External Auditing in Difficult Settings

1. 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

2. 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

3. 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

4. Lima precepts

6. Limits of audit independence

7. The issue of audit independence • Legal and administrative independence. Conditions of service and powers • Factors that limit independence • The Uganda experience

9. Poor financial management – how does it affect the performance of external audit? Poor Financial Management

10. Poor accounting practices • Delays in bank reconciliation • poor record keeping • weak internal control structures • poor asset management • weaknesses in procurement practices

11. 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 .

12. Weak Governance Environment

13. Accountability process in the public sector Source : IFAC

14. 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

15. 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

16. 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

18. Responding to the Challenges

19. Strategies for response Limits of audit independence

20. Response to limitations on audit Independence • Legal • Financial • Administrative

21. 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

22. 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

23. Strategies for response • Seek changes to legislation • Support from IMF and World Bank • Seek National Audit Office status

24. Strategies for response Poor Financial Management

25. Responding to poor financial management • Result of a poor financial management culture • Lack of qualified accountants • Widespread fraud , waste and abuse • Expectations from Audit

26. 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

27. Changes in audit approach and techniques • risk based audit approach • concentrate on those areas where the risks of mismanagement or non-compliance are high • Greater use of automated audit techniques

28. 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

29. Strategies for response Weak Governance Environment

30. Weak governance- responding to a reduced demand for accountability

31. 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

32. 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

33. 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

34. Thank you for your attention !