This element of AQMS of leadership and direction alongwith its sub-elements is explained in the following flow diagram:
These sub-elements are discussed in subsequent sections.
2.1 The head of the SAI and the SAI top management set the tone for the organisation. This ensures the performance of SAI is consistent with highest professional standards.
2.2 Improving audit quality continuously through various policy measures remains the most important role for the top management. Quality policy is the overall intention and direction related to quality that is formally expressed by the top management of an SAI. ‘SAIs should ensure that their human and financial resources are used in the most efficient way to secure the effective exercise of their mandate. To this end, SAI management will need to develop and institute appropriate policies and measures to help guarantee that the SAI is competently organized to deliver high quality and effective audit work and reports.’ (Prague recommendations on Quality Management – Functioning of SAIs in the context of European integration)
2.3 SAI top management should set a clear and consistent tone at the top by establishing the highest professional standards of integrity, independence, objectivity and excellence in public auditing. SAI top management conveys to staff at all levels of the organisation the importance of the SAI’s policies and professional standards and an understanding that adherence to these policies and professional standards is critical to achieving SAI’s mission.
2.4 2.4 SAI top management will have to steer the process of re-examining and refining the SAI’s audit methodologies, processes and procedures and all other institutional factors affecting SAI’s fulfillment of its mission and goals and adherence to its professional standards and core values.
2.5 SAI top management, through its actions, will have to make clear that mechanisms are in place to ensure quality and high performance and to promote continuous improvement, such as internal audits, internal quality assurance reviews and peer reviews, and they are treated as crucial to SAI’s capacity to meet its strategic goals and objectives. Setting up and implementing Quality Management Policies are the primary responsibility of the top management. The policies affect (i) the SAI as an organisation; (ii) the staff who work in the SAI, especially those who are directly involved in audits or who provide essential support to audits, and (iii) the audit processes itself. Policies for an effective quality management system should rely on the SAI’s quality audit processes and structures as an institution, and on the development of the full potential of auditors as professionals.
2.6 One of the foremost tasks of strategic planning is to form a ‘Vision’ of where the SAI is headed, so as to provide long-term direction, delineate what kind of enterprise the SAI is trying to become, and infuse the organization with a sense of purposeful action. Very early in the strategic planning process, SAI’s top management needs to pose a set of questions: “What is our vision for the SAI? Where should the SAI be headed and what should its future technology-resource-product-client focus be? What kind of an organization do we want to become?” Drawing a carefully reasoned conclusion about what the SAI’s long-term direction will be, should push top management to take a hard look at the SAI’s external and internal environment and form a clearer sense of whether and how its present operational needs will change over the years. The strategic vision has a much greater direction-setting and strategy-making value.
2.7 Forming a strategic vision involves selecting the operational arenas in which to participate, putting the SAI on a strategic path, and making a commitment to follow that path. SAI top management has three discernible tasks in forming a strategic vision and making it a useful direction-setting tool:
2.8 Communicating the strategic vision down the line to middle and lower echelons of SAI management is almost as important as setting the organization’s long-term direction. People need to believe that the SAI management knows where it’s trying to take the organization and what changes lay ahead both externally and internally
2.9 The conceptual distinction between a mission statement and a strategic vision is fairly clear-cut: Where the chief concern of a strategic vision is with “where we are going”, the term mission statement, as it is commonly used, tends to deal with an SAI’s present scope- “who we are and what we do.” The mission statement that most SAIs include in their annual reports or post on their websites almost always stress what the SAI’s present products and services are, what types of stakeholders it serves, and what capabilities it has. They typically say precious little about where the SAI is headed and its future scope and plans.
2.10 A strategically revealing mission statement should incorporate three key elements:
2.11 A mission statement highlighting the boundaries of the SAI’s current scope of activities is a logical vantage point from which to look down the road, decide what the organization’s makeup and stakeholder’s focus needs to be, and chart a strategic path for the SAI to take.
2.12 The SAI needs to identify the core values which should provide the essential characteristics of the organization and individuals that work within it. These values should reflect the fundamental characteristics and criteria on which delivery of the vision and mission is based. In discharging their responsibilities, the government auditors need to observe the principles of serving the public interest and maintaining the highest degree of integrity, objectivity, professionalism and independence. These principles should be the cornerstone of the responsibilities of the auditors. The mission, vision and core values need to be developed to ensure that they truly reflect the goals and aspirations of the SAI in relation to its mandate and those who work in it.
