1. SAI INDIA 10 th ASOSAI Research Project: “Audit to Detect Fraud and Corruption: Evaluation of the Fight against Corruption and Money Laundering” V – Meeting (Malaysia) 1

2. BASIC INFORMATION – SAI INDIA  The Comptroller and Auditor General (CAG) of India is an authority, established by the Constitution of India under Chapter V - Article 148 – 151.  Audits all receipts and expenditure of the Government of India and the state governments, and also maintains the accounts of state governments.  The reports of the CAG are considered by the Public Accounts Committees.  Depending on the objective of Audit, they are broadly classified as - Compliance Audit, Financial Attest Audit, Performance Audit. 2

3. MANDATE  Anti- Corruption.  Examinations of systems for detection and prevention of fraud and corruption is an integral part of all types of audits.  Cases of presumptive corruption are raised as red flags and notified to the specialized agencies.  Anti- Money Laundering.  No direct mandate - limited to sharing information about the presumptions if any, raised during field audit and co-operating with the Anti-Money Laundering Agencies of the country. 3

4.  Emanates from the Constitution of India – Articles 148-151.  CAG’s Duties, Powers and Condition of Service Act – 1971.  Regulations on Audit & Accounts – 2007.  Auditing Standards – 2002.  CAG’s Manual of Standing Orders (AUDIT) – 2002.  Standing orders on Role of Audit in relation to cases of fraud and Corruption.  The CAG of India is the head of the Indian Audit and Accounts Department.  Managed by approximately 650 officers of Indian Audit and Accounts Service  Over 48,000 employees across the country.  The CAG’s Office is located in Delhi and is Head Office of IAAD.  Supported by 133 field offices spread across India. MANDATE 4

5. A - BEST PRACTICES OF PREVENTIVE ROLE IN ANTI- CORRUPTION.  OBJECTIVES.  aim to effectively combat corruption by audit & audit reporting.  aim to promote accountability, transparency and good governance.  aim to strengthen a culture of robust internal controls.  aim to act as effective /satisfactory deterrent. 5

6.  BENEFITS  Risk minimization.  Strengthening of the Internal Control.  Improvement in the overall governance mechanism.  Developing a networking relationship with other enforcement agencies. Preventive Role 6

7.  TYPICAL EXAMPLE OF BEST PRACTICES.  Auditing Standards of SAI India  As per the Auditing Standards (2nd Edition, 2002 – Chapter 3, para 6) the auditor, in determining the extent and scope of the audit, should study and evaluate the reliability of internal control.  Financial Audit controls that assure the accuracy and completeness of accounting records.  Compliance Audit controls that assist management in complying with laws and regulations.  Performance Audit. controls that assist in conducting the business of the audited entity in an economic, efficient and effective manner, Preventive Role 7

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9.  PRE-REQUISITES  Understanding the entity.  Evaluate the efficacy of the existing control environment in preventing opportunities of corruption.  RESOURCE  Creation of a database.  Strategy/directions to the field audit parties.  Skill development.  TIMEFRAME  This is an ongoing commitment as reflected in strategic planning.  OUTCOME  To safeguard the financial interests of the State & to uphold/promote public accountability. Preventive Role – Lesson learnt 9

10.  RISKS  Non implementation of audit recommendations.  Quality assurance and quality control.  Non -commitment of senior management to develop a robust control environment.  Skill development and regular skills up gradation of auditors.  LINKED DOCUMENT www.cag.gov.in Auditing standards – www.cag.gov.in/html/auditing_standards/htmwww.cag.gov.in/html/auditing_standards/htm Comptroller & Auditor General’s Manual of Standing Order (Audit) Second Edition – 2002. Standing order on Role of Audit in relation to cases of Fraud and Corruption http://saiindia.gov.in/english/home/Our_Process/Audit_Methology/Guidelines_Notes/Book_Fraud_Corrupti on.pdf http://saiindia.gov.in/english/home/Our_Process/Audit_Methology/Guidelines_Notes/Book_Fraud_Corrupti on.pdf Internal control mechanism and internal audit system in the Horticulture Department - http://www.cag.gov.in/html/cag_reports/arp/rep_2006/civil_chap_5.pdfhttp://www.cag.gov.in/html/cag_reports/arp/rep_2006/civil_chap_5.pdf Internal Control in Public Works, Ports and Inland Water Transport Department- http://www.cag.gov.in/html/cag_reports/karnataka/rep_2009/civil_chap4.pdf http://www.cag.gov.in/html/cag_reports/karnataka/rep_2009/civil_chap4.pdf Preventive Role – Lesson learnt 10

11.  OBJECTIVE  Inter-disciplinary approach : we aim to fight with corruption with auditing.  Cooperation with other institutions involved in fighting against corruption.  evaluate and report on the adequacy of systems in place and competence with which the management has discharged its responsibility in relation to prevention, detection, of corruption. B - BEST PRACTICES OF DETECTIVE ROLE IN ANTI- CORRUPTION. 11

