IMPLEMENTATION OF SCHEMES AND AUDIT OF SOCIAL SECTOR

An Outline for the Presentation

Social Sector – definition and framework

Increasing role of social sector in poverty alleviation, rural development and social development

Audit of social sector – a conceptual framework

Performance audit of social sector – key issues

Case studies in Performance Audits

The road ahead

Social sector – an introduction

In HDIs and Social Protection Index, there are still huge challenges for the country and India ranks 135 or so in the overall ranking in the world.

While higher investment and commitment in social sector is desirable for social equity and justice, higher spending does not necessarily translate into better outcomes in poverty alleviation

Social Sector – an introduction

Quality of expenditure and focus on targetted spending would bring results of higher social development

Audit, in particular, Performance audit plays a key role in providing assurance on economy, efficiency and effectiveness of social sector programmes

The importance of Social sector -

“social services” or “social sectors” include those sectors where government interventions are expected to have a direct influence on human & social development:

◦ Education, health and family welfare, nutrition, water supply and sanitation, social security and welfare

◦ Social sector interventions bring down disparities and asymmetrical access to education, health care and nutrition and lead to better and improved social and human development indicators

The importance of Social sector

The share of rural development and social services sectors has increased from 31% in X Plan to 38% in XI Plan to 40% in the XII Plan.

This is more prominent in the central plan budget where the outlays increased to 65% in the XI plan from 50% in the X Plan

The major flagship programmes of the Centre provided the bulk of the funding –– for social sector and poverty alleviation programmes that the Constitution in the Eleventh Schedule indicates as the domain of PRIs

Social Sector in Union Budget

Union Budget 2015-16 was a paradigm shift

The newspapers said that “it marks the dawn of 'Co-operative federalism' and empowerment of the States."

The central government accepted the recommendations of the 14th Finance Commission to increase share of Central taxes from 32% to 42%to the States

The union budget has maintained the Plan Outlay for the Social Sector programs at the level of revised estimates for FY 2014-15.

Union budget for social sector Though with respect to last year’s allocations, there have been cuts in agriculture, drinking water and sanitation, panchayat raj, water resources and to the ministry of women and child development

Union Budget announced number of social security schemes and also increased outlay for MGNREGA by Rs. 5,000

The principle is that most of the schemes are in the State List and should legitimately be owned and implemented by the States

Union Budget in social sector

The allocations and resource sharing arrangement with states would change for 24 central schemes, mostly in the social sector.

The implementation of schemes would depend upon priorities of the State Governments.

We have to wait and see the impact on existing flagship schemes in education, health, nutrition, livelihood and water and sanitation

Social sector spending

In 2012-13 (Budget Estimates), the Union Budget outlay for social sectors was around 1.9 per cent of GDP

India’s total public spending (combined budgetary spending by Centre and states) every year on social sectors continues to be less than 7 per cent of GDP.

Problems afflicting social sector

The poor quality of infrastructure in schools, hospitals, healthcare centres and anganwadi centres

The shortage of qualified and trained human resources for delivery of services (teachers, doctors, para-medical personnel and anganwadi workers),

Poor budgeting, accounting and auditing and accountability arrangements

Unacceptably low levels of unit costs for provisioning of various services in these sectors

The under-utilization of funds, lack of absorptive capacity -as one of the key problems in social sectors in the country at present

lack of fiscal decentralization from Centre to state governments as well as from state government to local governments.

Problems of underutilisation of funds

Deficiencies in decentralized planning in schemes –◦ caused by a shortage of staff to carry out

planning activities◦ lack of emphasis on training and capacity

building of staff and community leaders for decentralized planning

◦ and inadequate emphasis on community participation in the planning process.

Bottlenecks in budgetary processes in the schemes, such as◦ delay in the flow of funds, ◦ delay in sending sanction orders for spending,◦ weak monitoring and supervision of

programme implementation activities.Systemic weaknesses in the government

apparatus in the states – low importance to finance and accounting and Internal controls

Audit of social sector programmes

Social Sector programmes can best be evaluated through Performance Audit

Performance audit will help an evaluation of the economy, efficiency and effectiveness of the programmes and schemes

Compliance audit is also important in cases where large scale procurement is involved and where the integrity of systems and processes are important and also in tax levy-collection, borrowings, entity that creates infrastructure, privatisation, disinvestment,

Compliance & Performance in entities concerned with economic regulation of electricity, telecom, carbon emission.

Performance & Financial in entities engaged in manufacture & sale, exploration/mining, production & sale, intangible services

Depending on the nature of activity of entity and audit requirement SAI may prefer to carry-out any one of the three ‘audits’, or two of them in different combinations or all three.

Concerned SAI would decide depending on its requirement

Performance audit – legal framework and standards

DPC Act

Regulations on Audit and Accounts, 2007

Auditing Standards of IAAD

Performance audit guidelines

Performance Auditing Guidelines - 2014

INTOSAI – Implementation guidelines for performance audit

ASOSAI guidelines for performance audit

Concept of Performance auditing

Performance auditing is an independent examination of the efficiency and effectiveness of government undertakings, programs or organizations, with due regard to economy, and the aim of leading to improvements

Concept of Performance Auditing

“Performance audit is an independent assessment or examination of the extent to which an organisation, programme or scheme operates economically, efficiently

and effectively.” - Regulations on Audit and Accounts, 2007

Objectives of Performance Auditing

The main objective of performance auditing is to constructively promote economical, effective and efficient governance.

