RTI, MUMBAI / CH 21 STRATEGIC PLANNING AND SELECTION OF THE SUBJECTS DAY 2 SESSION NO.3 (THEORY) BASED ON CHAPTER 2 PERFORMANCE AUDITING GUIDELINES

RTI, MUMBAI / CH 22 Learning objective In the previous sessions we have discussed the salient features of the Performance Auditing, Performance Audit Cycle, Difference between Performance Audit and Regularity Audit. We have also discussed auditing standards and mandate.

RTI, MUMBAI / CH 23 Cont… Today in the theoretical session we will discuss:  Definition of Strategic Planning  Vision Mission of SAI India  Objectives of strategic planning  Procedure for strategic planning  Performance audit of whole or part of programme  Selection of governance and people-centric subjects  Working papers for Strategic Plan  Inventory and sources of data/information for strategic planning

RTI, MUMBAI / CH 24 Cont…  What are the factors guiding selection of subjects  Identifying risks & Materiality of risks  Information feedback to the strategic planning process  Approval of the strategic plan by SAI top management  Stand Alone Reports  Entity cooperation  Annual operational plan  Assurance of Quality in the selection process

RTI, MUMBAI / CH 25 Definition Strategic planning  Is the process of determining the long term goals of the institution and the best approach for attaining them  Consists of strategic goals, strategic objectives and strategic measures to attain them

RTI, MUMBAI / CH 26 Definition  Strategic goals are mission statement,  Strategic objectives are more specific and detailed statements  Strategic measures are the means to attain strategic goals and objectives

RTI, MUMBAI / CH 27 Vision of SAI India  To promote excellence in public sector audit and accounting services towards improving the quality of governance

RTI, MUMBAI / CH 28 Mission of SAI India  To enhance accountability of the executive to the Parliament and State Legislatures by carrying out audits in the public sector and providing accounting services in the States in accordance with the Constitution of India and laws as well as best international practices  Where entrusted, to provide technical guidance and support to local bodies including Panchayati Raj Institutions to enhance their accountability

RTI, MUMBAI / CH 29 Long Term mission Statement of SAI/ its field offices to include Long Term mission Statement of SAI/ its field offices to include  goals to be achieved through the performance audits,  statements of detailed objectives expected to be accomplished through performance audits and the  subjects of performance audits to be carried out in pursuance of the strategic goals and objectives.

RTI, MUMBAI / CH 210 The objectives of strategic audit planning The objectives of strategic audit planning  To provide a firm basis for the SAI management to give strategic direction for future audit coverage;  To identify and select audits with the potential to improve public sector accountability and administration;  To provide a platform for communication with agencies and the legislature on SAI audit strategies;  To produce a work programme that can be achieved with expected/available resources;

RTI, MUMBAI / CH 211 Cont…  To understand entity risks and take them into account in audit selection; and  To provide a basis for SAI accountability.

RTI, MUMBAI / CH 212 Procedure for strategic planning  All field offices after setting the strategic goals and objectives, the data on entity containing, budget papers, programme papers, plan documents, annual reports, parliamentary debates and reports, media concerns, research and reports of international agencies, follow-up and leads from the past audits, etc. should be analysed on the parameters of risk, materiality, significance, visibility, coverage, etc. to select subjects for performance audits to be carried out over the strategic plan period.

RTI, MUMBAI / CH 213 Cont…  SAI top management may conduct brain storming meetings with the Accountants General from time to time in respect of audit strategic and annual operational plan, and risk assessment to select the subject which addresses the SAI’s concerns for high risk programmes and activities.

RTI, MUMBAI / CH 214 Working papers for Strategic Plan  A description of the entity and its environments;  An assessment of the risks to good performance of the entity’s programmes and activities;  A summary of the long-term strategic view of SAI performance audit directions in each entity;  Recent SAI audits, recent and proposed inquiries by the legislature, and entity evaluations and internal audits;  A list of potential areas for performance audit; and  A list of audits proposed for the strategic plan period with the basis for their selection.

RTI, MUMBAI / CH 215 Inventory and sources of data/information for strategic planning  Documents of the entity  Parliamentary interest  Academic/ special research  Past audit reports  Media coverage

RTI, MUMBAI / CH 216 Cont…  Websites  Special focus groups  Entity interests and specific requests  The Accountants General should maintain a directory of sources of data on the entity and their programmes.

