Public works and projects refer to the activities that are undertaken by the government for the public benefit in constructing, expanding and developing specific enterprises for the purpose of creating tangible assets to improve the services which are delivered to the community over a period of time. These assets may be categorised as :
The most important feature which distinguishes these public investment projects from private investment projects is the indirect nature of the returns. Apart from the difficulty of identifying and quantifying the returns, most are capital-intensive and generally of such magnitude that there is no economic incentive for private investment. Accordingly, the state has assumed responsibility for establishing these projects.
The essential aims of public works and projects are :
Particular public works and projects are usually proposed by those parties benefiting from such initiatives. The beneficiaries tend to support their proposals, details of its justification, design cost and implementation period. The Ministry of Planning conducts an initial study of the proposal and if approved, includes it in the investment plan, along with details of the implementing party.
The investment criteria for public works and projects are ascertained from an economic feasibility study for each proposal. The essential investment criterion for health and educational projects involves the harmonisation of the services with the central plans of the state, while the essential investment criterion for projects relating to irrigation, cultivation and reclamation involves agricultural potential and the social welfare of farming communities. The economic feasibility studies focus on the following matters :
After approving the project and listing it in the next investment plan schedule, the party responsible for implementing the project is determined. Particular offices, institutions and companies implement the projects on behalf of parties which benefit from the projects but do not have the resources to implement them.
The instructions governing the implementation of individual projects identify the particular minister responsible. However, increasing work loads have necessitated delegation of authority in some cases. Such delegation involves the deputies of the minister or executives of organisational units. Where public enterprises are involved, the managing director may delegate that part of his authorisation related to the supervision of the quality of implementation to a suitable senior official who would assume responsibility for checking and following up the work of contractors.
7.1. The financing of public works and projects included in the investment plan occur in two main ways :
7.2. Irrespective of the financing method, individual projects are still subject to the restrictions, authorisations and instructions issued by the central party responsible for the implementation of the project through the Ministry of Planning. Individual projects are also controlled by applicable instructions and regulations of the government accounting system, including :
7.3. The implementing party of the project organises monthly budgets to be sent to the Accounting Office in the Ministry of Finance, which prepares an annual schedule of the balances of the national development accounts. This schedule shows for individual projects, the financial balances at the end of the year, total expenditures and revenues for each project and details of the advances and retentions required under the national development plan.
The implementation of public works and projects commences with a feasibility study which examines all aspects of the proposed undertaking. The study includes technical and economic factors, geographical location, siting of the project, estimated cost, timing of construction work, method of implementation and number and qualifications of the technical and managerial staff required for the implementation and operation of the project. These aspects of the feasibility study increase in importance with major projects which require greater technical experience. In such cases the services of consulting engineers may be engaged.
8.2.1. Detailed Design and Bills of Quantities
The department responsible for the project prepares the detailed design and bills of quantities, using either its own technical staff or outside consultants. In the latter case, consultants may be engaged by direct invitation or by advertised tender. Where tenders are advertised, the various tenders are compared according to cost, time, previous experience, credit status and readiness to start the work. The successful tenderer is awarded the contract for preparation of the detailed design of the project, bills of quantities and associated technical features of the work.
8.2.2. Preparing the Tender Documents
The implementing office audits the design, technical features and bills of quantities prepared by the successful consultant. Provided there is no objection, the office makes any necessary alterations and makes sure that all conditions and instructions for project implementation accompany the tender documents.
8.2.3. Inviting Tenders for the Project
The invitation of tenders for the project may be by:
With both public and private tenders, a tender committee is established to open all tenders received and evaluate their financial and technical aspects. The committee decides on the successful tenderer who is then offered the contract for the work or project. On acceptance, the contract documents are duly signed at a mutually convenient time. Work commences, as per the terms and conditions of the contract, under the supervision and control of an engineer appointed to represent the implementing office as owner of the work.
During the tenure of the contract, progress payments and advances are made to the contractor according to the conditions of the contract. The contractor prepares the necessary records and accounts arising from work incurred as per the specifications and financial controls of the project. Periodic financial reports are also prepared so that all parties are kept informed of the current financial position of the contract. Appropriate internal controls are implemented to ensure the validity and reliability of financial data.
The Project Engineer is responsible for the quality of the work through direct supervision. In the process, samples of materials used on site are tested at external laboratories to ensure that construction standards are observed by the contractor. Quality control is further ensured by regular inspections of work in progress through site visits.
Auditing the project is done through periodic reports forwarded at regular intervals to the relevant level of supervision. The Project Engineer prepares weekly reports for the implementing office of the project which in turn, reports monthly to the Ministry concerned. The Ministry of Planning is kept informed of public works and projects through report of the ministry concerned, in order to include progress in the annual plan.
Procedures for preparing requirements for the machinery and equipment to be used in the construction of public works and projects vary according to the method adopted in implementing the project. The various methods involve public invitation, direct invitation, direct implementation and fair implementation.
