Workshop on Final

8/9/2019 Workshop on Final

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Capacity Building and TrainingCapacity Building and Training

on Procurementon ProcurementTraining the trainers workshop 19th

to 21st September, 2005

AUDIT PROCEDURES

by Rashid Saleh

ras


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Retrospection

Audit Procedures

The Audit of Expenditures on Procurement has

traditionally been carried out in accordance with

the Provisions of the General Financial Rules ascontained in Chapter 8 under STORES which

covered all articles and materials purchased or

otherwise acquired for the use of Government

and also included articles of dead stock of thenature of plant, machinery, instruments,

furniture, equipment, fixtures etc.


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Prior to the separation of the Auditing and the

Accounting Function the Audit Manual, the Audit

Code and a comprehensive manual called the

Outside Audit Department Manual (OAD Manual)

provided elaborate guidelines to field auditors The Central Public Works Accounts Code and other

Departmental Codes and Manuals still guide field

auditors through their works audit drill


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The GFRs have historically been applied and are

still being applied wherever departmental rules

on procurement are either not available or are

insufficient. It is given in Chapter 1 of the GFRs under

Introductory at para1, that the departmental

authorities should follow these rules,

supplemented by the special rules andInstructions, if any, contained in their

departmental regulations and other special

orders applicable to them.

Retrospection -Audit Procedures


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Chapter 2: General Systems of Financial Management

and Control- IV - Contracts: General Principles Rules 18 and 19

Rule 18. No contracts may be entered into by any authoritywhich has not been empowered to do so by or under theorders of the President.

The various classes of contracts and assurances of

property authorized by the President in exercise of powersconferred by Article 99 of the Constitution to be executedby different authorities are specified in Appendix 1.

Subsidiary orders of Government as to the limitationupon the powers of these authorities, the conditionsunder which such powers should be exercised and the

general procedure prescribed with regard to suchcontracts, such as calling for and acceptance of tenders,etc., are laid down in the appropriate departmentalregulations.


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Rule 19. The following general principles have been laiddown for the guidance of authorities which have to enter

into contracts or agreements involving expenditure fromPublic funds:-

The terms of a contract must be precise and definite andthere must be no room for ambiguity or misconstructiontherein.

As far as possible, legal and financial advice should be

taken in the drafting of contracts and before they are finallyentered into.

Standards forms of contracts should be adopted whereverpossible, the terms to be subject to adequate priorscrutiny.

The terms of the contract once entered into should not bematerially varied without the previous consent of theauthority competent to enter into the contract as so varied.No payments to contractors by way of compensation, orotherwise, outside the strict terms of the contract or inexcess of the contract rates may be authorized without theprevious approval of the Ministry of Finance.


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No contact involving an uncertain or indefinite liability or

any condition of an unusual character should be enteredinto without the previous consent of the Ministry ofFinance.

Whenever practicable and advantageous, contracts shouldbe placed only after tenders have been openly invited and,in cases where the lowest tender is not accepted, reasons

should be recorded. In selecting the tender to be accepted, the financial status

of the individuals and firms tendering must be taken intoconsideration in addition to all other relevant factors.


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An Environment with a Strong Internal

Control & Monitoring framework alone can

help Prevent - Rule 2(f) of the Public

Procurement Rules

It states that corrupt and fraudulent practices

includes the offering, giving, receiving, orsoliciting of any thing of value to influence the

action of a public official or the supplier or

contractor in the procurement process or in

contract execution to the detriment of the

procuring agencies; or misrepresentation of

facts in order to influence a procurement

process.


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or the execution of a contract, collusive

practices among bidders (prior to or after bid

submission) designed to establish bid prices at

artificial, non-competitive levels and to deprivethe procuring agencies of the benefits of free

and open competition and any request for, or

solicitation of anything of value by any public

official in the course of the exercise of his duty;


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Rule 4 of the Public Procurement

R

ules, 2004 states that :Principles of Procurements

Procuring agencies, while engaging in

procurements, shall ensure that the procurementsare conducted in a fair and transparent manner, the

object of procurement brings value for money to the

agency and the procurement process is efficient and

economical.


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Audit Procedures

Introduction to Audit Guidelines Guiding Principles

The guiding principles that should be observed when

conducting any audit under the authority of the

Auditor-Generals Ordinance 2001 are documented

in DAGPs Financial Audit Manual (first published in

2005 under the Project for Improving FinancialReporting and Auditing (PIFRA)).


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PRE-AUDIT CHECKS

Applied by theAccountant General Scrutiny of AT (Approved / Accepted Tender).

by verifying the Rates.

Date and place of delivery.

Consignee and the name of the contract.

Terms and conditions of the contract. Availability of funds.

The head of account to be debited.

Verification of signature & seal of purchasing / indenting officerby the A.G Office i.e S.V.O (Signature Verifying Officer) on every

page of the form. Verifying the Bill issuance form issued by department to the

contractor with the serial number allotted and serial number ofA.T mentioned by the indenting officer.


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Check the receipt of verification memo with the

Inspection Note / Certificate by the industries

department or the committee constituted for this

purpose.

Check and verify the deduction of Income Tax / GST

/ Service charges / Fines on late supply of materials.

The Bill / Claim is cleared subject to confirmation of

receipt of items in good condition duly certified and

verified through delivery challan.

All the details are recorded in the Supply Audit

Registered of A.G Office.


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The Financial Audit Manual (FAM),

and the Audit Guidelines FAM Provides modern Auditing Standards,

Concepts, Techniques, and Quality

Assurance arrangements. It covers the entire

audit cycle.