12.  BENEFITS  Examinations of systems for detection and prevention of fraud and corruption is an integral part of all - Compliance Audit, Financial Attest Audit, and Performance Audit.  Raising of red flags.  Including the cases of presumptive corruption in the audit findings.  Constructing inventory of corruption opportunities/prospects. Detective Role 12

13. Illustrative fraud and corruption in contracting for goods and services (Inventory) Bribery and KickbacksChanges in Original Contracts Duplicate PaymentsCollusive or Carter Bidding Conflict of InterestDefective Pricing False InvoicesFalse Representation Splitting of PurchasesPhantom Contractor Pilferage of Public AssetsTailored Specifications Fraudulent supply ordersIncoherent supplies. 13

14.  TYPICAL EXAMPLES OF BEST PRACTICES  Audit can help in preventing corruption by pointing out areas where opportunities for corruption exist.  Therefore, audit should be alert to the shortcomings in the systems and controls that are likely to provide an environment conducive for corruption.  Any indication that an act of corruption may have occurred should cause the auditor to confirm or dispel such suspicions.  Auditor’s attitude of professional skepticism assumes particular importance.. Detective Role 14

15.  PRE-REQUISITES  Awareness of the indicators for corruption at the audit planning stage.  Risk assessment.  Developing audit objectives and designing audit procedures based on – Risk Assessment.  RESOURCE  Auditors should have inventory of skills to deal with presumptive cases of corruption  Power to have access to all records in a timely manner.  Engage experts or consultants, should the technical nature of audit so demands.  Code of Ethics.  TIME FRAME  Ongoing Commitment. Detective Role – Lesson learnt 15

16.  OUTCOME  Networked relationship with other enforcement agencies.  Developing audit criteria in the light of good management practices and the lead practices.  Increased awareness about environment conducive to perpetuate corruption and devising/recommending steps to curb/minimize those areas.  RISK  Improper risk assessment at the audit planning stage.  Due care to be exercised to reach an audit conclusion.  Inadequate documentation.  Lack of cooperation from anti-corruption agencies, management of the entity. Detective Role – Lesson learnt 16

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18.  Linked Document  Ministry of Defence Department of Defence Production http://www.cag.gov.in/html/reports/defence/2010- 11_15PA-OF/chap1.pdf http://www.cag.gov.in/html/reports/defence/2010- 11_15PA-OF/chap1.pdf  Auditing standards – www.cag.gov.in/html/auditing_standards/htm www.cag.gov.in/html/auditing_standards/htm  Standing order on Role of Audit in relation to cases of Fraud and Corruption http://saiindia.gov.in/english/home/Our_Process/Audit_Methol ogy/Guidelines_Notes/Book_Fraud_Corruption.pdf 18

19.  OBJECTIVE  Prevent corruption or to suggest steps for minimizing opportunities for corruption.  Audit Reports to serve their intended purpose and Government derives their full value.  Improving overall transparency and accountability.  BENEFITS  Building awareness of the risks of corruption.  Generate public awareness - that effective internal controls are in place and working.  Constructive recommendations to plug-in holes that can provide opportunities for corruption. C - BEST PRACTICES OF REPORTING & FOLLOWING UP ROLE IN ANTI-CORRUPTION. 19

20.  TYPICAL EXAMPLES OF BEST PRACTICES  Credible reporting is dependent on competent relevant and sufficient audit evidence.  Reporting presumptive corruption is more sensitive than other common audit findings.  Observation to be supported by competent and relevant audit evidence, and be independent, objective, fair and constructive. Reporting Role 20

21.  PRE-REQUISITES  Unlike common audit findings -corruption is very sensitive both to auditee and auditor.  To ensure the accuracy of the report, auditor should reconfirm all the facts.  The concept of competence, relevance and reasonableness of evidence is utmost.  RESOURCE  Quality assurance and Quality control.  It is thus, be imperative that the auditors are provided training for skill development - to refine their concept of objectives of the audits and the procedures for each stage in the audit cycle.  TIME FRAME  Ongoing Commitment. Reporting Role – Lesson learnt 21

22.  OUTCOME  Networked relationship with other enforcement agencies.  Coordination between audit and anti-corruption institutions  It creates an environment of the "tone at the top“.  RISK  Credibility of SAI can be at stake.  Accuracy of report, enhances the accuracy of witness testimony.  Safe Custody of material evidence – for later use by ACA’s. Reporting Role – Lesson learnt 22

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29. Thank you. Praveen Kumar Tiwari - Principal Director O/o CAG Of India. Kulwant Singh -Director, O/o CAG of India. 29 Q & A …