10 th ASOSAI Research Project “Audit to Detect Fraud and Corruption ： Evaluation of the Fight against Corruption and Money Laundering” 6 th ARP Meeting- ANKARA SAI India

Part 1 SAI and improving anti- corruption measures in international level

1. How to establish or coordinate between SAI and international organizations for detecting corruption?  Encourage bilateral and multilateral exchanges of views.  SAIs should cultivate a permanent exchange of information and experience  Developing a networking relationship with other enforcement agencies for sharing information and training of personnel on a reciprocal basis.

Part 2 SAI and improving anti-corruption measures in national level

 Investigative powers in SAI mandate !!  How to develop anti-corruption standard for public servants?  How to develop anti-corruption code of conduct for business communities?

Part 3 SAI and improving anti- corruption measures in organization level

Planning stage  The highest risk area of corruption !! o contracts of service/procurement, o inventory and asset management, o sanctions/clearances, o performance information, o revenue receipts, cash management, o and other areas involving public-private interface. o (all above are illustrative only)

Planning stage  How to detect corruption in the highest risk area? o Auditors should carry out an independent risk assessment and prioritize/strategize their audit planning. o Based on the risk assessment, the auditor should develop audit objectives and design audit procedures so as to have reasonable expectations of detecting irregularities arising from presumptive cases of corruption.

Stage of Formulating Audit Program  Red flags for anti-corruption. o At the commencement of each Audit, information about o fraud and corruption awareness, o adequacy of internal controls, o detection and prevention policy and related environment o including any instances of fraud and corruption noticed since last audit and o any action taken on such instances including further strengthening of internal control systems; o is collected from the audited entity management.

Stage of Formulating Audit Program o During the course of audit, the audit team/officers are vigilant (professional skepticism) and seek explanations/clarifications, if they come across possible fraud or corruption indicators. o Some indicators (red flags) for possible fraud and corruption (illustrative) in the Procurement and contracting of goods and services;

Stage of Formulating Audit Program  Requirements defining stage: Inadequate needs analysis; Inadequate information about potential suppliers; Inadequate review of existing and required inventory; Unduly short supply period; Someone other than the user defines the user requirements; and Undue involvement of senior officers.

Stage of Formulating Audit Program  Bidding and selection stage: The specifications are not clearly defined; Very limited number of offers are received; Suspicion about conflict of interest; Evidence of early receipt of information by some contractors or suppliers; Request for proposal is not properly advertised; Exceptions to the tender deadlines;

Stage of Formulating Audit Program Changes in the bids made after their formal receipt; Lowest responsive bidder is not selected; Contractor or supplier submits unrealistic bid indicating collusion or bid rotation; Rebid results identical to original bid; Successful contractors or suppliers use competitors as sub-contractors or sub-suppliers; and Justification for single source procurement is inadequate, etc.

Stage of Formulating Audit Program  Contract performance and evaluation stage: Changes in contract result in the large increase in the cost of goods and services; Changes made without adequate explanations; Unwarranted contract extensions; Complaints about quality of goods and services received; Inadequate inspections and quality assurance of goods and services received; Evidence of overcharging and duplicate billings; Dubious invoices; Contract repeatedly awarded to one contractor; and Unduly high labor payments, etc.

Stage of Formulating Audit Program  Accounting records: Missing vouchers; Production of photocopies of documents instead of originals; Alterations and erasures in accounting records; Any unusual accounting entries; Discrepancies between control accounts and subsidiary accounts; Discrepancies between predicted figures and actual figures during analytical review procedures.

Stage of Formulating Audit Program  Performance information: Performance information about delivery of goods and services, assets creation, etc. not supported by original documents and downstream data; Theoretical calculations not supported by actual measurements, muster rolls, inspection notes, quality reports etc.; Non-production of basic records, viz., asset register, muster roll, measurement books, etc.; Non-availability of transparent evidence of expenditure and receipts into government account; and Inconsistency between financial and physical information about progress of scheme/work.

