The audit of public works is performed by the Board of Audit of Japan from the viewpoints of compliance, economy, efficiency and effectiveness, like in auditing of other government programmes in general.
Still another approach to the public works audit is to examine the appropriateness of a project at each stage by taking notice of the progress of the project. This is a method of auditing a project, following a series of its stages: planning, design, cost estimation, bidding, contract, construction, and inspection and receipt of the completed work. When a project is of a large scale and executed through two or more construction contracts, this method is applied to each of these contracts and, at the same time, the basic idea can be applied to the project as a whole.
This article will introduce the Japanese way of auditing public works taking notice of the stage by stage approach.
Planning
Since public works must be executed on the basis of a reasonable plan, auditors at first must pay their attention to the planning stage. Major points of notice at this stage include:
In examining the above, the project's feasibility, economy and superiority to alternatives, etc. are of course examined. The plan is usually based upon the following:
Therefore, the examination can be initiated from reviewing these basic data, which are the conditions to determine the, plan. The concord between these conditions and the planned dimensions must be confirmed, whereas the appropriateness of the planning entity's survey results must be also reviewed.
When a project is extending over a long period of time, the conditions on which the plan is based may sometimes change as the socio-economic environment changes. In such a case, it is necessary to revise the plan, and auditors must ascertain whether necessary changes are made to the plan.
Design
The alignment of a route of highway, railroad etc. and the design of a structure are the domain of technical specialists, and it is a difficult task for auditors to determine whether they are proper. However, at least the following must be done by auditors:
Cost Estimation
A prearranged price of a public works project is generally decided based upon the results obtained by summing up the total construction costs using the applicable cost estimation standard which has been prescribed by the agency itself.
The prearranged price is a highest possible price in that a tender price higher than it cannot win the contract.
Audit of cost estimation is, in short, basically to ascertain the adequacy of cost estimation standard and its application. When an entity does not have capable cost estimation staff, or when a special design is employed and an applicable standard is not available, cost estimation may be entrusted to external specialists, or may be determined on the basis of contractors' estimated prices. In these cases, too, the adequacy of the prearranged price must be examined through ascertaining specialists' cost estimation in light of various available materials or through comparing with similar construction cases.
In order to ascertain the adequacy of the cost estimation standard, a research on actual conditions of many constructions is a useful tool. Items to be included vary according to the objective of the study; they may be construction method applied, equipment used and hours operated, quantity of material used, formation of work force, time required for work, etc.
In applying a cost estimation standard, judgment of worksite condition often differs from person to person. Care must be paid to this point. Further, since the process of cost estimation is a series of complicated calculations, it is important to check key points by ascertaining whether calculated results are reasonable in light of common sense so as to ensure absence of miscalculation.
Bidding and Contract
(1) Competition
It is desirable that a bidding be done in as competitive a manner as possible. Accordingly, except for construction works which require special capability and other special cases, such a manner as may restrict competition, for example, a contract in which only one contractor is invited for the bidding, should not be employed. Therefore, auditors must ascertain whether the agency concerned has gained a full benefit of competition.
(2) Examination of Qualifications
In determining the contracting party, it is important to consider not only a bidder's tender price but also his technical competence, past business showings, reputation, etc. In Japan, only those contractors who have been registered with the ordering agency can be invited for bids. The grading of each contractor is made at the time of registration. Thus, the examination of contractors' qualifications at each bidding is usually unnecessary. Auditors must ascertain the adequacy of auditee's procedures and practices for examining qualifications, grading and registration.
(3) Contract Documents
A written contract has a standardized format which covers all the major points. Accordingly, auditors usually place an emphasis on the adequacy of such documents attached to a written contract as design drawings, specifications, etc. It is important to ascertain whether these documents provide for the necessary and sufficient conditions to ensure that the construction be done as the agency concerned expects.
Work execution
Inspection of work execution is aimed at ascertaining whether a construction work is executed and a structure is completed as designed, i.e., according to design drawings and specifications. As to a completed structure, its position, shape, size and strength must be confirmed. They are supposed to have been confirmed by the agency's own inspection before paying contract money. Auditors, however, must be careful because such inspection ^s sometimes omitted by the agency due to its manpower shortage or other reasons.
Even under the post-audit system, auditors often go to a site of works under construction to perform their duties. This is because, under post-audit system, audit is initiated after a payment is made, and, as regards public, works, a partial prepayment of contract price is sometimes made. It is difficult to ascertain after completion of works whether the construction method employed was as prescribed. However, an audit performed during the Execution of construction work can easily do this. As mentioned above, a research on actual conditions of work execution is useful for audits of cost estimation.
In addition, by way of precaution against the case that the site under construction cannot be inspected, it is necessary to have proper pictures of work execution taken and preserved. Usually such practice is the obligation of the contractor imposed by the specifications.
(1) Types of Plans
Not in the field of audit of public works projects alone, the client organizations and the project sites to be audited are so large in number that well-planned audit works are essential in carrying out our responsibilities. Separate audit plans, thus, should be prepared for efficient and effective management of our audit assignments. Audit plans of the Board of Audit are classified into three categories; master audit plan, operating audit plan and individual audit plan.
