execution and
reporting phases,
f) Consider the form, content and users of the audit report,
g) Identify staff requirements and other resources (including outside consultants),
h) Consider the accountability requirements of the audited body,
i) Identify findings and recommendations from previous audits that could affect the
current audit, and check whether appropriate action has been taken on these
findings and recommendations,
j) Identify the potential sources of evidence,
k) Prepare a budget and time schedule for the audit;
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l) Obtain the agreement of the audit entity regarding scope, objectives and
assessment criteria of the audit and note any disagreements, if necessary;
m) Prepare a written audit plan with the necessary supporting documents.
3.5
Understanding the Entity Prior to commencing detailed planning of an audit of an
entity, it is important to understand the larger context in which the entity operates. In
order to do this, the audit team should have up-to-date knowledge of:
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Significant legislative authorities;
Organizational arrangements;
The environment in which the entity operates;
Accountability relationships;
Major control systems;
Key personnel;
Spending levels and revenues;
The entity's clients;
The objective, mission and expected results;
Major operations, including those in the field;
Major risks facing the entity; and
Prior deficiencies and known weaknesses.
3.6
Maintenance of pertinent data on the structure, functions and operations of audited
entities will assist the auditor in identifying areas of materiality and risk and areas
holding potential for improvements in administration.
3.7
Entity knowledge, where applicable, should also include relevant environmental
information such as:
 The entity’s approach to environmental issues, including its policy and objectives
and the existence of an environmental management system.
 Laws and regulations governing the audited entity’s environmental responsibilities
or its role in determining those of others. This aspect would include identifying
legal requirements imposed on the entity – or those which it imposes on others –
such as reporting requirements, emission limitations arising from its activities, or
responsibilities to restore degradation which it has caused.
3.8
Audit objectives
(2210)
Audit objectives must be carefully considered and clearly stated. They identify the
audit subjects and performance aspects to be examined (for example the 4Es) as well
as the potential finding and reporting elements that the auditor expects to develop.
3.9
Audit objectives are normally expressed in terms of what questions the audit is
expected to answer about the performance of an activity, such as results achieved, or
the economy and efficiency of resource utilization.
3.10 An audit objective is a precise statement of what the audit intends to accomplish. They
must be defined in a way that will allow the audit team at the end of the audit to
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conclude against each of the objectives. The audit objectives should, therefore, be
defined as precisely as possible in order to avoid unnecessary and expensive audit work.
3.11 The audit objectives provide a clear direction to the audit process and drive the rest of
the planning process. Often the main audit objective can broken down to a number of
sub audit objectives.
3.12 Audit Scope
(2220)
Scope is the framework, boundary, limit or subject of the audit. Scoping the audit
involves narrowing the audit to a relatively few matters of significance that pertain to
the audit objective and are critical to achieving the intended result of the audit subject.
It describes the parts or functions of the entity that are the subject of the audit as well as
the time period covered by the audit. The purpose of defining the scope is to set an
optimal balance between the spread and depth of the audit.
3.13 The public body is engaged in a number of activities in a wide variety of areas and it is
not possible for the internal audit to audit all performance activity at the same time.
There are three underlying principles in establishing the scope of the audit:
Relevance to the mandate: Auditors should determine whether the issues selected for
audit are within the mandate of the Internal audit have a priority within their mandate
and are of interest to parliamentarians.
Matters of significance: Identifying matters of significance for audit involves
answering the following types of questions:
• Does the subject have an important impact on results?
• Is it an area of high risk?
• Does it involve material amounts?
• Is it an issue of visibility or of current concern? Is it of interest to council
and the public?
• Will it result in improved performance, accountability or value for money?
Auditability: Auditability relates to the ability of the audit team to carry out the audit
in accordance with standards. The team may decide not to carry out the audit
because it may not have or cannot acquire the required expertise, suitable criteria
are not available, or the area is undergoing significant change, etc.
3.14
Approach and Methodology
The approach and methodology comprise the
techniques that will be used by the auditor in gathering evidence and conducting his
analysis.
3.15
Examples of gathering evidence could include review of public body documentation
and files, reports and studies, conducting surveys, field visits to project sites,
interviews with entity staff and subject matter experts, etc. Analytical methods could
include statistical sampling, year-to-year comparisons, trend analysis, and
comparisons with other entities in the same or similar line of activities, etc.
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3.16
Audit criteria Audits must have suitable criteria that focus the audit and provide a
basis for developing observations. Criteria are reasonable and attainable standards of
performance and control against which compliance, adequacy of systems and
practices, and the economy, efficiency and effectiveness of operations can be
evaluated and assessed. The assessment of whether or not criteria are met results in
audit observations. Suitable criteria are criteria that are appropriate to the particular
characteristics of the audited organization.
3.17
Criteria should be developed for each line of enquiry. They should be:
•
•
•
•
•
Relevant: criteria that contribute to making observations and reaching
conclusions against the audit objectives;
Reliable: criteria that result in consistent conclusions when used by different
auditors in similar circumstances;
Neutral: criteria those are free from bias;
Understandable: criteria that are clearly stated and not subject to different
interpretations; and
Complete: all the criteria that could affect the observations and conclusions are
identified and used.
3.18
Primary sources of criteria are the controls, standards, measures, results, commitments
and targets adopted by the entity itself or imposed by legislative bodies. The auditor
should review these criteria to assess their relevance to the audit to ensure they are
reasonable and complete. The sources of the criteria determine the amount of effort
needed to assure the suitability of the criteria. Where the entity's own measures are
found to be suitable, they can be adopted as audit criteria.
3.19
Where the entity does not have well-established standards for measuring or judging
performance consistent with the audit objectives, acceptable criteria may be obtained
from the law, regulations, standards developed by professional bodies, performance
data of similar organizations, and through other analytical methods.
3.20
Other sources of audit criteria could be:
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3.21
The environmental laws and regulations;
Environmental standards developed by recognized professional organizations;
Entity reports on plan and performance reports;
Generally accepted good practices;
The internet;
International conventions and agreements on environment;
Standards developed by the audited organization;
Prior work of the office;
Research centers;
Strategic plan document prepared by the auditee
When the audit team believes that the criteria set are reasonable, they should discuss
them with the auditee senior officials to obtain their comments. If there is
disagreement and this cannot be resolved, the audit team should consult senior staff
and/or the advisory committee before proceeding with the audit.
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3.22
If there is disagreement with auditee management about the audit criteria, then this is
to be disclosed in the chapter with an explanation of why the audit team believes
management is responsible for the subject matter and/or why the team used the
criteria despite management’s objection.
3.23
Considering the work of others Auditors should determine if audits or evaluations
of the subject in question have been done by others, such as internal auditors and
external experts. They may be useful sources of information for planning and
performing the audit. Audit teams should rely on the work of others when the work
has been carried out in accordance with the Office's standards. This can be costeffective as it can eliminate duplication of effort.
3.24
The auditor should obtain reasonable assurance about the expert’s competence and be
satisfied that the expert’s work is appropriate for audit purposes.
3.25
Consultation and advice Performance audits are complex exercises requiring a
wide range of skills, expertise and experience to be completed cost-effectively.
Considerable judgment is required at all stages of the audit. The audit team should
consult with knowledgeable staff and advisory groups within the Office, subject
matter specialists, and others as appropriate, including entity management, to obtain
advice and guidance before finalizing the audit plan.
3.26
The audit team should consult with entity management and, among things, introduce
the members of the audit team to auditee management, review the scope, objectives,
criteria, audit plan and audit time table, provide a short summary of the methods and
procedures to be used to conduct the audit, establish official communication link
between the audit team and the auditee
3.27
The Internal audit may acquire external and internal experts throughout the audit as
consultants and adviser if the successful carrying out of an audit so requires in order
that the audit findings, conclusions and recommendations are perceptive and soundly
based and reflected.
3.28
There may be many players involved in the area of environmental protection and
their activities might be complex and require a wide range of skills, expertise,
experience and judgment to do the audit effectively.
3.29
The audit team should use the services of an advisory committee. Members of the
advisory committee could be both from inside and outside the audit office and should
be selected on the basis of their skills, insight, relevant knowledge (e.g. Subject matter
specialist) and experience.
3.30
The audit team should meet with the advisory committee at the critical decision
points of the audit.
3.31
The audit team should also consult with internal staff to benefit from their advice,
experience and knowledge of the subject matter.
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3.32 Sufficient resources (2230)
An adequate number of auditing staff and supervisors with appropriate skills,
knowledge and experience should be assigned to the audit. Consultants should be used,
as necessary when in-house skills are not available or insufficient. Adequate other
resources should be made available, such as travel funds, for the team to carry out its
work.
3.33 Written audit plan
A written audit plan should be prepared for each audit. The
contents of the plan should include:
•
•
•
•
•
•
•
The audit objectives;
The audit scope, major considerations and the rationale for the scoping decisions,
reasons for any limitations to the scope;
The audit criteria and their sources;
Description of the planned audit approach and methodology;
Identification of audit staff and external consultants, including their qualifications
and special knowledge or skills;
The estimated cost of the audit (staff hours and other costs); and
The timing, the key milestones, and the main control points.
SUPERVISION AND REVIEW
(2340)
The work of the audit staff at each level and audit stage should be properly
supervised during the audit, and documented work should be reviewed by a senior
member of the audit staff.
3.34 Supervision involves directing audit staff and external consultants who are involved in
the audit and monitoring their work to ensure that the audit objectives are met and the
quality of audit work is maintained. Proper supervision is necessary regardless of the
competence of individual auditors.
3.35 Supervision is an essential and continuous process and should be done throughout the
audit process by senior auditors, division heads and department heads to ensure that:
3.36 Supervision is an essential process that requires that the audit team leader and other
supervisors should ensure that:
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The audit is carried out in accordance with the performance auditing standards and
practices of the Internal audit;
Audit team members have a clear and consistent understanding of the audit plan and
fully understand the audit objectives(s);
The audit plan and action steps specified in that plan are followed unless a variation
is authorized;
The necessary audit work is only carried out and budgets and timetables are met;
Appropriate advice and on-the-job training based on the level of experience of the
team members is provided;
Working papers contain evidence adequately supporting all conclusions and
recommendations;
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

3.37
The audit team achieves the stated audit objectives; and
The audit report includes the audit conclusions and recommendations.
The specific needs of environmental auditing may require additional procedures to be
carried out. For the assurance required it may also be advisable to make use of a
specialist in the audit office to carry out a review of the planning and fieldwork from an
environmental perspective.
3.38 Senior member of the audit staff should review all audit work before the audit reports
are finalized and it should be carried out as each part of the audit progresses.
3.39 Supervisors must ensure that the audit is carried out in accordance with environmental
auditing standards and practices of the audit offices.
3.40 All audit work should be reviewed by a senior member of the audit staff before the
audit reports are finalized. It should be carried out as each part of the audit progresses.
Review should ensure that:
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All evaluations and conclusions are soundly based and are supported by sufficient,
relevant and reliable evidence as the foundation for the final audit report.
All errors, deficiencies and unusual matters have been properly identified,
documented and either satisfactorily resolved or brought to the attention of a more
senior members of the audit staff;
Changes and improvements necessary to the conduct of future audits are identified,
recorded and taken into account in later audit plans and in staff development
activities.
COMPLIANCE WITH LAWS AND REGULATIONS
Internal Auditors should assess auditee's compliance with applicable laws, and
regulations and other compliance requirements when necessary to satisfy audit
objectives.
3.41 The Auditor should design the audit to provide reasonable assurance of detecting illegal
acts, irregularities and non-compliance that could significantly affect the audit
objective. The auditor should also be alert to situations or transactions that could be
indicative of illegal acts that may have an indirect effect on the audit results.
3.42 Auditors should determine if laws and regulations governing the entity are significant to
audit objectives, and, if they are, assess the risk that significant illegal acts could occur.
Based on that assessment, the auditor should design and perform procedures to provide
reasonable assurance of detecting significant illegal acts.
3.43 The auditor's assessment of risk includes considerations of whether the entity has
controls that are effective in preventing-or detecting illegal acts.
3.44 Although it is impossible to prescribe precise standards for determining which laws and
regulations are important to the audit objectives, as government programs are subject to
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so many laws and regulations, and audit objectives vary widely, auditors are advised to
follow the following approach to make the determination:
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Tailor each audit objective to questions about specific features of the programme to
be audited,
Identify laws and regulations that have a sensible relation to specific parts of the
programme in the audit objective questions, and
Asses whether violation of those laws and regulations could considerably affect the
auditors' answers to the questions included in the audit objective. If they could,
they are likely to be important to the audit objectives.
3.45
Auditors conducting audits in accordance with this standard should choose and apply
Audit steps and procedures that, in their professional judgment, are appropriate to the
Circumstances. These audit steps and procedures should be designed to obtain
sufficient, Relevant and reliable evidence that will provide a reasonable basis for their
judgments And conclusions.
3.46
In designing tests of compliance with important laws and regulations, auditors should
assess the risk that illegal acts could occur. The auditor’s assessment of risk should
consider inter alia, whether the entity's management has effective control for
deterring and detecting illegal acts. If auditors conclude that the controls are effective
they can Reduce the extent of their tests of compliance.
3.47
Auditors should be alert to situations or transactions that could be indicative of illegal
acts and design the audit accordingly. When information comes to their attention
indicating that illegal acts may have occurred, auditors should consider whether the
possible illegal acts could significantly affect the audit results. This may entail the
auditors to extend the audit steps and procedures, as necessary, to determine if the
illegal acts have or are likely to have occurred and to determine their effect on the
audit results.
3.48
Auditors should exercise due professional care in following indications of possible
illegal acts so as not to interfere with potential investigations, legal proceedings, or
both. If auditors come across such indications of serious illegal acts, they must report
the condition to their audit offices so as to report the circumstances to the
investigatory authorities.
3.49
An audit made in accordance with this standard provides reasonable assurance that its
objectives have been achieved. It does not, however, guarantee the discovery of every
illegal act or contingent liabilities resulting from them. Nor does the subsequent
discovery of illegal act committed during the audit period necessarily mean that
auditors' performance was inadequate provided the audit was conducted in accordance
with this Standard.
3.50
For certain audit assignments, auditors may depend on the work of legal consultants
to determine those laws and regulations that are important to the audit objectives,
designing tests of compliance with laws and regulations and evaluating the results of
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those tests. Auditors may also rely on the work of legal experts when audit objectives
presuppose testing compliance with provisions of contracts or grant agreements.
3.51
Because the laws and regulations that may apply to a specific audit are often
numerous, the auditors should exercise professional judgment in determining those
laws and regulations that might have a significant impact on the audit objectives.
3.52
If indications are found that unlawful acts have or may have been committed, the
auditor must determine to what extent such acts affect his/her conclusions and the
further progress of the audit.
STUDY AND EVALUATION OF MANAGEMENT CONTROLS
(2120)
Auditors should obtain an understanding and assess and evaluate management controls
that are relevant to the audit. When controls are significant to audit objectives, auditors
should obtain sufficient evidence to support their judgment about such controls.
3.53
Management is responsible for establishing effective management controls. In the
broadest sense these controls include policies and procedures for:
 Planning, organizing, directing and controlling programme operations;
 ensuring that a programme meets its objectives;
 Ensuring that valid and reliable data are obtained, maintained and fairly disclosed
in reports;
 Ensuring that resource use is consistent with laws and regulations;
 Ensuring that resources are safeguarded against waste, loss and misuse;
 Measuring, reporting, and monitoring performance.
3.54 The extent of the study and evaluation of internal control depends on the objectives of
the audit and on the degree of reliance intended.
3.55 Auditors should assess and evaluate the auditee's internal control system designed for
economic, efficient and effective operation of the audited entity, for ensuring adherence
to management policies, and for producing timely and reliable financial and
management information.
3.56 Auditors should focus on understanding the following internal controls in determining
their significance to the audit objectives. These include policies and procedures that
management has implemented to reasonably ensure that:
 A program meets its objective;
 Valid and reliable data are obtained, maintained, and fairly disclosed in reports;
 Resources are safeguarded against waste, loss and misuse;
 Resource use is consistent with laws and regulations.
3.57
The auditors should also determine:
(a) Which of the controls within the system are key controls, i.e. Controls that should, if
operating effectively:
 Ensure compliance with laws and regulations,
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
Ensure that there are no major failures in the economy, efficiency or
effectiveness of the activities being audited.
(b) The overall quality of the system of controls relevant to the audit and thus the degree of
reliance that the auditor can place upon it, assuming that subsequent tests of control
provide evidence that it has operated effectively on a day-to-day basis.
3.58
Auditors should determine whether internal controls are functioning properly to
ensure The integrity, reliability and completeness of the data.
3.59
Internal Auditors should assess the work of internal auditors to ensure that
management controls are functioning properly and to prevent duplication of effort.
3.60 In order to address environmental issues in a structured manner, management should
 Ideally design and document the key elements of its environmental management
system.
 This may embrace, amongst others, the following aspects:
 Identifying applicable legislative and regulatory requirements.
 Establishing and maintaining policies and procedures to provide reasonable
assurance that the entity complies with those requirements.
 Evaluating and monitoring the entity’s compliance with external requirements,
environmental policies and procedures.
 Specifying reports that satisfy legal, regulatory or other requirements.
3.61 The auditor should study and evaluate the internal control measures instituted by
management for environmental matters and determine the extent of reliance that can be
placed on them. The extent of the study depends on the objectives of the audit and the
degree of reliance intended.
3.62 Auditors should assess the work of internal auditors on whether management controls
with respect to environmental management systems are functioning properly and, if this
work meets their own standards, use it in order to prevent duplication of effort.
EVIDENCE
Relevant, reliable and sufficient evidence should be obtained to support the
auditors' findings and conclusions regarding the organization, programme, activity
or function under audit.
3.63
The auditor's findings, conclusions and recommendations must be based on evidence.
The evidence must be sufficient, reliable and relevant.
 Evidence is sufficient if there is enough of it to support the auditor's findings.
 Evidence is relevant if it has a logical, sensible relationship to the finding.
 Evidence is reliable if it is consistent with fact, i.e. It is valid.
3.64
Since auditors seldom have the opportunity of considering all information about the
audited entity, it is crucial that the data collection and sampling techniques are
carefully chosen. In particular, when computer based system data are an important
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part of the audit, and the data reliability is crucial to accomplishing the audit
objective, auditors should satisfy themselves that data are reliable and relevant.
3.65
Auditors should have a sound understanding of techniques and procedures such as
inspection, observation, enquiry and confirmation and be proficient in interviewing skills
to collect audit evidence.
3.66
The audit offices should ensure that the techniques and procedures employed are
sufficient to reasonably assess the performance of the auditee. Auditors should
evaluate the alternative audit approaches and judge which of these will achieve the
desired results most economically to ensure that sufficient, relevant and reliable
evidence is obtained to achieve the audit objectives at the least possible cost.
However, auditors should give consideration in selecting audit approaches and
procedures to the quality of evidence.
3.67 Evidence may take a variety of forms. It may be:
Physical Obtained through observations, including photographs and video recording
to support the observations by direct inspection. Whenever possible, it
would be better to obtain photographs or videotapes to support such
observations;
Testimonial Based on interviews and discussions. Those should be substantiated by
other evidence, whenever possible;
Documentary By reviewing documents and based on copies of actual documentation;
Analytical
Confirmation from third parties, including measurements or standards
of performance used as a basis for , / developing criteria; and statistics,
comparisons, analysis, rationale. Etc. Developed by the audit team.
3.68
Appropriate information should be collected, analyzed, interpreted and recorded to
be used as audit evidence in an examination and evaluation process to determine
whether The audit criteria are met.
3.69
Audit evidence should be of such quality and quantity that competent auditors
working independently of each other will reach similar audit findings/conclusions
from evaluating the same audit evidence against the same audit criteria.
3.70
Sufficient audit evidence should be collected to be able to determine whether the
auditee's environmental management system conforms to the environmental
management system audit criteria.
3.71
Whichever method is chosen, importance must be attached to the quality of the
audit evidence in terms of its adequacy, validity and reliability.
3.72
Indications of weakness in the environmental management system and/or nonconformity to the environmental management system should be recorded.
3.73
Indirect audit evidence based on confirmations from outside sources is more reliable
than evidence obtained from the audited entity itself.
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3.74
The auditor's own checks are more reliable than audit evidence based on external
confirmations and inquiries.
3.75
Documentation
Auditors should maintain adequate working papers showing
the basis and extent of the planning, work performed, evidence collected, findings
and conclusions reached and provide the basic on which the audit report can be
prepared.
They should include:
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3.76
Planning and administrative material, such as notes of progress meetings etc;
Correspondence with the auditees and notes of discussions with the auditee
management;
Copies of evidence, records, analysis and other supporting materials for the findings
and conclusions;
Materials used for report preparation including draft reports;
All working papers are confidential documents belonging to the audit offices.
3.77 Working papers should be sufficiently complete and detailed to enable an experienced
auditor having no previous connection with the audit to subsequently ascertain from
them what work was performed to support the conclusions.
3.78 Well-organized and complete working papers are of critical importance when
reviewing findings with management, briefing the head of the public body answering
subsequent queries from the outside, and planning future assignments.
3.79
Adequate documentation is important for several reasons, including:
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3.80
Confirm and support the auditors reports
Aid the auditors in conducting and supervising the audit
Allow others to review the quality of audits
Increase the efficiency and effectiveness of the audit
Serve as a source of information for preparing reports or answering any
enquiries from the audited entity or from any other party
Serve as evidence of the auditor's compliance with auditing standards
Facilitate planning and supervision
Help the auditor's professional development
Help to ensure that delegated work has been satisfactorily performed
Provide evidence of work done for future reference.
Internal audit should adopt reasonable procedures for safe custody of working papers
and draft and final reports pertaining to the audit and should be retain them for a
sufficiently long period to meet the needs of its practice and to satisfy any pertinent
legal requirements of records retention.
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3.81
Audit observations The comparison of the evidence against criteria will result in
the identification of observations. The observations are the basis for forming overall
conclusions against audit objectives.
3.82 Conclusions Audits must have necessary and sufficient observations to support
conclusions made against each objective. The auditor should assess the significance of
the observations in relation to the audit objectives. At the extreme ends of the
performance spectrum-fully satisfactory performance or highly unsatisfactory
performance concluding against the overall objective may not pose a problem. In the
majority of cases, however, the auditor will have to use judgment in reaching
conclusions.
3.83 Recommendations
Where deficiencies in performance have been identified the
auditor needs to develop-recommendations to guide corrective action. Normally the
recommendations should be stated in broad terms of what needs to be done, with the
specifics of how it can be done being left to entity management. When developing
recommendations, the auditor should take management views into account, consider
the cost and feasibility of implementing the proposed action, and understand the effects
on results, both positive and negative, if the recommendations are adopted. As
appropriate, a legal opinion should be sought in cases involving sensitive or
confidential information.
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CHAPTER 4
REPORTING STANDARDS (2400)
4.1
This chapter prescribes standards of reporting for performance audits. They cover the
need for written audit reports and their timeliness and content.
At the end of each audit, auditors should prepare a written audit report that clearly
communicates the results of the audit.
4.2
The reputation and credibility of the audit depend to a great extent on the quality of the
reports it produces. The reports are what council of ministers see of the work of the
public Body. Consequently, they have to meet the highest standards for content and
presentation.
4.3
Written reports communicate the results of audits to council of ministers and others;
Reduce the chance of misunderstanding about results reported; and facilitate follow-up
to determine whether appropriate corrective actions have been taken. The need to
maintain public accountability for government programmes demands that written audit
reports be Produced.
FORM
4.4
The report should be preceded by a suitable title to help the reader to distinguish it
from statements and information issued by others.
4.5
The report should be signed by the head of the public body concern or Minister of
Finance and Economic Development.
4.6
The report should bear the date to inform the reader that consideration has been given
to the effect of events about which the auditor becomes aware up to that date. After
the reports have been issued, auditors have no obligation to perform procedures or
make enquires or investigation regarding the issues covered by the audit report.
4.7
However, when, after the reports have been issued to the auditees and other users, but
before they have been laid before the council, auditors become aware of subsequent
events which, had they occurred and been known of at the date of their report, might
have covered them to issue a different report, they should discuss the matter with the
auditee, and should consider the implications for their report, taking additional action
as Appropriate.
CONTENT
Each performance audit should be complete, accurate, objective, convincing and as clear
and concise as the subject permits.
4.8
The content of the report should be easy to understand and free from vagueness or
ambiguity, include only information which is relevant and supported by sufficient and
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reliable evidence and be independent, objective, fair, complete and accurate,
constructive and concise.
The report should include:
4.9
Audit objectives
The auditor should explain why the audit was conducted and
what the report is to accomplish.
4.10 Scope
The auditor should describe the depth and coverage of the audit work carried
out to meet the audit objectives and the extent of any limitations.
4.11 Timing The report should indicate the period of time for which assurance is being
given and to assure readers that the report is dealing with issues of current interest.
4.12 Description of the programme or activity: The report should provide context and
background material to allow the reader a sufficient perspective on the audited
programme or activity to understand the issues.
4.13 Criteria: The auditor should state the yardsticks used, i.e. The basis of measuring the
audited entity’s performance, and the source of the criteria as well as any disagreement
with management in the suitability of the criteria chosen.
4.14 Methodology The auditor should clearly explain the evidence gathering and analysis
techniques used.
4.15 Legal basis: The audit reports should identify the appropriate legislation or other
authority under which the audit has been carried out.
4.16 Professional standards: The report should indicate the auditing standards or practices
followed in conducting the audit, thus providing the reader with an assurance that the
audit has been carried out in accordance with generally accepted procedures.
4.17 Audit observations: The report should indicate the extent to which performance
satisfied the criteria. Auditors should report significant findings developed with respect
to each audit issue. In reporting the findings auditors should include sufficient, relevant
and reliable evidence to promote adequate understanding of the matters reported. The
audit findings should contain the four elements: criteria, condition, cause and effect.
The observations should point out the significance of the issue by describing its impact
on quality of performance and the effect on results. The underlying cause of the
problem should also be described.
4.18 Conclusions
The report should point out the conclusion reached on performance
against each objective. Conclusions are logical inferences about the audited entity based
on the auditors' findings. Conclusions should be written specifically and not left to be
inferred by readers.
4.19 Recommendations: Auditors should make recommendations for actions to improve
programs and operations and to correct problem areas identified during the audit when
the potential for improvements in programs, operations, and performance is
substantiated by the reported findings and conclusions. Recommendations should
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logically flow from the evidence and need to state clearly the actions to be taken. The
recommendations should be constructive and should be directed at resolving the cause
of identified problems. They should also be specific, action oriented, practical and
feasible, addressed to parties that have the authority to act.
4.20 Material non-compliance
Auditors should report all material non-compliance with
laws and regulations and illegal acts that were found during the audit. These findings
should be supported by adequate evidence.
4.21 Management controls The internal controls that were assessed should be identified to
the extent necessary to clearly present the objectives, scope, and methodology of the
audit. When auditors discover significant weaknesses in management control as the
cause of deficient performance, the findings should be described in the report as the
"cause". In audits where the sole objective is to audit the internal controls, the
weaknesses found during the audit that would be significant to the users should be
identified and included in the report to head of the public body and MOFED and all
control weakness should be included in the report as deficiencies
4.22 Management views (2600)
Auditors should report the views of responsible officials of the auditee on the audit
findings, conclusions and recommendations as well as corrections planned. Auditors
should request that the responsible officials' views on significant findings, conclusions
and recommendations be submitted in writing.
4.23 The auditees' view should be evaluated objectively and recognized, as appropriate, in
the report. Auditee's promise or plan for corrective action should be noted but should
not be Accepted as justification for dropping a significant finding or related
recommendation.
4.24 When the auditee’s comments state that the audit findings, conclusions or
recommendations are inaccurate or misleading and those comments are not, in the
auditors' opinion, valid, the auditors should state their reasons for disagreeing with the
comments in a fair and objective manner. On the other hand auditors should adjust
their reports as necessary if they find the auditees’ comments are valid.
4.25 If the auditee fails to give comments to the Internal audit and MOFED at the right time
or does not volunteer any comment on the audit results, the MOFED should indicate the
auditee's failure or reluctance in the report.
4.26 Accomplishments Auditors should report noteworthy accomplishments, particularly
when management improvements in one area may be applicable elsewhere. Reporting
accomplishments along with the deficiencies provides a more fair presentation of the
situation by providing appropriate balance to the report. In addition, inclusion of such
accomplishments may lead to improved performance by other government
organizations that read the report.
4.27 Need for further work If, during the audit, auditors identify significant issues, other
than fraud and illegal acts, that warrant further work, but the issues are not directly
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related to the audit objectives or the auditors do not have the time or resources to
expand the audit to pursue them, they should refer the issues to the head of the public
body Who are responsible for planning future audit work. When appropriate, auditors
should also disclose the issues in the report and the reasons the issues need further
study.
4.28 Non-disclosure of information If certain information is prohibited from general is
closure by federal, state laws or regulations, auditors should report the nature of the
information omitted and the requirement that makes the omission necessary. Additional
circumstances associated with public safety and security concerns could also justify the
exclusion of certain information in the report. For example, detailed information
related to computer security for a particular program may be excluded from publicly
available reports because of the potential damage that could be caused by the misuse of
this information. In such circumstances, auditors may issue a limited official use report
containing such information and distribute the report only to those parties responsible
for acting on the auditors' recommendations.
4.29 Auditors need to weigh the need to reveal all significant facts known to them which, if
not revealed, could either distort the results or conceal improper or unlawful practice
against any requirements or other circumstances that may necessitate the omission of
certain information. However, if the internal audit has acquired information in the course of
an audit, which in the national interest cannot be freely disclosed in the audit report, it should
consider making a separate, unpublished report including confidential or sensitive material.
REPORT QUALITY (2420)
The report should be timely, objective, complete, accurate, clear and concise.
4.30 Timeliness requires that for the report to be of maximum use, the audit report must be
produced in a timely manner. A carefully prepared report may be of little value to
decision-makers if it arrives too late. Therefore, auditors should plan appropriate
issuance of the audit report and conduct the audit with this goal in mind. Auditors
should also consider producing interim reports, during the audit, of significant matters
needing immediate attention to appropriate officials. Such reporting may be oral or
written but is not a substitute for the final report.
4.31 Objectivity requires the report to be balanced in content and tone. A report's
credibility is significantly enhanced when it presents evidence in an unbiased manner
so that report users can be persuaded by the facts. Auditors should present audit
results impartially and refrain from exaggerating or over emphasizing shortcomings
in performance of the auditee. The tone of reports should encourage decision makers
to act on the auditors' findings and recommendations. This tone should be balanced by
requiring reports to present sound and logical evidence to support conclusions, while
refraining from using adjectives or adverbs that characterize evidence in a way that
implies criticism or conclusion by indirect reference.
4.32 Completeness requires that the report should contain all the necessary evidence to
satisfy the audit objective and promote an adequate and correct understanding of the
matters reported. It also means including appropriate background information.
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Besides, complete means that the report should provide adequate information about the
extent and significance of audit findings, including the frequency of occurrence of the
findings with respect to the number of cases or transactions examined and the
relationship of findings to the auditee's operations. Hence, sufficient detailed
supporting data should be included to make convincing presentation.
4.33 Accuracy requires that the evidence presented be true and that findings be correctly
portrayed. Accordingly, the report should contain only information, findings and
conclusion that are supported by relevant, reliable and sufficient evidence in the
auditor’s working papers. It also means describing the audit scope and methodology
and presenting findings and conclusions in a manner consistent with the audit scope. If
the auditors come across data that are relevant and significant to the audit findings and
conclusions but are unable to examine them, they should indicate in the report the
data's limitations and their decision not to make unwarranted conclusions or
recommendations based on the data.
4.34 Clarity requires that the report should be easy to read and understand. as far as
possible reports should be written in a simple language. If there is a need to use
technical terms, abbreviations and acronyms, they should be clearly defined. Auditors
may consider using a summary within the report to capture the report user's attention
and highlight the overall message. If a summary is used, it generally should focus on
the specific answers to the questions in the audit objectives, summarize the audits most
significant findings and the report's principal conclusions, and prepare users to
anticipate the major recommendations.
The report should also contain suitable titles
and captions to make the message easier to understand. Visual aids such as pictures,
charts, graphs and maps should be used whenever possible to clarify and summarize
complex material.
4.35 Conciseness requires that the report be no longer than necessary to convey and support
message. Auditors should avoid writing too much details or unnecessary repetition.
Although room exists for considerable judgment in determining the content of reports,
those that are fact-based, but still concise, are likely to achieve greater results.
REPORT DISTRIBUTION (2440)
Audit reports should be submitted to the head of public body, and to Ministry of
Finance and Economic Development.
4.36 The report should be submitted to the auditee, officials designated by law or regulation
to receive such reports, those responsible for acting on the findings and
recommendations, those who have legal oversight authority, those who have provided
assistance to the audited entity, including external funding organizations, of necessary.
4.37 Unless restricted by law or regulations, copies should be made available for public
inspection.
4.38 If the subject of the audit involves material that is classified for security purpose or is
not releasable to particular parties or the public for other valid reasons, the internal audit
should limit the report distribution.
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CHAPTER 5
FOLLOW-UP (2500)
5.1
This chapter prescribes the standard for follow-up of recommendations made in
previous audit reports and/or the recommendations made by council of ministers.
AUDITOR SHOULD FOLLOW-UP ON RECOMMENDATIONS
MADE IN PREVIOUS AUDIT REPORTS
5.2
The main purpose of follow-up is to:



Ascertain whether, or to what extent, recommendations or observations made by
or by MOFED or have been implemented by the concerned audited body.
Determine the impacts which can be attributed to performance audit examinations
Demonstrate added value from performance audit work
5.3
Responsibility for planning and carrying out the follow-up rests with the appropriate
internal audit head.
5.4
Effective follow-up arrangements need to be in place to ensure that the audited body
has properly considered any matters identified during the current or pervious audits
and where appropriate, has implemented agreed actions.
5.5
Elements of follow-up include:





5.6
A timely review of the action taken by the management of the audited body on the
recommendations made by MOFED/Council of ministers.
An evaluation of the adequacy of the action in achieving performance
improvements
An assessment of any problems that may have arisen in relation to implementation
As assessment of the impacts of the examination
Consideration of the need or scope for further audit work in the same or a related
area.
Information on the entity’s progress in implementing recommendations by
MOFED/Council of ministers.
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GLOSSARY
Information that forms the foundation which supports the auditor's or audit
office's findings, conclusions or report.
Relevant most up-to-date available and have a logical relationship to what
is being examined.
Reliable most accurate, obtainable, valid and complete.
Sufficient would lead a reasonable person to the same conclusion as you.
The focus of the main investigations. They are the basic questions the
Audit Issues
investigation will consider.
The auditing responsibilities, powers, discretions and duties conferred on
Audit Mandate
an audit office under the constitution or other lawful authority of a country.
A precise statement of what the audit intends to accomplish and/or the
Audit Objective
question the audit will answer.
The framework or limits and subjects of the audit.
Audit Scope
Auditing Standards They are the criteria or yardsticks against which the quality of the audit
result is evaluated. They provide minimum guidance for the auditor that
helps determine the extent of audit steps and procedures that should be
applied to fulfill the audit objective.
The appropriate element of care and skill which a trained auditor would be
Due Care
expected to apply having regard to the complexity of the audit task,
including careful attention to planning, gathering and evaluating evidence
and forming conclusions and making recommendations.
Minimizing the cost of resources used for an activity having regard to the
Economy
appropriate quality and timing.
The extent to which objectives/intended impacts are achieved.
Effectiveness
The relationship between the output, in terms of goods, services, or other
Efficiency
results, and the resources used to produce them.
Audit Evidence
Criteria
Condition
Effect
Cause
The standards used to determine whether a programme meets or exceeds
expectations. Criteria provide a context for understanding the results of the
audit.
Is a situation that exists which has been determined and documented
during the audit.
Effect can be in two contexts, which depend on the audit objectives. When
the auditors' objectives include identifying the actual or potential
consequences of a condition that varies (either positively or negatively)
from the criteria identified in the audit, "effect" is a measure of those
consequences. Auditors often use effect in this sense to demonstrate the
need for corrective action in response to identified problems. When the
auditors' objective includes estimating the extent to which a programme
has caused changes in physical, social or economic conditions, "effect" is a
measure of the impact achieved by the programme. Here, effect is the
extent to which positive or negative changes in actual physical, social, or
economic conditions can be identified and attributed to programme
operations.
Like effect cause has two contexts, which depend on the audit objectives.
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When the auditors' objectives include explaining why the poor (or good)
performance determined in the audit happened, the reasons for that
performance are referred to as "cause". Identifying the cause of problems
can assist auditors in making constructive recommendations for
corrections. Because problems can result from a number of plausible
factors, the recommendations can be more persuasive if auditors can
clearly demonstrate and explain with evidence and reasoning the link
between the problems and the factor or factors they identified as the cause.
When the auditors' objectives include estimating the programme's effect on
changes in physical, social, or economic conditions, they seek evidence of
the extent to which the programme itself is the "cause" of those changes.
A Code of Ethics
AThe
Code
branch
of of
Ethics
government
is a comprehensive
which administer
statement
the law. of the values and
principles
The framework
whichforshould
the auditor
guideto systematically
the daily work
fulfill
of theauditors.
audit objective,
The
independence,
including planning
powersandandsupervision
responsibilities
of theofaudit,
the public
gathering
sector
of relevant,
auditor
place
reliable
highand
ethical
sufficient
demands
evidence
on theand
Internal
an appropriate
audit and the
study
staff
and
they
evaluations
employ
orofengage
internalforcontrol.
audit work.
C
Executive
Field Standards
The branch of government which administer the law.
The framework for the auditor to systematically fulfill the audit objective,
including planning and supervision of the audit, gathering of relevant,
reliable and sufficient evidence and an appropriate study and evaluations
of internal control.
Findings are the specific evidence gathered by the auditor to satisfy the
Findings,
Conclusions
and audit objectives (audit issues); conclusions are statements deduced by the
Recommendations auditor from those findings; recommendations are courses of action
suggested by the auditor relating to the audit objectives.
General Standards The qualifications and competence, the necessary independence and
objectivity, and the exercise of due care, which shall be required of the
auditor to carry out the tasks related to the field and reporting standards in
a competent, efficient and effective manner.
The freedom of the Internal audit to act in accordance with their audit
mandate without external direction or interference of any kind.
Control The whole system of financial and other controls, including the
organizational structure, methods, procedures and internal audit,
established by management within its corporate goals, to assist in
conducting the business of the audited entity in a regular, economic,
efficient and effective manner; ensuring adherence to management
policies; Compliance with rules and regulations; safeguarding assets and
resources; securing the accuracy and completeness of accounting records;
and producing timely and reliable financial and management information.
Independence
Internal
Systems
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An international and independent body which aims at promoting the
International
Organization
of exchange of ideas and experience between Supreme Audit Institutions in
Supreme
Audit the sphere of public financial control.
Institutions
(INTOSAI)
Legislature
Materiality/Signific
ance
Planning
Postulates
Program
Pubic
Accountability
The law-making body of a country, for example parliament.
In general terms, a matter may be judged material/significant if knowledge
of it would be likely to influence the user of the financial statement or the
performance audit report. Materiality is often considered in terms of
value, but the inherent nature or characteristics of an item or group of
items may also render a matter material-for example, where the law or
some other regulation requires it to be disclosed separately regardless of
the amount involved. In addition to materiality by value and by nature, a
matter may be material because of the context in which it occurs. For
example, considering an item in relation to the overall view given by the
accounts; the total of which it forms a part; associated terms; the
corresponding amount in previous years. Audit evidence plays an
important part in the auditor's decision concerning the section of issues and
areas for audit and the nature, timing and extent of audit tests and
procedures.
Defining the objectives, setting policies and determining the nature, scope,
extent and timing of the procedures and tests need to achieve the
objectives.
Basic assumptions, consistent premises, logical principle as and
requirements which represent the general framework for developing
auditing standards.
It is a broad term that encompasses any funded effort which is collateral to
the normal ongoing activities of an organization, an expansion program, a
new employee benefit program, a new contract, a governmental health or
training program, a new EDP application or the like.
The obligations of persons or entities, including public enterprises and
corporations, entrusted with public resources to be answerable for the
fiscal, managerial and program responsibilities that have been conferred on
them, and to report to those that have conferred these responsibilities on
them.
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Reporting
Standards
Supervision
The framework for the auditor to report the results of the audit, including
guidance on the form and content of the auditor's report.
An essential requirement in auditing which entails proper leadership,
direction and control at all stages to ensure a competent, effective link
between the activities, procedures and tests that are carried out and the
aims to be achieved.
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REFERENCES
1. Auditing Standards, International Organization of Supreme Audit Institutions, Auditing
Standards Committee, June 1992.
2. Audit and Accounting Guide, Guide on Performance Audit in the Pubic Sector, The
South African Institute of Chartered Accountants, July 1999.
3. Code of Ethics and Auditing Standards, INTOSAI, Seoul. 2001.
4. European Implementing Guidelines for the INTOSAI Auditing Standards, No 41, 1998.
5. Government Auditing Standards, General Accounting Office, July 1999.
6. Performance Audit Manual, Office of the Federal Auditor General, Addis Ababa,
Oct. 1996.
7. Value-for-Money Audit Manual, Office of the Auditor General of Canada, Last Version
Oct. 2001.
8. Value for Money Workshop Binder, CTI/IDI, NAO, August 1993.
9. Government Auditing Standards Exposure Draft, General Accounting Office, 2002.
10. Value for Money Handbook, National Audit Office, Spring 1997.
11. Government Auditing Standards, General Comptroller of the Republic of Peru, Printed
from Internet.
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SECTION THREE Oral Information Obtaining
a) Guide I
ORAL INFORMATION OBTAINING AND USE
GENERAL
b) In performance audits we generally obtain significant amounts of oral information, e.g.
from interviews and discussions with the head of the audited entity. Interviews are
sometimes the only means of obtaining basic information, and in many cases they provide
initial "leads" into the issues being addressed by our investigation. They may also
supplement, explain, interpret or contradict information obtained by other means.
USE OF ORAL INFORMATION
c) There is no reason why oral information cannot be used in an audit office reports
provided that the information is obtained from what we believe to be a knowledgeable
source and it is properly attributed in the report. Ideally, such information should be
corroborated either by written confirmation or by other evidences. Such corroboration is
particularly important where the material in question is sensitive or crucial to the Audit
issues of the report. If this is not possible this should be made clear in working papers
and possibly in the report itself.
d) Information obtained by interview (even if confirmed in writing by the interviewee)
represents no more than the understanding, view or word of the interviewee. The
usefulness and reliability of such information thus depends upon its nature and source,
and on whether there are other practicable means by which we can more conclusively
establish or verify what we have been told. The auditing principles and standards on the
relevance, reliability and sufficiency of evidence should apply (see appendix 20 in the
manual ).
e) When appraising the value of information received during interview we should take
account of the interviewee's apparent knowledge of the subject, his position in the
hierarchy and whether the information is consistent with any other obtained from
elsewhere. The fact that an individual is a senior officer does not ensure the reliability of
the information provided. The individual may be new or lack the detailed first-hand
knowledge which a subordinate may have.
PLANNING AND PREPARATION
f) Interviews should be properly planned. The interviewer should know the purpose of the
interview and the information needed. He/she needs to be familiar with the background
to the subject to be discussed so that the interview can be conducted intelligently. If
he/she is not well briefed all credibility may be lost in the eyes of the interviewee.
Moreover such background knowledge may allow the interviewer to recognize any
inconsistencies in what the interviewee is saying and thus pursue the matter further.
g) Advance notice should be given to the interviewee of the subject to be discussed. This
arrangement will hopefully ensure that the interviewer interviews the right person and
will allow the interviewee time for familiarizing himself/herself with the subject.
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CONDUCT OF INTERVIEWS
h) The interviewer should control the discussion to keep it directed towards
obtaining the required information and to avoid protracted debate. There are
three important rules to try to adhere to:
a)
obtain if possible all the information required in one interview;
b)
at the end of the interview briefly summarize the main points with the
interviewee with a view to confirming understanding and clarifying any
misunderstanding;
c)
do not extend the interview beyond a reasonable period of time, which should
closely approximate to the time initially agreed.
i)
The interviewer should exercise professional skepticism. He/she can assume
good faith but not blind faith. There may be situations where he/she cannot
trust the interviewee.
WRITTEN RECORD OF INTERVIEW
j) Information obtained through interview should be put in writing as soon as
possible. In most cases it will be appropriate to take notes during the
interview. In some cases however note-taking may cause the interviewee to
be reluctant to talk freely therefore use discretion.
k)
The notes of interviews should be separate documents in the working paper
folders and contain details of the discussion including the time and place,
grades, positions and names of all involved and the signatures of all involved
audit office staff present.
CONFIRMATION BY INTERVIEWEE
l) Where possible notes of meetings should be agreed by the interviewee.
Alternatively, some form of written confirmation of significant facts obtained
orally should be requested from interviewees. Written confirmation is
particularly important if other corroborating evidence is unavailable.
m) If an interviewee refuses to confirm the significant oral information either in
writing or orally we should note our working papers accordingly and state
where available the interviewee's reasons. In such cases we need to consider
the effect of this unwillingness on the use of the data in our reports. Also the
person may not be independent and will likely have a corporate position to
present.
n) In some cases it may be necessary for an audit team to conduct a series of
interviews, drawing on evidence from a number of different sources. Where
this is the case the interviews need to be closely controlled. Questionnaires
provide an effective means of achieving this control.
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2. SET-UP INTERVIEWS AND QUESTIONS
1.
Unless properly organized and conducted, interviews will not give us the required
audit evidence. Therefore, we should organize and conduct interview by considering
factors that affect their effectiveness. A number of conditions that affect the
interviewee to respond positively to our questions should be considered and resolved.
For example, the interviewee:
may be relatively uninformed about the audit office, the purpose of performance audit
and the particular assignment we have;
may be personally responsible for some aspect of the area we are examining; or not
independent because of the corporate position he/she holds;
may not see us positively, as few people see auditors in a wholly positive light;
may have their own agendas and concerns which they bring to the interview;
may not have a detailed understanding of the language or concept of performance
audit;
may only be prepared to allow as a limited amount of time.
2.
All these create problems. They can make the interviewee defensive and not easy to
communicate with. Such factors lead to misunderstandings about the nature and
purpose of our questions. The interviewee may also see us as having some
undisclosed motive and view us with suspicion. The set-up of the interview and the
way that we pose our questions is therefore of the utmost importance.
3.
How we set-up an interview-our introduction of the audit office, our work and
ourselves will influence how the interviewee perceives us and consequently the
information that she/he is prepared to impart. If we are unclear and appear secretive
the interviewee will be left in confusion and may view us with mistrust. On the other
hand if we are open and explicit we can expect a better reception.
4.
It is normally better to start from the assumption that the interviewee has no
knowledge about the audit office, the assignment or ourselves (unless the contrary is
true). In this regard, we should provide information on:
the role of the audit office;
the purpose of the performance audit;
the scope and issues of the assignment and our concerns in the area;
why we wish to discuss with the particular interviewee;
what we want to discuss about;
who will be coming to interview her/him;
how we intend to use the information we obtain;
what the audit office does with the results of its investigations.
5.
We should convey this information in the clear and understandable manner. We
should express ourselves in plain language, avoiding jargon;
the use of technical expressions: for example, the words “economy, efficiency and
effectiveness” have particular meanings to us which the interviewee can not be
expected to share;
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Abbreviations or acronyms.
It is often useful to develop a standard form of wording to include in all written approaches to
interviewees. If the initial contact is by telephone we can follow it up with a short
written explanation.
6.
We should try to ensure that the information conveyed in advance of the interview as
this is more likely to put the interviewee at ease. If it is left to the start of the interview
you may face someone who already feels defensive and is reluctant to discuss issues
openly with you. It is also good practice, at the start of the interview, to reinforce the
interviewee’s understanding by going over the information again possibly putting in
different ways than the former. Further, before starting the questions, give the
interviewees an opportunity to clarify any aspect that they are still not clear about.
7.
At times, auditors should not provide the interview terms of reference in advance if
they believe that advance warning could allow the interviewee time to firm up a lie, or
give them time to develop a common story so that auditors do not detect
inconsistencies.
8.
In assigning the interviewer, normally, a knowledgeable member of the internal audit
will conduct the interview. However, in some cases we may need to call for assistance
from staff with little real knowledge of the topic. If this is the case we must provide
the interviewer with all information needed. This includes:
what the interviewer needs to do to set the interview up;
details of the interviewee name, grade, location, official position and the reason why
we wish her/him to be interviewed;
the objective of the interview and what information we want out of it;
the assignment-the scope, issues etc. and how the interview fits into our audit
methodology;
the reasons for each of our questions and possible follow-up questions;
any follow up action that is to be taken (e.g. obtaining reports referred to during the
interview).
how the interviewer is to write up the interview.
9.
Finally our questioning technique will play a major part in our effectiveness as an
interviewer. The different types of questions that could be used in an interview are:
i. Closed questions: used to obtain specific answers usually very short and
frequently only “yes” or “no”. However, closed questions can allow the
interviewee to be uninformative;
ii. The direct question: usually begins with WHO, WHERE, WHY WHEN OR HOW
and is designed to elicit specific information;
iii. The follow up or probing questions: this can be used to probe weaknesses or
problem areas or just to obtain more details or explore the subject in greater depth.
e.g. How often are the reports analyzed? What action is taken as a result of the analysis?
iv. The open question: is very important and it invites the interviewee to talk freely
and to offer information openly without appearing to be interrogated. The open
question also allows the interviewee to express personal opinion or communicate
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problem. Very often it tells the interviewee what is actually happening rather than
what should happen. It also offers the opportunity for the interviewer to follow up
on significant points.
E.g. Could you tell me about the maintenance of the motor vehicles?
However, care must be taken to control any unnecessary digression and maintain control of the
interview.
v. Multiple questions: this can be used when several related questions are asked at the
same time. This approach is acceptable in few situations but great care is required
to ensure that:
– all parts of the question are answered;
– the questions are structured logically; and
– the questions do not confuse the interviewee.
It is usually safer to avoid multiple questions altogether.
vi. Encouraging questions: these are useful for developing rapport and demonstrating
empathy with the interviewee. e.g. You must find it difficult to meet every body’s
ideal temperature and suppose you have to put up with a lot of compliant. How do
you deal with these difficulties?
vii. The linking question: this demonstrates you are listening carefully, are interested
and want to develop the subject further.
10.
All the above types of questions are not relevant for interviews. Mostly open
questions that require the interviews to give his views in broad terms are advisable. In
general questions should:
be non judgmental and neutral in style;
not lead the interviewee towards an answer;
be appropriate to the grade and function of the interviewee;
not be asked in multiple forms. Ask them one at a time allowing the interviewee to
give a full answer before asking the next;
be phrased to avoid “yes/no” answers;
be written clearly and in plain language. Again, avoid the use of jargons technical
wording and abbreviations.
11.
In conclusion, to get the most out of the interview, we should:
prioritize the questions; this is particularly important when meeting senior officials
who are likely to give us only a limited amount of time.
lay out our interview sheets, so that there is plenty of space to note down the answers;
for important formal interviews, take at least two audit office staff one to be
responsible for asking questions, the other to record the answers;
keep the number of audit office staff at each interview to the minimum; the more staff
you take, the more intimidating it will be for the interviewee;
produce a record of the discussion as soon as the interview is completed.
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3. SURVEY
INTRODUCTION
1.
Surveys are one of the audit techniques used in collecting audit evidences for
performance audit. They can give new insight in areas under examination and provide
the auditor with a sharper view of organizational performance. However, surveys will
only be successful if we use the appropriate type of survey, design the questions well
and analyze the results carefully. This requires a firm understanding of the procedures
involved in carrying out a survey and the quality of evidence that can be collected.
The purpose of this guide is to provide a range of ideas and advice on how to perform
a survey and how to use the evidence collected.
USE OF SURVEYS
2.
Surveys are a very versatile technique for collecting information because they can
provide evidence for many different purposes. They can be used:
a) during the performance audit planning stages to identify key (audit) issues and
views on the main factors affecting performance. The planning stage includes both
the overview, marking and feasibility; where key issues are to be delineated. For
example, at the overview stage questions can be used to investigate the public's
attitude to the health service in the health care institutions. From the result issues
to be investigated in depth can be identified.
b) as part of the full investigation:
To provide substantive evidence on aspects of the audited entity's performance in
qualitative and quantitative terms. Evidence can be obtained from within the
audited body (for example, in the study of immunization program health
professionals participating in the program were surveyed for their attitude to the
program) or from outside the audited entity's (for example, factors affecting
mothers to participate in immunization program were identified from eligible
women). The evidence can be facts and figures or it might be the views and
opinion of the recipient of the audited entity's services.
To provide comparisons with bodies providing similar services in Ethiopia or
Foreign Countries. This can be particularly useful during investigating standard
managerial operations where the executive would expect the internal audit to
explore as to what happens the public body, private sector or overseas.
TYPES OF SURVEY
3.
The most widely used types of surveys are:
self completion questionnaires (postal questionnaires);
unstructured interviews (group discussion); and
structured interviews (telephone surveys and face to face surveys).
DESIGNING AND CARRYING OUT A SURVEY
4.
The survey process is divided in to four stages:
Stage I
Preliminary research;
Stage II
Select who to survey;
Stage III Design the survey document;
Stage IV Collect and analyze the result.
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Stage I Preliminary Research
5.
A successful survey asks the right people, the right questions in the right way. To be
able to do this you need to have a good understanding of the survey subject and of the
people or organizations you are going to survey. It is therefore, relevant at this stage
to:
decide what information is to be collected; and
decide who to collect the information from.
Stage II Select whom to Survey
6.
In this stage the auditor should:
identify the survey population;
select the method of sampling; and
select the sample size.
7.
More often the individuals in the population can be clearly identified. However, in
some cases it is difficult to determine the target population for survey. This is because
the population you want to survey cannot be obtained in a single list. In such
circumstances you should compile a sample frame which identifies every individual in
the whole population.
8.
The reliability of population estimates from sampling depends on whether the sample
represents the population sufficiently well. (Procedures in sampling are given in this
guide page 21). A number of different types of sample can be taken.
a) Non-statistical sampling: which is applied to sampling when sample selection is
totally judgmental. When a small selection of cases has been deliberately chosen
from the population, usually it will not provide quantitative statements about the
population as a whole. However, small judgmental samples may be useful audit
tools where:
they can be used to illustrate some particular set of features pre-determined from
other audit tests;
the samples are sufficiently important in their own right in the context of the area
under examination, and in terms of accountability, to be the subject of
legislative oversight committee questioning; or where some strong logical
argument means the results are likely to be valid for wider population;
the results are likely to be clear-cut, for example they all show a similar pattern.
b) Quota Sampling: is mainly used when there is good knowledge of the population;
but no precise specification, or no good listing of consistent bodies/individuals.
The sample size is derived on the basis of population estimates and broad statistical
rules, and then overall knowledge of population composition is used to define the
desired composition of the sample. For example, a survey of individuals may be
reflected in quotas for people of different ages, sex, etc. reflecting their known
proportion of the population.
c) Cluster Sampling: often used as it is generally quicker, easier and cheaper than
both stratified and simple random sampling. It involves subdividing the population
into clusters of individuals, ideally each cluster is as varied as the whole
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population. For example, if individuals’ records are held at regional offices, the
regional offices can be regarded as cluster and a simple random sample of regional
offices can be surveyed.
d) Systematic Sampling: used when there is good information on the population, but
where that information is held in a form-local manual listing, for example-were the
application of full random selection methods would be costly and time-consuming.
The sample is selected by applying a standard interval from a randomly specified
starting point in the first interval to the population listing.
e) Simple Random Sampling: this is the basic method of random sampling. It
ensures that each member of the population has an equal chance of selection. The
time to use this method is when you have a complete listing of the population but
no further information on which you want to design the sample and when it is no
more costly to administer than other methods.
f) Stratified Sampling: used when you have further relevant information about the
population. It ensures that different sub-groups of the population are represented.
The strata are chosen on one or more characteristics pertinent to the study. Having
ordered the population into strata it can then be selected using small random
sample from within each strata.
g) Probability Proportional to Size: being similar to sample methods used in financial
Audit, it is used to ensure that samples are drawn in proportion to their size. For
example, to sample grant application you may want to ensure a higher proportion
of cases with large values are included.
h) Multi stage sampling: as with multi-location financial audit, is drawn in two or
more stages. The sample will depend in part on the way that the information is
stored. For example, if the information is not held centrally but at a number of
regional offices; the sample design may immediately involve two-stage sampling the first stage a sample of offices, the second stage a sample of cases within each
office sample.
9.
No sample can provide exact measures of characteristics of the population as a whole:
estimates derived from sampling will always be subject to a degree of uncertainty.
The sample size needed depends on:
the population distribution;
the precision which can be tolerated when evaluating results;
the level of confidence needed that the sample result is representative of the
population.
Stage III Design the Survey Document
10. In this stage, you have to describe what you need to consider when taking decisions on
the language to use, the question format to adopt, and the layout and content of the
final survey document. To conduct an effective survey and obtain the relevant
evidence you should:
consider how to word the question well;
choose the most appropriate format and response arrangement for each questions;
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consider including check questions;
decide upon the structure and content of the survey document;
control the quality of the survey design; and
check the survey whether it is designed to encourage maximum response.
11.
To help potential respondents to understand your questionnaires you must write
clearly, in terms they are familiar with, and without biasing their responses. To
achieve clarity, it is advisable to use simple words straightforward, sentences and keep
the questions short. Be aware and remove phrases that have more than one meaning.
Be specific in your wording, avoid abstract words or words that convey general or
broad meanings. Making presumptions about the respondent or asking hypothetical
questions will also introduce bias into your questions. The only way to check whether
your questions are clear and without bias is to pre-test them.
12.
You need also to choose the appropriate format and response arrangements for each
question. In practice there are two widely used types of question formats, open and
closed. Each format serves a specific purpose and will collect information in a
different way. To decide which is the most appropriate format, you need to consider
what type of information you want, (is it to generate ideas or is it to collect facts and
figures) and how you want to use it (do you want qualitative data or quantitative data).
Open questions permit the respondents to answer in their own words without
prompting from the questionnaire. They are used to generate qualitative information;
to collect ideas, in depth views and opinions. They force respondents to rely totally on
their own knowledge and recall. As a result you have no way of knowing what factors
the respondent considered, or what was important but was not remembered.
13.
Closed questions restrict the respondent's replies to a limited set of response
categories, usually set out in checklist. They are used to collect information in a
standard form from all respondents. They are simpler to answer than open questions
and minimize the likelihood of ambiguity and further the problem of how much
information the respondent should provide. The five different ways of formatting
closed questions are:
specify the units in which the respondent is to answer
 fill in the blanks e.g. cost of service, No. of staff
used to establish whether a condition is present or not
 yes/no questions and to filter respondents through the survey so they
answer only questions which apply to them (Using
"go to" phrase);
 multiple choice questions the respondent asked to pick out one or more answers
from a list;
ask the respondents to rate their answers according to
 rating pre-set range of options;
ask the respondents to rank items according to a
 ranking particular order, say priority, importance, costs etc
14.
In the closed question format, you should also consider how you would be asking the
respondents to record their answers. By asking the respondent to circle a number, it
facilitates coding the answer category as it makes compilation and analysis simple.
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However, if respondents are asked to tick boxes, their replies may have to be coded
before they can be compiled and analyzed. Pre-coding helps to speed up data
compilation, preparation and analysis.
15.
In both types of questions, check questions are pertinent to verify facts. They are
certain types of information that you can request from a respondent in one question
and checking with another using the response to a second question. For example, take
the two questions, “How long have you been getting this service?” and “When did you
start to get the service?” These are check questions. They can be a useful mechanism
for verifying facts that you want to include in report.
16.
The structure of the final survey document is an important part of the survey design
process and is often one to which little attention is paid. However, to get the most out
of the survey, you should always preface the survey by giving the respondent
information about:
audit office;
the purpose of the survey;
how and why they were selected;
how the results will be used;
assurance about anonymity (where appropriate);
time needed to complete the survey;
deadline for postal surveys; and
audit office contact name and telephone number.
It should also be advisable to provide guidance on how to complete the survey, so that,
there is consistency of approach. Provide any relevant information in the covering
letter and wherever possible try to personalize the covering letter or introduction to the
survey for example address the recipient by name and sign each letter individually.
17.
The first impression on the document influences the respondent whether to reply or
not. Consequently, make the survey attractive to look at, easy to read, follow and
answer. Order the questions in a logical sequence perhaps broken down into groups
under headings to demonstrate to the respondent that you have a good understanding
of the subject under examination. Appearance is also equally important for the
analyst; for example, make the answers easy to find on the form.
18.
As the time the survey takes is too long, the benefits will be lost. A balance has to be
struck between what you need for the study and what responses can or will provide.
First think about the recipients; it is important to maintain their interest. If the survey
takes too much time their interest will be lost or they may refuse to take part. Second,
think about the practicality of handling all the responses.
19.
To check that your survey will ask the right people the right question in the right way
and that the respondents are willing and able to give you the information, you need to
pretest your work. Pretesting is carried out during the initial development of the
survey instrument, and involves finding out from the respondent if you have asked:
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 the right people:-
Has the respondent the experience and information
to answer the questions?
Will the question obtain the information needed?
 the right question:Does the respondent understand the question?
 in the right way: for the information needed:- Can the respondent remember the information
asked for in sufficient detail?
20.
Pretesting can be done in a number of stages some of which may not involve the
respondent. First ask your colleagues to read through the questions and identify
weaknesses. Include people who are unfamiliar with the subject and can therefore
give you objective opinion. Next send a draft to the audited body for their comments.
Finally ask a small number of respondents to complete the draft survey. After wards
discuss with them any problems they had, then amend your work accordingly.
21.
On completion of the survey design and testing phase, the questionnaires can be
issued. Remember to check that the questionnaires are copied correctly, any codes to
identify the individual questionnaires are correctly allocated and recorded. Make sure
also whether the questionnaire is sent to the right people and the date of issue is
recorded.
22.
At the end, one of the main worries when carrying out any survey is whether you will
receive sufficient replies to be able to come to any conclusion. You can do other
things that influence the number of responses, such as:
providing a stamped addressed envelope in which the respondent can return the
survey;
allowing the respondent sufficient time to complete the survey;
taking into account the normal work loads of the respondent; and
following up non-responses, usually using reminding letter.
Stage IV Collect and Analyze the Results
23. In this stage, the questionnaires will be collected, analyzed and the result reported. It
includes:
preparing the survey response for analysis;
follow-up on non responses;
analyzing the survey responses; and
reporting the results.
24.
Before commencing the analysis the first task should be preparation of the responses to
suit your analysis. It involves examining the responses for error and transforming the
data into a suitable format for analysis. Besides, before starting to prepare your data
you will need to choose your method of analysis. This could be either using manual
analysis or computer system.
25.
The first stage in data preparation is the recording of each questionnaire and the date of
receipt. This will enable you to see who has replied and who needs reminding. It also
helps you when it is appropriate to issue reminding note. Next to this, for all
completed questionnaire that received, you should check that the respondents have
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correctly followed your instructions on how to complete the survey form. Then to suit
your analysis, you need to convert all the results into a form ready for summarization
and analysis using code numbers.
26.
In most surveys it is difficult to get 100% response rate. But, knowing that you may
not get 100% response rate does not mean you should not pursue non- respondents.
You should do all you can to follow non-responses. This can be done using telephone
or letter. One reminder to non-respondents may be sufficient to obtain the response or
two or three may be necessary. You should also consider whether it is worthwhile
sending out a second copy of the survey-the first may not have been received or it may
have become lost.
27.
Receiving the required level of response to your survey, you should continue to
analyze the results. You can categorize the respondents, for example, by age, sex,
income, etc. as your information need from the survey. If you are analyzing
manually, you can tally to get the total number of results. Depending on the
complexity of the survey you can use analytical techniques such as simple or multiple
regression analysis.
28.
The end product of the survey is the report. The report content varies as the purpose of
the survey conducted. Where the survey provides information or evidence for strategic
plan or a feasibility study, it will normally be sufficient to state a survey was carried
out and give the main findings and conclusions. Details of methodology should be
available on working papers. On the other hand, where the survey provides evidence
for the main investigation, you should both describe the survey methodology and
present the findings and conclusions in the report. In this case the methodology should
included:
purpose of the survey;
Why was the survey needed? What did it enable you to do?
type of the survey;
Was it a postal, a telephone or an opinion survey?
Did it involve any group discussions or in depth interviews?
who conducted the survey;
Was it the audit office, consultants or jointly?
who was surveyed;
LOC like to know who has provided us with evidence.
the number of respondents surveyed and how they are selected;
the response rate;
Executives are interested in the response rate, so it is advisable to state in the report. You
should also state the validity of the survey result for small response rate.
the survey result.
Consider publishing the result of the survey. The executive may be interested in the
raw data: the questions asked and the response given. They could be incorporated in
an appendix or published separately.
29.
In presenting the findings and conclusions, as survey results often provide plenty of
scope for interesting graphical presentation; the results in principle are no different
from other evidences and analysis, and the usual guidance on reporting and
presentation apply.
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Further guidance may be provided in detail separately as the need arises.
4. SAMPLING
1.
Sampling involves the process of selecting a sample from a group of items, in order to
draw conclusions and make generalizations about the population. The two categories
of sampling used are statistical and non-statistical.
2.
A non-statistical sample is either selected randomly with no attempt to set sample size
using statistical criteria, or the sample is selected using subjective methods in order to
obtain a deliberately biased sample. But the results are only illustrative not conclusive.
Recognizing their limitations they may nevertheless be of value in obtaining evidences
provided that their limitation is properly explained in working papers.
3.
Statistical sampling uses statistical criteria to determine and select a sample from the
population. It has many practical advantages:
(a) Statistical sampling often permits better planning since it is possible to estimate in
advance the number of items to be examined to achieve the desired level of
reliability.
(b) It is possible to quantify the risk that arises because we sample rather than test or
survey the entire population. The precision of the results can be measured and
stated at a particular confidence level.
(c) The results of a statistical sample are objective, defensible and replicable. Because
statistical sampling is based on the theory of probability the results can be
defended against those who would contest the findings.
(d) Significant saving in time and money can be made by using statistical samples to
draw conclusions about a large population.
4.
The basic procedures which will apply to all samples are:
(a) determine the type of sample to be used (sample, stratified, cluster, two stages
etc.);
(b) establish that a record exists of all possible items in the population to be sampled,
that is, the sampling frame;
(c) determine the sample size;
(d) select the sample from the frame in an unbiased (e.g. random) way;
(e) analyze the results of tests made on the sample selected;
(f) use the result to support or illustrate the argument of the report.
Auditors could use these procedures in their audit process to draw conclusions for the
whole population. Further guides may be provided in details separately at the need
arises.
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5. PRESENTING FACTS AND FIGURES IN REPORTS
INTRODUCTION
1.
Well-presented data can support the analysis and arguments in a report strongly and
effectively. Careful selection and clear illustration aid understanding and help to get
the main messages across. Good layout and design give an added value which text
alone cannot provide.
2.
On the other hand, too much or poorly presented data can detract from a report's
message. Over complication and elaboration get in the way of the reader's
understanding and cloud the main issues. Inconsistent or inappropriate presentation
can fail to capitalize on the good work carried out during an investigation and the
weight of evidence obtained.
3.
This guide provides basic advice on the selection and presentation of data in reports
and pointers on good design. It does not set out to equip everyone with everything one
needs to know on such matters; rather it provides a framework within which audit
teams can deploy data with increased effect.
KEY CONSIDERATIONS
4.
When dealing with the presentation of data:
Think Ahead: consider from the outset of the study the sort of data that needs to be
collected and how this evidence might best be presented. Don't collect lots of
material and only then wonder how to deal with it in report.
Added Value: only include tables, charts or diagrams if they add to the message - and
thus the value - of the report. Presentation of data should not be considered as an
end in itself.
Select: select the form of presentation most appropriate to the message being
conveyed. Consider which will have most impact. Be selective in the amount of
information you include - too much may confuse the reader. But remember that
the need for selectivity does not permit the picture to be unbalanced or biased.
Keep it Simple: the simpler the presentation, the more likely the reader is to
understand your message.
Summarize: don't rely on facts and figures alone. They don't always speak for
themselves. Include a brief written summary of the main point being illustrated to
assist the reader.
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5.
FORMS OF DATA PRESENTATION
Data should be included in a report to highlight or underpin the main points being
made. Maximizing impact means choosing the most appropriate form of presentation.
There are three main ways of presenting data, each with strengths and weaknesses:
In the main text: this method is suitable for very small amounts of data and helps to
maintain the flow of a report. However, when more than a few figures are quoted
or the analyses become more complicated the message soon becomes confused and
a table or chart should be considered.
In a table: this is the most appropriate form of presentation when dealing with larger
amounts of data or when figures need to be displayed with precision. A table has
to be carefully constructed to bring out its message clearly. Too much information
or poor design will cloud the message.
In chart: this method is most valuable for displaying trends or relationships. The
visual impact of an attractively designed chart helps to put across an important
message clearly and quickly. However, a chart is not the best form of presentation
when actual figures need to be given or when small movements in the data need to
be highlighted. On these occasions a table is more appropriate.
The different ways of presenting data are discussed in more detail in the following
pages. Editorial points on the design of tables and charts are set out at the end.
TEXT
6.
Data can be presented solely within the narrative when the points being made can be
emphasized by commenting on a few results. More commonly, data within the text
will be used to complement an adjoining table or chart and to highlight the most
important points. An example of data presented in narrative form is provided below:
The NAO Corporate Plan for the next five years expects total staffing levels
to remain fairly constant with planned staff years totaling 945 in 1989/90
and 939 in 1993/94. The plan expects the resources used for VFM Audit to
rise from 214 to 256 staff years over the five-year period.
Note that only a handful of key figures has been included in the text. Although the
data have not been rounded in this example, rounding should always be considered as
too many digits may confuse the reader. The choice will depend on whether there is a
greater need for accuracy than for simplicity.
7.
When more figures than this have to be provided or a more complete picture is
required then a table or chart will have to be included.
TABLES
8.
Data should be presented in tabular form when large amounts of information or a
number of figures need to be shown with reasonable accuracy. Important points to
remember when constructing a table within a report are:
Arrange the data in columns and rows in a logical order. There will often be a natural
order such as date, alphabetical, hierarchical, or geographical order. Where there
is no obvious natural order. arrange in order of size, with the largest numbers at the
top. The figures that are most likely to be compared should be in columns rather
than rows since it is easier to determine trends and analyses (requiring additions
and subtractions) by working up and down the page rather than across.
- 130 -
In Table 1 the natural order followed is the date order and the table is arranged so that
trends over the years are shown down the page.
Table 1 NAO Planned staff years by activity Plan 1987/88 to 1991/92
Planned Staff Years
Direct Output
Support Activities
Year
VFM
Fin Audit
Audit
Indirect
Central
1987/88
245
176
300
187
1988/89
240
199
315
187
1989/90
233
214
322
186
1990/91
230
231
319
176
1991/92
236
242
314
168
Average
235
212
314
181
Source: Summary of the NAO Corporate Plan
Total
908
941
955
956
950
948
Textual comment:
"Staff resources are planned to decrease for certification audit and central activities
and to increase for VFM audit during the next five years."
Round the data wherever precision is not required. This makes the information easier
to absorb and presents a clearer picture. Figures can normally be reduced to about
two effective digits and still provide sufficient accuracy. (An effective digit is a
digit that varies from one number to another. For example, the numbers 7,846,
7,264 and 7,114 reduced to two effective digits would be shown as 7,850, 7,260
and 7,110).
Common sense is needed when using this technique as it will sometimes be
appropriate to use more than two effective digits; and there may be occasions when the
full figures are needed.
In Table 1 the number of effective digits is greater than two only in the second column.
In this case as the first digit only varied from one to two it was not appropriate to
round the figures.
Include column and row totals and averages where appropriate. These often help to
highlight variations in the data in identify key points.
The example shows how row totals and column averages are positioned.
Include a brief written analysis of the main message contained in the table.
An example of a summary text is shown in Table l.
CHARTS
9.
Charts are useful for demonstrating relationships between data or highlighting trends
over time. Various types of chart can be used but this booklet concentrates on the
three most common forms:
Pie charts
Bar charts
Line graphs.
Remember:
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Keep the diagram clear and simple so it is easy to understand.
Use two or three charts if there are several features to highlight. This may be more
effective than a single diagram.
Always accompany the chart with a brief written summary to draw the reader's
attention to its main message.
10.
Pie Charts
A pie chart should be used for showing the breakdown of a whole group into its
component parts. It presents a clear visual summary of the relative sizes of the
component parts as demonstrated by the example shown at Figure 1.
Figure 1
NAO planned staff years for 1989/90
Staff resources by activity
VFM audit
22%
Indirect services
34%
Fin. Audit
24%
Central activities
20%
Source: Summary of NAO Corporate Plan
Textual comment: Staff resources for NAO activities are divided almost equally
between Direct Audit (VFM and financial audit), and Support Services (central
activities and indirect services).
11.
Some points to remember:
Include either the quantity or the percentage of the total that each segment represents.
This should be placed in or beside each segment.
Place the segments of the pie chart in a logical order, ideally by size or order of
importance.
Do not include too many segments or it will lose impact. If the breakdown required is
into more than six sections then a bar chart will probably be more appropriate.
Use two or three pie charts together to show changes over time or illustrate differences
between groups.
Bar Charts
12.
Bar charts can be used for a variety of purposes:
to compare groups
to show the breakdown of a group
to show changes over time for one or several variables.
- 132 -
13.
The chart can be drawn either vertically or horizontally. The forms of bar chart most
commonly used are:
simple bar charts (figure 2)
component bar charts (Figure 3)
group (or multiple) bar charts (Figure 4)
(Textual comments have been omitted.)
Figure 2
Staff Year s
N A O s ta ffin g b y g r a d e
P la n fo r 1 9 8 9 /9 0
S e n io r a u d it o r s
300
1 0 0 S e n io r m a n a g e r s
0
D ir e c t o r a t e
1
A s s is t a n t A u d it o r s S u p p o r t s t a f f
M a n a g e rs
200
E x te r n a l s ta ff
2
3
4
5
6
7
S ta ff G ra d e
Source: Summary of the NAO Corporate Plan
Figure 3
A p p lic a tio n o f s u r p lu s fu n d s
1 9 7 2 to 1 9 8 7
£ m il lions
100
80
60
40
20
0
72
73
74
75
76
77
S u r p lu s fu n d s
78
79
80
81
82
83
84
85
Y e a rs
T o ta l E x p e n d itu r e
Source: NAO Report on the Overseas Development Agency
- 133 -
86
87
Figure 4
L o c a l a n d r e g io n a l b id s & a llo c a tio n s
1 9 8 6 -8 7 to 1 9 8 8 -8 9
£ mil lions
200
150
100
50
0
1 9 8 6 -8 7
1 9 8 7 -8 8
L o c a l b id s
R e g io n a l b id s
1 9 8 8 -8 9
A llo c a tio n s
Source: NAO Report on derelict land grant
14.
Some points to remember about using and constructing bar charts:
Use a simple bar chart (Figure 2) to compare related groups, to show the breakdown of
a group or to show changes in the group total over time. Use a bar chart in
preference to a pie chart when there are more than six items to display.
Use a component bar chart (Figure 3) to show changes in the composition of a group
over time (or against other shown groups).
Use a group bar chart (Figure 4) to compare related groups over time or to compare
individual components of a group over time when the total is not important.
Do not exceed three components, or groups, in the component and group bar charts.
Otherwise the chart will not be clear.
Think carefully about the right order of the component parts or groups. Usually they
will follow a natural order or will be placed in size order.
Make the component bar chart easier to follow by placing the least changeable
component on the bottom layer of the bars and the most variable component on the
top layer.
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Line Graphs
15. The line graph is the most appropriate method of illustrating changes over time for one
or more variables.
Figure 5
350
300
250
Fin Audit
200
VFM Audit
150
Indirect
Central
100
50
0
1987/88
1988/89
1989/90
1990/91
1991/92
Average
Source: Summary of the NAO Corporate Plan
Textual comment: Staff resources for VFM audit are planned to increase during the
next five years
16.
Some points to remember when constructing a line graph:
Do not crowd the chart by including too many lines.
Reduce the number of lines to be included if the variables lie close to each other or
frequently cross over each other. Otherwise the chart will quickly become
incomprehensible.
DESIGN FACTORS
17. This section contains a summary of advice governing the design of displays of data.
Although some of the advice may appear trivial it can have a significant impact on the
visual clarity of the displays.
Advice for tables:
1. Include a clear concise title.
2. Display the time period and geographical area covered by the table.
3. Acknowledge the source of the data.
4. Use footnotes to explain any unavoidable inconsistencies, anomalies or
changes in definition.
5. Space columns out evenly. This will help to balance the table. Row and
column headings should not influence spacing.
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6. Use ruled lines sparingly - they prevent the eye moving easily between data
points. Never use lines between columns of data within the main body of a
table.
7. Avoid the excessive use of capital letters.
8. Maintain consistency in the use of different fonts.
9. Number all tables sequentially.
10. Maintain the same order for displaying headings if the same categories are to
be covered in two or more tables. This will make comparisons easier.
Advice for pie charts, bar charts and line graphs:
1. Include a clear concise title.
2. Display the time period and geographical area covered by the charts.
3. Acknowledge the source of the data.
4. Use footnotes to explain any unavoidable inconsistencies, anomalies or
changes in definition.
5. For bar charts and line graphs label the axes directly.
6. Label the components of a chart directly rather than via a key wherever
possible.
7. Avoid the excessive use of capital letters.
8. Maintain consistency in the use of different fonts.
9. Number all charts sequentially.
10. Use the same order and start point if two or more pie charts are to be compared.
11. Position chart upright on the page for ease of viewing.
12. Locate charts as close as possible to their related text or clearly indicate where
they can be found.
13. Do not overcrowd displays. The simpler they are the easier they will be to
understand.
14. Include a written summary of the main point of the chart.
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SECTION FOUR Appendices
APPENDIX 1:
ECONOMY, EFFICIENCY AND EFFECTIVENESS
This part of the guide gives examples of economy, efficiency and effectiveness. It is
for illustration only and does not provide an exhaustive picture of the area or even the
subjects used.
Example 1: Eradication of disease.
Objectives
The objective of the program is the complete eradication of the preventable disease X
amongst young people throughout the whole country within a 20-year time period;
Activities:
A program of inoculations for the 0-16 year old age group throughout the country
accompanied by education to show parents the effects of the illness and to encourage
them to bring forward their children for inoculation;
Inputs
Vaccines, doctors, hypodermics, vehicles for transport, petrol, foreign currency (for
vaccines, petrol, vehicles etc.), training of staff, education literature;
Outputs
Staff trained, parents contacted, village groups addressed, inoculations given, villages
inoculation visits;
Impacts
Direct program impacts: fall in level of illness from specified disease both amongst
those inoculated and more widely in the population;
Wider objective impacts: contact with doctors and health visitors during inoculation
program may lead to rural population gaining a generally better level of health care.
Economy
Calculation of economy should incorporate both the price paid to suppliers and all
other costs that are directly attributable to inputs.
Effective cost is the total cost incurred by the organization in acquiring inputs and
bringing them to the point of production usage. Factors to be considered are:
 gross purchase
 discount
 extra “purchase price” cost, e.g. tax,
 supplier transport costs
 own transport, maintenance cost to make use of inputs,
 the “cost” of sub-standard items
Purchase Price
The price paid to suppliers for inputs is central for economy: an economic organization
will obtain the desired quantity and quality of inputs for the lowest total price after
- 137 -
allowing for all available discounts. The organization may also consider any later scrap
value of inputs to minimize the total net cost of inputs (T1) in:
T1 = ((p-d)n) - s
where
n is the number of items purchased;
p is the basic supply price paid per unit of input;
d is the discount per item given on "n" items;
s is the total scrap value of "n" units.
Overheads
Purchasing, transporting, storing and maintaining inputs also generate costs which an
economic organization should consider within its decision-making. Thus, for example, an
organization may pay less to its suppliers, through bulk discounts if it purchases all its
inputs in one large order. This may also allow savings on transportation. But the high
stock levels may necessitate larger, and more expensive, storage facilities over a longer
period than a number of smaller orders. Including overheads, an economic organization
will aim to minimize T2 in:
T2 = ((p-d)+a)n - s
where:
"a" is the per unit overhead cost of purchasing, transporting, holding and maintaining n
units of input.
Quality
The economic performance of an organization will also be affected by the financial
consequences of the quality of the inputs it purchases. Quality can affect total input costs
through:
 the true supply price of usable inputs: unless an organization obtains credit from
its supplier for sub-standard inputs the purchase contract with the lowest face
value may not be the most economic. If a large number of components fail quality
tests, the effective supply price of "quality" inputs may prove to be relatively high.
In this situation, ignoring overhead costs, an economic organization would aim to
minimize the effective total supply price of usable inputs (T3):

