Auditors find on diverse activities. Criticisms, findings, opinions, conclusions and/ or judgments emerge out of their labours. Leading presentations cannot be eschewed as, in the ultimate analysis, it is for the people's representatives to pass judgment on audit findings. Quality assurance of the audit findings rests upon an affirmative answer to the question whether the design of the Audit Report was well conceived from the edifice onwards, whether the tools had the cutting edge, whether the inspections were neatly executed and whether the analysis of the information, interpretation of the statistical data and the grasp of the subject stand the test of logic. The presentation has to be lucid, crisp and unbiased.
2. The auditors should draw their audit plans, set the limits in terms of period, sampling and intensity, frame the guidelines, design the pattern of audit and develop techniques of audit analysis and draft the report, sequentially. Credibility is central to an audit report. It can be achieved only when the narration is factual and relevant, the statistical data is doubly verified and the findings are supported by documentary evidence in possession. A few sentences candidly written about the limitations of the audit report e.g. documents not made available, information withheld, misleading and contrary aspects in the decision-tree and perceptual problems - will enhance the credibility and if practiced with skill, care and detachment, can help in mitigating the problems in the future. Unless and until validation of the audit finding is obvious to the legislator, media and the public in the first reading, the audit report had not fared well.
3. The task of having to audit diverse activities poses problems. It is inherent in the scheme of things that the auditor must encounter this problem in a rational manner. Past experience, similar work done elsewhere, pragmatic specialisation and specific training help to a limited extent. But, an open mind, a willingness to learn, a certain humility in interacting with auditees on aspects which they know better and forte in logic will equip the auditor with greater confidence, capability and command of the situation. The practice in India can be succinctly presented. Past Audit Reports and compendia of important findings are scanned for locating areas of special interest to Audit. Thermal stations had been buying certain equipment routinely from the shopping list of a public sector company, even though that company had taken them back from other units admitting its futility. Locating this information is easy, if past compendia are used, while planning. We have cadres, which specialise in tax audit, public sector audit and limited specialisation in construction Audit, Public utilities etc. is also attempted. A certain inflexibility in manning the audit teams became inevitable and one does worry about dilution, inadequate coverage etc. The practice of sending a senior official for supervision and winding up helps to some extent. Training has a strong presence and a quick review of a decade's experience say that it has yielded rich dividends. Junior personnel get oriented suitably and gain confidence. Senior personnel gain in knowledge and the awareness, that they know not much; that chastens them alright.
It is a virtue to be open minded, whatever be one's profession. It has to be a basic attribute for a good auditor. The less one knows, louder is his argument. Auditees have little choice about the audit visitation and try to make the best out of a bad bargain - either by ignoring them or by being nice about it. Invariably, they have to interact with auditors occupying a relatively lower position in the hierarchy. The scope for practising openness of mind has to be viewed in the above background. The audit teams, sometimes limit themselves to regularity and procedure audit with which they are familiar and leave the activity untouched. An inspection report of a diesel locomotive maintenance yard limited itself to misuse of free travel privileges, mistakes in leave accounts and the like. Nothing suits the auditee better. Some teams enthusiastically overreach themselves and come with interesting findings, which cannot be validated. A fertiliser plant stores urea in a huge silo. The bottom layer is unsaleable having become lumpy. The auditor turned down the plea that unsaleable stock has to be written off. Audit criticisms, if invalid, could demoralise the auditee, egging him to resort to deceptive and evasive tactics, as a routine counter-measure. An auditor should be open minded, not only to get at the root of the matter but also to guard against indefensible audit criticisms, which invite ridicule unto himself. He shall avoid being the catalyst for disinformation procedures.
Audit plans are almost always imposed on the audit teams; they have to improvise and work out day to day plans for aspects not covered, lest they stray into unproductive areas. More important, the principal auditor has to ensure adequate coverage of the auditees under his jurisdiction within a time frame taking manpower constraints, logistics and even the climate into account. Hence, the audit plan for the team is to be considered as a subset. Under ideal conditions, if ably directed, the sub-set will consider audit reports of the same unit in the earlier cycle and select areas and branches of activity, by exception. Activities should be translated into flow charts, for zeroing on the target. It is of little use auditing purchases by an engineering survey unit, while only that should be given prominence in auditing the centralised purchase unit. Primary documents and basic information should be called for at the earliest and the audit memoranda should be transmitted with tentative findings, fast. The audit inspection is never complete without a discussion on the spot, as the auditee is entitled to be heard. And, it is the best time to blow away the chaff.