With public and direct invitation, the contractor is responsible for supplying the machinery and equipment necessary for implementing the works of the project, as stated in the contract. Accordingly, the contractor chooses the most suitable way to provide these items, whether by local purchase or importing them. On the other hand, with direct and fair implementation, the machinery and equipment are supplied by the implementing party responsible for the project. Here the contractor has no liability to insure and install the machinery and equipment for the work required under the contract.
The above provisions governing machinery and equipment are generally applicable to construction materials, i.e. either obtained locally or imported. However, in order to facilitate and expedite the progress of construction, the government may provide imported construction materials from its own supplies, with appropriate adjustments to the contracts involved.
Public works and projects, irrespective of whether constructed by the state or private sector, remain under government management and control. These public undertakings are the responsibility of the government department or instrumentality concerned with that particular kind of activity, which is involved from the outset in all relevant decision making. The ongoing role of the department or instrumentality is seen, for example, in the decision to establish a new hospital, which is subject to the approval of the Ministry of Health. Similarly, the decision to establish a private university would require the approval of the Ministry of Higher Education and Scientific Research.
On completion, public works and projects are ready for acceptance and commissioning. If the implementing party is the one benefiting from the undertaking, it would commission the project and operate it provisionally, subject to acceptance tests. However, where the implementing party is not the beneficiary, a representative of the beneficiary participates in the inspection and commissioning of the completed construction.
On acceptance, the project is operated provisionally during the first stage and then operated normally at the expiration of the provisional stage. Final acceptance does not take place until the contractor has remedied all defects which have become apparent during the provisional period.
As mentioned previously, the aims of public works and projects in Iraq are to promote the public interest for the benefit of all members of the community, to develop economic and social aspects of the state and to construct public buildings and facilities for the national economy. In view of the public interest and social welfare implications of these aims, the majority of projects undertaken are not concerned with revenue generation or cost recovery. Thus in the case of educational projects, financial returns are not an issue and have no effect on the decision to establish such projects, as the overriding consideration is the development of cultural, scientific and social aspects of the state far removed from profit and economic considerations.
However, in the case of water or electricity projects, the government makes specific payments for the service provided by the projects, but such payments do not cover the establishment costs involved. Similar minimal payments are made in the case of health projects
Responsibility for the external audit of public works and projects is vested in the Board of Supreme Audit. In common with all departments and instrumentalities of the state engaged in financial transactions of the public sector, the bodies which implement public projects are obliged legally to maintain relevant accounting and related records in the prescribed manner, including the initial feasibility studies, contract administration and operation of the completed undertaking.
The Ministry of Planning is responsible for the internal control of public works and projects through procedures concerned with project financing, annual appropriations, funding increases and cost escalation. Further, the implementing body for the project is responsible for providing the Financial Ministry with statements of budgeted and actual expenditure, showing monthly and accumulated figures.
The Ministry of Planning is responsible for the internal audit of project planning. Specialist audit teams undertake the audit examination of particular sections of the project, such as agricultural planning or industrial planning. The audit and control procedures adopted by sectional audit teams include the initial review of the project, studies of economic and technical feasibility, implementation priorities in the investment plan and state of the external economy.
(a) Responsible Ministry
The ministry concerned has the responsibility for auditing the implementation of the project, scope of the work, timing of the various construction phases, accounting for the financial appropriations and supervision of contract administration, through its planning or technical departments.
(b) Implementing Body
In order to ensure that the implementation of the project is as planned, the implementing body conducts an internal audit of the construction work through its technical department which audits the monthly contract statement, progress payments, variations of work and extensions of time. In addition to the internal audit and control functions of the implementing body, complementary functions are exercised by the contracting ministry or instrumentality as owner of the project. Accrued contract payments are examined along with the monthly contract statements and compliance with contract conditions and legal requirements. The legal department also has an internal audit and control function regarding legal aspects of the project contract. This function includes advertising, the award of the contract, contract terms and conditions, the obligations of contract tenderers and validity of contract documentation.
18.1. The audit objectives of public works and projects are the same as those relating to other types of activities in the public sector. These objectives, which are detailed in the Law of the Board of Supreme Audit (1990) are :
18.2. The audit of construction projects in the public sector entails other objectives, viz.:
19.1. There are two broad approaches to the audit of public works and projects :
(a) Voucher Auditing
This approach encompasses the examination of a wide variety of documentary evidence. In addition to contractors' claims and progress payments, tendering procedures and the award of contracts are subject to audit examination.
(b) Field Auditing
This approach involves field visit to the actual work sites of the construction project in order to examine physical progress and technical features of the work implemented. Audit staff are accompanied by site engineers where necessary and have access to laboratory reports of the testing of materials and structures.
Designs of the various project features prepared by the consultants are subject to audit in order to ascertain their suitability for the purposes of the project and to determine the extent to which these designs have been incorporated in the project. Auditing designs is of great importance for projects under construction, so that faults and shortages can be detected and remedied where possible.
Estimates are continually reviewed against actual expenditures in order to check the cost of each stage of construction. The progressive review of expenditure is also necessary for progress payments to the contractor. Variations in quantities and materials are generally approved only on the condition that the total contract cost is not exceeded. However, in some circumstances extra payments may be approved, especially where such changes are essential for the successful completion of the project.