T3 = N(P-D) + M(P-D) - S
where:
N is the quantity of usable (or "quality") input acquired;
M is the quantity of sub-standard input;
P is the basic supply price paid per unit of N+M input;
D is the discount given per unit on N+M items;
[(P-D) being the net, or actual, price paid per unit];
S is the total scrap value realizable on N+M items.

direct addition of costs: poor quality inputs may be cheaper to buy but add to total
costs through the need to carry out remedial work on sub-standard items or the
addition of further inputs to compensate for poor quality. Identifying which
components are sub-standard will always create additional costs. Incorporating
these direct costs, economy can be defined as minimizing T4 in:
T4 = N(P-D) + M((P-D)+R) + I - S
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where:
R is the extra remedial or input costs, per sub-standard item, generated by M
items of sub-standard input;
I is the total additional cost that the need to identify sub-standard items
generates.

the level of overheads: if an organization is unable to identify and weed out substandard inputs at the point of purchase it will incur higher expenditure on its
overheads (e.g. transportation or storage), increasing the total cost of purchasing
"quality" inputs. In this situation it may prove more economic to pay a higher unit
price to a supplier if this guarantees a lower level of sub-standard items and,
consequently, a lower total cost for quality items. Again, to be economic an
organization should minimize T5:
T5 = ((P-D)+A)N + M((P-D)+R) + B + I - S
where:
A is the overhead cost, per unit, of purchasing, transporting, holding and maintaining N units
of quality input;
B is the addition to total overhead costs of purchasing, transporting, holding and maintaining M
units of sub-standard input.
This last equation, T5, can be re-written to take account of:
 the total amount of "quality" input an organization will seek to purchase, N, will
normally be the same as the amount it would buy if there were no quality
problems (n in T1 and T2);
 the base price an organization pays for its inputs, ignoring discounts, will be the
same regardless of the quantity it purchases (i.e. p in T1 and T2 = P in T3 to T5).
It is the discount that varies with the size of order.
Given these assumptions, T5 becomes:
T5 = [n((p-d)+a-s] - nDx + M((p-(d+Dx))+R) + B + I - Sx
or
T5 = [T1] - [nDx] + [M((p-(d+Dx))+R) + B + I - Sx]
where:
Dx is the additional discount, per n+M item, given for buying n+M rather than
just n items [(d+Dx) = total discount, per item purchased, given on n+M items];
Sx is the addition to the scrap revenues from the purchasing M units of substandard input in addition to n quality items [(s+Sx) is the complete scrap value
realized on n+M items];
all other factors are as defined above.
From the above, an economic organization is one that balances all the factors that
influence the costs of its inputs - the supply price, discounts, overheads and the effects of
quality. These can affect total costs in different directions and it is for management to
find that source of supply, method of purchase, transportation, handling and maintenance
that produces the most economic solution for the organization.
From the above equation T1 and T2 incurred by the organization are not considering
quality problem of economy but T3, T4 and T5 are with quality problems. T2 includes all
the overhead cost and T5 A & B are overhead cost by sub-standard product.
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Economy questions are like:
Whether price paid for doctors, hypodermics was justified and corresponded to
normal or recognized prices;
 Whether, given specified needs and quality, every effort was made to use un-branded
drugs, which are normally very much cheaper, rather than branded drugs for the
inoculations;
 Whether bulk purchase discounts were achieved for purchase of vehicles;

Efficiency
An operation could be said to have increased its efficiency in the sense that either fewer
input were used to produce a given amount of output, or a given level of inputs resulted in
increased output. Inefficiency would be revealed by identifying the performance of work
with no useful purpose or the accumulation of an excess of (or unnecessary) material and
supplies.
Efficiency can be expressed as being to either:
Minimize I1, I2,...,Im in fn(I1,I2,...Im;O1,O2,...Op) subject to O1=q1, O2=q2,
.....,Op=qp;
or
Maximize O1, O2,.....,Op fn(I1,I2,...Im;O1,O2,...Op) in subject to I1<Q1,
I2<Q2,.....,Im<Qm.
where:
fn is the "production function" relating outputs to inputs;
I1,...,Im are the quantity of inputs 1 to m;
O1,...,Op are the quantity of outputs 1 to p.
An efficient organization is then one that has the best possible production function, fn.
Efficiency covers the performance of all the activities of an organization. If we are
examining the efficiency of a hospital, for example, we could look at everything from the
performance of cleaning staff, through the operation of the pharmacy, to the utilization of
operating theaters. We could also have looked at the use made of bricks, labor, cement,
transport etc. in first building the hospital.
In each case we are evaluating how well the organization turns inputs (bricks, cleaning
staff, drugs, operating theaters, doctors etc.) into outputs ( the hospital, clean corridors,
filled prescriptions, operations). In some cases the outputs of one activity are the inputs
of another. For example, an operating theater may be an output of the hospital building
program but the key input for theater utilization. Thus we can trace a whole range of
efficiency issues through an organization from its prime inputs to its final outputs.
Efficiency questions are like:
 Whether appropriate vehicles were used for the type of terrain covered (e.g. if all
travel is on good quality roads there will be less justification for use of expensive
4WD vehicles)
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



Whether the use of staff matches the needs of the work (e.g. it would be inefficient to
use of doctors for inoculations, as opposed to nurses or health visitors could also be
overly expensive);
Whether the visits to villages have been planned to maximize the level of contact with
the target population for the level of inputs;
(e.g. planning to contact major population centers, education through pre-natal or
post-natal clinics, inoculation through post-natal clinics, if appropriate)
Whether it could have been integrated with other existing health programs to achieve
the same output but at greatly reduced inputs;
Effectiveness
The effectiveness of an organization is not just a question of whether it has achieved its
objectives or obtained its intended impacts - these might have occurred without any
intervention or expenditure by the organization. If that were the case then government
expenditure was entirely wasteful. Effectiveness is concerned with the extra benefits
which have accrued through the organization’s or scheme's intervention in the field.
To examine or assess how effective an organization is we need to evaluate its impacts .
The impacts of a scheme or program can be viewed under the following four categories:
 additionality: the extra intended impacts that have occurred solely as a result of the
intervention of the organization;
 deadweight: those intended impacts that already existed or would have occurred
without any intervention from the organization. Government expenditure on
deadweight is completely ineffective as the impacts would have accrued without
it. For example, if a government is trying to increase production of an item, (e.g.
coffee) subsidies for that element of production that already takes place is
unnecessary. Government should only be subsidizing additional production;
 displacement: those intended impacts that are additional but occur because activity
has been relocated from one place to another, or because activity on the subsidized
scheme has displaced activity on other desired objectives, merely to take
advantage of government support. For example, if government wished to see an
increase in employment and provided subsidies for industry in Addis some firms
might move investment planned for other parts of the country to the capital to take
advantage of government funding. Equally, in countries where the exchange rate is
kept at an artificially high level through government control of foreign currency,
black market entrepreneurial activity on acquiring foreign exchange so as to
import "luxury" goods is displaced from more (socially) useful activities;
 Side effects: the unintended impacts of government intervention. They may be
desirable or unwanted. For example, subsidies for increased agricultural
production may lead farmers to exploit land to an extent that soil erosion becomes
a serious long-term problem.
In assessing the effectiveness of an organization we should be looking to see that it
maximizes its additionality. Funding of other impacts - deadweight, displacement and
side effects - is wasteful as it does not add to the direct achievement of the scheme's
objectives. However, it should be recognized that deadweight, by itself, is also beneficial
providing the government avoids paying for it: deadweight impacts contribute to the
achievement of the objective. They are distinguished from additionality solely because
they would have happened without government intervention. With few exceptions,
government should maximize additionality without discouraging deadweight.
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Effectiveness is arguably the most important element of performance. Goods and
services may be provided economically or efficiently but if they do not achieve their
intended objective the resource used will largely be wasted. For this reason the auditor
will often find that effectiveness is the first area to be considered when looking at the
opportunities to conduct an investigation. However, assessing effectiveness can be
extremely difficult. Identifying and measuring impacts may pose considerable problems.
Assessing whether they are additional, deadweight etc. may be impossible. Auditors
must, therefore, only enter into effectiveness audits if they are satisfied that they have the
skills and techniques necessary to produce defensible and accurate results.
Effectiveness audit is often seen as the most important aspect of examining auditees
performance. It creates major problems for the auditor because:
 it is difficult to measure and identify
 the impacts may only be apparent in the long term
 establishing cause and effect may not be possible
 it leads us into the political area.
Effectiveness questions are like:
Whether a government-funded program is needed amongst certain segments of the
population (some people may have intended to pay for the inoculations themselves government funding is deadweight);
 Whether the program leads to long-term eradication of the disease (note: the
program's objective is disease eradication, not the giving of inoculations);
 Whether the program creates or solves other health care problems (side effects health visitors may be able to identify and treat other diseases at an early stage; on the
negative side there may be examples associated with use of non-sterile needles or
direct side effects of vaccines, e.g. whooping cough or the use of drugs in less
developed countries that have been banned elsewhere because of their known
problems).

2. EXAMPLES OF ECONOMY, EFFICIENCY AND EFFECTIVENESS
Area
1.
2.
3.
4.
5.
Economy
Building to specification time, at lowest achievable cost,
or within approved cost
limits.
Utilization of wards, beds theaters and
equipment
Reducing the patient waiting list
The effect on diagnostic and treatment
rates.
Impact on the number and type of operations performed.
Efficiency
Effectiveness







6.
7.
8.
Allocation and mix of medical and
administrative staff.
Management and resource allocation system.
Improvements in the health and quality of life of the
population.
- 142 -



3. EXAMPLES OF BASIC
Area
Raw material needed
Effect on the Economy
Construction
Increasing speed of travel
Funding available
Reducing road accident
Effect on the user time, accidents,
costs
Land requirements
Purchase of land
Effect on the people living near the
roads and on the environment
Design of new road
Labor needed for construction work
CONCEPTS OF PERFORMANCE AUDIT
OBJECTIVES
INPUTS
ACTIVITIES
OUTPUTS
IMPACTS












Reducing vehicle operating costs


New roads
Effect on other roads and rail schemes


Effect on health services
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APPENDIX 2: AIMS, OBJECTIVES AND POLICY INSTRUMENTS
Aims and objectives - definitions
1.
This appendix defines aims, objectives and policy instruments, how they inter-relate
and looks at areas of audit interest.
2. Aims can be defined as " the purposes for which an organization or program exists".
Objectives are said to "stem from Aims and to represent specific planned achievements".
Objectives are usually set at several levels, from high-level strategic objectives to
individual objectives for particular activities.
3.
Aims and objectives therefore form a hierarchy, with Aims at the highest and most
general level, and objectives beneath in several tiers, of increasing specificity as one
goes down. Aims are directions, while objectives are destinations. According to these
definitions an Aim does not provide the basis of an assessment of achievement, because
if you said you'd go north, then an enormously wide range of outcomes would be
consistent with that intention - a range so wide as to make meaningful assessment
impossible. The distinction is worthwhile because the difference is significant: audit
assessment of effectiveness cannot get going if we have only aims and no objectives.
4. We can exemplify these ideas with the case of commercial company. Its aim would be
something like "to maximize earnings per share". Subsidiary to that it might have
objectives for net profit after interest and taxation, market share, growth, etc. Then there
might be a lower level of more specific objectives, e.g. for gross profit, borrowings, loan
charges, taxation.
5.
Government departments and other public bodies will not usually have such clearly
enunciable aims and objectives as profit-oriented trading companies. One thing we have
to be careful of is that departments sometimes call their aims "objectives". It doesn't
matter what these things are called as long as we keep a clear view of the
direction/destination distinction. We should also distinguish between policy objectives,
which are stated in terms of impacts, and program objectives, which are stated in terms
of outputs.
Aims and objectives - audit interest
6. Firstly we can consider the existence and quality of the objectives. If there is
departmental activity which does not have objectives (or, as is more likely, does not have
properly sanctioned objectives, or objectives sufficiently specific to make useful
performance assessment possible) then there is a risk to VFM and we would want to
include that in Report. If the department has program objectives but no policy objectives
then we can look to see how much effort they have put into devising policy objectives,
and if we don't think they're trying hard enough, say so.
7.
Secondly we can look at the process of policy formulation, and consider whether policy
objectives were set on the basis of adequate analysis and sufficient and up-to-date
information.
8. Thirdly we can look at the relations between the objectives. This means checking that
there are logically sound relations between objectives at different levels of the hierarchy- 144 -
the crucial area will probably be the relation between policy objectives and program
objectives. We should also look for possible conflicts between the policy objectives of
the audited body and those of other public sector bodies if unresolved they may create a
risk to VFM.
Policy instruments - definition
9. The terms "policy instrument" and " program" are both used to denote the means adopted
by departments to pursue their objectives. Policy instruments are the activities of the
department, whether it be making grants, providing services, or procuring goods and
services. The term "instrument" signals the fact that what the department does should be
regarded as a means to an end rather than an end in itself.
10. In the past things tended to get done "because they've always been done like that", or
because of unacknowledged pressure from some constituency or interest. This is not
satisfactory. Departments should have clearly enunciated policy objectives. Once they
have objectives, they can ask themselves how their policy instruments relate to them: are
the current instruments really the best means of securing the prevailing objectives?
Policy instruments - audit interest
11. There is a list of points to consider in the 'Policy Instruments' section of the Effectiveness
audit Aide Memoire in Guide I. The following paragraphs provide some expansion and
discussion of the more important points.
12. Clear link between policy instruments and policy objectives: If the relation between
instruments and objectives has been got right, the objective(s) will be a complete
justification of a policy instrument. Sometimes the choice and design of policy
instruments is influenced by wider policy considerations: a less cost-effective
administrative arrangement may be chosen because of the desire to reduce the numbers
of civil servants, or a more expensive good procured because the cheaper alternative is
an import and there are foreign currency considerations & services. The important thing
is that any such extra purposes, which do not form part of the primary rationale for the
policy instrument, should be "in the open"; they should be stated as secondary objectives
and some indication given of how they interact with the main objectives (i.e. which
objectives get priority in which circumstances). The means chosen to pursue a policy
objective may themselves be chosen for political reasons, and if this is clear to the
legislature the AG would not normally comment on the instruments chosen (although he
might still wish to draw attention to the extent to which policy was being achieved or to
any financial consequences of which Parliament would not otherwise be aware).
13. Alternative instruments should be evaluated and costed: To be sure that it has chosen
the best means the department should examine all the possibilities. There ought to be a
thorough and systematic review of precedents, parallels, and evidence from pilot studies,
specially commissioned research, surveys, & services. The department needs to have a
proper understanding of the environment within which the instrument will operate,
especially the related activities of other public sector bodies. It is common to find that
thorough analysis of this kind has not been done. As well as bringing this to attention
when it occurs, we can consider the scope for supplementing the information available to
the department with other information in the public domain, advice or research solicited
from third parties such as academics, and survey data.
- 145 -
14. Policy instruments should have evaluation criteria and assessment and monitoring
mechanisms built in at the outset as part of the design of the instrument: In other
words departments should not start to operate instruments before they have said what the
operational criteria of success are to be; hostages to fortune must be given.
- 146 -
147
APPENDIX 3: OVERVIEW: AIMS, AND OBJECTIVES
1.
Aims
The aims of the overview are to;
I) obtain a good understanding of the audited entity, its policies and objectives, its main activities and principal
resources;
II) identify the potential risk to achieving VFM;
III) suggest areas or subjects for individual in-depth investigations;
IV) highlight areas for continuing audit attention.
2.
Objectives
The objective of the overview is to assemble and evaluate relevant information in order to
provide an understanding of the audited entity, its main activities and principal resources, it
should identify the main VFM risks and possible investigations and also provide sufficient
information to support the preparation of a divisional plan. It should not extend to the
collection or examination of detailed audit evidence. The overall approach should be to
collect the minimum amount of information needed to meet the objective.
3.
Scope
The scope of the overview covers a number of main areas each of which can be supported by
a variety of information. These include:
a) Background
– Financial information: budgets, estimates,
accounts, significant holdings of assets.
– Organizational structure: divisional (branch and
regional) local office network.
b) Objectives
c) Constraints
d) Resources
–
–
policy objectives and their relative priorities
Operational objectives of particular activities
aimed at achieving policy objectives.
– any constraints under which the audited entity
operates.
– The resource used e.g. cash, manpower, land and
buildings, plant and equipment.
e) Activities
–
details of the activities undertaken by the
organization to achieve its objectives.
f) Procedures and controls
–
procedures and controls used to ensure that the
organization’s objectives are pursued with due
regard to VFM, this includes:
 arrangements for the planning of activities
and allocation of resources;
 details of management information systems
designed to monitor and control activities,
the use of resources and arrangements for
staff training.
g) Risk to VFM
–
risk of poor VFM
h) Risks to the Internal Audit
–
risks of the Internal audit being embarrassed.
148
I) Other information
–
–
areas of interest to the council or public.
information on any internal and external reviews
- results of previous Internal audit work
The approach to information collection should be “top-down” starting at the high general
level and working down to as much detail as is required to meet the overview objective.
4.
Planning
The organizations audited by the audit offices may be large and complex. Efficient and
effective overview of such organization requires careful planning. An audited entity can be
covered by a single overview, or by a number of overviews covering different parts of the
organization, they may be carried out in one year or spread over several years; and they can
be undertaken as a single annual exercise or as a series of ad-hoc exercises.
The number and scope of overview depends on the audited entity's organizational
complexity and the prior knowledge of the audit field. If the entity is very complex it will
usually require more than one overview. Timing depends on the scale of the overviews and
the availability of resources.
Organizational complexity depends on the scale, nature and inter-relationship of the audited
entity's objectives, activities, structure and resources-factors which in themselves tend to
suggest the best approach to tackling an overview. Organizational complexity can be
assessed by considering the following questions.
Objectives
- How clearly are objectives defined?
- How many objectives are there?
- How complex are the objectives?
- How inter-related are the objectives?
Activities
- How many activities are there?
- How complex are the activities?
- How inter-related are the activities
- How clearly are the activities linked with the
objectives?
Structure
- What is the type of structure?
- How dispersed are the operational units?
- How many operational units are there?
- How inter-related are the operational units
- How clearly are the operational units linked with the
activities?
Resources
- What are the nature and value of the audited entity's
resources (manpower, assets and capital/cash)?
- How do resources relate to objectives?
- How do resources relate to activities?
- How do resources relate to structures?
149
Common services usually relate to the allocation and control of resources: cash/capital, fixed
assets (land and buildings), stock, vehicles, equipment, computers, manpower, etc. It will
often be the case that common controls are surveyed separately because of their significance
or the way in which they cut across boundaries. Large organizations may justify a separate
overview for common controls alone.
Normally, overviews should not cross-departmental boundaries, but consideration should be
given to inter-departmental overviews when common objectives or activities exist.
150
APPENDIX 4: EVALUATIVE CRITERIA
Introduction
1.
Evaluative criteria are the reasonable standards against which management can be assessed.
They are used to judge the degree to which an audited entity confirms to recognized good
practice. Evaluative criteria are what the auditor believes the department should be doing or
achieving if it is to secure good value for money. The criteria will cover structure,
organization, systems, methods laws, regulations, staffing, training, resources etc. dependent
on the area we are looking at. Suitable criteria are that are appropriate to the particular
characteristics of the audited entity. They focus wherever possible on the results expected to
be achieved by the operation, system, control etc. The assessment of whether or not criteria
are met results in audit findings (observation).
2. In Performance Auditing we use evaluative criteria:
 in the overview and marking to identify risk to value for money and the potential impact
of a study. At these stages we only require broad, top level criteria to compare what we
believe should be happening with what is happening in the audited entity;
 during the feasibility and planning stages to define the main study audit methodology.
Each main study issue should be examined against detailed evaluative criteria which, in
turn determine the "tests" we will need to carry out (and logically the feasibility of the
main study);
 in the main investigation to evaluate the information collected and to draw conclusions on
the department's performance and make recommendations. Here we will use the detailed
criteria established during the feasibility and planning stages;
 during report writing to provide a structure to the report and highlight the priority issues.
Evaluative criteria are therefore the bedrock of effective performance auditing.
Concepts
3.
Evaluative criteria can be either:
 principles, i.e. the absolute considerations which determine whether an activity is
conducted properly or whether value for money is achieved (e.g. that the audit entity
should report its performance to the council; or that job creation should be cost-effective);
 standards, i.e. the level of performance of the activity or of the resultant impact. Standards
often take the form of norms or targets, may cover quantity and quality, and may be
absolute or relative, (e.g. that the audited entity should produce a report to the council on
its performance at least annually; or that the cost per job should not exceed X birr).
4.
We can also set evaluative criteria as questions. This has one major advantage. Where we
find that the answer is not wholly in the positive, we know that we have significant findings
(provided that we ensure that the evaluative criteria are significant). Further, the evaluative
criteria themselves provide us with the recommendation. So, if we find that the answer to
the evaluative criteria.
“Have ministries set clear, measurable and quantifiable operational objectives
for each of their departments and divisions covering the next 12 months?”
If no, we have a recommendation that:
“All ministries should set clear measurable and quantifiable operational objectives for
each of their departments covering the next 12 months.”
151
Note:
This would be the initial recommendation. We would also provide instructions,
guidance, examples of best practice, outlines of recommended training etc. to allow this
recommendation to be implemented successfully.
5. The minimum requirement for an efficient study is a set of evaluative principles. Alone these
may be sufficient for more limited studies of structure or process as they will allow the
auditor to identify areas where there is a risk to value for money and to suggest
improvements.
6.
Standards give the auditor the added dimension of being able to measure the extent of the
auditee's performance of the principle established for structure or process or its impact on
value for money. By setting a numerical benchmark of expected performance the auditor may
be able to value the financial and/or non-financial consequences of the auditee's actions.
Equally, it may be possible to assess the value of any audit recommendations.
7.
The broad content of evaluative criteria also varies according to the nature of the
overview/marking topics or audit issues we are looking at. Audit issues fall into 3 broad
categories:
 questions of structure : the overall legal, organizational, resource and management
framework;
 question of process: such management and technical activities as planning, production,
control etc.;
 questions of achievement of value for money: the level to which an activity is economic,
efficient or effective.
 A detailed analysis which can help the auditor to identify audit issues is given in this
Guide on page 25 to 26.
8. The criteria we use will therefore fall somewhere within the following matrix:
STRUCTURE
PROCESS
VFM
ACHIEVEMENT
9.
PRINCIPLE
e.g. there should be clear
lines of accountability
for all expenditure
STANDARD
e.g. the audited entity
should produce annual
reports to Council
e.g. performance should
be monitored in a timely
and accurate fashion
e.g. monitoring should
be within 3 days of
the event and accurate
to within+/- 5%
e.g. job creation should
be maximized for the funds
spent
e.g. 15,000 additional
jobs should be created
in the year
Any particular audit may need evaluative criteria for a number of the cells of the matrix,
depending upon the exact scope of the audit. Criteria should give complete coverage of all
the audit issues, i.e. we should construct an umbrella of criteria from which definition of the
audit methodology, information gathering and analysis of audit findings can proceed. Thus
for an audit looking at the management and performance of a scheme, criteria will probably
be needed for both principles and standards of process and VFM achievement. Within each
cell a number of criteria may be needed.
152
Advantages of using evaluative criteria
10. Evaluative criteria have a number of advantages for performance audit:
 there will be a general level of consensus amongst the audit team as to the important
factors affecting economy, efficiency and effectiveness;
 examiners have a clear idea from the start of what constitutes good and bad practice, and
are more able to assess their findings rigorously and defensibly;
 if the audited entity signs up to the criteria from the start, clearance of the draft report
should be eased;
 the audited entity will be able to give a more informed and structured response to the our
audit proposals from the outset;
 criteria create a strong framework which assists the preparation of task outlines and
collection of evidence;
 the criteria may provide a good structure around which to draft the Report.
Establishing criteria
11. The level, detail and nature of the criteria to use will be a matter for audit judgment in each
case and will vary according to the stage of the approach we have reached:
 in the overview we only require indications of risk to value for money and so can take a
fairly general approach to the criteria;
 in the feasibility review and main investigation we require precise and detailed criteria on
the proposed study issues. This ensures we have a viable methodology and targets our
work on the key evidence.
12.
In the main investigation, criteria will be determined by the objectives and depth of the
investigation. In a broad based audit it may be appropriate to define only high-level
principles for each aspect of the auditee's control framework. For narrower, more sharply
focused studies, more detailed principles and standards might be necessary.
13. Some criteria are applicable to all fields of management. For example we can establish criteria,
that the audited entity should:
 have clear measurable objectives and a general plan for accomplishing them;
 have targets by which to assess whether objectives are being met;
 have well defined responsibilities for the use of resources;
 have staff and organize in an economic and efficient manner to accomplish objectives and
the plan;
 use resources to deliver programs efficiently and with adequate control;
 have information which is timely and accurate and enable the achievement of the targets
and the objectives to be monitored;
 report the results of its key activities (staff, council, share holders, public, customers).
14.
The above criteria are broad statements which are equivalent to fundamental (study) issues
and can be used for establishing the scope of investigation. But they exclude what can be
useful for conducting the investigation detailed criteria for specific function or activity. For
example, it can be established for the training function that the organization should:
 identify staff training needs;
 analyze training needs and develop training plans;
 design courses to reflect the needs identified; control the implementation of staff training
courses;
 monitor and evaluate staff training needs.
These criteria would provide the benchmarks for an examination of the training function.
But it is possible to sub divide these still further so that for instance. “the audited entity
should identify staff training needs”.
153