The FAM is supported by a standard audit

working paper kit and a set of tailored audit

guidelines applicable to all areas of audit.There is a specific guideline for the audit of

procurement.


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Introduction to Audit Guidelines

Auditors Responsibility

Every auditor engaged in a DAGP audit is required to befamiliar with the audit theory, practice standards, and

techniques described in the DAGP Financial Audit

Manual, including the documentation standards.


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Introduction to Audit Guidelines

Practical Tools

In addition to the Financial Audit Manual, PIFRAalso provides the auditor with practical tools forconducting the audit. One of these tools is a set of

Standard Audit Working Papers. These workingpapers are a generalized set of forms andschedules designed to help each audit team performthe audit in compliance with the principles set out inthe Financial Audit Manual. This Guideline has

been prepared to assist each audit team to applythe Standard Audit Working Papers to the audit ofProcurement activities.


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The auditor is required to be familiar with the laws, regulations and

procedures pertaining to contracting and procurement. Obtaincopies of contracting policies and procedures manuals, circulars,etc. In particular, the auditor should refer to the PublicProcurement Rules, 2004 (provided as an Appendix ).

Focus of the Procurement Audit

There are three questions that the auditor should ask:

What should be examined?

At what stage should the auditor examine the procurementprocess?

Which parties to the procurement process should beapproached?


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The Guidelines for the audit of Procurement

Scope

Contracting and procurement activities apply to the acquisitionof a whole range of resources, including:

Infrastructure, buildings and major equipment[1];

Vehicles, furniture, tools, small equipment and parts;

Small items such as stationary and pencils and consumables;

Materials and equipment for maintenance purposes;

Maintenance services for facilities and equipment;

Hardware and software for computer systems;

Consulting services; and

Other contracted out services.

[1] These are generally managed as projects (see the Audit Program Guide for the Audit ofExpenditures Project Costs and Performance in Appendix B) - but they often have asubstantial contracting and procurement component.


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The best input to this decision is experience but thefollowing provides some guidance. The decision shouldbe based on answers to the following questions:

Is the amount of procurement within the organization of

high materiality? Is it anticipated that the controls over the procurement

process are weak (assessment of this is usually basedon past audit work, internal audit reports, managementinterviews or an initial assessment of internal controls)?

Is there a lot of sole sourcing (i.e. many contracts are letwithout going through a competitive bid process) andespecially, does this applies to large procurements?



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Are there many examples of poor performance (projectsover budget or delayed, contracts not let, multiplecontract amendments, goods or services not meetingrequirements)?

Any suspicion of misallocation of funds (such asidentifying possible duplicate payments, unable to locateitems bought, finding new equipment is not being used,critical newspaper articles)?

The more yes to these questions the more important itis for the auditor to examine the procurement process

and activities. Even a single yes may be consideredsufficient to conduct an audit.


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The Guidelines for the audit of ProcurementIdentification of Major Procurement Activities

Almost every audit office within the DAGP will need

to conduct audit work relating to Procurement within

its area of audit responsibility.

For audits specifically focused on Procurement, thefirst consideration is determining the types of

procurement, the amount of procurement, and the

particular risks associated with procurement carried

out by the audit entity.T

he design of the auditapproach and determination of audit scope to fulfill

the audit objective relating to Procurement will be

the responsibility of the Audit Manager.


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The Guidelines for the audit of ProcurementDetermining the Audit Objective and Audit Scope

The auditor needs to obtain a clear picture of theprocurement activity of the audit entity. The scope of theaudit could include the government as a whole; adepartment of government; or simply the procurementactivity for a single project.

The audit objective may focus on one aspect ofprocurement such as the extent of competitive

procurement and the proper justification for solesourcing of products or services; or it may cover allaspects of the procurement cycle. The selection of areasof Procurement may also focus on particular types ofprocurement, such as acquisition of:

Computers (and the controls over the acquisition ofcomputers); or

Vehicles (and what specific standards exist governingthe type and/or cost of vehicle and the criteria foracquiring replacement vehicles); etc.


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Compliance Audit against the Public

Procurement Rules, 2004

In conducting an audit of the entitys compliance with theseRules, the auditor should address each of the followingrequirements which are specified in the Public ProcurementRules:

# 8: procurement planning: all proposed procurement is to beplanned in detail as to requirements, available resources, timing,and, anticipated benefits.

#9: no splitting or regrouping is allowed to circumvent the intentof the rules.

#10: specifications should allow the widest possible competitionand not create unnecessary barriers to potential vendors.

#11: proper approval mechanism: to ensure clear authorization,proper delegation of powers, prior approval from competentauthorities.


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#13: sufficient response time should be given.

#14: exceptions (proprietary or national security concerns). #15, 16: process for pre-qualifying suppliers.

#17, 18, 19: basis for disqualifying or blacklisting offendingvendors.

#20, 21: open competitive bidding.

#22-27: rules relating to submitting bids. #28-35: opening, evaluating and rejecting bids.

#36: alternatives for open competitive bidding (one envelopecontaining both technical and financial proposal / two envelopebid with technical opened first, then financial of technicallyaccepted bids opened publicly / two stage biding procedure).


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#37: guidance on which procedure to use.

#38-41: acceptance of bids and award of contracts.

#42: alternative methods of procurement (conditions andprocedures for alternative methods).

#43: prompt payment.

#44: coming into force of a procurement contract.

#45: closing of the contract.

#46, 47: maintenance of records and freedom of information.

#48, 49: redressal of grievances and settlement of disputes.

#50: unauthorized breach of rules constitutes a mis-procurement

Documents

Workshop on Final