External Auditing in Difficult Settings John F S Muwanga FCCA, CPA(U) Auditor General, Uganda Regional Workshop Towards Auditing Effectiveness May , Addis Ababa

Structure of this presentation Best practices in public sector external audit Auditing in a difficult setting – a framework for understanding the constraints External constraints :  Limits of audit independence  Poor financial management  Weak governance environment Response and strategies for reform

Best practices in public sector auditing Role of public sector external audit Precepts of government auditing – Lima declaration. Auditing in a difficult setting – barriers in meeting the Lima standard

Lima precepts

Limits of audit independence

The issue of audit independence Legal and administrative independence. Conditions of service and powers Factors that limit independence The Uganda experience

Poor financial management – how does it affect the performance of external audit? Poor Financial Management

Poor accounting practices Delays in bank reconciliation poor record keeping weak internal control structures poor asset management weaknesses in procurement practices

How do these factors affect external audit work? Timing of audit work Affects quality of audits due to improperly reconciled statements High risk environments. Need for more substantive testing. Inefficient use of audit resources.

Weak Governance Environment

Accountability process in the public sector Source : IFAC

Factors that adversely affect governance Lack of political will Inadequate legislative framework Weak or poorly defined accountability relationships lack of transparency in policy and decision making Loose Ethical and values framework. Poor tone at the top Poor understanding of and awareness about best practices in governance and controls

Weak governance diminishes public audit’s effectiveness Direct financial benefits Improvements in financial management, internal controls and enhanced efficiency and effectiveness in use of resources Adoption of best practices General improvement in the accountability environment and maintenance of financial discipline

Practical difficulties which weak governance creates for public audit Non-cooperation and lack of response from audited agencies Denial of information and records Classified expenditure kept outside audit purview Ignoring audit findings and recommendations

Responding to the Challenges

Limits of audit independence Strategies for response

Response to limitations on audit Independence Legal Financial Administrative

Inadequate financial resources affects audit operations Inadequate travel expense budget Shortage in essential supplies like fuel, stationery, computer consumables etc Hinders training and continuing professional development of staff

Lack of administrative independence Limited administrative powers Absence of a professional culture Difficulty in ensuring professional conduct and quality of performance Difficulty in bringing about reforms

Strategies for response Seek changes to legislation Support from IMF and World Bank Seek National Audit Office status

Poor Financial Management Strategies for response

Responding to poor financial management Result of a poor financial management culture Lack of qualified accountants Widespread fraud, waste and abuse Expectations from Audit

Influence external reforms work with the Government to bring about improvement in financial management practices make recommendations for improving financial management practices and strengthening of internal controls following up audit issues regularly organizing seminars and workshops to create awareness

Changes in audit approach and techniques risk based audit approach concentrate on those areas where the risks of mismanagement or non- compliance are high Greater use of automated audit techniques

Automated audit approach for IFMS in Uganda OAG auditor’s electronic access to central database Ability to interrogate and download data Better use of resources through better audit planning and sampling New risks and need develop IT audit capacity

Weak Governance Environment Strategies for response

Weak governance- responding to a reduced demand for accountability

Weak governance strategies Strengthen relationship with Public Accounts Committee and other parliamentary committees Recommend strengthening of internal audit and establishment of audit committees Obtain support of donor agencies and provide timely professional audit services for donor funded projects

Weak governance strategies (contd.. ) Enhance credibility : enforce high standard of ethics and professional behaviour amongst audit staff Conduct issue based audits Improve presentation and format of Audit reports Better relations with stakeholders and media Create awareness about public sector audit’s role

Conclusion Determine strategic response Decide on the short term and long term priorities Training, education and professional development of OAG staff Develop ownership for reform initiatives

Thank you for your attention !