The Chamber of Accounts The Republic of Azerbaijan Compliance Audit on the Project of Improvement of Population’s Drinking Water Supply The Chamber of Accounts The Republic of Azerbaijan

New Law enacted on September 5, 2018 Outlined the boundaries of the Chamber of Accounts as Supreme Audit Institution in external public financial control; Identified its status; Increased its powers; Improved financial, performance and compliance audits and other areas of its activity. Identified the status of the Chamber in control system

Draft Project of “Compliance Audit Guideline” Article 2.2 of the new Law of the Republic of Azerbaijan on the Chamber of Accounts; INTOSAI P1 Principles (Founding Principles, the Lima Declaration); ISSAI 100 (Fundamental Principles of Public-Sector Auditing); ISSAI 130 (Code of Ethics); ISSAI400 ( Fundamental Principles of Compliance Auditing); ISSAI 4000 (Compliance Audit Standard); Common principles of International Audit Standards.

Compliance audit included 3 stages: Compliance Audit on the Project of Improvement of Population’s Drinking Water Supply Compliance audit included 3 stages: 1. Audit preparedness and planning 2. Conducting audit and collecting evidences 3. Recording the outcomes

1. Audit preparedness and planning Question 1 According to which criteria do you determine audit planning time and how much time do you spend on it? How many days are the optimal time?

Goal of the audit The aim of the audit was adopted as rendering an opinion on the compliance of the use of funds allocated to the Project on “Improvement of Population’s Drinking Water Supply” to existing legislation and achievement level of the intended goal.

Audit Planning was conducted including the following stages 1.1. Getting necessary information on the activity of audited government agency 1.2. Initial considerations 1.3. Risks 1.4. Internal Control 1.5. Defining criteria

1.2 Initial considerations 1.2.1. Project–estimate documentation and expertise 1.2.2. Procurements 1.2.3. Construction Works

1.3. Risks In the process of preparation and expertise of Project- estimate documents; In performing procurement procedures; In construction process ; In proper financial management .

1.4 Internal Control elements Monitoring Control activity Risk management Control environment Information and communication Information and communication

1.4.1 Control Environment Analysis demonstrated that control system was established in a sense. So, it brings us to the conclusion that the reasons of existence of these risks and high probability of their realization are connected with employee’s professionalism, knowledge and performance level of tasks.

1.4.2 Risk management Management didn’t carry out special planning on the implementation of the project; As a result, it didn’t identify risks associated with the implementation of the project.

1.4.3 Internal control activity Duties were segregated among these departments: Management; Department of economy and accounting; Internal audit department. However , subdivisions didn’t organize their work effectively according to the functional classification which ultimately led to shortcomings.

1.4.4 Information and communications Foreign information and communication system didn’t fully ensure data exchange between Management and other entities.

1.4.5 Monitoring Monitoring should be conducted by internal audit department -structural division of the Management. BUT It should be noted that, though a year passed after conclusion of the Project, department hasn’t conducted internal audit on the Project yet.

Internal Control Assessment If these functions on audit covered Project were conducted effectively, realization of above mentioned risks would likely be at a low level. Question 2 How does the quality of the internal control in the auditee support you in determining the audit subject and performing the audit?

1.5 Defining Criteria Legislative acts; The goal of the state program.

2-3.Performing audit and collecting evidences, Recording Outcomes Evidences collected were compared with criteria and following results were achieved: Despite sufficient time for open tendering procedure, Management signed single source procurement contract; Contracting entity signed procurement contract with 5 different subcontractors without the consent of the customer; Via thorough study of the documents, physical examination of audit objects by experts it was found out that 1,6% less water spring was installed than the number envisaged in Project-estimate documents. It resulted in failure to supply 6200 people for 4 villages with drinking water.

Question 3 Which opinion would you render on the mentioned findings of audit in current situation?

THANK YOU