PERFORMANCE AND

ENVIRONMENTAL AUDIT
MANUAL

AUDITORS GENERAL CAPACITY

ENHANCEMENT (ACE) PROJECT

First Draft: External Audit Project August 2003

Revised and updated by Core Teams from:

Office of Federal Auditor General
Office of Auditor General, Amhara National Regional State
Office of Auditor General, Benishangul-Gumuz Regional State

Reviewed and updated by Cowater International Inc. Dec 2005, May 2006

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TABLE OF CONTENTS
Page
CHAPTER 1: INTRODUCTION.................................................................................................................6
CHAPTER 2: PURPOSE AND SCOPE OF PERFORMANCE AUDIT..................................................8
Introduction.................................................................................................................................................8
What is Performance Audit.......................................................................................................................8
Interrelationship between Economy, Efficiency and Effectiveness......................................................10
Definition of Environmental Auditing....................................................................................................10
Types of Environmental Audits with a Performance Focus..................................................................11
Why We Conduct An Environmental Audit?.........................................................................................12
Nature and Categories of Performance Audit........................................................................................13
Comparison of Financial, Performance and Environmental Audit.....................................................15
Benefits of Performance Audit................................................................................................................16
Difficulties in Performance Audit............................................................................................................17
Objectives of Performance Audit............................................................................................................17
Public Accountability................................................................................................................................17
Relations with Legislative Oversight Committee...................................................................................19
Relationship between the Audit Function and Government Policy and Policy Making....................20
Roles and Responsibilities of Key Players..............................................................................................21
CHAPTER 3: AUDIT PLANNING............................................................................................................24
Overview/General Survey........................................................................................................................24
Overview Methodology.............................................................................................................................................26
Documentation...........................................................................................................................................................29
Overview Report........................................................................................................................................................30
Relations with the Audited Entity..............................................................................................................................31
Management of Overview Stage................................................................................................................................33
Marking.....................................................................................................................................................35
Methodology..............................................................................................................................................................36
Documentation...........................................................................................................................................................37
Liaison with the Audited Entity.................................................................................................................................37
Management...............................................................................................................................................................38
Divisional Annual Operation Plan And Strategic Plan.........................................................................39
Central Operational Program.....................................................................................................................................41
Selecting the Right Area For Audit.........................................................................................................41
Materiality (Significance)..........................................................................................................................................42
Risks to Value for Money..........................................................................................................................................44
Public Accountability.................................................................................................................................................47
Possible Impact..........................................................................................................................................................48
Legislative or Public Interest.....................................................................................................................................49
Relevance...................................................................................................................................................................49
Auditability................................................................................................................................................................50
Timeliness..................................................................................................................................................................51
Previous Audit Work..................................................................................................................................................51
Requests for Services or Audits.................................................................................................................................52
Audited Entity Management Views........................................................................................................53
Consultation and Advice..........................................................................................................................53
Feasibility Stage........................................................................................................................................54
Sequential Steps.........................................................................................................................................................55
Audit Objectives........................................................................................................................................................57
Audit Scope................................................................................................................................................................57
Evaluative Criteria.....................................................................................................................................................58
Documentation...........................................................................................................................................................64
Liaison with the Auditee............................................................................................................................................64
Management Planning and Control...........................................................................................................................66
Main Investigation Planning....................................................................................................................67
Requirements of a Main Investigation Plan...............................................................................................................68
Main Investigation Planning Methodology...............................................................................................................68
Audit Programs..........................................................................................................................................................72
Documentation...........................................................................................................................................................75
Liaison with the Auditee............................................................................................................................................76
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 Management...............................................................................................................................................................76
CHAPTER 4: MAIN INVESTIGATION...................................................................................................77
Purpose......................................................................................................................................................77
Methodology Used for Audit Execution..................................................................................................77
Audit Evidence..........................................................................................................................................78
Categories of Evidence.............................................................................................................................79
Audit Evidence Collection Techniques....................................................................................................81
Analysis of Qualitative Data....................................................................................................................82
Using the Work of Other Auditors and Experts....................................................................................84
Documentation..........................................................................................................................................91
Liaison with the Auditee...........................................................................................................................93
Management..............................................................................................................................................93
Review of Working Papers.......................................................................................................................94
Audit Observations...................................................................................................................................94
Audit Conclusions.....................................................................................................................................95
Audit Recommendations..........................................................................................................................95
CHAPTER 5: REPORTING.......................................................................................................................98
Form...........................................................................................................................................................98
Content.......................................................................................................................................................99
OAGs Reporting Responsibility..........................................................................................................100
How to Structure Findings, Conclusions and Recommendations......................................................101
Steps in Developing a Final Report.......................................................................................................101
Documentation........................................................................................................................................106
CHAPTER 6: POST AUDIT FOLLOW-UP............................................................................................107
Basic Elements of Follow-Up.................................................................................................................107
Determining the Adequacy of Actions Taken on Recommendations.................................................107
Closure of the Investigation...................................................................................................................109
Review of the Auditee's Response..........................................................................................................110
Measuring the Impacts of the Audit......................................................................................................111
QUALITY REVIEW (ASSURANCE)......................................................................................................112
ANNEX 1: Environmental Protection Legislation, Policies, Regulations in Ethiopia..........................114

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CHAPTER 1: INTRODUCTION
1.1 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 parliament's intentions were being met.

1.2 However, this approach does not provide information on waste, inefficiency, ineffectiveness
and effects on the environment. 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. This came to be known as performance audit.

1.3 Increasingly there has also been a greater awareness and understanding of environmental
issues, such as land degradation, forest loss, soil erosion, pollution, habitat loss, urban and
industrial waste, etc. The importance of these issues and the magnitude of the problem has
turned the environment into a strategic area in the global scene. Governments have been
forced to rethink their roles and responsibilities as environmental stewards in how to protect
and improve the environment.

1.4 At the same time the increasing concern that organizations affecting the environment should
be accountable for their actions has led to requirements for the consequences of those actions
to be reported and the representations made by these organizations in these environmental
reports to be subject to independent audit.

1.5 Today, performance audit and increasingly environmental audit have become major tasks of
Supreme Audit Institutions (SAIs) in most developed and in some developing countries. The
Office of the Federal Auditor General (OFAG) and some of the Regional Audit Offices
(RAOs) are already provided with mandates to undertake performance audit and
environmental audit in the public sector. 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 and environmental audit work.

1.6 The Ethiopian Government Auditing Standards (EGAS) and several guides accompany this
manual. The manual and the guides are intended to assist performance and environmental
auditors to carry out audit projects successfully and to bring about work of acceptable and
uniform quality in all audit offices. Therefore, all audit offices are advised to plan, execute
and report performance and environmental audits in accordance with EGAS and the
suggested procedures in the manual and guides.

1.7 The manual is divided into seven chapters and has a number of supporting appendixes.

o Chapter 1: Introduction
o Chapter 2: Purpose and Scope of Performance Audit
o Chapter 3: Audit Planning
o Chapter 4: Main Investigation
o Chapter 5: Reporting
o Chapter 6: Post Audit Follow-Up.

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CHAPTER 2: PURPOSE AND SCOPE OF PERFORMANCE AUDIT

Introduction
2.1 The purpose of this chapter is to introduce some concepts and terminology used in
performance audit. Until recently performance auditing was generally understood to embrace
the 3Es: economy, efficiency and effectiveness. In recent years environmental auditing has
emerged as the 4th E. In this manual therefore, the term performance audit is used to
encompass the 4Es.

2.2 The chapter provides a definition of performance audit and the 4Es: economy, efficiency,
effectiveness and environment, and explains how the performance of an organization, entity,
activity, ministry, program or scheme can be measured.

What is Performance Audit

2.3 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;
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.

2.4 Performance audit is intended to be a broad, constructive examination and diagnosis of the
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.

2.5 The performance of an organization, ministry, scheme, program or project can be measured
by reference to:

Objectives: What an organization is trying to achieve;

Inputs: The financial, human and physical resources an organization used or
consumed;
Activities: The processes by which an organization, ministry, scheme, program or
project converts its resource inputs into outputs;
Outputs: The product of activities in terms of goods, services or other results;
Impacts: The ultimate effect of outputs not only in the direct achievement of the
organizations or scheme's objectives but also in the wider effect on other
governmental objectives or the objectives of others

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2.6 Further elaboration of the concepts of economy, efficiency, effectiveness and environment in
relation to performance audit is provided below:

Economy

2.7 Economy means obtaining the appropriate quality and quantity of goods and services (e.g.,
staff, materials, equipment) at the appropriate times and at the best (minimum) prices. For
example, lack of economy could occur when there is overstaffing or when overqualified staff
or overpriced facilities are used or excessive costs, or poor quality of goods and services are
bought.

Efficiency

2.8 Efficiency means 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 longer time, for the same amount
of goods and services produced.

2.9 Efficiency 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 optimizes 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

2.10 Effectiveness is defined as the extent to which an organization is achieving the desired results
or benefits, extent to which the objectives established by the legislature or other authorizing
bodies are being met, and the extent to which the organization has considered alternatives
which might yield desired results at a lower cost. An effective organization will maximize the
extent to which it secures its intended impacts, at the least cost, encourage beneficial side
effects and discourage unwanted side effects.

2.11 The issue of effectiveness is arguably the most important element of performance today and is
finding increasing application in the public sector.

Environment

2.12 Environment refers to the effects of the activities and programs of government and private
sector organizations in relation to the environment.

2.13 Examples of the economy, efficiency and effectiveness issues of specific programs and
schemes can be found in Appendix 1.

2.14 Recent developments in performance audit have moved from economy and efficiency, often
easier to examine and measure, to effectiveness. This third E often gets close to policy
issues and there is often a thin line between needing to know what constitutes a policy and
criticizing the policy. Auditors are concerned with the implementation and impacts from the
operation of policy instruments, not with the merits of the policy itself. (Refer to Appendix 1
for further elaboration).

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Interrelationship between Economy, Efficiency and Effectiveness
2.15 From the definitions of the 3Es given above, economy relates to inputs; efficiency is the
relationship between inputs and outputs; and effectiveness is the relationship between outputs
and impacts. In business enterprises 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.

2.16 Although not driven by the profit motive, governmental activities also have a purpose.
Governments usually spend 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 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 value for the money it spends on various programs, projects and activities? That
indeed is the essence of performance auditing.

2.17 In performance auditing, we try to measure inputs in terms of the economy exercised in the
expenditure of money, the efficiency of relevant activities by which inputs are converted into
outputs, and effectiveness in terms of the value of the results obtained. 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.

Definition of Environmental Auditing

2.18 Environmental auditing in the last two decades has been referred to by various names, such as
quality control survey, environmental review, environmental diagnostic study, etc. However,
the term Environmental Auditing has found almost universal acceptance.

2.19 Environmental audit is the process of regular or occasional examination and assessment of
governmental organizations, programs, activities or functions in relation to the environment.
This is done to provide legislatures with independent information on the effects of
government programs and activities on the environment, improve environmental protection
processes and encourage best practices which lead to sustainable development. It is also to
help audited bodies improve their environmental protection policies and programs, which
meets the needs of present and future generations.

2.20 When conducting environmental audits, auditors typically might ask the following kinds of
questions:

o Is the government complying with international environmental treaty obligations, domestic

environmental laws and regulations, and government policies and programs?
o Is the government meeting the environmental performance targets it has set for itself, and
what results has it achieved?
o Is the government controlling environmental risks from its own operations?
o Has the government put in place an effective accountability framework for its
environmental programs and policies?

2.21 Environmental auditing can be undertaken from a financial audit focus or from a performance
audit focus. The objective of an environmental audit with a financial focus will be to

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 establish whether the reporting entity has appropriately recognized, valued and reported
environmental costs, liabilities and assets and whether the entity has conducted the
environmental activity in compliance with applicable obligations.

2.22 In Ethiopia at present, the existing accounting policy does not require governments, or
governmental and private sector organizations to include environmental costs, liabilities and
assets in their financial statements. OFAG and the RAOs therefore are not required to, and do
not anticipate having to, conduct environmental audits with a financial focus in the
foreseeable future. The EGAS and this manual therefore provide guidance on conducting
environmental audits with a performance focus.

2.23 On the other hand, an environmental audit with a performance focus will enable the auditor to
establish whether the entity has conducted the environmental activity in an effective, efficient
and economic manner consistent with the applicable government policy.

Types of Environmental Audits with a Performance Focus

2.24 A environmental audit with a performance focus can often be classified as one of the
following specific types:

Audits of Government Monitoring of Compliance with Environmental Laws

2.25 In many countries, a lead environmental department (another agency of the executive
government) is charged with ensuring that environmental laws are properly implemented by
public and /or private entities. These laws may charge the environmental department with
such activities as:
o Issuing permits which, for example, limit the quantity, quality and concentration of
pollutants discharge;
o Monitoring dischargers compliance with such permits;
o Monitoring environmental conditions to help identify other potential breaches of
regulations;
o Helping in the interpretation of regulations and providing other assistance to regulated
entities to assist in their compliance efforts; and
o Taking enforcement actions when violations occur.

2.26 In some cases, these environmental regulatory responsibilities may be delegated by federal
(national) government to lower levels of government. In addition, other types of executive
government departments (such as Transportation or Agriculture) may also exercise certain
environmental regulatory responsibilities.

Audis of Performance of Government Environmental Protection Programmes.

2.27 A government may be enabled by statute or another authority to carry out (or fund other
entities to carry out) a range of other programmes or activities to achieve objectives whose
principal aim is to protect or improve the environment. Such a programme or activity may be
the responsibility of a government department with a particular interest in the environment
such as a department for the environment having a program to conserve sites of particular
ecological importance, or a department for agriculture with a program for assisting farmers to
adopt practices which minimize pollution.

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Audits of Environmental Impacts of Other Government Programmes

2.28 In addition to programmes whose principal aim is to protect or improve the environment, all
activities affect the environment in some way through their use of resources or their
consequences for the area in which they are conducted. Government activities are no
exception.

2.29 The environmental impacts of the activities can be highlighted as part of wide-ranging
performance audit of economy, efficiency and effectiveness of a government activity or as a
narrowly defined study focusing solely on the environmental impacts.

2.30 The OAG could also focus its audit on the effectiveness of the environment policies and
programs. Some government programmes have significant impacts, which may be both
positive and negative, intended and unintended. For example, the primary objective of road
building is to facilitate movement of people or goods. But building a road has a secondary
and direct impact through its land use and its affect on the ecology of the area and the
landscape. The use of the road also has an impact on air and noise pollution. In a case like
this it might be desirable, especially for developing countries, to push for programmes which
improve the infrastructure than to seek environmentally friendly programmes at all costs.

Audis of Environmental Management Systems

2.31 Organizations are introducing environmental management systems to ensure that they are
systematically setting policies for continual improvement in environmental performance and are
achieving the policy objectives. Voluntary accreditation schemes have been introduced
nationally, regionally and internationally to enable organizations to obtain external confirmation
of the adequacy of their environmental management systems and recognition that they are
operating such systems.

2.32 The scope of OFAG and RAO audit of environmental management systems is confined to
governmental organizations and does not extend to an audit of environmental management
systems of private sector organizations.

2.33 The standard for environmental management systems identifies the following features of
best practice:
o Stating an environmental policy;
o Planning taking account of environmental aspects and legal and other requirements; setting
objectives and targets and introducing environmental management programmes;
o Implementing and operating establishing structures and responsibilities, training staff and
communicating the main requirements; documenting the environmental management
systems; operating the systems, and preparing emergency plans;
o Checking and taking corrective action; monitoring and measurement; identifying non-
compliance and taking action and auditing the environmental management system.

Why We Conduct An Environmental Audit?

2.34 The greatly increased knowledge and experience of environmental issues have led to a
rethinking of the role and responsibilities of both governments (at national and local level and
their associated agencies) and industries. Some of the crucial changes to have taken place
are:

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 o Expansion of environmental regulation by state and local authorities.
o Increasing cost of environmental protection for both the private and public sectors. The
resources spent by both sectors on pollution control have increased and both business and
government bodies are looking for more cost effective ways of dealing with compliance
issues.
o Increased environmental awareness among financial institutions, citizens, civic groups etc.
The pressure and scrutiny brought to bear by these institutions provide governments and
businesses with impetus to give environmental issues closer consideration.
o Obligations of the governments to protect the environment under international agreements
(Refer to Annex 1 for a list of Environmental Protection Legislation, Policies, Regulations
in Ethiopia).
o More concern about sustainable development shown by governments and corporations
around the world following the United Nations Conference on Environment in Rio de
Janeiro in 1972.

2.35 The following benefits can be derived from the environmental auditing process providing the
findings and recommendations are acted upon:

o Identification of environmental risk: environmental harm caused, non-compliance with

statutory requirements, poor operating procedures, improper disposal of waste;
o Development of environmental policy: Is there an environmental policy? Does it need
updating? Are operational guidelines documented? Is there an environmental management
structure? is there an environmental budget? Are there reporting procedures?
o Avoidance of legal sanctions: ensure compliance with environmental laws, avoid civil
liability;
o Identify potential cost saving: waste minimization, conservation
o Establishing a history of environmentally responsibility through: environmental incident
reports, environmental monitoring and recording.

Nature and Categories of Performance Audit

2.36 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 the environment. In a broad sense, it is largely concerned
with how well management has secured and accomplished its mission in an economical,
efficient and effective manner. The auditors role is to examine and report on how well that
responsibility has been discharged and suggest cost-effective improvement as necessary.

2.37 Performance audits fall into four broad categories:

o 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.

o 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.

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 o 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 major departments involved in the activity. These are
sometimes called 'sectoral' audits.

o 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.

o Joint and/or parallel audits

In certain situations, two or more audit offices may carry out a joint audit investigation of an
organization, program, function, etc. of interest to all of them and for which they may have
a joint and/or overlapping audit responsibility. In a joint audit, the participating audit offices
would collaborate and work with each other and undertake the planning, execution and
reporting of the audit as if they were one audit team. More specifically, they would reach
agreement on:

Roles and responsibilities in carrying out the audit

Audit objectives, scope, methodology and criteria
Sharing of staff, expertise, expenses and other resources
Timing and modality of reporting

In similar circumstances to the above situation, two or more audit offices may chose to
carry out a parallel audit investigation. In this case the audit offices would be working
independently of each other but may collaborate with each other in setting Audit objectives,
scope, methodology and criteria.

An example of this is the joint and/or parallel work carried out by the International Joint
Commission (IJC), a joint US/Canada organization responsible for the monitoring of
compliance with rules and regulations governing the management of the Great Lakes
system between the US and Canada.

2.38 Within these broad categories the auditor pays particular attention to good management
practices, in, for example:

o Systems of planning, budgeting and controlling, revenue, capital expenditure and income,
and for allocating scarce resources.
o Manpower management, including arrangements for deciding and reviewing establishment
levels and recruiting, training, rewarding or otherwise motivating employees.
o 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.
o Arrangements designed to take advantage of economies of scale or skills, particularly in
procurements of goods and services.
o Specific initiatives that have been taken to improve economy, efficiency and effectiveness
in the performance of the range of auditee activities.
o Proper codification of responsibilities, authority and accountability.

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 o Monitoring results against predetermined performance objectives and standards, to ensure
that outstanding performance is encouraged.

2.39 Audit may cover all or part 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.

2.40 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.

2.41 The performance auditor must tailor the audit engagement by selecting those 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.

2.42 For a performance audit to be successful, it is important that:

o Work is adequately planned;
o Team members are properly supervised;
o Relevant, reliable and sufficient evidence is obtained to afford a reasonable basis for the
auditors observations, conclusions and recommendations.

2.43 The extent to which we can assess performance under 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 audit 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.

2.44 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 achievement of outputs 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.

Comparison of Financial, Performance and Environmental Audit

2.45 The principal objective of an audit of financial statements is to enable the auditor to express
an opinion on the truth and fairness of the financial position and financial results as shown by
the annual financial statements of an organization.

2.46 The secondary objectives are:

o To detect errors and frauds - this is really a by-product of the examination of books,
accounts, vouchers and other records carried out by the auditor in pursuit of the principal
objective stated above; and

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 o To prevent errors and frauds - this is a further by-product because of the deterrent effect
imposed on the staff of an organization by the possibility that errors and fraud might be
detected during the audit examination.

2.47 In addition to the above, the objectives of government financial auditing extend to issues of
compliance with government rules, regulations and procedures, particularly that

o The financial management of government entities follow proper accounting procedures;

o The manner of revenue collection and find disbursement is in accordance with government
rules and regulations; and
o Property management is also in accordance with government rules and regulations.

2.48 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.

2.49 Performance audits cover the economy, efficiency and the effectiveness of management
operational activities and are conducted to help management improve operations. The scope
of performance audits varies considerably depending on audit objectives.

2.50 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.

2.51 Environmental audit assesses the environmental impact of an entitys operation. It is a

systematic and objective evaluation of how environmental organization, management and
equipments are performing with the aim of helping to safeguard the environment. It assesses
management control of environmental practices and compliance with regulatory
requirements.

2.52 For financial audits the criteria used are the financial statement assertions and related
compliance with authorities objectives.

2.53 For performance audits the criteria used are the 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. Where the entity's own measures are found to be suitable, they can be adopted as
audit criteria.

