Regional Workshop Towards Auditing Effectiveness
External Auditing in Difficult
Settings
John F S Muwanga FCCA, CPA(U)
Auditor General, Uganda
May 12-15 2003 , Addis Ababa
Structure of this
presentation
• Best practices in public sector external
audit
• Auditing in a difficult setting – a
framework for understanding the
constraints
• External constraints :
 Limits of audit independence
 Poor financial management
 Weak governance environment
• Response and strategies for reform
Best practices in public sector
auditing
• Role of public sector external audit
• Precepts of government auditing –
Lima declaration.
• Auditing in a difficult setting –
barriers in meeting the Lima
standard
Lima precepts
Independence
Independence
&&
Powers
Powers
Relationship
Relationship
with
with
Parliament
Parliament
Legislation
Legislation
Public
Publicsector
sector
External
External
Audit
Audit
Professional
Professional
ism
ism
Technology
Technology
Enforcement
Enforcement
ofof
audit
findings
audit
findings
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External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Governance
Environment
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I n udi t s
of
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External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Governance
Environment
The issue of audit
independence
• Legal and administrative independence.
Conditions of service and powers
• Factors that limit independence
• The Uganda experience
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Poor financial management – how does it
affect the performance of external audit?
External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Governance
Environment
Poor accounting practices
• Delays in bank reconciliation
• poor record keeping
• weak internal control structures
• poor asset management
• weaknesses in procurement practices
How do these factors
affect external audit work?
• Timing of audit work
• Affects quality of audits due to
improperly reconciled statements
• High risk environments . Need for
more substantive testing .
• Inefficient use of audit resources .
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External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Weak
Governance
Governance
Environment
Environment
Accountability process in the public
sector
Source : IFAC
Factors that adversely
affect governance
• Lack of political will
• Inadequate legislative framework
• Weak or poorly defined accountability
relationships
• lack of transparency in policy and decision
making
• Loose Ethical and values framework . Poor
tone at the top
• Poor understanding of and awareness about
best practices in governance and controls
Weak governance diminishes
public audit’s effectiveness
• Direct financial benefits
• Improvements in financial management, internal
controls and enhanced efficiency and
effectiveness in use of resources
• Adoption of best practices
• General improvement in the accountability
environment and maintenance of financial
discipline
Practical difficulties which weak
governance creates for public audit
• Non-cooperation and lack of response from
audited agencies
• Denial of information and records
• Classified expenditure kept outside audit purview
• Ignoring audit findings and recommendations
2. Good governance
1. Sustainable economic
and security
growth and structural
transformation
 Democracy
Peaceful conflict resolution
Accountability and transparency
Law and order
Human rights.
•Macroeconomic stability
•Quality public expenditure
•Appropriate macro economic incentives
•Removing constraints to investment and
private sector development
POVERTY
ERADICATION
ERADICATION
3. Raising the incomes
4. Improving the quality of
of the poor
life of the poor
Access
to productive assets especially
land
Access to markets and credit
Increased productivity
Promotion of gainful employment
Focusing on disadvantaged groups.
Transport and communications.
Access to primary health care
Universal primary education
Access to safe water and sanitation
Conservation of natural resources and
the environment
Disaster management
Functional literacy
A frame work for
understanding the
constraints
Weak
Governance
Environment
Responding
to the
Challenges
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External auditing in a
difficult setting
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Strategies for response
External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Governance
Environment
Response to limitations
on audit Independence
• Legal
• Financial
• Administrative
Inadequate financial resources
affects audit operations
• Inadequate travel expense budget
• Shortage in essential supplies like
fuel , stationery, computer
consumables etc
• Hinders training and continuing
professional development of staff
Lack of administrative
independence
• Limited administrative powers
• Absence of a professional culture
• Difficulty in ensuring professional
conduct and quality of performance
• Difficulty in bringing about reforms
Strategies for response
• Seek changes to legislation
• Support from IMF and World Bank
• Seek National Audit Office status
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Strategies for response
External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Governance
Environment
Responding to poor
financial management
• Result of a poor financial
management culture
• Lack of qualified accountants
• Widespread fraud , waste and abuse
• Expectations from Audit
Influence external
reforms
• work with the Government to bring about
improvement in financial management
practices
• make recommendations for improving
financial management practices and
strengthening of internal controls
• following up audit issues regularly
• organizing seminars and workshops to
create awareness
Changes in audit approach and
techniques
• risk based audit approach
• concentrate on those areas where
the risks of mismanagement or noncompliance are high
• Greater use of automated audit
techniques
Automated audit approach for
IFMS in Uganda
• OAG auditor’s electronic access to central
database
• Ability to interrogate and download data
• Better use of resources through better
audit planning and sampling
• New risks and need develop IT audit
capacity
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Strategies for response
External auditing in a
difficult setting
A frame work for
understanding the
constraints
Weak
Weak
Governance
Governance
Environment
Environment
Weak governance- responding
to a reduced demand for
accountability
Weak governance
strategies
• Strengthen relationship with Public
Accounts Committee and other
parliamentary committees
• Recommend strengthening of internal audit
and establishment of audit committees
• Obtain support of donor agencies and
provide timely professional audit services
for donor funded projects
Weak governance
strategies (contd.. )
• Enhance credibility : enforce high standard of
ethics and professional behaviour amongst audit
staff
• Conduct issue based audits
• Improve presentation and format of Audit
reports
• Better relations with stakeholders and media
• Create awareness about public sector audit’s role
Conclusion
• Determine strategic response
• Decide on the short term and long term priorities
• Training, education and professional development
of OAG staff
• Develop ownership for reform initiatives
Thank you for your
attention !