2.13 The INTOSAI Auditing Standards (Auditing Standards, Auditing Standards Committee, INTOSAI (Code of Ethics and Auditing Standards approved by the XVIIth Congress of INTOSAI in Seoul 2001, p.28) state:
To ensure that high quality (audit) work is done, appropriate standards must be followed. The objectives of the particular type of work or the particular assignment should dictate the specific standards that are followed. Each SAI should establish a policy on which INTOSAI standards, or other specific standards, should be followed in carrying the various types of work that the organization conducts to ensure that the work and products are of high quality.
2.14 As part of its internal quality assurance mechanism, the SAI should ensure that applicable standards are followed on both pre-audits and post-audits and that deviation from the standards which are determined to be appropriate are documented.(Ibid, p.40).
2.15 The basic principles for auditing standards are basic assumptions, consistent premises, logical principles and requirements which help in developing auditing standards and serve the auditors in forming their opinions and reports. Auditing standards are important because:
2.16 There is an obvious need for an SAI to adopt professional and ethical standards concerning such matters as propriety and integrity, independence, objectivity, constructiveness, proficiency, reasonable care and confidentiality in planning, conducting and reporting on the audit work. SAI should also ensure that its staff is aware of the standards, which govern the audit.
2.17 Strategic Planning in the context of SAI is the process of identifying the long-term goals of the audit organisation and the best possible approach to be adopted for attaining these goals. The Plan should outline the goals that need to be pursued to realize the Vision and Mission of the audit organisation specify some major milestones for SAI and identify strategic measures to attain them. The plan should also identify the supervisors and managers for each goal. Preparing and implementing a Strategic Plan including the ‘Vision’ and the ‘Mission Statement’ is intended to provide further impetus to the development of the SAI and in building quality in its work. Besides helping in establishment of goals and delineating ownership and responsibility, the plan should provide the broad contours for medium and long-term progress of the organisation.
The following paragraphs provide a framework for the strategic plan:
Vision, Mission and Values
2.18 Each SAI needs to establish a Vision and Mission for the future, which should define the kind of organisation it wants to be and what it wants to achieve and deliver. These should set out the purpose and direction of the SAI and should be included in the Strategic Plan of the organisation. These should be expressed in simple terms to be understood by all concerned and should provide a clear road map for the future direction of the SAI. The SAI needs to identify the core values which should provide the essential characteristics of the organisation and individuals that work within it. A strategic plan should be long term in nature but be reviewed annually.
Targets and Milestones
2.19 The Vision and Mission should be translated into long, medium and short-term targets against which organization’s performance and progress can be measured. These targets should refer to both administrative improvements which might reflect greater efficiency in carrying outs its work and improvements in terms of the impact of its work such as savings delivered and improvements to public services.
2.20 Each major objective/ goal should be broken up into sub-goals and the plan should outline specific strategies to attain them. These specific strategies should be linked to a set of key efforts that should connect with SAI’s day-to-day work. SAI should have an integrated strategy to focus attention on important issues affecting the government, including specific programme areas and operations.
2.21 The challenge should be to focus on high-risk areas in government programmes and schemes that are vulnerable to fraud, waste, abuse, and mismanagement. To facilitate implementation, the functional wings/units in the SAIs draw up annual programmes to reflect the requirements of the strategic plan. Resource commitments and specific activities will be incorporated in these programmes.
Organizational commitment and staff involvement
2.22 Once the overall direction and targets have been set, SAI’s commitment to them should be complete. Every target should be assigned to an organizational unit with specific individual responsibility for achieving the target in question. The responsible officials should have sufficient authority to be able to overcome any difficulties that may arise. The SAI should have proper dissemination of the organizational strategy and the progress reports so that the staff is genuinely involved in its delivery and they contribute to the planning efforts. To facilitate this, there should be wide dissemination of ideas, information and good practices within the organisation.
Performance Measurement
2.23 SAI should develop a rigorous performance monitoring and review system to measure progress in delivering targets in line with expectations. The senior management should receive regular, timely and useful information for effective remedial action to be taken. The strategic plan should be reviewed annually for it to remain valid, relevant and useful. SAI should update its strategic plan at periodic intervals to make sure that efforts remain a vital and accurate reflection of the major issues facing the country.