Benefits of Performance Audit

2.54 If an effective audit program exists and has the support of an organizations management, it
will have a very beneficial effect on how the available human resources, materials, equipment
and other inputs are assigned and used. The major benefits are improvements in:
o Clarity of the aims and objectives of programs and projects;
o Quality of planning at all levels;
o Clarity of agency responsibility and authority to execute approved plans;
o Quality and effectiveness of program execution in relation to approved plans;
o Quality of internal administration and progress reporting; and
o Quality of results in relation to previously established cost and other objectives at all levels.

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Difficulties in Performance Audit
2.55 The main difficulties in performance audits include among other things:
o Difficulties in defining the subject of performance auditing and in identifying clear lines of
accountability.
o Lack of legal mandate and of access to information. In some cases the audit office may not
have the enabling legislation to conduct performance audits, whereas it is required to
conduct financial audits under the law. Thus auditee management may not attach much
importance to such audits and, in some cases, information may not be readily provided to
auditors.
o Lack of criteria: performance auditing objectives are often stated in general and vague terms
and, at times, are not identified at all. In addition, specific criteria that are unanimously
accepted by audited management and auditors must be formulated for a successful
performance audit.

Objectives of Performance Audit

2.56 The main objectives of a performance audit are:
o To maintain and enhance public accountability;
o To improve accountability by strengthening the relevant supervising authority's reporting to
the legislature on the performance of government departments, agencies, projects and
programs;
o To act as a force for beneficial change in the management of resources and the achievement
of value for money;
o To encourage improved value for money in government departments, agencies etc. where
improvements are found to be necessary and cost effective;
o To identify well performing government organizations as possible lessons to be emulated by
others;
o To enable to provide independent information, advice and assurance about the 3Es in the
major fields of revenue, expenditure and management of other resources;
o To induce and assist audited entities to take action where improvements are shown to be
necessary and cost effective.

Public Accountability
2.57 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.

2.58 This split between elected representatives and management means that the legislature 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. In
addition, the audit office has the responsibility, through performance audit reports, to the:

Legislature
o To provide assurance that official information is adequate and reflects the true performance
of the auditee;
o To supplement official information where it believes it to be inadequate.

33
 The Auditee
o To give advice as to what could lead to improvements for the audited body;
o To encourage audited entities to improve the quality of their reporting to the legislature.

Ways of achieving these objectives entails:

o Assessing whether the auditee has established sound systems and adequate controls for
ensuring its performance;
o Assessing whether the auditee has adequate systems and procedures for detecting non-
compliance, irregularity and illegal acts.
o Examining the practice of these systems/controls;
o Examining evidence of poor VFM, seeking the causes and establishing potential
improvements;
o Identifying appropriate cost effective ways of improving financial management and control
to provide auditees with cost effective solutions;
o Ensuring that there is a cycle of coverage based on materiality, risk, relevance and key areas
and issues;
o Ensuring credibility by presenting reports on major examinations which are fair, balanced,
accurate and up to date.

Force for Change

2.59 Performance audit gives the audit office 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 audit office can
make valuable recommendations. It is the responsibility of the office to encourage and assist
audited bodies to take action where improvements are shown to be necessary and cost
effective.

2.60 Following on from the prime objectives, the audit offices should adopt the following
operational objectives:
o 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:
o Scope to make worthwhile recommendations for improving VFM; and/or
o A need to enhance public accountability.
o To plan performance audit work such that:
o It has clear objectives and scope and a properly defined methodology;
o Resources are utilized efficiently; and
o Staff are fully aware of and capable of delivering the requirements expected of them;
o To obtain sufficient, relevant and reliable evidence, including adequate analysis;
o To enable reasonable conclusions to be drawn and worthwhile recommendations to be
made;
o 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;
o To manage audits so that they are delivered on time, at the approved cost and with due
regard for the desired quality;
o 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:

35
 o Mutual understanding and acceptance of each other's roles, duties, activities and
basic management structures and systems;
o Trust in professional and personal integrity;
o A willingness to communicate on significant developments; and
o A respect for each other's professional and administrative judgments;
o To report the results of investigations accurately and fairly and in a manner that aids the
intended audience's understanding.

Relations with Legislative Oversight Committee

2.61 The development of a system whereby 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 committees whose members are committed to
uphold public accountability. Consequently, the relationship between the committees and the
audit office ought to be on a formal statutory basis. The objective of the relationships will be
to improve management and control over public finance.

2.62 At the initial stage the objectives could focus on ensuring establishment of sound performance
standards and procedures and see to it that money is spent only for authorized purposes. The
subsequent practice for the committees could be to spend more time upon the elimination of
waste and extravagance, the 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.

2.63 Such committees may not have executive power and can only submit recommendations.
Their value comes not from simply criticizing things that they think 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 their examination of the auditor general's
reports.

2.64 The effectiveness of the committees largely depends on having sound audit reports from the
auditor general, as a starting point with the specific issues to be resolved clearly indicated. In
turn the auditor general's effectiveness gains significantly from the support and standing of
the committees. The effort of the audit office may be seriously undermined when auditees
fail to give adequate, prompt consideration and response to audit queries; this is an area where
the auditor general should look for strong committee support to secure corrective actions.

2.65 Where the committees suffer from having only limited staffing support, the problem can be
relieved by way of direct assistance from the auditor general. In particular the committees
should be briefed as to the effective lines of inquiry and questions which elicit the information
required for any possible committee 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. The regular attendance of a representative from the
Ministry of Finance and Economic Development and Regional Finance and Economic
Development Bureaus is necessary to allow to the committees to seek a central opinion on
questions of financial control and management and on the evidence of witnesses.

37
2.66 The extent to which the auditor general is involved is a matter for the committees to decide.
The role may be a passive one of a standing witness to give information and clarifying points
only when asked. Alternatively, when the committee lacks expertise, the auditor general may
be asked to participate more actively by way of assisting the chairman throughout the meeting
without actually taking part in the oral examination of witnesses. Committee meeting should
be followed as soon as possible by discussion between the chairman and the auditor general to
review the evidence obtained and to determine the likely nature of any committee reports to
the legislature. In the interests of maintaining the momentum of the examination process, and
as a means of demonstrating government's good faith, a government response should appear
promptly as a statement by the Ministry of Finance and Economic Development and Regional
Finance and Economic Development Bureaus and be laid before the legislature. To complete
the whole process of committee examination, the legislature should have an opportunity to
debate the committees reports and government's responses.

Relationship between the Audit Function and Government Policy and Policy Making
2.67 While the audit office will acquire every right to look at how well an organization is
achieving its objectives, through Federal and regional laws, this does not mean the audit
office can investigate all aspects of governments.

2.68 Special care is required when audit findings touch on government policy. As legislative
auditors, we do not want to be seen to be second-guessing the intentions of Parliament when it
approves legislation, or of Cabinet when it selects a certain policy direction. On the other
hand, auditors must understand pertinent policies to audit effectively, and results-oriented
auditing inevitably brings us closer to policy matters.

2.69 It is generally understood that audits more usefully examine the implementation rather than
the development of policy, and that audits do not question the merits of the government's
programs and policies. The merits of what a government is aiming to do are for review, debate
and decision by elected representatives and not the preserve of the audit office. If audit
findings throw a government policy or legislation into doubt, caution is necessary as the
auditor may become involved in a partisan political debate.

2.70 This restriction, however, should not prevent the audit offices from examining:
o The events, evidences and circumstances leading up to the decisions regarding policy
objectives;
o The means chosen to implement the objectives;
o The extent to which the objectives are being achieved;
o Other results of the policy, including unintended or adverse effects.

2.71 The means chosen by government to pursue a policy objective may in itself be chosen for
political reasons, and if this is clear to the legislature the audit office would not normally
comment on the instruments chosen (although we might still wish to draw attention to the
extent to which the objectives have been achieved or to any financial consequences of which
the legislature would not normally be aware).

2.72 Elected representatives will often enshrine policy instruments in legislation but this does not
remove them from the audit office's purview. Equally, not all executive decisions are matters
of policy objectives. Experience elsewhere suggests that audited bodies are likely to be very
sensitive about how far the audit office take their audit, especially where executives are

39
 involved. The distinction between aims, objectives and policy instruments are discussed in
appendix 1.

2.73 As illustrated in Canadian example shown in the table below, policies range from
administrative policies to national policies. Generally, departmental or government-wide
administrative policies present fewer risks to the audit office. The risk increases as you move
from the left to the right, especially if we want to comment on the completeness of adequacy
of policy.

Departmental Government Tax Specific policy Program policyNational policy

administrativ administrative administratio decisions which goals (usually goals that may
e policies, policies that n policies, may or may not in legislation or not be formally
such as service support such as rules require the Estimates) enunciated,
delivery programs, such designed to legislative such as fisheries documented or
policies. as the secure an approval, e.g. to conservation adopted, such
requirements of effective check close certain policy, as reducing
the Contract on the government peacekeeping child poverty.
Regulations or assessment, offices, or create policy, or
Financial collection and jobs in certain universality in
Administration proper regions. the Canada
Act. allocation of Health Act.
revenue.

2.74 Government policies often begin as a party platform, white paper or political speech without
any official standing or legislative base (national policy goals). They achieve more formal
status when they are enshrined in legislation and/or receive government funding (program
policy goals). Once they reach this stage, the auditor can examine how they are being
implemented and whether the policy goals are being achieved.

2.75 A related issue is whether the Auditor General should put potential policy issues on the
Parliamentary/public agenda, e.g. aging or child poverty. The AG's mandate and role as
servant of parliament requires him to bring to the attention of Parliament, and thus to the
public, any matter that he deems relevant to the exercise of this responsibilities. To this extent,
the AG can legitimately play a role in shaping the public policy debate. But this would be
very risky, and could easily involve the office in partisan politics.

2.76 Programs may be subject to specific policy decisions by ministers or Cabinet committees. In
some cases they are unwritten policies supported by ministers. Even if they have the effect of
reducing economy and efficiency, they may be justifiable to the government on the basis of
effectiveness. It may be very difficult to get the whole story and find out what analysis and
weighing was given to efficiency versus effectiveness.

2.77 Team leaders should:

o Notify the Deputy Auditor General and/or the Auditor General when it appears that an audit
will result in observations about the adequacy of national or program policy; and
o Obtain Executive Committee (or equivalent) approval before reporting on the merits of
existing government policies, or attempting to put matters on the public policy agenda.

41
Roles and Responsibilities of Key Players
2.78 Many people are involved in the conduct of an audit. It is important that the roles and
responsibilities of the main participants are defined as clearly as possible, that the participants
are aware of them and accept them, and that they are documented.

2.79 The roles and responsibilities shown below are for illustration purposes only and may not
apply in all cases to all the participants. The specific roles and responsibilities for staff of
OFAG and RAOs need to be verified against the list below and changes made accordingly.

2.80 Auditor-General
o Makes the final decisions on the content of the final report in cases of disagreement
o Resolves issues related to government policy and office mandate

2.81 Deputy General Auditor

o Approves the audit proposal and plan
o Approves the final report for publication in consultation with the Auditor General

2.82 Department Head

o Agrees the protocols required for the conduct of the audit with the audited entity and other
stakeholders
o Assists in gaining access to the audited entity
o Conducts the opening conference with the division head
o Discusses the output/product of different stages of the audit with auditee management
together with the division head
o Assigns staff to the audit team in consultation with the division head
o Reviews and approves the audit proposal and plan
o Reviews and approves transmission draft report to auditee
o Approves members for Advisory Committee

2.83 Division Head

o Advises department head on staff to be assigned to the audit team.
o Approves the engagement of and contracts with outside consultants and advisors.
o Provides effective management oversight of all stages and aspects of the audit process.
o Reviews and signs off on the audit proposal and plan and forwards them to the department
head for approval.
o Reviews and signs off on team leader draft report and forwards it to the department head for
approval.
o Conducts the opening conference with the department head
o Discusses the output/product of different stages of the audit with auditee management
together with the department head

2.84 Team Leader

o Prepares audit proposal and plan and forwards them to division head for review and
approval
o Prepares team leader draft report and forwards it to the division head for review
o Holds primary responsibility for ensuring that the audit is conducted in accordance with this
manual, and that any exceptions are brought to the attention of the division head and
necessary approvals obtained from the appropriate levels.

43
 o Keeps division head informed of important developments and provides early information on
any emerging risks. This includes providing a weekly briefing on progress made and
expected activities in the coming week.
o Manages the progress of the audit against the audit plan, oversees all audit activities, and
keeps other team members informed of all relevant matters.
o Makes clear team members' roles to them, including when they need to temporarily assume
the lead responsibilities in the absence of the team leader.
o Manages audit-related communications with the audited entity and other stakeholders in
consultation with division head
o Selects members for Advisory Committee and obtains departmental head approval.

2.85 Audit Team

o Prepares outline chapter
o Conducts the audit in accordance with this Manual.
o Works collaboratively with each other and other participants to achieve completion of the
audit.
o Maintains open and constructive communications internally and externally.
o Takes a positive approach to resolving disagreements within the team and with others.

2.86 Advisory Committee

o Provides independent review, challenge and advice at the critical control points of the audit:
o Survey stage: Reviews and advises on potential issue areas, relevance of the issues
to the offices' mandate, matters of potential significance
o Outline chapter stage: methodology and general approach, evaluative criteria,
findings, conclusions, recommendations, other emerging issues, tone, fairness,
accuracy and reasonable presentation of findings in the audit report.

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CHAPTER 3: AUDIT PLANNING
The audit office 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.

3.1 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.

3.2 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.

3.3 The structured approach proposed in this manual consists of the following:
o Planning
o Overview/General Survey
o Marking
o Annual Operation Plan And Strategic Plan
o Selecting the Right Area for Audit
o Feasibility Stage
o Main Investigation Planning
o Main Investigation
o Reporting
o Post Audit Follow-up

Overview/General Survey
3.4 The purpose of the overview/survey stage is to gain sufficient knowledge of the subject area
for confirming that the audit can be conducted or not and to develop a plan for the execution.
The auditor gathers information in order to fine-tune initial decisions about scope, cost,
timing & skills, to propose audit objectives, criteria and a detailed examination approach.

3.5 In general during the overview the audit team needs 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 audit team needs a coherent and logical map of the organization, its
objectives, activities and use of resources which will help the audit team to gain a perspective
of the entity or area to be audited.

3.6 The overview stage is important for the audit team to understand the big picture of the area
to be audited. An audit team with considerable experience in auditing the area/ subject may
have cumulative knowledge to satisfy these requirements without engaging in a formal
overview stage. In situations where the organization has not been audited recently or where
there has not been continuity in the audit team, an overview study may be necessary.

3.7 The overview consists of a broad based review of the activities, inputs, outputs, impacts,
objectives and management structures of the audited entity. Understanding of the entity:
o Provides a basis for initial scoping decisions;
o Allows a more efficient and economical deployment of audit effort;
o Provides a basis for determining or changing audit priorities;
o Forms a firm foundation for plans and for the feasibility studies, main investigation and
reporting stages that follow.

47
3.8 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.

3.9 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.

3.10 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.

3.11 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 Appendix 3.

3.12 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.

3.13 During the overview stage the objective of information gathering is to gain a perspective of
the entity. These include:
o The legal mandate of the entity;
o The vision, mission, objective and expected results;
o Organizational charts;
o Accountability relationships;
o Relevant policies;
o Regulatory and principal administrative activities;
o Financial statements, including the annual accounts, budgets, and corporate plans;
o Revenue, expenditure, assets and liabilities;
o Environment in which the entity operates;
o Key personnel;
o Major risks facing the entity;
o Main financial and management control systems;
o Entitys approach to environmental issues, including its policy and objectives and the
existence of an environmental management system;
o Environmental laws and regulations which may have a fundamental impact on the
operations of an entity;
o Prior deficiencies/known weaknesses.
o Nature of the organizations operations and associated environmental issues;
o Organization support for environmental programmes, including the level of environmental
awareness as well as its compliance history;
o Perception of the organization's environmental commitment, including how the organization
views itself and how it is viewed with respect to environmental issues.

49
 o Other studies (research) made by internal and external bodies;
o Review of audited entity's website, if any.

3.14 During the overview stage consultation should take place with other audit teams in the
office, such as the financial audit team, with responsibility for the entity subject to audit to
obtain the necessary background information. The amount of knowledge necessary for these
types of audit depends on the nature of the examination being conducted.

Overview Methodology
3.15 The information obtained during the overview will normally be acquired through a
combination of interviews, review of key information systems and documents. The audit
team should obtain a statement of policy objectives from top management and it is good
practice to check our understanding of the whole structure and activities of the audited entity
with them. External information sources may also be helpful during the overview therefore
the audit team could review any relevant external information as necessary.

3.16 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:

o Differentiate the main activities of the auditee to allow us to form a broad strategy for our
audit;
o Identify possible audit areas and issues for the main feasibility study;
o Evaluate each of these audit areas and issues against the risk criteria mentioned earlier.

3.17 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

3.18 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.

3.19 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.

3.20 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.

3.21 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:

51
 o A top-level appreciation of the auditee, its objectives, activities, inputs, outputs and
management systems;
o A range of possible study assignments/areas for further investigation;
o 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 Appendix 7.

3.22 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.

3.23 The minimum cross cuts for any entity are by:

o Policy objectives and policy instruments: for effectiveness studies, and management
thereof;
o Activities: in the first instance for efficiency and its management, but also to see to what
extent activities tie up with objectives;
o Inputs: for studies of the control of resources and for wider economy studies; and
o Principal financial management control systems: for studies of the adequacy and quality of
the management controls over economy, efficiency and effectiveness.

3.24 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:

o Major changes in expenditure or income by policy objective or instrument;

o Significant variations in inputs;
o Un-budgeted income or expenditure;
o Explanations of the above.

3.25 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

3.26 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:

o Come to a perception on value for money, potential impacts, auditability, etc. For each
topic;

53
 o 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
o Foresee a potential audit program for performance audit of the field;
o 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.

3.27 The availability and location of information will vary with the internal reporting structures of
the audited entity. Information may be obtained within the auditee from:
o 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;
o Departmental bids/justifications for resources: again these may include performance data,
and may refer to major constraints affecting the auditee and developments likely to affect
the audit field;
o Program evaluations: for performance information and analysis;
o Performance reports;
o 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;
o 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;
o 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;
o Consultant's reports and other scrutinizers;
o Research program (if available): for future work planned by the auditee;
o Observations during financial audits: this is likely to be our principal source of information
on the quality of the financial management systems.

3.28 It may be necessary to obtain more detailed analysis from the auditee's finance branch.
Financial audit report is also a useful source of information. It gives a perspective of the main
activities of the auditee, its structure and, most importantly, its financial management systems.

3.29 Interviews will also play a major role in this element of the overview. The main contacts will
be with:
o The top management of the auditee and of individual programs;
o The finance and other significant branches of the auditee.

3.30 the audit team should seek the following from the auditee's top management:
o Major developments in the pipeline;
o Any concerns they have on value for money or public accountability;
o Major constraints under which they are working, e.g., limitations on the recruitment,
retention and dismissal of staff, lack of foreign currency etc., which may be affecting the
performance of the auditee or individual schemes.

3.31 The audit team should also discuss the results of their overview with the audit department
head, before finally producing a report to the auditor general and his deputy. All such
interviews should normally be conducted at principal auditors/senior auditors level.

55
3.32 The auditees finance branch will normally be the first source for information that cannot be
obtained from the reports mentioned above, or for expanding on certain details. 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 auditor will, therefore, wish to discuss:

o The broad content of the financial management procedures in place in the auditee
organization;
o The finance branch's monitoring and review of these procedures; and
o Any reports arising from relevant scrutiny.

3.33 Where the finance branch has not exercised this responsibility, and no other branch has been
delegated for it, there is a potential audit concern about the auditee's internal control
procedures.

3.34 External information sources may also be helpful. In particular, for future work plans for
instance, the following organizations could be contacted:
o Ethiopian Management Institute;
o Industrial Project Services (IPS);
o Ministry of Finance and Economic Development;
o Addis Ababa and other Universities;
o Major aid agencies, etc.

3.35 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 economic,
political and social issues within the country through the media and relevant public debates.

Documentation
3.36 At the end of the overview the auditor should produce a working paper folder containing all
relevant and necessary supporting evidence. Referencing should be sufficient to allow
management to easily refer to the relevant data. The working paper folder should contain:

o A synopsis of the cross cuts covering the whole audit area. This can follow the format of
figure 1 of appendix 25 with one diagram for each type of cross-cut e.g., by objective,
inputs, financial management control system;
o All risk assessment forms;
o 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;
o A timetable for the proposed audit areas covering the following 5 years.
o Separate working paper folders containing all relevant and necessary supporting evidence.

3.37 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 audit report can be prepared.

3.38 The working paper folder should contain: -

o Correspondence with the audited entity and notes of discussion;
o Copies of evidence, records, analysis and other supporting documents for the findings and
conclusions.

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3.39 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 principal auditor, with a covering memo to office senior management.
Documentation of working papers and working paper folders are discussed in Appendices.

3.40 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.

3.41 To complete the risk assessment forms the auditor should:

o Assign a priority to the topic as a whole;
o Suggest when the audit should take place within the overall programme;
o Give a priority rating (low, medium, high) against each risk criterion and briefly explain the
reasoning for these.