Did your SAI have fraud indicators? If your SAI have fraud indicators, how to develop them ?  Yes, SAI India has fraud indicators.  Fraud indicators are developed while applying normal auditing procedures during regular audit or fraud examination by being alert for situations and environment conducive for fraud,  For example; control weaknesses, inadequacies in record keeping, errors and unusual transactions and results, which could be indicative of fraud and corruption, improper expenditure and lack of probity ; and  Focusing audit strategies on the areas and operations prone to fraud and corruption by developing high risk indicators for fraud.

Audit Techniques and methods  Anti-corruption complaint mechanism in SAI  Complainants can address their complaints directly to the Head of Audit formations in the Field offices or to the SAI of India directly.  SAI India being a public authority is under the preview of Right to Information Act – 2005, wherein any citizen can ask for any information about the audit processes or administration within the SAI.  our website lists out details of the relevant authorities to home the complaints regarding anti-corruption can be addressed.

 Continuous two way interaction and strengthening and open communication environment between SAI and the audited entity during the entire audit process.  Any complaint so received or any information received which indicates towards red flags is considered to be material and is acted upon in a time bound manner. This is either taken care in a special audit or becomes a part of the risk assessment factor while planning for the next audit depending on its gravity.

Strengthening of whistle blowing system / complaint redressal mechanism.  by welcoming such information and acting on them firmly, in the meanwhile keeping the identity of the source confidential.  Further SAI India also substantiates and establish the facts as provided by the whistle blower or complainant by corroborating it in the field audit. Thus the facts are established with a rigorous process of audit and are backed by key documents.

Forensic audit units  We do not have forensic audit units however they are need based and specially constituted audit teams in case of detection of fraud/corruption.  SAI India has a dedicated Regional Training Institute; one of the nine Regional Training Institutes situated throughout the country. This institute caters to the training requirements of Indian Audit & Accounts Department in some specialized courses viz. "Audit of Fraud, Fraud Detection Techniques and Digital Forensics".

Investigative audit units.  SAI India do undertake investigative audits. However, they are part of our regular auditing procedures.  SAI India doesn’t have special or specific investigative units.  As a part of continuous capacity building of the human resources within the SAI, we partake continuous training to our auditing personnel’s which help them train in the investigative auditing techniques and procedures.

Fraud auditing standard  Yes, SAI India have Auditing Standards which are as applicable to fraud auditing as well.  These standards provide minimum guidance to the Auditor that helps determine the extent of auditing steps and procedures that should be applied in the audit and constitute the criteria or yardstick against which the quality of audit results are evaluated.  The auditing standards of the INTOSAI have been suitably adapted with due consideration of the Constitution of India, relevant Statutes and rules for the auditing standards for the Supreme Audit Institution of India (SAI).

The following are the reporting standards for fraud etc. (Illustrative) { Auditing Standards – Second Edition 2002 / Chapter IV – Reporting Standards / No – 9 }  When auditors conclude based on evidence obtained, that fraud or an illegal act either has occurred or is likely to have occurred they should report relevant information.  Whether a particular act is, in fact, illegal may have to await final determination by a court of law.  Thus when auditors disclose matters that have led them to conclude that an illegal act is likely to have occurred, they should take care not to imply that they have made a determination of illegality.

 In reporting material fraud, illegal acts, or other non-compliance, the auditors should place their findings in proper perspective.  When auditors detect fraud, illegal acts, or other noncompliance that are not of materials nature, they should communicate those findings to the auditee, preferably in writing and should refer to such communications in their report  Auditors should document in their working papers all communications to the auditee about fraud, illegal acts, and other noncompliance.

Utilization of audit findings  Management is responsible for taking timely and appropriate steps to remedy fraud or illegal acts that auditors report to it.  When fraud or an illegal act involves assistance received directly or indirectly from another government or agency, auditors may have a duty to report it directly (to the other government/agency) if management fails to take remedial steps.  Further, the important Audit Reports and audit findings are presented as case studies to various wings of SAI for education and awareness of audit teams towards possibility of such cases in their audit domain.