The reasonableness of the project is audited by comparing its actual costs and construction times with what is planned and expected according to the budget for the project. On some occasions actual performance of the contract may fall short of reasonable targets, as a result of the failure of the contractor to implement the work as required, or of the implementing body to plan the necessary procedures properly.
The audit of value derived from the money spent on a project involves a comparison of costs and benefits. Ideally, the investment in a project should be matched by the greatest possible benefits. A low-cost project could result in major benefits, while a high-cost project could result in few benefits. A value for money audit thus discloses what value is obtained from the money spent on a particular project.
20.5.1. The audit of the preliminaries necessary for the successful implementation of a project involves the examination of the initial planning of the contract requirements for machinery, equipment and material. Of major importance in this regard is, not only the technical expertise of the contractor, but his ability to supply or arrange for the necessary quantities and types of machinery, equipment and material.
20.5.2. In those cases where the contractor is a foreign company, the preparatory audit examines the procedures concerned with importing the necessary machinery and equipment and the logistics of transporting these items to the actual works site. Also examined are any customs restrictions on the import of the machinery and equipment and subsequent re export on completion of the contract.
20.5.3. As regards the preparatory audit of essential materials required for the project, the auditor examines the works programme, whether it is the responsibility of the contractor or the implementing body. The supply of materials must be organised in such a way that the actual construction can be proceeded with both smoothly and expeditiously. To this end, the auditor is concerned with the procedures for receiving, providing and controlling materials and also for their safe custody and physical security. Also, it is not unusual for samples of materials to be tested in order to establish their suitability for construction work.
A specialist group of auditors undertake the technical examination of public works and projects. Regular studies of the technical features of such undertakings are conducted to ensure that contract specifications and international standards are complied with during the course of construction. Where warranted, the implementing body is provided with a report certifying that this technical examination has proved satisfactory.
Auditing methods tend to vary in the operation and maintenance stages of the construction of public works and projects. During project implementation, the actual auditing may precede some aspects of construction but more commonly, auditing focuses on current construction activity. After project implementation, however, the focus of audit enquiry is on past transactions and events. In particular the auditor ascertains whether the implementation of works has been according to the technical specifications of the contract and the resultant costs.
As revenues and profits are of secondary importance in works and projects constructed primarily in the public interest, cost recovery and profit determination are not priority considerations for auditors. Further, existing audit procedures may not be suitable for that particular stage of construction.
The audit of incidental revenues generated by a particular project is the responsibility of the ministry or office concerned, while the audit of the project's engineering and legal aspects are the responsibility of specialised bodies established for that purpose.
Most contractors of major projects in the public sector are incorporated as public companies, which are also subject to audit by the Board of Supreme Audit for work undertaken on behalf of the state. The underlying audit procedures applicable to the public companies of contractors are much the same as in other public sector audits. However, some companies engaged in the construction of public projects may have special conditions written into their contract documents which affect accounting and associated provisions, such as insurance and taxation.
The public works and projects of the private sector are not subject to audit and control by the Board of Supreme Audit. Instead, such undertakings of the private sector are audited by professional auditing firms of the private sector.
The audit of public works and projects is governed by generally accepted rules, standards programmes and procedures, which are considered carefully by the auditor before commencing an audit. From time to time, however, adjustments and revisions are made in accordance with international developments in auditing. Training courses are held regularly to update the knowledge of auditing staff, particularly in the computer area where auditors are expected to know how to audit computer-generated accounting records and how to use the computer as an auditing tool.
At the end of each audit, an audit report is prepared for transmission to the ministry concerned in order to inform the ministry of any weaknesses or shortcomings in the accounts and records of the auditee. Included in the report are recommendations for the type of remedial action necessary. Such recommendations may be incorporated in the main body of the audit report or listed in a special section.
Auditing and control procedures for public works and projects necessarily involve the physical examination and verification of work in progress and completed projects. Some aspects, however, may be hidden from the auditor because of site locations or technical complexity. In such cases it is not feasible for the auditor to conduct his own physical examination and verification procedures. Consequently, the auditor is dependent on evidence presented by the relevant contractor, corroborated by the engineer in charge of the project.
A frequent problem is the presence of more than one auditing team on a project work site at any one time. This occurs when the ministry responsible for the project arranges for an internal audit at the same time as the Board of Supreme Audit is conducting the external audit. Accordingly, there is not always close liaison between the different parties involved in the various types of audit affecting a particular project.
In view of the length of the construction period, which typically exceeds one year, auditors are faced with the problem of selecting certain stages of the implementation process for detailed audit rather than extending the audit over all the stages involved. The usual procedure is for auditing to occur after project implementation, but the time lag involved may conceal inadequacies and weaknesses during construction. The problem is compounded by changes in audit staff during project implementation, on account of resignations, retirements and transfers.
The audit of public works and projects is sometimes impeded by the lack of essential information on some stages of project implementation. Contributing factors are unsuitable project staff, complicated record systems, age of the project, timing of the various phases of the audit and the unavailability of audit staff with engineering qualifications and experience. Collectively, these factors tend to impair the quality of examinations and outcomes in the audit of public works and projects.