A worked example is given in Appendix 10.

3.42 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 Appendix 9 for each of the main topics identified in the crosscuts. Risk
assessment form should be produced for each low, medium or high priority areas, whether or
not an assignment is being proposed. It is important to ensure completeness.

Overview Report
3.43 After finalizing the overview the audit team should produce an overview report. The focus of
the overview report is to help the audit office management to decide the audit assignment.
The report should include assessments of those area which they have decided are not worth
pursuing for further study in the short term as well as the area they plan to take forward to the
next stage. The report should also cover the auditor's conclusions on the entire area that they
examined at the overview stage.

3.44 On the basis of this report senior management 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.

3.45 The focus of the overview report is to help the audit management decide about the audit
assignment. The report gives the auditors assessment about the key areas to be audited.

3.46 The report should cover the auditors conclusions on the entire area 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.

3.47 The main overview report should include the following:

o Brief description of the audit area reviewed;

o Details of expenditure and income, and source of fund in each main area;

59
 o Review of the various elements of the audit area in terms of their suitability for audit and
their priority;
o Analysis of the whole audit field against risk criteria;
o Auditors recommendations for the immediate audit and any recommendations they may
have for future performance audit work in this area;
o 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;
o Recommendations of cycles of coverage of the audit field (e.g., all high priority items over
a 5 year period); and
o Concluding summary of the above.

3.48 The appendices should include:

o 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.
o A spreadsheet summarizing the auditor's judgments of the priority of each potential audit
area against each risk criterion.

Relations with the Audited Entity

3.49 At the planning stage the audit team will have produced a plan for liaison during the audit
execution with the auditee entity. This should have detailed information on:
o Who to liaison with
o Their information requirements
o The audit office's own information requirements
o How to facilitate exchange of information efficiently and effectively.
o Identification of key dates within the audit.

3.50 liaison with the auditee should follow the plan. However it is essential that management and
the team:-
o Monitor and control the working of the plan
o Ensure that the liaison officer assigned by the auditee was competent and has adequate
knowledge about the subject of the study
o Ensure that the audited department is informed of any change or new developments in the
audit

3.51 For successful completion of the overview phase, good relations with the auditee are
essential. Particularly, if the audited has not previously been a subject of a 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 top management is
necessary.

3.52 The first stage of developing good relations is to inform top management of the auditee of our
intention to carry out an overview through an opening conference. This should normally be
undertaken by the principal or senior auditor directing the work and should cover:

o The audit office's performance audit objectives;

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 o What an overview is and why we are carrying it out;
o The methodology of an overview;
o What work we will be undertaking;
o What information we will require from the auditee;
o Who within the auditee we will need to talk to;
o Our staffing and timetable;
o 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 auditee top management;
o What we will do with our results: it should be stressed to the auditee 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 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.

3.53 The auditor must also liaise properly with all other staff within the auditee whom he/she
wishes to interview. These staff is more likely to be unaware of the audit office role and
purpose. Liaison should be maintained throughout the overview to keep the auditee abreast of
the progress of the overview.

3.54 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. They may be able to add a gloss to some of the
findings/problems and may be able to correct any errors that may crept into our work. The
auditor may produce a fact sheet of the key information and seek verification and
agreement from the auditee liaison officer. 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 auditee informed of what we are doing. Co-operation cannot be one-sided.

3.55 In setting up the overview we should also take the opportunity of inviting auditee top
management to give us a statement of auditee policy objectives and inform us of:
o Any major concerns regarding its performance or that of its subsidiary bodies;
o Any constraints affecting value for money;
o Significant future developments within the auditee;
o 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.

3.56 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 audit office's
financial audit the finance branch will be aware of the audit office, but may not have come
across performance audit before.

3.57 The auditor should ensure that the finance branch and other departmental staff of the auditee
are informed, as appropriate, about:
o The role and purpose of the audit office;
o The objectives of performance audit;
o What an overview is and why we are carrying it out;
o Briefly, the methodology of an overview;

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 o What information is required from them and why;
o Our staffing and timetable;
o The liaison arrangements established with auditee top management; the liaison officer
should be close to the auditee top management and have the authority to speak on behalf of
the audited entity.
o What we will do with our results, including the fact that the audit office will discuss results
with the auditee at the end of the overview.

3.58 Precise methods of familiarizing staff will depend upon the liaison arrangements. In some
cases the auditee will take responsibility, in others it will be left to the audit office.
Whichever is the case, the auditor must check that auditee staff is fully and accurately briefed
at an early stage.

3.59 Liaison should be maintained throughout the overview. If there are any major changes in our
staffing or timetable, or in the access we require to people and papers, the auditor should
consult with the appropriate auditee staff at the earliest opportunity. Even where there are no
changes, it would be courteous to keep the auditee abreast of the progress of the overview.
For our part, we wish to be informed of any developments within the auditee which are likely
to affect the conduct or outcome of the overview.

3.60 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:
o Policy objectives, if these have not been formally communicated by the auditee top
management;
o Financial information;
o Existence and usage within the auditee of the major information systems;
o The structure and key components of the financial management systems, including strengths
and weaknesses;
o Completeness of listings of all major departmental reviews of the auditee, internal audit or
consultancy reports.

3.61 The auditor may find it useful to produce a "fact sheet" of the key information and seek
verification and agreement from the auditee liaison officer.

3.62 These discussions should only cover the findings and broad conclusions of the overview and
should not commit the audit office to a definite program of studies for the future. Final
decisions on the audit office's future work plan lies with the auditor general and other audit
office's senior management who will not have had an opportunity to consider the overview at
this point.

Management of Overview Stage

3.63 The overview is difficult to plan and control. It does not lend itself to detailed early planning
because both:

o The results of early rounds of information gathering and analysis and

o 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 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

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 outcome of the (more costly) main investigation by targeting audit areas with a high
probability of success.

3.64 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:
o 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;
o Early liaison with auditee top management: normally undertaken by principal or senior
auditor;
o Initial information gathering and cross cuts;
o Detailed information gathering and risk assessment: this can be broken down by subject and
allocated to a number of staff;
o Report preparation.

3.65 Although the work should be broken down into manageable tasks, it is good practice to keep
continuity of staff throughout. Understanding of the auditee 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.

3.66 Each task should be separately planned in its own:

o Objectives;
o Methodology, data sources and analytical requirements;
o Time and cost budgets;
o Milestones; and
o Expected outputs and documentation requirements, including deadlines.

3.67 Staff should be left in no doubt of what is required of them, how, by when and with what
results.

3.68 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:
o They highlight when management input is essential;
o They emphasize the importance of key outputs without which management cannot make
informed decisions;
o 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.

3.69 Once fieldwork begins management must maintain a high degree of involvement. Adequate
control relies upon:
o 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
o Acting at each key decision point: management must maintain the direction of the study by
making well-informed, prompt and appropriate decisions as necessary.

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3.70 Control also depends upon adequate communication within the team 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 team meetings. These should
include all staff, including management up to the relevant principal or senior auditor
directing. Their success depends upon:
o 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. A
competent person should chair all team meetings;
o Preparation: each person 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;
o 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;
o Completeness of decision making: decisions should cover what needs to be done, for what
purpose, by whom, the deadline and, if appropriate, the methodology;
o 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. Management must always review minutes before they are issued
to other staff.
o

Marking
3.71 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.

3.72 Marking is the process of keeping the overview up-to-date. It involves maintaining a
selective watch of information and developments in the auditee with the objectives of:
o Identifying and evaluating any major changes in the audit field;
o Revising the audit strategy and priority of audit areas as the changes dictate.

3.73 the two main elements of marking are:

o Maintaining a broad overview of auditee 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;
o Keeping a particular watch in those areas identified form the overview as warranting special
attention (examination of progress reports, management information, statistics etc.).

3.74 To be fully effective marking must be capable of highlighting both new risks to VFM and
changes in the importance of previously identified risks.

3.75 Changes in the auditee 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 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.

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3.76 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 auditee and evaluating their significance. Where the auditee continues as
before largely unchanged the overview analysis can stand unchallenged.

Methodology
3.77 Marking includes the following activities:
o Selection of key auditee data sources to monitor;
o Review of data sources to identify significant developments in the audit field since the
previous overview or marking round;
o Evaluation of developments against the risk criteria discussed in overview and revision of
the audit strategy and audit proposals, as necessary;
o Documentation and reporting of results.

3.78 Marking incorporates only those techniques that are used during an overview, but on a more
limited and targeted scale.

Selection of Data Sources

3.79 Marking should be kept to the minimum necessary to identify and evaluate significant
developments in the auditee. The careful selection of key data sources is therefore essential.
Selection should be based on:
o Experience from the overview: this should have highlighted the most valuable information
sources, i.e. Those most likely to give a good informative picture;
o Any new developments in either the auditee internal or external reporting structures or
arrangements during the year: these may yield new sources of quality information.

Review of Data Sources and Evaluation

3.80 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.

3.81 As with the overview, the first step is to analyze the financial data using crosscuts. Marking
cross-cuts have two purposes:
o 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;
o To identify any significant trends in expenditure, income, or use of resources.

3.82 marking should also include a brief review of departmental:

o Policy objectives;
o Activities;
o Financial management structures.

The auditor should also monitor the auditee future plans through such sources as corporate plans,
resource bids etc.

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3.83 The auditor should stay informed on the auditee achievement of value for money. Sources for
this will normally be identified during the overview and, typically, will include:
o Internal or external reporting of performance (e.g. Annual reports);
o Internal audit reports;
o Consultancy or other management reports.

Evaluation of Developments against Criteria and Revision of Audit Strategy

3.84 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
3.85 Documentation should reflect the principal activities of marking. It should:
o Record the results of cross-cuts of financial data;
o Identify further data sources;
o 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;
o Summarize proposed revisions in each individual future audit assignments and the strategy
as a whole.

3.86 typically documentation would produce three sets of working paper folders:
o Cross-cuts;
o One for each data source (e.g., internal audit reports, annual reports etc.) With a brief
covering note of findings and implications;
o A summary folder containing any revised or additional risk assessment forms and revised
audit strategy, as necessary.

3.87 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
Appendix 6.

Liaison with the Audited Entity

3.88 Liaison with the auditee should follow broadly the same procedures as during the overview.
Auditee top management should be informed of the intention, purpose, timing and resourcing
of marking and adequate liaison arrangements established. It should be stressed that marking
is an internal audit office planning activity of a limited nature and does not lead to a formal
report. Unless otherwise requested, no concluding discussion will be held with the auditee
following marking. However, they should be informed by the audit office. The ensuing
performance audit work will have to continue after due consideration by the audit office.

3.89 Adequate contact should also be made with:

o The finance branch;
o Other departmental information will be required during the course of marking.

All auditee staff should be informed of:

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 o The role and purpose of marking;
o Briefly, the methodology;
o What information is required from them and why;
o Our staffing and timetable;
o The liaison arrangements established with auditee top management;
o What we will do with audit results.

3.90 As with the overview, precise methods of familiarizing staff will depend upon the liaison
arrangements. In some cases the auditee will take responsibility, in others it will be left to the
audit office. Whichever is the case, the auditor must check that auditee staff are fully and
accurately briefed at an early stage.

3.91 Because of the restricted nature of marking, there is usually only limited need for continued
liaison 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.

3.92 There will normally be no need to discuss the outcome of the marking with auditee officials.
However, if marking points to the need for a fundamental change in the audit office's
performance audit approach or immediate program of audit assignments the principal auditor
in charge should consider whether this should be discussed with auditee top management at
an early stage.

Management
3.93 Marking must be closely managed. Decisions need to be made at the outset on:
o The depth or intensity of marking;
o Which data sources to review;
o Whether marking should be a once a year event or on a continuous basis;
o Who should do the work staffing;
o Time budgets and delivery dates.

Depth or Intensity of Marking

3.94 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 a major study 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.

3.95 Factors affecting the extent to which an area is monitored and reviewed include:
o 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;
o Known developments: for example an area should receive extensive monitoring if there is
strong likelihood that there will be legislative change.
o The timing of any future audit assignment: in making recommendations to audit office
senior management for assignment for the following year we will want to ensure that all

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 proposals are valid. The basis, scope and targeting of each recommendation should
therefore be reviewed in some depth during marking.
o 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

3.96 These have been discussed above. However, management should recognize that the more
data sources that they require to be marked the more audit resources they will consume.

Organization

3.97 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

3.98 Decisions on staffing revolve around getting the best mix of skills to do the job. Marking
benefits from combining:
o Performance audit skills: especially a knowledge and understanding of risk criteria;
o Knowledge of the overview: the auditor needs to appreciate the results of the overview to
put marking findings in context;
o 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.
o
o Management therefore need to balance the various skills and abilities of their staff.

Time Budgets and Delivery Dates

3.99 Management 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 auditee,
performance audit generally and the methodology of marking. Delivery against time budgets
requires sensible and positive planning and control by management.

Divisional Annual Operation Plan And Strategic Plan

3.100 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:
o Securing a regular annual review of each units audit staffing requirements for the whole
ranges of activities;
o Constructing for each division a logical and defensible performance audit strategy;

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 o Identifying within these performance audit strategies possibilities and priorities for
forwarding programs of investigations;
o Providing a basis for allocating resources to units.

3.101 Every year each audit division should produce a performance audit strategic plan. This is
an internal decision making document for discussion and agreement between principal
auditors and senior management on:
o The divisional audit strategy for the coming five years;
o Specific performance audits for the following 24 months;
o Consequential staffing needs and other resources.

3.102There are six main planning tasks involved in preparing the plans:
oExamine the performance audit field in the light of ongoing survey and marking work;
oAnalyze materiality of the fields, the risk to value for money and other factors;
oConfirm or revise the audit strategy as appropriate;
oCompile proposed programs of investigation within the specified planning period;
oReview issues identified by financial audit team which need further attention by the
performance audit team;
o Calculate the resource requirements for all aspects of work within the planning period.

3.103 The divisional strategic plan report should include:

o Brief description of the scope of the audit field and the division's proposed strategy for
performance auditing;
o Brief description of the proposed program of audit assignments;
o Short commentary on performance against the previous year's plan, including an
explanation of any problems encountered;
o Statement of the necessary staff and other resource requirements for the proposed
performance audit assignments;
o Statement of staff availability within the division;
o Detailed staff bid to meet the gap between staff requirements and availability plus a bid for
other external resource requirements not available within the division.

3.104 Appendices to the strategic plan should include:

o A spreadsheet of the priority under each risk criteria of each proposed performance audit,
also showing proposal for timing (pro- forma in Appendix 10;
o A proposal for each recommended audit assignment. Requirements for proposals are in
Appendix 12;
o A divisional "income and expenditure" account for staffing showing staff availability and
main usage and highlighting "free capacity" available for performance audit in Appendix
13;
o A statement on the need for consultants or other outside resources (Appendix 14);
o A work plan covering the next 2 years, by month, showing the time spent on each stage of
each audit assignment. (Example in Appendix 15).

3.105 Plans should be prepared from:

o Information and analysis of the overview and marking;
o Assessment of resource requirements;
o Monitoring and analysis of present staff usage.

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3.106 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.

3.107 Responsibility for proposing strategy and for implementing the program of audit
assignments rests with principal auditors. Once discussed and agreed by the audit office's
top management the plans constitute "accountability documents" which the principal auditor
is answerable for delivering. To avoid problems at the feasibility, planning and main
investigation stages principal auditors must satisfy themselves that their plans are viable.

3.108 An approved strategic plan provides the audit office with a number of outputs:
o It constitutes approval by top management to take specific audits forward to the feasibility
stage;
o Taken together the strategies within the plans constitute the audit office's proposed
corporate strategy for achieving the office's performance audit objectives;
o The approved audit plan forms the program of performance audit that the audit office
expects to produce over the next two years;
o Taken together the plans define the audit office's performance audit staffing and other
resource requirements for the next two years.

Central Operational Program

3.109 The central operational program is the next step of the planning process. At this step a
central program is prepared for performance audit which brings together the divisional
strategic plans.

3.110 Its purpose is to provide a balanced and timely submission of reports to the legislature and
to monitor the progress of reports. It ensures that, whilst allowing for necessary flexibility
in the conduct of the major elements of the audit work, there would be a balanced program
for the submission of reports to the legislature on appropriate time.

3.111 The program is prepared from the divisional strategic plans. It is drawn up and monitored
centrally on the basis of agreement between senior management and divisions on subjects
likely to result in audit office's reports. Investigations approved in the divisional planning
exercise are entered into the program on a provisional basis and confirmed after the
approval of the feasibility study. Key dates are recorded and divisions should report
monthly on the progress made.

Selecting the Right Area For Audit

3.112 After the process of moving from general information about an organization and prior to
starting the fieldwork, the audit team should have an adequate procedure to select areas to
be audited and setting priority for each audit assignment. Normally topics for an audit come
from the strategic audit plans prepared by the audit office.

3.113 One of the audit offices objectives for audit is to bring change through recommendations, of
course, which are necessary and costeffective. Cost effective 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.

3.114 good performance audit is one which:

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 o Tackles important and topical issues and areas of strategic importance to government
policies and programs;
o Gets to the heart of the matters examined;
o Is well arranged and evidenced to provide audit office impact; and added value
o Takes constructive approach which is relevant to the auditee management in the real world;
o Succeeds at the level of legislative review, both in substance and in avoiding party political
division;
o Is interesting and significant to the media;
o Is valuable and credible to knowledgeable users;
o Is understandable to people who know about the subject.

3.115 Selecting potential areas for audit should be based on some or all of the following criteria:

o Materiality;
o Risks to VFM;
o Public accountability;
o Possible impact;
o Legislative or public interest;
o Risks to the audit offices;
o Departmental issues;
o Relevance;
o Auditability;
o Timeliness;
o Previous audit work;
o Other major work planned or in progress;
o Developments likely to affect assessment
o Request for services and audits.

Materiality (Significance)
3.116 A matter is material if its disclosure is likely to be of importance to or influence the report
user.

3.117 Financial auditors measure materiality in monetary terms. In financial audits, a matter is
material if its omission would reasonably influence the decisions of a reader of the auditors
report; likewise a misstatement is material if it would have a similar influence.

o The financial auditor considers materiality at both the overall financial statements level
and in relation to individual account balances, classes of transactions and disclosures.
o
o While the financial auditor normally selects one overall materiality amount at the
planning stage and uses that one amount for the audit of all account balances, classes of
transactions and disclosures, the above considerations may result in different materiality
levels being used at the evaluation and reporting stages depending on the aspect of the
financial statements being considered.

3.118 Financial auditors need to consider the possibility of misstatements of relatively small
amounts that, cumulatively, could have a material effect on the financial statements.

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3.119 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.

3.120 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,
these are:
o Materiality by amount the consideration of the financial value involved in the audit area.
o Materiality by nature a matter may be material because it involves substantial impact to
the environment.
o Materiality by context the topic or issues under consideration might need to be drawn
attention.

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

3.121 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 programs, total resources, assets etc.). It does not necessarily relate
to a given years expenditure and is more likely to be considered in relation to the
continuing program of activity.

3.122 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 a 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.

3.123 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 organizations budgets, corporate plans and financial
statements.

3.124 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

OFAGs 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:

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 o 1 - ~ 493 million Birr;
o 2 - ~ 156 million Birr;
o 2 - between 20 and 30 million Birr;
o 1 - between 10 and 20 million Birr;
o 2 - above 3 million Birr;
o Range of smaller institutions totaling another ~ 100 million Birr.

Given this spread of expenditure, it might be reasonable to allocate priorities as follows:

o entities spending >100 million Birr a year (3 in total) - high priority;

o >3 million but less than 100 million (5 in total) - medium priority;
o <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:

o one study of a high priority entity every 18 months, giving an audit cycle of 4 years;
o one study of a medium priority entity every 2 years, giving an audit cycle of 10 years;
o 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

3.125 3.42 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

3.126 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

3.127 Having acquired a sufficient knowledge of the business, the auditor assesses environmental
risk.

3.128 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.

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3.129 Audit risk on a financial audit means the risk that auditors may give an inappropriate audit
opinion on financial statements.

3.130 A risk to VFM is the risk that economy, efficiency and effectiveness are not being or may
not be achieved.

3.131 Risk to the environment is the risk that an organizations activity, product or services that
interact with the environment which has or can have significant environmental impact and/or
the risk that government organizations programs, activities or functions in relation to
environment are not being or may not be achieved in economically , efficiently effectively.

3.132 Auditors should use professional judgment to assess audit risk and its components and in
determining the nature, timing, and extent of substantive procedures required to reduce audit
risk to an acceptable level. Risk assessment is the process 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.
o What can go wrong?
o What is the probability of it going wrong?
o What are the consequences?
o Can the risk be mitigated or controlled?

3.133 The auditor should use selected risk assessment techniques in developing the overall audit
plan and in planning specific audits. Risk assessment, in combination with other audit
techniques, should be considered in making planning decisions such as:

o The nature, extent, and timing of audit procedures

o The areas or business functions to be audited;
o The amount of time and resources to be allocated to an audit
o
o 3.134 The following steps should be considered in evaluating risks:
Identify specific risks;
Assess degree of risk such as the frequency, significance, extent, consequences, short/
long term etc.;
Produce an order of ranking.

