Editor's Note: Ms. Vijaya Moorthy, (Di rector (State Receipts) in the Office of the Comptroller and Auditor General of India) participated in the Seminar on Government Auditing (Computer Auditing) held at Hachioji International Training Centre, Tokyo, Japan between 2 July 1990 to 8 August 1990. She was commissioned to write a critique of the Abridged English Version of Board of Audit, Japan's Audit Report for Fiscal 1988.
The Audit Report of each Supreme Audit Institution is necessarily related to the country's state of development, its various plans and programmes, and their implementation, the country's expenditure pattern, its management culture and the professional abilities of the Auditor.
While considering the reporting standards for Audit Report, Sections 16 & 17 of the "Lima declaration of guidelines on Auditing precepts" issued by the INTOSAI, explicitly specified the methodology for reporting and the necessity for an effective and objective presentation of facts, in a clear, precise and understandable manner. Thus Audit Reports need to be drafted with great skill ensuring that both presentation and content compel readership. This assumes even greater significance as countries move from exclusively financial audits to those which address economy, efficiency and effectiveness of governmental activities. In the light of this, overall reporting methodology assumes tremendous importance.
The Abridged Edition of the Audit Report For Fiscal 1988 of the Board of Audit, Japan provides an interesting study encompassing the above aspects, not only in terms of presentation and readability but also with reference to technique and methodology.
With regard to presentation, the report consists essentially of two parts:-
The Overview in turn highlights the following four aspects :-
1. Audit Result:
A report on the accounts audited by the Board of Audit in a particular year, in compliance with the provisions of the Board of Audit Law from the view points of accuracy, regularity, economy, efficiency and effectiveness is summarised.
2. Summary of the findings :
This constitutes a brief presentation of the audit findings reported in the subsequent chapters according to their classification under the following headings, the definitions of which will be explained in due course.
3. Verification of Final Accounts :
Next in the order are the Final Accounts of the State's revenue and expenditure for the related fiscal year, as verified by the Board of Audit as also the Final Accounts of Government -related organisations (bodies which are required to obtain the approval of the Diet for their budgets and Final Accounts for each fiscal year) audited by the Board.
4. Adjudication of Accounting Officials:
The next component of the Overview is an interestingly unique feature of the Audit Result entitled "Adjudication of Accounting Officials" working for the State Government or the Public Corporations . Thus in case such an accounting official causes a financial loss to the organisation concerned, the Board of Audit judges whether the official is responsible and if so, the Ministry or agency concerned is required to issue the orders of indemnification. The number of such cases alongwith the amount of loss caused to the Government exchequer is tabulated.
This reporting practice emphasises the concept of accountability and responsibility on the part of the accounting officials.
The second aspect viz. the Results of Audit, which have been referred to earlier, are classified as :-
1. Improprieties:
These represent matters which the Board of Audit, deems as being
In the area of Public Works, such cases of "Improprieties" are taken up each year as :
2. Opinion Presentation and Action Demands:
These are cases where the Board demanded actions or presented opinions such as when for example, it is found that a contract price is increased due to high estimates based on improper standards for computation, the Board makes a demand to the authorities for undertaking measures to correct the standards for computation. Included in these are the demands for measures of correction and improvement of improper accounting and other practices, expressions of opinion for improvements in legislation, systems or administration.
A notable feature of the Audit Report connected with action demands, is the chapter on measures taken in response to the opinions and demands presented by the Board and reported in the Audit Report of the previous year. This chapter indicates the follow-up action taken by the auditee agencies on the audit objections and has been effectively and succinctly drafted, each item consisting of three parts viz.
Thus in Japan, the Board may seek from the competent authorities, correction of deficiencies which may include improvement of procedures and revisions of law where necessary. The response is duly incorporated in the Audit Report.
3. Special Descriptive Matters :
When certain problems exist in project management and budget execution because of certain factors which seem to be beyond the control of auditee agencies, the same are categorised as Special Descriptive Matters.
4. Corrections and Improvements:
While the Board is in the process of drafting the demand for measures of improvement, the auditee agency may take voluntary measures for improvements, based on the Board's observations. These are distinctly featured in the Audit Report with the objective of serving as references for the management of projects in the entire Government.
The Abridged Edition of the Audit Report for Fiscal 1988 is a consolidated coverage of the audit findings on various departments of the Government including Civil, Commercial, Defence, Posts and Telegraphs, Railways as well as on the implementation of Official Development Assistance (ODA) Projects.
