External Auditing in Difficult Settings

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External Auditing in Difficult Settings
Regional Workshop Towards Auditing Effectiveness

• John F S Muwanga FCCA, CPA(U)
• Auditor General, Uganda

May 12-15 2003 , Addis Ababa
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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

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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

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Lima precepts
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Limits of audit independence
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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?
Poor Financial Management
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Poor accounting practices

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

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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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Weak Governance Environment
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Accountability process in the public sector
Source IFAC
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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

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Weak governance diminishes public audits
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

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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

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Responding to the Challenges
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Strategies for response
Limits of audit independence
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Response to limitations on audit Independence

• Legal
• Financial
• Administrative

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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

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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

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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
Poor Financial Management
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Responding to poor financial management

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

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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

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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

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Automated audit approach for IFMS in Uganda

• OAG auditors 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
Weak Governance Environment
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Weak governance- responding to a reduced demand
for accountability
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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

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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 audits role
  

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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

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Thank you for your attention !