3.135 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

3.136 To assess inherent risk, auditors use their professional judgment to evaluate numerous
factors, having regard to their experience of the entity from previous audits and their
knowledge of any significant changes which have taken place.

3.137 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:
o The set up of new services;

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 o Legislative change;
o Major contingencies;
o Introduction of significant new policies;
o Unusual transactions, that is, those outside the normal course of business of the entity;
o Unusual financial arrangements;
o The effects of the general economic and political conditions on operations, financing or
investment activities;
o Exposure to interest or exchange rate fluctuations;
o Complex programs;
o New technology; and
o Intangible objectives/outputs.

Identified (Control )Risk

3.138 The preliminary assessment of control risk is the process of evaluating the likely
effectiveness of an entity's internal control systems in preventing and detecting material
misstatements.

3.139 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.

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:
1) The establishment of clear organizational and operational objectives;
2) Sound control over activities and procedures to make the most economic, efficient
and effective use of resources;
3) 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.

c) Audit offices experience: the knowledge and experience gained from certification work
and past VFM activities is also a valuable source of information for identifying specific
risks.

Degree of Risk

3.140 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

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 enable the risks to be given an approximate order or ranking, generally in terms of "high",
"medium" and "low".

3.141 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:
o Is there evidence that poor VFM has actually occurred in the past? If so, to what
extent?
o How adequate is the evidence in showing the likelihood of poor VFM having
occurred in the past?
o How adequate is the evidence in showing the likelihood of poor VFM occurring in
the future?

Steps taken in risk assessment

3.12 The following steps should be considered in evaluating risks to VFM:

oIdentify areas of operations and activities susceptible to poor VFM;
oIdentify specific risks;
oEstablish VFM control and management information systems;
oAssess degree of risk (likelihood, frequency, significance, extent, consequences, short/long-
term etc.);
o Produce an order of ranking.

3.143 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.

3.144 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.

3.145 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
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 Appendix
4.

3.146 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. Detailed explanation on
these matters is given in EGAS.

3.147 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

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 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.

3.148 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
3.149 This influences the auditor's assessment of the audit field and selection of assignments in
two ways:
o The legislature should be given the opportunity to hold public officials to account for major
areas of government expenditure. This is discussed more fully in Chapter 2.
o The audit offices' corporate objectives include improving accountability by strengthening
audited entities reporting to the legislature.

3.150 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".

3.151 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 Appendix 4.

Possible Impact
3.152 The audit office objectives for performance audit are heavily geared to having a beneficial
impact. The reporting objective is not solely concerned with identifying instances of poor
public accountability; 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 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.

3.153 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 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.

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3.154 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.

3.155 Identifying potential improvements is only the first step. The auditor should also consider
whether they are:

o Feasible;
o Cost-effective.

3.156 We should not expect the auditee 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.

Legislative or Public Interest

3.157 Performance audit is not an end in itself. The offices expend valuable resources on it to
serve the interests of its main clients: the legislature 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 legislative or public interest or whether the subject will prove to be
of interest if the audit offices provide adequate information. Though the auditor should be
politically neutral he/she needs to have an appreciation of the political environment.

3.158 The legislative interest is also important because it will have a direct effect on the impact of
the audit office's work. If the audit office's recommendations are opposed by the audited
entities, and the audit report does not generate much interest by the legislative, it may be
difficult to secure improvements in value for money or public accountability.

Risks to the Audit Offices

3.159 All types of audit involve risks to the auditor. Successful auditing involves identifying
these risks and limiting their extent. The risk to the audit offices at the overview stage is
simply whether the auditor general is likely to be embarrassed if a particular topic is not
examined.

3.160 Significant risks to the audit office need to be identified, evaluated and given prominence
when reporting the results of the overview.

Departmental Issues

3.161 The audited entity affects selection of assignments in two ways:

o 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 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 offices are capable of conducting a quality audit;
o 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

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 the audit office work (likely delays, cost in resources, future working relationships) and
report accordingly to the audit offices senior management.

Relevance
3.162 OFAG and the RAOs have very limited performance audit capacity at present. In view of
this, the auditor should use prudence and judgment in making recommendations for
potential audits assignments.

3.163 Audits assignments that will have importance and relevance to the target audience (the
legislature in particular and the public in general) should be chosen.

3.164 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.

3.165 The suitability of a subject depends upon how the likely content of the final audit offices'
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.

Auditability
3.166 Auditability is another criteria which should be taken into account by the auditor in the
selection of the audit area. The auditor should only recommend audit area that the office has
the ability to do in terms of resources, audit skills, mandate etc. So the auditor should
assess:

o The existence of relevant audit methods;

o The resource availability (budget, transport, time);
o The availability of relevant audit skills;
o Evaluation already in progress by other bodies; and
o Potential for change

3.167 Information requirements to assess auditability 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.

3.168 At a minimum the auditor should check, for both departmental and possible external
information required during the main investigation:
o Its availability, that is, does it exist and if not what can we do to fill gaps?
o Its location, that is, how easy will it be to collect?
o Its quality, that is, can we rely upon it?

3.169 The auditor should also ensure that any necessary external assistance would be available
when required.

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3.170 The auditor should only recommend assignments that the office has the ability to
investigate. If the auditor recommends a study at the overview stage she/he is committing
the audit office to expending scarce resources on a feasibility study. Further, if it is found at
the feasibility stage that the study is not viable, the office will have nothing to show for a
considerable effort.

3.171 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.

3.172 Auditability depends upon:

o 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;
o 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.
o 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 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;
o The offices' available skills: auditors cannot attempt to be experts in every field. The
office 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;
o 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
3.173 The auditor should have to consider whether or not:
o This is the right time for the audit office to investigate this area;
o The audited entity needs more time to implement major such as:
1) Recommendations resulting from internal/external reviews; or
2) Changes resulting from new legislation.

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Previous Audit Work
3.174 The knowledge and experience of a particular entity gained from past financial and
performance audits can also be a valuable source of information in selecting future
performance audit assignments.

3.175 The onus should be on the performance audit team planning future audits to take the
initiative in searching out this information. It is part of the team's research responsibility.

3.176 It is important that information from previous audits be properly documented and accessible
to the performance audit team planning future audits.

3.177 The manner in which information from previous audits may be made available may vary
from one office to the next. Some examples of how it may be made include:

o Verbal briefing by the financial audit team for the performance audit team on VFM issues
that came to their attention
o A mandatory list of potential VFM issues to be prepared by the financial audit team
o Financial audit team's severance report in office archives
o Briefing by the Planning Department based on evaluation of previous financial and
performance audits reports.

Other Major Work Planned or in Progress

3.178 The office aims to contribute original information and analysis. If the auditees are in the
process of evaluating an area or have such an evaluation planned for the near future the
auditor must ask what an investigation by the audit office will add to improving value for
money or public accountability.

3.179 Information in this area is normally best sought from auditee senior management. Where
there has been recent research in a field we will also wish to know what action the auditee
intends to take on the findings.

Developments Likely to Affect Assessment

3.180 The audit office's overall objectives are to improve value for money or public
accountability. This depends, in part, on what the government or the auditee 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 audit office study would contribute. This can depend
on timing. If the audit office's 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 auditee or government are drafting a new policy or legislation it may be able to
contribute positively to decision-making.

3.181 Information in this area depends crucially on maintaining a good relationship with the
auditee. Often they will be the only source available. The audit office should seek their
views as to whether there are any pressing reasons why it should not proceed with proposed
audit engagement.

3.182 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 audit office's work. To come to a view on the
scope for performance audit in any area of the auditee, the auditor should evaluate each

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 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 appendix 8.

Requests for Services or Audits

3.183 From time to time there may be requests for audits and other services from parliament,
parliamentary committees, audit committees and entity management. While it may be
desirable to accommodate these requests, the audit office has limited resources. It is
important that such work does not negatively impact on the primary mission of the office of
carrying out independent audits and examinations for parliament.

3.184 Requests for services or audits need careful consideration as to the appropriateness, legality,
and resource implications of such requests.

3.185 Where requests for work are received, the team leader/division head should:

o Obtain the approval of the department head before making any commitment to the
requesting organization;
o Refer requests for work to Legal Services for any work that may have implications for the
office
o After authorization to accept the request, confirm in writing the terms and conditions of the
work to the requesting organization.

Audited Entity Management Views

The audit team should seek entity managements view about critical elements of the audit.

3.186 There should be good relations between audit staffs and auditee management and the
relationship and should be built on the basis of respect and trust. The existence of this type
of relationship will benefit when the audit team seeks input throughout the course of the
audit. But such kinds of relationships should not compromise the auditors independence or
the quality of the audit report.

3.187 The audit team should seek the auditee management's input when:
o Planning the audit to obtain their view on critical success factors for the activity being
audited, the audit objectives, scope, criteria used, sources of evaluative criteria, risks,
management concerns, and others audits carried out in the area which will be audited, and
the audit approach used;
o Obtaining an agreement on the facts, observations issues and recommendations contained in
the audit or to point out any disagreements;
o Finalizing the draft report.

Consultation and Advice

The audit team should obtain sufficient and appropriate consultation and advice throughout
the audit.

3.188 Performance audits 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

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 audit advisory committee, in individual audit offices ensures that appropriate advice and
assistance are available to the audit teams. Audit teams should consult with the audit
advisory committee, subject matter specialists, and other support groups, as appropriate, on
critical decisions 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.

3.189 Members of the committee, from both inside and outside the audit office, 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.

3.190 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:

o 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;
o The scope, general approach and evaluative criteria, and emerging issues during the
feasibility stage;
o Expected findings, recommendations, conclusions and reporting strategy; and
o The report chapter to assure that it addresses the right message, is fair, significant and
clearly presented during the reporting stage.

3.191 Following is an outline of the key responsibilities of the consulting committee:

o Advise on planned coverage, matters of potential significance and audit approach in the
early stages of the audit;
o Provide expert counsel on the significance of issues;
o Review the avenues for quantification being pursued and whether they will be achieved;
o Provide independent review, challenge and council at the critical control points of the audit;
and
o Advise on whether the report "message is right" and the issues are significant, and on the
tone, fairness accuracy and reasonableness of the presentation.
o The audit department/division could also use individual members of the committee with
expert knowledge as special advisors to the audit team.

Feasibility Stage
3.192 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:
o To define the audit objectives for the main investigation, the issues, scope, evaluative
criteria, likely conclusions and expected recommendations;
o To design an audit methodology capable of delivering the main investigation objectives;
o To assess the ability of the audit office to execute the methodology successfully;
o To estimate realistic time and cost budgets and produce a work plan for the main
investigation.

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3.193 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.

3.194 On completion of the feasibility stage the audit team should report results to the audit
office's top management. 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.

3.195 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:
o Unavailability of data;
o Cost of carrying out the audit may be more than the benefits expected from the audit;
o Financial audit results have covered most of the ground;
o The internal controls and performance of management are satisfactory;
o The objectives of the auditee are being met satisfactorily;
o The audit is not expected to lead to significant findings and recommendations.

Sequential Steps
3.196 The steps involved in the feasibility study are shown in the following diagram. These are
likely to be iterative, with refinement coming through a number of cycles.

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 STEPS IN THE FEASIBILITY STAGE
Reconsider Reconsider
feasibility of 1. Define objectives, set feasibility of
study or redefine issues and scope study or redefine
objectives, objectives,
issues and scope issues and scope
2. Establish evaluative
criteria

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 Step 1 to 4: Defining objectives, issues and scope, identifying evaluative criteria,
establishing likely conclusions and expected recommendations
3. Identify likely conclusions
3.197 orSteps 1-4 involve refining the risk assessments made during the overview or marking to
establish objectives for the main investigation.

4. Identify expected
Audit Objectives recommendations

The objectives of the audit should be clearly defined.

Redefine
methodology 5. Delineate methodology
3.198 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. The audit objectives
6. are to be
Assess carefully considered and clearly stated. Therefore,
information
they must be defined in a way that will allow the audit team at the end of the audit to
requirements
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. The audit
objectives should be communicated to theavailability,
7. Examine auditee prior to the main investigation.
Information
quality and access to not available
3.199 Ideally, audit objectives would beinformation
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 offices mission.
8. Assess resource
Audit Scope Resources
9. Examine
The environmental audit should have a availability
clear scopeof
that focuses the extent,nottiming
availableand
resources
nature of the audit.

3.200 The audit scope describes the extent and boundaries of the audit in terms of factors such as
10. Prepare work plan, time and cost
physical location and organizational budget
activities as well as the manner of reporting. It indicates
what the audit intends to cover and what it does not. The resources committed to the audit
should be sufficient to meet its intended scope. The scope of the audit is determined by the
team leader and approved by the division andlikely
department heads.
11. Review achievement
Achievement of study objective Impact limited
3.201 Audits must have a clear scope that focuses the extent, timing and value of the audit.
or little
unlikely
contribution
3.202 Scoping the audit involves narrowing the audit
12. Evaluate likelytoimpact
a relatively
of few matters of significance
that pertain to the audit objective thatstudy
canand
becontribution
audited with to the resources available, and are
critical to the achievement of the intended results
the audit office of the audit subject. The limitation of the
performance
scope should be made from different audit
anglesobjectives
and at different phases of the audit. It could be
seen from the following aspects:
o Audit objective
o Should ministries at central, regional andreport
13. Prepare district level
to the auditbe included?
o Geographical limitations office senior management
o Which regions and districts should be analyzed?
o Time limitations
o What historical time period should be analyzed?

3.203 Setting geographical and time limitations is relevant both for defining the audit object and
limiting the data collection. At the stage of defining the audit scope it is very useful to carry
out preliminary studies and to thoroughly analyze the scope of the audit to be performed.

112
3.204 The scope statement should describe the parts or functions of the auditee that are the subject
of the audit and to which the audit conclusions apply as well as the time period covered by the
audit.

Evaluative Criteria
An environmental audit must have suitable audit criteria that focus the audit and provide a
basis for developing observations and conclusions.

3.205 Audit criteria are reasonable and attainable standards against which compliance, the
adequacy of systems and practices, and the economy, efficiency and cost effectiveness of
operations can be evaluated and assessed. Suitable criteria are criteria that are appropriate to
the particular characteristics of the audited organization. They focus on the results expected to
be achieved by the operation, system, control etc.

3.206 Auditors need a means of measuring or judging the performance of the matters subject to
audit. Audits must have suitable criteria that focus the audit and provide a basis for developing
observations. The assessment of whether or not criteria are met results in audit observations.

3.207 Criteria should be developed for each line of enquiry. They should be:

o Relevant: criteria that contribute to making observations and reaching conclusions against
the audit objectives;
o Reliable: criteria that result in consistent conclusions when used by different auditors in
similar circumstances;
o Neutral: criteria that are free from bias;
o Understandable: criteria that are clearly stated and not subject to different interpretations;
and
o Complete: all the criteria that could affect the observations and conclusions are identified
and used.
o
3.208 For financial audits the criteria used are the financial statement assertions and related
compliance with authorities objectives.

3.209 For other audits, the 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. Where the entity's own measures are found to be suitable, they can be
adopted as audit criteria.

3.210 Apart from present regulations and standards it is also important to consider those that may
be in gestation. Professional, government, and trade bodies, as well as line managers, will be
sources of information. Recent technological and product developments that can improve
environmental performance also need to be accessed. in the environmental area, criteria based
on the law or recognized professional standards on environment generally can be accepted by
the auditor.

3.211 Where the auditee does not have well-established standards for measuring or judging, its
environmental performance, the auditor needs to identify suitable criteria. Generally accepted
criteria may be obtained from sources such as the laws, regulation, and standards developed by
professional associations and recognized bodies of experts. If these are not available, the

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 auditor can rely on performance data of other organizations that have similar activities or
operation, best practices determined though benchmarking or consultation; and standards
developed by the auditor through the analysis of a task or activity.

3.212 The department and division head including the audit team should discuss with senior
officials in the auditee to obtain their comments, on the suitability of the criteria. If there is
disagreement and the conflict cannot be resolved, the department and division head should
consult the advisory committee before proceeding with the audit.

3.213 If there is disagreement with management about the audit criteria 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 managements objection.

3.214 Sources of audit criteria could be:

o Strategic plan documents prepared by the auditee

o Criteria developed by the audited entity
o Entity reports on plan and performance reports
o Generally accepted accounting principles
o Generally accepted good practices
o Environmental laws and regulations
o Standards developed by recognized professional organizations
o International conventions and agreements on environment
o Prior work of the office
o Research centers

3.215 The sources of the criteria determine the amount of effort needed to assure the suitability of
the criteria.

3.216 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, 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 Appendix 4.

3.217 Likely conclusions are the auditor's preliminary assessment of the auditee'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.

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3.218 For each issue, steps 1-4 will give a hierarchy of evaluative criteria, likely conclusions and
expected recommendations similar to the following:

1. Issue 2. Evaluative 3. Likely 4. Expected

criteria conclusion recommendation

A M (negative)
V
X
1. B N (positive)
P (positive)
C Q (negative)
R (positive) YZ

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.

3.219 All conclusions, both positive and negative, should be reported.

Step 5: Delineate Methodology

3.220 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:
o To assess the auditee's performance against each evaluative criterion;
o To appraise the viability and cost effectiveness of recommendations.

3.221 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:
o Give complete coverage to all likely conclusions and expected recommendations. All
conclusions and/or recommendations made in the final audit office report will be open to
challenge by the auditee and must, therefore, be supported by sufficient audit work;
o 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.

3.222 This is illustrated in Appendix 16. Evaluative criteria, likely conclusions and expected
recommendations are listed for each issue and sub-issue above. 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

3.23 Before determining whether a study proposal is feasible the audit team must establish
whether there is relevant and reliable evidence, sufficient to conduct the proposed
methodology.

3.224 In step 6 establishing evidence requirements the team 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 Appendix 20.

3.225 In step 7 the team should ascertain whether it can obtain the evidence it requires at
reasonable cost. This includes:
o The availability of the evidence;
o Its quality; and
o Whether the audit office has access to it.

3.226 availability covers whether there is sufficient evidence in existence to execute the
methodology and achieve the study objectives. If the team finds that there are significant
gaps, it can:
o Seek guidance from relevant senior before trying to fill them itself. For this may prove
difficult or costly and the team needs to be sure that it is realistic within the proposed audit
expenditure; or
o Redefine the issues, scope etc. and the methodology to give a study which is feasible given
the gaps. In this case the team must be satisfied that the redefined study is still worthwhile
and contributes to the audit office's performance audit objectives.

3.227 Evidence must be both relevant and reliable. Poor quality evidence may make the audit
office report findings and recommendations open to challenge from the audited entity.
Factors to consider when considering the quality of evidence include whether:
o It is accurate;
o It is up-to-date;
o It is complete;
o It can reasonably be used in the manner intended.
o
(see Appendix 20 and EGAS)

3.228 Access to information includes:

o Audit office's legal right to access to information: this is discussed in EGAS. Whilst
audit office has a legal right to access to information from government entities, it will often
require evidence from individuals or organizations outside government who are not legally
bound to make it available. The audit team should assess the willingness of such
information sources to part with the evidence, and the implications upon the viability of the
study of any reluctance or refusal on their part;
o The location, ease and method of collection of the information: if information is held
centrally on a computerized database, where the audit office is located it will be
considerably easier to collect than if it is located in remote areas on manual records, or in
the hand of people outside the auditee. Such factors can have a significant impact on the
feasibility of a study. Whilst the existence and high quality of information may make a
study theoretically possible, its wide distribution may make it practically impossible or

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 prohibitively expensive. The auditor should identify where necessary information is held
and in what form, and produce a plan for collection. The audit team may need to conduct
pilot collection exercises to check the feasibility of the proposed methodology.

3.229 At the completion of stage 7, the auditor should produce a summary as in Appendix 17.
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 attention to any impact. This may
have a considerable effect on the investigation's conclusions and recommendations.
Appendix 17 should accompany the feasibility stage report to senior management.

Step 8 and 9: Assess resource requirements and examine their availability

3.230 The audit team 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 audit office report.

3.231 In step 8 - assessing resource requirements - the team should identify:

o The nature of the work to be carried out at each step of the main investigation;
o 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 audit office (e.g.,
specialist statistical skills) or from outside the audit office (e.g., consultants or other
specialists);
o The quantity and timing of all input;
o The precise terms of reference, expected results and outputs for any external consultants;
o Estimated costs for all inputs.
o
o Detailed guidelines for the selection and use of external consultants are contained in
Appendix 21.

3.232 As 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 audit office 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.

3.233 By 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.

3.234 In 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.

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 Step 10: Prepare work plan, time and cost budgets

3.235 Having 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 audit
office senior management. They allow management to assess, in addition to the feasibility
of the audit, whether it is, in their view, cost effective.

3.236 The work plan involves scheduling work and resources to give the most efficient execution
of the methodology within the desired time frame. An example is at Appendix 15. The plan
should show, by week:
o The timing of the various tasks: these should be arranged in their logical sequence taking
into account the interdependence between them. For example, in appendix 18, 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;
o Required inputs from audit office 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, in appendix
18, 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;
o Key dates: start and completion of planning stage, start of main study, delivery of draft
report to audit office senior management, report to audited body and expected final report
for publication (refer to Annex 2: T-Minus Control Framework).