(2) Master Audit Plan
Master audit plan is prepared annually and represents a fundamental strategy for our audit works. In this plan, the important items of audit (e.g. types, contents, implementing agencies, etc. of the public works projects to be audited with high priority), allocation of available audit resources to each item, basic policy for developing audit findings and so on are made clear.
(3) Operating Audit Plan
In an operating audit plan, schedules of field audit, ways of developing audit findings and reporting techniques are concretely laid out on the annual, semi-annual or quarterly basis, and also the periods of actual field audits, staff numbers of field audit teams, target dates for completing audit work segments are stated.
Besides the field audit, the Board is conducting the documentary audit at its office. Though the documentary audit should be performed on a continuous basis, the most appropriate time of doing the documentary audit and the subjects to be audited with particular emphasis are decided depending on the scheduled field audits.
The establishment of effective audit system within the Board is also necessary since our audit works should be done systematically on a cooperative way among auditors, not independently by each of the audit staff.
(4) Individual Audit Plan
Individual audit plan in which the project sites and items to be audited, itinerary of field audit, etc. are to be shown is made up for every field audit team. This itinerary should be finalized as soon as possible, and delivered to the client organization, prior to the field audit, in order to enable them to prepare audit-required information and cooperate with auditors to a maximum possible extent. This is also considered necessary to let the client organization fill out the audit information sheets which the Board designated according to the nature of audit, and present them to the audit team concerned in advance or at the sites where the field audit is performed.
(5) Factors to Determine Audit Plans
When preparing the audit plans, such factors should be considered as:
In consideration of effective audit, the Board is performing the field audit every year or every two years in principle over an important audit object such as the headquarters and major branch offices of the client organizations. On the other hand, other objects such as unimportant units are audited so far as the audit resources permit. It may be said in this connection that our recent audit coverage is slightly over 30% for the important audit objects, and about 2% for others.
Documentary Audit
(1) Supporting Documents
The documentary audit is performed at the Board's office, as mentioned before, with the statements of accounts and supporting documents being submitted by the client organisations. The design books, project cost estimation books and the like are usually submitted to the Board as supporting documents, thus enabling the auditors to review in advance the economy and efficiency with which an implementing agency carries out its public works projects, to a considerable extent. Besides these documents, the Board is empowered to demand the client organizations to furnish to the Board such other reference materials as deemed necessary in carrying out its audit works. Needless to say, oral explanations by the responsible officials of the client organizations are requested whenever necessary.
(2) General Information
The Board makes a practice of obtaining beforehand a variety of general information related to the projects in question such as a long-range whole programme, cost estimation manual set by the client organizations in charge, etc. in addition to the specific documents related to the individual project. In a broader sense, the audits by the Board start with assessing the legality with the materials obtained as general information. After getting a good grip of outline of the public works projects concerned in this way, the auditors go deeply into the detailed review and analysis of project plan, design and cost estimation, and evaluate the economy, efficiency and effectiveness of the projects as a next step.
It is important that the auditors try to get the various information concerning the project in performing such a review, analysis and evaluation. This means to understand the appropriate technical information and recent development in the related areas.
Field Audit
(1) Purpose and Meaning
The field audit is done by sending the auditors to the field offices of the client organizations and the project sites concerned. This audit is performed mainly because there are some points impossible to make sure with the submitted documents alone and there are considerable needs to obtain the detailed oral explanations directly from the responsible officials of the implementing agencies. The field audit also gives a good chance for the auditors to resolve and assure the points in question which were raised in the process of the documentary audits. A field audit is usually done for a period of one or two weeks by an audit team composed of about four auditors. One of the team auditors is appointed the chief who is assigned the role to supervise and assume the control of the staff members of audit team.
Such field audits are duly given a relative importance especially in case of audit of the public works projects which, by its nature, includes the tasks to inspect and confirm on the spot how the works have been actually constructed. Among others, inspection of structural shape of the finishings for construction can not help depending on visual observation and actual measurement on the spot. The auditors may also point out the problems related to plan and design of the works, by understanding the actual construction conditions on the spot which can not be recognized by the documentary audit alone. Thus, the field audit is quite beneficial for our audit work.
(2) Preparatory Work
When performing the field audit, the organic utilization of the results of documentary audits should be made. At least, main points of inspection should be selected beforehand. However, the Board sometimes can not expect its staff members to fully conduct preliminary survey, even in case of a sampling method, because of its relatively small number of staff on one hand and a large number of audit objects on the other hand. Even so, if the audit staffs possess adequate technical proficiency for the tasks required, the Board can obtain the desired results of audit.
Reporting
It is desirable for the audit institutions to prepare the reporting manual in order to bring about the conclusions from the audit results and make up the audit reports. The reporting manual may clarify what to include in the audit report as improper matters, for example, it makes possible the avoidance of inconformity which may result from the judgmental and other differences among individual auditors and guarantees uniformity in coverage and reporting the audit results.