It also contributes to accountability and transparency.

Performance auditing focuses on areas in which it can add value for citizens and which have the greatest potential for improvement

Three EEEs - Economy

It is minimising the cost of resources used having regard to the appropriate quality;

It is “Spending less”; and

Question to be asked by the auditor is “Do the means selected represent the most or at least a reasonable economical

Concept of EfficiencyIt is the relationship between the quality and quantity of goods and services yielded and the cost of resources used to produce them;

It exists if the output is maximised for a given set of resource inputs or input is minimised for any given quality and quantity of output (spending well); and

Audit conclusion on efficiency may be based on comparison, standards, best practices.

Effectiveness

It is the extent to which objectives of an activity are achieved;

It is the relationship between intended impact and actual impact of an activity;

It is “Spending wisely”;

Governance process

Shift in emphasisAS GOVERNANCE PROCESSES HAVE BECOME OUTCOME ORIENTED, SHIFT IN AUDIT EMPHASIS INEVITABLE

SHIFT FROM ACCOUNTS AND FINANCE TO SOCIAL SCIENCES, ECONOMICS, SCIENCE AND TECHNOLOGY, DEVELOPMENT STUDIES

ACCOUNTANTS TO MANAGERS

GOVERNMENT TO GOVERNANCE

TRANSACTIONS TO THE ENTIRETY

PERFORMANCE AUDITS WITH A PURPOSE: MEANS TO AN END

VALUE ADDITION- OUTCOME OF PERFORMANCE AUDITS; MAKING A DIFFERENCE.

PRIMARILY CONCERNED WITH OUTCOMES AND COMPARISON OF INTENDED IMPACTS WITH ACTUAL IMPACTS

Audit process

Design Matrix for performance audit – inventory management

Audit objective Criteria Evidence required

Evidence source (s)

Data collection methods

Data analysis methods

WHAT DO WE WANT TO KNOW? 

WHAT STANDARD DO WE MEASURE AGAINST?

WHAT EVIDENCE WILL ANSWER THE QUESTION

WHERE ARE WE GOING TO GET THE EVIDENCE?

HOW ARE WE GOING TO GET THE EVIDENCE?

WHAT WILL WE DO WITH IT ONCE WE GET IT?

1. Whether accurate inventory records are maintained in computerized inventory systems.  2. Whether goods are stored under appropriate conditions with proper security 3. Whether FIFO method is followed

Norms and guidelines for storing and issuing inventory  

Inventory records

Inventory stores deptt.

Inventory records and reports including physical verification 

Analyse Inventory records and reports and get an assurance 

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New Performance Auditing Guidelines

Audit objectives should be limited in number (ideally about 3)

From objective to approach – system-based or result-oriented

Audit teams should prepare Audit Design Matrix and Audit Findings Matrix◦ Audit objectives – sub-objectives◦ Audit Questions◦ Criteria◦ Evidence◦ Cause – Effects◦ Conclusions◦ Recommendations

Nature of recommendations Should be specific, action-oriented, implementable, constructive and beneficial to the entity, should add value◦ The department may ensure that Bank

Guarantees are valid◦ VAT Manual should be prepared for effective

administration of VAT Act and Rules◦ Surveys should be conducted periodically to

identify the beneficiaries and encourage unskilled labourers to register themselves and avail of scheme benefits

Nature of recommendations

Before sanctioning further residential schools the government should accord priority to equipping the existing ones with adequate financial resources

Recommendation should clearly indicate who is responsible for implementation of the recommendation

◦ The society needs to maintain separate accounts for funds received from the client departments including interest earned on unspent balances to avoid mixing up funds

◦ The department needs to put in place a mechanism to ensure timely receipt of UCs from the society for the funds released

Don’ts in recommendations

No truisms and self-evident propositions or reiteration of existing instructions

◦ Avoid cost overruns in implementation of the projects

◦ Government should expedite implementation of the schemes and completion of the projects within the time schedule prescribed

◦ Ensure that the terms of the agreements are duly enforced

◦ Ensure the strict compliance of the provisions of the land acquisition Act in acquisition of land (rather the cause of the non-compliance with the Act and how the department could take steps to overcome it should be commented.

Procurement & Supply Management Cycle of Medicines

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Waste/Risks in Drug Management in public sector procurement – important audit focus

High Prices

Poor Quality

Improper storage

Pilferage

Over stocking of inventory

Expiration of drugs

Irrational Drug Prescribing

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Audit objectives – to examine

◦ Procurement plans properly drawn up by the ◦ Procurement policies and procedures properly adhered to ◦ Operational procedures consistent with good pharmaceutical

procurement◦ Policies and procedures on bidding process management,

tender evaluation and award of contract were efficient and effective

◦ Inventory management policies of medical stores/hospitals were followed

◦ Guidelines for distribution of medicines followed◦ Measures to promote rational drug use effective

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To SUM UP Audit emphasis more on systems and processes than on individual events

Emphasis more on assurance Risk areas to be identified – risk based audit

Emphasis more on key performance indicators than financial materiality

Materiality related to theme or importance than only on financial values

Audit as Aid to management – value addition

Highlighting positive issues Recommendations for improvement – specific, action oriented, feasible, administratively sound and cost effective