3.237 The time budget should show the total man-day input required for each grade within the
audit team, plus audit office specialist assistance and external resources. The cost budget
should show the total expected cost of each of these. These allow audit office senior
management 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 Appendix 19.

Step 11 and 12: Likely achievement of study objectives and impact of the study and
contribution to the audit office's performance audit objectives

3.238 Prior to producing the feasibility stage report to audit office senior management, audit team
management should review all the stages to date to assess whether:
o The study procedures from steps 1-4 can be achieved using the methodology defined and
with the assessed information and resource availability;
o The study will be worthwhile and is likely to have a significant impact; and
o It will contribute materially to the achievement of the audit offices performance audit
objectives.

3.239 If this is the case, the team is in a position to report to the audit office's senior 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 audit office senior management

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3.240 At the end of the feasibility stage the audit team should produce a report to senior
management. The information should be reported as briefly as possible using the following
headings:

Section 1: Background to the investigation

o General objectives of the investigation;
o Area under investigation in the context of other relevant work of the audited entity;
o Statement of the auditee's policy objectives and policy instruments for the area being
investigated;
o Reasons for the investigation in terms of public accountability, risk to VFM materiality,
indicating potential impact;
o An assessment of the likely short-term and long-term impact that the investigation might
have;
o Benefits to audit office in terms of its performance audit objectives.
o
o Section 2: Issues and expected recommendations
o A statement of the scope and main study issues;
o A brief and concise statement of evaluative criteria (detailed evaluative criteria attached as
an appendix);
o A brief statement of expected recommendations;
o A statement of any preliminary findings.

Section 3: Evidence to be sought

o Audit approach (types of evidence, accessibility, location, collection, techniques,
relevance);
o Audit resources (audit team, grading, experience leader);
o Specialist resources (consultants).
o
o Section 4: Liaison with the audited entity
o Confirm that the auditee has accepted the investigation; this should be done after the
approval of audit consulting committee (including the basis of the study, relevance of the
main investigation issue and proposed evaluative criteria);
o Explain any problems (potential delays, disagreements, lack of access);
o Inform if the use of consultants are to be employed.

Section 5: Budget and submission dates

o Cost budgets (by grade up to department head including consultants);
o Timetable projected delivery dates of draft report to audit office, report to the audited entity
and final published report;
o The report should be supported by formats in Appendix 18.

Documentation
3.241 The supporting document of the report should be organized as working paper folders as
suggested in Appendix 6.

Liaison with the Auditee

3.242 Feasibility stage liaison will be more targeted and concentrated than during previous
performance audit stages. During the overview and marking the auditor was taking a wide

119
 look at the whole of the auditee; during the feasibility stage the audit team is interested in a
more limited and narrow sub-section of the entity.

3.243 Although the area of focus is more limited liaison should start, as in previous stages, at the
top of the auditee. Auditee top management should be informed of the intention, purpose,
timing and resourcing of the feasibility study and adequate liaison arrangements should be
established.

3.244 In establishing liaison arrangements audit teams should seek to have day-to-day contact
through that part of the auditee responsible for the activity or program under investigation.
This aids the speedy resolution of any problems.

3.245 The feasibility stage is principally an internal audit office planning activity. It does not lead
to a formal report to any external body. However, the audit team should maintain close
contact with appropriate staff within the auditee 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 advisory committee the audit team should take a positive approach to discussing
the basis and methods of the proposed main investigation with the auditee and should seek
audited senior management's:
o Comments and/or concerns about the scope and issues;
o Acceptance of our evaluative criteria and methodology as a fair and reasonable foundation
for an investigation. The auditors should discuss the criteria with management before
adopting them. Sometimes, the management would dispute the criteria laid down by the
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 feel sure they
(auditors) should report the matter to the principal auditor. The principal auditor in turn
should call a meeting of the advisory committee through the department head before
proceeding with the audit. The disagreement with auditee management about the disputed
criteria or auditee management responsibilities must be disclosed in the final report with an
explanation of why the audit team believes auditee management is responsible for the
subject matter and/or why the audit team used the criteria despite auditee objection.
o Agreement to the timing of the main investigation;
o Assent to the audit office's proposed resourcing of the audit, especially where this is likely
to include the use of external consultants;
o Assurance that all necessary information and auditees staff will be made available, given
reasonable notice, once the main investigation proceeds.

The results of this liaison should be reported to audit office senior management.

3.246 Adequate contact should also be made with other audited officials from whom information
will be required during the course of the feasibility stage. In each case they should be
informed of:
o The role and purpose of the feasibility stage and, if necessary, of the subsequent main
investigation;
o The methodology;
o What information is required from them and why;
o Our staffing and timetable;
o The liaison arrangements established with the auditee top management;
o What we will do with our results.

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3.247 If they are new to either the audit office or performance auditing they should also be
informed of:
o The role and purpose of the audit office;
o The objectives of performance audit.

3.248 As with the previous performance audit stages, precise methods of familiarizing auditee
staff will depend upon the liaison arrangements agreed with the auditee top management. In
some cases the auditee will take responsibility, in others it will be left to the audit office.
Whichever is the case, the auditor must check that audited staff are fully and accurately
briefed at an early stage.

3.249 In most cases it will be good practice to discuss the outcome of the feasibility stage with
auditee 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 audit office 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 resourcing. Responsibility for this
liaison lies with the principal auditor in charge.

Management Planning and Control

3.250 Management should plan and control each main task of the feasibility stage. This allows
them to monitor and review progress and intervene at key decision points. The main tasks
are:
o Initial job specification: before any work starts on the steps in the feasibility diagram,
management must carefully design the job, defining the scope, overall objectives, time and
cost budgets, and resource requirements, including specialist staffing skills;
o Early liaison with auditee's top management: normally undertaken by principal or senior
auditor;
o All the steps detailed in the feasibility diagram
o
o Step 11-13 are, as discussed above, the responsibility of team management.

3.251 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:
o Objectives of their work;
o Methodology, data sources and analytical requirements;
o Time and cost budgets;
o Milestones, if any; and
o 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.

3.252 As with each previous stage of the performance audit approach management must maintain
adequate control throughout the fieldwork. This relies upon:

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 o 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;
o Acting at each key decision point: management must maintain the direction of the study by
making well informed, prompt and appropriate decisions as necessary; and
o Adequate communication within the team and with management: 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

3.253 Management 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 management. (Refer to Annex 2: T-Minus Control
Framework).

Staffing

3.254 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:
o Performance audit skills, especially a knowledge and understanding of the conduct of main
investigations;
o Up to date knowledge of the relevant section of the auditee: this will aid liaison and step 7
of the approach. Such knowledge is most often found in those responsible for the financial
audit;
o 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.;
o Any necessary specialist skills in audit methodology: this may be include statistics,
surveying of client groups etc.

Main Investigation Planning

3.255 Detailed main investigation planning should take place after the feasibility study report has
been submitted to senior management 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, by staff who are either new to performance audit or to the
particular audit or the subject matter in question.

3.256 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.

3.257 In developing good practice approach to planning, the following issues should be addressed:
What are the requirement of a main investigation plan;

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 How might the issues proposed in the feasibility study report be developed to produce a
detailed plan;
How planning might help reduce some of the common problems that arise during the
main investigation.

Requirements of a Main Investigation Plan

3.258 We are being encouraged to apply good practice thinking to how audited entities manage
their resources. We can also apply it 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:
o Inform all involved of the purpose and methods of the investigation;
o State the study objectives and the work needed to support the likely conclusions and
expected recommendations;
o Focus on what can be done, using the resources available against what might be desirable to
do;
o Identify key outputs and milestones;
o Identify the roles and responsibilities of the audit team;
o Anticipate problems and make provisions for them;
o Help the audit team to see how the study will develop and how their work will contribute to
the published report;
o Help minimize scope for collecting and analyzing irrelevant data and help minimize the
occasions where insufficient data is collected;
o Provide management with the means to monitor, control and redirect the audit;
o Form the basis for obtaining the agreement of senior staff for the fieldwork to commence;
o Make suggestions for the structure and content of the published report;
o Enhance the quality of reports by helping the audit team to produce clear, well researched
and supported findings conclusions and recommendations;
o Assist clearance of the final report with the auditee;
o Assist liaison with the auditee;
o Guide the documentation and referencing of the investigation.

Main Investigation Planning Methodology

3.259 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

3.260 Developing a framework for the detailed plan will depend upon the type of issues being
examined. Whatever approach is adopted it should clearly show:
o How the audit issues have been broken down into discrete areas of work (these can be
thought of as sub-issues or tasks);
o How these sub-issues or tasks have been progressively broken down into smaller units of
work to eventually produce individual audit tasks (audit tests).

3.261 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

123
 monitored and controlled separately during the main investigation, allowing the audit as a
whole to achieve its objectives on time and to cost.

3.262 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:
o Give complete coverage of the audit objectives/issues approved by senior
management at the end of the feasibility stage;
o 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;
o 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

3.263 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:
o Audit objectives, issues and evaluative criteria;
o Information to be collected;
o Sources of information;
o Methods of evidence collection;
o Allocation of priorities;
o Analysis plan;
o Presentation of evidence;
o Detailed budgets for each task;
o Audit programs for each task;
o Timetables for all aspects of the work;
o A plan for liaison with the audited;
o Full terms of reference for any external consultants;
o Revision of the plan;
o Documentation.

Objectives, Issues and Evaluative Criteria

3.264 The audit objective are to be carefully considered and clearly stated. They must be defined
in a way that will allow the audit team 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 auditor general or deputy auditor general, the audit advisory committee.

3.265 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

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 by the operation, system, control, etc. The assessment of whether or not criteria are met
results in audit observations.

Information to be collected

3.266 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 framework
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

3.267 During the feasibility study the division will have considered the evidence the auditee:
o Is known to hold and which will be collected;
o Should hold but may not and therefore needs to be generated;
o Does not hold but which is necessary for the report.

3.268 Each of the different sources of information will have implications for the audit e.g., time if
a survey is to be used; and cost where local audits are needed.

3.269 These will need to be discussed and the most appropriate source used given the resources
available.

Method of Evidence Collection

3.270 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.

3.271 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
audit manager with a means of monitoring progress. However they can become long and
unwise to use.

Allocation of Priorities

3.272 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

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3.273 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.

3.274 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

3.25 The 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

3.276 The provisional budget (staff and time) for the main investigation, broken down by grade,
will have been proposed 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.

3.277 Unrealistic 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.

3.278 Seeking senior management's approval before the fieldwork commences enables them to
see what the team is 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.

3.279 During the main investigation, management and the team will need resource budgets to:
o Plan inputs into the audit;
o Assess progress of work against the resources used.

3.280 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.

3.281 Whilst the exact structure of the budgets for the various tasks will vary from study to study,
they should include:
o Full details of audit office staff resource requirements, by grades, skills and experience
needed, including:
o Planning and controlling the task during the main investigation;
o Executing the work as specified in each audit program;
o Documentation;
o Management; and
o Liaison with the audited entity.

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Budgets should identify audit office specialist assistance separately.
o Any consultant or outside assistance. This should include the audit office's input into the
consultancy (e.g., for liaison 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 Appendix
24.

3.282 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:
o Staff familiarization with the audit;
o Progress monitoring and review, e.g. Team meetings;
o Audit office senior management involvement;
o Liaison with the audited entity;
o Administration of the audit.

3.283 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:
o The experience of staff who will be working on the audit;
o The staff knowledge of the auditee;
o Whether the audit team worked on the feasibility study;
o Size of the audit team;
o Audit approach e.g. Whether the audit involved collecting the same data from many
locations;
o Need to complete the audit quickly.

Audit Programs
3.284 These 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:
o Ensure that all involved in the audit comprehend the objectives and methodology of the
investigation and of each task;
o Allow staff to participate effectively in the main investigation and to recognize what is
required of them and by when;
o 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.

3.285 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.

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3.286 each audit program should:
o State the objective(s) of the task (or sub-task);
o Show how the task relates to the audit objectives/issues and fits into the audit as a whole;
o 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;
o Specify all work necessary to implement the audit methodology, including:
o Audit tests;
o The nature of evidence required;
o Indicate sample sizes or other indications of quantity of evidence:
o Location of evidence;
o Method of collection;
o Means of analysis;
o Management;
o Liaison with the auditee;
o Expected outputs;
o Identify key milestones, including delivery dates for outputs and the points within the audit
when decisions need to be made to advance the work;
o 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;
o Make sure that the structure of the auditee is considered when packaging the work.
Minimize the burden on departmental staff to that consistent with an efficiently run
investigation;
o Identifying the inter-relationship between different elements of the work. This is necessary
to plan the timing of staff input on a logical basis;
o 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;
o 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 Appendix 6.

Timetables

3.287 each audit will normally have two timetables:

o Work based: showing the timing and sequencing of tasks and other work;
o Staff based: showing the involvement of all audit office staff and consultants.

During the main investigation, management will use these to plan input and monitor progress.

3.288 timetables 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:
o All elements of the work;
o The input of resources;
o 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

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 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;
o Major deadlines and target dates including expected delivery dates for draft report to audit
office senior management and estimates of the consequent production dates of a draft for
the auditee and publication of the final report;
o Liaison with the auditee.

Guidance and examples of the production and use of timetables and milestones are in Appendix 25.
(refer to Annex 2: T-Minus Control Framework).

Plan of liaison with the audited entity

3.289 Good relations with the auditee 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.

3.290 Good liaison 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 liaising with all relevant parties within the auditee. The plan should ensure that
arrangements exist which allow:
o Audit office to be kept informed of any significant changes in the audit area and of any
concerns the auditee has regarding the audit;
o The auditee 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.

3.291 To achieve these objectives the plan should cover:

o Who to liaise with: this will normally include the auditee's top management, the finance
branch, staff in the audit area of the auditee and, where appropriate, any official liaison
officer appointed by the auditee;
o 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:
o Their knowledge of the role and working of the audit office;
o Their understanding of performance audit;
o 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);
o Arrangements for audit office access to information and general liaison with
the auditee;
o Communication and agreement of the finding and conclusions of the
investigation;
o The audit office's additional information requirements: as noted above, beyond the normal
audit evidence, the audit office 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;
o how to facilitate exchange of information efficiently and effectively; this may involve:
o Face to face meetings: both to introduce the audit office, the audit etc.
And/or, subsequently, to agree findings;
o A standard letter of introduction from the audit office or departmental top
management;

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 o Site visits to lay the ground work for subsequent audit work;
o Specific information on individual audit tests (e.g., a letter of explanation
accompanying a questionnaire).
o The use of fact sheets to agree findings.
o Key dates within the audit timetable, e.g., start of main investigation, liaison meetings etc.
Wherever possible the team should get the audited entity's commitment to meeting these
dates.

Consultant Terms of Reference

3.292 As a separate, but related exercise, the audit team 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:
o All required work, including liaison with the audit office and the auditee, as necessary;
o Qualifications/skills of consultant staff;
o Total input required and expected timing;
o Expected outputs and delivery dates (both final and interim, as necessary);
o Methods of handling of the consultancy, including audit office input.

Detailed guidance on the selection and use of consultants is contained in Appendix 21.

Revision of the Plans

3.293 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.

3.294 When 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 senior management 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

3.295 On completion of the planning package the team and management should review the
planning package to ensure that it:
o Achieves the audit objectives/issues;
o Does not differ significantly, in terms of expected use of resources and delivery dates for
outputs, from the budgets previously approved by audit office senior management at the
feasibility stage.

3.296 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

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 detailed planning casts doubt on the feasibility of the investigation, the audit office's ability
to draw the conclusions expected or on the cost or delivery dates of the study. In such
cases, the senior auditor or principal auditor in charge should inform audit office senior
management and make recommendations about the continued viability of the audit. No
work should start on the main investigation until senior management have given their
approval.

Documentation
3.297 Documentation during the planning stage consists primarily in the production of the various
elements of the planning package audit programs, budgets, timetables, plan of liaison and
consultants terms of reference. There will normally be no need for further detailed
documentation. Nor will there be a necessity to report to the audit office senior
management, except in exceptional circumstances.

Liaison with the Auditee

3.298 The planning stage is principally an internal audit office process and will often require little
contact with the auditee. However, some contact may be necessary to obtain accurate
information to produce the audit programs and an adequate liaison plan.

3.299 Where there is a need for significant contact the audit team should follow the same basic
procedures of good liaison as in previous stages:
o Inform the auditee's top management of the intention to carry out planning, explain its
purpose, the work involved and establish liaison arrangements;
o Ensure that all other staff contacted are fully briefed as to the role of the audit office,
performance audit and the planning stage, and explain what is required of them.

3.300 The team should also consider discussing the outcome of the planning stage with the
auditees top management. In particular, the team 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 liaison and unless they are able to handle this the audit is unlikely to
meet its planned deadlines. Discussions should cover:
o The scope and objectives of the main investigation;
o The audit methodology;
o The proposed timetable and budgets;
o Audit offices resourcing, including the use of any external consultants;
o The liaison plan;
o Audit offices requirements from the audited department.

As far as possible the team should aim to obtain the audited entities top managements full
agreement to the proposals. Where significant problems arise the team should consider their likely
impact on the study objectives, timetable and budgets.

Management
3.301 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.

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3.302 Although there is no need for detailed management of the planning stage itself, audit office
managers 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

Purpose
4.1 The execution phase is one of the auditing stages where the auditor should obtain relevant
and reliable audit evidence that is sufficient to enable him/her to draw reasonable conclusions on
the main issues selected for examination. The execution should be based on the audit objectives,
scope and timetable together with the audit program developed at the planning state. The purpose
of execution phase is to conduct a well reserved examination of the study issues and, through
appropriate and professionally executed evidence collection, analysis and evaluation, to draw
reasonable conclusions and recommendations. The examination should provide the necessary
information for the audit office to produce a fair, unbiased and informative report to the legislature
which adds to public accountability and/or leads to improvement in VFM.

4.2 During the planning stage the audit team will have produced a planning package for audit
execution. This should contain all that the audit team and management require to carry out a
successful investigation audit programmes, budgets, timetable, a plan for liaison with the
auditee and full terms of reference for external consultants.

4.3 Before detail audit work starts management needs to:-

o Communicate all requirements to the audit team
o Liaison with the auditee to ensure that all the audited is fully aware of the audit execution.

4.4 Auditors should use both judgment and initiative in executing audit programmes. Each audit
program has a stated objectives and it is this that the auditor is striving to achieve.

Methodology Used for Audit Execution

4.5 The audit approach is the combination of different types of audit tests that are employed to
obtain the evidence necessary to achieve the objectives of an audit.

4.5 Both the system- based approach (SBA) and direct substantive testing (DST) approach may be
applied but system based approach may be particularly appropriate.

4.6 Entities subject to audits will typically establish systems of control designed to assure
compliance with applicable rules and regulations, and the economy, efficiency and effectiveness
of operations. General speaking, if the auditor can satisfy him/her self as to the adequacy of
these controls, substantive checking of performance of the organization can be reduced
accordingly.

4.7 The approach whereby the auditor relies on the entity's system of internal control is known as
the system based approach (SBA). It has the following distinct stages:
o The identification and in depth evaluation of relevant key controls, and assessment of the
extent to which (if any) the auditor can rely up on these controls provided that they are
found to be operating effectively.
o The testing of the operation of those key controls to establish whether they have operated
effectively through out the period under examination.
o The evaluation of the results of the test of control to establish whether the degree of reliance
foreseen can be taken from the examination of the controls.
o Substantive testing activities are in compliance with applicable environmental rules and
regulations, the environmental protection process is sound and the economy efficiency and
effectiveness criteria have been achieved.

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 o
o 4.8 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

4.9 Before detailed audit work starts management needs to:

o 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:
o Assignment of work and budgets to individual staff members;
o Re-casting the timetables forwards from day one; and
o Identification of all key dates.
o Communicate all requirements to the audit team: each member of staff should be informed
of what is required of him/her (including expected outputs, and reporting and
documentation arrangements), by when, and how their work fits in with that of others;
o Liaise with the auditee to ensure that all auditees are fully aware of the main investigation.

Execution of the Audit Programs

4.10 Management 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
management. It is only by the professional execution of both these responsibilities that the
investigation can be successful.

4.11 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.

Audit Evidence
Competent, relevant and reasonable evidence should be obtained to support the auditors
observations and conclusions regarding the organization, programme, activity or
function under audit.

4.12 Evidence is the specific information, obtained during the main investigation through such
activities as, analysis of records and other data, interviews and observation. Conclusions and
recommendations must be based on hard audit evidence. Evidence collection should be
directed towards examining questions of the economy, efficiency and effectiveness in the issues
under review/examination of compliance with applicable laws and regulations, and assessment
of the impacts on the environment.
4.13 Evidence, to support performance audit reports, must be relevant, reliable and sufficient to
draw reasonable conclusions.

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4.14 Before starting evidence collection, it is good practice for the audit team 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. The audit team members should
always keep in mind the fact that the appropriate oversight committee in the legislature prefers
and deals better with questions of weaknesses if supported by pertinent examples.
Consequently, in collecting evidence, the audit team should seek to collect relevant example of
perceived weaknesses. In addition to this, each individual involved in evidence collection
needs to consider:
o What sort of evidence should be collected;
o Will this form of evidence be the most useful;
o How will it support or refute the initial conclusions on the issues under investigation;
o How can this evidence be translated into facts for the auditor generals report.