Establishment of Policy Unit (Adapted from the practice followed by SAI India)
2.24 A dedicated policy unit may be set up within the SAI which would have the overall responsibility of managing the strategic planning process. The unit should provide advice to the top management of the SAI on the implications for the SAI of changes in government policies and other external and internal factors which may arise from time to time and which may affect the achievement of the SAI’s strategic goals. The strategic plan and the planning process should have sufficient flexibility to respond in time and opt for changes required to meet the situation.
Audit Advisory Board (SAI India)
2.25 SAI may constitute an Audit Advisory Board with eminent experts in the fields of finance, economics, management, social sciences, engineering, IT, public administration, etc. to give advice to the head of the SAI and its top management on all important matters relating to public audit. The Board may also suggest improvements in modernizing the auditing concepts and techniques, including the functioning of the audit department, for overall improvement in the audit quality.
2.26 The plan should reflect the strategic working relationships built with other national and international government accountability and professional organizations, including other national audit offices. These relationships help to broaden and leverage the SAI’s institutional knowledge and experience, which would, in turn, improve its service to the public.
2.27 The senior management of the SAI should oversee the overall strategic planning process and ensure that the strategic plan provides a solid framework for enhancing the effectiveness of the audit institution as an accountability mechanism.
Audit Methodology
2.28 The quality management system designed by the SAI should provide reasonable assurance that appropriate methodology, tools and techniques are in place, useful and applied consistently. Some of the key instruments to be employed by the SAI to derive the quality assurance for audit methodology are: internal reviews/quality inspections and peer reviews, lessons learned philosophy and methodology review and update mechanisms.
2.29 The audit methodology should be supported by manuals, guidance and other materials, which should be in the nature of quality control documents. SAI should have in place detailed Manuals and guidelines for two clear streams of audit, Performance Audit and Regularity Audit (Financial and Compliance) to help guide the audit teams in carrying out audit. Functional guidance, and procedures and tools specific to the specialized audit streams like Revenue audit, commercial audit, information technology (IT) audit, environmental audit etc. should also be prepared by the SAI to support manuals for each stream.
2.30 The audit strategic plan is distinct from SAI’s overall strategic planning. The strategic planning for audits may be dovetailed into the overall strategic planning of the SAI.
2.31 The objectives of strategic audit planning are to:
2.32 The key deliverable of the strategic planning process is a document, which is prepared for the SAI management to enable it to assess critically the proposed planning strategy for overall consistency with the SAI’s strategic objectives. It will also assist the management to make appropriate resource allocations and an assessment of the strategic planning process.
2.33 The strategic plan should be supported by working papers that include:
2.34 Subjects for audit should be carefully selected in terms of priority, materiality and risk assessment results, having regard to the audit resources available. Visibility of the subject, overall estimated audit impact, previous audit coverage and auditability of the subject are also important factors guiding the selection.
Approval of the strategic plan by SAI top management
2.35 The strategic plan for audits, in pursuance of the strategic goals and objectives, will be approved by SAI top management.
Assurance of quality in the selection process
2.36 The strategic planning process should have a sound quality assurance ensuring a very high standard of work. Quality assurance in strategic planning is enhanced by:
2.37 SAI’s auditing standards, policies and procedures should be designed to ensure that SAI undertakes audit work that is within its jurisdiction and authority to audit and that SAI manages the risks involved in performing that work in an efficient and effective manner, including any risks that may be involved in gaining access to the records for carrying out the audit work.
2.38 Risk-based management approach involves managing the costs of achieving quality and making the level of investment to ensure quality throughout an engagement commensurate with risks. This approach would establish clear responsibility and accountability at all levels for ensuring quality throughout an engagement, including designing an audit programme, staffing, stakeholder involvement, developing audit findings, and finally reviews of audit engagement process.
2.39 SAI may use a risk-based management approach to help manage the wide ranging portfolio of work that SAI has to perform in keeping with its mandate and to meet expectations of a diverse range of stakeholders, such as legislators, planners, international agencies, media and other interest groups. Risk-based management approach should help SAI to determine the level and degree of SAI top management, stakeholder, and expert involvement in its audit engagements from initiation of work through finalization of audit report and its issuance.