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Modernization of Audit Methods

Mr. ABDUL MOUN'EM AL - GHAREEB SAQER, KUWAIT

The vast expansion in governmental activities, both in economic and social fields has resulted in large scale growth of projects and thereby in public expenditure. The trend naturally calls for a review of plans and programmes taken up by the various production units for the purpose of achieving the objec­tives of the Administration with the help of the available resources.

In order to succeed in executing its plans, there should be a control system with a view to ensure that the determined objectives are in fact being carried out with the least expenses and within the set frame work. Administration is like the head and tail of a coin of which the first is planning while the other is control.

Thus, control may, generally, be defined as one of the principal functions of the Administration which may be used in the preparation of plans, objectives, policies and programmes, in verifying that they are being executed with the least costs, that the avail­able opportunities are efficiently utilized, that the projects are progressing towards the achievement of the objectives, and that cor­rective measures wherever necessary are taken.

Control is a constant and continuous function which goes side by side with the different phases of planning and execution irrespective of changes in the scope of work, content and staff of the unit itself. One of the most important characteristics of control is that it is functional intervention rather than an authoritative power. This intervention aims at the verification of proper performance and efficient execution of Schemes and Projects according to the plans in all the stages.

Financial control, in particular, aims at verifying the optimum utilisation of the available resources of the unit so as to achieve the objectives for which the unit is estab­lished. In order to have an effective control in this respect audit should be carried out on the mobility of funds. It begins with planning, followed by execution and finally with the follow-up process.

The objectives of financial control are many. Control is recognized as a multiple of activities with which administration and accountancy functions are integrated, rather than as a definite function. In order to build an integrated frame for the financial control, it is necessary to configurate and implement a group of scientific principles or standards which may assist jointly in the proper appre­ciation of the concept of financial control.

Although the necessity of financial control is recognised, yet this control includes multiple and continuous developing meth­ods. Development of the control concept should be from the formal accountancy control angle to a fundamental control, where interest centers on the economic utilization of the available resources.

Control development may be summarised as follows :

(1)    Accountancy Audit Over Items :

This is aimed at controlling the disposition of funds in accordance with the budget­ary allocation, verifying that funds were paid to the beneficiaries, payment documents were correct and the prescribed procedures were followed in different stages. With vast expansion in Governmental activities and expenditure, this type of control has become difficult.

Further, mere verification of the cor­rectness of expenditure and documents furnished is not sufficient. It is necessary to ascertain that the expenditure has brought forth the desired objectives.

(2)    Control Utilizing Financial Proportions:

This method is considered as one of the oldest analytical and control means to study the growth level of the projects and judge results based on activities. Any recorded figures in the budget or final accounts, does not imply or represent any indication in itself. It is through comparisons and correlations with the same, or other, budgets that the importance of these figures can be appreciated.

The financial proporations method assists in controlling the different activities of the project, recognizes orientation, projects the effect of each activity on other activities, with the least time and efforts, and urges the very important role of morale in controlling personnel, as they take the role of orientation and instruction and furnish the officers of the Administration with information and data collected from comparison of figures, during the account process, examination or review, or expressing a technical opinion in that re­spect.

(3)    Control by Objectives :

This type of control aims at perform­ance evaluation of the unit and commenting on the extent to which aims have been achieved or could have been achieved for the purpose of improving performance. Control by objectives is a comprehensive control which judges the whole work of the unit and the dimensions of its success or failure in achieving the objectives. It encourages creativity and innovation in dispositions. The ultimate moral is judged by the results achieved. Control by objectives differs completely from control by regulations and systems, as this method depends entirely on the predetermined objectives of the unit. If these objectives are clear, definite, declared and interpreted with a work programme, together with the clarification of the responsibility levels and performance standards, control becomes more effective and provides the Administration with the best results.

The following points are relevant in order to modernize this type of control:

(i)    Control requires performance meas­urements which, necessitate the establishment of uniform standards and patterns for use in evaluation of the levels of performances. The previous performance may serve as a guide to determine the standards and indicators, notwithstanding the fact that they might embody certain dificiencies in efficiency. However this should not be meant as the disregard of the previous performances, because financial control includes guidance of the current and future operations based on the past experiences. Actually, there are new methods utilized in the establishment of new standards, as the previous performance may be looked upon as the criterion which explains directions and guides expectations. Similarly, performance in similar establish­ments, industry or any other sector, may be followed as a general criterion or indicator. Moreover, the endorsed budget statement may be employed as a criterion for performance by which actual results are evaluated in the light of the expecteu results emerging from the statement itself. However, the problem is not confined only to the numerousness of the standards and indicators, because the setting and selecting of standards and indicators utilized in the evaluation of performance are considered part of the larger problem which involves the attainment of an incentive for the staff to exert their best efforts to achieve the required objectives. The best control system, which may be utilized, is that which is designed so as the itemized dispositions will represent the interests of the indi­viduals themselves as well as the interests of the establishment. This may be achieved by taking into consideration the staffs degree of ambition, and finding the suitable incentives to achieve the future expectations and success. Therefore, a sufficient amount of flexibility should be practised in setting standards. The standard should basically, determine the situation of the performance under the prevailing conditions.

(ii)    One of the basic factors for the success of any financial control is the existence of a communication network for information represented by a group of reports, prepared regularly according to the line of authority and responsibility. For an effective control, the Administration should have a mechanism to ensure that the objectives are analyzed in detail on the basis of job responsibilities in the establishment as a whole, rather than as a part. It should be capable of facilitating the identification of errors at the appropriate time. There should be a well established reporting system to facilitate comparison of the actual results with the preset standards. The reports themselves should be prepared in a way which may facilitate the decision making process, as they diagnose the actual prevailing situations compared with the plans. These reports should be processed quickly lest the errors or deficiencies should assume serious proportions.

(iii)    Financial control should be flexible, and should be capable of adjustment to changing situations. Control in itself is considered a behaviour and an effective financial control depends upon the individual's behaviour within the unit rather than upon automatic tools arid procedures for the execution of financial control system. The method of setting and selecting standards and indicators should be matched suitably with the behaviour of the unit staff. While strict objectives and standards may frustrate enthusiasm, loose objec­tives and standards may lead to laziness. Therefore, the behavioural aspects in any effective financial control system should be taken into consideration.

(iv)    The utilization of computers should be taken into consideration while modernizing control methods. This requires setting a complementary organizational plan to con­trol inputs, operations and outputs. A generation of staff should be raised and made ca­pable of comprehending the advantages of these computers in order to get the best use of them.

BALI DECLARATION