It is only after such considerations and assurances on the relevance and usefulness of the evidence
that collection should proceed.

4.15 Evidence should be:

Relevant: Relevance refers to the relationship of the evidence to its use. The information used
to develop observations 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 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. 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 require to judge on
which side the balance lies.

Categories of Evidence
4.16 Categories of evidence include:

Documentary: documentary evidence consist of file papers, management reports, operating

manuals, staff instructions etc. Documentary evidence often provides the most reliable type
of evidence although it can be time consuming 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 body. Evidence obtained 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.

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 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 condition of structure and equipment and
peoples 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 result 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 auditee (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 to the notes of meetings). Such evidence can be
extremely useful in getting an up to date picture of auditee management views of their own
performance. However care must be taken to distinguish between fact and opinion.

Electronic: This refers to computerized systems due to the advancement in information

technology. But collecting such kind of evidence requires careful planning and execution
preferably by IT experts.

4.17 Detailed guidance on the types of evidence and some of the techniques used to obtain
evidence are given in Appendix 20.

4.18 Collection of evidence by itself is not sufficient. The findings observed should be evaluated
against the criteria set. When the audit teams 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:
o Determine the frequency of the deviation, to assess whether the deficiency is an isolated
instance or represents a systematic or general weakness;
o 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;
o Assess and quantify the effect or potential effect of the problem, where practical.
Quantifying the effect of a problem helps to determine its significance. When included in
the report, it assists in determining priorities for review by the legislature;
o Consider the relative significance of the findings in relation to the audit issues and in
relation to the audited entity. Each matter that we report is required to be of a nature and
significance that warrants bringing it to the attention of the legislature;
o 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;
o Determine if the auditee management and/or legislature is aware of the 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 the legislature may be less
significant for reporting purposes than a previously unknown, unresolved problem;
o Identify best practices that can be emulated or transferred to other entities.

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Audit Evidence Collection Techniques
4.19 The following techniques can be used for collecting evidences:

Photography: is a vital part of gathering audit evidence. It is very rare that photographing is
not allowed during an environmental audit, but permission should always be sought at the
planning stage. It is said that a photograph is worth a thousand words and this is certainly the
case in environmental auditing. The value of the photograph is twofold.

First, it is of immense value to the auditor, as it can be examined in detail after the site
inspection and can be referred to in ensuring all relevant details are included in the audit
report.

Secondly, photographs are valuable additions to an environmental audit report. It will often
be the case that the person or senior management receiving the environmental audit report
rarely visit the place or facility being audited and, even if, they do have probably not observed
many of the locations visited by environmental auditor. This is especially the case if the audit
report is being received by a corporate counsel, managing director or other board member.

Interviews: 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.

File Examination: The prime source of documentary evidence is the examination of the
auditee's files and papers. The information collected from the file examination can be
summarized and recorded in the auditors own words on working paper folders. Important
documentation, such as, legal information and those conveying significant or potentially
controversial matters should be photocopied and originating file recorded on the copy.

External papers: Paper originating from outside the audited body 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 comparison can be drawn upon as well as
those available nationally.

Specialist assistance: 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 organization and selected individuals.

Market research: 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. Surveys can be costly. They require special care in choice of question,
structuring the question and sample selection. Contacting and collecting views from outside
users of the organizations service on these affected by the activities of the organization could
be used to smaller groups.

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1 Analysis: 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 re-
performing 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.

Documentation: Not all of the many documents reviewed during an environmental audit need to
be retained by the auditors; only copies of such documentary evidence necessary to support or
verify the audit evidence and findings should be retained. Normally, original documents are not
retained.

Analysis of Qualitative Data

4.20 Most types of qualitative work, whether involving interviews, observation or documentary
searches will be recorded in a written format and will be made available for analysis in the
same format. The written word is therefore a starting point for most qualitative analysis. This
characteristic of qualitative data presents the following major issues:-
o There tends to be a lot of it (in volume terms)
o It is difficult to manage (and reduce), and
o It is difficult to adopt a systematic analysis approach
o Qualitative data is recorded as it comes and as a result the data is usually unstructured.

4.21 Although data analysis follows data capture in chronological terms, the auditors need to know
which specific analytical techniques they will use before they start to design their strategy for
capturing data other wise the examiner may find that the data they have collected is not
susceptible to the appropriate dorms of analysis.

4.22 a) Coding and obstruction (grounded theory): Grounded theory is a practical and systematic
way of analyzing qualitative data. It is hard work and is time consuming but it is nevertheless
an excellent and robust analytical approach. Most importantly however, it is a route to
achieving more valid and reliable results.

4.23 There are three main stages to this approach. Each of which involves a process of identifying
themes with in the data, generating abstract concepts (or codes) and drawing conclusions
from those concepts. A useful guide to this is to think in terms of whether concepts can be
expressed as conditions, actions, intervening factors or consequences.

4.24 This is called the paradigm approach.

o Stage 1: Search the data and identify conceptual categories (or codes) to label specific
words, sentences or passages. This called concept indicators.
o Stage 2: Identify and describe the link between the different conceptual categories
allowing categories to be under fewer headings.
o Stage 3: Account for and conceptualize the stage 2 categories at a higher level of
abstraction. These form the basis for audit conclusion.

4.25 b) Qualitative Data Matrices: Data matrices have many uses in qualitative work. On one level
they can be used as a tool for both structuring and managing data. On an other level they can
used to determine causal links in a chain of events or to establish the results or outcomes of a
given activity.

4.26 The common approach to building a matrix is as follows:

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 1. Identify the dimensions of a subject that you want to assess:- these might simply be the
detailed sub issues of an environmental audit study, or alternatively could conform to a
prone and cons or SWOT/ strengths, weaknesses, opportunities, threats) type analysis.
List these dimension along the top of the matrix.
2. Identify the variables that you want to use to assess your dimensions:- common variables
are individual interviews or interviewees. e.g. Mr. Smith (a gas consumer), Mr. James (a gas
consumer). List these variables down the vertical axis.
3. Search the data to find contributions to each of the boxes with in the matrix and record the
relevant section of text. The very act of structuring qualitative data in this way highlights
patterns of information (making it easier to identify areas of consensus) and exposes those
areas where little is known.

4.27 c) Chronological Analysis: Chronological analysis can be conducted using matrices but can
be equally useful using a case example style approach. It involves re-constructing accounts of
activities or events by drawing on the (often disparate) findings of data capture work. The
focus of the analysis is on determining when specific events occurred and re-constructing
them in chronological sequence.

4.28 d) Frequency counts: Qualitative evidence can be quantified by counting the frequency of
occurrence of central themes or categories. This approach can be used to direct further
analysis or as a primary made of analysis.

4.29 There are a number of areas where this approach might be particularly useful:-
o Quality of services work e.g. observing the number of times that service providers are
polite, courteous, helpful etc.
o Compliance work e.g. identifying how closely guidelines have been followed, and
o In pinpointing areas of concern.

4.30 This approach involves three simple stages:-

Step 1. A quick read of the qualitative material to identify and note down recurring
themes, assertions or concepts.
Step 2. The creation of a simple table using the above headings.
Step 3. A return to the source material to count the number of times each assertion (theme
etc) is mentioned.

Other ways of looking at data analysis

4.31 e) Flip-flop analysis:- flip-flop analysis can be approached in two ways. The first involves
deliberately seeking out contradictory data to gain a better understanding to the messages with
in the data and to better define the study issue. This approach is linked to a technique within
the natural sciences of starting with a hypothesis and instead of collecting data to support it,
actively seeking data that disproves it.

4.32 The second approach involves considering how emerging conclusions might look if elements
of the data were removed or reversed. An example might be the findings of a rail customer
survey, which suggests a general dissatisfaction with the late running of trains. flip flop
analysis might involve identifying the different elements of data that contributed to the
general dissatisfaction and considering how the picture might change if they were either
removed or reversed in their direction (e.g. replacing dissatisfied with satisfied). In many

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 ways this is a form of sensitively analysis and helps to separate more important from less
important data.

4.33 f) Diagrammatic structuring:- is an other technique that many examiners may use to structure
their own thinking and to inform their selection of more formal methods of analysis. It is a
very versatile technique and as such there is not single approach that is used (as this will
depend on the data and the type of study issues in question). However, a number of different
styles of diagrammatic structuring are commonly used. Three forms of diagrammatic
structuring are widely used. These are data hierarchies, causal diagrams and system
diagrams.

Using the Work of Other Auditors and Experts

4.34 In planning an audit the auditor should assess the extent of reliance that might be placed on
other auditors/for example, internal audit and experts. Experts includes the work performed
by professionals other than auditors. This may include experts employed directly by the audit
offices, consultants employed by the audited entity or experts operating on an independent
basis, e.g. academic researches/

Using the work of other auditors

4.35 The work of other auditors can be used in three ways in the context of the audit offices
audits:-

a) At the planning stage:- at the task planning stage, reports prepared by other auditors may
provide the auditor with information about potential strengths and weaknesses in the system
of control and about history of serious errors that have arisen in the audit field. However,
caution must be exercised in its use. Whilst the auditor may, as part of the planning process,
take account of any available reports of other auditors he/she needs to consider the
reliability and appropriateness of these reports before determining their influence up on the
audit testing to be carried out. This involves ensuring that the other auditor that carried out
the work was independent of the auditee or activity and was objective in carrying out the
work. In addition, the auditor needs to consider whether the objectives of the work and
methods used by other auditor coincide sufficiently closely with those of the audit task,
whether the conclusions reached by other auditor were based on sufficient evidence and
whether the other auditors concerned was professionally and technically competent.

b) During the testing stage:- During the testing stage, the work of other auditors can be used to
provide a part of the audit evidence deemed necessary to achieve the audit objectives. By
using the work of other auditors, it may be possible to reduce the amount of work under
taken by the audit offices and thus release resources for other audit tasks.

c) At the end of the audit:- at the end of the audit, the reports of other auditors can provide
information to corroborate or cast doubt upon the findings obtained or preliminary
conclusions that the auditor has reached on the basis of the evidence gathered during the
audit testing stage. When the work of other auditors corroborate the findings obtained or
conclusions reached by the audit offices audit, then the auditor concerned can draw some
comfort from that fact.

4.36 However this comfort is in additional to, and cannot be in place of, the competent, reasonable
and relevant evidence that the auditor must obtain to achieve the objectives of the audit.

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4.60 When there is discrepancy between the findings or conclusions arising from an audit of the
audit office and those presented in the report of another audit, this may point to a weakness
either in the work carried out by the audit offices or in that done by the other auditor.
Alternatively, an apparent discrepancy may arise because the objectives of the two pieces of
work were different. As far as it is possible and cost effective, the auditors need to:-
o Investigate the cause of any such discrepancy.
o Reconsider whether the analysis and interpretation of the audit evidence obtained was
adequate and reasonable.

4.37 In cases where the findings or conclusions of other auditors are not consistent with those
obtained or reached by the audit offices, the possibility arises that the auditee will question the
audit offices findings and conclusions.

Obtaining audit evidence from the work of other auditors

4.38 The work of other auditors can be used to obtain part of the audit evidence that is necessary to
achieve the objectives of the audit task. The aims of so doing are to reduce the audit office
staff resources that are necessary to carry out the audit task, to avoid unnecessary duplication
of audit work and to minimize disruption imposed up on the audit entity.

4.39 When using the work of another auditor, it is important for the audit office to consider
carefully whether:
o It has an adequate knowledge of the audit field to be able to make an informed assessment
of the impact of the work of other auditor.
o The other auditor has the required professional competence in the context of the specific
assignment.
o The work of other auditor is adequate and the working methods are suitable for the audit
offices purpose in the context of objectives of the audit task concerned.

4.40 The audit offices relationship with other auditors can be complex. Thus, it may prove
difficult to carry out the assessment necessary to be able to use their work as audit evidence, if
such use proves not possible, alternative audit procedures can be planned to ensure that
competent, reasonable and relevant audit evidence is obtained.

441 The audit or using the work of other auditor as audit evidence must also reconsider them
when analyzing and interpreting the results of that work. In addition, the auditor needs to
consider the impact upon the opinion that is to be expressed of the findings of the other
auditor. In case where these findings are significant to the opinion, the auditor of the audit
office should normally discuss these findings with other auditor and consider whether it is
necessary to carry out any additional audit testing him/ herself.

4.42 The auditor of audit offices need to obtain an understanding of the structure and functioning
of internal auditing and carry out a preliminary assessment of its work. To do this, the auditor
needs unrestricted access to the reports and working papers of the internal auditor. The
preliminary assessment of internal auditing should cover the following:-
o Its operational status:- the level to which the internal auditor reports and the action taken by
management up on its report, any restrains or constrictions imposed up on the internal
auditor.
o The scope of its work.
o Its technical competence, including the appointment, training, experience and professional
qualifications of the internal audit staff.

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 o The conduct of its work:- This covers whether internal auditing is properly planned,
supervised, reviewed and documented as well as the existence of adequate audit manual,
work programmes and working papers.

4.43 In the absence of internal auditing or where the preliminary assessment of internal auditing
reveals inadequacies, the audit office auditor need to consider drawing this weaknesses to the
attention of the management of the auditee.

4.44 In using the work of internal auditing as part of external audit evidence, the audit offices need
to consider whether:-
o The evidence obtained through internal auditing is adequate in quality and quantity for the
specific needs of the audit offices, taking into account that objectives may be different.
o The conclusions reached by internal auditing are appropriate, given the audit evidence that
has been obtained.
o All exceptions or unusual matters detected by internal auditing have been properly resolved.

Using the work of experts

4.45 The purpose of using other experts is to make available to the audit team technical knowledge
or skills that are essential to the achievement of the audit objectives and that would not
otherwise, be available. Generally, experts are directly employed by the audit offices on a
contract basis and selected by the team responsible for the audit task.

4.46 The possibility of using experts and on what tasks needs to be considered in the early stages
of planning audit work. Deciding to bring in consultants after audit examination has started is
unlikely to be successful.
- In deciding what type of expert to choose, the cost as well as benefits need to be compared
and it is necessary to ensure that the expert chosen will have the resources and ability to meet
tight deadlines and possible changes as the work develops. The choice is likely to lie within
one of three broad categories:-
o A consultant firm or similar organization.
o An individual or group with an academic or research involvement in the audit subject or
area under examination, or skilled in relevant disciplines or analytical techniques.
o Someone with in-depth experience and an expert practical background in relevant
operations or business activities.
-
4.47 The intention to use an expert on audit examinations should be discussed with the audited
body at an early stage. Though the audited bodys view must be taken fully into account, decisions
on selection and use of experts are ultimately the responsibility of the audit office.

4.48 Experts are employed to assist the audit team in obtaining competent, reasonable and relevant
audit evidence to achieve the audit objectives. To achieve this, the following conditions must
be met:-
o The scope and nature of the experts work and the way in which the expert is to report need
to be clearly defined at the earliest possible stage. This is essential to identify the expert
who has the appropriate technical knowledge and skills.
o The audit offices need to assure that the expert is independent of the audit entity.
o The auditor must assure him/herself of the professional competence of the expert, of the
objectivity of the work method employed and of the competence, reasonableness and
relevance of the audit evidence that the expert produces. Where necessary, the auditor
should carry out additional testing work to obtain this assurance; and

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 o There is a budgetary provision in the audit plan that enables the audit team to hire outside
expertise.

4.49 Experts employed by the audit offices are normally bound by requirements of confidentiality.
The report that is issued as a result of audit task in which an expert is employed remains a
report of the audit office. The role of the expert is typically to assist the audit team, who
remain responsible for forming and putting to the audit office an audit opinion. Thus, it is
usually inappropriate to refer specifically to any opinion of the expert in the report arising
from the audit.

Monitoring of Progress

4.50 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.

4.51 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:
o 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:
o Are there developments, or new information, which may affect the audit issues,
methodology and plans for collecting evidence?
o Are we collecting the evidence we planned to collect?
o Are there findings we had not expected?
o Does the evidence collected or findings require us to change the direction or
priorities of the investigation or individual tasks?
o How can the evidence be used in the final report?
o Quality of the audit: Management should monitor and review the quality of work to ensure
that the office's investigation is defensible. Questions to ask include:
o Is the team carrying out the audit in a professional manner and in compliance
with the audit office performance audit operational objectives, the Performance
Audit Manual, audit office procedures and in accordance with EGAS.
o In the light of evidence collected, do the evaluative criteria and methodology of
the investigation remain appropriate to the audit issues?
o Is the evidence collected relevant and reliable?
o Is the evidence in sufficient quantity for us to make defensible conclusions and
recommendations?
o Is the evidence analyzed appropriately and is the analysis carried out properly?
o Are we evaluating the evidence objectively and are we drawing reasonable
conclusions and recommendations?
o Is the evidence, analysis etc. properly documented?
o Is the quality of consultant's work in accordance with audit office requirements
and EGAS?
o Timing: Management 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:

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 o Is the study progressing as per the plan and timetable? - Are audit office 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)?
o Will the investigation be completed on time?
o Are there external developments which could affect the completion date?
o 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)?
o Does the evidence collected or findings necessitate reducing the scope of some
tasks (e.g., because it is apparent that the auditee's control systems are better than
first expected)?
o Are there any other likely changes to the investigation which might affect the
completion date?
o Cost and staffing: management should monitor the outrun of staff and other costs to
ascertain whether the audit is within budget. This involves questions such as:
o Are tasks completed within the approved hours and by the planned grade of
staff?
o 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?
o Should tasks be re-allocated within the team to more closely reflect staff abilities
and skills and to achieve the studys issues or deadlines?
o Are additional staff required to achieve the audit's objectives or deadlines?
o Are we keeping ancillary costs (e.g., travel and subsistence) within budgets?
o Are consultancy costs as budgeted?
o Is there a need for additional expenditure on consultants or other external
assistance to achieve the studys objectives or deadlines?

4.52 Effective monitoring depends upon good communication between the team and management.
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:
o Main investigation summary reports; and/or
o Fact sheets;
o Team meetings;
o Limited interim review of working papers;
o Budget monitoring forms, timetables and milestones.

Main Investigation Summary Reports

4.53 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:
o The evidence collected to date;
o The conclusions and recommendations that can be drawn from that evidence;
o All further work that remains to be completed, as per the main investigation planning
package, and any suggestions for revision of the planned work.

An example is shown in Appendix 23.

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4.54 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.

4.55 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

4.56 Fact sheets are statements that show the evidence collected during the investigation
corroborated by the agreement of the auditee. During the main investigation process, it is
good practice to provide the auditee 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 auditee through removing
misunderstanding and any information gap that might arise.

4.57 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. Management
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 senior
management of the audited entity. An example is shown in Appendix 24.

4.58 The use of fact sheet to management is that they indicate the progress of the main
investigation together with the reaction of the auditee 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 reached. It also facilitates the
reviewing process of the investigation by management leading them to concentrate on key
issues disputed.

Team Meetings

4.59 The objective of team meetings is to:

o Assess progress to date, including the achievement of objectives and the quality of the
investigation; and
o 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 member in advance.

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4.60 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.
Management must create a climate in which each member of staff feels able to contribute
openly. Meetings should be properly minuted with a record of:
o The main points made on progress to date;
o All decisions on future action;
o 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 management with less than a
complete view.

Interim Review of Working Papers

4.61 Based on information obtained from summary reports, fact sheets and team meetings,
management 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.
Management should assess the need for interim review on:
o The overall significance of the audit area (e.g., its importance in respect of the audit
objectives/issues, use of resources etc.);
o The skills, experience and capabilities of staff;
o The quality (relevance, reliability and sufficiency) of evidence collected;
o The sensitivity of conclusions and recommendations.

Budget Monitoring Forms, Timetables and Milestones

4.62 In addition to monitoring the likely achievement of the study's objectives and the quality of
the audit, management 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 management 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 timetables. Budget monitoring forms are useful in this process;
guidance on their use and an example is in Appendix 24. Guidance on the use of timetables
and milestones to monitor the achievement of deadlines is also contained in Appendix 25.

Control

4.63 The value of monitoring is lost unless management takes appropriate action to control the
investigation. This involves:
o Deciding whether changes and new instructions (audit programs, budgets, timetables etc.)
Are needed to achieve the audit's objectives;
o Identifying the changes and communicating these decisions to members of the study team;
o Inputting the changes and instructions into the planning package and hence into the control
mechanism for later stages of the audit.

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 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.

4.64 Significant changes should be communicated to audit office senior management for
consideration and approval. The audit is the responsibility of the relevant principal auditor
but senior management should be consulted where team management consider that there will
be:
o An alteration of audit issues or major changes in the possible impact of the audit;
o Slippage in the audit office report publication date;
o More than a reasonable percentage increase in budgeted staff costs;
o Any increase in expenditure on external consultancies.

Documentation
4.65 The execution phase tends to generate a considerable amount of evidence and working
papers. It is important, there fore, to document the study well to ensure that:-
o All evidence, analysis, decisions and liaison with the auditee are properly recorded
o All evidence and analysis is given due weight within the audit and the audit report, unless
properly documented, may be forgotten or overlooked.
o Evidence and analysis can be easily and quickly located to support the audit report.
o Management is able to review work with ease
o Provide evidence of work done for future reference.

