Audits please

All state organisations, just like private companies, are required to prepare annual financial statements, and get them audited by an external auditor. The external auditors are required to examine, inspect and review the accounting data and the financial entries in the organisation. While external auditors mostly engage in the verification of the financial statements, performance audits and compliance audits are also necessary elements in the government ministries and other public sector institutions. 

External Audit

The independent external party, the auditor, carries out an audit of the financial statements of the organisation. The financial statements are mostly the income statement, balance sheet, and the cashflow statement, and the notes to the financial statements. The external auditor will offer an opinion against the reporting framework, which in the case of public sector, is the IPSAS – International Public Sector Accounting Standard. 

In this process, the internal controls surrounding the accounting system will also be examined, so that the reliability of the financial data can be ensured. 

Performance Audit

The proper utilisation of human, financial and other resources need to be regularly assessed in all government institutions. Within this process, the optimum relationship between the output of services or other results, and the resources used to produce those services need to be measured, in order to gauge the efficiency. Further, the effectiveness will also need to be measured by assessing the performance of organisations in relation to achievement of the policy objectives, and the operational goals. Finally, the acquisition of resources in the right quantity, of the right quality, and within the right time and place at the lowest possible cost, need to be measured as well. 

While carrying out public sector infrastructure investments, like harbours, the public has to be assured that it is carried out with the least cost possible. And that the project is completed within the initially agreed time frame, while it is also constructed to the best quality and, design wise, that it is user friendly and convenient for the intended users. 

Internal Audit

It is an important requirement to have an independent and effective internal audit team within every organisation to ensure that objectives are effectively accomplished, and whether the affairs of the organisation are carried out as per the laws and regulations. 

As per the Institute of Internal Auditors, the internal audit department also helps government institutions in bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.

In the Maldives, the Minister of Finance has the authority to create the internal audit functions at all public institutions, as per the Public Finance Act. While some bigger government ministries have the internal audit function, there are still many ministries and independent state institutions without this important function. 

With the Decentralisation Act in place, all atoll councils are also required to have an internal audit function within them. And in order to make the internal audit function effective, strong and independent audit committees are required to oversee the work of the internal audit, and also address the issues highlighted in the audit reports. 

Most of the recent frauds and corruption cases can be linked to weak internal controls, and the non-existence of strong internal audit function within the state organisations.

While it is the responsibility of our leaders to design and implement internal control systems like Enterprise Resource Planning (ERP) to prevent, detect and rectify fraudulent activities, enough has not been done to develop the much needed capacity in audit departments. The internal audit department has sometimes been one where the least favourite staff or managers of ministers or heads are transferred to. This should not be the way forward.

The administration needs to probe these gaps and plug every conceivable point of wrongful access and they cannot do so with the current attitude of overlooking these processes and depending on personalities who can flip-flop between just warming seats and overreaching. With the democratic credentials that the administration, and their leaders, often flaunt in front of their constituents it is time to,  figuratively of course, put the money where the mouth is.