individual and group training needs should be identified in terms of potential
improvement to present and future job performance.
 line managers should have the primary responsibility for identifying training needs.
15.
The level of detail will depend on examiners judgment. The question to ask is what is useful
for conducting the audit. Criteria can be set at three levels:
 at the first level, are the broad statements of principle which will apply in any situation;
 at the second level, is the methodology for a function or activity;
 at the third level, are detailed standards and procedures of a specific or technical nature.
This is the difficult -think tank - stage. It is possible to identify criteria which apply to each
type of function or activity e.g. manpower, training, grants in aid etc. The examiner could
then apply the appropriate set of criteria to the investigation. While this is a useful starting
point, in practice the criteria have to be tailored to each audited entity's circumstances. The
reasons for this are:
Structure The audited entity is organized hierarchically or by team etc. It is
centralized/decentralized. It is governed by a board, committees, chief
executive or combination of the above. Sensitivity has to be shown to
the audited entity's historical development e.g. universities. None of
the structures are good or bad. It depends on which suits the audited
entity's functions/activities.
Central Controls -
An agency may have more power to act on its own behalf than a
government entity. Thus an agency may have flexibility e.g. on staff,
use of funds. But such arrangements will be set out in the framework
document with the sponsoring organizations. Government entity in
turn need to ensure that they comply with treasury requirements in
their own operations.
Legislature
Legislature may require an audited entity to have certain control or
follow standards or practices with their programs. Examples would be
to obtain audited returns, deal with claims in a certain way, consult
with others etc.
Size
16.
-
-
A large organization or program is likely to have more sophisticated
controls than a small organization or program.
Risk -
If the activities are covered by security consideration or commercial in
confidence then more stringent controls would be needed.
Time -
If service standards require a quick response e.g. policies, fire then the
systems should be geared to providing that response.
When you believe you have reasonable set of criteria discuss them with the auditee
department. Their comments could influence your decision on which criteria to use for the
investigation.
When setting criteria:
 the criteria should be measurable wherever possible;
 set cost effective criteria for the area under investigation;
 identify the specific risk to value for money which the criteria need to cover;
154

check whether there are any criteria already in existence elsewhere which are relevant to
the audit issues (see paragraph 17 below);
 tailor the criteria to the audited entity's and activity under examination. Take account of
the circumstances under which the audited entity operates including;
– any legislative restrictions;
– the aims and objectives of the auditee’s programs;
– the level of delegated authority from the head of public body or MOFED;
– the scale of operation. Within bounds, the smaller the scale of operation, the less
demanding the criteria can reasonably be.
– remember that what may be a reasonable criterion for one auditee may be
unreasonable for another. A high level of senior officer involvement in asset
disposals would be expected in an audited entity where such transactions are rare.
But greater delegation of authority could be accepted in an audited entity charged
with asset management as its primary function and with developed procedures and
controls;
 set realistic criteria, not ideal which no department could possibly achieve.
17.
In many cases there may be some guidance on evaluative criteria. Possible source of
information include:
 generally accepted management practices; (good practice)
 objectives of the entity or project;
 previous audit offices investigations of the same subject;
 academic pronouncement of the profession;
 publications of other national audit offices;
 government rules and regulations;
 standards establish by the audited or/and its supervisory authority of the auditee;
 professional bodies or trade associations, here or abroad;’
 the Ethiopian management institute;
 the internet
 international bodies;
 comparison of the audited entity with similar organizations both in Ethiopia and abroad.
The assistance of consultants may also prove valuable.
18. If using existing criteria the auditor should ensure that it:
 is relevant to the issues and the audit entity's under examination;
 provides adequate coverage of all the key value for money considerations;
 is pitched at the right level;
 is up to date.
19. Establishing a standard against which to evaluate the auditee's performance will generally be
more difficult than reaching agreement that the auditee's should follow certain principles of
good management or best practice. Often we will find that the audited entity has not set itself
standards of performance and that no generally accepted ones exist. Where no standards
exist, comparisons may prove useful. There are a number of different comparisons which we
can employ:
 comparisons over time;
 between geographical areas;
 between individuals where they are doing like work;
 to the average of the organization, particularly in relation to standardized activities;
 with similar public or private sector organizations;
155

to implied performance derived from contrasting the planned achievement and resourcing
of an activity.
20. Though informative, comparisons may not allow us, in all cases, to draw definitive conclusions
as to whether value for money is being achieved. However, even in such situations, they
may provide sufficient evidence to query "outlyers", i.e. those occurrences which lie furthest
from the norm of performance for their comparators. For example, if in examining public
sector contributions to private sector housing schemes we find that in 75% of cases the
contribution ranged between Birr 5,000 and Birr 10,000 we might query both cases where
the contribution was less than Birr 1,000 (on the grounds that the private sector scheme
would have gone ahead without public sector contributions) and where it was in excess of
Birr 20,000 (on the grounds that the public sector contribution was excessive in comparison
to the resulting benefits). In both instances the cases should be reviewed in detail to provide
sufficient evidence to support our initial conclusions.
21. One word of caution is necessary. In certain circumstances the auditor may not be best placed
to specify generally acceptable criteria. In effectiveness audit both principles and standards
derive from the policy objectives and will need to be set or agreed by the policy makers. But
even in these cases the auditor has two further constructive avenues to investigate:
 where the auditee have omitted to set criteria themselves, this may be a relevant finding
for report;
 comparisons can be made to similar schemes both in Ethiopia and abroad.
Conclusions
22. To draw conclusions in performance audits we decide what is good and bad practice by the
auditee - we intuitively set our own evaluative criteria. If considered systematically, agreed
within the team, and discussed with the auditee, criteria can form the cornerstone of an
efficient study. By setting out the criteria upfront we can ensure our work focuses on the key
issues for value for money.
156
APPENDIX 5: IDENTIFYING FUNDAMENTAL ISSUES
1.
Fundamental issues are the basic VFM questions the investigation should consider if it is to
reach sound conclusions on performance and use of resources in program, project or other
area or activity to be examined. To produce penetrating investigations and decisive reports
within a reasonable timescale the number of fundamental issues to be pursued should
normally be to 2-4. These should not be allowed to mushroom as the investigation proceeds.
2.
As a starting point to identify such issues, the auditor may consider the following list of 11
basic questions. This list is not intended to be prescriptive nor it is to be taken as a complete
summary of all possible fundamental issues.
Authority?
Does the activity to be investigated come under relevant legislation or
regulations? (This is not an examination of regularity but of the
overall authority for the activity concerned.)
Need?
Is there a need for public sector expenditure or use of resources on this
activity? How far is the involvement of the audited entity justified?
Alternatives?
Has there been proper consideration of the alternative means of
meeting the need? Has the best alternative been selected for
implementation?
Method?
Have activities been planned, organized and implemented in an
accepted way?
Standard?
Were the requirements/specifications appropriate, at the right level and
are they being met?
Timeliness?
Did matters proceed at the appropriate rate avoiding delay and
unnecessary costs (both direct and consequential, financial and nonfinancial)?
Controls?
Are there adequate controls to ensure the achievement of satisfactory
VFM?
Cost?
Were resources used economically and efficiently?
Recovery?
Were receipts or returns optimized?
Achievement?
Were the intended objectives fully achieved? Were there significant
adverse effects or unintended impacts?
Implications?
Were there any other significant VFM implications of the activity
concerned?
157
APPENDIX 6: DOCUMENTATION
Working paper should be maintained to provide a record of the work carried out, the findings and
conclusions reached and provide the basis on which the performance report can be prepared. They
should be prepared in sufficient detail, but at the most economical level, to enable an experienced
auditor with no previous connection with the audit to establish what work was performed to
support the findings and conclusions.
Working papers should be prepared and filed in working paper folders (WPF) as the audit
proceeds. Care should be taken to include only that material which is directly relevant and auditors
should guard against the tendency to copy too many unnecessary documents. It will be helpful at
the referencing, review and reporting stages, if the auditor summarizes the evidence collected to
show the detailed audit objectives of the examination to evaluate its relevance, reliability and
sufficiency, and to draw conclusions and make recommendations based on the evidence. Auditors
should therefore, implement the following guidelines:
1. Working papers should show:
 the evidence collected
 the procedure used to obtain it
 the source of the evidence
 the staff who carried out the work
 the date of the work
 the issue, supposition and detailed audit objective to which the evidence relates.
2.
Working papers should be clear, concise and legible. Material should be restricted to
matters which are relevant to the audit and should not contain excessive detail. They should
be suitably referenced and cross references and orderly placed for ease of location and
reference.
Working Paper Folders
3.
All working papers should be filed on working papers folders (WPFs). The material held in
WPFs for individual investigation should consist of:
a) planning and administrative material (e.g. copies of feasibility review reports, notes of
progress meetings).
b) Correspondence with the audited entity and notes of discussions with the auditee
officials;
c) copies of evidence, records, analysis and other papers in support of the findings and
conclusions;
d) materials and papers accumulated in report preparation including drafts and summaries
of main issues.
4. When organizing the documentation of a performance audit investigations the following
methods are recommended:
1) maintain a lead file containing the essential documents (e.g. overview feasibility review
reports, draft reports etc.)
2) minutes and summaries should be placed on the left and enclosures on the right (where
summaries are used on WPFs, minutes, if needed, should be brief and should not repeat
the summary);
3) all WPFs and files should have an index as the top document;
4) WPFs should contain summaries of evidence and each document should be referenced and
indexed for ease of review and later report drafting;
158
5) avoid extraneous or unnecessary enclosures (if necessary only the appropriate parts of a
document should be enclosed);
6) documents should normally be filed in chronological order, alternatively, sub-division
may be used for separate aspects;
7) documents should show the file number from which they were copied, the date (or if not
known the approximate date) of origin, and if possible the grade of the originator;
8) if the enclosure is a draft, efforts should be made to confirm that a final version was
made, (especially if the document is a submission to Ministers etc.), and a note made of
the outcome;
9) Where an enclosure on WPF refers to another document of significance which is also
on file, its file and enclosure number should be referred to in the margin;
10) important or relevant sentences and paragraphs in the enclosure should be side lined
or otherwise highlighted;
Reporting material
5.
During the course of report preparation it is likely that a number of drafts will be prepared
within the internal audit. This has a tendency to distance the drafts from the evidence and as
a result it is essential that:
 all draft reports should show the date of origin on each page;
 all drafts should be kept and filed in chronological order;
 draft reports should be referenced to supporting evidence showing WPF reference
and enclosure number;
 the final draft report to be sent to the audited entity should be referenced back to
the auditee's source from which the evidence was obtained.
This provides a good discipline to ensure that we have adequate support for the report and
allows us to respond quickly to any challenges from the auditee.
159
APPENDIX 7: INITIAL ANALYSIS OF DEPARTMENT OF ASSORTED ISSUES INPUTS AND ACTIVITIES
1. This part of the guide gives an example of the methodology of cross cuts. Cross cuts are an
analytical technique used in the overview with the objective of:
 obtaining an initial understanding of the finances and structure of an audited entity;
 defining a strategy for the audit; and
 identifying potential audit topics.
2. To achieve this objective we need to:
 identify the main facets of the auditee including its:
- objectives;
- policy instruments;
- regulatory and principal administrative activities;
- organizational structure;
- input usage by type e.g. labour, interest payments;
- income, expenditure, assets and liabilities;
- main financial management control systems.
 analyze this information to give a full listing of all possible economy, efficiency and
effectiveness topics within the auditee. For example we would want to analyze the data
by policy objective and, as a subsidiary to this, by policy instrument (this would give a
view of the possible range of effectiveness issues);
 allocate the auditee's, and where possible the wider public sector's, financial data to each
of these topics.
This will give us a range of possible performance audit topics for the auditee and their materiality.
3. The example below is about the fictional Department of Assorted Issues. It is assumed that all
the necessary information has been collected. The remainder of this part of the guide
demonstrates how that information can be analyzed.
4. A good starting point is often the financial statements of the organization. These can indicate
where resources are being used, and for what purpose. The auditee's annual accounts give
the following information:
Table 1: Expenditure of the Department of Assorted Issues, 19XX EC.
Item
Housing
Transport - roads
Transport - rail
Ancient monuments
Museums and other collections
National Parks
Departmental Administration
Total expenditure of department
(Source: fictitious)
Birr (in millions)
250
200
185
56
20
90
25
826
This gives us only a very high level view of the department. All we can say at this stage is
that housing and the two types of transport are the most material areas.
160
5. Looking further into the available financial information we find that the expenditure on
housing can be broken down, by policy instruments, as follows:
Table 2: Abstract from the Department of Assorted Issues' budget showing expenditure on
housing by policy instrument (also showing spending authority)
Policy instrument
New build - private (ministry)
New build - public (municipalities)
Slum clearance (municipalities)
Renovation - public (municipalities)
Nomad sites (zones)
Hostels for urban homeless (municipalities)
Rehabilitation of housing for displaced homeless persons (zones)
Diplomatic housing [net trading account loss] (Ministry)
Total housing expenditure
(source: fictitious)
Birr
(in Millions)
37
60
33
16
6
21
75
2
250
Table 2 gives us a better appreciation of the priority to be attributed to each housing area:
 the rehabilitation expenditure and public sector new build account for over 50% of
housing expenditure between them, and should be reviewed in more detail later in the
overview;
 nomad sites and diplomatic housing appear to be relatively unimportant;
 we need to be careful, however, as the item for diplomatic housing is a loss made on a
trading activity whose annual turnover is 144 million birr. In gross terms it is the largest
item, and the existence of a loss suggests poor value for money. There is strong evidence
to suggest that it is an area worthy of further investigation.
6.
In table 2 we have analyzed expenditure by broad policy instrument only. In practice this is
often how we will find financial information presented. Using this data we could also
attempt an analysis by the policy objectives to which each of those instruments relate. By
interviewing the auditee's top management we obtain information on their policy objectives
which allows us to prepare figure 1. There are a number of interesting features about this:
 the department has 3 broad housing objectives: improving rural and urban housing and
providing adequate housing for the diplomatic community;
 improvement/extension of urban housing is the single biggest third tier item;
 what appeared to be a relatively small item - nomad sites - becomes of medium size
when the element from the rehabilitation policy instrument expenditure item is included.
7.
We can also re-present table 2 to show the relative importance of the various spending
authorities:
161
Table 3: Departmental of Assorted Issue's expenditure on housing by spending authority
Birr
(in millions)
Spending Authority
Municipality
Zones
Ministry
130
81
39
250
Total housing expenditure
250
(source: fictitious)
Table 3 can be viewed as representing expenditure by main financial management system.
Although municipalities and zones are the spending authorities and have prime
responsibility for securing good value for money, we would expect to see the department
monitoring and reviewing their performance and exerting proper control over them to ensure
that they act economically, efficiently and effectively. We would want to look at this later in
the overview to check that such controls exist and are operating.
8. Returning to Table 1 we are also interested in the auditee's expenditure on inputs. We would
want to see that the department had effective systems for economy for each main input. The
first step is to determine what the auditee spends its money on:
Table 4: Department of Assorted Issues' expenditure by inputs
Input
Birr
(in millions)
Building contracts
Administrative staff
Other directly employed labour
• Plant and equipment
• Road vehicles
 Light vehicles
 Major transport
Land purchase
Cash compensation to farmers
Railway rolling stock
• Computers
• Administrative inputs
Interest payments
Total expenditure of the auditee
(Source: fictitious)
308
40
25
51 *
18 *
27 *
9
12
177
6*
16 *
137
826
There are 3 items over Birr 100 million which will have a major effect on whether the
organization is economical. In each case we would expect the department to have adequate
controls. In addition the items marked "*" will be purchased from main suppliers. There
should be a proper procurement system covering all such purchases. Together these items
account for Birr 118 million.
162
9. Tables 1 - 4 and figure 1 give us the following spread of expenditure:
Item
Birr
(in millions)
Building contracts
308
Railway rolling stock
177
Improvement of urban housing
167
Diplomatic housing [gross expenditure]
146
Improvement of urban housing stock
146
Interest payments
137
Municipality
130
Principal purchases (total of * items)
118
Urban new build (total)
97
Zone
81
Improvement of rural communities' housing
81
Rehabilitation of housing for displaced homeless persons
75
Cultivating communities housing
60
New build - public
60
 Plant and equipment
51
 Road vehicles (total)
42
Administrative staff
40
Ministry
39
New build - private
37
Slum clearance
33
Other directly employed labour
25
Pastoral communities housing
21
Hostels for urban homeless
21
 Administrative inputs
16
Renovation - public
16
Cash compensation to farmers
12
Land purchase
9
 Computers
6
Nomad sites
6
This list is too large to be able to conduct a full overview on each item. Full analysis of risk
to value for money, public accountability etc. for each expenditure item would take a
considerable time. Further, in the normal course of events, the list would be supplemented
by further tables covering expenditure by activity and full breakdowns of the railway's,
ancient monuments' etc. expenditure by policy instrument and policy objective. We need to
set priorities for our future overview work.
10. Setting priorities is a matter for audit judgment and will vary with available resources. The
more staff we have the greater the number of high and medium priority items we can
investigate in depth in the rest of the overview. Below is one possible set of priorities:
 high priority: > birr 100 million (8 items)
 medium priority: > 40 million but < 100 million (9 items)
 low priority: > 10 million but < 40 million (9 items)
 de minimus: < 10 million (3 items)
11. By setting these priorities we are saying that we are unlikely to examine low priority items and
will conduct no further work on de minimus items, unless evidence comes to light to change
this decision. The financial cross cuts have given us 17 items which, on the materiality
163
criteria, are worth investigating further. Cross cuts have also indicated that for one item,
diplomatic housing, there is a clear concern about value for money.
12. We should not limit cross cuts solely to the financial information. Organizations can undertake
regulatory or administrative activity which, though not having a significant direct bearing on
their own use of resources, can affect the income, expenditure or value for money of others
in the public sector. We need our map of the organisation to cover both its own use of
resources and the influences it has on the rest of the public sector.
13. In addition to the financial cross cuts, we need an organizational chart of the department with a
full statement of the policy objectives of each area. Much of this will correspond to the
analysis above, as it will be a restatement of the financial data from an organizational
viewpoint. But there may be areas where the income or expenditure is minimal but where the
objectives are important for the wider public sector.
14. An example above might be National Parks. Its expenditure is medium priority as it affects the
department of Assorted Issues, but its regulatory and administrative activities are likely, at
the minimum, to affect the activities and expenditure of the Department of Agriculture as
well. We might find that the latter carries costs of a further 50 - 100 million birr because of
the actions of the DAI. If we were to analyze each department entirely on its own
expenditure alone, each item would be only medium priority. Together, under the overriding policy objective, the total expenditure is high priority.
15. A further example might be in an area that appears in none of the tables above - road accident
prevention. In our fictional example the DAI has responsibility for road accident prevention
and a policy objective to minimize the cost to the economy of accidents. But it makes no
direct expenditure on this objective. All such expenditure is borne by other departments, by
municipalities or zones. The others together spend 20 million birr a year on such things as
road improvements, traffic lights, round about etc.. But two other factors are important:
 the direct cost to the department of health of treating accident victims is approximately
90 million birr a year;
 the effect on the economy as a whole runs into many 100s of millions of birr a year.
In this case the DAI has an administrative/regulatory activity with a major policy objective
having significant public sector and national cost implications. It would be wrong,
therefore, to ignore it. If we limit cross cuts to direct departmental financial data alone we
would not pick this up.
16. The success of cross cuts depends on good information about the objectives, activities, finances
and management systems of the organization. It is dependent, therefore, on having a good
working relationship with the audited department and adequate access to papers etc.
Information requirements will vary with the organization but in general they should include:
 the top management information systems;
 a statement of all policy objectives and instruments;
 the organizational chart. Sometimes the telephone directory, if up to date and organized
by section, makes a good alternative;
 all relevant financial data;
 an understanding of the financial management control systems.
Cross cuts, and priorities, should be reported to the Head of internal audit.
164
APPENDIX 8: FACTORS AFFECTING RISK CRITERIA PRIORITIES
Low priority
High priority
Area of low expenditure
High expenditure
Low risk to VFM e.g.:
High risk to VFM e.g.:
 lower inherent risk
 higher inherent risk
 strong control environment
 poor control environment
 effective strategic and budgetary planning
 poor strategic or budgetary planning
 thorough performance review procedures
 no performance review performed
 few VFM opportunities found in prior
 history of poor VFM
audits
Good external reporting arrangements
Little (or no) information
performed
reported to
legislature
Few worthwhile recommendations possible
Scope for cost effective
recommendations
Limited Executives or public interest
Area of major council and public concern
Low risk to audit office
Probable departmental obstruction to study.
High risk to audit office
Department request for study.
Politically contentious or technically
Clear, politically neutral assignment.
complicated.
Major difficulties in audit e.g.
Audit straight forward, e.g.:
 data unavailable or difficult to access
 readily available data
 extensive
and
sophisticated
audit
 methodology easy to develop and
techniques required
apply
major staff input necessary quickly and
 Study can be delivered
cheaply
Other major work planned or in progress
No other reviews planned
covering same field