4.66 Auditors should adequately document the audit evidence in working papers including the
basis the extent of the planning work performed and the findings of the audit. The auditor
should document matters that are important in providing evidence to support the audit opinion
and evidence that the audit was carried out in accordance with auditing standards and
guidelines. "Documentation" means the material /working papers/ prepared by and for, or
obtained and retained by the auditor in connection with, the execution of the audit. Working
papers may be in the form of data stored on paper, film, electronic media or other media.

4.67 The auditor should prepare working papers that are sufficiently complete and detailed to
provide an over all understanding of the audit. The auditor should record in the working
papers information on planning, the nature, timing and extent of the audit procedures
performed, the results there of, and the conclusions drawn from the audit evidence obtained.
Working papers would include the auditors reasoning on all significant matters that require
the exercise of judgment, together with the auditor's conclusion there on. In areas involving
difficult questions of principle or judgment, working paper will record the relevant facts that
were known by the auditor at the time the conclusion were reached.

4.68 The extent of working paper is a matter of professional judgment, since it is neither necessary
nor practical to document every matter the auditor considers. In assessing the extent of
working papers to be prepared and retained, it may be use full for the auditor to consider what
would be necessary to provide on other auditor who has no previous experience with the audit
with an understanding of the work performed, and the basis of the principal decisions taken
but not the detailed aspects of the audit. That other auditor may only be able to obtain an
understanding of detailed aspects of the audit by discussing them with the auditor that
prepared the working papers.

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4.69 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:
o All evidence, analysis, decisions and liaison with the auditee are properly recorded
o All evidence and analysis are given due weight within the audit and audit office report.
(unless they are properly documented they may be forgotten or overlooked)
o Evidence and analysis can be easily and quickly located to support the audit office report in
discussing the report with the audited entity. Auditors should be able to produce all
necessary evidence to justify their conclusions and recommendations;
o Management is able to review work with ease.

4.70 general guidance on documentation is contained in Appendix 6. Additional important points

to consider during the main investigation are the need to:
o Develop a logical overall structure to the documentation of the study:
o Keep administrative and evidential documentation on separate working paper
folders;
o Organize administrative working paper folders around the relevant activity, e.g.,
audit programs, timetables, monitoring of budgets, auditee's liaison etc.;
o 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;
o Keep all drafts of the report on a separate folder and date reference all revisions
such that management and staff can easily identify the current version;
o Ensure that evidential working paper folders contain all necessary documentation. These
include:
o The relevant audit programs;
o All relevant evidence and analysis (and not include any that is not relevant);
o A clear and concise summary analyzing the significance of the evidence
including a record of, and justification for, the auditor's conclusions and
recommendations;
o A full record of all managerial review points, with examiner responses;
o An index of contents.
o Ensure that all evidence obtained from the auditee 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;
o 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;
o Record all liaison with the audited department - this may be required at a future date to
clarify facts or resolve problems;
o 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;
o Reference all drafts of the audit office report sent to the auditee 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.

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Liaison with the Auditee
4.71 At the planning stage the audit team will have produced a plan for liaison during the main
investigation with the audited. The details should include:
o Who to liaise with;
o The entitys information requirements;
o The audit office's own information requirements;
o How to facilitate exchange of information efficiently and effectively;
o Identification of key dates within the audit timetable, e.g., start of main investigation,
liaison meetings, etc. The team should have agreed these with the audited entity.

4.72 Liaison with the auditee should follow the plan. However, it is essential that management and
the team:
o 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;
o Ensure that the liaison officer assigned by the auditee is competent and has adequate
knowledge about the subject of the study;
o Ensure that the auditee is informed of any changes or new development's in the study;
o Ensure that there are adequate arrangements for discussion and clearance of the draft audit
office report with the auditee and that they are kept informed as to when we will require
input from them.

Management
4.73 Management is responsible for achieving the audit objectives on time and to cost. This
depends upon adequate:
o Planning: development of a main investigation planning package and initial set-up of the
audit;
o Monitoring, including good communications between staff and management; and
o Control, including taking of corrective actions, where necessary.

4.74 in addition to the items discussed, management should consider the need to:
o 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;
o Make good use of consultants and ensure that:
o There is a clear understanding from the outset about the scope of the consultant's
work, timetable and deadlines;
o There are adequate arrangements for liaison with consultants, including timing
of interim reports and meetings at key stages;
o Any problems are identified and resolved at an early stage;
o There is adequate communication between the audit office team and the
consultants such that all evidence is properly considered;
o 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 office to use it in the report with confidence.
Audit office management should ensure that this is so, working on the principle
that, though conducted by persons outside the audit office, the work of
consultants remains the responsibility of the office. Guidance on the
management and use of consultants is contained in Appendix 21;

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 o Gain assurance about the quality of the completed audit; emphasize 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 management must assure themselves that every aspect of the main investigation
accords with audit office's professional standards. This can only be achieved by a detailed
review of working papers. Normally the senior auditor should examine all papers; the
principal auditor should conduct a test check of the more important or sensitive areas;
o 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 audit office procedures, the value and conduct of particular audit
techniques etc.) and for working with the auditee (e.g., their attitude to effectiveness audits,
the general awareness of their staff about the audit office etc.). It is important that we learn
from these lessons if the audit office's ability to conduct performance audit efficiently and
effectively is to improve, these lessons must be recognized and propagated within the audit
office.

Review of Working Papers

4.75 When the main investigation comes to an end, principal auditors, being the audit managers
responsible for the whole audit, should review documentation on files and supporting working
papers with the objectives of:
o Getting assurance that the subject has been thoroughly examined in accordance with the
approved plan;
o Proving that no significant elements have been omitted;
o Ensuring the auditors conclusions are sound and are based on sufficient, relevant and
reliable evidence; and
o Ensuring that the main investigation summary reports, fact sheets and any other minutes etc.
are factually accurate.
The principal 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 principal is given in Appendix 26.

4.76 During the review process principals 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 re-work should be done only
to the extent judged absolutely necessary to satisfy the principal 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 principal, the review by the department, should confirm the adequacy of the
review of the principal.

Audit Observations
Auditor should report significant audit findings and where applicable the auditor's
conclusion.

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4.77 Audit observations are the result of the auditors comparison of the actual situation with the
relevant evaluative criteria. If the auditor finds that the actual performance doesnt meet the
criteria used, further investigation should be design to verify the observation.
10.1
4.78 In making observations, the auditor should present audit evidence in a factual way without
judgments or comments. The auditor should avoid 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 of the Ethiopian Government Auditing Standards (EGAS).
10.2
4.79 Auditor findings may point to the recognition of exceptions or non-compliance events.
Audit findings may be evaluated numerically to measure compliance with criteria established in
the audit process, or to measure deviation from required performance levels. Where numerical
results are not established, the audit findings will be evaluated empirically. Basically, audit
findings will be evaluated on three criteria.
Does the parameter being evaluated comply with required standards.
Have the findings been verified and
Is there any existing, residual, inherent contingent or potential environmental risk revealed
by this finding?

10.3 4.80 Sufficient relevant and reliable information about audit observations should be
included to provide adequate understanding of the matters reported and to provide convincing
but fair presentation in proper perspective. Auditors should also report appropriate background
information that readers need to understand the observations.
10.4

Audit Conclusions
4.81 The auditor should report significant audit conclusions. Audit observations are the bases for
forming over all conclusions against audit objectives.

4.82 Conclusions reflect the view of the auditor deduced from the findings They are logical
inferences about the program based on the auditor's findings. Conclusions should be specified
and their inference should not be left to the reader. 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. The strength of the auditor's conclusion depends on the
persuasiveness of the evidence supporting the findings and the convincingness of the logic used
to formulate the conclusion.

4.83 The relationship between audit objectives, criteria, findings and conclusions should be
verifiable and complete. To allow the users to verify the conclusions, the report should explain
this relationship. The link between audit observations and conclusions should be complete and
clearly expressed. In cases where the auditor has ascribed different relative weights to the
various audit criteria as applied in the conclusions, he should make this clear in order to help
the user understand the report.

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Audit Recommendations
Auditors should report recommendations for actions to correct problem areas and to
improve operations.

4.84 Recommendations are auditor's proposals calling for improvement in operations and/or
performance either of the audited entity as a whole or of a particular section or in an area
audited within the entity. Recommendations are designed to prompt corrective action where
potential for significant improvement in operations and performance is demonstrated by the
audit observation.
10.5
4.85 Recommendations should neither be too detailed nor too general. In developing the
recommendations auditors should focus more on what should be changed and leave the
questions of how to make changes to the auditee. However, recommendations should be
sufficiently detailed that they can be understood and implemented by the auditee and at the
same time followed-up by the audit office.
10.6
4.86 Recommendations should be action oriented, convincing, well supported and effective.
When appropriately implemented, they should get the desired beneficial results. To achieve the
desire action, recommendations must have the following characteristics:
10.7
4.87 Properly directed: - Recommendations should be directed to those who have responsibility
and authority to act on them. They must be clear about who the action person is. For example
we recommend that the director, Agency.... At times, recommendations are directed to people
who have a number of roles; the recommendation should state the role that applies For example
the recommendation should state the role that applies. For example the environmental
protection agency as the head of the leading agency guiding and coordinating environmental
aspects should....).
10.8
4.88 Hard-hitting: -Recommendations should be clearly labeled as such, not hidden or obscured
by text. They should be readily identifiable and stand out in the report vague language should
be avoided. Soft language such as consideration should be given to, does not suggest
significance or conviction that action is required.
10.9
4.89 Specific: - Recommendations should state as specifically as possible just what action should
be taken. Audit recommendations do not tell how to develop a system, but they should be
specific about the system that needs improvement and the objectives that should be achieved by
the change.
10.10
4.90 Convincing: - Recommendations should be well supported by facts and should flow
logically from these facts. Recommendation should be placed close to the findings. In
addition, recognizing actions that have been completed or are underway to correct an identified
problem adds balance to a report and makes it more convincing.
10.11
4.91 Significant: - A decision on a recommendation is influenced by the significance of the
deficiency that it would correct. The findings and recommendation must clearly demonstrate
that acting on the recommendation will improve operations, safeguard assets or bring the
situation in compliance with laws and regulations.
10.12
4.92 Positive in tone and content: Constructive recommendations can encourage improvements in
the conduct of government programs. Positive and constructive statements are more likely to
get action than negative ones.

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10.13
4.93 To be effective recommendations must identify a course of action that will correct an
identified problem or cause significant improvements. The attributes of effective
recommendations are:-
Deal with underling causes: Recommendations should recognize and counter systemic
problems.
Be feasible: Recommendations must take into account legal and practical constraints that
would make their implementation impossible or unlikely. Recommendations must also
consider the realistic limitations that agencies face.
Be cost effective: Recommendations should be made only after the costs of acting on them
have been considered. Favorable consideration of a recommendation is more likely if the
report makes it apparent that the recommendations was made with knowledge of offsetting
costs. Recommendations to comply with laws and regulations should seek the least costly
basis for effective compliance. However, recommendations dealing with laws and
regulations should be made even though their implementation may cost more.
Consider alternatives: At times more than one course of action would correct an identified
deficiency. When one is clearly better than the others it should be recommended.
Recommendations that would require an increase in a programs funding should be made
only after considering other alternatives and determining that such a recommendation is
clearly appropriate and feasible.

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CHAPTER 5: REPORTING
Each audit must result in a written report that clearly communicates the results of the
audit.

5.1 Reports are the principal means by which an audit office meets its primary performance audit
objective of providing the legislature 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 achievements and
attempt to show the way forward. 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:

o To keep them as brief as possible;

o To give them clear report structure;
o To use simple, direct and unambiguous language;
o To select the minimum information needed for a sufficient understanding of the main issues
and important findings, conclusions and recommendation; and
o To use hard evidence and telling examples to reinforce the messages in the reports.

5.2 Audit reports should be written in order to communicate the results of audits to the
legislature, auditees and other users, to publicize the audit results and facilitate follow-up to
determine whether appropriate corrective actions have been taken.

5.3 The report should be easy to understand, written in plain language, avoid the use of
abbreviations, technical terms and jargon; be free from vagueness, ambiguity and bias;
include only information which is supported by competent and relevant audit evidence; be
independent, objective, fair, constructive and accurate. The report should contain positive
assurance on those items tested for compliance and should include all significant instances of
non-compliance that are pertinent to the audit objectives.

5.4 Performance and environmental audit reports contain more discussion and reasoned argument
and because this audit is wide ranging in nature and more open to judgment and
interpretation, coverage is more selective (cycle of several years rather from one financial
period). In reporting instances of non-compliance with laws or regulation, the auditors should
be careful to place their findings in the proper perspective.

Form
5.5 The report should be preceded by a suitable title to help the reader to distinguish it from
statements and information issued by others.

5.6 The Auditor General, the Deputy Auditor General or a person delegated by the Auditor
General should sign the report.

5.7 The report should bear the date to inform the reader that consideration has been given to the
effect of events about which the auditor become 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.

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5.8 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
5.9 All audit reports should have the following general content:

5.10 Program and/or activity description: Auditors should report about laws and regulations
governing the program audited, purposes and goals of the program, amount of program
resources, i.e. efforts, strategies, processes and activities used to convert efforts into outputs,
outcomes, etc.

5.11 Audit objective: In reporting the audit objectives auditors should explain why the audit was
under taken and what the report is to accomplish.

5.12 Scope: In reporting the scope of the audit, auditors should describe the depth and coverage of
the audit work carried out to meet the audit objectives and any limitations.

5.13 Criteria used: To report the criteria used, auditors should state the yardsticks used to assess the
audited entities performance. Criteria are the standards used to determine whether a program
meets or exceeds expectations. They provide a context for understanding the results of the
audit.

5.14 Methodology: To report the methodology used, auditors should clearly explain the evidence
gathering and analyzing techniques used to accomplish the audit objectives.

5.15 Professional Standards used: Auditors should state that the audit is conducted in accordance
with EGAS. The statement should be qualified in situations in which the auditors did not
follow an applicable standard. In these situations, auditors should report in the scope section
the applicable standards that were not followed, the reasons therefore, and how not following
the standard affected the results of the audit.

5.16 Audit Observations: An observation is an assessment of actual performance of an

activity or process against the audit criteria selected in the audit. If the auditor finds that
the actual performance doesnt meet the criteria used, further investigation should be
design to verify the observation. Audit observations are the bases for forming overall
conclusions against audit objectives.

5.17 Conclusions reached against each audit objective: Conclusions are logical inferences
about the program based on the auditors findings. The findings of the audit should be
carefully evaluated against the objectives established in the audit plan to reach audit
conclusions. Auditors should report conclusions against each audit objective and not
leave them to be inferred by readers. The strength of the auditors conclusion depends
on the persuasiveness of the evidence supporting the findings and the convincingness of
the logic used to formulate the conclusion.

5.21 Recommendations made: Auditors should report recommendations for actions to correct
problem areas and to improve operations when the potential for significant improvement in
operations and performance is substantiated by the reported findings. Recommendations to

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 effect compliance with laws and regulations and improve management system should also be
made when significant instances of non-compliance are noted or significant weaknesses in
management system are found.

Governing Legislation and Reporting Objectives

OAGs Reporting Responsibility

5.36 Each audit offices governing legislation places specific requirements on the office for the
way in which it reports the results of its audits. The audit offices reporting mandate, based
on its corporate objectives, serves different purposes depending on the requirements of the
various recipients of the reports.

5.37 Therefore, each office is required to submit its performance audit reports to the audited entity,
and to the legislature in accordance with the spirit and the letter of its enabling legislation on
reporting. The audit office's objectives in doing so mirror its corporate performance audit
objectives, namely:

To the audited entity

To encourage auditees:
o The quality of their external reporting, where this is shown to be necessary; and
o To improve value for money. To this end the audit office 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 the Legislature

o To maintain and enhance public accountability by:

a) Providing independent information, advice and assurance on the use of resources
in audited entities;
b) Seeking the legislatures support in encouraging auditees to improve the quality
of their own external reporting;
o To act as a force for beneficial change by seeking the legislatures support for the audit
office findings, conclusions and recommendations on auditee achievement of value for
money.

5.38 However, the audit offices should be able to report to the legislature as often as the audit
offices deem it necessary.

5.39 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 the audit office's approach
to realize its corporate performance audit objectives. It is the principal means by which the
audit office informs its users of its findings, conclusions and recommendations.

5.40 The report to the legislature differs from that to the audited entity only in the format and it
includes the audited entity's formal response and the audit office's comments on the response.

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 The report to the legislature should be written to allow the legislature a ready understanding
of the main issues, the general audit approach, findings, conclusions and recommendations.

How to Structure Findings, Conclusions and Recommendations

5.41 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
structures of presenting in the audit reports are 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 Findings on A
Findings on B Conclusions on A
Recommendations on A
Conclusions
Conclusions on A Findings, conclusions and
recommendations on B
Conclusions on B
Findings on B
Recommendations Conclusions on B
Recommendations on A Recommendations on B
Recommendations on B

5.42 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.

Steps in Developing a Final Report

5.43 There are a number of stages in the drafting process:

Outline Report for Approval by Department Head

5.44 The first step in preparing an audit report is to produce an outline report. The aim of this is
to:-
o Delineate the structure and broad content of the report.
o To provide senior management with the opportunity to comment on the general direction,
conclusion, etc of the report at early stage. The outline should be agreed up to head of
department level before any detailed report starts. This will reduce the need for revision and
amendment at the later stage.

5.45 in the outline, the audit team should:

o Sketch out the structure of the report. A well thought out and logical structure is an essential
element of any audit office report. It allows us to communicate information to clients in a
clear and intelligible manner;
o Identify:

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 o The findings and conclusions to be included within each main section, together
with supporting evidence;
o Any tables, charts or other graphical representation of information; and
o All necessary appendices.

5.46 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.

5.47 A useful aid to producing the outline is the latest version of the main investigation summary
sheets. If the summary sheets have been produced properly during the main investigation they
will detail the up to date position on the audits:
o Findings, conclusions and recommendations; and,
o Material evidence against each audit issue.
These will contain, therefore, the main items for inclusion in the outline.

5.48 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.

5.49 Once approved, by senior management, the outline report should be passed to the audited
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 audited entity 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 appendix 27.

Report to the Audited - First Draft

5.50 Once the outline has been agreed, team management 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, management 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).

5.51 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:
o The legitimacy of the report. The report should not stray outside audit office's legal remit.
There should be no suggestion that the office is questioning the merits of policy objectives;
o The adequacy of the findings, conclusions and recommendations in addressing the
audit objectives, that is, whether the audit office has done a satisfactory audit and whether
this is adequately represented in the draft report. Management should ensure that the report

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 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;
o 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;
o The quality of presentation. The draft should be written well, in accordance with the audit
office's 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. Advice on presenting facts
and figures is contained in guide ii, page 1 - 33;
o 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.

5.52 Both sides of the issues should be presented in moderate and unprejudicial 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 Appendix 28.

5.53 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 to the relevant main
investigation working papers to check that it is possible to justify everything in it. Check list
is provided in Appendix 26.

Report to the Auditee - Senior Management Review

5.54 It is for the Auditor General, or his Deputy, to sign the report and send it to the auditee for
comment. Before doing so she/he needs to satisfy her/himself as to:
o The legitimacy of the report;
o The adequacy of the findings, conclusions and recommendations in addressing the audit
objectives;
o Balance;
o Quality of presentation.

5.55 Senior management will not normally review the working papers in detail. They have
delegated this responsibility to the audit team (see above). However, where findings,
conclusions or recommendations are particularly sensitive, senior management may find it
necessary to call for the relevant working papers.

Discussion with the Auditee (Clearance of Reports)

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5.56 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:
o All material and relevant facts have been included;
o The facts are not in dispute;
o The presentation and conclusions drawn from them are fair;
o The report is balanced in coverage, content and time;
o Where the report states audit office's views or conclusions with which the auditee are unable
to agree, this is made clear.

5.57 After audit office senior management have approved the draft report, in order to clear the
report, one of the following alternative procedures should be followed:
a) Normally, where discussion of the outline have revealed no particular problems, the
draft report approved by the auditor general will be sent to the head of the audited. The
aim is for agreement on the content and presentation within a specific period of time not
exceeding 2-4 weeks.
b) In other cases, where matters are particularly complex or earlier discussions have
left important matters unresolved, where there is uncertainty on major issues or
where significant changes have been introduced at the final drafting stage, it may be
sensible for a draft report provisionally agreed by senior management to be passed
to the auditee for further discussion lasting no more than 4 weeks. The final draft
report approved by the auditor general will then be sent to the auditee with the
expectation that it will be cleared within 2-4 weeks.

5.58 Whichever route is adapted it is important that the auditee fully appreciates what it is being
asked to agree. The auditor general or the deputy or whomever they assign together with the
audit team should, therefore, handle all discussions on the report with the auditee. The
objectives are in short, to:
o 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;
o Ascertain what action the auditee intends to take on the reports conclusions and
recommendations.

5.59 At such report clearance stage all material differences observed should be identified. Where
the auditee 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.