Audit plans generally stipulate the period of transactions and activity to be covered, which is one fiscal year, often. Sometimes, a team has to audit transactions of two or more fiscal years in one go, as a cycle sequence is followed. And arrears have to be wiped off. Judgment sampling is widely practised and secret instructions have been systematised over the decades for guiding the teams within this framework. The team enjoys considerable flexibility and discretion for optimising the audit and for laying more stress on this and less stress on that, based on an immediate appreciation of the assignment on hand. It is standard practice in India to divide the work amongst the team members on the second day of audit spell. It is of interest, from the human resources angle, to know that the ardent amongst the audit teams, prefer to work at night. With none to disturb or nag, they do make a go of it. Unfortunately, that is a vanishing tribe. The intensity of audit is almost always an attribute that differs from team to team. The guidance, earnestness and leadership of the senior official influence this factor considerably. These teams are our target group in our training programmes for developing this trait, capability, knowledge and insight.
Guidelines are the edit notes of the Central office which contain valuable information on the auditee's activity, budget, financial tie-up subsidies, published data over the years and an analysis of what has to be done in field audit, and they represent an exercise of audit logic, at the design stage. The practice of issuing guidelines has worked remarkably well in India in tax audit and has been used with great advantage while ordering simultaneous appraisals of social welfare schemes in the different states of the Federal India. Guidelines help in focusing attention on specific areas, in providing an aerial view, so to say, of the activity to be audited and in arming the team with an authentic information package, which cannot be discredited by the auditee. There is scope for improving our guideline techniques.
Designing the pattern of audit is a task for the seasoned auditor. The diverse activities to be audited and the factors discussed earlier influence the pattern of audit. Manuals are of peripheral utility and past experience could be an inhibiting influence. Audit plans could be a limiting factor; the activity and related transactions could defy standard practices and guidelines could be inadequate. The team succeeds or fails, depending on the design of audit. Many variations had been tried with success. Some choose the flow chart approach. Analyse the cash book, isolate unusual items, relate them to sanction and audit the outcome. Some choose the 'Ask, Thou shall be given' approach. By eliciting replies to exhausting questionnaires, they look for self-incriminating evidence. Some choose the erratic path. Choose some activity and trail it back and forth. Some resign themselves to the 'hit or miss' approach. The more they hit, the more they lose. Witticisms apart, the secret of successful audit lies in the selection of pattern. Seasoned auditors build in versatility and unpredictability with practised aplomb, with relish. It is perhaps, no exaggeration to say that it was they who mostly contribute to audit reports.
Techniques follow the pattern and can be replicated with advantage. In the hands of the chosen few, they can be refined and honed. Familiarity with the primary records, the capability to trace and link activities with the monetary transactions, audit observations, clinical analysis, tireless cross-tracking, patient persuasion are the basic skills to be acquired by the audit teams. Directing the audit by management, by exception approach towards key areas and ordering specific checks, is the responsibility of the leader. The responsibility for auditing the decision tree is cast on him. The Indian Railways rivet the rails in branch lines and prefer welded rails in trunk routes. Slotted rails are issued for riveting. It was seen that due to difficulty in ensuring coordination with the public sector supplier of rails, slotted rails were issued for welding and vice versa. An instance of wasteful expenditure. An expensive rail welding machine was imported. The transformer should have been tailored to its needs. Import was not allowed and the welding machine and the transformer remained mismatched, upsetting the sensitive welding machine. It would weld only in fits and starts. Similar observations about a variety of activities ranging from health care to atomic energy, could be made by developing custom-made techniques. Training in this vital area, by building case studies, is an urgent need.
Audit Reports should be lucid, succinct and should recite the story with ease, marshalling facts in sequence, using statistics professionally and by giving its conclusions with clarity of purpose. Rancour and impolite and uncivil references are taboo. The target audience is the legislator, media and public in that order. Workshops can be held for exchanging ideas, analysing past reports for possible improvements and for honing the skill for expert drafting to ensure that this object is met. This is, always, a continuing exercise.
A carefully drawn audit frame, taking the above aspects into account, will preserve documentation (key material) for Audit Reports for validating audit findings.
To command credibility and to motivate reforms for efficient administation in the public sector, the SAI would need to maintain the highest professional standards, adopt practices and methodologies considered to be the most productive means of carrying out the audit task so as to assure itself and others of the quality of the audit work carried out and of the quality of its findings and recommendations.
BAU DECLARATION