Major Executives changes planned
No developments in near future
Organization structure appropriate to
operations
Clear internal and external lines of
responsibility authority and accountability
Unnecessarily complex organizational
structure in relation to operation
Unclear responsibilities between
numbers of entities involved in
delivering same or related programs.
165
Low priority
High priority
Senior management in close contact with
operational reality and decision makers
Many level of hierarchy between senior
manager and operational decision
makers.
Program delivered through entity
Program employs assets that are intangible,
immovable or difficult to dispose of
Significant portions of program delivered
through other entities.
Program employs negotiable assets that
can be accessed by third parties.
Forthright responses to inquiries, corroborated
with facts
Evasive or unreasonable responses to
audit inquiries
Effective internal audit function, supported and
directed by senior managers
Internal audit function non existent or
reporting at low level
Reward systems recognize and reflect key
dimensions of performance
Reward systems unbalanced, focus on
one aspect of performance or on
extraneous factors.
Senior managers aware of risk inherent in
operations and of adequacy of control
measures
Unawareness of risks, lack of
management involvement in system of
management control.
Applicable legal authorities are identified and
their implications reflected in management
processes
Management has not identified key
statutory limits to authority.
Ongoing program to review and maintain
systems and procedures
Significant weaknesses remain
uncorrected, even when identified.
Competent experienced accounting and
systems staff
Inexperience, understaffing, high rotation
in accounting and systems.
Few significant deficiencies found, all
previously known to management
Many significant deficiencies, year end
adjustments detected by audit.
The listing is not intended to complete. Nor does the existence of one or more of the higher risk
indicators necessarily mean that there is a deficiency or irregularity relevant to the specific
objectives of an audit. The presence of such indicators should, however, heighten our awareness of
the possibility of increased risks in any work we undertake.
166
APPENDIX 9: RISK ASSESSMENT FORM
Auditee
Audit area
Priority
Timing
CRITERIA
Produced by
Reviewed by
Date
COMMENT
Background
Materiality
Risk to value
for money
Public
accountability
Possible impact
Executives/
public interest
Risk to internal audit
Departmental
issues
Suitability
Auditability
Other major work
planned/in progress
Developments likely
to affect assessment
Conclusions and
overall priority
167
PRIORITY
(High/medium/low)
APPENDIX 10: RISK ASSESSMENT FORMS - WORKED EXAMPLE
This part of the guide gives an illustration of the use of risk assessment forms as applied to the
fictional Department of Assorted Issues' (DAI) housing new build scheme. A scenario is given and
then the information used to complete the analysis sheet.
New Building Scenario
The following information was collected during the overview on the department of assorted issues
new building scheme:
 The scheme funds the building of new houses and flats by both the private sector and
municipalities. Expenditure in 19XX, EC, was birr 37 million to the private sector and birr 60
million to the municipalities. There has been little change in the total or distribution of grant
over the last 3 years. The objective of the scheme is to relieve acute housing shortage in urban
areas, especially amongst the poorest sections of society and for the disabled;

the private sector element is administered directly by the DAI who are responsible for
attracting and approving applications, monitoring work in progress and paying grant against
invoices. DAI employ quantity surveyors to assess whether invoices are reasonable; the QSs
spot check approximately 20% of all works. A strict control is kept on the which sites the QSs
visit through the use of random number tables;

there is no limit placed on the amount which private individuals may apply for, though house
building firms are not eligible. The median 10% of grants was found to be in the range 40,000
- 60,000 birr, but with an upper 10% in the range 190,000 - 250,000 birr. What limited work
has been done on those receiving grant suggests that they tend to be professionally qualified
in private practice or business men, with an average annual income of approximately 60,000
birr. Most grants were for areas within Addis such as bole road or old airport and to people
wishing to expand or move to a larger house. 800 new private sector houses were funded in
19XX;
 municipalities must apply each year for a grant allocation detailing the projects and likely
expenditure under each. They may include an estimate for "reasonable" overheads. The
department reviews the municipalities' intended recipients of housing and the areas proposed
to ensure that they accord with the scheme's objectives. The DAI then pays quarterly against
totaled invoices and does a random spot check of municipalities to ensure that they are not
claiming in advance of need. The DAI does not collate information on the total number of
units built each year;

expenditure profiling of municipality invoices showed:
 direct expenditure of 41 million birr, and municipality overhead costs of 19 million;
 20% of expenditure was for 2 bedroom houses/apartments aimed at families with up to 3
children, 25% of expenditure was on larger accommodation and the remainder was
special housing for the disabled or single parent families;
 median 10% expenditure on municipality projects was on accommodation costing
approximately 9,000 birr with an upper 10% range of 15,000 - 30,000 birr;

the department are concerned about the scheme, especially the municipality element. They feel
that it is being used an area where municipalities "dump" overheads and the department feel
unable to challenge overhead costs on the limited information that they collect. However they
are unlikely to be able to start a major review within the next 2 years. There are no other major
reviews known of and there is no evidence of either legislature or press interest in the scheme.
This is due in part to the absence of any form of external reporting by the department;
168

a brief review of some completed schemes by the audit team showed that whilst a majority
were completed and maintained to a good standard, and all the private housing appeared to be
in excellent condition, a significant minority of municipality housing appeared to suffering
from both structural and upkeep problems. There were also suggestions that major services,
such as water and sewage, were not adequate in some cases. DAI has no minimum regulations
for the quality of new build;

there have been no internal audit or consultancy scrutinies of the area.
No information was found from external agencies. The audit office has full access rights to
the department but no statutory access rights to the records or staff of municipalities. All
department papers are held centrally within the headquarters located in Addis Ababa.
169
RISK ANALYSIS SHEET
Audit area:
Housing - new build.
Produced by:
Priority:
Medium
Reviewed by:
Timing:
This year
Date: 29/10/19XX
CRITERIA
Background
Materiality
Risk to value
for money
COMMENT
Objective is to build new houses in areas of
greatest homelessness and overcrowding.
Assistance given to municipalities and private
sector. Individual grants are not limited in size.
Total expenditure of Birr 97m.
Grants to private sector: B 37m.
Public sector exp.: B 60m.
1. Municipality overheads charged to grant
scheme run at >30% of total public sector
exp..
2. Private sector exp. not going to people/areas in
greatest need
3. Inadequate control over quality of new build some schemes rapidly degenerated.
PRIORITY
(High/medium/low)
Medium
High
4. Evidence some individuals received very large grants.
Expenditure medium priority.
Public accountability Reporting to Executives very poor.
Nil reporting on performance to date.
1. Improved reporting.
Possible
2. Better targeting of grants.
impact
3. Improved departmental monitoring and control
of municipality overheads.
Executives/
Nil Executives interest to date, but poor VFM
public interest
likely to arouse concern. No known press
interest.
Risk to Internal
a strong public out cry about homelessness and
Audit
overcrowd
170
High
High
Low
High
CRITERIA
Departmental
issues
Suitability
COMMENT
Department concerned about apparent municipality
abuse of scheme. Likely negative
reaction to review of private scheme especially the
excessive grants to individuals.
No known problems.
1. Reporting aspects straight forwards
2. Problems with access to municipality records.
3. Assessing quality of new build will require
outside specialist assistance.
Other major work None known of.
planned/in
progress
Develop'ts likely
Department considering review of municipality
to affect
scheme but not within next year.
assessment
Conclusions and
Scheme has poor VFM and accountability.
overall priority
Some suggestion of malpractice. Study
difficult but possible with outside
assistance. Department will have to be
handled carefully but have no
legitimate objections to nature and
scope of study. Timing in next year
due to possible departmental review.
PRIORITY
(High/medium/low)
Medium
High
Auditability
171
Medium
High
Medium
Medium
APPENDIX 11: RISK ANALYSIS OF THE AUDIT FIELD A WORKED EXAMPLE
NAME OF THE AUDIT OFFICE:
AUDITEE:
REVISED BY
PRODUCED BY
DATE
STUDY ITEM
Materiality Risk
to
VFM
Public
account'y
Medium High
High
Impacts Executive
interest
Risk to Departme
Internal ntal issues
Audit
Suit'y
Audit'y
Other Developments
work
OVERALL
PRIORITY
TIMING
Medium
1984-85
Housing
New Build
High
Low
High
Improvement of urban
housing
Improvement of rural
housing
Displaced persons housing
etc.
Inputs
Building contracts
Interest payments
Major purchases etc.
Fin. Management
Municipalities
Zones
172
Medium
High
Medium High
Medium
APPENDIX
12:
REQUIREMENTS
FOR
PRODUCING
STRATEGIC AUDIT PLAN PROPOSALS
Performance audit assignment proposals should be brief (not more than 3 to 4 pages per
assignment) and should address the following matters:
–
–
–
–
–
–
–
–
–
–
(1) Background;
(2) Main policy objectives and instruments in the field to be covered (see note 1);
(3) Concerns regarding value for money and public accountability;
(4) Proposed scope of assignment (including materiality), and the audit issues to be covered;
(5) Legislature and public interest;
(6) Assurance of auditee's acceptance of proposal, or details of their objections and how the
division propose to handle these;
(7) Details of proposed methodology, including sources of evidence (note 2)
(8) Expected impacts of the study (note 3);
(9) Resource needs in terms of man-days for each of the 3 main assignment stages the
feasibility, the main investigation planning and main investigation. (consultancy and other
external expert costs should be separately identified);
(10) timing of feasibility, main investigation planning and main investigation starts and
completions with expected date for draft report.
–
Notes :
l. Policy Objectives/Instruments
Senior management require all study proposals to quote directly the audited entity's policy
objectives and instruments in the area covered by the investigation. Study proposals should
identify the source or authority for the policy objectives and instruments (e.g. relevant
legislation, departmental statement government report). Where no specific policy objectives
and instruments have been articulated, this should be clearly stated in the study proposal.
2. Methodology
Precise information is needed on how the study is to be carried out establishment of criteria
against which performance would be measured i.e. how economy, efficiency and effectiveness
issues would be examined; sources of evidence; techniques of data collection and analysis; and
types of consultants and their precise contribution.
3. Impacts
Each audit outline should include a paragraph assessing the potential impact or benefits of an
audit study, which should be an important factor in deciding between studies or selecting issues
from with in a study area. Likely impacts or benefits include quantifiable savings, or
unquantifiable improvements such as changes in systems that strengthen accountability;
improved control over assets; improvements in the quantity of outputs and services provided.
173
APPENDIX 13: STRATEGIC PLANNING - PLANNED USE OF
INTERNAL AUDIT RESOURCES - PRO FORMA
NAME OF THE AUDIT OFFICE
PRODUCED BY
RESOURCE REQUIREMENTS
REVISED BY
DATE
Plan for
1984-85
(staff months)
Plan for
1985-86
(staff months)
Direct audit work
Financial audit
Performance audit
Overviews
Marking
Strategic planning
Feasibility studies
Main investigation planning
Main investigations and Reporting
Total direct work (1)
Indirect work
Divisional inputs into
...central work (2)
Divisional management
Leave
Training
Other indirect
Total Indirect activities
TOTAL RESOURCE REQUIREMENTS
RESOURCES PRESENTLY
AVAILABLE
WITHIN INTERNAL AUDIT (1)
RESOURCES REQUIRED
OVER/UNDER
AVAILABLE
(1) This should include all available audit staff on internal audit within the year.
(2) Internal audit input into central work include contributions to training courses, attendance on
working parties and committees.
174
APPENDIX 14: PROPOSED USE OF CONSULTANT/ OUTSIDE
EXPERTS
NAME OF AUDIT OFFICE:
PRODUCED BY
REVISED BY
DATE
1984-85
Staff
months
1985-86
Cost
birr
Overview
Marking
Feasibility stage
1.
2.
3.
Main investigation planning
1.
2.
3.
Main Investigations
1.
2.
3.
TOTAL
175
Staff
months
Cost
birr
APPENDIX 15: IDENTIFYING THE METHODOLOGY - A WORKED EXAMPLE
NAME OF AUDIT OFFICE:
AUDITEE
PRODUCED BY
REVISED BY
DATE
This format illustrates how the audit methodology should be derived from the need to examine the issues
evaluative criteria, likely conclusions and expected recommendations. The example is based on the fictional
new build housing program introduced in this guide page 42 - 44.
ISSUES
EVALUATIVE CRITERIA
That government support for That the government should have
private sector new build has clear objectives for the programme
not gone to those in need.
including a statement of need
LIKELY CONCLUSIONS
Objectives clearly stated. Only
general statement of need.
EXPECTED
RECOMMENDATIONS
Gov't should develop precise
statement of need and target client
group.
METHODOLOGY
Review of departmental files and interview with
head of central policy unit (CPU) and Head of
housing policy.
That the department should have
assessed the characteristics of those
in need
No such analysis carried
out.
As above.
Review of CPU and housing
policy files.
That department should have clear
specification of characteristics of
those in need to be applied when
assessing
eligibility to grant.
Specification weak and gives
only fair representation of
characteristics of those in
need.
As above. OAG to
produce specification.
(1)Review of departmental files and
grant instructions .
(2) Audit team to draw up spec.
based on departmental objectives
and agree with department.
That departmental regulations and
instructions should specify the criteria
to apply in assessing eligibility to
grant. Criteria used should be based
on specification of characteristics of
need
Departmental regulations
contain criteria for selection
of applicants but these are
only fair representation of
those in need.
Dep't should produce:
(1) new grant instruct'ns
(2) grant assessment form for
assessing elig'y.
(3) Spec. of geographical eligibility.
(1) Review of departmental instructions to identify
any criteria
(2) Comparison of criteria in instructions with
specification drawn up above.
That only those applicants satisfying Department has not applied
eligibility criteria should be selected regulations rigorously.
to receive grant.
That there should be regular review
of effectiveness of scheme including
targeting of
grants.
Sample of 100 cases over last 2 years, covering all
sizes of grant and locations, to identify eligibility
criteria applied and to compare to specification
from above;
That grant should only go to those in That grant has not been limited As above.
need (as defined by eligibility
to those in need and significant
criteria)
number and value not satisfying
eligibility
criteria
176
(1)Analysis of information from sample
on the income of applicants and location of projects to assess whether
they accord with department's spec.
of those in need.
(2) Supplementary survey of applicants
to obtain information on income.
APPENDIX 16: AVAILABILITY OF INFORMATION - A WORKED EXAMPLE
NAME OF THE AUDIT OFFICE:
AUDITEE
PRODUCED BY
REVISED BY
DATE
This format illustrates the process of identifying information requirements from the methodology, evaluating the information availability and
analysing the effect that any gaps in the information may have on the likely conclusions and expected recommendations.
LIKELY CONCLUSIONS
EXPECTED
METHODOLOGY
INFORMATION
RECOMMENDATIONS
REQUIREMENTS
INFORMATION
AVAILABILITY
COMMENT
Overall objectives of program
clearly stated. Department have
only general statement of need.
Gov't should develop precise statement
of need and target client group.
Review of departmental files and
interview of head of central policy
unit and Head of housing policy.
(1) Clear statement of program
objectives
(2)Information on statement of
need.
(1) Available in dept'al policy
papers;
(2) Unlikely to be available in files
but will obtain from interviews.
No significant problems
No analysis by department of the
characteristics of those in need.
As above.
Review of CPU and housing
policy files
(1) Details of analysis or statement
that analysis not done.
(1) Analysis not likely to be
available; statement to that effect
from interviews;
No significant problems
Department has not applied
regulations rigorously in selecting
those to receive grant
That there should be regular review of
effectiveness of scheme including
targeting of grants.
Sample of 100 cases over last 2
years, covering all sizes of grant
and locations, to identify
eligibility criteria applied and to
compare to specification from
above;
(1) Data on each grant given
including (a) size; (b) location (c)
criteria for selection (d) income of
recipient (e) total cost of housing;
(2) specification from deptal
guidelines of need
(1) Some information available but
c and d unlikely
(2) to come from previous tasks.
Likely conclusion will
have to be limited to
pointing out that dep't
have inadequate criteria
and have not allocated
grants to maximise
effectiveness of
expenditure.
That grant has not been limited to
those in need and that a significant
number and value of grant has gone
to those not satisfying eligibility
criteria.
Dep't should produce:
(1) new grant instruct'ns
(2) grant assessment form for assessing
elig'y.
(3) Spec. of geographical eligibility.
(1)Analysis of information from
sample on income of applicants
and location of projects to assess
whether they accord with
department's specification of
those in need.
(2) Supplementary survey of
applicants.
(1)Analysis of information from
sample on the income of
applicants and location of
projects to assess whether they
accord with department's spec.
of those in need.
(2) Supplementary survey of
applicants to obtain
information on income.
(1) as 1 above;
(2) departmentally agreed
specification of need;
(1) problems from sample as
above; applicants unlikely to give
data on income;
(2) from previous tasks
Likely conclusion may
be unable to show
conclusively that grants
have gone to ineligible
people
177
APPENDIX 17: MAIN INVESTIGATION TIME AND COST
BUDGET
Index No. _____
NAME OF AUDIT OFFICE:
AUDITEE _______________________________
_______________________________
Date ___________
TIME
WORK
DAYS
COST
A. DIVISION COSTS
Internal Audit Department
Senior auditor II
Senior auditor I
Team leader
Auditor
Assistant auditor
TOTAL DIVISIONAL COST
(B) Other AO staff
AO statistician
TOTAL AO STAFF COST
(C) Subsistence costs
TOTAL AO INTERNAL COSTS
(D) External costs
Consultancy
Other external costs
TOTAL EXTERNAL COSTS
TOTAL COST
Prepared by __________________
Revised by ___________________
Approved by _________________
Sig. ________________
Sig. ________________
Sig. ________________
178
Date ______
Date ______
Date ______
APPENDIX 18: PRINCIPLES OF AUDIT EVIDENCE
What is Evidence
1. Evidence is the specific information obtained during our work through such activities as the
analysis of records and other data, interviews and observation. In performance audit evidence
means facts or information to prove or disprove proposition or assertion (criteria). Conclusions
& recommendations must be based on hard audit evidence. Evidence collection should be
directed towards examining questions of the economy, efficiency and effectiveness in the audit
issues under review.
2. Auditors should obtain relevant and reliable evidence, sufficient enough to enable them to draw
reasonable conclusions & make recommendations:
RELEVANT:
relevance refers to the relationship of the evidence to its use. The
information used to develop an issue should be based on the most current
data available and must have a logical, sensible relationship to the issue in
question. Information that does not have this relationship is unsatisfactory
as evidence. If the latest available evidence seems out of date we should
satisfy ourselves as to its continued relevance and give reasons for its use.
RELIABLE:
The evidence collected should be the most accurate and obtainable through
the use of reasonable audit methods. In considering the reliability of
evidence the auditor should carefully consider whether there is any reason
to doubt its validity or completeness. This is important where different
types of evidence suggest inconsistency. So if there is doubt we should
seek to obtain additional evidence but alternatively may qualify our
conclusions accordingly.
SUFFICIENT:
sufficient evidence is that which would lead a reasonable person to the
same conclusions as our own. Determining the sufficiency of evidence
requires careful judgment, particularly when there is conflicting evidence
and we are required to judge on which side the balance lies. This judgment
will be influenced by a wide variety of matters including: the auditor's knowledge e.g. of the audited entity and its environment;
 the materiality of the matter in hand;
 the degree of risk that insufficient evidence will lead to a misleading
presentation or conclusion;
 the persuasiveness of the evidence;
 the likelihood of challenge by the audited entity.
This judgment should only be made after the relevance and reliability of
the conflicting material has been assessed, and should be recorded in
working papers.
Categories Of Evidence:
1. There is no international agreement about the categorization of evidence.
The
classifications of evidence vary from literature to literature. In this guide evidence is
categorized as documentary analytical, physical and testimonial.
DOCUMENTARY: documentary evidence consists of file papers, management reports,
operating manuals, staff instructions etc.. Documentary evidence often
provides the most reliable type of evidence although it can be timeconsuming to gather and the auditor must guard against misinterpretation.
It is important as corroboration for oral evidence. Documentary evidence
need not be internally produced by the audited entity. Evidence obtained
179
from outside sources is valuable although in such cases we need to be
particularly sure as to its validity.
ANALYTICAL:
analytical evidence is obtained primarily by examining and making
judgments about data collected in the course of audit work. It can for
example include comparisons, surveys and samples as well as facts and
figures obtained through a variety of quantitative techniques. Computer
and quantitative techniques can be used to analyze the evidence.
PHYSICAL:
obtained by direct observation of people, property or activities. It is very
important that we recognize the value of physical evidence and effectively
use the technique of observation. For example, we can observe the
conditions of structures and equipment and people's activities. Opportunity
should be taken where practicable to note the observations, property or
other resources of those we audit because a condition seen is a useful form
of evidence. However it may be necessary to seek further evidence to
convince others. In practice the results of physical observation will be
documented in working papers and such corroborative evidence should be
sought.
TESTIMONIAL:
testimonial evidence is that which is obtained from others through oral or
written statements received in response to audit inquiries or through
interviews. Records of interviews may consist of memoranda based on
notes taken during the interviews. Statements by officials of the audited
entity (e.g. explanations, justifications, lines of reasoning, and intentions)
are valuable sources of information not always readily available from
elsewhere. However, they need to be used with caution as standing alone
they have limited value as they may be from biased sources, will generally
be subjective, cannot always be verified and may not reflect the official
view. Where such evidence is crucial to our work it should be
corroborated as far as possible (i.e. by agreeing the notes of meetings).
Such evidence can be extremely useful in getting an up to date picture on
the audited entity's management view of their own performance. However
care must be taken to distinguish between fact and opinion.
Audit Evidence Collection Techniques
2. The main techniques available in collecting the above types (categories) of evidences are
described below.
Interviews
3. Interview is the technique for collecting testimonial evidence. To be effective, interviews
should be properly planned and the interviewer needs to be familiar with the subject to be
discussed. The questions that can be used during the interviewing session should be
prepared in advance.
4. Note taking is advisable during the interview and should be written as soon as possible after
the interview. If such oral evidence collected is significant to the investigation, written
confirmation of the record of the interview should be obtained from the interviewee. The
interview sheet used to collect evidence should include the name of the interviewee and its
post, the interviewer and the date.
180
File Examination
5. The prime source of documentary evidence is the examination of the auditee organization’s
files and papers. The information collected from the file examination can be summarized
and recorded in the auditor’s own words on working paper folders (WPFs). ). (Format
attached as annex 1 in this Guide can be used during file examinations.) Important
documents and those conveying significant or potentially controversial matters should be
photocopied and originating file recorded on the copy.
6. It is important for the auditor to realize that all relevant papers may not be contained on
files which are registered. There may be other relevant files which the auditor is not aware.
It is, therefore, essential to seek assurance on the completeness of the evidence obtained.
External Papers
7. Paper originating from outside the audited entity may also provide a valuable source of
documentary evidence. Examples include government papers, published economic analysis
and reports from other public and private bodies, papers from international offices and other
audit office. Foreign sources and comparisons can be drawn upon as well as those available
nationally.
Specialist Assistance
8. Specialist in the subject of the investigation (if necessary) can enhance the scope and
penetration of the examination. Such service should be properly planned, obtained and
monitored to get relevant, reliable and sufficient evidence that meets the expected standard
of quality. Possible sources include consultancy firms, academics, professional bodies,
research organizations and selected individuals. Detailed guidance is given in this Guide on
(App 19).
Market Research
9. Market research involves commissioning a survey by a specialist firm or carrying out the
survey using own staff. It can provide useful evidence on the results achieved by
programmes or projects, in particular where the intended impact is directed on identifiable
groups. Survey can be costly. It requires special care in the choice of question, structuring
the question and sample selection. Contacting and collecting views from outside users of
the organization’s service on those affected by the activities of the organization could be
used to smaller groups. For example, use can be made of the informal views and comments
of the external groups such as trade associations and other interested parties.
Analysis
10. A collection of raw data may not by itself give meaningful information. Further analysis
should be done. Such analysis may involve taking evidence already gathered and reperforming it to produce fresh evidence. Evidences collected using the above techniques
can sometimes be analyzed to produce further evidence. Using statistical operational
research, computer modeling etc. techniques.
181
ANNEX 1
NAME OF THE AUDIT OFFICE:
FILE EXAMINATION SHEET
INDEX NO.______________
AUDITEE ___________________
Issue
(Sub Issue)
Evaluative
criteria
Produced by______________________
Reviewed by _____________________
Date ____________________
Date of the
evidence collected
Evidence
collected
182
Finding/Conclusions
Source
file Ref.
Remark
APPENDIX 19: MANAGEMENT AND USE OF CONSULTANTS
1. Introduction
This part of the guide provides advise on the selection and use of consultants in performance
audits. Consultancy is expensive. This puts a premium on cost-effectiveness and on the audit
office managing the use of consultants effectively from the selection process to the final review
of their output.
To get the best results:







Identify tasks, opportunities and new approaches where consultants' experience and
expertise could benefit the work.
Select the right consultants for the job.
Bring them in early.
Set firm objectives, clear terms of reference and tight budgets.
Integrate the consultants' contribution with the work of the rest of the team.
Supervise and manage the work through to a successful conclusion.
Learn lessons for the future.
2. Why Use Consultant?
Always think through exactly what kind of contribution consultants will make to the work.
Ask yourself:
Are their skills really necessary?
What extra dimension would they add?
What are the expected benefits over doing the work in-house?
Are the benefits likely to be worth the extra costs ?
Could their employment create any special problems?
Are there longer term benefits or risks?
The possibility of using consultants, and on what tasks, needs to be considered in the early
stages of planning the work. Deciding to bring in consultants after an examination has started
is unlikely to be successful. Remember it can take up to three months - and sometimes longer from identifying the need to issuing a contract.
Always try to draw the attention of consultants to possible requirements for their services in
good time, both on specific tasks and more generally. They can then plan ahead to help ensure
that they are in a position to offer assistance. Too short a period of notice makes it difficult for
them to respond to best effect, and to put forward the right staff. Their best people may be
booked up for some time ahead.
Main reasons for using consultants are:
 to tap into outside experience and expertise and draw on wider disciplines and specialist
skills.
 to add breadth and penetration to examinations.
 to identify new approaches and introduce different perspectives.
 to survey best practice in relevant outside fields and activities.
 to provide a cross-check on the audit office's own approach, methods and costs.
 to provide extra resources to meet peak workloads.
 to advance delivery dates and help to meet deadlines.
 to add weight to findings, conclusions and recommendations.
183
3. What kind of Consultant?
There are no fixed rules on what kind of consultants are best suited to particular tasks or
projects. Costs as well as benefits need to be compared in deciding which type of consultancy
to choose. And remember that the consultant chosen will need to have the resources and ability
to meet tight deadlines and possible changes as the work develops.
In practice, the choice is likely to lie within one of three broad categories:
 a consultancy firm or similar organization;
 an individual or group with an academic or research involvement in the subject or area
under examination, or skilled in relevant disciplines or analytical techniques;
 someone with in-depth experience and an expert practical background in relevant
operations or business activities.
Consultancy firms command the largest resources and are able to offer a wider range of
services. They have the advantage of being able to draw on a variety of disciplines to provide
teams of staff and managers to work in the field as part of the main investigation. A number
have a background in public sector work. Remember that the necessary expertise may be found
in the smaller specialist firms as well as the larger management consultancy groups.
Individuals might typically be used to advise on the overview, marking and strategic planning
and feasibility work as well as on specific examinations. They can be used as part of an audit
team, but it is often much easier to use them flexibly - in short concentrated bursts - at
successive stages of an examination. Working in this way can be highly cost-effective as well
as being attractive to the individuals concerned, since their time is not then tied up for long
periods.
Both consultancy firms and individuals may be used to review strategic thinking and to suggest
ideas for future directions or areas of work. They may advise on plans for individual
examinations, and be brought back to review emerging main investigation results and provide
further analysis. And they may be used to review final results and the conclusions and
recommendations to be included in reports. Their contribution and support are often valuable
in discussions with audited bodies at the end of the main investigation about our findings and
recommendations.
4. Telling the Audited Entity
The intention to use consultants on audit examinations should be discussed with the audited
body at an early stage. They should also be kept in touch as necessary as the work develops
and results emerge.
Though the audited entity's views must be taken fully into account, decisions on selection and
use of consultants are ultimately the responsibility of the audit office.
Good communications with the audited entity gives them the opportunity to:
 put forward any general reservations or suggestions about using consultants;
 confirm their acceptance that the prospective consultants can in principle be expected to
produce soundly based and authoritative conclusions;
 raise any questions about the access the consultants will need to auditee's records,
documents and other information;
 discuss potential difficulties over individual consultants or consultancy firms, for example
on security grounds, on commercial confidentiality, or because of possible conflicts of
interest with other work;
 seek information on how the results of the consultant's work will be handled during and at
the end of the examination;
 advise on possible sources or candidates for the assignment.
184
5. Short-Listing Candidates
Having decided on the type of consultancy required, the next step is to identify possible
candidates. Make an initial selection from such sources as:
 Consultants who have previously carried out successful assignments for the audit office;
 Inquiries amongst known experts in the field;
 Professional bodies and similar organizations, including private organizations;
 Industrial Project Service;
 Standard reference sources;
 Suggestions by the audited entity;
Once possible consultants have been identified further informal inquiries - for example by
telephone - should enable a short-list to be drawn up of those available to undertake the
assignment and interested in quoting for the work.
These initial discussions are valuable in providing an opportunity for an early assessment of the
capabilities of potential bidders. But avoid building up a special or preferential relationship
with any individual or consultancy firm competing for the work or otherwise giving them an
advantage in securing the assignment. Competitive tenders should be the normal rule.
6. Financial Control
Likely costs have to be considered at all stages of the work. It is the Head of internal Audit job
to ensure that sufficient funds are available for the assignment; that costs and commitments are
monitored against approved budgets; and that costs are contained and penalties avoided.
But remember that costs aren't everything. Generally you get what you pay for, and the quality,
speed and timeliness of the work are also crucial factors. Keeping costs under tight control is
essential; but it would be foolish to jeopardize the usefulness of the work, and perhaps hinder
the investigation as a whole, by taking concern for costs too far.
To ensure sound financial control:
 Draw up a specification of the objectives, scope and timing of the assignment;
 Prepare a provisional estimate of fees and expenses as soon as possible, and certainly
before going out to tender;
 Confirm availability of funds and provisional budget approval;
 Review the scope of the work and/or budget in light of tenders submitted and confirm
revised approval as necessary;
 Monitor costs against budget as work proceeds and agree prices in advance for any extra
work to be carried out;
 Revise work plans to keep within approved budget, or obtain revised approval as
necessary for essential extras.
7. Seeking Bids
Bids should normally be obtained by competitive tender from 3-5 firms. Single tender action
may be appropriate where the assignment extends an existing contract won in competition, or
where there is clearly only one source of assistance. Exceptionally this may also be necessary
where time is very short.
Tenderers should be provided with a background brief which covers such matters as the
responsibilities and work of the audit office. The brief should also outline the audited entity's
responsibilities, main functions, and organization; and it should set out the background to and
main aims and objectives of the examination. This gives the tenderers a clearer idea of the job
and helps them tailor their proposals to the audit office's needs.
Negotiations and discussions with the potential consultants are the responsibility of the line
division concerned, taking care to avoid any premature commitments. Discussions with
185
tenderers should normally take place in the audit office on a straightforward "business" basis.
Entertainment of, or by, competing consultants should be avoided.
Main matters to be covered:
 Provide tenderers with a background brief;
 Set out clear terms of reference for the work;
 Explain to tenderers how their work will interact with the rest of the team;
 Make it clear that the audit office's work requires a high standard of evidence and
rigorous analysis
 Encourage tenderers to discuss the requirements and seek further information and
explanations;
 Invite their ideas on alternative ways of carrying out the work;
 Decide main criteria for assessing proposals and bids.
8. Assessing Proposals
Decide in advance the criteria to be used to evaluate the individual proposals received from
consultants. A first sift of the bids may then eliminate those which are clearly not suitable on
content, quality or cost grounds. But do not hesitate to go back to the consultants if any issues
have not been adequately covered, or there is uncertainty over coverage, pricing or other
matters.
Main points to be covered in assessing individual proposals:
 Are the consultants experienced in the field under examination? Are they well versed in
public sector concepts?
 Can they demonstrate achievements and results in relevant areas? Have they a good track
record? (Inquiries into their previous work should stop well short of expecting them to
breach client confidentiality);
 Do their proposals conform to the terms of reference? Do they demonstrate a sound grasp
of the aims and objectives of the office and of the particular examination?
 Have they analyzed the task requirements carefully and thoroughly? Are their approach
and methodology sound?
 Are the individuals who will personally undertake the work capable, experienced and of
high quality?
 Is there a clear commitment of partner and senior management back up?
 Will additional resources be available as necessary to help?
 overcome any problems?
 Is there an obvious willingness to meet the office's particular requirements? Do they fully
recognize the need to fit in with the rest of the team?
 Are they committed to the timing of the work and meeting the agreed deadlines and
delivery dates?
 Do they recognize the importance of clear control and reporting arrangements?
 Are the costs firm and clearly set out? Does the bid provide an appropriate analysis of
time and charge-out rates? Are expenses and other costs clearly identified? Are there any
"hidden extras"?
9. Choosing the Winner
Further analysis and inquiries on the remaining proposals will normally produce a clear-cut
decision as to which consultant should be awarded the contract. The administration division of
the audit office will then deal with the contractual arrangements, liaising as necessary with the
line division. The tenderers not selected will also be informed and, if they wish, given a brief
explanation as to why their proposal was not successful.
In some cases it may be difficult to accept a consultant on cost grounds, even though they are
clearly the best equipped to carry out the assignment. In this situation, the consultants
186
concerned should be approached to discuss ways in which the fee might be reduced, perhaps by
modifying or re-scheduling the work. But remember that such discussions need careful
handling to avoid undermining the original tendering procedures.
Having evaluated the individual proposals:
 Compare the strengths and weaknesses of the competing bids;
 Check any differences in the bases of fees and the comparability of prices quoted;
 Eliminate any proposal clearly not suitable;
 Draw up a list of matters requiring clarification on remaining bids;
 Arrange meetings to discuss any doubts or clarifications with those who are to do the
work. Assess their overall attitudes, capabilities, suitability, and commitment;
 Watch for independence, objectivity, freedom from political bias, drive enthusiasm and
constructive ideas;
 Decide which proposal represents best value for money, on content, quality and cost;
 Review terms of reference with the provisionally selected consultant and amend as
necessary as basis for formal contract;
 Supply the administration division with documented evaluation of competing bids and
recommend consultant to be selected.
10. Working Relationships
Good working relationships are essential to get the best out of consultancies. All aspects of an
examination must remain under the office's control; but remember that the consultants are an
important part of the team and will provide better value for money by being given every
opportunity to deploy their experience and abilities.
Generally there should be a clear recognition that throughout the assignment the consultants are
representatives of the office; and they will be treated as such and should act accordingly. High
standards are expected on both professional and personal conduct.
Working effectively with the consultants means the principal auditor should:
 Set up the necessary liaison arrangements, including timing of interim reports and
meetings at key stages;
 Make sure from the outset that there is a clear understanding about the scope of the
consultants' work, timetable, and deadlines;
 Encourage two-way traffic and an effective working relationship between the consultants
and the rest of the team;
 Establish arrangements for identifying and dealing with any emerging problems;
 Ensure that any variations to the work, and extra costs, are cleared and approved in
advance, and the contract amended accordingly;
 Review and discuss the consultants' reports promptly, linking their findings with work of
the rest of the team and ensuring feedback.
11. Reviewing Findings
Work done by consultants in effect becomes the audit office's work. We cannot hide behind
their reputation or expertise. So their findings and conclusions need to be independently
reviewed to ensure that they meet the required standards.
In specialist fields this may not always be easy; but it cannot be avoided if the final audit Office
report is to be presented to the head of audited entity.
When reviewing the consultant's work:
 Satisfy yourself that the coverage has been properly carried out and is based on sound,
documented evidence;
 Ensure that the findings and conclusions in the consultant's report are accurate, fair and
balanced;
 Watch that recommendations are practical and cost-effective;
187

Check the consistency of their work, findings and recommendations with those of the rest
of the audit team;
 Pay special attention to those aspects which have caused, or are likely to cause, particular
difficulties with the audited entity;
 Discuss and resolve potential difficulties with the consultants, and seek their advice on
how their work can best be used.
Think hard about the best ways of dealing with the consultants' findings when deciding on the
content and presentation of the final report to be published by the audit office. Whichever
course is adopted, it should be made clear that the audit office stands by the end product. We
cannot distance ourselves from the consultants' findings.
In some cases consultants may wish the results of some or all of their work to be published
separately, or used for other purposes. This requires our approval and cases should be
considered on their merits in consultation with the head of audited entity.
Consultants findings may be used in the following ways:
 No written report by consultants, but findings discussed and incorporated as necessary in
final published report;
 Consultants submit written report to the audit office, but this is wholly subsumed within
the final report;
 Consultants' findings are included in whole or in part in final report, and are identified
accordingly;
 Consultants' report, or summary, is included as separate chapter or annex in final report;
 Consultants' report is published separately by the audit office, as complementary to the
main report.
12. Assessing Performance and Learning Lessons
It is important to realise the full benefits of the consultancy by learning lessons for the future.
This also helps to build up a record of performance as a basis for placing future work.
Reviewing the work should be done in frank discussion with the consultant and with the rest of
the audit team. The aim should be to learn lessons from successes achieved as well as from any
difficulties encountered.
Reviewing the work should be done as quickly as possible, whilst thoughts on both sides are
fresh. A brief written report, highlighting good and bad points and assessing the consultants'
overall performance, should be sent to the management division.
Main aspects to be covered:
 Did the work meet the agreed task objectives?
 Was it completed within the agreed cost?
 What difficulties arose and why?
 Were problems anticipated, or spotted at an early stage, and satisfactorily resolved?
 Was there good co-operation and co-ordination with the rest of the audit team?
 Were the results of the consultants' work soundly based? Did they make a valuable
contribution to the final report?
 Did the consultants provide other "added value" to the examination?
 What ideas and suggestions do the consultants have for improving future arrangements?
 Do they have any wider-ranging ideas and suggestions for other aspects of the audit
office's work, for example in such areas as planning, staffing and management?
 Are there any other lessons for the future?
188
APPENDIX 20: FACT SHEET
NAME OF THE AUDIT OFFICE
AUDITEE
DATE
AUDITORS
FACTS
COMMENTS
(by the Auditee)
Example:
I. Scheduled and actual project implementation time:
Phases
Schedule/plan
Actual
I
January 1978
March 1978
II
January 1983
April 1984
III
April 1, 1988
October 1988
II)
Beside the delay in the commencement of each of the three phase
of the project, there were delays in the implementation of
scheduled project activities. This fact can be seen by a close
examination of the work plan of phase III; which is part of the
project document and indicates the scheduled starting and
completion time of project activities. No such workplan is
attached to project documents for the first 2 phases. Hence, it is
difficult to make analysis of activity implementation timing.
True
True, the delays were due
to the executing agency
failure to discharge its
responsibilities.
Purchases and placement
of fellows for training
were the main activities
delayed.
Source: Project document and progress reports.
FACT SHEET (Continued)
FACTS
COMMENTS
(by the Auditee)
Outputs
I)
The pathology laboratory was strengthened with the assistance of
the International expert.
Dr.W.B.O.Robert
No. It was established in
the project life.
II)
Equipment identified in the project document were received to
strengthen various laboratories in the Institute.
True.
III)
The preliminary design for the laboratory building of the Institute
was done by the International expert.
True.
Source: Phase II project document and respective progress reports
I, hereby certify that the above facts together with my comments are correct.
Name
Signature
Post
Date
189
APPENDIX
21:
TIME
AND
COST
BUDGETING
AND
MONITORING
1.INTRODUCTION
1.1. This part of the guide outlines techniques for budgeting and monitoring of the time and
cost of the main investigation.
1.2. “Time” can be defined as the hours that each grade of staff will spend on each of the
operations in the main investigation. Its importance is that staff input is normally the
principal resource we use to execute investigations. Time must, therefore, be controlled
effectively if studies are to be kept on track and delivered to budget.
1.3. “Cost” is the full monetary value of the resources used in carrying out the investigation. It
will include the value of the staff hours, any consultant fees and ancillary costs (e.g. travel
and subsistence payments). Cost is important to management, firstly, because it helps us
assess whether we are using the various grades of staff efficiently (principal auditors cost
considerably more per hour to employ than assistant auditors) and because it allows us to
monitor staff time, consultant costs and ancillary expenditure using the same base of
measurement - money.
2. Planning Stage
2.1. As explained in Chapter 3, the first step in planning the main investigation is to split the
audit down into discrete, manageable tasks and sub-tasks - hereafter called “operations”.
The example in annex 1 illustrates this process. Note that it incorporates all operations
requiring staff input during the study, including all necessary planning and control, liaison
(both with the audited entity, outside bodies and any consultants), communication within
the team, documentation and review tasks, as well as the general execution of audit
programmes. If budgets are to be accurate, and monitoring to be effective, the inclusion of
all such operations is essential.
2.2.Time budget: the time budget is produced by estimating the hours that each grade of staff
will need to input into each operation to complete the study successfully. An example is at
table 1.
2.3. Estimating is largely a matter of experience but certain “rules” should be followed:
 ensure that you have allowed for the time of all staff who you will need to employ on the
audit. In table 1, the audit offices statistician’s time has been included, as well as the
main audit team;
 recognize that the different grades of audit office's staff should have different roles and
responsibilities within the audit. For example, junior staff should not be made
responsible for liaison with the audit entity's top management. Equally, using head of
internal Auditors to extract files for examination is inefficient;
 be realistic about estimates. If in doubt, it is always better to err on the side of
conservatism than optimism. Estimators have a tendency to be overly optimistic, underestimating the time that operations will take; to counter this management should look
critically at all estimates. If budgets are too optimistic they will prove of little value to
management during the main investigation;
 avoid spurious accuracy.
There are a variety of estimating procedures which
management can use, but they are all open to some degree of error round up estimates
(following the principle of conservatism), as appropriate. For example, management may
190
estimate that it will take an average of 3.5 hours of auditor time to examine each of 35
cases, giving a total time of 122.5 hours. This should be rounded up - say to 130 hours;


allow for contingencies. It is rare for a study not to produce some unexpected and
unplanned event. Though these may lead to savings in time, they have a tendency to
cause extra use of resources. In table 1, a 10% contingency allowance has been built
in for each grade of staff;
recognize that there will be a learning time for all staff on the study. This can be built
into
each
operation
or
into
the
contingency
allowance.
191
APPENDIX 21/1: TIME BUDGETING FORM
NAME OF THE AUDIT OFFICE
REVIEWED BY
AUDITEE
PRODUCED BY
Task
No.
1
Task description
APPROVED
DATE
Principal Senior Team Auditor Assist't AO
TOTAL
Auditor Auditor Leader hours Auditor Stats BUDGET
hours
II
hours
hours hours HOURS
hours
Planning
30
80
30
10
10
0
160
Departmental objectives
Review of CPU files
Review of housing files
Interview of CPU
Interview of housing
Documentation of task 2
0
0
0
0
0
0
0
0
0
0
10
10
5
5
4
30
30
5
5
10
5
10
0
0
0
0
0
0
0
0
45
50
10
10
14
5
5
5
10
20
5
10
0
0
0
0
0
40
20
0
5
5
60
0
0
70
0
0
0
2
5
20
3
5
100
10
25
230
0
60
50
10
5
0
25
100
400
5
5
0
0
5
10
0
0
10
10
1
1
20
10
5
5
0
5
15
15
10
20
0
0
50
60
21
21
7 Analysis of review
7.1 Input to computer
7.2 Analysis of sample and survey
0
5
0
5
5
10
10
70
70
10
5
100
90
200
8 Reporting
8.1 outline
8.2 Draft Report
2
5
3
10
10
50
0
0
0
0
0
0
15
65
9
9.1
9.2
9.3
9.4
0
5
5
40
3
5
15
150
10
5
10
20
5
13
5
0
5
5
0
0
2
2
0
0
25
35
35
210
10 Contingency
10
35
30
60
25
15
175
TOTAL
122
368
374
628
285
169
1946
2
2.1
2.2
2.3
2.4
2.5
3 Specification of need
3.1 AO draw up specification
3.2 Liaison with dep't re spec.
4
Review of deptal instructions
5
Review of scheme
performance
- sample of 100 cases
5.1 Definition of sample
5.2 Sample extraction
5.3 Sample review
6
6.1
6.2
6.3
6.4
Review of scheme
performance
- survey of applicants
Selection of surveyees
Preparation of survey
Distribution of survey
Reminder to surveyees
Administration
Summary sheets
Team meetings
Liaison with depts
Management review of WPFs
192
2.4. Cost budget: because staff time is the principal resource used in performance audit the cost
budget is heavily based on the time budget. The input of each grade should be multiplied
by the appropriate hourly cost for that grade to come to the total cost of staff input. To
this should be added any extra costs for consultants and ancillary expenditure. Thus total
budgeted cost equals:
(estimated principal auditor hours x the per hour cost of a principal auditor) +
(estimated senior auditor II hours x the per hour cost of a senior auditor II)+
+.............+
(estimated assistant auditor hours x the per hour cost of an assistant auditor) +
Consultant costs +
Ancillary costs
An example of a cost budget is at table 2. Note that the budget is cast at the task, rather
than operation level. This will normally be sufficient both for budgeting and control
purposes.
3. Main investigation stage
3.1. During the main investigation management must ensure that resources are used efficiently
and effectively if the study is to be delivered according to timetables and to cost.
Management needs to monitor the use of resources accurately and promptly, if they are to
control the study. This should cover both time and cost.
3.2. Time monitoring: as explained above, because staff input is the principal resources used,
the monitoring of staff time is an essential part of the management process.
Monitoring of time consists of:
 tracking of time spent to date on each operation;
 identifying the extent to which the operation is complete the operation;
 estimating the further time needed to complete the operation;
 computing the total time that each operation will have taken from start to completion;
 comparing to budgets to identify significant variations.
3.3. An example of a time monitoring form is at table 3. This has not been subdivided by
grade, though in the normal course of events it should be. (Through not always required
for control of staff time, management will need information on the hours spent by each
grade on each operation in order to monitor costs accurately). Any additional operations,
over and above those originally budgeted, which are needed to complete the study
satisfactorily, should be included (operation no 11 in the example). Management should
identify and consider the reasons for all major variations (e.g. operations 3 & 5 in table 3),
taking appropriate corrective action as necessary.
193
APPENDIX 21/2: COST BUDGETING FORM
NAME OF THE AUDIT OFFICE
AUDITEE
PRODUCED BY
Task
No.
Task description
Cost per hour of each grade
(in birr)
1
2
3
4
5
6
7
8
STAFF HOURS
Planning
Departmental objectives
Specification of need
Review of deptal instructions
Review of scheme performance
- sample of 100 cases
Review of scheme performance
- survey of applicants
Analysis of review
Reporting
REVIEWED BY
APPROVED BY
DATE
Principal Senior
Team Auditor Assist't
Auditor Auditor II Leader
Auditor
AO
Stats
TOTAL TOTAL
TASK
TASK
HOURS COST
(BIRR)
8.7
6
4.3
3.6
2.5
3
30
0
10
0
0
80
0
15
5
27
30
34
25
5
108
10
80
10
60
265
10
15
0
0
110
0
0
0
0
15
160
129
60
70
525
10
15
22
40
35
30
152
5
7
5
13
15
60
80
0
80
0
105
0
290
80
9
9.1
9.2
9.3
9.4
Administration
Summary sheets
Team meetings
Liaison with depts
Management review of WPFs
0
5
5
40
3
5
15
150
10
5
10
20
5
13
5
0
5
5
0
0
2
2
0
0
25
35
35
210
10
Contingency
10
35
30
60
25
15
175
122
1001
368
2130
374
1350
628
2261
285
713
169
507
1946
TOTAL STAFF HOURS
TOTAL STAFF COST
NON STAFF COSTS
931
472
321
268
1900
0
593
0
941
800
0
98
160
195
1334
0
750
8761
Consultant costs
Ancillary cost
- travel and subsistence
Nil
TOTAL
STUDY
COSTS
3.4. Cost monitoring: monitoring of cost involves evaluating the monetary value of staff input
adding any further consultant or ancillary costs incurred. Again, management should:
 track expenditure to date on each cost generating task (staff time, consultant costs and
ancillary expenditure);
 estimate the further cost needed to complete the task, adding the cost of any extra
tasks, over and above those originally budgeted, which are needed to complete the
study satisfactorily;
 compute the estimated total cost of each task from start of the study to completion;
 compare to budgets to identify significant variations and explain any significant
variations.
3.5. Though the largest aspect of controlling study costs is by monitoring and controlling staff
input, cost monitoring important in:
• identifying the effect of varying the grade of staff used to undertake operations;
• controlling consultancy and ancillary costs; and
• assessing the overall cost of the study.
194
150
8911
4. Conclusion
4.1. Effective monitoring, and consequently adequate control, requires sufficient reliable
information. Above all else management needs to know the level of staff input into each
operation. In the absence of a formal time recording system within the audit office,
management may find it useful to require staff to record the time they spend on each
operation in the study each week. A pro-forma for time recording on studies is at annex. 2
195
APPENDIX 21/3: TIME MONITORING FORM
NAME OF THE AUDIT OFFICE
REVIEWED BY
AUDITEE
PRODUCED BY
Task
No.
Task
description
APPROVED BY
DATE
Budgeted
hours
Actual
to date
(hrs)
1
Over/
Percent Estimate
(under) complete
to
budget
complete
(hrs)
(hrs)
Estimated
Total on
Complete
(hrs)
Estimated
over/(under)
budget on
completion
COMMENT
Planning
160
90
-70
65
80
170
10
2
2.1
2.2
2.3
2.4
2.5
Departmental objectives
Review of CPU files
Review of housing files
Interview of CPU
Interview of housing
Documentation of task 2
45
50
10
10
14
49
57
5
4
11
4
7
-5
-6
-3
100
100
100
100
100
0
0
0
0
0
49
57
5
4
11
4
7
-5
-6
-3
3
3.1
3.2
Specification of need
AO draw up specification
Liaison with dep't re spec.
40
20
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
-40
-20
4
Review of deptal instructions
70
32
-38
80
5
37
-33
5
Review of scheme performance
- sample of 100 cases
Definition of sample
Sample extraction
Sample review
25
100
400
30
103
80
5
3
-320
100
100
40
0
0
120
30
103
200
5
3
-200
6.1
6.2
6.3
6.4
Review of scheme performance
- survey of applicants
Selection of surveyees
Preparation of survey
Distribution of survey
Reminder to surveyees
50
60
21
21
45
72
0
0
-5
12
-21
-21
100
100
0
0
0
0
21
21
45
72
21
21
-5
12
0
0
7
7.1
7.2
Analysis of review
Input to computer
Analysis of sample and survey
90
200
0
0
-90
-200
0
45
120
45
120
-45
-80
8
8.1
8.2
Reporting
Outline Report
Draft Report
15
65
15
65
0
0
100
100
0
0
0
0
0
0
9
9.1
9.2
9.3
9.4
Administration
Summary sheets
Team meetings
Liaison with depts.
Management review of WPFs
25
35
35
210
12
15
33
37
-13
-20
-2
-173
20
20
40
170
32
35
73
207
7
0
38
-3
10.
Contingency
175
5
-170
N/A
40
45
-130
11
11.1
11.2
Additional tasks
Survey of Zones and regions
Visit to Zones/regions to
review and collect data
N/A
0
N/A
0
120
120
120
N/A
0
N/A
0
120
120
120
}
} see summary sheet
} on 1 st criteria
N/A
0
N/A
0
30
30
30
}
1866
680
-1126
972
1652
-214
5.1
5.2
5.3
6
11.3
Analysis of data from X.2
TOTAL
196
See summary sheet
See summary sheet
} Reduced scope
} - see summary sheet
}
} Reduced scope
} - see summary sheet
APPENDIX 21-ANNEX 1 - SUBDIVISION OF A STUDY INTO TASKS AND SUB-TASKS
This annex, based on the study of housing in which presented in this Guide App.17, illustrates the
process of dividing a study into discrete and manageable tasks and subtasks as a first stage in
estimating time and cost budgets. Note that it incorporates all operations that require staff input
including planning (task 1) and administration (task 9).
Methodology
(from page 43)
Task
No.
1
Task
description
Planning -
Review of departmental files and
interview with head of central
policy unit (CPU) and Head of
housing policy
2
2.1
2.2
2.3
2.4
2.5
Departmental objectives
Review of CPU files
Review of housing files
Interview of CPU
Interview of housing
Documentation of task 2
Audit team to draw up spec. Based
on departmental objectives and
agree with department.
3
3.1
3.2
Specification of need AO draw up spec.
Liaison with dep’t re
specification
(1) Review of departmental
instructions to identify any criteria
in instructions with specification
drawn up above
4
Review of deptal instructions -
5
Review of performance
- sample of 100 cases
Definition of sample
Sample extraction
Sample review
Sample of 100 cases over last 2
years, covering all sizes of
eligibility criteria applied and
compare to specification above;
(1) Analysis of information from
sample on the income of
applicants and location of
projects to assess whether they
accord with department’s
specification of those in need.
(2) Supplementary survey of
applicants to obtain information on
income
5.1
5.2
5.3
6
6.1
6.2
6.3
6.4
Review of performance
- survey of applicants
Selection of surveyees
Preparation of survey
Distribution of survey
Reminder to surveyees
7
7.1
7.2
Analysis of review
Input to computer
Analysis of sample and
197
Methodology
(from page 43)
Task
No.
Task
description
survey
9
9.1
9.2
9.3
9.4
Administration
Summary sheets
Team meetings
Liaison with depts
Management review of
WPFs
APPENDIX 21 - ANNEX2 - TIME RECORDING PROFORMA
NAME OF THE AUDIT OFFICE
STUDY TITLE _____________ WEEK ENDING __________________
NAME ____________________
SUBTASK DESCRIPTION
SUBTASK
HOURS SPENT IN
NUMBER
WEEK
1. ______________________
__________
______________
2. ______________________
__________
______________
3. ______________________
__________
______________
4. ______________________
__________
______________
5. ______________________
__________
______________
6. ______________________
__________
______________
8. ______________________
__________
______________
9. ______________________
__________
______________
TOTAL HOURS SPENT IN WEEK ON STUDY
198
APPENDIX 22: TIMETABLES AND MILESTONES
1. Introduction
–
1.1 It is the responsibility of line department management to plan, monitor and control the
progress of main investigations so that they are delivered on time. The following part of this
Guide describes how to:
 plan the timing of all activities of the main investigation;
 identify and estimate the necessary delivery dates of all major activities; and
 monitor the success of the study in meeting agreed deadlines.
–
The
appendix
includes
illustrations of the procedures and techniques for producing study timetables and outlines how
milestones can be used in monitoring the progress of studies.
2. Planning activities and timetabling
–
2.1. Earlier in the time and cost budget section describes how the first step in producing time
and cost budgets is to split the study into discrete manageable operations. "Operations" are
defined as any task or sub-task requiring staff or consultant input. In the same way, to
produce realistic and helpful target dates and timetables, we must first split the study down
into all its various activities. In this context, an "activity" is anything that takes up a
significant amount of elapsed time during the study.
–
2.2. "Activities" differ from "operations" in that they should include:
 every step that will take up elapsed time, regardless of how little staff or consultant
input may be required. For example, it may take us only one day of staff input to
arrange a meeting with the audited entity, but we may need to give them at least 2
weeks notice. Such an activity would be relatively immaterial in terms of budgeting of
staff input but will be significant for timetabling, especially if we are unable to start
other activities until the meeting has taken place. Timetables, and the consequent
deadlines and target dates, should be based on elapsed time, not staff input;
 all steps that are necessary for the successful completion of the study, regardless of who
is carrying them out. If we ignore any activity that takes a significant amount of elapsed
time, even if people other than the Audit Office needs to complete it, there is a real
danger that the study timetable will quickly go off course.
2.3. An example of splitting up tasks into activities is at table 21/1. It is based on , (Time
Budgets form). It includes estimates of the required elapsed time for each activity and also
notes the necessary sequencing of activities, i.e. the order in which activities need to be
carried out if the study is to run efficiently. Planned staff input has been included for
comparison.
199
APPENDIX 22 - TABLE 1 - ACTIVITIES, ELAPSED TIMES AND SEQUENCING
Task
No.
1
Task/Operation
description (from
this guide page
Planning
Activity
No.
1.1
1.2
1.3
1.4.1
1.4.2
Departmental
objectives
2.1 Review of CPU files
Activity description
Allocation of tasks to
study
staff
Recasting of timetables
Initial team meeting
Set-up of initial meeting
with
audited department
Initial meeting with
depart't
Estimated
elapsed time
Sequencing of
activities
Total
Staff
hours
this
guide
page
1 day
At start
6
3 days
1 day
after 1.1
after 1.2
14
7
2 weeks
1 day
At start
after 1.2 and 1.4.1
3
3
Arrange access to CPU
files
Review CPU files
Evaluate file evidence
1 week
After task 1
2
6 days
2 days
36
6
Arrange access to
housing files
Review housing files
Evaluate file evidence
1 week
after 2.1.2
after 2.1.2, before
2.3/2.4
After task 1
42
6
Arrange CPU meeting
Meeting with head, CPU
Arrange housing meeting
Meeting with head,
Housing
Collation and
documentation
2 weeks
1 day
2 weeks
1 day
after 2.2.2
after 2.2.2, before
2.3/2.4
After 2.1/2.2
after 2.3.1
After 2.1/2.2
after 2.4.1
2
2.1.1
2.1.2
2.1.3
2.2 Review of housing
files
2.2.1
2.2.2
2.2.3
2.3 Interview of CPU
2.4 Interview of housing
2.5 Documentation of
task 2
2.3.1
2.3.2
2.4.1
2.4.2
2.5
7 days
2 days
3 days
TOTAL ELAPSED 8 weeks
TIME (approx.)
2
3
3
3
3
14
TOTAL STAFF 153 HRS
INPUT
Assumptions:
1. Task 1 must be complete before any other tasks begin
2. The study must be planned before the initial meeting with the department
3. Both CPU and housing files must be reviewed and evaluated
before the heads of CPU and housing are interviewed
–
2.4. Identifying the correct sequence of activities is important if we are to plan the work in a
logical order. For example, we cannot hold a meeting with the audited entity before we
arrange it. Equally, we cannot write the minutes of the meeting before the meeting takes
place. Sequencing also assists management to plan resource requirements efficiently (see
paragraph 2.8 below)
200
2.5 With the study broken down into activities, with estimates of elapsed time and with properly
identified sequences of activities it is relatively straightforward to produce a study timetable.
Management need to plot out the order and the elapsed time of each activity to produce a
logical flow of work. As mentioned in Chapter 3, timetables of activities and of staff
involvement in the study are required. Table 21/2 shows the activity timetable for table 21/1.
–
2.6. In producing timetables management should consider the following:
 it is often helpful to start specifying activities from the operations identified for time
budgeting . Activities can be viewed as the collection of actions that need to be
completed to undertake operations successfully. This is illustrated in table 1 where
activities have been grouped under the relevant operations;
 activities should include all necessary :
 study planning, monitoring, review and control activities;
 management involvement, including that of principal auditors and audit office
senior management;
 there should be realistic provision for unexpected delays;
 elapsed time is best estimated at the level of days or weeks. Timetables should not be
plotted at the level of hours: this implies a level of accuracy that we cannot achieve;
 if staff input is used as the basis for estimating elapsed time, management should accept
that staff are unlikely to work 100% of each day. 7 hours work is likely to take 1 ½ days
elapsed time;
 think carefully about all the activities that must be completed before a new one starts.
For example, in table 1, both 1.4.1 and 1.2 must be finished before 1.4.2 takes place;
 timetabling of staff input should reflect the grades that need to complete the activities;
 base initial timetabling, at the start of a study, on a combination of:
 detailed planning of all activities in earlier tasks; and
 broad estimates of the elapsed time for later tasks (not going down to the level of
activities).
–
The precise timing, and possibly the content, of later tasks will depend on the outcomes of
earlier ones: early detailed planning of later tasks is therefore likely to be highly speculative,
and have very limited value;
 estimate the best trade-off between the elapsed time of the study and the number of staff
involved. There is a balance to be drawn. Too many staff adds to learning time and
increases the risk of poor communication or inconsistent approaches; too few staff can
make skills matching difficult and lead to long studies with attendant risks of tunnel
vision and poor motivation;
 try to eliminate or minimize any downtime. "Downtime" is when staff have little or no
work to do whilst waiting to start a new activity. This arises because preceding
activities, requiring little staff involvement, are not completed. In table 1, staff cannot
start activities 2.3.2 and 2.4.2 (holding meetings with the Heads of CPU and Housing)
until 2.3.1 and 2.4.1 are completed, creating a two-week period when staff will have
nothing to do.
2.7.A useful technique to help timetabling is that of network analysis. This is a pictorial
representation of the flow of activities. An example for table 1 is at figure 1. Each activity is
represented by a line between two circles (normally called events). Lines are plotted to reflect
the sequencing of activities: a line to the right of an event represents an activity which can
only start once the activity depicted by the line to the left of the event has been completed.
201
APPENDIX 22 -TABLE 2 - ACTIVITY TIMETABLE
Activity
No.
Activity
description
1.1
Allocation of tasks to
study staff
Recasting of timetables
1.2
Estimated
elapsed 1
time
1 day
2
3
Week
4
5
6
7
8
X
3 days
XX
X
1.3 Initial team meeting
1.4.1 Set-up of initial
meeting with
audited department
1 day
2 weeks X------------>
1 day
X
1.4.2 Initial meeting with
depart't
2.1.1 Arrange access to CPU 1 week
files
2.1.2 Review CPU files
6 days
2.1.3 Evaluate file evidence
2 days
2.2.1 Arrange access to
1 week
housing
files
2.2.2 Review housing files
7 days
2.2.3 Evaluate file evidence
2 days
2.3.1 Arrange CPU meeting 2 weeks
2.3.2 Meeting with head,
1 day
CPU
2.4.1 Arrange housing
2 weeks
meeting
2.4.2 Meeting with head,
1 day
Housing
2.5 Collation and
3 days
documentation
X--->
XXXXXX
XX
X--->
XXXXXX
XX
X-------->
X
X-------->
X
XX
X
202
–
2.8. Network analysis has a number of advantages:
 management can develop a clear picture of the sequencing of activities;
 critical activities (i.e. those that must be started and completed exactly on time if the
study is to meet its deadlines) are easy to identify. In figure 1 these are represented by
the dotted line;
 management can see the advantages and disadvantages of varying levels of staff
numbers. For example, in figure 1, the optimum use of staff is to employ 2 examiners
from point 5 to point 13: one performing activities 2.1.1 to 2.1.3 + 2.3.1 + 2.3.2, the
other doing 2.2.1 to 2.2.3 + 2.4.1 + 2.4.2. All activities from point 5 to 13 can then be
completed in approximately 5 weeks elapsed time. Employing only one examiner will
mean that tasks 2.1 and 2.2, and tasks 2.3 and 2.4, will have to be done in sequence
rather than running in parallel. This means that it will take approximately 10 weeks to
move from point 5 to 13. If we employ more than 2 examiners there will be very little
saving in elapsed time. Employing a further 2 members of staff (making 4 in total) will
only allow us to halve the time it takes to complete 2.2.2 + 2.2.3 + 2.4.2 and 2.1.2 +
2.1.2 + 2.3.2. All other tasks (those with the longest elapsed time) will be unaffected as
they do not involve significant staff input. The saving in total elapsed time will be only
5 working days. (Note: with only one extra examiner - i.e. with 3 in total - there will be
no saving in elapsed time. Halving the time it takes to complete 2.1.2 + 2.1.3 does not
halve the time it takes to complete the parallel activities of 2.2.2 + 2.2.3. The latter have
to be completed before we move on to tasks 2.3 and 2.4);
 it is relatively easy to analyze the network to show the points at which there is risk of a
significant amount of downtime.
2.9. Though network analysis can be useful, it should not be used slavishly. It is an aid to
management not a necessary requirement for all performance audits. It will be most helpful
where the sequencing of events is complicated and difficult to appreciate fully without some
form of pictorial representation. However, whether management use network analysis or not,
they must think carefully about the logical execution of activities before producing timetables.
3. Monitoring progress: milestones
–
3.1. Planning activities and staff input is only part of management's responsibility. They must
also monitor and control progress so that the study is delivered on time. Timetables are an
essential part of this process as they show exactly where the audit should be at any point in
time. Management can compare progress with planned achievements and estimate the likely
impact on deadlines, taking corrective action as necessary.
–
3.2. Milestones: Management may also find it useful to monitor progress against milestones.
In this context milestones are intermediate points, throughout the study, which act as
benchmarks of progress. They are descriptions of conditions or states that the investigation
must occupy at various points in its progress in order for it to achieve its deadlines. Each
milestone has three parameters which assist management to monitor and control the study:
 a statement of expected output or achievement (i.e. of quality) at the milestone;
 a planned cost, in either monetary terms or staff input, for reaching the milestone (from
the time and cost budgets);
 a date by which we expect to achieve the milestone (from the timetable)
–
3.3. The choice of milestones is dependent on the study and the requirements of management
to maintain adequate control. Looking at table 1 and figure 1, for example, the first milestone
203
(M1) might be the holding of the initial meeting with the audited department. This is a crucial
event - without it no progress can be made on the study. Further milestones could include:
 M2: completion of activities 2.1.3 and 2.2.3, evaluation of CPU and housing files: until
review and evaluation is complete the audit team will not have the information to
conduct well researched interviews with the Heads of CPU and Housing;
 M3: completion of activity 2.5, documentation of task 2. This signifies the formal
completion of all activities in tasks 1 and 2.
–
3.4. If management judge that they need a greater degree of control they can add additional
intermediate milestones. It is essential, however, that:
 there are sufficient milestones to maintain adequate control over the whole course of the
study;
 milestones include all significant events during the study. Excluding any important
event increases the risk that the study will wander off course;
 management must define fully the state or condition that each milestone represents. For
example, by milestone M2 we expect to have collected and evaluated all the available
documentary evidence on the department's aims and objectives. This should be
sufficient to guide our interviews with the Heads of CPU and Housing. By milestone
M3 we should have a full and up-to-date statement, both documented and oral, of the
aims and objectives. We should have sufficient confidence in the relevance, reliability
and completeness of the information we have collected to seek the department's
agreement to it as the definitive statement on their aims and objectives.
–
3.5. Having identified the necessary milestones, and defined the "quality" aspect of each,
management should compute the planned delivery date and expected cost for each milestone.
Assuming that we are going to employ two examiners on the investigation, we plan to achieve
the milestones M1-M3 by the following dates and at the following cost:
Table 3: Planned delivery dates and cost for milestones
–
–
–
–
–
–
Milestone
–
Start of study (M0)
M1
M2
M3
–
–
–
–
–
Planned delivery date
(from figure 1),
M0 + 2 weeks, 1 day
M0 + 3 weeks, 10 days
M0 + 5 weeks, 14 days
–
Expected
"cost"
– (from table 1)
–
–
–
–
33 hours
127 hours
153 hours
(Note: this makes no allowance for reducing "downtime", as discussed above.)
204
3.6. Milestones have a number of advantages:

we tend to use them naturally to monitor progress, setting ourselves targets against which to
judge how well we are proceeding. Establishing a formal milestone system ensures
consistency, logic and completeness;

assessing progress against regular milestones may be less time-consuming than constant
reference to timetables and budgets. Management can monitor progress with a relatively
light touch whilst allowing staff freedom to manage their own areas of work;

milestones provide recognizable targets for all in the study to achieve - if all work towards
these milestones there is a better chance that the study as a whole will be delivered on time
and to cost;

milestones allow management to draw all three main objectives of the study together quality, cost and time (delivery dates) - giving an integrated process of targets, monitoring
and control.
4. Conclusion
–
4.1. Achievement of deadlines is an important aspect of conducting an efficient investigation.
Significant deviation from deadlines should be rectified wherever possible. If, in spite of
management monitoring and control of progress, it appears that the study cannot be delivered
to the agreed deadlines, line division management should inform AO senior management at
the earliest opportunity.
–
4.2. Management should, however, recognize that achieving agreed deadlines is only one
aspect of conducting an effective examination. If the study sacrifices quality (relevant,
reliable and sufficient evidence and analysis) to achieve deadlines the examination will be of
little or no value. Management must integrate monitoring and control of all the study's
objectives - quality and cost (including staff input) as well as deadlines.
205
APPENDIX 23: REVIEW OF COMPLETED INVESTIGATION
Herewith, attached is a checklist for completion at the end of the investigation by the head of
internal
auditor then submitting to the head of public body. At the end of the main
investigation and reporting stage the head of internal audit should review the documentation and
supporting working paper folder to ensure that whether the audit work was done as per the plan,
and the audit objectives achieved cost effectively. Any lesson learnt from the study and the
problem encountered should be assessed to aid for future audit planning.
NAME OF THE AUDIT OFFICE
AUDIT COMPLETION CHECK LIST
AUDITEE _________________________
PROGRAM/PROJECT ________________
Principal Auditor ______________________
Item
No.
1
Date ____________________
Description
Yes
Feasibility Study
Was the feasibility study undertaken in
accordance with the performance audit Manual,
Guides and standards?
2
Did the audit issues, evaluative criteria and audit
methodologies communicated and accepted by
the auditee?
Had any disagreements expressed and recorded?
3
Did the feasibility study report follow the
standard guidance of the manual?
If not what modification were made and why?
4
Was the feasibility study report acceptable to
senior management?
If not what changes were necessary?
5
Main Investigation Planning
Was the planning package prepared including
the audit program, the consultants TOR (if
necessary), time budget, liaison plan etc., in
accordance with the performance audit Manual,
Guides and standards?
206
No
Comment &
Initial
Item
No.
6
7
Description
Yes
Did the audit planning document sufficiently
complete to include all tasks and tests relevant to
carry out the investigation?
- If not what changes where relevant?
Effectiveness of the Investigation
Did the investigation achieve its approved
objectives?
8
Could the objectives have been better defined, or
a better audit approach adapted?
If so, give in brief how it could have been?
9
Did any factors emerge which prevented the
achievement of the objectives?
If so, how far they could have been foreseen?
10.
Would greater resources or the use of other
specialists have produced better results?
11
Did any other potential VFM subjects emerge?
How were they treated?
12
13
14
Efficiency of the Investigation
Was the timetable found to be realistic?
Was the investigation completed on the planned
date?
- If not, what were the main reasons for the
delay?
Could the delay have been foreseen and
prevented?
15
Were staff of appropriate grades and experience
available when required?
16
Were tasks reasonably balanced between team
members?
207
No
Comment &
Initial
Item
No.
17
Description
Yes
Was sufficient, relevant, and reliable evidence
produced?
If not, was there good reason for the shortfall in
standard?
18
Could the same audit objectives have been
achieved adequately with fewer resource or with
less evidence?
19
Were regular progress evaluation meetings held
with team members?
How did this benefit the study?
21
Documentation
Was the documentation adequate and complete
to support the audit conclusions?
Have the main investigation summary reports,
fact sheets, minutes etc. prepared been factually
sound, supported by relevant, reliable and
sufficient audit evidence?
22
Did the referencing of papers facilitated review?
23
Did issues presented for divisions by senior
management effected duly?
24
Was the completion of the audit work checked
against the audit program?
20
25
26
Techniques
Were any special analytical or other techniques
applied (e.g. statistical, mathematical, computer
analysis)?
How did this assist the progress of the study?
Were performance measures developed?
Were they produced in conjunction with the
audited entity?
27
Cost effectiveness of the study
Was the study cost effective?
By what criteria?
28
What was the cost of the study?
208
No
Comment &
Initial
Item
No.
29
30
Description
Was the cost assessed at the feasibility stage?
How did the out turn compare with the estimate?
Report
Has the outline report been prepared in accordance with
the performance audit manual and standards before the
final report?
31
Has the outline report been agreed with the audited
entity?
32
Did the final report follow the outline report?
What was the extent of changes?
33
Has the final report been prepared in accordance with the
performance audit manual and standards?
34
Were the recommendations given in the report feasible
and could be easily implemented and followed-up?
35
Were adequate report clearance arrangement made and
effected?
36
Liaison with Audited Entity
Was liaison with the audit entity satisfactory?
37
Was the liaison officer assigned, competent and
knowledgeable about the audited entity?
38
39
How could have the liaison system been improved?
Were there any problems?
209
Yes
No Comment
& Initial
APPENDIX 24: OUTLINE REPORTS
1. The form of an outline report is a matter for the senior management, probably the head of
internal audit, to decide according to the circumstances. The outline should, however, avoid
background and descriptive material unless essential to an understanding of the issues and
findings. An outline report should contain but not limited to:
 relatively short e.g. no longer than 3-4 double spaced pages;
 provide only a brief indication of how report is to be structured in the form of a list of
main heading and (possibly) sub-headings;
 identify and concentrate on the 3-4 audit issues arising from the investigation;
 state briefly the important findings, conclusions and recommendations for each audit
issues;
 clearly identify any overall (wider) conclusions and recommendations; and
 indicate the main facts, figures, examples or other evidence available to support the
conclusions (recognizing that at the time the outline is prepared such information may
not have been fully reviewed).
2. The outline should be written in a way which takes account of the fact that the copy will
normally be sent to senior management in the audited entity as a basis for discussion. Findings
and conclusions should be stated clearly and frankly but expressed in moderate and
unprovocative terms (for example, it might refer to “delays” but not “indefinite foot dragging”
in dealing with matters).
3. In submitting the outline report to more senior staff audit managers (principals) should deal
with any aspects for internal consideration in short covering memo (minute). Depending on
circumstances the memo (minute) might cover:
 how far field work has been completed;
 whether significant matters remain to be proven or substantiated;
 any reservations on the quality of evidence;
 the need to update evidence or to take account of impending results from other reviews
or exercises by the audited entity or others;
 progress against target dates or deadlines;
 any difficulties in establishing facts or handling clearance with the audited entity; and
 Possible executive (or media) reaction to the eventual report-for example, where
difficulties may arise because of links with policy or political issues, known interests of
executive members, or security, commercial confidentiality or other public interest
consideration.
4. Normally, a copy of the outline report should be sent to the auditee shortly after approval by the
internal audit head. The internal audit head should ensure that the covering letter to the head of
public body makes the purpose of the outline clear and indicates the time frame within which a
response and discussion should take place. The period of response should not normally go
beyond 2-4 weeks. This has to be clearly stated in the covering letter. It may also be
appropriate to remind the audited entity of the purposes of any discussion of the report outline
to avoid prolonged and unproductive debate.
5. It is worth reminding all recipients of this outline that:
 it is based on the results of the field work to date it is possible that changes may result
from later field work;
 it should be made perfectly clear in the report the difference between findings and
conclusions which are already supported by hard evidence and those which are still to be
proved; and
 any possible option to narrow or widen the scope of the approved investigation should be
put forward in the memo (minute) at this stage if thought to be desirable.
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Generally speaking, the outline report will provide senior management with first opportunity to
check on the detailed progress of the whole investigation and it should therefore be submitted
at an early enough stage for any possible changes of emphasis or direction to be
accommodated.
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APPENDIX 25: INTERNAL AUDITOR’S REPORT
1. There is no ideal drafting model which is suitable for all reports. A rigid format could become
cumbersome and unimaginative. The main consideration is how the facts, figures and
conclusions on a particular subject can most effectively be communicated and what form of
presentation best meets that purpose. Above all, each report is unique and its preparation
requires clear and flexible thinking, avoiding a slavish or mechanical modeling on previous
reports. Different subjects will require different structures to ensure that the report fully
reflects the key findings and enables the legislature to handle the material most effectively.
However, there are two general structures to be adapted.
I. A “Straight through” report incorporating conclusions and recommendations in the
main text; (which is the accepted structure for internal audit report to the audited entity)
II. A report preceded by a summary and conclusions (which is used for the annual internal
audit report for the executive).
Both formats may be supported by appendices.
2. The longer the report the greater the benefits of option (II) above. Reports of more than about
10-15 typescript pages should normally be preceded by a summary of findings, conclusions and
recommendations. The summary should be concise, but should still bring out sufficient salient
points of the main issues and findings to provide the reader with a clear view of the purpose
and results of the investigation, and to serve as the main focus of questions by the executive.
3. The summary is not intended to be free standing, mini-report and should contain the minimum
of description and narrative. The opening paragraph should summarize the scope of the
investigation and draw attention to any significant limitations in coverage. Only 3-4 further
paragraphs should then be necessary before listing the main findings, conclusions and
recommendations. There should be clear links between the themes in the summary and the
supporting evidence and examples illustrating them in the report. It is not always necessary,
however, for matters dealt with in the summary to follow the same sequence as in the report. It
may be preferable to arrange the summary in themes selected across the board from the report.
However, the summary should be cross-referenced to the relevant paragraphs in the report.
Any overall findings and conclusions should be given at the end of the summary in one or two
paragraph. This is necessary when the points being made do not emerge automatically from the
listed findings and conclusions.
4. The report should be capable of being read without the need to refer to other source material of
published information. It is a condensed description of main issues, findings and conclusions.
Supporting facts, figures and examples should be restricted to what is needed to support,
explain and illustrate the results of the investigation and to present the audited body’s views
and responses. The essential approach should be to:
 bring out the really important matters;
 play down the less important;
 omit the unimportant; and
 generally be selective and concentrate on analysis rather than on descriptions and
narratives.
Diagrams, Tables etc.
5. Full use should be made of facts, figures and relevant examples to give life to the report and to
point the reader to significant issues and conclusion. Diagrams, charts, graphs and tables
should be used to help get across important messages. They need also to be incorporated in the
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text not only in appendices. This can save a lot of explanation and provided they are simple
and well laid out, can often convey more in a short space than stretches of narratives.
Appendices
6. More detailed information which is essential to an informed reading of the report should
wherever possible be provided in appendices. The rules of relevance simplicity and brevity
apply equally to appendices as to the main report. They are not a vehicle for including
descriptions of detailed systems or procedures operated within the audited body in areas
covered by the investigation.
Glossary
7. Abbreviations in report should be kept to a minimum. Where five or more abbreviations (or
specialized terms) are necessary to be used in the report then all abbreviations and terms
included should be listed at the beginning part of the report.
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APPENDIX 26: PLANNED IMPACTS, DEPARTMENTAL
COMMITMENTS AND ACHIEVEMENTS
1.
Impacts in performance audit, is expected mainly to be derived as a result of actions taken by
the auditee during the course of the study, ensuing from the reports or following executive
recommendations. There are also impacts which could be derived from financial/regularly
audit, which the performance auditor need to consider. The three fundamental bases of
assessing impacts are planned impacts, departmental commitments and departmental
achievements.
2.
Planned Impacts are those identified at the formulative stages of performance audit. They are
impacts that could be identified and anticipated during the feasibility study, as being the likely
impacts of the study objectives. In the feasibility stage, if the expected impacts of the selected
audit issues are limited or the contributions of the study are not considerable, we need either to
redefine the issues or reconsider the feasibility of the study. This is because the audit office
should not commit its resources on studies which have no beneficial benefits. In addition
adequate identification of planned impacts could also facilitate monitoring and follow up of
the study results. In financial audit, similarly, it may also be possible to identify a planned
impact before a management letter is sent.
3.
Departmental commitments arise from the auditee’s promises to take action in response to the
internal audit or executive conclusions and recommendations. The commitment can be made
in the audited entities responses to the conclusions and recommendations made in the Internal
audit or executive reports or other outputs such as management letters, and sometimes in the
course of the study. Here, commitments are defined as the projected effects of auditee's
actions for the year for which initial delivery is promised by the auditee. It can be later than
the year in which the commitment is made. If the time assumed for implementation of
commitment is short, it would also be appropriate to take two calendar years.
4.
Departmental achievements are the internal audit best assessment of the audited entities
progress against commitments. Such achievements should be validated where possible by
agreement with the audited entities, in particular where measurable savings are involved, or
should be supported by reliable evidences. Achievements will be recorded by internal audit on
the basis of what has actually been delivered in the three years period against commitments to
deliver in that period.
Examples of types of Impacts
5. Although not exhaustive, some of the types of impacts of performance audit are:
a) Improved Economy:
 Introduction of charges where none existed previously or revision of charges;
 reduction in costs through better contracting, bulk buying etc.;
 reduction in costs through economies on usage;
 reduction in costs through providing services/goods to the high standard of quality;
 rationalization of facilities.
b) Improved Efficiency:
 greater outputs from same inputs;
 remedying duplication of effort or lack of coordination.
c) Improved Effectiveness:
 better identification/justification of need;
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
better identification and targeting of clients;
clarifying objectives and policies to facilitate achievement;
introducing better sub objectives and targets;
creating or/and maximizing benefits;
better achievement of objectives by changing nature of outputs or improved targeting.
d) Improved quality of services:
 improving the standard time for services that client wait;
 reducing the number of complaints due to poor quality.
e) Improved management planning and control
f) Improved accountability:
 improved accountability for expenditure to excutives and to the auditees supervising
authorities;
 improved forms of account, including commercial formats;
 improved external control and monitoring by the auditees supervising authority;
 better and/or more accurate performance indicators;
 better comparison between similar organizations;
 greater information on sectoral performance;
 clear and more informative presentation.
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