5.60 Where differences of opinion can not be satisfactorily be resolved the report should bring this
out and both the auditee's reservations and proposed course of actions should be noted in the
report to legislature together with comments from the OAG.

Departmental responses to recommendations

5.61 The auditors should report the views of responsible auditee officials concerning auditor's
findings, conclusions and recommendations, as well as corrections planned.

5.62 One of the most effective ways of ensure that a report is fair, complete and objective is to
obtain advance review and comments by responsible auditee officials and others, as may be
appropriate. Including the view of responsible officials produces a report that shows not only

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 what was found and what the auditors think about it but also what the responsible persons
think about it and what they plan to do about it.

5.63 Auditors should normally request that the responsible auditee officials views on significant
findings, conclusions and recommendations be submitted in writing. When in these cases,
written comments are not obtained, oral comments should be requested.

5.64 Advance comments should be objectively evaluated and recognized, as appropriate, in the
report. Advance comments, such as a promise or plan for action, should be noted but should
not be accepted as justification, for dropping a significant finding or a related
recommendation.

5.65 When the comments oppose the reports findings conclusions, or recommendations, and are
not, in the auditors opinion valid auditors may choose to state their reasons for rejecting them.
Conversely, the auditors should modify their report if they find comments valid.

5.66 The current procedure followed after discussion with the auditee (clearance on the reports)
is for the auditor general to request a formal response from the audited entity when sending
them the report. On receipt of the response the auditor general will ask the audit team for their
comments. The team should consider whether the auditee's response is:
o Complete, that is, whether it addresses all the major conclusions and recommendations
made in the report;
o Relevant - whether the auditee has responded to the actual issues raised in the report;
o 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;
o Fair - whether the auditee's reservations or disagreements with the report are justified.

5.67 Where the response significantly fails one or more of these tests the auditor general will
consider writing back to the auditee. Any subsequent response should be subjected to the
same examination.

5.68 The audit team should also consider the nature of any major reservations or disagreements the
auditee may have. These can be divided into:
o Disagreements on the completeness, relevance or sufficiency of the auditee's response;
o Disagreement on facts or technical interpretation of the evidence.

5.69 The distinction affects the way in which the audit office handles the disagreement. On the
former, if reported clearly and fairly, we can expect the legislature to be able to weigh the
merits of the audit office's and auditee's positions. They can, therefore, be included in the
Annual Report to the legislature. In contrast, disagreements on facts or technical
interpretation will normally be beyond the legislatures competence to judge. They should, as
far as possible, be resolved before proceeding to drafting of the final report to the legislature.

Report to the Legislature

5.70 The report to the legislature differs from that to the auditee only in:
o Format (see paragraph 10.11 above);
o Including the substance of the auditee's formal response, and the audit office's comments on
the response.

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In all other respects the general structure and content of the report should follow the outline report.

5.71 The legislature, unlike the audited entity, will have no specialist knowledge of the subject
matter. The audit team must bear this in mind in producing the first draft. The report should
be written to allow the legislature a ready understanding of the main issues, the audit office's
general audit approach, findings, conclusions and recommendations. As noted above, the
report must avoid placing the legislature in a position where it is required to make technical
judgments which are outside its competence.

Documentation
5.72 The main elements of documentation in reporting stage are the various drafts of the audit
report. It is essential to maintain the standards of documentation through the final published
report. The audit team should:
o Keep a separate working paper folder containing all main drafts of the reports together with
correspondence with the auditee
o 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.
o Cross-refer all main drafts of the reports back to the evidence.

5.73 The main elements of documentation in the reporting stage are the various drafts of the audit
office the report. There will be few, if any, additional working papers generated and,
consequently, only limited need to apply. See Appendix 6.

5.74 It is essential, however, to maintain the standard of documentation through to the final
published report. Audit teams should:
o Keep a separate working paper folder containing all main drafts of the reports together with
all correspondence with the auditee;
o 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;
o Cross refer all main drafts of the reports back to the evidence. Internal audit office drafts
should be referenced to the audit office 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 An important objective of audit work is the actions that result from it. To determine if that
objective was achieved, the audit office need to answer two questions:
o What improvements were made as a result of audit work?
o Did those improvements achieve the desired result?

6.2 An effective recommendation monitoring and follow-up system should make it possible to get
those answers.

Basic Elements of Follow-Up

6.3 Follow-up should include the following basic elements:

o It should be firmly rooted in policy. The audit offices commitment to getting action on
recommendation should be clear.
o It should define individual responsibilities. Generally, staff responsible for the audit work
are responsible for follow-up.
o The follow up plan should describe minimum required actions, documentation
requirements, and the like. It should recognize be tailored to particular recommendations
and the results they seek. It requires development of a follow-up plan for each assignment.
o It should ensure that all recommendations are followed-up.
o It should identify what each recommendation is expected to accomplish, including and
estimate of potential monetary benefits. This information helps judge the adequacy of
implementation actions.

Determining the Adequacy of Actions Taken on Recommendations

6.4 Were the actions that were agreed to actually taken? Did the actions that were taken have the
intended results? Answering questions could include a variety of approaches. Few auditors
would accept, with out verification, a statement by the auditee that certain actions would be
taken and that those actions would correct the problems to which the recommendation was
directed.

6.5 But how far should audit staff go in verifying that action was taken and in determining
whether it achieved desired results? How long should recommendations be held open pending
the determinations? The answer depends on such factors as the significance of
recommendations and the time required for its implementation.

6.6 As a minimum, implementation plans and time frames should be reviewed for consistency
with recommended actions. Documentation to carry out planned actions should be examined.
Auditee estimates of savings or other benefits should be reviewed, and the reasons for
significant differences from audit estimates should be explored.

6.7 For more significant recommendations, implementation actions should be tested. For key or
critical recommendations that have not been implemented with in a reasonable time, another
audit or strategy may be warranted. If a follow on audit is planned, it should use additional
strategies to maximize the likelihood of achieving intended results.

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Closing Recommendations

6.8 The follow-up system should give guidance on when recommendations should be closed.
Successful implementation should be the primary reason. When testing satisfies the auditor
that objectives are being achieved, the recommendation should be promptly closed. But
successful implementation is not the only reason for closing recommendations. At times,
recommendation monitoring discloses that circumstances have changed and the
recommendation is no longer valid. Recommendations should be closed when they are no
longer valid, when additional information becomes available that establishes that the
recommendation should not be pursued, or when it is decided that further action does not
have a reasonable likelihood of success.

Accomplishment Reporting

6.9 Accomplishment reporting is an important part of an effective follow-up. It makes visible

and brings together the results of follow up audit work. Accomplishment reporting promotes
staff commitment to results by associating accomplishments with the work of individuals. It
also provides a useful way to gauge the auditor's success.
The criteria for determining accomplishments should require that:
o The recommended action or an acceptable alternative was actually taken and
o The recommendations implementation caused or significantly influenced the benefits
achieved.

6.10 Accomplishments that should be reported include quantifiable benefits. But not all benefits
are quantifiable. The accomplishment reporting system should also highlight financial
benefits that cannot be determined or reliable estimated and other actions that improve
government operations but yield no quantifiable benefits. Non-quantifiable benefits can be
extremely significant including those that improve the quality of life as well as those that
preserve life itself. Perhaps the most important aspect of accomplishment reporting is that it
be credible.

Recognizing the Basic Responsibility of Auditees

6.11 The basic responsibility for taking action on audit recommendations rests with the audited.
Auditors should assure themselves that the auditee has an effective system in place for
resolving, following up, and implementing audit recommendations. Determining how
effective auditee systems are and recommending improvements where necessary can go a
long way to enduring that individual audit recommendations accomplish their objectives.

Special Attention to Key Recommendations

6.12 While all audit recommendations should be aggressively pursued, some recommendations are
so significant that added steps are needed to get them implemented. For example, what
should be done when, despite aggressive follow-up, a key recommendation has been rejected
or ignored, and there is no reason to believe that the passage of time will improve prospects of
getting beneficial action? And what course should be followed if the recommendation may
eventually be implemented, but the matter is too significant to let current conditions continue?

Identifying key recommendations:-

6.13 The significance of a recommendation depends on the subject matter and specific situation.
Frequently, significance can be assessed in terms of money. For example, assume that

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 implementation of audit recommendation would correct in adequate internal control in an area
where very significant amount of money are subject to manipulation. The inadequate controls
are readily recognizable as a significant deficiency. A recommendation to strengthen the
internal controls in an area of such significance and susceptibility would be key and worthy of
special emphasis.

6.14 However, money is not only one measure of significance, not necessarily the most important
one. For example, the need to ensure implementation of recommendations to provide safe
operation of entity whose operation has adverse impact on the environment and sustainable
development can be over emphasized. Implementing such a recommendation could prevent
environmental contamination, and lead fair use of resources, which leads to sustainable
development.

6.15 There is a vast difference between recommendations dealing with conditions that are
imminently life threatening and those that are just significant enough to be reportable.
Likewise, a wide range of actions can be taken to get recommendations implemented. But,
for those relatively few, critical recommendation, a maximum effort should be applied.

Early and continuing Emphasis:-

6.16 The significance of a finding and a recommendation should be known to the auditor and
communicated to the auditee early during an assignment. The fact that a recommendation is
considered to be a key one should not come as a surprise to the auditee being audited. It
should have been made apparent during early discussions with auditee officials and certainly
at the exit conference.

6.17 Emphasis on key recommendations should be continued as the findings and recommendations
are reported. Key recommendations should be identified and highlighted in reports in a
context that makes their significance apparent. Executive summaries and transmitted
memorandums can be used to further establish and emphasize the significance of key
recommendations.

6.18 If monitoring and follow-up disclose that action on a key recommendation is not progressing,
additional steps should be promptly considered. Follow-up should be elevated to
progressively higher levels of auditee management. Auditee management at the highest levels
should be made aware of the significance of the recommendation and the need for prompt
action. When the head of the audit office gives personal attention to getting action on a
recommendation, a high level of significance is clearly demonstrated. When the top person
invests time, effort, and personal commitment, the subject matter is established as special. It
will be accepted as such, and the chance of favorable action on the recommendation will be
greatly increased. But that level of attention can be given to only the most significant matters.

Closure of the Investigation

6.19 At the end of the investigation, after publication of the audit office report the audit team
should produce a resume to the audit office senior 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:
o To give senior management the opportunity to "sign off" the study, thereby formally closing
it;

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 o To ensure that the audit office as a whole is able to learn lessons from the conduct of the
study which will assist its development of performance audit.

6.20 the final resume should consider:

o Whether the study's original objectives (as per the feasibility stage report) were achieved,
providing explanations where this was not the case;
o What the likely impact of the audit office report will be;
o The auditee's reaction to the study and the report, and what lessons can be learnt from it;
o Whether the study was delivered on time and to cost, giving explanations for any variances;
o The success or otherwise of the methodology, highlighting lessons to be learnt;
o The value and lessons from use of any novel audit techniques.

6.21 A copy of the report, together with audit programs and evaluative criteria, should go to the
performance audit unit. In addition, the audit team should produce a short commentary for
the administrative division on the performance of any external consultants employed on the
study. See appendix 21.

6.22 Senior management 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 audit team to close the study formally. Before doing so, the audit team 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.

Review of the Auditee's Response

6.21 At a suitable interval after publication of the audit office report, normally about two years, the
audit department should review the auditee's response to the Report's conclusions and
recommendations. The objectives of this exercise are:
o To ensure that the audited entity has acted adequately and is seeking to improve public
accountability and/or value for money;
o To evaluate the benefits that have resulted from the audit report.
The department should report their findings to the audit office senior management, with
appropriate recommendations for further action by the audit office.

6.22 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. Divisions 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 where a formal statement is not
forthcoming, divisions should always agree the facts with auditee's top management,
especially where producing financial estimates of savings.

6.23 The review should also include an evaluation of the adequacy of the auditee's response to
audit office's conclusions and recommendations. Where the review suggests that the response
has not been adequate, divisions should seek an explanation from the auditee. If this is not
satisfactory, the divisions should consider possible further action by the office:
o A management letter from the head of audit office's performance audit unit to his opposite
number, seeking explanations and asking for appropriate action to be taken;
o A formal note from the auditor general to the head of the auditee, again seeking
explanations and asking for appropriate action to be taken;
o A briefing to legislative oversight committee or the legislature explaining the facts of the
case;

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 o A further audit office investigation and report at a later date.

6.24 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 office's performance audit work is to have a beneficial impact, auditees must act
properly and speedily.

Measuring the Impacts of the Audit

6.25 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,
each division needs to evaluate and measure the impacts of the audit. To meet this need, each
division should establish arrangements for:
o Monitoring planned impacts through the course of the audit and in relation to other outputs;
o Recording and evaluating commitments to action made by the auditees;
o Monitoring and recording achievements against commitments; and
o Provide a report for senior management, on commitments and achievements resulting from
audit office outputs during the preceding 3 years. Impact will, mainly derived from
performance audit as a result of action taken by the auditees during the course of the audit,
on the audit office reports or following loc recommendations. Details about planned
impact, commitments and achievements is given in appendix 29.

6.26 During the strategic plan preparation, each division 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.

6.27 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 auditees'
commitments and achievements.

b) Evaluating impacts
In evaluating commitments and the subsequent achievements, there should be evidence that
the work of the audit office or LOC has 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 audit
offices or committee recommendations and responses of the auditees. 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

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 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, non-measurable 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 auditees'
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 audit office in
meeting its corporate objectives. Therefore, impacts of the audit observed during the
evaluation should be reported to senior management. In this regard, senior management
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 audit office may come under close public scrutiny, it is important that
assessments are consistent. Benefits achieved as a result of the work of audit office should
always be internally validated. Wherever possible they should be agreed with the audited
entities or other bodies. If there is a disagreement clearly articulated about the benefits
achieved senior management should be advised on what basis the benefit has been assessed
and, if applicable, the auditees reservations clearly articulated.

6.38 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.
Audit office 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.

QUALITY REVIEW (ASSURANCE)

The audit offices should have policies and procedures to ensure that audit work is carried
out in accordance with established internal standards and procedures.

6.39 It is critical for audit offices to ensure that the audit work they carry out meets the highest
quality standards. The standards of quality must be applied throughout the process, and not post
audit activity.

6.40 To achieve a consistent high level of quality in the audit work, it is necessary to ensure that:

All personnel adhere to the principles of independence, integrity, objectivity, confidentiality

and professional requirements;
The audit offices are staffed by personnel that have attained and maintain the technical
standard and professional competence required to enable them to fulfill their responsibilities;

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 Audit work is assigned to personnel who have the required technical training and
proficiency;
There is sufficient direction, supervision and review of work at all levels to provide
reasonable assurance that the work performed meets appropriate standards of quality.
Whenever necessary, consultation takes place within or outside the audit organization with
those who have appropriate expertise;
The continued adequacy and operational effectiveness of quality control policies and
procedures is monitored.

6.41 The auditors in charge have the overall responsibility for ensuring the quality of the audits
concerned. However, in fulfilling their audit engagement, the auditors in charge may delegate
portion of the work pertaining to planning, execution or supervision to other members of the audit
teams.

6.42 In addition to the review of audit work by personnel having line responsibility for the audits
concerned, it is desirable that suitably qualified audit office staff not involved in those audits also
do an in-depth review of a sample of audits. The outcome of such an internal quality assurance
review should be reported to senior management.

6.43 Audit offices should implement a code of ethics, must be committed to the ethical rules, and
must exercise control to ensure that staffs are complying with the ethical rules.

6.44 Audit offices should have efficient and effective policies and procedures to ensure that staff
with relevant academic qualifications, experience and competence are recruited.

6.45 Audit offices should have and implement programmes for classroom training, on-the-job
training and skills development training at the individual level.

6.46 Audit offices should implement efficient and effective procedures for senior management to
provide direction, supervision and review at appropriate stages of the audit. The audit offices must
ensure that senior management is complying with the monitoring requirements.

6.47 The SAIs should implement standards and procedures for controlling the quality of reporting
through the involvement of the Auditor General and top management staffs.

6.48 Audit offices should ensure that before a final audit report is issued, it has met all standards
prescribed planning, execution and reporting standards.

6.49 Audit offices should ensure that audit reports are submitted in a timely manner.

6.50 It is appropriate for audit offices to institute their own internal audit function with a wide
charter to achieve effective management of its own operations and sustain the quality of its
performance.

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ANNEX 1: Environmental Protection Legislation, Policies, Regulations in Ethiopia
In Ethiopia, the laws adopted since the 15 th century have had provisions with environmental
implication. For example, the Fetha Negest (The law of the kings) prohibited the emission of
smoke from a lower place to a higher place.

The constitution of the Federal Democratic Republics of Ethiopia also ensures the existence of a
clean and healthy environment. The Conservation Strategy of Ethiopia (CSE), which was started in
1989, was undertaken in three phases: the first phase (1989 1990) was drafting the conceptual
framework; the second phase (1990 1995) was the development of a policy and institutional
frame work and action plan for the CSE; and the third phase (1995 1998) was the implementation
phase to finalize the development of regional state action plans and development

So based on the CSE the Environmental Policy of Ethiopia (EPE) was prepared and also the
establishment of the Federal Environmental Protection Authority (EPA) came out of three
proclamations: the reestablishment of environmental organs (proclamation no. 295/2002), the
Environmental Impact Assessment (EIA) (proclamation no. 300/2002) and the Environmental
Pollution Control (EPC) (proclamation no. 299/2002).

The environmental pollution control proclamation no. 300/2002 obligates the Federal EPA to
formulate practical Environmental Standards and the National Regional States may, based on their
specific situation, adopt these environmental standards.

The Federal EPA or the relevant environmental agency is required to assign Environmental
Inspectors, to monitor and enforce standards, powers and duties, punishable offences and the
corresponding penalties are also prescribed.

Other environmental related proclamations and regulations prepared by sectoral agencies are:
o Forestry proclamation No. 94/2002;
o Labour proclamation No. 45/1995;
o Water Resources Management and Administration Health proclamation No. 200/2000;
o Radiation Protection Authority Establishment proclamation
o No. 79/1993; and
o Urban Zoning and Building permit proclamation No. 316/1987.

Ethiopia has adopted and ratified the following international conventions and agreements:
o Convention on Biological Diversity
o The United Nations Convention to Combat Desertification (CCD)
o The Vienna convention for the protection of the Ozone Layer
o Framework Convention on Climate Change (FCCC)
o The Basel Convention
o The Stockholm Convention
o The Rotterdam Convention
o Convention on International Trade in Endangered Species of Fauna and Flora (CITES)

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o ANNEX 2: T (Tabling) Minus Control Framework for the Performance
Audit Process

Self Assessment Checklist

Review Checklist-
Publication approval

Report Production
Checklist

Auditee responses
Review Checklist-
DAG approval

Transmission draft to
auditee
Review Checklist-
Department Head
approval

Team leader draft

External Advisory

Submission and approval

by the Report Steering
Committee (or
equivalent)

Internal Methodology
Meeting

Survey report
(examination plan)

Overview report

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DEFINITIONS
Audit office/Offices means the Office of the Federal Auditor General or a Regional State's Audit
Office.
Auditor General means The Federal Auditor General or a Regional State's Auditors General.
Auditor means a performance auditor of the Office of the Federal Auditor General or a Regional
State Audit Office.
The Executive means the Executive branch of the Federal Government or the Executive branches
of Regional States.
Audited entities/audited bodies/audited organizations mean all government entities (Federal and
Regional) that are audited by the Office of the Federal Audit General or Regional States' Audit
Offices.
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 Audit office.
Government means the Federal or Regional State Government.
Principal Auditor means Performance Audit Division Head or Performance Audit Manager in an
audit office.
Legislature means the House of Peoples Representatives or a Regional State's Legislature.

Audit Conclusion:- Audit conclusion professional judgment an opinion Expressed by and auditor
about the subject matter of the audit based on and limited to reasoning the auditor has applied to
audit finding.

Audit Criteria:- Policies practices procedures or requirements against which the auditor compares
collected audit evidence about the subject matter.

Audit evidence:- Verifiable information records a statement of fact.

Audit Observations/Findings:- Result of the evaluation of the collected audit evidence compared
against the agreed audit criteria.

Audit team:- Group of auditors or a single auditor ,designated to perform a given audit the audit
team may also include technical experts and Auditors in training.

Auditee:- organization to be audited.

Environment:- Surroundings in which an organization operates. including air water and natural
resources flora ,fauna, humans and their interrelation.

Environmental Audit:- Systematic documented verification process of objectively obtaining and

evaluating audit evidence. To determine whether specified environmental activities events
conditions management Systems or information about these maters confirm with audit criteria and
communicating the results of this process to the client.

Environmental Auditor:- Person qualified to perform Environmental Audits.

Environmental Management System:- Part of the overall management system that includes
organizational structure. Planning activities responsibilities practices, procedure, processes and
resources for developing implementing achieving reviewing an maintaining the Environmental
Policy.

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Environmental Performance:- Measurable results of the environmental management system,
related to an organizations controls of its environmental aspects based on its environmental aspects,
Environmental policy objectives and targets.

Environmental Policy:- Statement by the organization of its intentions and principles in relation
to its environmental performance which provides a framework for action and For the setting of its
environmental objectives and targets.

11.1

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