RTI, MUMBAI / CH 217 Selection of subjects for strategic planning  It is not always necessary to conduct performance audits of the entity or the programme as a whole.  Select a mix of Performance Audit subjects covering either the programme or activities of the entity comprehensively and the subjects for which the scope and audit objectives are confined only to significant aspects of the programme or activities.  The selection of the components or parts of the programme may be guided by the materiality and risk profiles

RTI, MUMBAI / CH 218 Cont…  Example: in case of performance audit of a hospital, only the maintenance and utilisation of diagnostic equipment or patient care issues could be selected for performance audit  The subject of the Performance Audit may be selected cutting across various departments or entities. This will provide a platform for performance audit on a theme or thrust area over a cross-section of entities, who are entrusted with the responsibility for the programme, activity etc.

RTI, MUMBAI / CH 219Cont…  It may also select topics for which there are either no budgets or there are insignificant, or whose materiality cannot be determined with reference to expenditure, receipts or assets and liabilities only. Yet, the subject or the deficient performance could affect a large or vulnerable section in a significant manner. Most of these issues may relate to governance or good governance.  There is no bar to conduct Performance Audit of programme concurrently. Example: ‘retention price scheme for fertilisers’, ‘issue of permanent account numbers by Income Tax Department’, ‘computerisation of post offices’, etc

RTI, MUMBAI / CH 220 Cont…  Select critical cutting-edge subjects for performance audits in the context of policy changes. The Performance Audits of such subjects could be undertaken singly or in generic form when they are at the early stage of implementation. examples of such subjects are liberalisation of economy, privatisation, sale of assets, private finance initiative, public- private sector partnership, introduction of structural changes, major changes in industrial or export- import policy, etc.

RTI, MUMBAI / CH 221 Cont…  Assessing risks to achieving value for money forms a key input for the selection of topics for performance audit. However, it is considered along with other criteria, namely, overall estimated audit impact, financial materiality, significance, visibility, previous audit coverage and auditability of the topic to prioritise topics for performance audit.

RTI, MUMBAI / CH 222 Cont…  Assessing risks to achieving value for money forms a key input for the selection of topics for performance audit. However, it is considered along with other criteria, namely, overall estimated audit impact, financial materiality, significance, visibility, previous audit coverage and auditability of the topic to prioritise topics for performance audit.

RTI, MUMBAI / CH 223 Considerations for Risk assessment of the Audit area/Issues  Once subject is chosen, further risk assessment of the audit areas/issues within the topic helps focus on key issues in the individual audit. Some considerations are:  Financial Materiality  Significant of a Topic  Visibility of a Subject  Past Performance Audits as well as Regularity Audits  Estimated impact after Performance Audits  Coverage  The stage of the programme development

RTI, MUMBAI / CH 224 Identification of Risk factors  Inherent Risks: Examples of entities/ activities which are inherently more risky: where a new activity or technology has been introduced, where there are complex laws and regulations, occurrence of unusual events, frequent changes in the scope of the activity, multiplicity of interested parties, a controversial social and political debate surrounding the issue, etc  Risks associated with the stage of development:In the development stages, it will be particularly important to examine if the management has set measurable, operational objectives, which clearly identify how the programme will contribute to the organisation’s objectives.

RTI, MUMBAI / CH 225 Cont  Control Environment Risks : The programmes with multiple levels of execution,reporting and accountability relationships may be assessed from the point of view of possible weakness in control environment risks.  Risks associated with the stage of development:. In the development stages, it will be particularly important to examine if the management has set measurable, operational objectives, which clearly identify how the programme will contribute to the organisation’s objectives.

RTI, MUMBAI / CH 226 Cont  Risks assessment as per programme analysis: Programme risk analysis over various stages of the programme, inputs, processes, etc. can provide a good structure for identifying risks. It can act as a thinking aid while identifying risks to value for money in an entity/programme.  Materiality of the Risks:After identification of the risk factors that operate in the entity/programme, it is important to assess their materiality judged on the intensity of risks and their possible impact. The existence, intensity and impact of the risks would need to be considered in tandem while prioritising audit focus.

RTI, MUMBAI / CH 227 Cont  The risk factors can be attributed to the different forms of inputs, processes, information systems, accountability relationships, outputs and outcomes on the basis of the perceived weakness in the design parameters, organisational structure, information system, transparency, criteria or means adopted for monitoring and review etc.