The methodology for audit consists essentially of two main parts :-
1. Documentary Audit which is an examination of the statement of accounts and vouchers submitted to the Board regularly by the auditee organisations based on the Regulations for Verification of Accounts enacted by the Board.
2. Field Audit which is conducted at the site where accounts are kept or projects executed. This includes examination of documents which are not submitted as vouchers to the Board. It also entails eliciting of opinions and explanations of the officials-in-charge. A distinguishing feature of field audit in Japan is the inspection of actual situations of construction and subsequent property management, which is not entirely verifiable from documents.
On an analysis of the techniques and methodology adopted in Government auditing in Japan, the following interesting and significant features are noticed.
1. The system of Audit of Public Works in Japan is indicative of a considerable degree of specialisation amongst the auditors. Thus apart from financial irregularities, the Board is well equipped to highlight even technical and constructional defects resulting in inefficient utilisation of public funds and implying consequent denial of benefits to the public. The Board is also empowered to conduct physical examination of the projects and comment on any deficiencies in "Construction Management" which is vital in the execution of work by a public agency. Construction Management in Japan consists of three main features :-
Interestingly, as an instrument of quality control exists a system of Photographic Control. Overall views are required to be photographed by the project executing agency before the commencement of work. Depending on the progress thereafter, the location of work, the completed dimensions, the. quality control situation at the portions which are not visible during the construction stage and the work after completion, are required to be photographed. Certain Photographic Control Standards are also prescribed for the purpose. Thus it is noticed that the audit observations on Public Works featured in the Audit Report, are extensively supported by photographs and conceptual drawings, thereby increasing the understanding and comprehension of the reader, apart from substantiating the technical accuracy of the audit comment.
Thus in view of the magnitude of budgetary allocations on Public Works considerable effort is put forth in its audit. Audit not only checks whether the works are executed in accordance with laws, regulations and the budget and whether contracting and cash accounting are properly processed, but also reviews whether decision making and processing at each stage of planning, survey and design by the administrative agency concerned, is justified.
The concept of Cost Estimation particularly with reference to the audit of construction works of roads is also characterised by a high degree of specialisation. Whether or not the estimated cost was properly decided on the basis of the design document, specification, commodity price and actual site conditions, the accurate reflection of test or survey in the estimated cost, reasons for change in design if any after the execution of a contract and revision of cost estimation, are some of aspects examined in the audit of Public Works. In addition, another interesting feature is the "Prospective Price" system in cases where the public corporations have their construction works executed by contractors. The prospective price is calculated by the concerned public agency on the basis of design drawings and specifications. It is not a mere amount of measure but an amount which the contracting officer must have calculated previously as an upper limit price which the contract amount is not allowed to exceed. The prospective price is strictly confidential. Inappropriate estimation of the prospective price could result in escalated contract price and comments on such increase are featured in the Audit Report. The details of prospective price are scrutinized by the Board with reference to the itemized details for a particular work.
2. Audit of Implementation of Official Development Projects:
The Board also audits the implementation of ODA. It conducts audit in assistance providing agencies in Japan both by documentary audit and field audit and also reviews project implementation in recipient countries.
The ODA Projects implemented by the Government of Japan are intended for the economic development and promotion of welfare of the people in developing countries and are categorised as :-
3. Computer Auditing and Computer Assisted Audit are amongst the important techniques and areas of specialisation by the Board.
As researched by the Board, as at the end of March 1989, about 3876 Computer Systems existed in various auditee agencies including Public Corporations. The applications included statistics, payroll, personnel management, inventory control, construction estimates, contract control, operations research, education and research, transport control, etc.
The scope and features of audit of computerized systems can be broadly classified as :-
(a) Audit of Computers them selves
(b) Substitutional Audit
where computers are used in sub-situation of the traditional auditing procedures.
(c) Complementary Audit
where computers are used for preparing statistical data useful for audit.
Incidentally it may be mentioned that the Board regularly surveys the position regarding computers installed in auditee agencies and the state of operating expenses and on analysing the survey results, supplies the data to the audit divisions.
In conclusion, it may be stated that a study of the system of Government Auditing in Japan definitely reflects an increasingly significant emphasis common to many Supreme Audit Institutions, indicating a marked shift from exclusively financial audits to those which address economy, efficiency and effectiveness.
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Mr. C.G. Somiah, the Comptroller and
Auditor General of India delivers the |
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New Delhi, October 31,1990 |
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The International Training Programme on "Audit of Rural Development Programmes" in session |
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New Delhi, October 31,1990 |