RTI, MUMBAI / CH 228 Basic questions to be addressed in Risks Analysis  What can go wrong?  What is the probability of it going wrong?  What are the consequences?

RTI, MUMBAI / CH 229 Prioritisation of selected subjects  The prioritisation of selected subjects and phasing over the strategic plan period will be necessary in the light of risk and materiality and available SAI resources. Though the selection involves subjective and qualitative judgment, the thumb rule for prioritisation is to be guided by the materiality multiplied by risk parameters.

RTI, MUMBAI / CH 230 Feedback from previous strategic plan, implementation and follow-up Entity/government documents budget, accounts, annual reports, performance budgets, evaluation reports, plan documents, prgogramme documents, surveys and evaluation reports, etc. Media reports, articles Field audit works-performance and financial regularity audit, Entity requests and interest, major policy shifts; Parliamentary/legislature debates/ proceeding including PAC/COPU/Estimates/Standing committee report Audit advisory committee and Steering group proceedings, etc. Reports by multinational/international agencies; and Performance Audits by other SAI’s and other Principal Auidt Offices. Academic and social research reports, RBI reports Performance audit strategy plan Subjects for Performance audits and calendar of events/milestone INPUTS OUTPUTS

RTI, MUMBAI / CH 231 Approval of Strategic Plan by SAI Top Management  Strategic plan documents forwarded to SAI headquarters should include;  The strategic plan for performance audits, in pursuance of the strategic goals and objectives, prepared by each Accountant General will be approved by SAI top management. The plan document should include;  Strategic goals and strategic objective set for the office.  Risk assessment of all programmes or activities of the entities operations.  Executive summary containing a gist of the strategic plan including categorisation of the types of subject selected for performance audits

RTI, MUMBAI / CH 232 Cont…  List of subjects suggested for selection of performance audits along with the calendar containing milestones form the stage of planning to the final printed report.  Detailed background role for selection of the subjects and prioritisation with reference to the time schedule suggested for conduct of performance audits

RTI, MUMBAI / CH 233 Cont  Tentative planning of resources and time and matching of resource required with the available audit resource  Tentative assessment of the required skill, in-house availability of technical skills and expertise for the selected performance audits,

RTI, MUMBAI / CH 234 Cont…  Comprehensive list of subjects reckoned for selection,  A directory of data and information collected by the Accountant General, forming the basis of strategic planning under distinct categories  Assurance memo on strategic planning in the prescribed format.

RTI, MUMBAI / CH 235 Entity Co-operation  Comprehensive list of subjects reckoned for selection,  A directory of data and information collected by the Accountant General, forming the basis of strategic planning under distinct categories  Assurance memo on strategic planning in the prescribed format.

RTI, MUMBAI / CH 236 Assurance of Quality in the selection process  Quality assurance in the strategic planning is enhanced by maintenance of a comprehensive data and information on the entity, transparent applications of techniques and loss for selection of subjects and their prioritisation.  Through technical inspection and peer review of the quality of strategic planning documentation along with the entire process of performance audit.  Managed by competent staff with special aptitude and training will further enhance the quality assurance.

RTI, MUMBAI / CH 237 Stand Alone Reports  Rather than the existing system of presentation of all performance audit reports, which are included in the annual or performance audit volumes of the reports of the Comptroller and Auditor of India generally presented in the budget session, each performance audit report will, hereafter, be presented to the Parliament/state legislature in stand-alone volumes throughout the year, as per the pre-determined schedule included in the strategic plan document and not in an open ended manner.  The Accountants General will be expected to liase effectively with the Government and the secretariat of the Parliament and legislature to fulfil this objective.

RTI, MUMBAI / CH 238 Session Summary In this session we discussed:  Definition of Strategic Planning  Vision Mission of SAI India  Objectives of strategic planning  Procedure for strategic planning  Performance audit of whole or part of programme  Selection of governance and people-centric subjects  Working papers for Strategic Plan  Inventory and sources of data/information for strategic planning

RTI, MUMBAI / CH 239 Contd.  What are the factors guiding selection of subjects  Identifying risks & Materiality of risks  Information feedback to the strategic planning process  Approval of the strategic plan by SAI top management  Stand Alone Reports  Entity cooperation  Annual operational plan  Assurance of Quality in the selection process